---

|                                                                                      
|--------------------------------------------------------------------------------------
|UNITED STATESSECURITIES AND EXCHANGE COMMISSION 
  WASHINGTON, D.C. 20549 
  Form 10-Q
|                                                                                      
|                                                                                      

|           |                                                                                           
|---------- | ------------------------------------------------------------------------------------------
|(Mark One)
|           |                                                                                           
|x          | Quarterly report pursuant to Section 13 or 15(d) of the Securities
  Exchange Act of 1934 
|           |                                                                                           
|           | For the quarterly period ending March 31,
  2008                                          
|           |                                                                                           
|           | OR                                                                                        
|           |                                                                                           
|o          | 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 1-5354Jaclyn, Inc.(Exact
name of registrant as specified in its charter)


|                                                                                           |  |                                               
|------------------------------------------------------------------------------------------ |  | ----------------------------------------------
|                                                                                           |  |                                               
|Delaware(State or other jurisdiction of incorporation or organization)                     |  | 22-1432053(IRS Employer Identification Number)
|                                                                                           |  |                                               
|197 West Spring Valley Avenue, Maywood, New Jersey(Address of principal executive
offices) |  | 07607(Zip code)                               

(201)
909-6000(Registrants telephone number, including area code)

NOT
APPLICABLE(Former
name, former address and former fiscal year, if changed since last report)

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, and (2) has been subject to such filing requirements for the past 90
days. Yes x No o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):

| |                              |                            
| | ---------------------------- | ---------------------------
| | Large accelerated filer o    | Accelerated filer o        
| | Non-accelerated filer
     o | Smaller reporting company x

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of
shares outstanding of each of the issuers classes of common stock as of the
latest practicable date:

|                                |                                  
|------------------------------- | ---------------------------------
|Title
of Class                  | Shares
Outstanding on May 1, 2008
|                                |                                  
|Common
  Stock, $1.00 par value | 2,468,614                        

---



Item
1. Financial Statements.

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

|                                                    |  |                                 |        |                               |   |        | 
|--------------------------------------------------- |  | ------------------------------- | ------ | ----------------------------- | - | ------ | 
|                                                    |  | March 31, 
  2008
  (Unaudited) |        | June 30,
  2007
  (See below) |  
|ASSETS                                              |  |                                 |        |                               |   |        | 
|CURRENT ASSETS:                                     |  |                                 |        |                               |   |        | 
|Cash and cash equivalents                           |  | $                               | 416    |                               | $ | 1,349  | 
|Accounts receivable, net                            |  |                                 | 17,315 |                               |   | 17,787 | 
|Inventory                                           |  |                                 | 8,622  |                               |   | 9,243  | 
|Prepaid expenses and other current assets           |  |                                 | 2,093  |                               |   | 1,788  | 
|                                                    |  |                                 |        |                               |   |        | 
|TOTAL CURRENT ASSETS                                |  |                                 | 28,446 |                               |   | 30,167 | 
|                                                    |  |                                 |        |                               |   |        | 
|PROPERTY PLANT AND EQUIPMENT, NET                   |  |                                 | 3,852  |                               |   | 3,921  | 
|ASSETS HELD FOR SALE                                |  |                                 | 357    |                               |   | 357    | 
|GOODWILL                                            |  |                                 | 3,338  |                               |   | 3,338  | 
|OTHER ASSETS                                        |  |                                 | 314    |                               |   | 294    | 
|                                                    |  |                                 |        |                               |   |        | 
|TOTAL ASSETS                                        |  | $                               | 36,307 |                               | $ | 38,077 | 
|                                                    |  |                                 |        |                               |   |        | 
|LIABILITIES AND STOCKHOLDERS EQUITY                |  |                                 |        |                               |   |        | 
|CURRENT LIABILITIES:                                |  |                                 |        |                               |   |        | 
|Notes payable  bank                                |  | $                               | 5,315  |                               | $ | 4,515  | 
|Accounts payable                                    |  |                                 | 3,732  |                               |   | 4,411  | 
|Other current liabilities                           |  |                                 | 4,550  |                               |   | 6,717  | 
|                                                    |  |                                 |        |                               |   |        | 
|TOTAL CURRENT LIABILITIES                           |  |                                 | 13,597 |                               |   | 15,643 | 
|                                                    |  |                                 |        |                               |   |        | 
|MORTGAGE PAYABLE                                    |  |                                 | 2,246  |                               |   | 2,387  | 
|                                                    |  |                                 |        |                               |   |        | 
|OTHER LIABILITIES                                   |  |                                 | 550    |                               |   | 448    | 
|                                                    |  |                                 |        |                               |   |        | 
|DEFERRED INCOME TAXES                               |  |                                 | 325    |                               |   | 325    | 
|                                                    |  |                                 |        |                               |   |        | 
|COMMITMENTS AND CONTINGENCIES STOCKHOLDERS EQUITY: |  |                                 |        |                               |   |        | 
|Common stock                                        |  |                                 | 3,369  |                               |   | 3,369  | 
|Additional paid-in capital                          |  |                                 | 9,518  |                               |   | 9,518  | 
|Retained earnings                                   |  |                                 | 13,319 |                               |   | 13,004 | 
|                                                    |  |                                 |        |                               |   |        | 
|                                                    |  |                                 | 26,206 |                               |   | 25,891 | 
|Less: Common shares in treasury at cost             |  |                                 | 6,617  |                               |   | 6,617  | 
|                                                    |  |                                 |        |                               |   |        | 
|TOTAL STOCKHOLDERS EQUITY                          |  |                                 | 19,589 |                               |   | 19,274 | 
|                                                    |  |                                 |        |                               |   |        | 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY          |  | $                               | 36,307 |                               | $ | 38,077 | 
|                                                    |  |                                 |        |                               |   |        | 

The June 30, 2007 Balance Sheet is derived from audited financial
statements. See notes to condensed consolidated unaudited financial statements.

