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

                                    FORM 10-Q

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

                  For the quarterly period ended March 31, 2006
                                                 --------------

                                       OR

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

               For the transition period from ________ to ________

                          Commission File Number 1-5863
                                                 ------

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

               Delaware                                  22-1432053
   -------------------------------            -------------------------------
   (State or Other Jurisdiction of            (I.R.S. Employer Identification
   Incorporation)                             No.)


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

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


              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

Indicate by check mark whether the registrant (1) has filed all the 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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non- accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large Accelerated filer [ ]   Accelerated filer [ ]    Non-Accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

             Class                               Outstanding at February 1, 2006
------------------------------------             -------------------------------
Common Stock, par value $1 per share                         2,442,057
<PAGE>

                          JACLYN, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)


                                                     March 31,       June 30,
                                                       2006            2005
                                                    (Unaudited)     (See below)
                                                   ------------    ------------
ASSETS

CURRENT ASSETS:
Cash and cash equivalents                          $      1,335    $        893
Accounts receivable, net                                 14,398          19,740
Inventory                                                 3,898           3,688
Prepaid expenses and other current assets                 1,322           2,056
                                                   ------------    ------------
TOTAL CURRENT ASSETS                                     20,953          26,377
                                                   ------------    ------------
PROPERTY PLANT AND EQUIPMENT, NET                           974           1,148
GOODWILL                                                  3,338           3,338
OTHER ASSETS                                              1,629           1,629
                                                   ------------    ------------
TOTAL ASSETS                                       $     26,894    $     32,492
                                                   ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank                               $         --    $      5,760
Accounts payable                                          2,617           2,302
Other current liabilities                                 4,928           5,029
                                                   ------------    ------------
TOTAL CURRENT LIABILITIES                                 7,545          13,091
                                                   ------------    ------------

MORTGAGE PAYABLE                                          2,605           2,727
                                                   ------------    ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock                                              3,369           3,369
Additional paid-in capital                                9,498           9,670
Retained earnings                                        11,820          10,765
Accumulated comprehensive loss                           (1,653)         (1,653)
                                                   ------------    ------------
                                                         23,034          22,151
Less:  Common shares in treasury at cost                  6,290           5,477
                                                   ------------    ------------
TOTAL STOCKHOLDERS' EQUITY                               16,744          16,674
                                                   ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $     26,894    $     32,492
                                                   ============    ============

The June 30, 2005 Balance Sheet is derived from audited financial statements.
See notes to condensed consolidated unaudited financial statements.

                                       -2-
<PAGE>

                          JACLYN, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
               (In Thousands, Except Share and Per Share Amounts)

<TABLE>
<CAPTION>
                                                              Three Months Ended               Nine Months Ended
                                                                   March 31,                       March 31,
                                                          ----------------------------    ---------------------------
                                                              2006            2005            2006           2005
                                                          ------------    ------------    ------------   ------------
<S>                                                       <C>             <C>             <C>            <C>
Net sales                                                 $     27,939    $     22,476    $     92,701   $     96,722
Cost of goods sold                                              21,386          17,271          70,009         75,041
                                                          ------------    ------------    ------------   ------------
Gross profit                                                     6,553           5,205          22,692         21,681
                                                          ------------    ------------    ------------   ------------

Shipping, selling and administrative expenses                    6,517           6,115          20,318         20,278
Interest expense                                                   126              98             503            558
                                                          ------------    ------------    ------------   ------------
                                                                 6,643           6,213          20,821         20,836
                                                          ------------    ------------    ------------   ------------
(Loss) earnings before income taxes                                (90)         (1,008)          1,871            845
(Benefit) provision for income taxes                               (68)           (368)            816            464
                                                          ------------    ------------    ------------   ------------
Net (loss) earnings                                       $        (22)   $       (640)   $      1,055   $        381
                                                          ============    ============    ============   ============
Net (loss) earnings per common share - basic              $       (.01)   $       (.24)   $        .42   $        .15
                                                          ============    ============    ============   ============
Weighted average number of shares outstanding - basic        2,455,000       2,624,000       2,484,000      2,589,000
                                                          ============    ============    ============   ============
Net (loss) earnings per common share - diluted            $       (.01)   $       (.24)   $        .41   $        .14
                                                          ============    ============    ============   ============
Weighted average number of shares outstanding - diluted      2,455,000       2,624,000       2,557,000      2,704,000
                                                          ============    ============    ============   ============
</TABLE>

See notes to condensed consolidated unaudited financial statements.

                                       -3-
<PAGE>

                          JACLYN, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                Nine Months Ended
                                                                                     March 31,
                                                                             ------------------------
                                                                                2006          2005
                                                                             ----------    ----------
<S>                                                                          <C>           <C>
  Cash Flows From Operating Activities:
  Net Earnings                                                               $    1,055    $      381
  Adjustments to reconcile net earnings to net cash provided by operating
       activities:
  Depreciation and amortization                                                     257           322
  Changes in assets and liabilities:
     Decrease in accounts receivable, net                                         5,342         6,575
     (Increase) decrease in inventory                                              (210)        2,188
     Decrease (increase) in prepaid expenses and other assets                       734          (125)
     Increase (decrease) in accounts payable and other current liabilities          206        (4,270)
                                                                             ----------    ----------
   Net cash provided by operating activities                                      7,384         5,071
                                                                             ----------    ----------

