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<SEC-DOCUMENT>0001019056-03-000987.txt : 20030929
<SEC-HEADER>0001019056-03-000987.hdr.sgml : 20030929
<ACCEPTANCE-DATETIME>20030929130003
ACCESSION NUMBER:		0001019056-03-000987
CONFORMED SUBMISSION TYPE:	10-K
PUBLIC DOCUMENT COUNT:		10
CONFORMED PERIOD OF REPORT:	20030630
FILED AS OF DATE:		20030929

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			JACLYN INC
		CENTRAL INDEX KEY:			0000052969
		STANDARD INDUSTRIAL CLASSIFICATION:	LEATHER & LEATHER PRODUCTS [3100]
		IRS NUMBER:				221432053
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-05863
		FILM NUMBER:		03914281

	BUSINESS ADDRESS:	
		STREET 1:		635 59TH STREET
		CITY:			WEST NEW YORK
		STATE:			NJ
		ZIP:			07093
		BUSINESS PHONE:		2018689400

	MAIL ADDRESS:	
		STREET 1:		5801 JEFFERSON STREET
		CITY:			WEST NEW YORK
		STATE:			NJ
		ZIP:			07093
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>jaclyn10_k03.txt
<DESCRIPTION>FORM 10-K
<TEXT>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

For the fiscal year ended June 30, 2003

                                       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 No. 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)

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

Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of each exchange
             Title of Class                       on which registered
             --------------                      ----------------------

       Common Stock, $1 par value                American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of the voting stock (based on the closing price of
such stock on the American Stock Exchange) held by non-affiliates of the
Registrant at December 31, 2002 was approximately $7,700,000.

There were 2,552,755 shares of Common Stock outstanding at September 15, 2003.


                       DOCUMENTS INCORPORATED BY REFERENCE

    PART III      Certain Portions of the Registrant's Proxy Statement for the
                  Registrant's Annual Meeting of Stockholders scheduled to be
                  held on November 14, 2003.

<PAGE>

                                TABLE OF CONTENTS
                                -----------------

           Item                                                            Page
           ----                                                            ----

PART I     1.   Business.....................................................1

           2.   Properties...................................................3

           3.   Legal Proceedings............................................4

           4.   Submission of Matters to a Vote of Security Holders..........4

PART II    5.   Market for the Registrant's Common Equity and Related
                Stockholder Matters..........................................5

           6.   Selected Financial Data......................................7

           7.   Management's Discussion and Analysis of Financial
                Condition and Results of Operations..........................8

           7A.  Quantitative and Qualitative disclosures about
                Market & Risk...............................................14

           8.   Financial Statements and Supplementary Data.................14

           9.   Changes in and Disagreements with Accountants on
                Accounting and Financial Disclosure.........................15

           9A.  Controls and Procedures.....................................15


PART III   10.  Directors and Executive Officers of the Registrant..........15

           11.  Executive Compensation......................................16

           12.  Security Ownership of Certain Beneficial Owners
                and Management..............................................16

           13.  Certain Relationships and Related Transactions..............16

PART IV    14.  Principal Accounting Fees and Services......................16

           15.  Exhibits, Financial Statement Schedules and Reports
                on Form 8-K.................................................16

<PAGE>

                           Forward-Looking Statements
                           --------------------------

         This Form 10-K contains certain forward-looking statements concerning,
among other things, the Company's anticipated results, and 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. The Company's forward-looking statements are subject to a
number of known and unknown risks and uncertainties that could cause the
Company's 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, including the impact on
consumer spending as a result of the slower consumer economy, competition in the
accessories and apparel markets, potential changes in customer spending,
acceptance of our product offerings and designs, a highly promotional retail
environment, any significant variations between actual amounts and the amounts
estimated for those matters identified as our critical accounting estimates as
well as other significant accounting estimates made in the preparation of our
financial statements, and the impact of the hostilities in the Middle East and
the possibility of hostilities in other geographic areas as well as other
geopolitical concerns. Additional uncertainty exists for the potential negative
impact that a recurrence of Severe Acute Respiratory Syndrome (SARS) may have on
our business as it relates to our production in the Far East and other foreign
countries in which we source our products. In light of the uncertainty inherent
in our 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.