2

---



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

|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|------------------------------------------------------- |  | ------------------------------- | --------- | --------------------------- | - | --------- | - | ---- | --------- |  | - | --------- | 
|                                                        |  | Three Months Ended 
  March 31, |           | Nine Months Ended March 31, |  
|                                                        |  | 2008                            |           | 2007                        |   | 2008      |   | 2007 |          
|                                                        |  |                                 |           |                             |   |           |   |      |          
|Net sales                                               |  | $                               | 31,187    |                             | $ | 34,705    |   | $    | 108,833   |  | $ | 122,913   | 
|Cost of goods sold                                      |  |                                 | 24,466    |                             |   | 25,851    |   |      | 84,221    |  |   | 93,696    | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|Gross profit                                            |  |                                 | 6,721     |                             |   | 8,854     |   |      | 24,612    |  |   | 29,217    | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|Shipping, selling and administrative expenses           |  |                                 | 7,256     |                             |   | 7,595     |   |      | 23,294    |  |   | 23,634    | 
|Pension plan settlement                                 |  |                                 |          |                             |   | 3,089     |   |      |          |  |   | 3,089     | 
|Interest expense                                        |  |                                 | 99        |                             |   | 195       |   |      | 459       |  |   | 911       | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|                                                        |  |                                 | 7,355     |                             |   | 10,879    |   |      | 23,753    |  |   | 27,634    | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|(Loss) earnings before income taxes                     |  |                                 | (634      | )                           |   | (2,025    | ) |      | 859       |  |   | 1,583     | 
|(Benefit) provision for income taxes                    |  |                                 | (177      | )                           |   | (538      | ) |      | 415       |  |   | 891       | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|Net (loss) earnings                                     |  | $                               | (457      | )                           | $ | (1,487    | ) | $    | 444       |  | $ | 692       | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|Net (loss) earnings per common share  basic            |  | $                               | (.19      | )                           | $ | (.60      | ) | $    | .18       |  | $ | .28       | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|Weighted average number of shares outstanding - basic   |  |                                 | 2,469,000 |                             |   | 2,491,000 |   |      | 2,469,000 |  |   | 2,484,000 | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|Net (loss) earnings per common share  diluted          |  | $                               | (.19      | )                           | $ | (.60      | ) | $    | .18       |  | $ | .27       | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 
|Weighted average number of shares outstanding - diluted |  |                                 | 2,469,000 |                             |   | 2,491,000 |   |      | 2,521,000 |  |   | 2,541,000 | 
|                                                        |  |                                 |           |                             |   |           |   |      |           |  |   |           | 

See notes to condensed consolidated unaudited financial statements.

3

---



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

|                                                                                                |  |                               |        |      |   |        |  
|----------------------------------------------------------------------------------------------- |  | ----------------------------- | ------ | ---- | - | ------ | -
|                                                                                                |  | Nine Months Ended
  March 31, |       
|                                                                                               
|                                                                                                |  | 2008                          |        | 2007 |  
|                                                                                                |  |                               |        |      |  
|Cash Flows From Operating
  Activities:                                                         |  |                               |        |      |   |        |  
|Net Earnings                                                                                    |  | $                             | 444    |      | $ | 692    |  
|Adjustments to reconcile net earnings to net cash (used in) provided
  by operating activities: |  |                               |        |      |   |        |  
|Gain on forfeited real estate option contract                                                   |  |                               | (150   | )    |   |       |  
|Pension plan settlement  Non-cash portion                                                      |  |                               |       |      |   | 2,188  |  
|Depreciation and amortization                                                                   |  |                               | 298    |      |   | 329    |  
|Changes in assets and liabilities:                                                              |  |                               |        |      |   |        |  
|Decrease in accounts receivable, net                                                            |  |                               | 472    |      |   | 1,620  |  
|Decrease in inventory                                                                           |  |                               | 621    |      |   | 1,052  |  
|(Increase) decrease in prepaid expense and other
assets                                         |  |                               | (333   | )    |   | 170    |  
|Decrease in accounts payable and other current
liabilities                                      |  |                               | (2,686 | )    |   | (463   | )
|                                                                                                |  |                               |        |      |   |        |  
|                                                                                                |  |                               |        |      |   |        |  
|Net cash (used in) provided by operating activities                                             |  |                               | (1,334 | )    |   | 5,588  |  
|                                                                                                |  |                               |        |      |   |        |  
|                                                                                                |  |                               |        |      |   |        |  
|Cash Flows From Investing Activities:                                                           |  |                               |        |      |   |        |  
|Purchase of property and equipment                                                              |  |                               | (221   | )    |   | (126   | )
|Investment in leased building                                                                   |  |                               | (47    | )    |   | (2,436 | )
|                                                                                                |  |                               |        |      |   |        |  
|Net cash used in investing activities                                                           |  |                               | (268   | )    |   | (2,506 | )
|                                                                                                |  |                               |        |      |   |        |  
|                                                                                                |  |                               |        |      |   |        |  
|Cash Flows From Financing Activities:                                                           |  |                               |        |      |   |        |  
|Net increase (decrease) in loans payable -
bank                                                 |  |                               | 800    |      |   | (3,420 | )
|Payment of long-term debt                                                                       |  |                               | (131   | )    |   | (122   | )
|Excess benefit from stock options                                                               |  |                               |       |      |   | 17     |  
|Repurchase of common stock                                                                      |  |                               |       |      |   | (132   | )
|Exercise of stock options                                                                       |  |                               |       |      |   | 94     |  
|                                                                                                |  |                               |        |      |   |        |  
|Net cash provided by (used in) financing activities                                             |  |                               | 669    |      |   | (3,563 | )
|                                                                                                |  |                               |        |      |   |        |  
|Net decrease in Cash and Cash Equivalents                                                       |  |                               | (933   | )    |   | (537   | )
|Cash and Cash Equivalents, beginning of period                                                  |  |                               | 1,349  |      |   | 932    |  
|                                                                                                |  |                               |        |      |   |        |  
|Cash and Cash Equivalents, end of period                                                        |  | $                             | 416    |      | $ | 395    |  
|                                                                                                |  |                               |        |      |   |        |  
|Supplemental Information:                                                                       |  |                               |        |      |   |        |  
|Interest paid                                                                                   |  | $                             | 455    |      | $ | 925    |  
|                                                                                                |  |                               |        |      |   |        |  
|Taxes paid                                                                                      |  | $                             | 1,263  |      | $ | 647    |  
|                                                                                                |  |                               |        |      |   |        |  

See notes to condensed consolidated unaudited financial statements.