   Cash Flows From Investing Activities:
      Purchase of property and equipment                                            (83)         (404)
                                                                             ----------    ----------
   Net cash used in investing activities                                            (83)         (404)
                                                                             ----------    ----------

   Cash Flows From Financing Activities:
      Net decrease in loans payable - bank                                       (5,760)       (4,220)
      Payment of mortgage loan                                                     (114)         (106)
      Repurchase of common stock                                                 (1,113)          (98)
      Exercise of stock options                                                     128           315
                                                                             ----------    ----------
   Net cash used in financing activities                                         (6,859)       (4,109)
                                                                             ==========    ==========
Net increase in Cash and Cash Equivalents                                           442           558
Cash and Cash Equivalents, beginning of period                                      893           626
                                                                             ----------    ----------
Cash and Cash Equivalents, end of period                                     $    1,335    $    1,184
                                                                             ==========    ==========

Supplemental Information:
   Interest paid                                                             $      515    $      569
                                                                             ----------    ----------
   Taxes paid                                                                $      282    $    1,000
                                                                             ----------    ----------
</TABLE>

See notes to condensed consolidated unaudited financial statements.

                                       -4-
<PAGE>

                          JACLYN, INC. AND SUBSIDIARIES


         NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS


1. Basis of Presentation:

The accompanying unaudited condensed consolidated balance sheet as of March 31,
2006, the condensed consolidated statements of operations and cash flows for the
three and nine month periods ended March 31, 2006 and 2005, have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. These
condensed consolidated financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the Company's
2005 Annual Report to Stockholders for the year ended June 30, 2005. The results
of operations for the period ended March 31, 2006 are not necessarily indicative
of operating results for the full fiscal year.

2. Stock-Based Compensation:

As of March 31, 2006, the Company maintained two stock option plans. Prior to
fiscal 2006, the Company applied the intrinsic value method as outlined in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," ("APB No. 25") and related interpretations in accounting for stock
options under this program. Under the intrinsic value method, no compensation
expense was recognized since the exercise price of the Company's stock options
equaled the market price of the underlying stock on the date of the grant.

Effective July 1, 2005, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 123(R), "Share-Based Payment" ("SFAS No. 123(R)"). This
statement replaces SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123") and supersedes APB No. 25. SFAS No. 123(R) requires that all
stock-based compensation be recognized as an expense in the financial
statements, and that the expense be measured at the fair value of the award.
This statement was adopted using the modified prospective method of application,
which requires the Company to recognize compensation expense on a prospective
basis. Accordingly, prior period financial statements have not been restated. In
addition to reflecting compensation expense for new stock-based awards, SFAS No.
123(R) requires that expense be recognized to reflect the remaining service
period, if any, of awards that had been included in pro-forma disclosures in
prior periods (discussed below).

To date, all stock options granted by the Company are fully vested upon grant.
Accordingly, as of July 1, 2005, the effective date of SFAS No. 123(R), the
Company had no unrecognized compensation cost related to stock awards. In
addition, the Company had a $27,000 excess tax benefit related to non-qualified
stock options which were exercised during the nine month period ended March 31,
2006.

                                       -5-
<PAGE>

Prior to the Company's adoption of SFAS No. 123(R), SFAS No. 123 required that
the Company provide pro-forma information regarding net earnings and net
earnings per common share as if compensation cost for the Company's stock-based
awards had been determined in accordance with the fair value method prescribed
therein. The Company had previously adopted the disclosure portion of SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure,"
requiring quarterly SFAS No. 123 pro-forma disclosure. The pro-forma charge for
compensation cost related to stock-based awards granted was recognized over the
applicable service period. For stock options, the service period represents the
period of time between the date of grant and the date each option becomes
exercisable without consideration of acceleration provisions (e.g., retirement,
change of control, etc.). As stated above, all options heretofore granted by the
Company vested immediately, and any compensation would have been recognized upon
the grant date.

The Company did not grant any stock options during the first nine months of
fiscal 2006. Therefore, there was no effect on net earnings for the fair value
method for the three and nine month periods ended March 31, 2006. For the nine
month period ended March 31, 2005, total stock based employee compensation
determined under the fair value based method (net of taxes) was $36,000, or a
reduction of $.02 per share for both basic and diluted earnings on a pro forma
basis.


3.  Earnings Per Share:

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

<TABLE>
<CAPTION>
                                                    Three Months Ended              Nine Months Ended
                                                         March 31,                       March 31,
                                                ----------------------------    ---------------------------
                                                    2006            2005            2006           2005
                                                ------------    ------------    ------------   ------------
<S>                                             <C>             <C>             <C>            <C>
Basic Net (Loss) Earnings Per Common Share:

Net (Loss) Earnings                             $        (22)   $       (640)   $      1,055   $        381
                                                ------------    ------------    ------------   ------------

Basic Weighted Average Shares Outstanding          2,455,000       2,624,000       2,484,000      2,589,000
                                                ------------    ------------    ------------   ------------

Basic Net (Loss)Earnings Per Common Share       $       (.01)   $       (.24)   $        .42   $        .15
                                                ------------    ------------    ------------   ------------


                                                    Three Months Ended              Nine Months Ended
                                                         March 31,                       March 31,
                                                ----------------------------    ---------------------------
                                                    2006            2005            2006           2005
                                                ------------    ------------    ------------   ------------

