# UNITED STATES SECURITIES AND
EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q

_________________

|(Mark  One) |  | 
|----------- |  | 

| |  | Quarterly
report pursuant to Section 13 or 15(d) of the Securities Exchange           Act of 1934
| |  | -------------------------------------------------------------------------------------------------

| |  | For  the
quarterly period ending September 30, 2006
| |  | ---------------------------------------------------

# OR

| |  | Transition
report pursuant to Section 13 or 15(d) of the Securities Exchange           Act of 1934
| |  | --------------------------------------------------------------------------------------------------

| |  | For  the
transition period from__________ to__________
| |  | ------------------------------------------------------

Commission File Number
1-5354Jaclyn, Inc. (Exact name of registrant as specified in its charter)

|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|Delaware                                                       | 22-1432053                          
|(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number)
|                                                               |                                     

|                                           |           
|------------------------------------------ | ----------
|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)



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    
No

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

|                        |                      |                      
|----------------------- | -------------------- | ---------------------
|Large Accelerated Filer | Accelerated Filer No | Non-Accelerated Filer

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

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 November 1, 2006
|Common Stock, $1.00 par value | 2,476,679                             

---

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

|                                           | September 30,
2006
(Unaudited) | June 30,
2006
(See below)
|------------------------------------------ | ------------------------------ | -------------------------
|ASSETS                                     |                                |                          
|CURRENT ASSETS:                            |                                |                          
|Cash and cash equivalents                  |                                |                          
|Accounts receivable, net                   |                                |                          
|Inventory                                  |                                |                          
|Prepaid expenses and other current assets  |                                |                          
|                                           |                                |                          
|TOTAL CURRENT ASSETS                       |                                |                          
|                                           |                                |                          
|PROPERTY PLANT AND EQUIPMENT, NET          |                                |                          
|GOODWILL                                   |                                |                          
|OTHER ASSETS                               |                                |                          
|                                           |                                |                          
|TOTAL ASSETS                               |                                |                          
|                                           |                                |                          
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                                |                          
|CURRENT LIABILITIES:                       |                                |                          
|Notes payable  bank                       |                                |                          
|Accounts payable                           |                                |                          
|Other current liabilities                  |                                |                          
|                                           |                                |                          
|TOTAL CURRENT LIABILITIES                  |                                |                          
|                                           |                                |                          
|MORTGAGE PAYABLE                           |                                |                          
|                                           |                                |                          
|MINORITY INTEREST                          |                                |                          
|                                           |                                |                          
|COMMITMENTS AND CONTINGENCIES              |                                |                          
|STOCKHOLDERS' EQUITY:                      |                                |                          
|                                           |                                |                          
|Common stock                               |                                |                          
|Additional paid-in capital                 |                                |                          
|Retained earnings                          |                                |                          
|                                           |                                |                          
|                                           |                                |                          
|Less:  Common shares in treasury at cost   |                                |                          
|                                           |                                |                          
|TOTAL STOCKHOLDERS' EQUITY                 |                                |                          
|                                           |                                |                          
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |                                |                          
|                                           |                                |                          

The June 30, 2006 Balance Sheet is
derived from audited financial statements. See notes to condensed consolidated financial
statements.

2

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

|                                                        | Three Months Ended
September 30, |     
|------------------------------------------------------- | -------------------------------- | ----
|                                                       
|                                                        | 2006                             | 2005
|Net sales                                               |                                  |     
|Cost of goods sold                                      |                                  |     
|                                                        |                                  |     
|Gross profit                                            |                                  |     
|                                                        |                                  |     
|Shipping, selling and administrative expenses           |                                  |     
|                                                        |                                  |     
|Interest expense                                        |                                  |     
|                                                        |                                  |     
|                                                        |                                  |     
|                                                        |                                  |     
|Earnings before provision for income taxes              |                                  |     
|Provision for income taxes                              |                                  |     
|                                                        |                                  |     
|Net earnings                                            |                                  |     
|                                                        |                                  |     
|Net earnings per common share - basic                   |                                  |     
|                                                        |                                  |     
|Weighted average number of shares outstanding - basic   |                                  |     
|                                                        |                                  |     
|Net earnings per common share - diluted                 |                                  |     
|                                                        |                                  |     
|Weighted average number of shares outstanding - diluted |                                  |     
|                                                        |                                  |     

See notes to condensed consolidated
financial statements.