4

---



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,
2008, the condensed consolidated statements of earnings and cash flows for the
three and nine-month periods ended March 31, 2008 and 2007, respectively, 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 2007 Annual Report to Stockholders for the year ended June 30,
2007. The results of operations for the period ended March 31, 2008 are not
necessarily indicative of operating results for the full fiscal year.

Consolidation
of Variable Interest Entity:

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

The
lessor, 195 Spring Valley Associates, LLC, (the Lessor), purchased the
corporate office building at a closing which also took place in August 2006.
The Company provided the Lessor with $2,200,000 in mortgage financing, secured
by a first priority mortgage in favor of the Company on the land, office
building, and other customary rights of the mortgagor. The Company placed a
deposit with the Lessor in the amount of $200,000 in connection with the option
to purchase the property.

For
accounting purposes, the Company determined that the Lessor is a variable
interest entity and the Company is its primary beneficiary as defined by FASB
Interpretation No. 46(R), Consolidation of Variable Interest Entities (FIN
46(R)). Accordingly, the financial statements of the Lessor have been
consolidated with those of the Company.

The
effect of the Companys consolidation of the Lessor is that the lease
transaction is treated as a financing, and the lease obligation, mortgage notes
and deposits have been eliminated in consolidation. The cost of the building,
approximately $2,900,000, and the $500,000 unamortized capital of the equity
owners of the Lessor (minority interest), of which the unamortized balance of
approximately $402,000 is reflected in the March 31, 2008 Condensed
Consolidated Balance Sheet. There was no significant impact to net earnings.

5

---



Recently
Issued Accounting Standards:

In
June 2006, the Financial Accounting Standards Board (the FASB) issued FIN 48
Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement 109 (FIN 48), which clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial statements in accordance
with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
FIN 48 was effective for the fiscal year beginning July 1, 2007. The Company determined
that the impact of adopting FIN 48 on the Companys consolidated financial
statements was approximately $129,000 (see Note 9).

In
September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring fair
value and enhances disclosures about fair value measures required under other
accounting pronouncements, but does not change existing guidance as to whether
or not an instrument is carried at fair value. In February 2008, the FASB
issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 157-1,
Application of FASB Statement No. 157 to FASB Statement No. 13 and Its
Related Interpretive Accounting Pronouncements That Address Leasing
Transactions, and FSP FAS 157-2, Effective Date of FASB Statement No.157.
FSP FAS 157-1 removes leasing from the scope of SFAS No. 157, Fair Value
Measurements. FSP FAS 157-2 delays the effective date of SFAS No. 157 from the
fiscal year beginning on July 1, 2008 to the fiscal year beginning on July 1,
2009 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The Company is currently evaluating the
impact of SFAS 157 on the Companys consolidated financial statements.

In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB
Statement No. 115. SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. This statement is
effective for the Companys fiscal year beginning July 1, 2008. The Company is
currently evaluating the impact of SFAS 159 on the Companys consolidated
financial statements.

|   |                            
|-- | ---------------------------
|2. | Stock-Based
  Compensation:

The
Company recognizes stock-based compensation in accordance with Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment, a revision of
SFAS No. 123, Accounting for Stock-Based Compensation, as
interpreted by SEC Staff Accounting Bulletin No. 107. Stock options
granted by the Company generally vest upon grant.

The
Company terminated, effective November 29, 2005, its 1996 Non-Employee Director
Stock Option Plan (the 1996 Plan). While no further options are being granted
under the 1996 Plan, it remains in effect for options outstanding.

6

---



The
Company maintains stockholder-approved Stock Option Plans for key employees and
consultants of the Company. The 1990 Stock Option Plan of the Company, as
amended (the 1990 Plan), provided for the grant of an aggregate of 500,000
shares of common stock. Options may no longer be granted under the 1990 Plan,
although the 1990 Plan also remains in effect for options outstanding.

In
addition, the Companys 2000 Stock Option Plan, as amended (the 2000 Plan),
initially provided for the grant of options to purchase up to 300,000 shares of
common stock. It was amended during fiscal 2004 to increase the number of
shares of common stock for which options may be granted by an additional
250,000 shares, to a total of 550,000 shares. The 2000 Plan permitted the grant
of incentive and non-statutory stock options to key executives, consultants,
directors and other key employees. Stock options could not be granted at less
than the fair market value at the date of grant or 110% of the fair market
value for individuals who own or are deemed to own more than 10% of the
combined voting power of all classes of stock of the Company. Stock options
generally vested immediately and generally are granted for a ten-year term.

During
the first quarter of fiscal 2008, the Board of Directors approved a new
stock-based plan, the Jaclyn, Inc. 2007 Stock Incentive Plan, which became
effective upon approval by stockholders of the Company at the 2007 Annual
Meeting of Stockholders of the Company. The 2007 Stock Incentive Plan allows
the Company to make grants of stock options, stock appreciation rights
(SARs), restricted stock, restricted stock units, and stock awards to
employees, as well as stock options, SARs, restricted stock, and restricted
stock units to our non-employee directors. The total number of shares of common
stock that may be issued pursuant to awards granted under the 2007 Stock
Incentive Plan is 185,000. Effective with approval of the 2007 Stock Incentive
Plan by the Companys stockholders, the Company will make no further grants of
options under the 2000 Plan, although outstanding options will not be affected
and will remain outstanding in accordance with their respective terms.

The
Company did not grant any stock options during the nine months of fiscal 2008
or fiscal 2007. As of March 31, 2008, options to purchase 95,500 shares of
common stock were outstanding.