Diluted Net (Loss) Earnings Per Common Share:

Net (Loss)Earnings                              $        (22)   $       (640)   $      1,055   $        381
                                                ------------    ------------    ------------   ------------

Basic Weighted Average Shares Outstanding          2,455,000       2,624,000       2,484,000      2,589,000

Add: Dilutive Options                                     --              --          73,000        115,000
                                                ------------    ------------    ------------   ------------

Diluted Weighted Average Shares Outstanding        2,455,000       2,624,000       2,557,000      2,704,000
                                                ------------    ------------    ------------   ------------

Diluted Net (Loss) Earnings Per Common Share    $       (.01)   $       (.24)   $        .41   $        .14
                                                ------------    ------------    ------------   ------------
</TABLE>

                                       -6-
<PAGE>

For the three month periods ended March 31, 2006 and March 31, 2005, all options
have been excluded from earnings per share calculations since, in each period,
the Company incurred a loss and inclusion of the options would have been
anti-dilutive. At March 31, 2006, there were 117,300 remaining options which can
be exercised.

4.  Inventories:

Inventories consist of the following components (in thousands):


                                                 March 31, 2006   June 30, 2005
                                                 --------------   --------------
Raw materials                                    $          127   $           22
Work in process                                               5               41
Finished Goods                                            3,766            3,625
                                                 --------------   --------------
                                                 $        3,898   $        3,688
                                                 --------------   --------------


5.  Repurchase of Common Stock:

In December 2002, the Company announced that the Board of Directors authorized
the repurchase by the Company of up to 350,000 shares of the Company's Common
Stock. Purchases may be made from time to time in the open market and through
privately negotiated transactions, subject to general market and other
conditions. The Company generally finances these repurchases from its own funds
from operations and/or from its bank credit facility. During the second quarter
of fiscal 2006, the Company repurchased in private transactions 30,000 shares of
its Common Stock at a cost of $231,340, including 18,000 shares of the Company's
Common Stock in a private transaction at a cost of $130,000. For the three month
period ended March 31, 2006, the Company purchased 27,838 shares of its Common
Stock under the repurchase program at a cost of $219,018 in private
transactions. As of March 31, 2006, the Company purchased a total of 302,621
shares of its Common Stock at a cost of approximately $1,462,000 in connection
with the repurchase program.

In addition, during the first quarter of fiscal 2006 and not a part of the
repurchase program, the Company repurchased in private transactions 100,000
shares of its Common Stock at a cost of $715,000 from a sales representative of
the Company, and 619 additional shares of the Company's Common Stock at a cost
of $4,252. The 619 shares had been distributed to non-management participants in
the Company's Employee Stock Ownership Plan ("ESOP") upon termination of the
ESOP and repurchased by the Company as an accommodation to those participants.

6.  Financing Agreements:

In May 2005, the Company amended its existing bank credit facility. The amended
facility, which expires December 1, 2007, continues to provide for short-term
loans and the issuance of letters of credit in an aggregate amount not to exceed
$40,000,000. Based on a borrowing formula, the Company may borrow up to
$25,000,000 in short-term loans and up to $40,000,000 including letters of
credit. The borrowing formula allows for an additional amount of borrowing
during the Company's peak borrowing season from June to October. Substantially
all of the Company's assets are pledged to the bank as collateral (except for
the West New York, New Jersey facility, which has been separately mortgaged as
noted below). The line of credit requires that the Company maintain a minimum
tangible net worth, as defined, and effective June 30, 2005, imposes certain
debt to equity ratio

                                       -7-
<PAGE>

requirements. The Company was in compliance with all applicable financial
covenants as of June 30, 2005 and March 31, 2006. As of March 31, 2006, there
was no borrowing on the short-term line of credit, and the Company had
approximately $12,100,000 of additional availability (based on the borrowing
formula) under its credit facility. At March 31, 2006, the Company was
contingently obligated on open letters of credit with an aggregate face amount
of approximately $9,600,000. Borrowing during the year was at the bank's prime
rate or below, at the option of the Company. The bank's prime rate at March 31,
2006 was 7.75%.

In August 2002, the Company consummated a mortgage loan with a bank lender in
the amount of $3,250,000. The financing is secured by a mortgage of the
Company's West New York, New Jersey headquarters and warehouse facility. The
loan bears interest at a fixed rate of 7% per annum. The financing has a
fifteen-year term, but is callable by the bank lender at any time after
September 1, 2007 and may be prepaid by the Company, along with a prepayment
fee, from time to time during the term of the financing. The balance of the
mortgage as of March 31, 2006 is approximately $2,766,000.

As previously announced, the Company entered into an Option Contract of Sale
dated as of September 7, 2005 relating to the sale of the Company's executive
offices and warehouse facility, as well as two adjacent lots, located in West
New York, New Jersey. The proposed purchase price is $10,000,000, the
substantial portion of which is payable at closing. The proposed transaction is
also subject to a number of contingencies and conditions, including certain
governmental approvals, the optionee's receipt of a mortgage commitment, the
completion of environmental testing and compliance, and other contingencies and
conditions.

7.  Contractual Obligations and Commercial Commitments :

The Company leases office facilities under non-cancelable leases that expire in
various years through the year ended June 30, 2009.

