<PAGE>
 
                                   FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

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

    For the quarterly period ended December 31, 1997

                                      OR

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

    For the transition period from_____ to______

    Commission File Number 1-5863

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

  
              Delaware                             22-1432053     
   -------------------------------             -------------------
   (State or other jurisdiction of             (I.R.S. Employer       
   incorporation or organization)              Identification No.)    
                                                                         
                                                     
                635 59th Street, West New York, New Jersey 07093
                ------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

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

                                      NONE
        ------------------------------------------------------------
              (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 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, 1998
-----------------------------------           -------------------------------- 
Common Stock, par value $1 per share                    2,711,405             
                                              

                                      -1-
<PAGE>
 
                          JACLYN, INC. AND SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>

                                                                                    Page No.
                                                                                    --------
PART I. FINANCIAL INFORMATION:

Item 1
<S>                                                                                  <C>

  Condensed Consolidated Balance Sheets -

     December 31, 1997 (unaudited) and June 30, 1997 (derived from audited 
     financial statements)                                                             3

  Condensed Consolidated Statements of Earnings -

     Three Months and Six Months Ended December 31, 1997 and 1996 (unaudited)          4

  Condensed Consolidated Statements of Cash Flows - Six Months

     Ended December 31, 1997 and 1996 (unaudited)                                      5

  Notes to Condensed Consolidated Financial Statements (unaudited)                     6

Item 2

  Management's Discussion and Analysis of Financial

     Condition and Results of Operations                                               7

PART II. OTHER INFORMATION:

Item 6

  Exhibits and reports on Form 8-K                                                     8

  Signatures                                                                           8

</TABLE>

                                      -2-
     
<PAGE>
 
                          PART 1. FINANCIAL INFORMATION
                          JACLYN, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                                       December 31,            June 30,
                                                                                           1997                   1997

                                                                                       (Unaudited)            (See Note)

                                                                                     -----------------      ----------------
                                                          ASSETS
CURRENT ASSETS:
<S>                                                                                 <C>                    <C>
Cash and cash equivalents                                                            $          2,924       $         1,580
Securities available for sale                                                                   3,696                 3,607
Accounts receivable, net                                                                        9,426                11,484
Inventories:

Raw materials                                                                                   1,323                 3,237
Work in process                                                                                   823                 1,319
Finished goods                                                                                  3,865                 5,506
                                                                                     -----------------      ----------------
                                                                                                6,011                10,062
Prepaid expenses and other assets                                                               2,707                 4,100
                                                                                     -----------------      ----------------
TOTAL CURRENT ASSETS                                                                           24,764                30,833
                                                                                     -----------------      ----------------
PROPERTY, PLANT AND EQUIPMENT, net                                                              1,597                 1,638
OTHER ASSETS                                                                                    1,500                 1,592
                                                                                     =================      ================
     TOTAL ASSETS                                                                    $         27,861       $        34,063
                                                                                     =================      ================
                                           LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

Notes payable - bank                                                                 $          1,625       $         4,163
Accounts payable                                                                                2,157                 6,477
Other current liabilities                                                                       3,601                 3,496
                                                                                     -----------------      ----------------
TOTAL CURRENT LIABILITIES                                                                       7,383                14,136
                                                                                     -----------------      ----------------
GUARANTEED BANK LOAN - ESOP                                                                       334                   509
OTHER NON-CURRENT LIABILITIES                                                                      28                    28
DEFERRED INCOME TAXES                                                                           1,617                 1,605
COMMITMENTS

STOCKHOLDERS' EQUITY

Common stock                                                                                    3,369                 3,369
Additional paid-in capital                                                                     11,994                12,117
Retained earnings                                                                              10,225                 9,789
                                                                                     -----------------      ----------------
                                                                                               25,588                25,275
Less:  Common shares in treasury at cost                                                        6,804                 7,011
       Guaranteed bank loan - ESOP                                                                334                   509
Add:   Unrealized gain on securities available for sale                                            49                    30
                                                                                     -----------------      ----------------
TOTAL STOCKHOLDERS' EQUITY                                                                     18,499                17,785
                                                                                                            ----------------
                                                                                     =================
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                      $         27,861       $        34,063
                                                                                     =================      ================
</TABLE>

Note: The June 30, 1997 Balance Sheet is derived from audited financial 
statements. See notes to condensed consolidated financial statements.