7

---



|   |                                                                                                                                      
|-- | -------------------------------------------------------------------------------------------------------------------------------------
|3. | Earnings Per
  Share:                                                                                                                
|   |                                                                                                                                      
|   | The
  Companys calculation of Basic and Diluted Net (Loss) Earnings Per Common Share
  follows (in thousands, except share amounts):

|                                              |  |                              |           |                             |   |           |   |      |           |  |   |           | 
|--------------------------------------------- |  | ---------------------------- | --------- | --------------------------- | - | --------- | - | ---- | --------- |  | - | --------- | 
|                                              |  | Three
Months Ended
March 31, |           | Nine
Months Ended
March 31, |  
|                                              |  |                              |           |                             |  
|                                              |  | 2008                         |           | 2007                        |   | 2008      |   | 2007 |          
|                                              |  |                              |           |                             |   |           |   |      |          
|Basic Net (Loss) Earnings
  Per Common Share: |  |                              |           |                             |   |           |   |      |           |  |   |           | 
|Net (Loss) Earnings                           |  | $                            | (457      | )                           | $ | (1,487    | ) | $    | 444       |  | $ | 692       | 
|                                              |  |                              |           |                             |   |           |   |      |           |  |   |           | 
|Basic Weighted Average
  Shares Outstanding   |  |                              | 2,469,000 |                             |   | 2,491,000 |   |      | 2,469,000 |  |   | 2,484,000 | 
|                                              |  |                              |           |                             |   |           |   |      |           |  |   |           | 
|Basic Net (Loss) Earnings
  Per Common Share  |  | $                            | (.19      | )                           | $ | (.60      | ) | $    | .18       |  | $ | .28       | 
|                                              |  |                              |           |                             |   |           |   |      |           |  |   |           | 

|                                                |  |                              |           |                             |   |           |   |      |           |  |   |           | 
|----------------------------------------------- |  | ---------------------------- | --------- | --------------------------- | - | --------- | - | ---- | --------- |  | - | --------- | 
|                                                |  | Three Months Ended
March 31, |           | Nine Months Ended
March 31, |  
|                                                |  |                              |           |                             |  
|                                                |  | 2008                         |           | 2007                        |   | 2008      |   | 2007 |          
|                                                |  |                              |           |                             |   |           |   |      |          
|Diluted Net
  (Loss) Earnings Per Common Share: |  |                              |           |                             |   |           |   |      |           |  |   |           | 
|Net (Loss)
  Earnings                           |  | $                            | (457      | )                           | $ | (1,487    | ) | $    | 444       |  | $ | 692       | 
|                                                |  |                              |           |                             |   |           |   |      |           |  |   |           | 
|Basic
  Weighted Average Shares Outstanding     |  |                              | 2,469,000 |                             |   | 2,491,000 |   |      | 2,469,000 |  |   | 2,484,000 | 
|Add:
  Dilutive Options                         |  |                              |          |                             |   |          |   |      | 52,000    |  |   | 57,000    | 
|                                                |  |                              |           |                             |   |           |   |      |           |  |   |           | 
|Diluted
  Weighted Average Shares Outstanding   |  |                              | 2,469,000 |                             |   | 2,491,000 |   |      | 2,521,000 |  |   | 2,541,000 | 
|                                                |  |                              |           |                             |   |           |   |      |           |  |   |           | 
|Diluted Net
  (Loss) Earnings Per Common Share  |  | $                            | (.19      | )                           | $ | (.60      | ) | $    | .18       |  | $ | .27       | 
|                                                |  |                              |           |                             |   |           |   |      |           |  |   |           | 

Options
to purchase 95,500 shares of the Companys common stock at March
31, 2008 were outstanding, but were not included in the computation of diluted
earnings per share because of a loss in the current period and would have been
anti-dilutive. There were no options to purchase shares of the Companys common
stock as of March 31, 2007 that were anti-dilutive.

|                  | 
|----------------- | 
|4.
  Inventories:

Inventories
consist of the following components (in thousands):

|                 |  |                |       |               |   |       | 
|---------------- |  | -------------- | ----- | ------------- | - | ----- | 
|                 |  | March 31, 2008 |       | June 30, 2007 |  
|                 |  |                |       |               |  
|Raw
  materials  |  | $              | 20    |               | $ | 42    | 
|                 |  |                |       |               |   |       | 
|                 |  |                |       |               |   |       | 
|Finished
  Goods |  |                | 8,601 |               |   | 9,201 | 
|                 |  |                |       |               |   |       | 
|                 |  | $              | 8,622 |               | $ | 9,243 | 
|                 |  |                |       |               |   |       | 

8

---



|   |                              
|-- | -----------------------------
|5. | Repurchase
  of Common Stock:

The
Company previously announced that the Board of Directors authorized the
repurchase by the Company of up to 350,000 shares of the Companys Common
Stock. On September 27, 2006 the Board of Directors authorized an increase in
the Companys Common Stock repurchase program of an additional 125,000 shares.
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. For the three and
nine-month periods ended March 31, 2008, the Company did not purchase any
shares of its common stock in connection with this repurchase program. As of
March 31, 2008, the Company has purchased a total of 343,726 shares of its
Common Stock at a cost of approximately $1,966,000 in connection with the
repurchase program.

|   |                        
|-- | -----------------------
|6. | Financing
  Agreements:

The
Company is a party to a bank credit facility, as amended, which expires on
December 1, 2008 and provides for short-term loans and the issuance of letters
of credit in an aggregate amount not to exceed $50,000,000. Based on a
borrowing formula, the Company may borrow up to $30,000,000 in short-term loans
and up to $50,000,000 including letters of credit. The borrowing formula allows
for an additional amount of borrowing during the Companys peak borrowing
season from June to October. Substantially all of the Companys assets are
pledged to the bank as collateral (except for the West New York,
New Jersey facility, which has been separately mortgaged as noted below).
The line of credit requires that the Company maintain a minimum tangible net
worth, as defined, and imposes certain debt to equity ratio requirements. The
Company was in compliance with all applicable financial covenants as of March
31, 2008. As of March 31, 2008, borrowing on the short-term line of credit was
$5,315,000, and at that date the Company had $10,733,000 of additional
availability (based on the borrowing formula) under the credit facility. At
March 31, 2008 the Company was contingently obligated on open letters of credit
with an aggregate face amount of approximately $13,637,000. Borrowing during
the quarter was at the banks prime rate or below, at the option of the
Company. The banks prime rate at March 31, 2008 was 5.25%.

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 July 1, 2009 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,
2008 is approximately $2,432,000, of which the current portion of approximately
$186,000 is included in other current liabilities as of March 31, 2008.

|   |                                                      
|-- | -----------------------------------------------------
|7. | Contractual
  Obligations and Commercial Commitments:

The
Company leases office facilities under non-cancelable operating leases that
expire in various years through the year ending June 30, 2016.