3

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

|                                                                      | Three Months Ended
September 30, |     
|--------------------------------------------------------------------- | -------------------------------- | ----
|                                                                     
|                                                                      | 2006                             | 2005
|Cash Flows From Operating Activities:                                 |                                  |     
|Net Earnings                                                          |                                  |     
|Adjustments to reconcile net earnings to net cash used in             |                                  |     
|operating activities:                                                 |                                  |     
|                                                                      |                                  |     
|Depreciation and amortization                                         |                                  |     
|Changes in assets and liabilities:                                    |                                  |     
|Increase in accounts receivable, net                                  |                                  |     
|Increase in inventory                                                 |                                  |     
|(Increase) decrease in prepaid expenses and other assets              |                                  |     
|(Decrease) increase in accounts payable and other current liabilities |                                  |     
|                                                                      |                                  |     
|                                                                      |                                  |     
|Net cash used in operating activities                                 |                                  |     
|                                                                      |                                  |     
|                                                                      |                                  |     
|Cash Flows From Investing Activities:                                 |                                  |     
|Purchase of property and equipment                                    |                                  |     
|Investment in leased building                                         |                                  |     
|                                                                      |                                  |     
|Net cash used in investing activities                                 |                                  |     
|Cash Flows From Financing Activities:                                 |                                  |     
|Net increase in loans payable - bank                                  |                                  |     
|Payment of long-term debt                                             |                                  |     
|Repurchase of common stock                                            |                                  |     
|                                                                      |                                  |     
|Net cash provided by financing activities                             |                                  |     
|                                                                      |                                  |     
|Net decrease in Cash and Cash Equivalents                             |                                  |     
|Cash and Cash Equivalents, beginning of period                        |                                  |     
|                                                                      |                                  |     
|Cash and Cash Equivalents, end of period                              |                                  |     
|                                                                      |                                  |     
|Supplemental Information:                                             |                                  |     
|Interest paid                                                         |                                  |     
|                                                                      |                                  |     
|Taxes paid                                                            |                                  |     
|                                                                      |                                  |     
|Minority Interest                                                     |                                  |     
|                                                                      |                                  |     

4

See notes to condensed
consolidated financial statements.

---

# JACLYN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED 
UNAUDITED FINANCIAL STATEMENTS

1.    
          Basis of Presentation:

The
accompanying unaudited condensed consolidated balance sheet as of September 30, 2006, the
condensed consolidated statements of earnings and cash flows for the three month periods
ended September 30, 2006 and 2005, 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 2006 Annual Report to Stockholders for the year ended June 30, 2006. The
results of operations for the period ended September 30, 2006 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 plans to relocate the
Companys executive offices from West New York, NJ to Maywood, New Jersey in January
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. Further 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, during the quarter ended September 30, 2006, the financial statements of the
Lessor were 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
capital of the equity owners of the Lessor (minority interest), approximately $500,000,
are reflected in

5

---

the September 30, 2006 Condensed
Consolidated Balance Sheet. There was no significant impact to net earnings.

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
(SFAS No. 123(R)), as interpreted by SEC Staff Accounting
Bulletin No. 107. All stock options granted by the Company fully vest upon
grant.

The
Company maintains two stockholder-approved Stock Option Plans for key employees and
consultants of the Company, and has terminated, effective November 29, 2005, the 1996
Non-Employee Director Stock Option Plan (the 1996 Plan).

The
Companys 2000 Stock Option Plan, as amended (the 2000 Plan), 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 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 at September 30, 2006 the 1990 Plan remains in effect for options
outstanding. While no further options are being granted under the 1996 Plan, it remains in
effect for options outstanding.

For
those option plans under which we may grant qualified stock options to purchase shares of
our common stock to executives, consultants, directors, or other key employees, as of
September 30, 2006, 205,000 shares were available for future grants. Stock options may 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 vest
immediately and expire after ten years.

The
Company did not grant any stock options during the first quarter of fiscal 2007 or fiscal
2006.

