<PAGE>
 
                                 UNITED STATES
                      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 MARCH 31, 1997
                                             --------------

                                      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 NUMBER: 333-11979

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

       Delaware                                      22-3351399
       --------                                      ----------
     (State or other jurisdiction of                 (I.R.S. Employer
     incorporation or organization)                  Identification No.)

     1407 Broadway, Suite 1801                       10018
     -------------------------                       -----
     (Address of principal executive offices)        (Zip Code)
     

Registrant's telephone number, including area code:  (212) 704-0002
                                                     --------------
Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to Section 12(g) of the Act:  COMMON STOCK, $.01
PAR VALUE AND CLASS A COMMON STOCK PURCHASE WARRANTS
 
     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 ((S)229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the 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 ]

     Aggregate market value of voting and non-voting common equity held by non-
affiliates as of June 23, 1997: $21,132,698  (includes all common equity,
whether or not registered under the Securities Act of 1933, as amended)

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

     Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:  As of June 15, 1997
the number of shares of common stock outstanding was 4,290,000 shares.
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                                     PART I
ITEM 1. BUSINESS.

OVERVIEW

   The Company was formed in February 1995 and designs, manufactures and markets
high quality, cut and sewn, popularly priced junior, "missy", and large size
fashion and basic knit sportswear for women.  The Company was founded by
individuals with extensive experience in apparel manufacturing, operations,
sales and merchandising.  Since its inception, the Company has dedicated its
time and resources primarily to the development of two sets of product lines,
basic sportswear and fashion sportswear.

   Sales of basic sportswear comprised approximately 50-60% of the Company's
revenues in the fiscal year ended March 31, 1997.  In the production of basic
sportswear, the Company operates primarily as a domestic manufacturer  which
substantially controls or owns all aspects of its production capability, known
within the industry as "vertical integration."  The Company believes that this
vertical integration positions the Company among the few apparel manufacturers
in its market with the ability to control and manage the entire manufacturing
process from the conversion of yarn into fabric to the completion of finished
apparel.  The Company believes it is able to realize significant cost savings
through its retention of responsibility for the manufacturing of its own fabric
(although not actually manufacturing itself).  As a result, the Company believes
it can sell high quality merchandise to price sensitive discounters and mass
merchants at prices competitive to those of imported goods.

   Management believes that vertical integration as a domestic manufacturer of
basic sportswear allows the Company to deliver good quality competitively priced
merchandise to customers significantly faster than the delivery time on goods
shipped from overseas.  Because of the Company's ability to produce goods more
quickly than those of its competitors who import products, the Company's retail
customers can conserve capital by purchasing less initial inventory, reduce
markdowns by holding smaller quantities of non-moving merchandise, and increase
sales by rapidly restocking fast-selling items.  Management believes that the
Company's ability to deliver good quality, competitively priced merchandise in a
short time frame has allowed it to obtain as customers many of the nation's
leading discount retail outlets, although no assurance can be given that these
relationships will continue or be expanded.

   The second key merchandise product line which the Company has pursued, which
comprised approximately 40-50% of the Company's revenues in the fiscal year
ended March 31, 1997, is fashion sportswear.  In producing its fashion
sportswear, the Company follows more traditional manufacturing processes
utilized in the apparel industry, namely the purchasing of fabric from outside
vendors.  The fashion sportswear product line generates a higher gross profit
margin than basic sportswear due to the differentiation of product and reduced
competition.  In its fashion sportswear production,  the Company loses its
competitive advantage of converting its own fabrics, however, management
believes that its long standing relationships with buyers and 

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management of its retail customers and its overall merchandising and design
skills allow the Company to successfully compete in the fashion sportswear
business, although no assurance of such success can be given.

   The Company's sales efforts are organized based on the merchandise category
and/or customer, and are divided into "Missy"/Large Size, Young Large Size,
Imports, Mail Order and Mass Merchants. There can be no assurance that these
sales efforts will be successful or that the Company will not determine to add
additional categories or eliminate some or all of the divisions denoted above.
Indeed, since the Company's formation, it has added one such category and
eliminated another.

   Although management is pleased with its success to date in selling basic
sportswear and fashion sportswear, and believes the Company will continue to
benefit from substantial focus on those areas, a longer-term opportunity for
expansion will be the growth and development of sales of imports.  Part of
management's long-term plan is to continue to expand its importing activities
which represented approximately 21% of the Company's revenues for the fiscal
year ended March 31, 1997.   There can be no assurance that this plan will be
successfully implemented or, if implemented, result in profits to the Company.

   The Company attempts to maximize its competitive advantage through its market
focus, product design, and merchandise.  The Company targets the major national,
regional and specialty chains whose volume demands attract them to manufacturers
who can produce quality merchandise in high volumes at low cost within specified
delivery schedules.

   The Company generally focuses on popularly priced clothing, a segment of the
apparel industry which management believes is experiencing faster growth than
the industry as a  whole.  The Company believes, although it has no quantitative
evidence thereof, that demographic trends have shifted consumer spending habits
and apparel expenses have become a smaller proportion of personal expenditures
for the "baby boom" population born between 1945 and 1964.  Management believes
that these consumers are required to shift more of their disposable income to
the payment of mortgages, children's education and savings.  As consumers have
less money to spend on clothing, management believes they are shifting their
apparel spending to discounters and off-price retailers.  They are also
purchasing more basics that can be worn for more than one season and have lower
risk of becoming out of style in the year following purchase.

   The Company sells fashion and basic sportswear to large size women's
departments.  Management believes that this market will grow due to the aging of
the population and the tendency of older people to be  overweight, although
there can be no assurance of this.

   The Company also will respond to what management believes to be the growing
trend among retailers for "quick response" whereby the retailer rapidly
determines consumer preferences and shifts inventory in response to these
preferences.  Quick response involves shortening the production cycle, improving
productivity, reducing inventory and accelerating the 

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feedback of consumer preference to their manufacturer. Management believes that
most major retailers are working with their manufacturers to speed restocking
time and create efficient ways to reduce response time on orders.

   In March 1997, the Company completed its initial public offering of
investment units  comprising shares of Common Stock and Class A Common Stock
Purchase Warrants ("Warrants").  Each Warrant entitles the holder to purchase
one share of Common Stock at an exercise price of $7.00, subject to adjustment,
at any time until March 19, 2000.  The net proceeds of the offering were
approximately $5,352,000.  The Common Stock and Warrants are listed on the
Nasdaq National Market System ("Nasdaq") under the symbols JLNY and JLNYW,
respectively.  See "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters."

PRODUCT LINE

   The Company specializes in the design, manufacture and marketing of high
quality cut and sewn knit women's sportswear.  The Company's products are sold
at popular price points, typically ranging from $9 to $40 at retail.  A large
portion of the Company's sales are from merchandise sold under the label of the
retailer (known as "private label").  The remainder are sold under the Company's
own labels, which currently include Stressed Out (TM), Jenna Lane (TM), JLNY
(TM) and Tummy Tucker (TM).  The Company's product line consists of many
different styles that are changed twice each year in response to the two major
selling seasons in the apparel industry - fall/back to school and spring.
Adjustments and changes are made continuously to the line in response to
customer information.  Many of these styles are similar but customized to meet
the design requests of the retailer or to provide the retailer with
merchandising which its competitor is not selling.

   As indicated above, the Company concentrates on two primary product lines:
basic and fashion sportswear.  Basic apparel is significantly less risky than
fashion apparel, primarily because of its longer product life cycle, but
contains a lower gross profit margin.  Management attempts to blend the relative
risk levels with the profitability of these areas.

   The Company believes it also has begun to establish a strong presence in the
large size women's market through the establishment of two separate sales groups
in this category.  The first is young large size, catering primarily to
overweight teenagers and for young working women.  The second sales group serves
the more traditional middle aged large size customer.

   In the large size women's market, the Company produces a variety of pants,
shorts, skirts, blouses, t-shirts, coordinates, and dresses in knitted fabrics
consisting predominantly of Dupont Lycra (R), acrylic, and poly cotton.  Bottoms
and tops predominate this category, with bottoms generally producing greater
sales than tops.

   The Company intends to be a dominant manufacturer in the category of leggings
and 

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stirrup pants containing Dupont Lycra (R) in the popular price and the large
size women's category and to be a major manufacturer of Dupont Lycra (R) bottoms
in popular price "missy" sizes, although no assurance can be given that it will
be able to attain these goals. The Company believes that its success in
marketing bottoms will depend upon its ability to compete on the basis of price
against imports.

SALES GROUPS

   The Company is organized into five sales groups, described in more detail
below.  Each sales group is decentralized with regard to sales.  Production
costs and operating costs associated with each sales group are not the
responsibility of the sales group manager and operating expenses are not
allocated by sales group.  Management of the sales groups are compensated based
on a commission tied to net sales and profit margins.  The Company believes that
this structure enables sales group management to concentrate on sales and
merchandising.

   The Company sells virtually all of its products directly through its own
showroom at 1407 Broadway in Manhattan, New York.  All mail order sales,
however, are handled by its mail order showroom at 1384 Broadway in Manhattan,
New York.  In addition to its Co-Chief Executive Officers,  Messrs. Mitchell
Dobies and Charles Sobel, the Company currently employs eight individuals in
sales.  Although no written contracts exist with these additional salespeople
(other than Messrs. Dobies, Sobel and Eric Holtz, see Item 11, "Executive
Compensation"), they generally receive a monthly draw against commission, with
the commission being determined by the gross profit margin on an order by order
basis.  The Company has not and does not currently intend to use any advertising
in its marketing efforts, but pays for "co-op" advertising as may be required in
its agreements with customers.

   "Missy"/Large Size.  This sales group is responsible for selling merchandise
   ------------------                                                          
to customers servicing the more traditional "missy" and large size market.
Merchandising in this sales group consists primarily of bottoms, tops and
coordinates.  As mentioned previously, bottoms containing Dupont Lycra (R) are a
strong product in this category.

   Young Large Size.  This sales group's efforts are directed at customers who
   ----------------                                                           
service the under 25 large size market.  The product is most commonly Junior
inspired fabrications and silhouettes manufactured to large size specifications.
The Company designs and manufactures a broad array of bottoms, tops, and dresses
for these customers.  The Company prices its products at retail generally from
$16.99 - $39.99.

   Imports.  As mentioned above, a longer-term opportunity for expansion will be
   -------                                                                      
the growth and development of the import sales group. Part of management's long-
term plan is to continue to expand its importing activities.  Eric Holtz, who
has extensive experience in the design, sourcing and selling of imported woven
products, serves as Director of the import sales group.   See "Item 10-
Directors and Executive Officers of the Registrant" and "Item 11- Executive
Compensation."

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   Price points for both denim and woven products in this sales group are
slightly higher than  those which are domestically produced, with similar gross
margins to domestic products.  Management believes that reduced trade
restrictions, increased competition in the domestic market and other factors
have enhanced the Company's ability to substantially  increase its activities in
the import area.  Additional marketing efforts relating to imports also acts to
hedge the Company's current dependence on domestically produced goods.   There
can be no assurance that the Company's plans for the import sales group will be
successfully implemented.

   Mail Order.  This sales group is responsible for selling merchandise to
   ----------                                                             
companies who sell through direct mail catalogs.  The product line includes
wovens and knits in both basic and fashion sportswear, and tends to concentrate
on somewhat higher price points than the Company's other products.

   Mass Merchants.  Management believes that, although no assurance can be
   --------------                                                         
given, this sales group represents a very strong opportunity for significant
sales growth, primarily due to the management's reputation and its relationships
with key customers.  The mass merchant area, however, is characterized by small
gross profit margins and financially troubled and bankrupt retailers, and the
Company intends to carefully control this sales growth and attempt to limit it
to the most profitable niches of that business.  In addition, the Company
carefully manages its relationships with troubled retailers, and endeavors to
avoid committing a large a percentage of its business to any one retailer.

   Due to the customers' specific needs in the area of color, price, styling and
delivery, and in order to maximize the image of the Company as a whole, the mass
merchant is best serviced as a separate sales group.

DESIGN DEVELOPMENT

   New designs are created by an in-house staff which as of the date of this
Annual Report consists of three designers. Management believes there are many
synergies in the design functions and that designs created for one sales group
are frequently modified for use by other sales groups.  The Company endeavors to
combine creativity, knowledge of the marketplace and input from its retail
customers to develop designs that incorporate established fashion trends and
basic apparel.  In the year ended March 31, 1997, the Company created
approximately 2,000 patterns (although no assurance can be given that such trend
will continue), and converted most of these patterns into samples.

   In order to facilitate its design activities and production, the Company
purchased a CAD/CAM (computer aided design/computer aided manufacturing) system
with the proceeds of its initial public offering.  The availability of this
system is expected to speed the product development cycle during the design
phases as well as initial pattern making and the creation of samples.  In
addition, customer presentations and maintenance of historical data will be
significantly improved.

                                       6
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MANUFACTURING

   In general, in basic sportswear merchandising, the Company maintains
responsibility for the entire apparel manufacturing process from conversion of
yarn to shipment of finished goods, although it contracts out most of this work.
The Company has established ties with approximately fifteen "captive"
contractors, for whom the Company represents substantially all their business,
to provide all of its cutting and sewing needs, although no assurance can be
made that these relationships will continue at all or in a form and structure
satisfactory to the Company.   These "captive" relationships allow the Company
to exercise substantial control over the contractor's production schedules and
quality of the production process without being required to manage its own large
labor force or undertake the financial obligations for capital acquisitions and
equipment.

   The manufacturing process begins with the purchase of yarn.  Poly cotton,
acrylic and DuPont Lycra (R) are the three major yarns which are purchased by
the Company.  The Company generally purchases this yarn on a "spot" (or
immediate) basis.  During times of price fluctuations, the Company attempts to
protect against these fluctuations by purchasing longer-term contracts, if
possible.