9

---



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

|                       |                                   | 
|---------------------- | --------------------------------- | 
|Year
 Ended 
 June 30, | Office
 and Showroom 
 Facilities
|2008                   | $     373,000                     | 
|                       |                                   | 
|2009                   | 1,219,000                         | 
|                       |                                   | 
|2010                   | 662,000                           | 
|                       |                                   | 
|2011                   | 515,000                           | 
|                       |                                   | 
|2012                   | 522,000                           | 
|                       |                                   | 
|Thereafter             | 1,477,000                         | 

The
Company is obligated, in certain instances, to pay minimum royalties over the
term of the licensing agreements that expire in the year ending 2008. Aggregate
minimum royalty commitments for the year ending June 30, 2008 is $129,000.

From
time to time, the Company and its subsidiaries may become a party to legal
proceedings, which arise in the normal course of business. At March 31, 2008,
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, 2008.

|   |                  
|-- | -----------------
|8. | Retirement
 Plan:

The
Companys pension plan was terminated effective January 31, 2006 and a final settlement
distribution to its participants was made on March 29, 2007. At the time of the
settlement distribution, the Company recorded a charge to earnings before
income taxes of approximately $3,089,000 ($1,970,000 after tax),consisting of the write-off of the
unamortized pension costs of $2,188,000, plus a final cash contribution to
fully fund the pension plan totaling approximately $901,000.

Pension
expense (including the pension settlement cost) was $3,130,300 and $3,136,700
for the three and nine-month periods ended March 31, 2007, respectively.

|   |              
|-- | -------------
|9. | Income Taxes:

Effective
July 1, 2007, the Company adopted FIN 48, which clarifies the accounting
and disclosure for uncertainty in income taxes. As a result of the adoption,
the Company recorded a decrease to beginning retained earnings of approximately
$129,000 and increased net liabilities for uncertain tax positions and related
interest and penalties by a corresponding amount. Net uncertain tax positions
of $129,000 as of the adoption date would favorably impact the effective tax
rate if these net liabilities were reversed.

10

---



The
Company files income tax returns in the U.S. federal jurisdiction and in
various states and a foreign location. The U.S. federal filings and state
purposes for the fiscal years ended 2004 through 2007 and foreign filing (Hong
Kong) for fiscal years ended 2001 through 2007 remain open for examination by
the taxing authorities. The Company believes that its tax positions comply with
applicable tax laws and that it has adequately provided for these matters. The
Company does not believe it is reasonably possible that its unrecognized tax
benefits will significantly change within the next twelve months.

The
Company recognizes interest and, if applicable, penalties, which could be
assessed, related to uncertain tax positions in income tax expense. As of the
adoption date, the total amount of accrued interest and penalties was $14,000.
The Company recorded approximately $33,000 in interest and penalties for the
first nine months of fiscal 2008.

|    |                        
|--- | -----------------------
|10. | Proposed
 Stock Splits:

On
December 5, 2007, the Company announced that a special committee of independent
directors recommended to the Companys Board of Directors, and the Board of
Directors approved, amendments to the Companys certificate of incorporation
which would result in a 1-for-250 reverse stock split of the Companys common
stock, to be immediately followed by a 250-for-1 forward stock split (the Stock
Split Proposals). Each of the Stock Split Proposals was approved by
stockholders of the Company at a special meeting of stockholders held on May 7,
2008. On May 7, 2008, the Company filed a Form 25 with the Securities and
Exchange Commission to voluntarily withdraw its common stock from listing on
the American Stock Exchange. The Stock Split Proposals are intended to reduce
the number of stockholders of record to fewer than 300. If that is the case,
the Company presently plans to cease the registration of its common stock under
federal securities laws. The Company announced that it was taking these steps
to avoid the substantial and increasing cost and expense of being an SEC
reporting company and of regulatory compliance under the Sarbanes-Oxley Act of
2002.

11

---



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, and are marketed and sold to a range of retailers; primarily
national mass merchandisers.

Our
business is subject to substantial seasonal variations. In that regard, our net
sales and net earnings generally have been higher during the period from June
to November (which includes our first fiscal quarter and a portion of our
second and fourth fiscal quarters) coinciding with sales to our customers for
back-to-school and holiday shopping, while net sales and net earnings for the
other months of our fiscal year are typically lower due, in part, to the
traditional slowdown by our customers immediately following the winter holiday
season. Accordingly, any significant decrease in back-to-school and winter
holiday shopping could have a material adverse effect on our financial
condition and results of operations. The Company believes this seasonality is
consistent with the general pattern associated with sales to the retail
industry. 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 accounting principles
generally accepted in the United States requires the appropriate application of
certain accounting policies, many of which require us to make estimates and
assumptions about future events and their impact on amounts reported in our
financial statements and related notes. We believe the application of our
accounting policies, and the estimates inherently required therein, are
reasonable. These accounting policies and estimates are periodically evaluated
for continued reasonableness, and adjustments are made when facts and
circumstances dictate a change. However, since future events and their impact
cannot be determined with certainty, actual results may differ from our
estimates, and such differences could be material to the consolidated financial
statements. Historically, we have found our application of accounting policies
to be appropriate, and actual results have not differed materially from those
determined using necessary estimates. A summary of our significant accounting
policies and a description of accounting policies that we believe are most
critical may be found in our Managements Discussion and Analysis of Financial
Condition and Results of Operations included in our Annual Report on Form 10-K
for the year ended June 30, 2007, which we filed with the Securities and
Exchange Commission on September 27, 2007. There have been no material changes
to our accounting policies since such filing.

12

---



Liquidity and Capital Resources

The
Companys cash and cash equivalents decreased $933,000 during the nine-month
period ended March 31, 2008 to $416,000 from $1,349,000 at June 30, 2007.

Net
cash used in operating activities totaled $1,334,000, primarily from a decrease
in accounts payable and other current liabilities of $2,686,000 (due primarily
to the payment of commissions), which was partially offset by a decrease in
inventory totaling $621,000, a decrease in accounts receivable of $472,000 and
cash flow from net earnings of $444,000.

Funds
provided by financing activities of $669,000 were mostly the result of a net
increase totaling $800,000 in borrowing under the Companys bank line of
credit, offset in part by the payment of long-term debt totaling $131,000.