                                     PART I
                                     ------

Item 1.  Business.
- ------   --------

         Jaclyn, Inc. (incorporated in the State of Delaware in 1968) and its
subsidiaries (collectively, "Jaclyn", "the Company", "we", "us", "our", or "the
Registrant") is primarily engaged in the design, manufacture, distribution and
sale of women's and children's apparel, and vinyl, leather and fabric handbags,
sport bags, backpacks, cosmetic bags, and related products (collectively,
"handbag products"). Our apparel lines are wide ranging and include women's
loungewear, sleepwear, dresses and sportswear, and lingerie, as well as infants'
and children's clothing. The Company markets its handbag products in a variety
of popularly priced fashions and designs, with an emphasis on casual, travel and
sport styles.

         General. Styling is an important factor in the merchandising of all of
our products. The Company's staff of full-time designers studies fashion trends
in order to anticipate consumer demand. The design staff works closely with the
purchasing department to determine concepts and fabrics for its apparel products
as well as the styling and material components for its handbag products. The
design staff also works with the production and engineering staffs to determine
the costs of production and the technical problems involved in producing a new
style. We change most of our designs from season to season.

         Finished merchandise is received at independently owned outside
warehouses located in New Jersey, Florida, California and Indiana, as well as
Company-owned and leased facilities. From these locations, products are shipped
under different selling names to customers all over the country. Products for
the apparel catalogue business are also shipped from outside contractor
locations directly to the customer. In addition, certain handbag products
manufactured in the Far East are shipped directly to customers from Hong Kong.
Our handbag products are marketed primarily through general merchandise, retail
chain stores and department stores. We market our apparel lines to department
stores, retail chain stores, as well as to major mail order catalogs and other
specialty retailers. The Company sells throughout the United States using both
its own salesmen and independent sales representatives.

                                        1
<PAGE>

         The Company manufactures and markets apparel under the trade names
"Topsville", "I. Appel", "Smart Time", and "Emerson Road", each of which the
Company owns. We also manufacture apparel items for sale as private-label
merchandise. In addition, we are licensed to manufacture and market apparel
products under the names "Jordache(TM)" under an agreement which expires
December 31, 2005, "Charles Goodnight(TM)" and Chuckie Goodnight(TM)" under an
agreement which expires May 31, 2006, and "Vanity Fair(TM)" under an agreement
expiring December 31, 2006. The Company markets its handbag products under
trademarks and trade names which it owns, including "Shane" and "Aetna," "Susan
Gail," and "Robyn Lyn". In addition, we are licensed to manufacture and market
handbag products under the name "Looney Tunes(TM)" under an agreement which
expires March 30, 2004, and certain handbag products under a second agreement,
which expires on December 31, 2004, relating to a movie to be released entitled
"Looney Tunes Back in Action." We also are a party to a license agreement with
Warner Bros. to manufacture denim backpacks, handbags and accessories relating
to the "Harry Potter(TM)" series of books under an agreement which expires on
December 31, 2003. Both the "Crayola(TM)" agreement which expired December 31,
2002, and "Dr. Seuss(TM)" agreement which expired December 15, 2002, were not
renewed. Similarly, the agreements under which we marketed handbag products
under the "ANNE KLEIN(TM)" and "ANNE KLEIN 2(TM)" trademarks expired on June 30,
2002 and were not renewed. We consider our owned and licensed trademarks and
trade names, as well as our other, related intellectual property rights, to be
of significant value in the marketing of our products.

         Sales of apparel items during each of the fiscal years ended June 30,
2003, 2002 and 2001 represented 78%, 60%, and 54%, respectively, of consolidated
net sales. Sales of handbag products represented the remainder of our
consolidated net sales. Our sales are customarily offered on credit terms. We do
not have long-term contracts with any of our customers.