   The Company causes the yarn to be delivered to the contracted knitter, which
then knits fabric in accordance with Company specifications.  This process of
conversion of knit to fabric generally takes approximately one week.  The
majority of fabric produced are greige fabrics, which are fabrics in their
natural color.  The Company maintains an inventory of greige fabric, permitting
it to respond quickly to orders or unforeseen shortages.  By maintaining its
inventory primarily in greige goods rather than dyed goods, the fashion risk
inherent in fabric color is reduced.

   The Company then sends the fabric to dyers and finishers primarily in the
Northeast United States, in particular New York, New Jersey and Pennsylvania.
The Company currently utilizes primarily one finisher in the New York area, one
dyer in the New York area and one dyer in Pennsylvania.  After the fabric is
completed, it is then shipped to another contractor, which will then cut and sew
garments according to Company specifications.

   As indicated above, the Company has established a relationship with
approximately fifteen "captive" outside contractors to provide a majority  of
its domestic cut and sewing needs.  Although production is done outside the
Company, these contractors rely on the Company for substantially all of their
revenue.  As the Company sales volume continues to expand, additional "captive"
contractors will be added to support the increases in sales volume.  As
practically the only customer of these contractors, as mentioned above, the
Company will have control over the contractors' production scheduling and
movement of merchandise.  Quality is controlled in tandem by Company employees
and by an in-house quality staff  provided by the contractor.  The Company
currently has no contractual arrangement with these contractors, nor are any
expected.  The Company did, however, loan $125,000 to one such contractor, with
a portion of 

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the proceeds of the Company's initial public offering, to assist the contractor
in opening a new facility. The Company also recently loaned $60,000 to another
contractor. Each of these loans is secured by certain assets of the borrower.

   After completion of cutting and sewing, the completed goods are sent to the
Company's warehouse in New Jersey for distribution and shipping or will be
shipped directly to the customer from the contractor.

   Management believes that the industry standard in basic sportswear
merchandising to produce a finished product from the time the fabric is ordered
is six to eight weeks.  By employing the processes described above, the Company
generally has been able to complete the entire manufacturing process from
delivery of yarn to completion of finished goods in approximately four weeks,
although no assurance can be given that such performance will continue, and many
factors outside the Company's control can affect this response time.

   In the manufacture of fashion sportswear, the Company and its captive
contractors noted above are involved in the cutting and sewing process, but the
Company does not purchase the yarn or knit, dye or finish it.  This work is
completed prior to the Company's contractor's commencement of involvement in the
process.

SHIPPING

   The Company, prior to June 1996, contracted with a public warehouse to
provide shipping and distribution services.  The Company also ships a material
portion of its merchandise directly from the contractor to customers.   In June
1996, the Company leased 48,519 square feet of warehouse and office space in
Cranbury, New Jersey.  Management has determined that its ability to control its
own warehouse operations is of significant benefit to the Company.   In
addition, some long-term cost savings are generated by operating its own
warehouse rather than continuing to utilize a public warehouse.  Given the
Company's sales volume in its first two years of operations and the factors
described above, these positive aspects in obtaining a Company warehouse
outweighed the negative aspects thereof, such as the addition to overhead
represented by leasing and staffing such a facility and the administrative
burdens represented thereby.

QUALITY CONTROL

   A vital concern to management is product quality and quality control.  Strict
quality control standards are required in order to maintain and build
relationships with key customers and minimize product returns.  Adherence to
these strict standards is even more important to national mass merchants such as
ShopKo (a current customer of the Company).  The Company carefully monitors the
output of its contractors to insure they produce the highest quality
merchandise.  All contractors are visited by employees of the Company's quality
control team, which includes its Co-Chief Executive Officers, and are
supplemented by contractor paid in-house teams.

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INVENTORY

   The Company believes that it turns its inventory more often than its
competitors.  In the fiscal year ended March 31, 1997, it did so nine times,
although no assurance can be given that such result will continue.  This turn
rate, which management believes is high, primarily reflects the extremely low
permanent inventory of an early stage company, as well as the responsiveness and
service which the Company's customers expect.  As the Company grows and matures,
it is expected that this turn rate will be reduced, although no assurance can be
given.

ORDERING AND DISTRIBUTION

   The Company has computerized its order entry and has fully integrated order
entry, shipping, accounts payable and accounts receivable through use of
computer software.  Senior management reviews all orders with respect to price,
merchandise delivery dates and suitability for the customer.  During its first
two years of operations and for the foreseeable future, the Company has
determined that virtually no speculative merchandise will be produced
domestically and all domestic manufacturing will take place in response to
customer orders.  An appreciable portion of the Company's imported goods,
however, are produced speculatively, primarily resulting from the longer lead
times required for manufacturing and delivery as compared with domestically
produced goods.  Customers are invoiced at the time of shipment.  Management
believes that most customers have made payment within 60 - 75 days, although no
assurance can be given that this trend will continue.

OPERATIONS

   The Company maintains corporate offices at its warehouse facility in
Cranbury, New Jersey as well as at 1407 Broadway in Manhattan, where it also
maintains its showroom and principal executive offices.  The Company's design
room is located at 264 West 40th Street in Manhattan, and its mail order room is
located at 1384 Broadway.  See "Item 2-Description of Properties."

CUSTOMER BASE

   The Company attempts to conduct business only with those customers it
believes to be the most attractive in the market.  These include current
national mass merchant customers such as KMart and Montgomery Ward; regional
discounters such as Ames, Shopko, Bradlees, Hills, and Pamida, national
specialty chains such as Deb Shops, Petrie, and Charming Shoppes, and other
customers including the Army/Air Force Exchange, Brylane and Lerner's.
Management has extensive long standing personal relationships with most of these
accounts, although no assurance can be given that any of these will remain
customers of the Company.  During the fiscal year ended March 31, 1997, Charming
Shoppes represented 18% of the Company's sales.

                                       9
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COMPETITION

   The apparel business is intensely competitive and consists of numerous
manufacturers, importers and distributors, none of which accounts for a
significant percentage of total industry sales, but many of which are
significantly larger and have substantially greater resources than the Company.
The Company competes with distributors that import apparel from abroad, domestic
companies with established foreign manufacturing relationships and companies
which produce apparel domestically.

     The Company believes its ability to succeed depends in substantial part on
its ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner, as well as to operate within significant
production and delivery constraints.  The Company has attempted and will
continue to attempt to minimize the risk of changing fashion trends and product
acceptance by producing a wide selection of apparel during a particular selling
season and by closely monitoring retail sales of its products.  However, if the
Company misjudges the market for a number of products or product groups, it may
be faced with a significant amount of unsold finished goods inventory which
could have a material adverse effect on the Company's operations.

BACKLOG; SEASONALITY

   As of June 1, 1997, the Company had unfilled orders of approximately $8.5
million, compared to approximately $5.2 million of such orders at the comparable
date in 1996.  These amounts include both confirmed orders and unconfirmed
orders, which the Company believes, based on industry practice and its past
experience, will be confirmed, and are therefore considered to be firm.
Shipment of Spring orders normally commences in the early part of January with
the major portion of Spring merchandise shipped in March and April.  Shipment of
Back-to-School/Fall orders normally commences in late June with the major
portion of Fall merchandise shipped in August, September and October.  The
amount of unfilled orders at a particular time is affected by a number of
factors, including the scheduling of the manufacture and shipping of the product
which, in some instances, depends on the desires of the customer.  Accordingly,
a comparison of unfilled orders from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments.

   The Company's business is somewhat seasonal, but management believes that it
is less so than many other apparel companies, primarily because of the Company's
partial focus on basic sportswear, which is less seasonal than fashion
sportswear.  In addition, the Company believes its product mix is diverse and
varied enough so that some of its products are popular at any time of year.  The
Company does, however, generally experience its strongest sales during its
fourth quarter, from January 1 to March 31.  The Company does not believe this
variation has had a material adverse impact on its cash flow or operations,
although there can be no assurance that 

                                       10
<PAGE>
 
this will not be the case in the future.

FACTORING OF ACCOUNTS RECEIVABLE

   Generally, the Company's accounts receivable are paid within 60-75 days from
invoice, which management believes is within industry standards.  In March 1995,
the Company entered into a Factoring Agreement with Republic Factors Corp
("Republic"), pursuant to which the Company receives advances against factored
accounts receivable with interest at 1.5% over prime rate (this has been reduced
to 1.0% over prime rate as of May 1, 1997).  Advances, which are at the
discretion of Republic, generally are equal to 80% of eligible receivables.
Republic also has provided the Company with financing for import letters of
credit. The Company has generally utilized the factoring arrangement to the
maximum extent permitted by Republic.  Since the completion of its initial
public offering in late March 1997, the Company has become less dependent upon
its arrangement with Republic for its cash flow needs, thereby reducing its
overall interest expense.  The obligations of the Company to Republic are
secured by a lien on certain of the Company's assets, consisting primarily of
accounts receivable (and merchandise relating thereto), inventory, equipment and
intangible assets of the Company.  As a result, there can be no assurance that
there will be assets available for distribution to stockholders or creditors
other than Republic in the event of a liquidation of the Company.

EMPLOYEES

   At March 31, 1997, the Company employed approximately 55 full time
individuals, of which seven occupy executive or managerial positions,
approximately 31 hold design, production, quality control or distribution
positions and the balance occupy sales, clerical and office positions.
Approximately 10 of the Company's warehouse packers are covered by a collective
bargaining agreement with the United Production Workers Union Local 17-18 which
is effective from June 15, 1996 through and including June 14, 1999.   The
Company considers its relations with its employees to be good and has not
experienced any interruption of operations due to labor disputes.


ITEM 2. DESCRIPTION OF PROPERTIES.

   The Company occupies three facilities in Manhattan and one in New Jersey.
The three Manhattan facilities, located at 1407 Broadway (its principal
executive offices), 264 West 40th Street and 1384 Broadway, and which encompass
approximately 8,000 square feet in total, house the Company's showroom and
sales, merchandising, mail order and design staffs.  These facilities are the
subject of leases requiring a current annual base rental of approximately
$187,000 in total, and continue until April 30, 2001.

   The Company's warehouse and certain executive offices are located in
Cranbury, New Jersey (the "Warehouse").  The Warehouse is the subject of a lease
requiring a current annual 

                                       11
<PAGE>
 
base rental of approximately $206,000 and continues until May 2001, with an
option for the Company to renew for an additional two years.

   The Company believes that its existing facilities are adequate to meet its
current and currently foreseeable requirements, although there can be no
assurance thereof.

ITEM 3. LEGAL PROCEEDINGS

   There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.  The Company is subject to
normal litigations in the ordinary course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

   Not applicable


                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

   MARKET FOR COMMON STOCK:  In March 1997, the Company completed its initial
public offering of investment units  comprising shares of Common Stock and
Warrants.  Each Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $7.00, subject to adjustment, at any time until
March 19, 2000. The Common Stock and Warrants are listed on Nasdaq under the
symbols JLNY and JLNYW, respectively.  The sole full quarterly period during
which trading occurred was the fiscal quarter ended March 31, 1997.  During that
fiscal quarter (during which trading occurred only from March 19, 1997 through
March 31, 1997), the high and low sales prices for the shares of Common Stock on
Nasdaq were $11.75 and $6.50, respectively.

   As a condition to listing the Company's securities on Nasdaq, the Company is
required to ensure that (i) independent directors represent a majority of the
members of the Board of Directors, and for one such independent director to
serve as Chairman and (ii) Messrs. Dobies and Sobel agree not to sell or
otherwise dispose of any securities of the Company beneficially owned by them
(other than certain shares sold by them in the Company's initial public
offering) for a period of two years from the effective date of the initial
public offering.  There can be no assurance that Nasdaq will not request further
restrictions in the future, or that any other securities exchange on which the
Company desires to list its securities will not request similar or more onerous
restrictions.

   HOLDERS:  As of June 12, 1997, there were approximately 47 holders of the
Common Stock (including CEDE & Co. on behalf of numerous other beneficial
owners) and 12 holders of the

                                       12
<PAGE>
 
Warrants.

   DIVIDENDS:  The Company has not paid any cash dividends on its Common Stock
since inception and does not expect to declare or pay any dividends in the
foreseeable future.  The Company presently anticipates that all earnings will be
retained to finance the continued growth and development of the Company's
business.  Any future determination as to the payment of cash dividends will
depend upon the Company's financial condition, results of operations and other
factors deemed relevant by the Board of Directors.
 
ITEM 6. SELECTED FINANCIAL DATA


<TABLE> 
<CAPTION> 
                                                Year          Year      February 14, 1995
                                               Ended         Ended        (Inception) -
                                             March 31,     March 31,        March 31,
                                                1997          1996            1995
                                            -----------   -----------   -----------------
<S>                                         <C>           <C>           <C> 
Statement of Operations Data:

  Net sales                                 $35,372,386   $25,832,323               $--

  Operating income (loss)                       450,395       975,566            (43,926)

  Net income (loss)                             136,260       501,429            (43,926)

  Net income (loss) per common share:                                  
    Primary                                        0.03          0.19              (0.05)
    Fully diluted                                  0.03          0.16              (0.05)

  Weighted average common shares outstanding               
    Primary                                   2,345,419     2,164,916            963,482
    Fully diluted                             2,345,419     3,077,742            963,482


Balance Sheet Data:

                                             March 31,     March 31,        March 31,
                                                1997          1996            1995
                                            -----------   -----------   ----------------- 

  Working capital                            $7,191,854    $2,362,245         $1,224,408
  Total assets                               10,034,842     5,209,550          1,409,276
  Long-term debt                                 16,797       425,143                --
  Preferred stock                                  --         828,030            685,000
  Shareholders' equity                        7,461,770     1,238,143            581,074
</TABLE> 



                                       13
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
 

The following is a discussion of the financial condition and results of
operations of the Company for the years ended March 31, 1997 and 1996,
respectively.   A comparison of the financial condition and results of
operations of the Company for the year ended March 31, 1996 and the period
February 14, 1995 (inception) to March 31, 1995 has not been included in this
discussion because the Company believes that such a comparison would not be
meaningful due to the Company's limited operations during the period February
14, 1995 to March 31, 1995.