Net
cash used in investing activities of $268,000 primarily reflects the purchase
of property and equipment purchases totaling $221,000.

The
Company is a party to a bank credit facility, as amended, which expires on
December 1, 2008 and provides for short-term loans and the issuance of letters
of credit in an aggregate amount not to exceed $50,000,000. Based on a borrowing
formula, the Company may borrow up to $30,000,000 in short-term loans and up to
$50,000,000 including letters of credit. The borrowing formula allows for an
additional amount of borrowing during the Companys peak borrowing season from
June to October. Substantially all of the Companys assets are pledged to the
bank as collateral (except for the West New York, New Jersey
facility, which has been separately mortgaged as noted below). The line of
credit requires that the Company maintain a minimum tangible net worth, as
defined, and imposes certain debt to equity ratio requirements. The Company was
in compliance with all applicable financial covenants as of March 31, 2008. As
of March 31, 2008, borrowing on the short-term line of credit was $5,315,000, and
at that date the Company had $10,733,000 of additional availability (based on
the borrowing formula) under the credit facility. At March 31, 2008 the Company
was contingently obligated on open letters of credit with an aggregate face
amount of approximately $13,637,000. Borrowing during the quarter was at the
banks prime rate or below, at the option of the Company. The banks prime rate
at March 31, 2008 was 5.25%.

On
December 5, 2007, the Company announced that a special committee of independent
directors recommended to the Companys Board of Directors, and the Board of
Directors approved, amendments to the Companys certificate of incorporation
which would result in a 1-for-250 reverse stock split of the Companys common
stock, to be immediately followed by a 250-for-1 forward stock split (the Stock
Split Proposals). Each of the Stock Split Proposals was approved by
stockholders of the Company at a special meeting of stockholders held on May 7,
2008. As a result of the reverse stock split, generally, holders of fewer than
250 shares of common stock will not be issued fractional shares but, instead,
will be paid $10.21 for the shares of common stock held by them immediately
prior to the effective time of the reverse stock split. The Company expects
that payments to these stockholders will be paid from cash on hand and from
funds under the bank credit facility. As long as no default or event of default
under the bank credit facility exists, the Company may repurchase, and may use
the proceeds of loans under the bank credit facility to repurchase, shares of
common stock in an aggregate amount not to exceed $3,000,000. In the event that
the total cost of repurchases of shares of common stock in the deregistration
transaction exceeds $3,000,000, the Company has been advised by its bank lender
that it intends to work with us to enter into a mutually agreeable amendment to
the bank credit facility so that the Company may complete the deregistration
transaction. The Company anticipates that any borrowings under the bank credit
facility to repurchase shares in the deregistration transaction will be repaid
in the ordinary course of business.

13

---



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 through August 31, 2008. The financing
has a fifteen-year term, but is callable by the bank lender at any time after
July 1, 2009 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, 2008 is approximately $2,432,000, of which the current portion
of approximately $186,000 is included in other current liabilities as of March
31, 2008.

In
June 2007, the Company announced it had entered into a purchase and sale
agreement to sell its former executive offices and warehouse facility, as well
as two adjacent lots, located in West New York, New Jersey. The proposed
purchaser had the right under the purchase and sale agreement to extend the
originally scheduled closing date (October 15, 2007) for two separate
four-month periods and, upon the payment of $150,000, the proposed purchaser
extended the closing date for the first extension period. The closing under the
purchase and sale agreement was contingent on the proposed purchasers receipt
of governmental approvals required for the construction of residential,
multi-family housing consisting of 150 residential units, as well as a number
of other contingencies and conditions. On December 12, 2007, the Company
received a notice indicating that the proposed purchaser would not obtain all
governmental approvals by the December 15, 2007 deadline required under the
purchase and sale agreement and, accordingly, was exercising the proposed
purchasers right to terminate the purchase and sale agreement at which time
the Company recognized the $150,000 payment in earnings.

The
Company continues to evaluate all of its alternatives with regard to its West
New York former headquarters, including the general marketing of the property.

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 for the next twelve months.

There
were no material commitments for capital expenditures at March 31, 2008.

The
Company previously announced that the Board of Directors authorized the
repurchase by the Company of up to 350,000 shares of the Companys Common
Stock. On September 27, 2006 the Board of Directors authorized an increase in
the Companys Common Stock repurchase program of an additional 125,000 shares.
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. For the three and
nine-month periods ended March 31, 2008, the Company did not purchase any
shares of its Common Stock under this repurchase program. As of March 31, 2008,
the Company purchased a total of 343,726 shares of its Common Stock at a cost
of approximately $1,966,000 in connection with the repurchase program.

14

---



Off-Balance Sheet Arrangements

Except
as described below, 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.

On
August 22, 2006, the Company entered into a lease agreement for a new corporate
office building, and relocated the Companys executive offices from West New
York, NJ to Maywood, New Jersey during fiscal 2007. The lease has a 10-year
term, and grants to the Company an option to purchase the building at any time
during the term of the lease at a purchase price not to exceed $3,075,000, plus
increases based on a multiple of the consumer price index. The lessor, 195
Spring Valley Associates, LLC, (the Lessor), purchased the corporate office
building at a closing, which also took place in August 2006. The Company
provided the Lessor with $2,200,000 in mortgage financing, secured by a first
priority mortgage in favor of the Company on the land, office building, and
other customary rights of the mortgagor. The Company placed a deposit with the
Lessor in the amount of $200,000 in connection with the option to purchase the
property. For accounting purposes, the Company determined that the Lessor is a
variable interest entity and the Company is its primary beneficiary as defined
by FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities
(FIN 46(R)). Accordingly, the financial statements of the Lessor were
consolidated with those of the Company.

Contractual Obligations

Our future
contractual obligations have not changed significantly from the amounts
reported in our Annual Report on form 10-K for the year ended June 30, 2007.

Results of Operations

Net
sales were $31,187,000 and $108,833,000 during the three and nine-month periods
ended March 31, 2008, compared to $34,705,000 and $122,913,000 in the same
three and nine-month periods during fiscal 2007. For the three and nine-month
periods ended March 31, 2008, net sales in the Apparel category were lower by
16.1% and 14.5%, respectively, while the Handbag category net sales were higher
by 5.1% and lower by 5.2%, respectively, in each case compared to last years
three and nine-month period net sales.