         In fiscal 2003, our imports of apparel and handbag products accounted
for approximately 92% of consolidated net sales, compared to approximately 90%
of consolidated net sales in fiscal 2002 and 85% in fiscal 2001. Generally,
imports offer us the benefit of diversification of styling and the benefit of
cost savings related to such purchases. While our operations are subject to the
usual risks associated with purchases from foreign countries, our other foreign
and domestic manufacturing sources provide us with alternative sources and
facilities.

         Approximately 68% of the Company's consolidated net sales for fiscal
2003 were to general merchandise, chain, department stores and catalogue
retailers, with the balance consisting of sales to smaller specialty shops,
smaller retail stores and cosmetic firms. During the fiscal year ended June 30,
2003, Wal-Mart Stores, Inc., Estee Lauder, and Kohl's, accounted for 56% of our
consolidated net sales (36%, 12% and 8% of consolidated net sales,
respectively). During the fiscal year ended June 30, 2002, three major customers
of the Company contributed approximately 40% of consolidated net sales as
follows: Wal-Mart Stores, Inc., 19%; Estee Lauder, 11%; and Blair Corporation,
10%. The loss of any one of these customers would have a material adverse effect
on the Company's results of operations.

         Purchases of apparel and handbag raw materials, primarily fabrics,
vinyl and urethane plastics, leather, frames, ornaments, trim and other
materials, and certain of the Company's finished products, are made from a
variety of sources. In most cases, the Company assists its suppliers and
contractors in the design and style of the materials it purchases. Our largest
expenditures for raw materials are for fabrics, leather, vinyl and urethane
plastics, which we purchase from several suppliers, one of which provided about
44% of our raw material needs in fiscal 2003. While the Company has no long-term
supply contracts, the raw materials it uses are available from various sources
and it anticipates no difficulty in the future in obtaining the necessary raw
materials for its operations. The Company deals with a number of sources for its
purchases of finished apparel, handbags and related products, no one of which
accounted for more than approximately 13% of the Company's total cost of goods
sold during fiscal 2003. The Company has no long-term supply contracts with its
Far East or European sources of finished handbags and related products or
apparel items and is subject to the usual risks associated therewith.

                                        2
<PAGE>

         The Company offers Fall/Winter, Holiday and Spring/Summer product lines
and, in almost all instances, manufactures products to meet the specific
requirements of its customers. Our business is somewhat seasonal in nature.
However, shipments have also been influenced by a number of factors, including
mid-year acquisitions which added to net sales in the second half of the
Company's 2002 fiscal year, and general economic conditions. Accordingly, we do
not believe that quarterly net sales are necessarily indicative of future
trends. Nevertheless, we anticipate that during fiscal 2004 we again will have
significantly more sales volume in the first-half of the fiscal year than in the
second half of the fiscal year. Reference is made to Note M, "Unaudited
Quarterly Financial Data," of the Notes to Consolidated Financial Statements on
page F-23 of this Form 10-K for additional information about historical
quarterly results.

         At September 15, 2003, the Company had unfilled orders of approximately
$65,200,000 compared to approximately $52,500,000 at September 18, 2002. The
increase in our backlog of unfilled orders is primarily attributable to the
Women's Sleepwear business, as well as an increase in open orders at Topsville,
Inc., the Company's infants' and children's apparel business, slightly offset by
a decrease in backlog relating to our catalogue business. In the ordinary course
of business, the dollar amount of unfilled orders at a particular point in time
is affected by factors, including scheduling of the manufacture and shipping of
goods (which, in turn, may be dependent on the requirements of customers).
Accordingly, a comparison of backlog from period to period is not necessarily
meaningful and may not be indicative of future sales patterns or shipments. The
Company does, however, anticipate that the increase in unfilled orders at
September 15, 2003, compared with a comparable date in fiscal 2002, should
favorably impact revenues and earnings during fiscal 2004.

         The Company employed 199 persons as of June 30, 2003, of whom 124 were
on a salaried basis and the balance on an hourly basis. At June 30, 2003, 18 of
the Company's employees were members of the Four Joint Boards of New York, New
Jersey, Pennsylvania and New England, affiliated with the International Leather
Goods, Plastics and Novelty Workers Union, AFL-CIO. The Company considers its
relations with its employees to be satisfactory.