Overview

The Company was incorporated in Delaware in February 1995 to design, manufacture
and market high quality, popular priced sportswear for women.  From inception
through March 31, 1995, the Company focused primarily on setting-up
manufacturing operations primarily through contractors, establishing sources of
supply, leasing showroom and office premises, raising capital and establishing
credit from key suppliers and factors.

Management's primary goal was to be recognized as a key resource to its target
customers.  Market penetration was achieved through aggressive pricing,
established relationships within the industry and experience in predicting
fashion trends.  In response to customer buying patterns, the Company, which
began production and shipping in April 1995, significantly increased the amount
of woven sportswear being produced and sold.  Sales volume expanded rapidly
throughout the Company's first full fiscal year which ended March 31, 1996 and
continued to accelerate in the year ended March 31, 1997.

The Company expanded its import sales and mail order sales groups in fiscal
1997.  In doing so, these sales groups accounted for approximately 21% and 7% of
sales, respectively.

Results of Operations

The following table set forth for the fiscal years indicated, the Company's
statements of operation data as a percentage of net sales.

                                               Year Ended
                                               March 31,
                                       --------------------------
                                        1997                1996
                                       ------              ------
 
     Net sales                         100.0%              100.0%
     Cost of sales                      82.2                81.8
                                       -----               -----
 
         Gross profit                   17.8                18.2
     Operating expenses                 16.5                14.4
                                       -----               -----
 
         Income from operations          1.3                 3.8
     Other expenses                      0.7                 0.2
                                       -----               -----
 
         Income before income taxes      0.6                 3.6
     Provision for income taxes          0.2                 1.7
                                       -----               -----
 
         Net income                      0.4%                1.9%
                                       =====               =====

Net sales of $35.3 million in the year ended March 31, 1997 represented an
increase of $9.5 million, or 37% over net sales of $25.8 million in the year
ended March 31, 1996.  The increase in net sales was primarily attributable to
expansion of the customer base and increased volume from existing customers. The
expansion of the customer base includes approximately $8.3 million in net sales
to Charming Shoppes and Deb Shops which were not customers during the year ended
March 31, 1996.  Increased volume to Brylane, Petrie and Bradlees, among others,
accounted for the balance of the sales increase.

The Company's gross profit increased $1.6 million, or 33.6% to $6.3 million for
the year ended March 31, 1997 from $4.7 million for the year ended March 31,
1996. Gross profit margin decreased to 17.8% in the year ended March 31, 1997
from 18.2% in the year ended March 31, 1996. The decrease in gross profit margin
resulted primarily in the fourth quarter of the year as allowances to customers
increased. This was attributable to certain production and shipping problems
resulting from a sudden sharp increase in sales during the fourth quarter. The
Company believes it has adequately addressed the problems resulting from this
sales increase.

Operating expenses, including all transactions with the factor, increased $2.1
million, or 56.5% to $5.8 million in the year ended March 31, 1997 from $3.7
million in the year ended March 31, 1996.  The increase was primarily due to an
increase of $989,000 in payroll and related costs, including $430,000 in
increased selling salaries and $194,000 in  increased warehouse and shipping
salaries which are impacted by increased sales volume.  The Company's results
also include increases of $157,000 attributable to additional fixed costs
(including rent, depreciation and insurance) relating to the expansion of office
and storage space.  Factoring costs increased $535,000 relating to commissions
on higher sales volume, and additional borrowing for working capital needs.  The
increased level of operating expenses incurred during the year ended March 31,
1997 also reflected anticipated further expansion of the Company's business, not
all of  which was achieved as expected during the period.

As a result of the above factors, income from operations decreased $525,000 to
$451,000 in the year ended March 31, 1997 from $976,000 in the year ended March
31, 1996.

Other expenses increased by $199,000 in the year ended March 31, 1997 from
$42,000 in the year ended March 31, 1996 resulting primarily from interest
expense (including amortization of debt discount) and offering costs on
promissory notes issued in November 1995 and August 1996. These notes were
repaid from the proceeds of the Company's initial public offering.

For the fiscal year 1997 income tax expense as a percentage of pre-tax income
decreased from 46.3% to 34.8% compared to fiscal 1996.  The decrease results
primarily from applying the normal statutory tax rates to the lower income
level.

Liquidity and Capital Resources

Since its formation, the Company has financed its operations and met its capital
requirements primarily through funds raised from its founders, three private
placement offerings, as well as borrowings under its factoring arrangement,
vendor financing and, to a lesser extent, equipment financing.  In March 1997,
the Company completed an initial public offering of investment units resulting
in proceeds, net of underwriting discounts and offering costs, of $5,352,000.
These financing activities provided net cash of $718,000 in fiscal 1995, $1.3
million in fiscal 1996 and $4.6 million in fiscal 1997.

Operating activities used net cash of $154,000 in fiscal 1995, $1.7 million in
fiscal 1996 and $3.9 million in fiscal 1997.  The principal uses of operating
cash are to purchase fabric and manufacture its products, and reduced reliance
on the factor for advances against accounts receivable.  Inventory levels
increased as a result of the corresponding increased production to support the
growth in sales.  Furthermore, the addition of import and mail order divisions
during fiscal 1996 required funds for personnel, product development and
additional space costs in fiscal 1996 and 1997.

The Company's capital expenditures totalled $9,000, $122,000 and $175,000 in
fiscal 1995, fiscal 1996 and fiscal 1997, respectively.  These capital
expenditures were for office equipment, computer and improvements to leased
premises.  Subsequent to March 31, 1997, additional capital expenditures to
purchase a new CAD/CAM system for design and manufacturing were approximately
$218,000.

The Company believes that existing cash, anticipated cash flow from operations
and availability of advances  under its factoring agreement will be sufficient
to support the Company's operations for at least the next 12 months.  There can
be no assurance, however, that the Company's cash requirements during this
period will not exceed its available resources.

                                       14
<PAGE>
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   Not Applicable.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See pages F-1 through F-12 annexed hereto.  All other schedules are omitted 
because they are not required, are not applicable, or the information is 
included in the financial statements or notes thereto.

                                       15
<PAGE>
 
                               JENNA LANE, INC.

                         INDEX TO FINANCIAL STATEMENTS


 
 
                                                                          Page
                                                                          ----
 
 Independent Auditors' Report                                              F-2
 
 Balance Sheets - March 31, 1997 and 1996                                  F-3
 
 Statements of Operations - Years Ended March 31, 1997 and 1996
   and the Period February 14, 1995 (Inception) to March 31, 1995          F-4
 
 Statements of Shareholders' Equity - Years Ended March 31, 1997 and 
   1996 and the Period February 14, 1995 (Inception) to March 31, 1995     F-5
 
 Statements of Cash Flows - Years Ended March 31, 1997 and 1996 and
   the Period February 14, 1995 (Inception) to March 31, 1995              F-6
 
 Notes to Financial Statements                                        F-7 - F-12
 



                                  F-1
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders
Jenna Lane, Inc.


We have audited the accompanying balance sheets of Jenna Lane, Inc. as of March
31, 1997 and 1996, and the related statements of operations, shareholders'
equity, and cash flows for the years ended March 31, 1997 and 1996 and the
period February 14, 1995 (inception) to March 31, 1995.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audits 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Jenna Lane, Inc. as of March
31, 1997 and 1996, and the results of its operations and its cash flows for the
years ended March 31, 1997 and 1996 and the period February 14, 1995 (inception)
to March 31, 1995 in conformity with generally accepted accounting principles.



 
                                   EDWARD ISAACS & COMPANY LLP



New York, New York
May 19, 1997



                                  F-2
<PAGE>
 
                               JENNA LANE, INC.

                                BALANCE SHEETS

<TABLE> 
<CAPTION> 

                                                                                        March 31,
                                                                             --------------------------------
                                                   ASSETS                        1997              1996
                                                                             --------------    --------------
<S>                                                                             <C>               <C> 
Current Assets:
    Cash                                                                        $  548,319        $    1,250
    Due from factor                                                              4,954,462         2,100,709
    Inventories                                                                  3,632,913         2,782,135
    Prepaid income taxes                                                           182,989                 -
    Prepaid expenses and other                                                     353,446           138,385
    Deferred income taxes                                                           26,000            29,000
                                                                             --------------    --------------

         Total Current Assets                                                    9,698,129         5,051,479
                                                                             --------------    --------------

Property and Equipment:
    Furniture and equipment                                                        206,486           121,493
    Leasehold improvements                                                          99,755            10,549
                                                                             --------------    --------------

                                                                                   306,241           132,042
    Less: Accumulated depreciation                                                  63,437            15,360
                                                                             --------------    --------------

         Property and Equipment, net                                               242,804           116,682
                                                                             --------------    --------------

Other Assets:
    Security deposits and other                                                     93,909            41,389
                                                                             --------------    --------------

         Total Assets                                                          $10,034,842        $5,209,550
                                                                             ==============    ==============

                                    LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities:
    Accounts payable                                                           $ 2,204,555        $2,371,354
    Accrued expenses                                                               287,823           158,618
    Income taxes payable                                                                 -           157,000
    Current maturities of long-term debt                                            13,897             2,262
                                                                             --------------    --------------

         Total Current Liabilities                                               2,506,275         2,689,234
                                                                             --------------    --------------

Long-Term Debt                                                                      16,797           425,143
                                                                             --------------    --------------

Deferred Income Taxes                                                               50,000            29,000
                                                                             --------------    --------------

Series A Convertible Preferred Stock
    $.01 par value, 2,000,000 shares authorized; issued and
    outstanding, 500,000 shares net of issuance costs of $171,970                        -           828,030
                                                                             --------------    --------------

Shareholders' Equity:
    Common stock, $.01 par value; 18,000,000 shares
      authorized; issued and outstanding 4,290,000
      and 1,979,048 shares, respectively                                            42,900            19,790
    Capital in excess of par value                                               7,063,733           804,850
    Unearned compensation, performance shares                                      (63,626)          (44,000)
    Retained earnings                                                              418,763           457,503
                                                                             --------------    --------------

         Total Shareholders' Equity                                              7,461,770         1,238,143
                                                                             --------------    --------------

         Total Liabilities and Shareholders' Equity                            $10,034,842        $5,209,550
                                                                             ==============    ==============
</TABLE> 

                                     See notes to financial statements.

                                                    F-3
<PAGE>
 

                               JENNA LANE, INC.

                           STATEMENTS OF OPERATIONS


<TABLE> 
<CAPTION> 
                                                                         
                                                                         For the Period
                                                                          February 14,        
                                                                              1995
                                            Year Ended March 31,         (Inception) to 
                                           ---------------------------      March 31,
                                               1997           1996           1995
                                            -----------    -----------   --------------                        
<S>                                        <C>             <C>           <C> 
Net Sales                                   $35,372,386    $25,832,323         $  --

Cost of Sales                                29,087,860     21,128,147            --
                                            -----------    -----------   -------------- 
    Gross Profit                              6,284,526      4,704,176            --
                                            -----------    -----------   -------------- 
Operating Expenses:
  Selling and shipping                        2,677,473      1,862,864            --
  General and administrative                  2,093,504      1,337,586         43,926
  Factor charges and interest                 1,063,154        528,160            --
                                            -----------    -----------   -------------- 
    Total Operating Expenses                  5,834,131      3,728,610         43,926
                                            -----------    -----------   -------------- 
    Operating Income (Loss)                     450,395        975,566        (43,926)
                                            -----------    -----------   --------------  
Other Expenses:
  Interest expense - promissory notes           184,167         41,573            --
  Amortization of deferred financing costs       57,297            --             --
                                            -----------    -----------   -------------- 
    Total Other Expenses                        241,464         41,573            --
                                            -----------    -----------   --------------                
    Income (Loss) Before Income Taxes           208,931        933,993        (43,926)

Provision for Income Taxes                       72,671        432,564            --
                                            -----------    -----------   -------------- 
    Net Income (Loss)                          $136,260       $501,429       $(43,926)
                                            ===========    ===========   ==============
Net Income (Loss) Per Common Share:
  Primary                                         $0.03          $0.19        $(0.05)
                                            ===========    ===========   ==============
  Fully diluted                                   $0.03          $0.16        $(0.05)
                                            ===========    ===========   ==============
</TABLE> 






                      See notes to financial statements.

                                      F-4





<PAGE>
 
                               JENNA LANE, INC.

                      STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE> 
<CAPTION> 

                                                  Common Stock        Capital in                 Retained
                                             ----------------------    Excess of    Unearned     Earnings
                                               Shares        Amount    Par Value   Compensation  (Deficit)        Total
                                             ---------      -------   ----------     ---------    ---------    -----------
<S>                                         <C>            <C>        <C>          <C>           <C>           <C> 
Issuance of common stock                     1,190,476     $ 11,905   $  613,095                               $  625,000

Issuance of performance shares                 571,429        5,714       69,286     $(75,000)                        -  

Net loss                                           -            -            -            -       $(43,926)       (43,926)
                                             ---------      -------   ----------     ---------    ---------    -----------
Balance at March 31, 1995                    1,761,905       17,619      682,381      (75,000)     (43,926)       581,074

Issuance of common stock                       285,714        2,857      122,143          -            -          125,000

Amortization of unearned compensation              -            -            -         31,000          -           31,000

Repurchase of performance shares               (68,571)        (686)         326          -            -             (360)

Net income                                         -            -            -            -        501,429        501,429
                                             ---------      -------   ----------     ---------    ---------    -----------
Balance at March 31, 1996                    1,979,048       19,790      804,850      (44,000)     457,503      1,238,143

Issuance of common stock and warrants        1,290,000       12,900    5,339,143          -            -        5,352,043

Issuance of performance shares                 125,714        1,257       75,963      (77,220)         -              -  

Conversion of preferred stock                  952,381        9,524      818,506          -            -          828,030

Repurchase of performance shares               (57,143)        (571)         271          -            -             (300)

Amortization of unearned compensation              -            -            -         57,594          -           57,594

Issuance of warrants                               -            -         25,000          -            -           25,000

Net income                                         -            -            -            -        136,260        136,260

Dividends paid on preferred stock                  -            -            -            -       (175,000)      (175,000)
                                             ---------      -------   ----------     ---------    ---------    -----------
Balance at March 31, 1997                    4,290,000      $42,900   $7,063,733     $(63,626)    $418,763     $7,461,770
                                             =========      =======   ==========     =========    =========    ===========
</TABLE> 

                      See notes to financial statements.