3.    
          Earnings Per Share:

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

6

---

|                                            | Three Months Ended
September 30, |     
|------------------------------------------- | -------------------------------- | ----
|                                            | 2006                             | 2005
|Basic Net Earnings Per Common Share:        |                                  |     
|Net Earnings                                |                                  |     
|                                            |                                  |     
|Basic Weighted Average Shares Outstanding   |                                  |     
|                                            |                                  |     
|Basic Net Earnings Per Common Share         |                                  |     
|                                            |                                  |     
|                                           
|                                            | Three Months Ended
September 30, |     
|                                            | 2006                             | 2005
|Diluted Net Earnings Per Common Share:      |                                  |     
|Net Earnings                                |                                  |     
|                                            |                                  |     
|Basic Weighted Average Shares Outstanding   |                                  |     
|Add: Dilutive Options                       |                                  |     
|                                            |                                  |     
|Diluted Weighted Average Shares Outstanding |                                  |     
|                                            |                                  |     
|Diluted Net Earnings Per Common Share       |                                  |     
|                                            |                                  |     

Options
to purchase 57,500 shares of common stock were outstanding as of September 30, 2006, but
were not included in the computation of diluted EPS for the quarter then ended because
the options were anti-dilutive.

4.    
          Inventories:

Inventories
consist of the following components (in thousands):

|                | September 30, 2006 |  | June 30, 2006
|--------------- | ------------------ |  | -------------
|               
|Raw materials   |                    |  | $            
|                |                    | 
|Work in process |                    |  |              
|                |                    | 
|Finished Goods  |                    |  |              
|                |                    |  |              
|                |                    |  | $            
|                |                    |  |              

7

---

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-month  period ended September 30, 2006, the Company did not purchase any
shares of its Common Stock in connection  with this repurchase  program.  As of September
30, 2006, the Company has  purchased a total of 302,621  shares of its Common Stock at a
cost of  approximately  $1,462,000 in connection with the repurchase program.

6.     Financing
Agreements:

In
September  2006, the Company amended its existing bank credit  facility.  The amended
 facility,  which expires  December 1, 2008,  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 September 30, 2006. As of September 30, 2006,  borrowing on
the short-term line of credit was $17,005,000,  and at that date the Company had
$12,995,000 of additional  availability  (based on the borrowing  formula)  under the
credit  facility.  At September 30, 2006 the Company was  contingently  obligated  on
open  letters of credit  with an  aggregate  face amount of  approximately $15,470,000.
 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 September 30, 2006 was 8.25%.

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  September  1, 2007 and may be prepaid by the  Company,
 along with a prepayment  fee,  from time to time during the term of the  financing.  The
balance of the mortgage as of September 30, 2006 is approximately $2,688,000.

7.     Contractual
Obligations and Commercial Commitments:

The
Company leases office  facilities under  non-cancelable  operating leases that expire in
various years through the year ended June 30, 2011.

8

---

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
| | ------------------- |  | ------------------------------
|
| |                     |  | 2007                          
| |                     | 
| |                     |  | 2008                          
| |                     | 
| |                     |  | 2009                          
| |                     | 
| |                     |  | 2010                          
| |                     | 
| |                     |  | 2011                          

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

|Year Ended June 30, | Minimum Commitments
|------------------- | -------------------
|                   
|2007                | $113,000           
|                    |                    
|2008                | 119,000            

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 September 30, 2006, there were no
material pending legal proceedings to which the Company was a party.

The
Company has not provided any financial guarantees as of September 30, 2006.

9

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8.    
          Retirement Plans:

Pension
expenses includes the following components:

|Fiscal Quarter Ended September 30,       |  |  |   | 2006    |   |   | 2005    |  
|---------------------------------------- |  |  | - | ------- | - | - | ------- | -
|                                         |  | 
|Components of Net Periodic Benefit Cost: |  | 
|                                         |  | 
|Service cost                        $    |  |  |   | -       |   | $ | 130,747 |  
|                                         |  | 
|Interest cost                            |  |  |   | 85,800  |   |   | 81,815  |  
|                                         |  | 
|Expected return on assets                |  |  |   | (83,135 | ) |   | (79,203 | )
|                                         |  | 
|Amortization of prior service cost       |  |  |   | -       |   |   | 12      |  
|                                         |  | 
|Amortization of actuarial loss           |  |  |   | 41,835  |   |   | 61,629  |  
|                                         |  |  |   |        
|Net periodic cost                        |  |  | $ | 44,500  |   | $ | 195,000 |  
|                                         |  |  |   |        

The
Company expects to contribute approximately $300,000 to its pension plan in fiscal 2007.
As of September 30, 2006, no contribution has been made.