         The Company competes with numerous domestic and foreign manufacturers
of apparel and handbags, very few of which are believed to each account for as
much as 1% of industry sales. We believe our sales of apparel items and handbag
products are not significant in light of total apparel industry sales. Our
business is dependent, among other things, on our ability to anticipate and
respond to changing consumer preferences, to remain competitive in price, style
and quality, and to meet our customers' various production and delivery
requirements. While some of the Company's competitors may be larger or may have
greater resources than ours, we believe that our size and financial position
will allow us to continue to respond to changes in consumer demand and remain
competitive.

         On January 10, 2002, the Company acquired 100% of the stock of
Topsville, Inc., a New York City-based manufacturer and distributor of private
label infants' and children's clothing. The aggregate purchase price for the
acquisition was $3,245,702, of which $1,745,702 was paid at the closing of the
transaction and the remainder of which was paid over a fifteen-month period from
closing from working capital and our bank line of credit.

         On January 19, 2001, the Company acquired the business and certain
assets of I. Appel Corporation, which manufactures and distributes robes,
dusters and loungewear for distribution to department stores. The aggregate
purchase price for the acquisition was approximately $700,000 for goodwill,
certain tangible assets and included $100,000 for acquisition costs.
Approximately $350,000 was paid at closing, and the remainder of the purchase
price was paid in quarterly installments through October 2002 from working
capital and our bank line of credit.

Item 2.  Properties.
- -------  ----------

         The Company owns a 140,000 square foot facility in West New York, New
Jersey, in which the executive offices and one of its warehouse facilities is
located. The Company currently leases approximately 70,000 square feet of this
West New York facility to outside parties. The Company also leases five showroom
and office facilities in New York City totaling approximately 32,000 square
feet, as well as a shipping facility in Medley, Florida for its Topsville
operations with approximately 35,000 square feet of warehouse and office space.
Reference is made to Note D, "Commitments and Contingencies," of the Notes to
Consolidated Financial Statements on page F-15 of this Form 10-K for additional
information about the Company's commitments under the terms of non-cancelable
leases.

                                       3
<PAGE>

Item 3.  Legal Proceedings.
- ------   -----------------

         (a)      The Company is not a party to, nor is any of its property the
subject of, any material pending legal proceeding.

         (b)      No material pending legal proceeding was terminated during the
three-month period ended June 30, 2003.


Item 4.  Submission of Matters to a Vote of Security Holders.
- ------   ---------------------------------------------------

         The Company did not submit any matters to a vote of its security
holders, through the solicitation of proxies or otherwise, during the
three-month period ended June 30, 2003.

Executive Officers of the Registrant

         The executive officers of the Company are set forth below. All
executive officers are elected at the annual meeting or at interim meetings of
the Board of Directors and hold their offices, at the pleasure of the Board of
Directors, until the next annual meeting of the Board and the election and
qualification of their respective successors. No arrangement or understanding
exists between any executive officer and any other person pursuant to which he
or she was elected as an executive officer.


    Name                        Age     Position and Period Served
    ----                        ---     --------------------------

    Abe Ginsburg...........      86     Chairman of the Executive Committee
                                           since November 29, 1988


    Allan Ginsburg.........      61     Chairman of the Board since
                                           November 29, 1988


    Robert Chestnov........      55     President and Chief Executive Officer
                                           since November 29, 1988


    Howard Ginsburg........      61     Vice Chairman of the Board since
                                           November 29, 1988 and President
                                           of the Company's Shane Handbag
                                           Division for more than the past
                                           five years


    Anthony Christon.......      58     Chief Financial Officer for more than
                                           the past five years


                                       4
<PAGE>

                                     PART II
                                     -------

Item 5.  Market for the Registrant's Common Equity
- ------   and Related Stockholder Matters.
         -------------------------------

         The Company's Common Stock, $1.00 par value per share, is traded on the
American Stock Exchange (Symbol: "JLN"). The following table sets forth the high
and low closing sales prices for the Company's Common Stock, as reported by the
American Stock Exchange, for each quarterly period during the Company's fiscal
years ended June 30, 2003 and June 30, 2002.