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

                       Year Ended          Office and Showroom
                        June 30,               Facilities

                          2006             $          240,000

                          2007                        825,000

                          2008                        601,000

                          2009                        407,000


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

                                       -8-
<PAGE>

                    Year Ended
                      June 30,                   Minimum
                                               Commitments

                          2006                 $       50,000

                          2007                        298,000

                          2008                        119,000

From time to time, the Company and its subsidiaries may become a party to legal
proceeding which arise in the normal course of business. At March 31, 2006,
there were no material, pending legal proceedings to which the Company was a
party.

The Company has not provided any financial guarantees as of March 31, 2006.

8.  Retirement Plans:

Pension expenses includes the following components:

<TABLE>
<CAPTION>
                                         Three Month Period Ended         Nine Month Period Ended
                                                 March 31,                        March 31,
                                        ----------------------------    ----------------------------
                                            2006            2005            2006            2005
                                        ------------    ------------    ------------    ------------
<S>                                     <C>             <C>             <C>             <C>
COMPONENTS OF NET PERIODIC
     BENEFIT COST:
   Service cost                         $     45,214    $     87,700    $    313,708    $    375,700
   Interest cost                              84,824          39,400         248,103         280,400
   Expected return on assets                 (81,824)        (37,600)       (240,230)       (236,600)
   Amortization of prior service cost              4             500              28           1,000
   Amortization of transition assets              --          (3,100)             --         (42,100)
   Amortization of actuarial loss             48,416             600         171,674           9,100
                                        ------------    ------------    ------------    ------------
   Net periodic cost                    $     96,634    $     87,500    $    493,283    $    387,500
                                        ============    ============    ============    ============
</TABLE>

The Company contributed approximately $1,072,000 to its pension plan during the
third quarter ended March 31, 2006.

9.  Employees' Benefit Plans:

On November 30, 2005, the Company decided to terminate, effective January 31,
2006, its defined-benefit pension plan for certain of its salaried and hourly
personnel. Accordingly, participants under the plan stopped accruing benefits as
of January 31, 2006. The plan had provided pension benefits that were based on a
fixed amount of compensation per year of service, career average pay or on the
employee's compensation during a specified number

                                       -9-
<PAGE>

of years before retirement. As of January 31, 2006, the Company recorded a
curtailment of approximately $1,294,000 as a reduction of the Company's
unrecognized net actuarial loss, which had no impact on the Company's Balance
Sheet or Statement of Operations through that date. However, since no further
benefits to participants are accruing, the termination of the defined-benefit
plan has reduced pension costs beginning February 1, 2006 and for the remainder
of the fiscal year ended June 30, 2006. Similarly, the Company's 2007 fiscal
year pension cost relevant to this pension plan will be reduced and eventually
eliminated when the pension funds are ultimately distributed to all of the plan
participants. Beginning in fiscal 2007, the Company intends to establish a new
401(k) benefit plan for certain of its salaried and hourly employees which will
have a lower employee benefit cost than the terminated pension plan.

In December 2004 the Company entered into an amendment to its collective
bargaining agreement with Local 62-32, UNITE, AFL-CIO, which covers all 9 of its
Union employees. The term of the agreement was extended until October 31, 2006.
The agreement allowed the Company, in its discretion, to withdraw from the
Union's multi-employer pension plan and the Company withdrew in fiscal 2004. On
March 31, 2006, the Company reached a final agreement with the Union whereby the
present value of the Company's unfunded pension obligation to the Union's
multi-employer plan was settled for $545,191. This amount was previously
recorded by the Company in shipping, selling and administrative expenses as of
December 31, 2005 and was paid during the three month period ended March 31,
2006.

Recently Issued Accounting Standards:

In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
corrections- a replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS No. 154"). Opinion 20 previously required that most voluntary changes in
accounting principles be recognized by including in net earnings of the period
of change the cumulative effect of changing to the new accounting principles.
SFAS No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. SFAS No. 154 is effective for accounting changes and corrections of
errors made in fiscal years beginning after December 15, 2005.

In March 2005, the FASB issued Interpretation No. 47 ("Interpretation No. 47")
"Accounting for Conditional Asset Retirement Obligations, an interpretation of
FASB Statement No. 143". Interpretation No. 47 clarifies that the term
conditional asset retirement obligation as used in FASB Statement No. 143,
"Accounting for Asset Retirement Obligations," refers to a legal obligation to
perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be within the
control of the entity. The obligation to perform the asset retirement activity
is unconditional even though uncertainty exists about the timing and/or method
of settlement. Accordingly, an entity is required to recognize a liability for
the fair value of a conditional

                                      -10-
<PAGE>

asset retirement obligation if the fair value of the liability can be reasonably
estimated. This interpretation is effective no later than the end of the fiscal
years ended after December 15, 2005. The Company has determined that
Interpretation No. 47 will not have a material impact on our results of
operation, financial position or cash flows.

Item 2.              MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The Company and its subsidiaries are engaged in the design, manufacture,
distribution and sale of women's and children's apparel, and fabric handbags,
sport bags, backpacks, cosmetic bags, and related products. Our apparel lines
include women's loungewear, sleepwear, dresses and sportswear, and lingerie, as
well as infants' and children's clothing. Our products are, for the most part,
made to order, marketed and sold to a range of retailers; primarily national
mass merchandisers, as well as to a range of other retailers.