                                      F-5
<PAGE>
 
                               JENNA LANE, INC.

                           STATEMENTS OF CASH FLOWS
<TABLE> 
<CAPTION> 

                                                                                                         For the Period
                                                                                                          February 14,
                                                                                                              1995
                                                                                                         (Inception) to
                                                                               Year Ended March 31,         March 31,
                                                                               --------------------
                                                                               1997            1996           1995
                                                                               --------    --------       -------------
<S>                                                                     <C>               <C>            <C> 
Operating Activities:
  Net income (loss)                                                     $     136,260     $   501,429        $ (43,926)
  Adjustments to reconcile net income (loss) to net cash used in
    operating activities:
      Depreciation and amortization                                           166,436          46,360                - 
      Deferred income taxes                                                    24,000               -                - 
      Amortization of debt discount                                           104,167          20,833                - 
      Increase (decrease) in cash attributable to changes in assets
        and liabilities:
          Due from factor                                                  (2,853,753)     (2,100,709)               - 
          Inventories                                                        (850,778)     (2,680,058)        (102,077)
          Prepaid income taxes                                               (182,989)              -                - 
          Prepaid expenses and other                                         (215,061)       (114,239)         (24,146)
          Other assets                                                              -          (9,098)               - 
          Accounts payable                                                   (166,799)      2,371,354                - 
          Accrued expenses                                                    129,205         142,916           15,702
          Income taxes payable                                               (157,000)        157,000                - 
                                                                          -----------     -----------        ---------  
      Net Cash Used In Operating Activities                                (3,866,312)     (1,664,212)        (154,447)
                                                                          -----------     -----------        ---------  
Investing Activities:
  Capital expenditures                                                       (143,374)       (115,329)          (9,375)
  Security deposits                                                           (54,488)              -          (32,291)
                                                                          -----------     -----------        ---------  
      Net Cash Used In Investing Activities                                  (197,862)       (115,329)         (41,666)
                                                                          -----------     -----------        ---------  
Financing Activities:
  Issuance of common stock, net of offering costs                           5,352,043               -          625,000
  Issuance of preferred stock                                                       -         900,000                - 
  Issuance of units                                                           500,000         500,000                - 
  Repayment of notes payable                                               (1,000,000)              -                - 
  Proceeds from shareholder /director loan                                          -         100,000                - 
  Repayment of shareholder/director loan                                            -        (100,000)               - 
  Principal payments on equipment notes payable                                (8,203)           (766)               - 
  Repurchase of performance shares                                               (300)           (360)               - 
  Issuance of convertible note                                                      -               -          100,000
  Offering costs (preferred stock and units)                                  (57,297)       (139,470)          (7,500)
  Dividends paid                                                             (175,000)              -                - 
                                                                          -----------     -----------        ---------  
      Net Cash Provided By Financing Activities                             4,611,243       1,259,404          717,500
                                                                          -----------     -----------        ---------  
      Net Increase (Decrease) In Cash                                         547,069        (520,137)         521,387

Cash at beginning                                                               1,250         521,387                - 
                                                                          -----------     -----------        ---------  
      Cash at end                                                       $     548,319     $     1,250        $ 521,387
                                                                          ===========     ===========        =========
Supplemental Disclosures of Cash Flow Information:                                                             
  Interest paid                                                         $     595,592     $   236,834        $       - 
                                                                          ===========     ===========        =========
  Income taxes paid                                                     $     391,018     $   275,564        $       -    
                                                                          ===========     ===========        ========= 
Noncash Transactions:                                                                                          
  Equipment notes payable for the acquisition of equipment              $      32,325     $     7,338        $       - 
                                                                          ===========     ===========        ========= 
  Issuance of common stock for services in connection with                                                     
    preferred stock offering                                            $           -     $    25,000        $       - 
                                                                          ===========     ===========        ========= 
  Issuance of performance shares                                        $      77,220     $         -        $  75,000
                                                                          ===========     ===========        ========= 
  Conversion of Series A Convertible Preferred Stock to Common Stock    $     828,030     $         -        $       - 
                                                                          ===========     ===========        =========   
</TABLE>  

                      See notes to financial statements.

                                      F-6
<PAGE>
 
                               JENNA LANE, INC.

                         NOTES TO FINANCIAL STATEMENTS


1.  THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES

    Business:

    The Company, organized in the State of Delaware in February, 1995, designs
    and manufactures (through contractors) and imports women's sportswear for
    the domestic retail market.

    Inventories:

    Inventories are stated at the lower of cost (first-in, first-out) or market.

    Income Taxes:

    Deferred income taxes reflect the net tax effects of temporary differences
    between the carrying amounts of assets and liabilities for financial
    reporting purposes and amounts used for income tax purposes, primarily
    depreciation, inventory costs capitalized and deferred compensation.

    Property and Equipment:
 
    Property and equipment are stated at cost.  Furniture and equipment are
    depreciated using the straight-line method over their estimated useful lives
    of five years.   Leasehold improvements are amortized over their respective
    lives or the terms of the applicable leases whichever is shorter.

    Stock-Based Compensation Plans:

    Effective April 1, 1996, the Company adopted Statement of Financial
    Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
    ("SFAS No. 123").  SFAS No. 123 permits either the recognition of
    compensation cost for the estimated fair value of employee stock-based
    compensation arrangements on the date of grant, or the disclosure in the
    notes to the financial statements of the pro forma effects on net income and
    earnings per share, determined as if the fair value-based method had been
    applied in measuring compensation cost.  The Company has adopted the
    disclosure option and continues to apply APB Opinion No. 25, "Accounting for
    Stock Issued to Employees" ("APB 25") in accounting for its plans.
    Accordingly, no compensation cost has been recognized for the Company's
    stock incentive plan.

    Net Income (Loss) Per Common Share:

    Net income (loss) per share has been computed in accordance with Securities
    and Exchange Commission Staff Accounting Bulletin (SAB) No. 83.  The SAB
    requires that common shares issued by the Company in the twelve months
    immediately preceding a proposed public offering plus the number of common
    equivalent shares which became issuable during the same period pursuant to
    the grant of warrants and stock options (using the treasury stock method) at
    prices substantially less than the initial public offering price be included
    in the calculation of common stock and common stock equivalent shares as if
    they were outstanding for all periods presented.



                                      F-7
<PAGE>
 
                               JENNA LANE, INC.

                         NOTES TO FINANCIAL STATEMENTS


1.  THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)

    Primary net income (loss) per share is computed by dividing net income,
    after deducting preferred dividend requirements, by the weighted average
    number of common shares outstanding during the period plus the weighted
    average common stock equivalents.  Common stock equivalents consist of
    shares subject to stock options and warrants.  Fully diluted net income per
    share is computed based on the assumption that all of the convertible
    preferred shares are converted into common shares from date of issuance (if
    - converted method).  In 1997, the convertible preferred shares were anti-
    dilutive.  The primary weighted average number of common and equivalent
    shares outstanding was 2,345,419, 2,164,916 and 963,482 for 1997, 1996 and
    1995.  The fully diluted weighted average number of common and equivalent
    shares outstanding was 2,345,419, 3,077,742 and 963,482 for 1997, 1996 and
    1995.

    Stock Dividend:

    In July 1996, the Board of Directors authorized a 1.9047619 for one stock
    split of the Common Stock to be effected in the form of a stock dividend.
    All share and per share data have been restated in these financial
    statements for all periods presented to reflect this stock split.

    Use of Estimates:

    The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
    assumptions that affect the amounts reported in the financial statements and
    accompanying notes.  Although these estimates are based on management's
    knowledge of current events and actions it may undertake in the future, they
    may ultimately differ from actual results.

2.  DUE FROM FACTOR

    The Company has an agreement with a factor, whereby substantially all its
    accounts receivable are sold to a factor on a pre-approved non-recourse
    basis (except as to customer claims).  Factoring commissions are charged at
    the rate of .75%.

3.  INVENTORIES
 
    Inventories consist of the following:
                                                             MARCH 31,
                                                        ----------------------
                                                           1997        1996
                                                        ----------  ----------
 
          Raw materials                                 $2,063,783  $1,677,410
          Work-in-process                                  435,937     747,060
          Finished goods                                 1,133,193     357,665
                                                        ----------  ----------
 
                                                        $3,632,913  $2,782,135
                                                        ==========  ==========
 


                                      F-8
<PAGE>
 
                               JENNA LANE, INC.

                         NOTES TO FINANCIAL STATEMENTS


4.  SERIES A CONVERTIBLE PREFERRED STOCK

    Pursuant to a private placement offering in March 1995, the Company issued
    500,000 shares of Series A Convertible Preferred Stock in April 1995.  The
    placement agent received 95,238 shares of common stock as part of its
    compensation in connection with the offering.

    The Series A Convertible Preferred Stock was converted in March 1997 into
    952,381 common shares effective with the completion of the Company's initial
    public offering of common stock.

    In April 1996, the Company declared and paid an annual dividend of $.20 per
    share ($100,000) to the shareholders of preferred stock.

    In June 1996, October 1996 and January 1997, the Company declared and paid a
    quarterly dividend of $25,000 to the shareholders of preferred stock.

5.  UNEARNED COMPENSATION - PERFORMANCE SHARES

    In March 1995, the Company issued 571,429 shares of common stock (514,286 to
    management executives and 57,143 to a director of the Company) at a value of
    $75,000 ($.13 per share), as compensation, which shares are subject to
    repurchase by the Company at par value ($.01 per share) in the event the
    Company does not achieve certain annual pre-tax earnings.  In February 1996,
    the Company repurchased at par value 68,571 shares from an executive who
    terminated his employment.  In June, 1996 the Company issued 125,714
    additional performance shares at a value of $77,220 ($.61 per share) and
    repurchased 57,143 shares at par value.  Unearned compensation is recorded
    based on the fair value of the shares issued and is being amortized to March
    1998 under the straight-line method.  Amortization of unearned compensation
    for the years ended March 31, 1997 and 1996 was $57,594 and $31,000,
    respectively.

6.  INCOME TAXES

    The provision for income taxes consists of the following:
 
                                                         MARCH 31,
                                                 --------------------------
                                                  1997      1996      1995
                                                 ------  ----------  ------
     Current:                     
       Federal                                  $22,970   $ 320,000  $   -
       State                                     25,701     112,564      -
     Deferred                                    24,000           -      -
                                                -------   ---------   -----
                                  
                                                $72,671   $ 432,564  $   -
                                                =======   =========  ======
 
    Reconciliation of the statutory federal income tax rate to the Company's
    effective tax rate are as follows:
                                                          MARCH 31,
                                                 --------------------------
                                                  1997     1996       1995
                                                 ------   ------     ------
                                                 
     Statutory federal income tax rate            34.0%    34.0%         -%
     State income taxes, net of federal benefit    8.1      7.9          -
     Other                                        (7.3)     4.4          -
                                                 -----   ------      ------
                                                 
     Effective income tax rate                    34.8%    46.3%         -%
                                                 =====   ======      ======

                                      F-9
<PAGE>
 
                               JENNA LANE, INC.

                         NOTES TO FINANCIAL STATEMENTS



6.  INCOME TAXES (CONTINUED)

    Significant components of the Company's deferred tax assets and liabilities
    as of March 31, 1997 and 1996 are summarized as follows:

                                                         MARCH 31,
                                                 ------------------------
                                                    1997          1996
                                                 ---------     ----------
 
    Current deferred tax asset - inventory         $26,000      $ 29,000
                                                   =======      ========
 
    Noncurrent deferred tax liabilities:
     Depreciation                                   29,000        10,000
     Unearned compensation                          21,000        19,000
                                                    ------      --------
 
    Noncurrent deferred tax liabilities            $50,000      $ 29,000
                                                   =======      ========
 
7.  LONG-TERM DEBT
 
    Long-term debt consists of the following:
                                                         MARCH 31,
                                                 -----------------------
                                                    1997          1996
                                                 ---------      --------
 
    10% promissory notes, net of discount 
      of $79,167 (a)                             $     -        $420,833
    Equipment notes payable                       30,694           6,572
                                                 -------        --------
 
                                                  30,694         427,405
    Less: Current maturities                      13,897           2,262
                                                 -------        --------
 
                                                 $16,797        $425,143
                                                 =======        ========

    (a) In November 1995, the Company raised $500,000 upon the issuance of 50
        units pursuant to a private placement offering.  Each unit consisted of
        2,000 shares (3,810 shares giving effect to the stock dividend) of
        common stock and a $10,000 promissory note.  Common stock was credited
        for $100,000, representing the fair value of the shares, and the
        promissory notes were credited for $400,000.  The $100,000 ascribed to
        the common stock has been reflected as a discount on the notes.
        Amortization of debt discount for the years ended March 31, 1997 and
        1996 was $104,167 and $20,833, respectively (inclusive of $25,000
        pertaining to the Bridge Notes - see Note 10).  The notes, originally
        due November 1997 were repaid in March 1997 from the proceeds of the
        Company's initial public offering.

    Maturities of long-term debt are $12,886 in 1999 and $3,911 in 2000.

    The fair value of the long-term debt approximates the carrying value based
    on current rates for equipment obligations.



                                      F-10
<PAGE>
 
                               JENNA LANE, INC.

                         NOTES TO FINANCIAL STATEMENTS


8.  COMMITMENTS AND CONTINGENCIES

    Leases:

    The Company leases office and showroom space and equipment under leases
    extending to 2002.  The leases provide for payment by the Company of taxes
    and other expenses.  Rent expense was approximately $358,000 and $172,000
    for the years ended March 31, 1997 and 1996.