                 Fiscal Year Ended June 30, 2003       High          Low
                 -------------------------------       ----          ---

                 First Quarter                         $2.30        $1.53
                 Second Quarter                         3.75         1.80
                 Third Quarter                          3.38         2.20
                 Fourth Quarter                         2.90         2.31

                 Fiscal Year Ended June 30, 2002       High          Low
                 -------------------------------       ----          ---

                 First Quarter                         $2.75        $1.90
                 Second Quarter                         2.65         1.73
                 Third Quarter                          2.20         1.82
                 Fourth Quarter                         2.10         1.75


          The Company did not pay cash dividends during fiscal 2003 or 2002 and
does not anticipate the payment of cash dividends in the foreseeable future.

          At June 30, 2003, there were approximately 589 holders of record of
the Company's Common Stock.

                                       5
<PAGE>

Equity Compensation Plan Information

         The following sets forth certain information as of June 30, 2003
concerning each of the Company's equity compensation plans:

<TABLE>
<CAPTION>
                                                                                   Number of securities
                              Number of securities                                 remaining available for
                              to be issued              Weighted-average           future issuance under
                              upon exercise of          exercise price of          equity compensation plans
                              outstanding options,      outstanding options        (excluding securities
Plan category                 warrants and rights       warrants and rights        reflected in column (a))
- -------------                 -------------------       -------------------        ------------------------
                                     (a)                        (b)                          (c)
<S>                                <C>                         <C>                         <C>
Equity compensation
   plans approved by
   security holders.........       601,161                     $2.95                       69,500

Equity compensation
   plans not approved
   by security holders.(1) (2)     150,000                     $2.12                           --
                                   -------                                                -------

         Total..............       751,161                                                 69,500
                                   -------                                                -------
</TABLE>

(1) Includes options to purchase an aggregate of 30,000 shares of Common Stock
issuable upon the exercise of non-qualified stock options granted to two sales
representatives. Each of the stock options provides for the grant of shares of
Common Stock at exercise prices per share equal to the fair market value per
share of Common Stock on the date of grant. Pursuant to the terms of each
option, the optionee may exercise the option at any time and from time to time
for a period of five years from the date of grant, subject to earlier
termination under certain circumstances.

(2) Includes an option to purchase an aggregate of 120,000 shares of Common
Stock issuable to a sales representative of the Company. The option is
exercisable as to 40,000 shares of Common Stock during the first year after
grant and as to an additional 40,000 shares of Common Stock, on a cumulative
basis, on the first and second anniversaries of the date of grant (each 40,000
share installment, a "Tranche"), in each case at an exercise price per share
equal to the fair market value per share of Common Stock on the original date of
grant. The optionee may exercise a Tranche only during the five-year period
after such Tranche becomes exercisable, as described above, subject to earlier
termination under certain circumstances.

                                       6
<PAGE>

Item 6.  Selected Financial Data.
- ------   -----------------------

<TABLE>
<CAPTION>
Years ended June 30,                         2003             2002             2001             2000             1999
                                         -------------    -------------    -------------    -------------    -------------
<S>                                      <C>              <C>              <C>              <C>              <C>
Net Sales                                $ 108,960,000    $  81,031,000    $  79,570,000    $  72,078,000    $  58,799,000

Cost of Goods Sold - see Note 1             83,506,000       62,083,000       61,575,000       54,183,000       44,873,000
                                         -------------    -------------    -------------    -------------    -------------

Gross Profit                                25,454,000       18,948,000       17,995,000       17,895,000       13,926,000
                                         -------------    -------------    -------------    -------------    -------------
Shipping, selling and administrative        23,631,000       19,823,000       17,748,000       17,572,000       16,106,000
expenses - see Note 1

Writeoff of goodwill - see Note 2                   --               --               --               --        1,124,000

Interest expense                               546,000          293,000          234,000          100,000            4,000

Interest income                                 (5,000)          (3,000)        (109,000)        (136,000)        (207,000)

Other income                                   (11,000)         (11,000)         (34,000)         (47,000)        (324,000)
                                         -------------    -------------    -------------    -------------    -------------