                                      -3-
<PAGE>
 
                          JACLYN, INC. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                                   (UNAUDITED)
                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                   Three Months Ended                     Six Months Ended
                                                                      December 31,                          December 31,

                                                                 1997                1996               1997                1996
                                                                 ----                ----               ----                ----
<S>                                                        <C>                  <C>              <C>                <C>

                                                               
    Net Sales                                               $      21,369       $      19,718      $      40,699     $       42,695
    Cost of Goods Sold                                             15,897              14,507             30,371             32,238
                                                           
                                                           ---------------    ----------------    ---------------    ---------------

    Gross Profit                                                    5,472               5,211             10,328             10,457
                                                           ---------------    ----------------    ---------------    ---------------


                       

    Shipping, Selling and Administrative Expenses                   5,239               4,997              9,572              9,623
    Interest Expense                                                   54                  47                171                136
    Other Income, net                                                  57                  58                117                118
                                                           ---------------    ----------------
                                                                                                  ---------------    ---------------

                                                                    5,236               4,986              9,626              9,641
                                                           ---------------    ----------------    ---------------    ---------------

    Earnings before income taxes                                      236                 225                702                816
    Provision  for income taxes                                        89                  91                266                326
                                                           ---------------    ----------------    ---------------    ---------------

    Net earnings                                           $          147     $           134     $          436     $          490
                                                           ===============    ================    ===============    ===============

    Average number of shares outstanding                        2,691,624           2,793,405          2,691,624          2,793,405
                                                           ===============    ================    ===============    ===============

    Basic and Diluted Net Earnings per Common Share        $         0.06     $          0.05     $         0.16     $         0.18
                                                           ===============    ================    ===============    ===============



See notes to condensed consolidated financial statements.

</TABLE>

                                      -4-
<PAGE>
 
                          JACLYN, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                          Six Months Ended
                                                                                           December 31,

                                                                                        1997             1996
                                                                                        ----             ----
CASH FLOWS FROM OPERATING ACTIVITIES:


<S>                                                                                  <C>             <C> 
Net earnings                                                                          $     436       $      490
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization                                                               229              177
Unrealized loss from marketable securities                                                    -                6
Deferred Income Taxes                                                                        12                -
Changes in assets and liabilities:
   Decrease in accounts receivable                                                        2,058            3,043
   Decrease in inventories                                                                4,051            5,115
   Decrease in prepaid expenses and other current assets                                  1,393              552
   Decrease in other assets                                                                  14               10
   Decrease in accounts payable and other current liabilities                           (4,215)          (4,561)
                                                                                  -------------    -------------
 Net cash provided by operating activities                                                3,978            4,832
                                                                                   -------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:

   Purchases of property and equipment                                                    (127)            (151)
   Proceeds from sale of property                                                            17               12
   Purchases of securities available for sale                                           (1,150)                -
   Proceeds from maturities of  securities available for sale                             1,080                -
                                                                                   -------------    -------------
Net cash used in investing activities                                                     (180)            (139)
                                                                                   -------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES:

   Decrease in notes payable - bank                                                     (2,538)          (1,000)
   Issuance of treasury stock                                                                84                -
   Decrease in other non-current liabilities                                                  -              (5)
                                                                                   -------------    -------------
Net cash used in financing activities                                                   (2,454)          (1,005)
                                                                                   -------------    -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                                 1,344            3,688
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                            1,580              665
                                                                                   =============    =============
CASH AND CASH EQUIVALENTS, END OF PERIOD                                           $                $
                                                                                          2,924            4,353
                                                                                   =============    =============


SUPPLEMENTAL INFORMATION:

Interest paid                                                                      $        171     $        136
                                                                                   -------------    ------------
Taxes paid                                                                         $        806     $        514
                                                                                   -------------    ------------
</TABLE> 


See notes to condensed consolidated financial statements.

                                      -5-
<PAGE>
 
                         JACLYN, INC. AND SUBSIDIARIES

    NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


     1.    The condensed consolidated balance sheet as of December 31, 1997 and
           the condensed consolidated statements of earnings for the three and
           six month periods ended December 31, 1997 and 1996, and the condensed
           consolidated statement of cash flows for the six month periods ended
           December 31, 1997 and 1996, have been prepared by the Company and are
           unaudited. In the opinion of management, all adjustments (which
           include only normal recurring adjustments) have been made that are
           necessary to present fairly the financial position, results of
           operations and cash flows for all periods presented. It is suggested
           that these condensed consolidated financial statements be read in
           conjunction with the audited financial statements and notes thereto
           included in the Company's 1997 Annual Report to Stockholders. The
           results of operations for the period ended December 31, 1997 are not
           necessarily indicative of operating results for the full fiscal year.

     2.    In June 1997, the FASB issued SFAS No. 131, "Disclosure about
           Segments of an Enterprise and Related Information," which is
           effective for the Company for the year ended June 30, 1999. SFAS No.
           131 requires disclosure about operating segments in complete sets of
           financial statements and in condensed financial statements of interim
           periods issued to shareholders. The new standard also requires that
           the Company report certain information about their products and
           services, the geographic areas in which they operate, and major
           customers. The Company has not yet determined the impact, if any, of
           the adoption of SFAS No. 131.


     3.    Net earnings per share - Effective December 31, 1997 the Company
           adopted SFAS No. 128 "Earnings Per Share." As required by SFAS 128
           all earnings per share have been restated to present Basic and
           Diluted Earnings Per Share.