    Minimum rental payments under noncancellable operating leases are as
    follows:
 
    Fiscal year ending March:
 
               YEAR                             AMOUNT
               ----                             ------
 
               1998                          $  415,000
               1999                             315,000
               2000                             294,000
               2001                             275,000
               2002                              37,000
                                             ----------
 
                                             $1,336,000
                                             ==========
    Employment Agreements:

    In February 1997, the Company executed amended and restated three year
    employment agreements with two of its executives which, among other things,
    provide for aggregate annual base compensation of $500,000 and minimum
    bonuses plus profit participation, as defined.  The Company previously
    issued 514,286 shares of common stock to the executives, designated as
    "Performance Shares" (see Note 5).

    Letters of Credit:

    At March 31, 1997, the Company was contingently liable for open letters of
    credit aggregating approximately $1,309,000.

9.  SALES TO MAJOR CUSTOMERS

    For the year ended March 31, 1997, one customer accounted for approximately
    18% of sales.  For the year ended March 31, 1996, three customers each
    accounted for approximately 14%, 13% and 10% of sales, respectively.

10. ISSUANCE OF NOTES AND WARRANTS

    On August 16, 1996, pursuant to a unit purchase agreement (Bridge
    Financing), the Company issued an aggregate of $500,000 (principal amount)
    10% notes and 1,000,000 warrants.  The Bridge Notes were repaid in March
    1997 from the proceeds of the Company's initial public offering.  The
    warrants to purchase 1,000,000 shares of common stock at an exercise price
    of $7 per share, subject to adjustment, are exercisable for a period of
    three years.  The warrants contain various redemption and other provisions.


                                      F-11
<PAGE>
 
                               JENNA LANE, INC.

                         NOTES TO FINANCIAL STATEMENTS



11. INITIAL PUBLIC OFFERING

    In March 1997, the Company completed an initial public offering of 690,000
    units, at a public offering price of $10.125 per unit.  Each unit consists
    of two shares of common stock and one warrant.  Each warrant entitles the
    holder to purchase one share of common stock at an exercise price of $7,
    subject to adjustment, at any time until March 2000.  The net proceeds from
    the offering of approximately $5,352,000 were used to repay debt, acquire
    equipment and for general corporate purposes.

12. STOCK INCENTIVE PLAN

    In August 1996, the Company adopted an Incentive Stock Option Plan for
    employees (the Plan).  The Plan permits the issuance of stock options to
    selected employees (and consultants) of the Company.  The Company reserved
    600,000 shares of common stock for grant.  Options granted may be either
    nonqualified or incentive stock options and will expire not later than 10
    years from the date of grant.  In August 1996, options for 100,000 shares
    were granted and are exercisable at $3 per share.  In March 1997, options
    for 197,492 shares (including options for 14,166 shares outside the Plan)
    were granted and are exercisable (subject to vesting provisions) at $5 per
    share.

    Had compensation cost for the Company's stock-based compensation plan been
    determined based on the fair value at the grant date consistent with the
    requirements of Statement of Financial Accounting Standards No. 123,
    "Accounting for Stock-Based Compensation," the Company's net income and
    earnings per share in 1997 would have been reduced to the pro forma amounts
    indicated below:

    Net income - as reported          $136,260
    Net income - pro forma            $121,738
    Earnings per share:
       Primary - as reported          $    .03
       Primary - pro forma            $    .02
 
       Fully diluted - as reported    $    .03
       Fully diluted - pro forma      $    .02

    The fair value of each stock option grant has been estimated on the date of
    grant using the minimum value calculation for the options issued prior to
    the Company going public, and the Black-Scholes option pricing model for all
    other options with the following weighted-average assumptions:

    Risk-free interest rate        6.1%
    Expected life                  3.5 years
    Expected volatility             23%
    Expected dividend yield          0%

    The weighted-average grant date fair values of options granted during 1997
    was $1.12.

13. 401(K) PLAN

    In August 1996, the Company adopted a 401(k) profit sharing plan for
    eligible employees which provides for elective salary deferrals by employees
    and discretionary profit sharing contributions by the Company.

                                       F-12
<PAGE>
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

   Not Applicable

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

   The following sets forth certain information with respect to the directors,
executive officers and key employees of the Company.
<TABLE>
<CAPTION>
 
Name                   Age                             Position(s)
---------------------  ---  -----------------------------------------------------------------
<S>                    <C>  <C>
 
Mitchell Dobies         38  President, Treasurer, Co-Chief Executive Officer and Director
 
Charles Sobel           36  Co-Chief Executive Officer, Executive Vice President and Director
 
Eric Holtz              31  Director of Import Sales Group
 
Kathleen A. Dressel     31  Secretary
 
Jeffrey Marcus          43  Chief Financial Officer
 
Mitchell Herman         45  Director
 
Jay M. Haft             61  Chairman of the Board of Directors
 
Gerald Cohen            64  Director
</TABLE>

   Directors of the Company are elected annually at the annual meeting of
stockholders and serve until the next annual meeting and until their successors
are elected and qualify.  Under the Company's By-laws, the number of directors
constituting the entire Board of Directors shall be fixed, from time to time, by
the directors then in office or by the stockholders.  The directors may,
however,  decrease or increase the number of directors by majority action
without soliciting stockholder approval.  If the number of directors is not
fixed, the number shall be four.

   Walsh Manning Securities, LLC, the underwriter of the Company's initial
public offering ("Underwriter"), has the right to nominate one member of the
Board of Directors for a period of two years from the closing of the offering.

                                      16
<PAGE>
 
   As a condition to listing the Company's securities on Nasdaq, the Company was
required to ensure that independent directors represent a majority of the
members of the Board of Directors, and for one such independent director to
serve as Chairman.  Messrs. Herman, Cohen and Haft, each an independent
director,  represent a majority of the Board of Directors, and Mr. Haft serves
as Chairman of the Board of Directors.  There can be no assurance that Nasdaq
will not request further restrictions in the future, or that any other
securities exchange on which the Company desires to list its securities will not
request similar or more onerous restrictions.

   MITCHELL DOBIES.  Mr. Dobies is President, Co-Chief Executive Officer,
Treasurer, and a director of the Company.  Prior to founding Jenna Lane, Inc.,
Mr. Dobies had extensive experience in apparel manufacturing and operation with
both major organizations and entrepreneurial operations.  From 1986 until 1995
Mr. Dobies was President and Chief Executive Officer of CR & ME, Ltd. ("CR &
ME"), a vertically integrated domestic manufacturer of cut and sewn knit
sportswear. Upon information and belief, that Company has filed for liquidation
under Chapter 7 of the United States Code (i.e. the bankruptcy code).   From
1984 to 1986 he was Director of Operations of the Mens Division of Izod LaCoste,
a division of General Mills.  From 1982 to 1984 he was a shareholder and general
manager of Necessary  Objects, a moderate priced domestic manufacturer of
women's apparel, of which he was the founder.  From 1979 to 1981 he was a buyer
for a retail chain specializing in junior apparel.  See also, "Certain Legal
Issues Concerning Management," below.

   CHARLES SOBEL.  Charles Sobel is Co-Chief Executive Officer, Executive Vice
President and a director of the Company, and is in charge of all aspects of
sales and merchandising.  Mr. Sobel, a founder of the Company, has more than 13
years of experience in selling women's apparel and maintains an extensive
network of relationships with the senior management of most retail chains.  From
January, 1994 until February, 1995 Mr. Sobel was Executive Vice President of CR
& ME.  Upon information and belief, that Company has filed for liquidation under
Chapter 7 of the United States Code (i.e. the bankruptcy code).  From September,
1992  until  joining CR & ME he was the Vice President and Sales Manager for the
Women's Wear Division of Gitano Corporation.  From 1982 to 1992 he was a
Principal and Sales Manager of Style Up of  California, a manufacturer of
women's apparel and a division of Breton Industries.

   ERIC HOLTZ.  Mr. Holtz, Director of the Import Sales Group, has been with the
Company since January 1996.  From December 1994 to January 1996, he was
President of the Denim Division of Miss Juli Apparel.  From 1992 through
December 1994, Mr. Holtz was a sales representative for Pellini/True Blue.

   KATHLEEN A. DRESSEL.  Ms. Dressel, Secretary of the Company, has been
Operations Manager of the Company since its inception in March 1995.  From
September 1994 through March 1995, she was an Executive Assistant at CR & ME.
From April 1986 through September 1994 she was an Administrative Assistant to
the Senior Vice President of Merchandising of Jamesway Corporation, a regional
discount department store.

                                       17
<PAGE>
 
   JEFFREY MARCUS.  Mr. Marcus was named Chief Financial Officer of the Company
in April 1996.  Mr. Marcus has 20 years of experience in public and private
accounting.  From 1991 to April 1996, he was Vice President of Finance and
Administration for Biscayne Apparel International, Inc., a manufacturer and
importer of women's and children's outerwear.   In addition, Mr. Marcus was
Managing Director of Mackintosh (UK) Limited, a foreign subsidiary of Biscayne.
Prior to that, from 1981 to 1991, he was a Vice President and Controller within
the Biscayne organization.  Mr. Marcus is a certified public accountant and a
member of the American Institute of Certified Public Accountants and of the New
Jersey Society of Certified Public Accountants.

   MITCHELL HERMAN.  Mr. Herman became a director in March 1997.  Since 1995, he
has been Sales Manager of By Design, an apparel manufacturer.  From 1990-1995,
he was Sales Manager of E.S. Sutton, a manufacturer of knitwear.  He also has
previously been associated with Bradlees Department Stores, Jefferson Ward
Stores and J.W. Mays.

   GERALD COHEN.  Mr. Cohen became a director in March 1997.  He is a certified
public accountant and attorney who for the past five years has acted primarily
as a financial consultant advising businesses  in business combinations and
formations and general advisory work.  He has previously served on the boards of
directors of more than 12 public companies and several private companies.  Mr.
Cohen formerly served as personal accountant to Charles Sobel.

   JAY M. HAFT.  Mr. Haft became a director and Chairman of the Board in March
1997.  Mr. Haft is a strategic and financial consultant for growth stage
companies.  He is a Managing General Partner of Venture Capital Associates, Ltd.
and of Gen Am "I" Venture Fund, a domestic and international venture capital
fund, respectively.  Mr. Haft also is a director of numerous public and private
corporations, including Robotic Vision Systems, Inc., Noise Cancellation
Technologies, Inc., Extech Inc.,Healthcare Acquisition Corp., Viragen, Inc., PC
Service Source, Inc., DUSA Pharmaceuticals, Inc. and Oryx Technology Corp.  He
serves as Chairman of the Board of Noise Cancellation Technologies, Inc.,
Extech, Inc. and Healthcare Acquisition Corp.  He is also a member of the
Florida Commission on Government Accountability to the People.  He is currently
of counsel to Parker Duryee Rosoff & Haft, a New York City law firm.  He was
previously a senior partner of that firm from 1989-1994, and prior to that was a
founding partner of Wofsey, Certilman, Haft, et al, from 1966-1988.  He is a
graduate of Yale College and Yale Law School.

CERTAIN LEGAL ISSUES CONCERNING MANAGEMENT

    In 1991, Mr. Dobies was convicted by a state court in Essex County, New
Jersey, of theft in the third degree (a low-grade felony) of certain materials
from a contractor of CR & ME, his former employer.  Mr. Dobies agreed to a plea
bargain, after which he received probation and community service.  Mr. Dobies
maintains that the only items he removed from the supplier's location were those
owned by CR & ME, but did not believe it was in his or CR & ME's best interest
to pursue a trial in the matter.

                                       18
<PAGE>
 
   As a condition to listing the Company's securities on Nasdaq, the Company is
required to ensure that (i) independent directors represent a majority of the
members of the Board of Directors, and for one such independent director to
serve as Chairman and (ii) Messrs. Dobies and Sobel agree not to sell or
otherwise dispose of any securities of the Company beneficially owned by them
(other than certain shares sold by them in the Company's initial public
offering) for a period of two years from the effective date of the initial
public offering.  There can be no assurance that Nasdaq will not request further
restrictions in the future, or that any other securities exchange on which the
Company desires to list its securities will not request similar or more onerous
restrictions.

RESTRICTIONS CONTAINED IN AGREEMENTS WITH FORMER EMPLOYER

   Mr. Dobies has entered into an agreement with the shareholders of CR & ME,
and Mr. Sobel has entered into an agreement with CR & ME, both of which
agreements were in connection with their termination of employment with CR & ME
in early 1995 and certain other matters.  Since Messrs. Dobies and Sobel's
departure from CR & ME, upon information and belief, that company has filed for
liquidation under Chapter 7 of the United States Code (i.e. the bankruptcy
code).  Mr. Sobel's agreement (pursuant to which his employment was terminated)
provides that he must "refrain from actively seeking other employment" during
the eight week period which ended on March 3, 1995 and that during that period
he may not attend interviews with competing employers.  Management believes that
Mr. Sobel neither attended an interview with the Company nor did he actively
seek employment with the Company during this period.  An action brought by Mr.
Sobel against CR & ME and its principals, which included certain counterclaims
by the principals, was settled with prejudice.  CR & ME has commenced adversary
proceedings (akin to litigation within a bankruptcy proceeding) against Messrs.
Dobies and Sobel alleging, among other things, that certain payments made to
them by CR & ME were improper "insider" payments that must be returned. The
Company is not named in these proceedings.  The action against Mr. Sobel was
settled with prejudice.  Neither the Company nor Mr. Dobies can predict the
outcome of such proceeding.  In addition, both Mr. Dobies' and Mr. Sobel's
agreements provide that they may not "induce or attempt to induce" any employee
of CR & ME (or an affiliate thereof, in Mr. Dobies' case) to leave without prior
approval from CR & ME's Board of Directors.  The agreements state, however, that
the individuals may hire any employee who has been discharged or has left of his
or her own volition.  To date, the Company has hired a number of former CR & ME
employees, all of which employees the Company believes were terminated or
discharged.  Notwithstanding this, CR & ME might claim a violation of the
foregoing provisions. Management believes, however, that if CR & ME is able to
succeed in preventing the Company from hiring any individual formerly in its
employ, the Company would not have great difficulty finding other qualified
candidates to fill roles intended for any such individuals.  Further, there can
be no assurance that Messrs. Dobies and Sobel's actions prior to the date hereof
might not be interpreted as inducing or attempting to induce certain of CR &
ME's employees to join the Company.