Provision (benefit) for income taxes           610,000         (415,000)          56,000          146,000         (998,000)
                                         -------------    -------------    -------------    -------------    -------------

NET EARNINGS (LOSS)- see Note 1          $     683,000    $    (739,000)   $     100,000    $     260,000    $  (1,779,000)
                                         -------------    -------------    -------------    -------------    -------------
Weighted average shares - Basic              2,521,000        2,561,000        2,644,000        2,710,000        2,711,000

Net earnings (loss) per common share -
Basic                                    $         .27    $        (.29)   $         .10    $         .10    $        (.66)


Weighted average shares - Diluted            2,547,000        2,561,000        2,644,000        2,710,000        2,711,000

Net earnings (loss) per common share -
Diluted                                  $         .27    $        (.29)   $         .04    $         .10    $        (.66)


TOTAL ASSETS                             $  33,005,000    $  35,418,000    $  25,031,000    $  26,476,000    $  25,595,000
                                         -------------    -------------    -------------    -------------    -------------



Long-term liabilities                    $   3,023,000    $      61,000    $     100,000               --               --
                                         -------------    -------------    -------------    -------------    -------------

Stockholders' equity                     $  16,220,000    $  15,824,000    $  16,563,000    $  16,857,000    $  16,659,000
                                         -------------    -------------    -------------    -------------    -------------
</TABLE>

Note 1: Fiscal 2002 includes a pre-tax charge totaling $1,289,000 ($825,000
after tax), of which $389,000 is included in Cost of Goods Sold for an
adjustment to fair value, and $900,000 is included in Shipping, Selling and
Administrative Expenses for the amortization of open order backlog in connection
with the Topsville acquisition.

Note 2: Fiscal 1999 includes a goodwill writeoff totaling $1,124,000 resulting
from closing one of three unprofitable divisions

                                       7
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
- ------   of Operations.
         -----------------------------------------------------------------------

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

         The Company believes that application of accounting policies, and the
estimates inherently required by the policies, are reasonable. These accounting
policies and estimates are periodically reevaluated, and adjustments are made
when facts and circumstances dictate a change. Historically, the Company has
found the application of accounting policies to be appropriate, and actual
results have not differed materially from those determined using necessary
estimates.

         The Company's accounting policies are more fully described in Note A to
the consolidated financial statements. The Company has identified certain
critical accounting policies that are described below.

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

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

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

         Finite Long-lived assets. In the evaluation of the fair value and
future benefits of finite lived assets, we perform an analysis of the
anticipated undiscounted future net cash flows of the related finite long-lived
assets. If the carrying value of the related asset exceeds the undiscounted cash
flows, the carrying value is reduced to its fair value. Various factors
including future sales growth and profit margins are included in this analysis.
To the extent these future projections change, the conclusion regarding
impairment may differ from the current estimates.

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

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

                                       8
<PAGE>

Liquidity and Capital Resources

         The net decrease in cash and cash equivalents for the fiscal year ended
June 30, 2003 of $29,000 was the result of funds provided by operating
activities totaling $3,816,000, offset by funds used in investing activities of
$300,000 and by funds used in financing activities totaling $3,545,000. Net cash
provided by operating activities resulted primarily from a decrease in inventory
levels totaling $1,730,000 and an increase in accounts payable and other current
liabilities of $745,000. Net earnings provided another $683,000 to the increase
in operating net cash provided from operations. Cash used in investing
activities totaling $300,000 was for purchases of property and equipment. Funds
used in financing activities were, for the most part, the result of payments of
$5,120,000 to the Company's bank lender under our credit facility, plus the
remaining installment payments, totaling $1,100,000, for the Topsville and the
I. Appel acquisitions, offset by $3,023,000 of net mortgage loan proceeds.