Our business is subject to substantial seasonal variations. Historically, we
have realized a significant portion of net sales and net earnings for the year
during the first and second fiscal quarters during which time our customers
generally increase inventory levels in anticipation of both back-to-school and
holiday sales. We believe that this seasonality is consistent with the general
pattern associated with sales to the retail industry, and we expect this pattern
to continue with regard to our sales and net earnings this fiscal year, albeit,
we believe, to a much less extent with regard to net sales when compared to our
recent prior fiscal year performance. Nevertheless, the results for any one
quarter in a fiscal year should not necessarily be considered to be indicative
of results for the whole year. The Company's quarterly results of operations may
also fluctuate significantly as a result of a number of other factors, including
the timing of shipments to customers and economic conditions. Accordingly,
comparisons between quarters may not necessarily be meaningful, and the results
for any one quarter are not necessarily indicative of future quarterly results
or of full-year performance.

Critical Accounting Policies and Estimates

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

Management believes application of accounting policies, and the estimates
inherently required by the policies, are reasonable. These accounting policies
and estimates are constantly reevaluated, and adjustments are made when facts
and circumstances dictate a change. Historically, management has found the
application of accounting policies

                                      -11-
<PAGE>

to be appropriate, and actual results generally do not differ materially from
those determined using necessary estimates.

The Company's accounting policies are more fully described in Note A to the
Company's June 30, 2005 consolidated financial statements, located in the Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
September 28, 2005. Management has identified certain critical accounting
policies that are described below.

Merchandise inventory.

The Company's merchandise inventory is carried at the lower of cost on a
first-in, first-out basis, or market. The Company writes down its inventory for
estimated obsolescence or unmarketable inventory based upon the difference
between the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.

Allowance for doubtful accounts.

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

Market development accruals.

The Company estimates reductions to revenue for customer programs and incentive
offerings including special pricing agreements, price protection, promotions and
other volume-based incentives. If market conditions were to decline, the Company
may take actions to increase customer incentive offerings possibly resulting in
an incremental reduction of revenue at the time the incentive is offered.

Goodwill.

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

                                      -12-
<PAGE>

Deferred taxes.

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

Liquidity and Capital Resources

The Company's cash and cash equivalents increased $442,000 during the nine-month
period ended March 31, 2006 to $1,335,000 from $893,000 at June 30, 2005.

Net cash provided by operating activities totaled $7,384,000, primarily from a
decrease in accounts receivable totaling $5,342,000, which reflects lower
shipping in the third quarter of fiscal 2006 compared to the last quarter of
fiscal 2005, as well as net earnings totaling $1,055,000. Funds used in
financing activities of $6,859,000 were mostly the result of a decrease in loans
payable totaling $5,760,000 reflecting net payments under the Company's bank
credit facility and the repurchase of the Company's common stock totaling
$1,113,000.

Net cash used in investing activities of $83,000 was for purchases of property
and equipment.

In May 2005, the Company amended its existing bank credit facility. The amended
facility, which expires December 1, 2007, continues to provide for short-term
loans and the issuance of letters of credit in an aggregate amount not to exceed
$40,000,000. Based on a borrowing formula, the Company may borrow up to
$25,000,000 in short-term loans and up to $40,000,000 including letters of
credit. The borrowing formula allows for an additional amount of borrowing
during the Company's peak borrowing season from June to October. Substantially
all of the Company's assets are pledged to the bank as collateral (except for
the West New York, New Jersey facility, which has been separately mortgaged as
noted below). The line of credit requires that the Company maintain a minimum
tangible net worth, as defined, and effective June 30, 2005, imposes certain
debt to equity ratio requirements. The Company was in compliance with all
applicable financial covenants as of June 30, 2005 and March 31, 2006. There was
no borrowing on the short-term line of credit at March 31, 2006, and the Company
had approximately $12,100,000 of additional availability (based on the borrowing
formula) under its credit facility. At March 31, 2006, the Company was
contingently obligated on open letters of credit with an aggregate face amount
of approximately $9,600,000. Borrowing during the year was at the bank's prime
rate or below, at the option of the Company. The bank's prime rate at March 31,
2006 was 7.75%.

In August 2002, the Company consummated a mortgage loan with a bank lender in
the amount of $3,250,000. The financing is secured by a mortgage of the
Company's West New York, New Jersey headquarters and warehouse facility. The
loan bears interest at a fixed rate of 7% per annum. The financing has a
fifteen-year term, but is callable by the bank lender at any time after
September 1, 2007 and may be prepaid by the Company, along with a prepayment
fee, from time to time during the term of the financing. The balance of the
mortgage as of March 31, 2006 is approximately $2,766,000.

                                      -13-
<PAGE>

As previously announced, the Company entered into an Option Contract of Sale
dated as of September 7, 2005 relating to the sale of the Company's executive
offices and warehouse facility, as well as two adjacent lots, located in West
New York, New Jersey. The proposed purchase price is $10,000,000, the
substantial portion of which is payable at closing. The proposed transaction is
also subject to a number of contingencies and conditions, including certain
governmental approvals, the optionee's receipt of a mortgage commitment, the
completion of environmental testing and compliance, and other contingencies and
conditions. The Company is actively looking for a smaller, more suitable office
space in the same general area.