15

---



Sales by
category were as follows:

Net
sales for the Apparel category were $20,914,000 for the three-month period
ended March 31, 2008, or $4,017,000 lower than the prior fiscal comparable
three-month period. This 16.1% decrease was primarily due to a 31.7% decrease
in our childrens apparel division due to the loss of a major program from a
significant customer and from the timing of certain shipments that we expect to
occur in the fourth quarter of fiscal 2008. This decrease in Apparel category
sales was not fully offset by a $2,111,000 (37.7%) increase in net sales in the
womens sleepwear division as a result of new spring business with one of its
significant customers.

For
the nine-month period ended March 31, 2008, net sales for the Apparel category
were $70,572,000, or 14.5% lower than the prior fiscal years same period due
to a decrease in our childrens apparel division not fully offset the increase
in business in our womens sleepwear division described above.

Net
sales totaling $10,273,000 for the Handbags category in the third quarter of
fiscal 2008 represented a 5.1% increase compared to $9,774,000 in net sales for
the same quarter in fiscal 2007. The third quarter net sales increase primarily
reflected higher sales in the premium incentive business (up 11.2%) due to the
timing of shipments to one of our significant customers. Not fully offsetting
this increase was a 10.6% net sales decrease in the handbag business for the
third quarter versus last years comparable quarter due to a reduction of
business with a significant customer.

For
the nine-month period ended March 31, 2008, net sales for the Handbags category
were $38,261,000, a reduction of $2,100,000, or 5.2%, compared to the prior
comparable nine-month period. A modest 2.5% net sales dollar increase for the
nine-month period for the premium incentive business was more than offset by a
32.7% decrease in the hangbag business for the same reasons noted above.

Gross
margins were 21.6% and 22.6% in the three-month and nine-month periods ended
March 31, 2008, compared to 25.5% and 23.8% in the comparable periods ended
March 31, 2007. Gross margins by category were as follows:

Gross
margin for the Apparel category decreased to 21.0% in the three-month period
ended March 31, 2008 from 27.1% in the third quarter of fiscal 2007. The 6.1
percentage point decrease was primarily the result of lower margins in the
womens sleepwear and the childrens apparel divisions, in each case mostly
attributable higher product costs associated with the weakening U.S. dollar and
a relatively higher level of sales allowances given to customers. For the
nine-month period ended March 31, 2008, gross margins for the Apparel category
decreased to 23.5% (from 27.0%) in the prior comparable period for the same
reasons.

Gross
margin for the Handbags category in the third quarter of fiscal 2008 increased
to 22.6% from 21.4% in the third quarter of fiscal 2007. This increase was
mainly due to higher premium incentive business margins attributable to several
new programs offset, in part, by lower handbag margins due to product mix. For
the nine-month period ended March 31, 2008, gross margin for the Handbags
category increased to 20.9% from 17.2% in the prior comparable period,
attributable primarily to higher premium incentive business gross margins
resulting from product mix.

16

---



As
a percentage of net sales, shipping, selling and administrative expenses
increased to 23.3% for the three-month period ended March 31, 2008 from 21.9%
for the three-month period ended March 31, 2007. However, shipping, selling and
administrative expenses decreased by $339,000 in the third quarter of fiscal
2008 compared to the prior year comparable period, mainly due to lower sales
commission costs totaling $389,000 relating to decreased sales volume in this
years third fiscal quarter, higher product development costs of $119,000 for
both the childrens apparel and premium business relating to potential
additional future business, and a $261,000 increase in general and
administrative costs, principally due to higher compensation related costs. In
addition, the Company experienced higher shipping and warehousing expense
totaling $81,000 relating the greater use of outside warehouse facilities to
ship our product. Royalty expensed decreased approximately $49,000 as a result
of a product mix that included fewer licensed product sales in this fiscal
quarter compared to the same period last year.

Shipping,
selling and administrative expenses for the nine-month period ended March 31,
2008 increased as a percentage of net sales (21.4% of net sales compared with
19.2% of net sales in the same period in fiscal 2007), and were $23,294,000 for
the period, or $340,000 lower than the total of $23,634,000 for the comparable
nine-month period in the prior fiscal year. The dollar decrease was primarily
attributable to lower sales commissions totaling $760,000 relating to the lower
sales volume, higher product development costs of $463,000 to develop future
potential business, a $143,000 increase in general and administrative costs for
higher compensation related expenses, decreased royalty expense totaling
$393,000 due to certain minimum royalty commitments in the prior year
nine-month period which were not met and had to be expensed, and increased
shipping and warehouse costs totaling $144,000 related to the mix of goods
shipped necessitating the greater use of outside warehousing facilities for the
nine month period ended March 31, 2008 compared to the same nine months last
year.

Interest
expense of $99,000 in the third quarter of fiscal 2008 compares to $195,000 in
the prior comparable quarter. For the nine-month period ended March 31, 2008,
interest expense totaled $459,000 versus $911,000. Both decreases are primarily
the result of a lower level of average borrowing to finance lower sales volume,
as well as a lower average borrowing cost in the current periods.

As
a result of last fiscal years termination and final pension plan distribution
to the plans participants, the Company incurred a one-time pretax pension plan
settlement charge totaling approximately $3,089,000 ($1,970,000, after tax) for
the three and nine-month periods ended March 31, 2007.

The
decrease in loss before income taxes of $1,391,000 for the three-month period
ended March 31, 2008, and the decreased earnings before income taxes totaling
$724,000 for the nine-month period ended March 31, 2008 compared to the 2007
fiscal third quarter and nine-month comparable periods, reflects, in part, last
years $3,089,000 third quarter pretax charge for the pension plan settlement.
Without this charge, the loss before income taxes would have been greater by
$1,698,000 for the third quarter, and $3,813,000 for the nine-month comparable
periods. Lower shipping, selling and administrative expenses and lower interest
expense in the third quarter and nine-month periods compared to the same periods last year, did not offset lower
sales and gross profit in this years third quarter and nine-month fiscal
periods for the reasons discussed above.