         On December 23, 2002, the Company entered into a line of credit
agreement with a new bank. This credit facility, which expires December 1, 2004,
provides for short-term loans and the issuance of letters of credit in an
aggregate amount not to exceed $32,000,000. Based on a borrowing formula, the
Company may borrow up to $22,000,000 in short-term loans and up to $32,000,000
including letters of credit. 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 of
$11,000,000 through June 30, 2003 and $12,000,000 through June 30, 2004. As of
June 30, 2003, borrowing on the short-term line of credit was $3,975,000, and
the Company had $3,658,000 of additional availability (based on the borrowing
formula) under the credit facility. At June 30,2003, the Company was
contingently obligated on open letters of credit for approximately $19,927,000.
Interest on borrowings under the line of credit is at the bank's prime rate or
at LIBOR plus 250 basis points, at the option of the Company. The bank's prime
rate at June 30, 2003 was 4.00%.

         On August 14, 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 (see
the information under the caption "Item 2. Properties"). 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 proceeds of the financing are being used for
general working capital purposes.

         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 foreseeable working capital needs. Reference is made
to Note E, "Credit Facilities," of the Notes to Consolidated Financial
Statements on page F-16 of this Form 10-K for additional information about the
Company's credit lines.

         There were no material commitments for capital expenditures at June 30,
2003.

         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. 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. As of June 30, 2003, the
Company purchased 99,700 shares of its Common Stock at a cost of approximately
$287,000.

         As of June 30, 2003, 2002 and 2001, working capital was $13,947,000,
$9,747,000, and $12,477,000, respectively. The ratio of current assets to
current liabilities for those same periods was 2.0 to 1, 1.5 to 1, and 2.6 to 1,
respectively. The increase in the current ratio in fiscal 2003 compared to
fiscal 2002 is primarily attributable to the use of funds provided by operations
and the proceeds from the August 2002 mortgage financing to reduce short-term
borrowing. The Company's cash and cash equivalents totaled $66,000, $95,000, and
$66,000, at June 30, 2003, 2002 and 2001, respectively.

Contractual Obligations and Commercial Commitments

To facilitate an understanding of our contractual obligations and commercial
commitments, the following data is provided (in thousands):

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                             Payments Due by Period
                                              -----------------------------------------------------
                                                Within                                     After
Contractual Obligations            Total        1 Year       2-3 Years     4-5 Years      5 Years
- -----------------------         -----------   -----------   -----------   -----------   -----------
<S>                             <C>           <C>           <C>           <C>           <C>
Notes Payable                   $ 7,405,000   $ 7,405,000   $        --   $        --   $        --

Mortgage Payable                  3,156,000       133,000       296,000       342,000     2,385,000

Royalties                           880,000       351,000       329,000       200,000            --

Operating Leases                  2,745,000       717,000     1,051,000       823,000       154,000
                                -----------   -----------   -----------   -----------   -----------

Total Contractual Obligations   $14,186,000   $ 8,606,000   $ 1,676,000   $ 1,365,000   $ 2,539,000
                                ===========   ===========   ===========   ===========   ===========
</TABLE>


<TABLE>
<CAPTION>
                                             Amount of Commitment Expiration Per Period
                               -------------------------------------------------------------------
                                  Total
                                 Amounts       Within                                     After
Other Commercial Commitments    Committed      1 Year       2-3 Years     4-5 Years      5 Years
- ----------------------------   -----------   -----------   -----------   -----------   -----------
<S>                            <C>           <C>           <C>           <C>           <C>
Letters of Credit              $19,927,000   $19,927,000   $        --   $        --   $        --
                               -----------   -----------   -----------   -----------   -----------

Total Commercial Commitments   $19,927,000   $19,927,000   $        --   $        --   $        --
                               -----------   -----------   -----------   -----------   -----------
</TABLE>

Results of Operations

2003 Compared to 2002

         Net sales for fiscal 2003 totaled $108,960,000, an increase of
$27,929,000, or 34.5%, compared to the prior fiscal year. Sales by category were
as follows:

         Net sales for the Apparel category in fiscal 2003 were $82,615,000, or
$33,612,000 higher than the prior fiscal year. This 68.6% increase was primarily
due to the inclusion of a full year of net sales of Topsville in the current
year, compared with only six months of sales in the prior year. In addition,
higher levels of shipping to existing and new customers of the women's sleepwear
business, mostly during the first half of the Company's fiscal year, accounted
for the remainder of the increase in this category.