                                      -6-
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                      FINANCIAL CONDITION AND RESULTS OF
                                  OPERATIONS


LIQUIDITY AND CAPITAL RESOURCES

The Company's cash and cash equivalents increased during the six month period
ended December 31, 1997 to $2,924,000 from $1,580,000 at June 30, 1997. The
increase this period was due to a net increase in cash provided by operating
activities of $3,978,000, primarily from decreases in inventory and accounts
receivable, offset by a decrease in accounts payable and other current
liabilities. The net increases in cash provided by operating activities was used
mostly to pay down $2,538,000 of short-term bank loans. The Company believes
that funds provided by operations, existing working capital and the Company's
current bank lines will be sufficient to meet foreseeable working capital needs.
There are no plans for significant capital expenditures in the near term.

RESULTS OF OPERATIONS

Net sales were $21,369,000 and $40,699,000 during the three and six-month
periods ended December 31, 1997, compared to $19,718,000 and $42,695,000 in the
three and six-month periods ended December 31, 1996, respectively. The increase
in sales for the quarter ended December 31, 1997 was primarily due to higher net
sales from the Company's sleepwear division and its premium division. However,
gross profit of 25.6% was slightly less for the three-month period ended
December 31, 1997 compared to the prior year comparable period of 26.4% due to
somewhat lower apparel division gross profit. For the six month period, the
decrease in net sales was due to overall lower apparel sales. However, the
slightly higher gross profit for the six-month period ended December 31, 1997
vs. 24.5% in the prior year's six-month period resulted for the most part from
improved premium division gross profit. Shipping, selling and administrative
expense increased in the second quarter ended December 31, 1997, but was lower
for this year's six-month period versus last year. As a percentage of net sales,
however, while the three-month period dropped from 25.3% to 24.5%, the six-month
period was up 1% to 23.5% from last year's six-month comparable period. The
increase in interest expense reflects higher average borrowing during the
current three and six month periods compared to the same periods last year.

The increase in earnings before income taxes for the three-month period as
compared to the equivalent period last year was due mainly to higher volume in
this year's three-month period and relatively lower percentage of shipping,
selling and administrative expenses. While the gross profit percentage increased
in this year's six-month period, earnings before income taxes for this period
decreased compared to last year's six-month period principally due to the
relatively higher shipping, selling and administrative expenses and due to
higher interest expense. Net earnings for the three and six-month period ended
December 31, 1997 were $147,000 and $436,000 compared to net earnings for the
same periods last year of $134,000 and $490,000, respectively.

OTHER ITEM

The Company has done a preliminary assessment of the changes that are needed to
make our systems year 2000 compliant. Based on this initial assessment, any
required modifications will be completed timely and the cost of such
modifications is not expected to have a material impact on the Company's results
of operations.

                                      -7-
<PAGE>
 
PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------

a)     Exhibit 27. Financial Data Schedule.

b)     Reports on Form 8-K. The registrant did not file any reports on Form 8-K
during the three months ended December 31, 1997.


                                                    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)
                             
February 13, 1998                            /s/ Robert Chestnov
-----------------                            -------------------------
                                             Robert Chestnov
                                             President
                                             Chief Executive Officer
                             
February 13, 1998                            /s/ Anthony Christon
-----------------                            -------------------------
                                             Anthony Christon
                                             Vice President 
                                             Chief Financial Officer
                             

                                      -8-
<PAGE>
 
     This schedule contains summary financial information extracted from the
Jaclyn, Inc. Condensed Consolidated Statements of Earnings for the period ended
December 31, 1997 and is qualified in its entirety by reference to such
financial statements.

                 APPENDIX A TO ITEM 601((C)) OF REGULATION S-K
                         (ARTICLE 5 OF REGULATION S-X
                     COMMERCIAL AND INDUSTRIAL COMPANIES)

<TABLE> 
<CAPTION>                                                                                             
                                                                            Six Months Ended 
Item Number       Item Description                                         December 31, 1997 
-----------       ----------------                                         ----------------- 
<S>               <C>                                                                   <C> 
5-03 (b) 1 (a)    Net sales of tangible products                                      40,699
5-03 (b) 1        Total revenues                                                      40,816
5-03 (b) 2 (a)    Cost of tangible goods sold                                         30,371
5-03 (b) 2        Total costs and expenses applicable to sales and revenues            9,572
5-03 (b) 3        Other costs and expenses                                      
5-03 (b) 5        Provision for doubtful accounts and notes                     
5-03 (b) (8)      Interest and amortization of debt discount                             171
5-03 (b) (10)     Income before taxes and other items                                    702
5-03 (b) (11)     Income tax expense                                                     266
5-03 (b) (14)     Income/loss continuing operations                                      436
5-03 (b) (15)     Discontinued operations                                       
5-03 (b) (17)     Extraordinary items                                           
5-03 (b) (18)     Cumulative effect - changes in accounting principles          
5-03 (b) (19)     Net income                                                             436
5-03 (b) (20)     Net earnings per share -basic                                         0.16
5-03 (b) (20)     Net earnings per share - diluted                                      0.16
</TABLE> 
<PAGE>
 
                                 EXHIBIT INDEX
                                 -------------

EXHIBIT NO.               DESCRIPTION                                  PAGE NO.
-----------               -----------                                  -------
     27                    Financial Data Schedule                     10