The Company believes that funds provided by operations, existing working
capital, and the Company's bank line of credit and mortgage financing will be
sufficient to meet anticipated working capital needs.

There were no material commitments for capital expenditures at March 31, 2006.

In December 2002, the Company announced that the Board of Directors authorized
the repurchase by the Company of up to 350,000 shares of the Company's Common
Stock. Purchases may be made from time to time in the open market and through
privately negotiated transactions, subject to general market and other
conditions. The Company generally finances these repurchases from its own funds
from operations and/or from its bank credit facility.

During the second quarter of fiscal 2006, the Company repurchased in private
transactions 30,000 shares of its Common Stock at a cost of $231,340, including
18,000 shares of the Company's Common Stock in a private transaction at a cost
of $130,000.

For the three month period ended March 31, 2006, the Company purchased 27,838
shares of its Common Stock under the repurchase program at a cost of $219,018,
in private transactions. As of March 31, 2006, the Company purchased a total of
302,621 shares of its Common Stock at a cost of approximately $1,462,000 in
connection with the repurchase program.

In addition, during the first quarter of fiscal 2006 and not a part of the
repurchase program, the Company repurchased in private transactions 100,000
shares of its Common Stock at a cost of $715,000 from a sales representative of
the Company, and 619 additional shares of the Company's Common Stock at a cost
of $4,252. The 619 shares had been distributed to non-management participants in
the Company's Employee Stock Ownership Plan ("ESOP") upon termination of the
ESOP and repurchased by the Company as an accommodation to those participants.

                                      -14-
<PAGE>

Contractual Obligations and Commercial Commitments

To facilitate an understanding of our contractual obligations and commercial
commitments, the following data is provided as of March 31, 2006 to June 30,
2006 for the first period and, thereafter, each subsequent fiscal year of the
Company:

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

Contractual Obligations       Total         Less than 1     2-3 Years       4-5 Years     After 5 Years
                                               Year
<S>                       <C>             <C>             <C>             <C>             <C>
  Notes Payable           $          --   $          --   $          --   $          --   $          --

  Mortgage Payable            2,766,000         161,000         353,000         407,000       1,845,000

  Royalties                     467,000          50,000         417,000              --              --

  Operating Leases            2,073,000         240,000       1,426,000         407,000              --
                          -------------   -------------   -------------   -------------   -------------
  Total Contractual
   Obligations            $   5,306,000   $     451,000   $   2,196,000   $     814,000   $   1,845,000
                          -------------   -------------   -------------   -------------   -------------


                                                   * * * * * * * After * * * * * * *

Other Commercial              Total         Less than 1     2-3 Years       4-5 Years     After 5 Years
  Commitments              Commitments         Year

  Letters of Credit       $   9,600,000   $   9,600,000   $          --   $          --   $          --
                          -------------   -------------   -------------   -------------   -------------
  Total Commercial
Commitments               $   9,600,000   $   9,600,000   $          --   $          --   $          --
                          -------------   -------------   -------------   -------------   -------------
</TABLE>

Off-Balance Sheet Arrangements

The Company has not created, and is not a party to, any special-purpose or
off-balance sheet entities for the purpose of raising capital, incurring debt or
operating the Company's business. The Company does not have any arrangements or
relationships with entities that are not consolidated into the financial
statements that are reasonably likely to materially affect the Company's
liquidity or the availability of capital resources.

                                      -15-
<PAGE>

Results Of Operations

Net sales were $27,939,000 and $92,701,000 during the three and nine-month
periods ended March 31, 2006, compared to $22,476,000 and $96,722,000 in the
three and nine-month periods ended March 31, 2005, respectively. For the three
month period ended March 31, 2006, Apparel category net sales were higher by
about 26% while the Handbag category rose almost 22% versus last year's third
fiscal quarter. In spite of higher Apparel and Handbag category sales for the
three-month period ended March 31, 2006 compared to the same year ago period,
the overall decrease in net sales in this year's first nine-month fiscal period
was attributable to much lower sales volume in the Company's Apparel category
during the first and second quarters of fiscal 2006. The overall gross profit
improvement for both the three and nine-month periods in the current fiscal year
offset part of the negative impact on earnings from lower sales volume. Sales by
category were as follows:

Net sales for the Apparel category were $18,981,000 for the three-month period
ended March 31, 2006, an increase in net sales of $3,860,000, or 25.5%, from the
same quarter in fiscal 2005. The entire increase was attributable to increased
orders of certain product offerings in the infants' and children's apparel
business which experienced recent favorable retail sell-through performance as
well as the introduction of new items within this business, offset by reductions
in the women's sleepwear and catalogue businesses.

For the nine-month period ended March 31, 2006, net sales for the Apparel
category were $63,261,000, or 9.7 % below the prior fiscal year's same period
due to reductions in our women's sleepwear and catalogue businesses which were
not entirely offset by increases in net sales in the infant's and children's
business.

Net sales for the Handbags category were $8,958,000 for the three-month period
ended March 31, 2006, an increase of $1,603,000, or 21.8%, from the same period
in fiscal 2005 reflecting an increase in sales of denim related products in the
handbag business, as well as increased sales in the premium incentive business.
The nine-month period ended March 31, 2006 had net sales of $29,440,000, which
were approximately $2,812,000, or 10.6% more than the prior comparable
nine-month fiscal period, mostly due to increased premium incentive business.