                                       19
<PAGE>
 
DIRECTORS' COMPENSATION

   The Company currently pays $1,000 per meeting (plus travel and related
expenses) to members of the Board of Directors who are not employees of the
Company.  On March 12, 1997, the Board of Directors granted 2,500 ten-year stock
options, outside the Company's 1996 Incentive Stock Option Plan (the "Option
Plan"), to each of Messrs. Haft, Herman and Cohen, which were effective on March
19, 1997.

   Further, in June 1996, the Company paid Lawrence Kaplan, a former director,
compensation in the form of 57,143 shares of Common Stock designated as
"Performance Shares" as an inducement for him to continue to serve as a director
of the Company.  With respect to the Performance Shares, (a) one-half of these
shares ("One Half") shall be repurchased by the Company for the par value
thereof in the event that the Company does not achieve net income before taxes
("Net Income") of at least $2.0 million during the period of April 1, 1997
through March 31, 1998 ("1998 Fiscal Year"), provided that (i) only one-half of
such One Half shall be repurchased by the Company in the event that the Company
achieves Net Income for the 1998 Fiscal Year of at least $1.5 million but less
than $1.75 million, and (ii) only one-quarter of such One Half shall be
repurchased by the Company in the event that the Company achieves Net Income for
the 1998 Fiscal Year of at least $1.75 million but less than $2.0 million, and
(b) One Half shall be repurchased by the Company for the par value thereof in
the event that the Company does not achieve Net Income of at least $2.5 million
during the period of April 1, 1998 through March 31, 1999 ("1999 Fiscal Year"),
provided that (x) only one-half of such One Half shall be repurchased by the
Company in the event that the Company achieves Net Income for the 1999 Fiscal
Year of at least $2.25 million but less than $2.5 million.  Net Income, for
purposes of the foregoing calculations, will exclude any tax deduction obtained
by the Company solely on account of the issuance of the Performance Shares and
all similar Performance Shares issued to directors and members of management of
the Company.  These shares, unlike the Performance Shares owned by Messrs.
Dobies and Sobel (see "Item 11 - Executive Compensation," below), otherwise are
not subject to vesting or any other requirement that Mr. Kaplan remain as a
director of the Company for any specified period.  In February 1997, Mr. Kaplan
resigned as a director of the Company.

COMMITTEES OF THE BOARD OF DIRECTORS

   The Board of Directors includes an Audit Committee consisting of Messrs.
Dobies, Haft and Cohen.  The Audit Committee reviews (i) the Company's audit
functions, (ii) with management, the finances, financial condition and interim
financial statements of the Company, (iii) with the Company's independent
auditors, the year end financial statements of the Company and (iv) the
implementation of any action recommended by the independent auditors.

                                       20
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION.

   The following Summary Compensation Table sets forth all cash compensation
paid by the Company, as well as certain other compensation paid or accrued, to
certain executive officers during the fiscal years ended March 31, 1997, 1996
and 1995.  No other executive officer of the Company received salary and bonus
compensation in excess of $100,000 during such fiscal years.  The full Board of
Directors of the Company determines all compensation with regard to the highest
paid executives in the Company, taking into account such factors as they deem
appropriate.
<TABLE>
<CAPTION>
 
                                                  ANNUAL COMPENSATION          LONG TERM COMPENSATION
                                            --------------------------------  ------------------------
                                                                    Other       Restr.     Securities
                                                                    Annual      Stock      Underlying
Name,Principal Position             Year     Salary     Bonus       Comp.       Awards     Options
-------------------------------  ---------  --------  ----------  ----------  ----------  ------------
<S>                              <C>        <C>       <C>         <C>         <C>         <C>
 
Mitchell Dobies                    1997     $216,346  $15,000(2)  $50,074(4)         --            (5)
President and Co-Chief             1996     $200,000  $15,000(2)  $36,760(4)         --            --
Executive Officer                  1995     $  7,692      -0-         -0-            (1)           --
 
Charles Sobel                      1997     $225,000  $57,000(2)  $50,074(4)         (3)           (5)
Executive Vice President           1996     $200,000  $15,000(2)  $36,760(4)         --            --
and Co-Chief Executive             1995     $  7,692      -0-         -0-            (1)           --
Officer
 
Eric Holtz                         1997     $150,000  $11,000(2)  $ 7,080(6)         --            (6)
Director of Import                 1996     $ 28,846      -0-     $ 1,689(6)         --            --
Sales Group                        1995(6)
</TABLE>

____________________

(1)Messrs. Dobies and Sobel each received 222,857 Performance Shares in March
   1995.  There was no ascertainable closing market price of the Company's
   unrestricted stock on the date of grant.  See "Employment Agreements," below.

(2)Includes cash bonuses accrued during the fiscal year in question but not
   paid until shortly after the end of the fiscal year in question.

(3)Mr. Sobel received 68,571 Performance Shares in June 1996.  There was no
   ascertainable closing market price of the Company's unrestricted stock on the
   date of grant.  See "Employment Agreements," below.

(4)Includes the following: (i) health insurance to these individuals and
   their families and (ii) an expense/auto allowance and expense reimbursement
   to Messrs. Dobies and Sobel of $2,500 per month each during the fiscal year
   ended March 31, 1996 and $3,500 per month each during the fiscal year ended
   March 31, 1997.

(5)On August 16, 1996, Messrs. Dobies and Sobel each were granted 25,000
   options under the Option Plan which are exercisable at $3.00 per share and
   which have fully vested.  On February 1, 1997, Messrs. Dobies and Sobel each
   were granted 25,000 options under the Option Plan which are exercisable at
   $5.00 per share and which vest ratably over a three-year period.

(6)Mr. Holtz was not employed by the Company during the fiscal year ended
   March 31, 1995.  His employment with the Company commenced in January 1996.
   On August 16, 1996, Mr. Holtz was granted 50,000 options under the Option
   Plan which are exercisable at $3.00 per share and which have fully vested.
   On February 1, 1997, Mr. Holtz was granted 50,000 options under the Option
   Plan which are exercisable at $5.00 per share and which vest ratably over a
   three-year period.  Other annual compensation includes health insurance for
   Mr. Holtz and his family.

                                       21
<PAGE>
 
                       OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                    
                                                           Percent of Total                                   
                                                           Options Granted          Exercise                       
                                    Number Securities      to Employees in          or Base     Expiration  Grant Date 
Name                                Underlying Option(#)   Fiscal Year              Price          Date     Value (3)
---------------------------  ----------------------------  -------------------     ---------    ---------  ----------
                             
<S>                          <C>                           <C>                      <C>         <C>         <C>
 
Mitchell
Dobies                                          25,000(1)                8.8%       $3.00        8/15/2006      $2.70
                                                25,000(2)                8.8%       $5.00        3/19/2007      $4.50
                                                                                                               
Charles                                                                                                        
Sobel                                           25,000(1)                8.8%       $3.00        8/15/2006      $2.70
                                                25,000(2)                8.8%       $5.00        3/19/2007      $4.50
                                                                                                               
Eric                                                                                                           
Holtz                                           50,000(1)              17.65%       $3.00        8/15/2006      $2.70
                                                50,000(2)              17.65%       $5.00        3/19/2007      $4.50
----------------------
</TABLE>
(1) Represents options granted under the Option Plan on August 16, 1996.
(2) Represents options granted under the Option Plan on February 1, 1997 and
    effective March 19, 1997.
(3) Figures represent estimates made by the Company.  There was no public
    market for the Company's securities on the date of grant.

   No options were exercised during the fiscal year ended March 31, 1997.


EMPLOYMENT AGREEMENTS

Mitchell Dobies and Charles Sobel

   Mr. Dobies and Mr. Sobel each has executed an Amended and Restated Employment
Agreement, dated as of February 1, 1997, with the Company (the "Dobies/Sobel
Agreements"), which provides for (i) a three-year term ending January 31, 2000
(automatically renewable thereafter from year to year if not terminated); (ii) a
base salary of $225,000 (plus expense allowance of $3,500 monthly) through March
31, 1997, $250,000 (plus expense allowance of $3,500 monthly) during the 1998
Fiscal Year, $275,000 (plus expense allowance of $3,834 monthly) during the 1999
Fiscal Year and $300,000 (plus expense allowance of $4,167 monthly) for the
period from April 1, 1999 through March 31, 2000; (iii) health insurance
coverage for each such individual and his family (or reimbursement for
reasonable personal expense therefor); (iv) the right to receive such portion of
the Management Profit Participation (as defined below) as is determined by the
Board of Directors; (v) 222,857 Performance Shares for Mr. Dobies; (vi) 291,429
Performance Shares for Mr. Sobel and (vii) minimum bonuses of $15,000 for Mr.
Dobies and for Mr. Sobel.  Mr. Sobel also received an additional minimum bonus,
solely for the year ended March 31, 1997, equal to $32,000.  The Dobies/Sobel
Agreements also include non-competition, confidentiality and non-solicitation
provisions.

   The Company has agreed to set aside 12-1/2% of the Company's pre-tax profit,
with a 

                                       22
<PAGE>
 
minimum of $100,000 in the aggregate (if pre-tax profit exceeds one
million dollars), to the extent above one million dollars, each fiscal year for
payment to members of management ("Management Profit Participation"), to be
divided among such members of management as the Board of Directors shall
determine.

   The Company also has issued the number of Performance Shares to Messrs.
Dobies and Sobel as indicated above, (a) one-half of these shares ("One Half")
shall be repurchased by the Company for the par value thereof in the event that
the Company does not achieve Net Income of at least $2.0 million during the 1998
Fiscal Year, provided that (i) only one-half of such One Half shall be
repurchased by the Company in the event that the Company achieves Net Income for
the 1998 Fiscal Year of at least $1.5 million but less than $1.75 million, and
(ii) only one-quarter of such One Half shall be repurchased by the Company in
the event that the Company achieves Net Income for the 1998 Fiscal Year of at
least $1.75 million but less than $2.0 million, and (b) One Half shall be
repurchased by the Company for the par value thereof in the event that the
Company does not achieve Net Income of at least $2.5 million during the 1999
Fiscal Year, provided that (x) only one-half of such One Half shall be
repurchased by the Company in the event that the Company achieves Net Income for
the 1999 Fiscal Year of at least $2.25 million but less than $2.5 million.  Net
Income, for purposes of the foregoing calculations, will exclude any tax
deduction obtained by the Company solely on account of the issuance of the
Performance Shares and all similar Performance Shares issued to directors and
members of management of the Company.

   In addition, the retention of the Performance Shares by Messrs. Dobies and
Sobel is subject to vesting, as follows: all of the Performance Shares shall be
repurchased by the Company for the par value thereof upon termination of such
person's employment with the Company in the event that his employment shall
terminate after March 31, 1998, if such termination is by the Company for Cause
or by Mr. Dobies or Sobel for Good Reason (each as defined below); and one-half
of which Performance Shares shall be repurchased by the Company for the par
value thereof upon termination of such person's employment with the Company in
the event that his employment shall terminate after March 31, 1998 and prior to
March 31, 1999, if such termination is by the Company for Cause or by Mr. Dobies
or Mr. Sobel for Good Reason (each as defined below).  As indicated above, these
vesting restrictions do not apply to the Performance Shares issued to Lawrence
Kaplan, a former director of the Company, who has retained his Performance
Shares even though he has resigned as a director of the Company.

   The Dobies/Sobel Agreements also contain provisions for termination by the
Company upon the death or disability of Mr. Dobies or Mr. Sobel, respectively,
or for Cause, which is defined as a nonappealable judicial determination of his
malfeasance or dishonesty with respect to actions related to the Company, or
conviction or plea of guilty or no contest of any felony or any crime against
the Company or certain failures to act upon express lawful direction of the
Board of Directors.  Mr. Dobies or Mr. Sobel also may terminate their respective
Dobies/Sobel Agreement for Good Reason, defined as (i) after 30 days' written
notice and opportunity to cure, any breach of the terms of the applicable
Dobies/Sobel Agreement by the Company or (ii) a 

                                       23
<PAGE>
 
Change in Control. The Dobies/Sobel Agreements define Change in Control as (i)
the acquisition by a person of 20% or more of the combined voting power of the
Company, unless more than 80% of the Board of Directors decides that no change
in control has occurred (provided, however, if a person has acquired one-third
of the voting power of the company a Change in Control shall be deemed to have
occurred), (ii) if there be a change in the majority membership of the Board of
Directors pursuant to a sale of at least 10% of the equity of the company to a
third party, and at least 80% of all the members of the Board of Directors prior
to such change approve such change in membership or (iii) certain changes in
control as defined under the Securities Exchange Act of 1934, as amended, unless
three-quarters of the Board prior to such change determine that no change in
control has occurred. The Dobies/Sobel Agreements provide for certain severance
payments upon termination by Mr. Dobies or Mr. Sobel for Good Reason, or by the
Company for any reason other than Cause.

Eric Holtz

   Eric Holtz, Director of the Company's Import Sales Group, executed an
employment agreement with the Company on May 21, 1997 (the "Holtz Agreement").
The Holtz Agreement provides for (i) a one-year term (subject to renewal on a
year to year basis if not terminated), provided, that either party may terminate
the Holtz Agreement upon 90 days' written notice (or no notice in the event of
Cause (as defined below); (ii) commissions which commence at 1% of sales made by
him and increase to 7% or more depending upon Gross Profit (defined as the
difference between the sales price of a particular piece of goods sold and the
cost per piece of such goods, divided by the sales price of such piece) earned
on such sales; (iii) a 1% override on other import sales not generated by him
individually; (iv) a $150,000 per year draw against commissions and overrides,
provided, that (a) after the first year of the term, the draw shall not be less
than 80% of his aggregate compensation (excluding any expense allowance) in the
previous year of the term of the Holtz Agreement, (b) if the draw is to be
reduced, in no event shall such adjustment be to an amount less than 100% of his
aggregate commission and override earned during the previous year of the term of
the Holtz Agreement, and (c) if his employment is terminated for Cause or Mr.
Holtz terminates his employment at any time after January 31, 1998, if the
amount of draw since the beginning of the most recent year of the term of the
Holtz Agreement exceeds the sum of his entitlements to commission and override,
such excess shall be returned to the Company; (v) a $2,000 per month expense
allowance, plus reimbursement of business expenses incurred on behalf of the
Company; (vi) participation in the Management Profit Participation; (vii) a
minimum bonus of $7,500 during the first year of the term, and thereafter an
amount equal to one-half of the bonus paid to the President; and (viii)
perquisites comparable to Messrs. Dobies and Sobel, including health insurance
for him and his family.