# Recently Issued
Accounting Standards:

In
September 2006, the SEC issued Staff Accounting Bulletin (SAB)
No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB No. 108 requires that
registrants quantify errors using both a balance sheet and income statement approach and
evaluate whether either approach results in a misstated amount that, when all relevant
quantitative and qualitative factors are considered, is material. SAB No. 108 is effective
for the Companys fourth quarter of 2007. Management is currently evaluating the
impact of adopting SAB No. 108, if any, on the Companys financial statements.

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The statement is effective for fiscal years
beginning after November 15, 2007. The Company does not expect the adoption of SFAS No.
158 to have a material impact on the consolidated financial statements.

In
September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No.
87, 88, 106 and 132(R). SFAS No.158 requires an employer to recognize the
over-funded or under-funded status of defined benefit and retiree medical plans as an
asset or liability in its statement of financial position and to recognize through
comprehensive income changes in that funded status in the year in which they occur. Based
on a preliminary evaluation, the Company

10

---

does not expect the adoption of SFAS
No. 158 to have a material impact on the consolidated financial statements.

In
July 2006, FASB issued Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with FASB No. 109,
Accounting for Income Taxes.FIN 48 provides guidance on the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosures and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The Company is currently evaluating
the impact of this standard on the consolidated financial statements.

11

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|Item  2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
|-------- |  | ------------------------------------------------------------------------------------

# Overview

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

Our
business is subject to substantial seasonal variations. Historically, we have realized a
significant portion of net sales and net earnings for the year during the first and second
fiscal quarters during which time our customers generally increase inventory levels in
anticipation of both back-to-school and holiday sales. We expect that trend to continue
during fiscal 2007. The Company believes this seasonality is consistent with the general
pattern associated with sales to the retail industry. Consequently, the results for any
one quarter in a fiscal year are not necessarily indicative of results for the whole year.
The Companys quarterly results of operations may also fluctuate significantly as a
result of a number of other factors, including the timing of shipments to customers and
economic conditions. Accordingly, comparisons between quarters may not necessarily be
meaningful, and the results for any one quarter are not necessarily indicative of future
quarterly results or of full-year performance.

# Critical Accounting
Policies and Estimates

The
preparation of financial statements in conformity with 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 the MD&A included in our Annual Report on
Form 10-K for the year ended June 30, 2006 filed with the Securities and Exchange
Commission on September 28, 2006.

12

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# Liquidity and Capital
Resources

The
Companys cash and cash equivalents decreased $159,000 during the three-month period
ended September 30, 2006 to $773,000 from $932,000 at June 30, 2006.

Net
cash used in operating activities totaled $4,479,000, primarily from an increase in
inventory levels totaling $2,751,000 to meet anticipated second quarter shipping
requirements, an increase in accounts receivable totaling $1,314,000 resulting from higher
levels of shipping in this years first quarter compared to the last fiscal quarter
of 2006, and a net decrease in accounts payable and other current liabilities of $732,000,
the result of commissions and incentive payments in the first quarter of fiscal 2007, not
fully offset by an increase accounts payable and other payroll related accruals.

Funds
provided by financing activities of $6,775,000 were the result of $6,820,000 in borrowing
under the Companys bank line of credit used to finance the higher level of seasonal
business activity offset somewhat by the payment of long-term debt totaling $45,000.

Net
cash used in investing activities of $2,455,000 reflects the $2,200,000 mortgage
receivable and $200,000 option deposit given with respect to the new executive office
building, and other unrelated property and equipment purchases totaled $55,000.

In
September 2006, the Company amended its existing bank credit facility. The amended
facility, which expires December 1, 2008, 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 September 30,
2006. As of September 30, 2006, borrowing on the short-term line of credit was
$17,005,000, and at that date the Company had $12,995,000 of additional availability
(based on the borrowing formula) under the credit facility. At September 30, 2006 the
Company was contingently obligated on open letters of credit with an aggregate face amount
of approximately $15,470,000. 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 September 30,
2006 was 8.25%.

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 September 1, 2007 and may be prepaid by the Company, along with a
prepayment fee, from time to time during the term of the financing.

13

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

There
were no material commitments for capital expenditures at September 30, 2006.