Gross margins were 23.5% and 24.5% in the three-month and nine-month periods
ended March 31, 2006 compared to 23.2% and 22.4 % in the comparable periods
ended March 31, 2005, respectively. Gross profit by category was as follows:

Gross margin for the Apparel category in the three-month period ended March 31,
2006, decreased to 24.3% from 27.8% in the prior comparable three-month period,
primarily attributable to much lower margins in the women's sleepwear business
resulting mostly from product mix, not fully offset by higher children's apparel
business margins which experienced lower customer allowances, a reduction in the
quantity of "closeout" sales, as well as better margins in the catalogue
business from a greater percentage of offshore production.

For the nine-month period ended March 31, 2006, gross margins were 27.7% for
this category versus 25.3% in the prior year comparable period.

Gross margin for the Handbags category was 21.6 % in the quarter ended March 31,
2006 compared to 13.5% in the similar prior year quarter. This higher gross
margin compared to the same quarter in fiscal 2005 for the most part reflects
both product mix and improved costing measures in both the premium incentive and
the handbag business. For the nine-month period ended March 31, 2006 the
Handbags category gross profit increased to 17.6% from 14.8%, for the same
reasons.

                                      -16-
<PAGE>

Shipping, selling and administrative expenses totaling $6,517,000 (or 23.3% of
net sales), were $402,000 higher than the third quarter in the prior year's
comparable period totaling $6,115,000 (or 27.2%of net sales). Most of this
increase is attributable to higher general and administrative expenses
(approximately $170,000), higher product development expense and royalty expense
(approximately $242,000), and higher selling commissions totaling about $90,000
due to sales mix, offset in part by lower shipping and warehousing costs and
selling expense (approximately $50,000) due to the overall lower sales volume.
Shipping, selling and administrative expenses for the nine-month period ended
March 31, 2006 was $20,318,000 (21.9% of net sales), or $40,000 lower than the
same nine-month period in the prior fiscal year which totaled $20,278,000 (21.0%
of net sales). The decrease was primarily attributable to lower shipping and
warehousing costs (approximately$791,000), lower overall selling costs
(approximately $172,000) attributable to lower sales volume and a favorable
sales mix and lower royalty expense ($62,000), not fully offset by higher
general and administrative expenses (approximately $627,000) due mostly to
salary increases, and higher product development costs principally in the
children's apparel business (approximately $363,000).

Interest expense of $126,000 in the third quarter of fiscal 2006 compares to
$98,000 in the prior comparable period. For the nine month period ended March
31, 2006, interest expense totaled $503,000 versus $558,000 in the same period
in fiscal 2005. Higher interest rates coupled with higher average overall
borrowing during the third quarter of fiscal 2006 (due mostly to a little over
$5 million more in net sales in this year's third quarter versus last year's
comparable quarter) accounted for the higher third quarter interest expense. At
the same time, the small decrease in interest expense in the nine-month period
primarily reflects a much lower average level of borrowing in the first and
second quarters of fiscal 2006 compared to last year's comparable periods
attributable to lower sales volume during those quarters.

The decrease in the loss before income taxes for the three-month period ended
March 31, 2006, compared to last year's third quarter of fiscal 2005, was due
primarily to higher gross profit margins, not completely offset by higher
shipping, selling and administrative expenses, as discussed above. For the
period ended March 31, 2006, the Company had an effective tax rate of 43.6%
compared to a much higher tax rate of 54.9 % (attributable to expiring foreign
tax credits which, at the time, could not be utilized) in the same period of the
prior year. For the nine-month period ended March 31, 2006, net earnings were
$1,055,000, against net earnings of $381,000 in the prior nine-month comparable
period. For the nine-month period ended March 31, 2006, higher gross margins and
slightly lower shipping, selling and administrative and interest expenses,
discussed above, contributed to the nine month period improvement.

Recently Issued Accounting Standards

In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections- a replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS No. 154"). Opinion 20 previously required that most voluntary changes in
accounting principles be recognized by including in net earnings of the period
of change the cumulative effect of changing to the new accounting principles.
SFAS No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine

                                      -17-
<PAGE>

either the period-specific effects or the cumulative effect of the change. SFAS
No. 154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005.

In March 2005, the FASB issued Interpretation No. 47 ("Interpretation No. 47")
"Accounting for Conditional Asset Retirement Obligations, an interpretation of
FASB Statement No. 143". Interpretation No. 47 clarifies that the term
conditional asset retirement obligation as used in FASB Statement No. 143,
"Accounting for Asset Retirement Obligations," refers to a legal obligation to
perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be within the
control of the entity. The obligation to perform the asset retirement activity
is unconditional even though uncertainty exists about the timing and/or method
of settlement. Accordingly, an entity is required to recognize a liability for
the fair value of a conditional asset retirement obligation if the fair value of
the liability can be reasonably estimated. This interpretation is effective no
later than the end of the fiscal years ended after December 15, 2005. The
Company has determined that Interpretation No. 47 will not have a material
impact on our results of operation, financial position or cash flows.