         The Holtz Agreement also includes non-competition, confidentiality and
non-solicitation provisions. It also provides that he will be entitled to
receive commissions and override on sales completed within six months after his
departure, so long as sales efforts had been substantially undertaken prior to
his departure. Cause is defined in a substantively similar manner to those
contained in the Dobies/Sobel Agreements.

                                      24
<PAGE>
 
          The Holtz Agreement also contemplates the issuance of certain stock
options to Mr. Holtz, including 50,000 options which were granted on August 16,
1996 and exercisable at $3.00 per share, 50,000 options which were granted on
February 1, 1997, became effective on March 19, 1997 and are exercisable at
$5.00 per share, and 70,000 options (the "1998 Options"), which the Company
agreed to use its best efforts (subject to applicable tax and other legal
requirements) to cause the Board of Directors to grant to him on April 1, 1998,
at 100% of the then market value of the Common Stock (the "Market Value"). If,
for any reason, the Board of Directors does not grant the 1998 Options other
than as a result of Mr. Holtz's termination of employment, the Company will, to
the extent permitted by applicable law, issue to Mr. Holtz nonqualified stock
options, outside of the Option Plan, to purchase such shares at the Market
Value.

          The Holtz Agreement provides for certain severance and other payments
upon termination of his employment, death or disability.

Incentive Stock Option Plan

          In August 1996, the Company adopted the Option Plan by written consent
of all the directors and a majority of the stockholders of the Company. The
Option Plan will be administered by the Board of Directors (or by a committee of
the Board of Directors, if one is appointed for this purpose), provided that
members of the Board of Directors who are either eligible for Awards (as defined
below) or have been granted Awards may not vote on any matters affecting the
administration of the Plan or the grant of any Award pursuant to the Plan to the
extent required in accordance with Rule 16b-3 promulgated under the Exchange Act
and Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). In the event any employee granted an Award under the Option Plan is, at
the time of such grant, a member of the Board of Directors of the Company, the
grant of such Award shall, in the event the Board of Directors at the time such
award is granted is not deemed to satisfy the requirement of Rule 16b-3(c)(2)
promulgated under the Exchange Act, be subject to the approval of an auxiliary
committee consisting of not less than two persons all of whom qualify as
"disinterested persons" within the meaning of Rule 16b-3(c)(2) promulgated under
the Exchange Act. In the event the Board of Directors deems it impractical to
form a committee of disinterested persons, the Board of Directors is authorized
to approve any Award under the Option Plan. The Option Plan shall remain in
effect for a term of ten (10) years from August 16, 1996, its date of adoption,
unless sooner terminated under the terms of the Option Plan.

          The Option Plan provides for the granting of incentive stock options
(within the meaning of Section 422 of the Code) and nonqualified stock options
(individually, an "Award" or collectively, "Awards"), to those officers of
other key employees, or consultants, with potential to contribute to the future
success of the Company or its subsidiaries, provided, that only employees may be
granted incentive stock options. The Board of Directors has discretion to select
the persons to whom Awards will be granted (from among those eligible), to
determine the type, size and terms and conditions applicable to each Award and
the authority to interpret, construe and implement the provisions of the Option
Plan. Notwithstanding the foregoing, with

                                      25

<PAGE>
 
respect to incentive stock options, the aggregate fair market value (determined
at the time such Award is granted) of the shares of Common Stock with respect to
which incentive stock options are exercisable for the first time by such
employee during any calendar year shall not exceed $100,000 under all plans of
the employer corporation or its parent or subsidiaries. The Board of Directors'
decisions are binding on the Company and persons eligible to participate in the
Option Plan and all other persons having any interest in the Option Plan.

          The total number of shares of Common Stock that may be subject to
Awards under the Option Plan is 600,000, subject to adjustment in accordance
with the terms of the Option Plan. The Company has agreed with the Underwriter
that, commencing on April 1, 1997, no more than 150,000 shares of Common Stock
subject to Awards may be granted during any single fiscal year of the Company
under the Option Plan, provided, that the Underwriter has consented to the
granting of 147,492 Options under the Plan and outside the Plan which were
otherwise to be granted during the fiscal year ended April 30, 1998. Common
Stock issued under the Option Plan may be either authorized but unissued shares,
treasury shares or any combination thereof. To the fullest extent permitted
under Rule 16b-3 under the Exchange Act and Sections 162(m) and 422 of the
Code, any shares of Common Stock subject to an Award which lapses, expires or is
otherwise terminated prior to the issuance of such shares may become available
for new Awards.

          The Company granted, on August 16, 1996, an aggregate of 100,000
Awards as follows: 25,000 Awards to Mitchell Dobies, 25,000 Awards to Charles
Sobel and 50,000 Awards to Eric Holtz. All options which are the subject of such
Awards have fully vested and are currently exercisable at $3.00 per share. The
Company granted, on February 1, 1997, an aggregate of 100,000 Awards as follows:
25,000 Awards to Mitchell Dobies, 25,000 Awards to Charles Sobel and 50,000
Awards to Eric Holtz. All options which are the subject of such Awards vest one-
third each on April 1, 1998, April 1, 1999 and April 1, 2000 (the "Vesting
Dates") and will be exercisable at $5.00 per share. On March 12, 1997, the
Company granted an aggregate of 83,326 Awards to 25 employees (excluding Messrs.
Dobies, Sobel and Holtz). All options which are the subject of such Awards vest
one-third each on each of the Vesting Dates and will be exercisable at $5.00 per
share. On March 12, 1997, the Company also granted an aggregate of 14,166 stock
options outside of the Option Plan to the three independent members of the Board
of Directors (2,500 each), to the Company's outside securities counsel (1,666)
and to an individual who has provided assistance in the Company's production
efforts (5,000). None of these individuals was eligible to participate in the
Option Plan. These non-Plan options vest one-third each on each of the Vesting
Dates and will be exercisable at $5.00 per share. None of the options described
in this paragraph has been exercised since the date of their grant.

         Options tO purchase Common Stock granted as Awards ("Options"), which
may be nonqualified or incentive stock options, may be granted under the Option
Plan at an exercise price (the "Option Price") determined by the Board of
Directors in its discretion, provided, that the Option Price of incentive stock
options may be no less than the fair market value of the underlying Common Stock
on the date of grant (110% of fair market value in the case of an

                                      26

<PAGE>
 
incentive stock option granted to a ten percent stockholder).

         Options will expire not later than ten years after the date on which
they are granted. Options become exercisable at such times and in such
installments as determined by the Board of Directors. Notwithstanding the
foregoing, however, each Option shall, except as otherwise provided in the stock
option agreement between the Company and an optionee, become exercisable in full
for the aggregate number of shares covered thereby unconditionally on the first
day following the occurrence of any of the following: (a) the approval by the
stockholders of the Company of an Approved Transaction; (b) a Control Purchase;
or (c) a Board Change (each as defined below).

         For purposes of the Option Plan, (i) an "Approved Transaction" shall
mean (A) any consolidation or merger of the Company in which the Company is not
the continuing or surviving corporation or pursuant to which shares of Common
Stock would be converted into cash, securities or other property, other than a
merger of the Company in which the holders of Common Stock immediately prior to
the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (B) any sale, lease,
exchange, or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or (C)
the adoption of any plan or proposal for the liquidation or dissolution of the
Company; (ii) a "Control Purchase" shall mean circumstances in which any person
(as such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act,
corporation or other entity (other than the Company or any employee benefit plan
sponsored by the Company or any Subsidiary) (x) shall purchase any Common Stock
of the Company (or securities convertible into the Company's Common Stock) for
cash, securities or any other consideration pursuant to a tender offer or
exchange offer, without the prior consent of the Board of Directors, or (y)
shall become the "beneficial owner" (as such term is defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power of
the then outstanding securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the election
of directors (calculated as provided in paragraph (d) of such Rule 13d-3 in the
case of rights to acquire the Company's securities), and (iii) A "Board Change"
shall mean circumstances in which, during any period of two consecutive years or
less, individuals who at the beginning of such period constitute the entire
Board shall cease for any reason to constitute a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of each
new director was approved by a vote of at least a majority of the directors then
still in office.

         In the event that dividends are payable in Common Stock or in the event
there are splits, subdivisions or combinations of shares of Common Stock, the
number of shares available under the Option Plan shall be increased or decreased
proportionately, as the case may be, and the number of shares delivered upon the
exercise thereafter of any Option theretofore granted or issued shall be
increased or decreased proportionately, as the case may be, without change in
the aggregate purchase price.

                                      27

<PAGE>
 
         In the event that an Option holder ceases to be an employee for any
reason other than permanent disability (as determined by the Board of Directors)
and death, any Option, including any unexercised portion thereof, which was
otherwise exercisable on the date of termination, shall expire unless exercised
within a period of three months from the date on which the Option holder ceased
to be so employed, but in no event after the expiration of the exercise period.
In the event of the death of an Option holder during this three month period,
the Option shall be exercisable by his or her personal representatives, heirs or
legatees to the same extent that the Option holder could have exercised the
Option if he or she had not died, for the three months from the date of death,
but in no event after the expiration of the exercise period. In the event of the
permanent disability of an Option holder while an employee, any Option granted
to such employee shall be exercisable for twelve (12) months after the date of
permanent disability, but in no event after the expiration of the exercise
period. In the event of the death of an Option holder while an employee, or
during the twelve (12) month period after the date of permanent disability of
the Option holder, that portion of the Option which had become exercisable on
the date of death shall be exercisable by his or her personal representatives,
heirs or legatees at any time prior to the expiration of one (l) year from the
date of the death of the Option holder, but in no event after the expiration of
the exercise period. Except as the Board of Directors shall provide otherwise,
in the event an Option holder ceases to be an employee for any reason, including
death, prior to the lapse of the waiting period, his or her Option shall
terminate and be null and void.

         The Board of Directors may at any time alter, amend, suspend or
discontinue the Option Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any recipient of
an Option under any agreement theretofore entered into under the Option Plan,
without his consent, or which, without the requisite vote of the stockholders of
the Company approving such action, would:

         (a) except as is provided in the Option Plan, increase the total number
of shares of stock reserved for the purposes of the Option Plan; or

         (b) extend the duration of the Option Plan; or
   
         (c) materially increase the benefits accruing to participants under the
             Option Plan; or

         (d) change the category of persons who can be eligible participants
under the Option Plan. Without limiting the foregoing, the Board of Directors
may, any time or from time to time, authorize the Company, without the consent
of the respective recipients, to issue new Options in exchange for the surrender
and cancellation of any or all outstanding Options.

401(k) Savings Plan

         Effective August 1, 1996, the Company established the Jenna Lane, Inc.
401(k) Plan (the "401(k) Plan") under Section 401(k) of the Code. Under the
401(k) Plan, employees may

                                      28

<PAGE>
 
contribute up to 25% of their compensation per year subject to elective limits
as defined by the guidelines of the Internal Revenue Service, and the Company
may make profit sharing contributions to the Plan in such amount, if any, that
it shall determine, provided, that the Company has agreed with the Underwriter
that, for the first two years of operation of the 401(k) Plan, the Company
shall not make a contribution in excess of an amount equal to five percent (5%)
of the amount of earnings before interest and taxes of the Company in excess of
$1 million. Any contributions by the Company will be allocated as an equal
percentage of each eligible participant's compensation for the applicable year
during the 401(k) Plan. The Company has made no contributions to the 401(k) Plan
since its inception.

Limitation of Liability

          The General Corporation Law of the State of Delaware permits a
corporation through its Certificate of Incorporation to eliminate the personal
liability of its directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty with certain exceptions. The exceptions
include a breach of fiduciary duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
improper declarations of dividends, and transactions from which the directors
derived an improper personal benefit. The Company's Certificate of Incorporation
exonerates its directors from monetary liability to the fullest extent permitted
by this statutory provision but does not restrict the availability of non-
monetary and other equitable relief.

          The Company believes that it is the position of the Securities and
Exchange Commission that insofar as the foregoing provision may be invoked to
disclaim liabilities arising under the Securities Act of 1933, as amended, the
provision is against public policy as expressed in the Securities Act and is
therefore unenforceable. Such limitation of liability also does not affect the
availability of injunctive relief or rescission.

         The Company intends to enter into Indemnification Agreements with each
of its directors and executive officers. Each such Indemnification Agreement is
expected to provide that the Company will indemnify the indemnitee against
expenses, including reasonable attorney's fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any civil or criminal action or administrative proceeding arising out of
the performance of his duties as an officer, director, employee or agent of the
Company. Indemnification will be available if the acts of the indemnitee were in
good faith, if the indemnitee acted in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and, with respect to any
criminal proceeding, the indemnitee had no reasonable cause to believe his
conduct was unlawful.

                                      29
<PAGE>
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The following table sets forth information as of June 15, 1997,
information relating to each executive officer and director and any person who
is known to the Company to be the beneficial owner of more than five percent of
the Company's voting securities, and all executive officers and directors as a
group.