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 intends to finance these repurchases from its own
funds from operations and/or from its bank credit facility. For the three-month period
ended September 30, 2006, the Company did not purchase any shares of its Common Stock
under this repurchase program. As of September 30, 2006, the Company purchased a total of
302,621 shares of its Common Stock at a cost of approximately $1,462,000 in connection
with the repurchase program.

# Contractual Obligations
and Commercial Commitments

To
facilitate an understanding of our contractual obligations and commercial commitments, the
following data is provided as of September 30, 2006:

|                        | * * * * Payments Due by Period * * * *
|----------------------- | --------------------------------------
|                       
|Contractual Obligations | Total                                 
|                       
|Notes Payable           |                                       
|                       
|Mortgage Payable        |                                       
|                       
|Royalties               |                                       
|                       
|Operating Leases        |                                       
|                        |                                       
|Total Contractual       |                                       
|Obligations             |                                       
|                        |                                       

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|Other Commercial Commitments | Total
Commitments | Less than
1 Year | 1-3
Years | 3-5 Years  | More than
5 Years
|---------------------------- | ----------------- | ---------------- | --------- | ---------- | -----------------
|                            
|Letters of Credit            |                   |                  | $         | 15,470,000 |                  
|                             |                   |                 
|Total Commercial Commitments |                   |                  | $         | 15,470,000 |                  

# 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 plans to relocate the Companys executive offices from West New York,
NJ to Maywood, New Jersey in January 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.  Further 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, during the quarter ended September 30, 2006,
the financial statements of the Lessor were consolidated with those of the Company.

# RESULTS OF OPERATIONS

Net
sales were $40,624,000 during the three-month period ended September 30, 2006, compared to
$29,248,000 in the prior fiscal three-month comparable period. Sales by category were as
follows:

Net
sales for the Apparel category were $23,773,000, or $5,726,000 higher than the prior
fiscal year. This 31.7% increase was primarily due to a 79.3% increase in our
childrens apparel division due to expanded programs with one customer, from recent
strong retail performance, as well as additional business from our Messages from the
Heart license. The sales increase in our childrens apparel division was
offset, in part, by a 14.9% reduction in net sales in the womens sleepwear division
due to the elimination of several private label programs from one of its customers, and a
63% reduction in net sales in our catalogue division, which was being phased out during
the first quarter of fiscal 2007 since it was not providing a meaningful return and was no
longer a material part of our overall business.

Net
sales totaling $16,851,000 for the Handbags category in the first quarter of fiscal 2007
represented a 50.4% increase compared to $11,201,000 in net sales for the same quarter of
the prior fiscal year. The sales increase primarily reflected higher sales in the premium
incentive business due to expanded programs for one of its significant customers. In
addition, net sales were 93.1% higher in the handbag business for the first quarter versus
last years first quarter due to additional floor space given to our product line by
a significant customer which resulted from a good prior season sell-through, in addition
to a promotional item sold to that customer.

Gross
margins were 20.9% in the first quarter of fiscal 2007 compared to 22.6% in the first
quarter of 2006. Gross margins by category were as follows:

Gross
margin for the Apparel category decreased slightly to 26.2% in the first three months of
fiscal 2007 from 26.5% in the first quarter of fiscal 2006. The .3% decrease was primarily
the result of lower margins in the childrens apparel business due to an increase in

15

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direct shipments which have lower
associated margins, not fully offset by a small improvement in the womens sleepwear
division margins attributable to product mix, as well a lower margins in the catalogue
division the result of phasing out that business, as mentioned above.

Gross
margin for the Handbags category in the first quarter of fiscal 2007 decreased to 13.6 %
from 16.4% in the first quarter of fiscal 2006. This decrease was mainly due to lower
premium incentive business margins attributable to market place competition on several
programs, causing this business to reduce its gross margins to an acceptable level without
losing the customer. Lower handbag margins were the result of product mix as well as lower
margins on a promotion item sold to a significant customer.

As
a percentage of net sales, shipping, selling and administrative expenses decreased to
18.2% from 21.2%. However, shipping, selling and administrative expenses increased by
$1,181,000 in the first quarter of fiscal 2007 compared to the prior year comparable
period, mainly due to higher shipping and warehousing expense totaling $208,000 relating
to higher sales volume, higher selling and sales commission costs totaling $404,000, and
higher royalty expense totaling $198,000 related to an increase in licensed product sales
in this fiscal quarter compared to the same fiscal quarter last year, as well as certain
minimum royalty commitments which were not met and had to be expensed. In addition, the
Company experienced higher product development costs of $243,000 for both the
childrens apparel and premium business relating to potential additional future
business and a $128,000 increase in general and administrative costs.