17

---



For the
nine-month period ended March 31, 2008, the Companys effective tax rate was
48.3% compared to 56.3% for the first nine-month periods of fiscal 2007. The
Companys effective rate decreased significantly from last years effective tax
rate, which reflected the $3,089,000 pre-tax pension plan settlement charge
discussed above, resulting in the Companys inability to utilize certain state
net operating loss carry-forwards and other tax benefits.

Net loss
decreased by $1,030,000 and net earnings
decreased $248,000 for the three and nine-month periods ended March 31, 2008,
respectively, from the prior comparable periods, primarily due to lower sales
and gross profit, not offset by lower shipping, selling and administrative
expenses and lower interest expense, for the reasons discussed above. Without
the pension settlement charge, earnings after taxes decreased $940,000 for the three month period and $2,218,000
for the nine-month period ended March 31, 2008 compared to the prior fiscal
year comparable periods.

Recently Issued
Accounting Standards

In June
2006, the Financial Accounting Standards Board (the FASB) issued FIN 48,
Accounting for Uncertainty in Income Taxes  an interpretation of FASB
Statement 109 (FIN 48), which clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial statements in accordance
with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return.
FIN 48 was effective for the fiscal year beginning July 1, 2007. The Company
determined that the impact of adopting FIN 48 on the Companys consolidated financial
statements was approximately $129,000 (see Note 9).

In
September 2006, the FASB issued SFAS 157, Fair Value Measurements (SFAS
157). SFAS 157 defines fair value, establishes a framework for measuring fair
value and enhances disclosures about fair value measures required under other
accounting pronouncements, but does not change existing guidance as to whether
or not an instrument is carried at fair value. In February 2008, the FASB
issued FASB Staff Position (FSP) Financial Accounting Standard (FAS) 157-1,
Application of FASB Statement No. 157 to FASB Statement No. 13 and Its
Related Interpretive Accounting Pronouncements That Address Leasing
Transactions, and FSP FAS 157-2, Effective Date of FASB Statement No.157.
FSP FAS 157-1 removes leasing from the scope of SFAS No. 157, Fair Value
Measurements. FSP FAS 157-2 delays the effective date of SFAS No. 157 from the
fiscal year beginning on July 1, 2008 to the fiscal year beginning on July 1,
2009 for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The Company is currently evaluating the
impact of SFAS 157 on the Companys consolidated financial statements.

18

---



In
February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB
Statement No. 115. SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. This statement is
effective for the Companys fiscal year beginning July 1, 2008. The Company is
currently evaluating the impact of SFAS 159 on the Companys consolidated
financial statements.

Seasonality

The
Companys business is subject to substantial seasonal variations. In that
regard, our net sales and net earnings generally have been higher during the
period from June to November (which includes our first fiscal quarter and a
portion of our second and fourth fiscal quarters) coinciding with sales to our
customers for back-to-school and holiday shopping, while net sales and net
earnings for the other months of our fiscal year are typically lower due, in
part, to the traditional slowdown by our customers immediately following the
winter holiday season. Accordingly, any significant decrease in back-to-school
and winter holiday shopping could have a material adverse effect on our
financial condition and results of operations. The Companys quarterly results
of operations may also fluctuate significantly as a result of a variety of
other factors, including, among other things, the timing of shipments to
customers and economic conditions. The Company believes this is the general
pattern associated with its sales to the retail industry and expects this
pattern will continue in the future. Consequently, comparisons between quarters
are not necessarily meaningful and the results for any quarter are not
necessarily indicative of future results.

Forward-Looking Statements

In
order to keep stockholders and investors informed of the future plans of the
Company, this Form 10-Q contains
and, from time to time, other reports and oral or written statements issued by
the Company may contain, forward-looking statements concerning, among other
things, the Companys future plans and objectives that are or may be deemed to
be forward-looking statements. The Companys ability to do this has been
fostered by the Private Securities Litigation Reform Act of 1995 which provides
a safe harbor for forward-looking statements to encourage companies to
provide prospective information so long as those statements are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those discussed in the statement. The
Companys forward-looking statements are subject to a number of known and
unknown risks and uncertainties that could cause actual results, performance or
achievements to differ materially from those described or implied in the
forward-looking statements, including, but not limited to, general economic and
business conditions, competition; potential changes in customer spending;
acceptance of product offerings and designs; the variability of consumer spending
resulting from changes in domestic economic activity; a highly promotional
retail environment; any significant variations between actual amounts and the
amounts estimated for those matters identified as critical accounting estimates
as well as other significant accounting estimates made in the preparation of
the Companys financial statements; and the impact of hostilities in the Middle
East and the possibility of hostilities in other geographic areas as well as
other geopolitical concerns. Accordingly, actual results may differ materially
from such forward-looking statements. You are urged to consider all such
factors. In light of the uncertainty inherent in such forward-looking
statements, you should not consider their inclusion to be a representation that
such forward-looking matters will be achieved. The Company assumes no
obligation for updating any such forward-looking statements to reflect actual
results, changes in assumptions or changes in other factors affecting such
forward-looking statements.

19

---



|         |                                                             | 
|-------- | ----------------------------------------------------------- | 
|Item 3.  | Quantitative and Qualitative Disclosures About Market Risk.
|         |                                                             | 
|         | Not
  applicable                                           
|         |                                                             | 
|Item 4.  | Controls and Procedures.                                   
|         |                                                             | 
|         | Not applicable.                                            
|         |                                                             | 
|Item 4T. | 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, 2008 that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.

PART II.

OTHER INFORMATION

|            |           |                                                                                                                          
|----------- | --------- | -------------------------------------------------------------------------------------------------------------------------
|Item 6.     | Exhibits.
|            |           |                                                                                                                          
|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 1850, as Adopted Pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002.

20

---



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, 2008 | /s/ALLAN
  GINSBURG      
|             |                          
|             | Allan
  Ginsburg         
|             | Chairman of
  the Board  
|             |                          
|May 15, 2008 | /s/ ANTHONY
  CHRISTON   
|             |                          
|             | Anthony
  Christon       
|             | Vice
  President         
|             | Chief
  Financial Officer

21

---



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 1850, as Adopted Pursuant
  to Section 906 of the Sarbanes-Oxley Act of 2002.

22

---