         Name of Beneficial Owners (1)               Number   Percent
         -----------------------------               ------   -------

         Mitchell Dobies (2).....................   752,381     17.54%
         President, Co-Chief Executive Officer,     
         Director                                   
                                                    
         Charles Sobel (2).......................   715,714     16.68%
         Executive Vice President, Co-Chief         
         Executive Officer, Director                
                                                    
         Jay M. Haft (4).........................    47,620      1.11%
         Chairman of the Board of Directors         
                                                    
         Mitchell Herman, Director (5)...........   - 0 -        -
                                                    
         Gerald Cohen, Director (6)..............   - 0 -        -
                                                    
         Kathleen A. Dressel, Secretary(2).......   - 0 -        -
                                                    
         Jeffrey Marcus, Chief Financial            
         Officer (2).............................   - 0 -        -
                                                    
         Eric Holtz, Director of Import             
         Sales Group (2).........................   - 0 -        -
                                                    
         Lawrence Kaplan (2)(3)..................   489,669     11.41%
                                                    
         A11 current executive officers and         
         directors as a group (6 persons)........ 1,515,715     35.33%

----------

(1) Unless otherwise indicated herein and subject to applicable community
property laws, each stockholder has sole voting and investment power with
respect to all shares of Common Stock beneficially owned by such stockholder and
directly owns all such shares in such stockholder's sole name. Does not include
options to purchase Common Stock currently outstanding under the Option Plan.
See "Item 11 - Executive Compensation."

                                      30

<PAGE>
 
(2) Includes 222,857 Performance Shares for Mr. Dobies, 291,429 Performance
Shares for Mr. Sobel and 57,143 Performance Shares for Lawrence Kaplan. Does not
include shares underlying options granted under the Option Plan and exercisable
within 60 days after June 15, 1997. Mailing address for Messrs. Dobies, Sobel,
Holtz and Marcus and Ms. Dressel is c/o Jenna Lane, Inc., 1407 Broadway, Suite
1801, New York, New York 10018.

(3) Mailing address for Mr. Kaplan is 150 Vanderbilt Motor Parkway, Suite 311,
Hauppauge, New York 11788. Includes an aggregate of 19,048 shares of Common
Stock owned by Helaine Kaplan as custodian for Michelle Kaplan and Robert
Kaplan. Also includes 95,238 shares of Common Stock owned jointly with Helaine
Kaplan. Helaine Kaplan is Lawrence Kaplan's wife. Also includes 95,238 shares of
Common Stock owned by G-V Capital Corp., of which Mr. Kaplan is sole
shareholder, officer and director. Also includes 9,524 shares of Common Stock
owned by OK Associates Pension Trust, of which Mr. Kaplan is a co-trustee. Does
not includes shares owned of a public company, a subsidiary of which owns 95,238
shares of Common Stock, and which indirectly controls Universal Partners, L.P.,
which owns 19,048 shares of Common Stock. Does not include shares of Common
Stock underlying 175,000 Warrants owned by Mr. Kaplan.

(4) All such shares owned by Clayre Haft, Mr. Haft's wife. Mr. Haft's address is
201 S. Biscayne Blvd., Miami, Florida 33131. Mr. Haft disclaims ownership of
such shares.

(5) Mr. Herman's address is c/o By Design, Ltd., 1411 Broadway, 29th Floor, New
York, NY 10018.

(6) Mr. Cohen's address is c/o Weiss & Company, 22 West 38th St., 12th Floor,
New York, NY.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

   In March 1997, Eric Holtz entered into the Holtz Agreement with the Company.
In February 1997, Mitchell Dobies and Charles Sobel entered into the
Dobies/Sobel Agreements with the Company. See "Executive Compensation -
Employment Agreements."

   In June 1996, Mr. Sobel was issued 68,571 Performance Shares.
   
   As part of the Company's initial public offering, Mitchell Dobies sold 30,000
shares of Common Stock to the public at a price of $5.00 per share (less
underwriting discounts and commissions) and Charles Sobel sold 60,000 shares of
Common Stock to the public at a price of $5.00 per share (less underwriting
discounts and commissions), all as part of the Underwriter's exercise of its
overallotment option.

   Gerald Cohen, a director of the Company, was formerly the personal accountant
to Charles

                                      31

<PAGE>
 
Sobel.

   Lawrence Kaplan, a former director of the Company who may be deemed to be a
promoter of the Company, is the sole shareholder, officer and director of G-V
Capital Corp., a registered broker-dealer which served as placement agent for a
private placement of the Company's securities in April 1995 and was an officer,
director and principal shareholder of Gro-Vest Management Consultants, Inc.
("GVMCI"), which received certain fees from the Company from January through
July 1997. GVMCI has terminated all business activities and has returned all
fees earned to the Company. During the last fiscal year of the Company, Mr.
Kaplan received 57,143 Performance Shares and purchased 175,000 Warrants.


                                      32

<PAGE>
 
                             PART IV
                            
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

   (a) Exhibits
   
EXHIBIT
NUMBER  DESCRIPTION
------- -----------

1.1     Form of Underwriting Agreement between the Company and the Underwriter
        (incorporated by reference to registrant's Registration Statement on
        Form S-1, registration number 333-11979)
1.2     Form of Warrant Agreement among the Company, the Underwriter and
        American Stock Transfer Company, as warrant agent (incorporated by
        reference to registrant's Registration Statement on Form S-1,
        registration number 333-11979)
3.1     Certificate of Incorporation of Registrant (incorporated by reference to
        registrant's Registration Statement on Form S-1, registration number 
        333-11979)
3.3     By-laws of Registrant (incorporated by reference to registrant's
        Registration Statement on Form S-1, registration number 333-11979)
4.1     Specimen common stock certificate (incorporated by reference to
        registrant's Registration Statement on Form S-1, registration number
        333-11979)
4.2     Specimen preferred stock certificate (incorporated by reference to
        registrant's Registration Statement on Form S-1, registration number
        333-11979)
4.3     Form of Underwriter's Warrant for the Purchase of Units (incorporated by
        reference to registrant's Registration Statement on Form S-1,
        registration number 333-11979)
4.4     Form of Warrant Agreement between the Company and American Stock
        Transfer Company, as warrant agent (incorporated by reference to
        registrant's Registration Statement on Form S-1, registration number 
        333-11979)
10.1    Amended and Restated Employment Agreement, dated as of February 1, 1997,
        between the Registrant and Mitchell Dobies (incorporated by reference to
        registrant's Registration Statement on Form S-1, registration number 
        333-11979)
10.2    Amended and Restated Employment Agreement, dated as of February 1, 1997,
        between the Registrant and Charles Sobel (incorporated by reference to
        registrant's Registration Statement on Form S-1, registration number 
        333-11979)
10.3    Employment Agreement, dated May 21, 1997, between the Registrant and
        Eric Holtz.
10.4    Letter Agreement between the Registrant and Lawrence Kaplan
        (incorporated by reference to registrant's Registration Statement on
        Form S-1, registration number 333-11979)
10.5    Termination and Performance Shares Repurchase Agreement, dated February
        8, 1996, by and between the Registrant and Ernie Baumgarten
        (incorporated by reference to registrant's Registration Statement on
        Form S-1, registration number 333-11979)

                                      33

<PAGE>
 
10.6     Factoring Agreement, dated March 17, 1995, between the Registrant and
         Republic Factors Corp. ("Republic"), as amended to date (incorporated
         by reference to registrant's Registration Statement on Form S-1,
         registration number 333-11979)
10.7     Security Agreement, dated March 17, 1995, between the Registrant and
         Republic (incorporated by reference to registrant's Registration
         Statement on Form S-1, registration number 333-11979)
10.8     1996 Incentive Stock Option Plan of Jenna Lane, Inc. (incorporated by
         reference to registrant's Registration Statement on Form S-1,
         registration number 333-11979)
10.9     Collective Bargaining Agreement by and between United Production
         Workers Union Local 17-18 and the Company, dated June 15, 1996
         (incorporated by reference to registrant's Registration Statement on
         Form S-1, registration number 333-11979)
10.10    Form of Letter Agreement between the Company and the Underwriter
         regarding consulting services (incorporated by reference to
         registrant's Registration Statement on Form S-1, registration number
         333-11979)
10.11    Form of Registration Rights Agreement between the Company and certain
         warrantholders (incorporated by reference to registrant's Registration
         Statement on Form S-1, registration number 333-11979)
10.12    Form of Selected Dealer Agreement for initial public offering
         (incorporated by reference to registrant's Registration Statement on
         Form S-1, registration number 333-11979)
11.1     Computation of per share earnings
21.1     Subsidiaries (incorporated by reference to registrant's Registration
         Statement on Form S-1, registration number 333-11979)
27.1     Financial Data Schedule (submitted electronically only)

      (b) Financial Statements and Supplementary Data - reference is made to the
     Index to Financial Statements under Item 8 in Part II hereof, where these
     documents are listed. Financial Statement Schedules-not applicable.

      (c) Reports on Form 8-K. The registrant has submitted no Reports on 
     Form 8-K since the effective date of its registration statement on Form S-1
     (registration number 333-11979).

                                      34
                              
<PAGE>
 
                           
                            SIGNATURES
                           
   Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       JENNA LANE, INC.
                                       
Date: June 26, 1997
                                      By:       /s/ Mitchell Dobies, Pres.
                                          ----------------------------------
                                                Mitchell Dobies, President,
                                                Co-Chief Executive Officer

                                      By:       /s/ Charles Sobel
                                          ----------------------------------
                                                Charles Sobel, Co-Chief
                                                Executive Officer

                                      By:       /s/ Jeffrey Marcus
                                          ----------------------------------
                                                Jeffrey Marcus, Principal
                                                Financial Officer

   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.


Signature                    Title                 Date
---------                    -----                 ----

/s/ Mitchell Dobies          Director and          6/25/97
-------------------          Principal Executive   ------- 
Mitchell Dobies              Officer              
                             

/s/ Charles Sobel            Director and          6/25/97
-------------------          Principal Exeeutive   ------- 
Charles Sobel                Officer        
                             

/s/ Jeffrey Marcus           Principal Financial   6/25/97
-------------------          Officer               ------- 
Jeffrey Marcus 

/s/ Jay Haft                 Director              6/25/97
-------------------                                ------- 
Jay Haft

/s/ Mitchell Herman          Director              6/25/97
-------------------                                ------- 
Mitchell Herman

/s/ Gerald Cohen             Director              6/25/97
-------------------                                ------- 
Gerald Cohen

                                      35


<PAGE>
 
                                 EXHIBIT INDEX

EXHIBIT
NUMBER   DESCRIPTION
-------  -----------
1.1      Form of Underwriting Agreement between the Company and the Underwriter
         (incorporated by reference to registrant's Registration Statement on
         Form S-1, registration number 333-11979)
1.2      Form of Warrant Agreement among the Company, the Underwriter and
         American Stock Transfer Company, as warrant agent (incorporated by
         reference to registrant's Registration Statement on Form S-1,
         registration number 333-11979)
3.1      Certificate of Incorporation of Registrant (incorporated by reference
         to registrant's Registration Statement on Form S-1, registration number
         333-11979)
3.3      By-laws of Registrant (incorporated by reference to registrant's
         Registration Statement on Form S-1, registration number 333-11979)
4.1      Specimen common stock certificate (incorporated by reference to
         registrant's Registration Statement on Form S-1, registration number
         333-11979)
4.2      Specimen preferred stock certificate (incorporated by reference to
         registrant's Registration Statement on Form S-1, registration number
         333-11979)
4.3      Form of Underwriter's Warrant for the Purchase of Units (incorporated
         by reference to registrant's Registration Statement on Form S-1,
         registration number 333-11979)
4.4      Form of Warrant Agreement between the Company and American Stock
         Transfer Company, as warrant agent (incorporated by reference to
         registrant's Registration Statement on Form S-1, registration number
         333-11979)
10.1     Amended and Restated Employment Agreement, dated as of February 1,
         1997, between the Registrant and Mitchell Dobies (incorporated by
         reference to registrant's Registration Statement on Form S-1,
         registration number 333-11979)
10.2     Amended and Restated Employment Agreement, dated as of February 1,
         1997, between the Registrant and Charles Sobel (incorporated by
         reference to registrant's Registration Statement on Form S-1,
         registration number 333-11979)
10.3     Employment Agreement, dated May 21, 1997, between the Registrant and
         Eric Holtz.
10.4     Letter Agreement between the Registrant and Lawrence Kaplan
         (incorporated by reference to registrant's Registration Statement on
         Form S-1, registration number 333-11979)
10.5     Termination and Performance Shares Repurchase Agreement, dated February
         8, 1996, by and between the Registrant and Ernie Baumgarten
         (incorporated by reference to registrant's Registration Statement on
         Form S-1, registration number 333-11979)
10.6     Factoring Agreement, dated March 17, 1995, between the Registrant and
         Republic Factors Corp. ("Republic"), as amended to date (incorporated
         by reference to registrant's Registration Statement on Form S-1,
         registration number 333-11979)
10.7     Security Agreement, dated March 17, 1995, between the Registrant and
         Republic

                                      36
                                               
<PAGE>
 
         (incorporated by reference to registrant's Registration Statement on
         Form S-1, registration number 333-11979)
10.8     1996 Incentive Stock Option Plan of Jenna Lane, Inc. (incorporated by
         reference to registrant's Registration Statement on Form S-1,
         registration number 333-11979)
10.9     Collective Bargaining Agreement by and between United Production
         Workers Union Local 17-18 and the Company, dated June 15, 1996
         (incorporated by reference to registrant's Registration Statement on
         Form S-1, registration number 333-11979)
10.10    Form of Letter Agreement between the Company and the Underwriter
         regarding consulting services (incorporated by reference to
         registrant's Registration Statement on Form S-1, registration number
         333-11979)
10.11    Form of Registration Rights Agreement between the Company and certain
         warrantholders (incorporated by reference to registrant's Registration
         Statement on Form S-1, registration number 333-11979)
10.12    Form of Selected Dealer Agreement for initial public offering
         (incorporated by reference to registrant's Registration Statement on
         Form S-1, registration number 333-11979)
11.1     Computation of per share earnings
21.1     Subsidiaries (incorporated by reference to registrant's Registration
         Statement on Form S-1, registration number 333-11979)
27.1     Financial Data Schedule (submitted electronically only)

                                      37