Interest
expense in the first quarter of fiscal 2007 increased to $347,000, or $207,000 above the
last years first quarter of $140,000, primarily the result of a higher level of
average borrowing to finance higher sales volume and higher interest rates.

The
increase of $494,000 in earnings before income taxes for the three month period ended
September 30, 2006 to $766,000 from earnings before income taxes of $272,000 in the prior
fiscal comparable period was primarily due to much higher net sales and gross profit
dollars, not fully offset by higher shipping, selling and administrative expenses, and
interest expense, as discussed above. For the three-month period ended September 30, 2006,
the Company had an effective tax rate of 39.6 % compared to 46.3 % in the first three
month period of the prior year, primarily the result of a higher state and local tax rate
during the first quarter of fiscal 2006. Net earnings increased $317,000 to $463,000 for
the three-month period ended September 30, 2006 from $146,000 in the prior comparable
period.

# RECENTLY ISSUED
ACCOUNTING STANDARDS

In
September 2006, the SEC issued Staff Accounting Bulletin (SAB)
No. 108, Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements. SAB No. 108 requires that
registrants quantify errors using both a balance sheet and income statement approach and
evaluate whether either approach results in a misstated amount that, when all relevant
quantitative and qualitative factors are considered, is material. SAB No. 108 is effective
for the Companys fourth quarter of 2007.

16

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Management is currently evaluating
the impact of adopting SAB No. 108, if any, on the Companys financial statements.

September
2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines
fair value, establishes a framework for measuring fair value and expands disclosures about
fair value measurements. The statement is effective for fiscal years beginning after
November 15, 2007. The Company does not expect the adoption of SFAS No. 158 to have a
material impact on the consolidated financial statements.

In
September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No.
87, 88, 106 and 132(R). SFAS No.158 requires an employer to recognize the
over-funded or under-funded status of defined benefit and retiree medical plans as an
asset or liability in its statement of financial position and to recognize through
comprehensive income changes in that funded status in the year in which they occur. Based
on a preliminary evaluation, the Company does not expect the adoption of SFAS No. 158 to
have a material impact on the consolidated financial statements.

On
July 13, 2006, FASB issued Interpretation No. 48 (FIN 48), Accounting
for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with FASB No. 109,
Accounting for Income Taxes.FIN 48 provides guidance on the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax
return. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosures and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. We are currently evaluating the impact
of this standard on our 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.

17

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# FORWARD-LOOKING
STATEMENTS

This
Form 10-Q may contain forward-looking statements that are being made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. The
Companys actual performance and results may vary as a result of a number of risks,
uncertainties and other factors, both foreseen and unforeseen, including general economic
and business conditions, competition in the accessories and apparel markets, continuing
favorable sales patterns, pricing and consumer buying trends. Additional uncertainty
exists for the potential negative impact that Severe Acute Respiratory Syndrome (SARS) may
have on our business, as it relates to our production in the Far East and other countries
in which we operate.

18

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|Item  3. |  | Quantitative and Qualitative Disclosures About Market Risk.
|-------- |  | -----------------------------------------------------------

There
have been no material changes in the information set forth under the caption Item
7A-Quantitative and Qualitative Disclosures About Market Risk in the Companys
Annual Report on Form 10-K for the fiscal year ended June 30, 2006.

|Item  4. |  | Controls and Procedures.
|-------- |  | ------------------------

At
the end of the period covered by this report, the Company carried out an evaluation, with
the participation of management of the Company, including the Companys Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Companys disclosure controls and procedures. Based on the
Companys evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures were
effective. There was no change in the Companys internal control over financial
reporting during the quarter ended September 30, 2006 that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over financial
reporting.

# PART II.

# OTHER INFORMATION

|Item  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.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

19

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# 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)
| | -------------------------

|November 14, 2006 | /s/ Allan GinsburgAllan GinsburgChairman of the Board
|----------------- | -----------------------------------------------------

|November 14, 2006 | /s/ Anthony ChristonAnthony ChristonVice President
Chief Financial Officer
|----------------- | --------------------------------------------------------------------------

20

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# 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.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

21