Seasonality

Our business is subject to substantial seasonal variations. Historically, we
have realized a significant portion of net sales and net earnings for the year
during the first and second fiscal quarters during which time our customers
generally increase inventory levels in anticipation of both back-to-school and
holiday sales. We believe that this seasonality is consistent with the general
pattern associated with sales to the retail industry, and we expect this pattern
to continue with regard to our sales and net earnings this fiscal year, albeit,
we believe, to a much less extent with regard to net sales when compared to our
recent prior fiscal year performance. Nevertheless, the results for any one
quarter in a fiscal year should not necessarily be considered to be indicative
of results for the whole year. The Company's quarterly results of operations may
also fluctuate significantly as a result of a number of other factors, including
the timing of shipments to customers, sales mix and economic conditions.
Accordingly, comparisons between quarters may not necessarily be meaningful, and
the results for any one quarter are not necessarily indicative of future
quarterly results or of full-year performance.


FORWARD-LOOKING STATEMENTS

This Form 10-Q may contain forward-looking statements that are being made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company's actual performance and results may vary as a
result of a number of risks, uncertainties and other factors, both foreseen and
unforeseen, including general economic and business conditions, competition in
the accessories and apparel markets, continuing favorable sales patterns,
pricing and consumer buying trends.

                                      -18-
<PAGE>

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the information set forth under the
caption "Item 7A-Quantitative and Qualitative Disclosures About Market Risk" in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2005.

Item 4. Controls and Procedures.

At the end of the period covered by this report, the Company carried out an
evaluation, with the participation of management of the Company, including the
Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on the Company's evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective. There was no change in the Company's
internal control over financial reporting during the quarter ended March 31,
2006 that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.


PART II. OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(a) During the three-month period ended March 31, 2006, the Company issued an
aggregate of 33,200 shares of its common stock, $1.00 par value per share
("Common Stock"), upon the exercise of stock options previously granted under a
stockholder approval stock option plan of the Company. The Company received an
aggregate of $44,420 in cash from the individuals exercising these options (the
"Optionees") in partial payment of the exercise price for the issued shares. The
Company also received an aggregate of 6,838 mature shares of Common Stock

                                      -19-
<PAGE>

from the optionees (with a market value of approximately $56,000) under terms of
the stock option plan which permits the use of previously acquired shares of
Common Stock in full or partial payment of the applicable exercise price.

The Company is relying on an exemption from registration contained in Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"), in
connection with the issuance of the shares of Common Stock. Each Optionee has
represented, warranted and agreed, among other things, that the shares of Common
Stock issued upon the exercise of the applicable options have been acquired for
his own account, for investment only and not with a view to the resale or
distribution thereof; and understands that the shares of Common Stock must be
held indefinitely unless the sale or other transfer thereof is subsequently
registered under the Securities Act or an exemption from such registration is
available at that time. Each Optionee has also represented that he has knowledge
and experience in financial and business matters that he is capable of
evaluating the merits and risks of his investment in the shares of Common Stock;
has adequate means of providing for his current needs and possible future
contingencies; is able to bear the economic risks of his investment in the
shares of Common Stock; is able to hold the shares of Common Stock for an
indefinite period of time and has a sufficient net worth to sustain a loss of
his investment in the shares of Common Stock in the event any loss should occur,
and has had access to and received such documents and information concerning the
Company as he has requested. A Securities Act restrictive legend is placed on
each certificate representing the shares of Common Stock and stop transfer
instructions are placed on such certificates as may be necessary or appropriate
to, among other things, prevent a violation of, or to perfect an exemption from,
the registration requirements of the Securities Act and any applicable state
securities laws.

(b) Not Applicable

(c) Issuer Purchases of Equity Securities

The following sets forth certain information with respect to purchases by the
Company of shares of Common Stock during the three months ended March 31, 2006:

<TABLE>
<CAPTION>
                                                                                      Maximum Number of
                             Total            Average     Total Number of Shares      Shares that May Yet
    Period              Number of Shares    Price Paid    Purchased as Part Of       Be Purchased Under
                           Purchased         per Share     Publicly Announced           the Plans or
                                                                                          Programs
                        ---------------------------------------------------------------------------------
<S>                          <C>                <C>              <C>                        <C>
January 1, 2006-
January 31, 2006             21,000             $7.76            21,000                     54,217

February 1, 2006-
February 28, 2006             5,000             $8.25             5,000                     49,217

March 1, 2006-
March 31, 2006                1,838             $8.10             1,838                     47,379
                        ---------------------------------------------------------------------------------

        Total                27,838             $7.87            27,838                     47,379
</TABLE>

(1) In December 2002, the Company publicly announced that the Board of Directors
authorized the repurchase by us of up to 350,000 shares of Common Stock, and
that purchases would be made from time to time in the open market and/or through
privately negotiated transactions, subject to general market and other
conditions. Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and to Note 5 of the Notes to
Consolidated Unaudited Financial Statements on page 7 of this Form 10-Q for
additional information about repurchases of shares of Common Stock.

Item 6.  Exhibits and Reports on Form 8-K.

Exhibits                Description

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

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

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

                                      -20-
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                              JACLYN, INC.
                                              (Registrant)

May 15, 2006                                  /s/ ALLAN GINSBURG
                                              ----------------------------
                                              Allan Ginsburg
                                              Chairman of the Board

May 15, 2006                                  /s/ ANTHONY CHRISTON
                                              ----------------------------
                                              Anthony Christon
                                              Vice President
                                              Chief Financial Officer

                                      -21-
<PAGE>

                                  EXHIBIT INDEX

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

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

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

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

                                      -22-