         Net sales for the Handbags category in fiscal 2003 were $26,345,000, or
about 18% lower than the prior fiscal year's total of $32,028,000. The sales
decrease mostly reflected the non-renewal of the Anne Klein license and lower
sales for the premium bag business, offset somewhat by higher sales in the
children's handbag division.

         Gross margins were 23.4% in both fiscal 2003 and 2002. However, the
period ended June 30, 2002 includes a $389,000 expense related to the portion of
purchase costs allocated to inventory for the acquisition of Topsville in
January 2002, which had the effect of decreasing last year's gross margins by
one-half of one percent.

         Gross margins by category were as follows:

                                       10
<PAGE>

         Gross margin for the Apparel category in 2003 increased to 23.9% in
2003 from 21.9% in 2002. The 2.0% increase was primarily attributable to better
2003 full-year margins in the children's apparel business, acquired in January
2002.

         Gross margin for the Handbags category in 2003 decreased to 21.8% in
2003 from 26.9% in 2002. This decrease was mainly due to the non-renewal of the
Anne Klein licensing business and lower competitive margins in our premium
business, offset to some extent by better children's handbag margins.

         Shipping, selling and administrative expenses increased by $3,808,000
in fiscal 2003 (including a prior-year $900,000 charge related to the Topsville
acquisition) mainly due to volume related expenses in fiscal 2003 compared to
the prior fiscal year. However, as a percentage of net sales, shipping, selling
and administrative expenses declined to 21.7% from 24.5% in fiscal 2002, due to
the relatively lower level of fixed expenses in fiscal 2003 compared to higher
net sales.

         Interest expense was $546,000, an increase of $253,000 from the last
fiscal year, primarily the result of interest expense associated with the
$3,250,000 mortgage financing consummated in August 2002, and also from a
greater level of borrowing needed to finance the increased volume of business in
the current fiscal year compared to fiscal 2002.

         Other income was $11,000 for both fiscal 2003 and fiscal 2002.

         Net earnings of $683,000 for the fiscal year ended June 30, 2003
compared to a net loss of $739,000 in the prior year (including an after-tax
charge of $825,000 relating to the fair value adjustment in connection with the
Topsville acquisition). This year's higher net earnings were primarily due to
higher gross margin dollars offset by higher interest costs, a relatively lower
percentage of shipping, selling and administrative expenses, as discussed above,
and a higher effective tax rate, primarily the result of expired foreign tax
credits.

2002 Compared to 2001

         Net sales for fiscal 2002 totaled $81,031,000, an increase of
$1,461,000 or 1.8% compared to the prior fiscal year. Sales by category were as
follows:

         Net sales for the Apparel category in fiscal 2002 were $49,003,000, an
increase of $6,655,000, or 15.7%, compared to $42,348,000 in 2001. The sales
increase for this category was primarily due to additional net sales from the
acquisition of Topsville, Inc. coupled with increases in revenue from existing
customers for our women's sleepwear and robes business, offset by much lower
volume with our catalogue customers.

         Net sales for the Handbag category in fiscal 2002 were $32,028,000, or
14 % lower than the prior fiscal year's total of $37,222,000. The sales decrease
was attributable to lower demand for both the Company's children's and premium
handbag divisions due to the soft economic climate during fiscal 2002.

         Gross margin increased to 23.4% in 2002 from 22.7% in 2001. The gross
margin increase in 2002 was due to higher margins in the Apparel category,
reflecting better results for our Women's sleepwear and robes business. However,
the period ended June 30, 2002 includes a $389,000 expense related to the
portion of purchase costs allocated to inventory in connection with the
acquisition of Topsville. Gross margins by category were as follows:

         Gross margin for the Apparel category increased to 21.9% in 2002 from
19.0% in 2001. The increase was attributable to higher margins in the Company's
women's sleepwear and robes business as well as better margins from the
Topsville acquisition which offset otherwise lower catalogue margins.

         Overall gross margin for the Handbags category in 2002 remained the
same as 2001, at 26.9%. While the overall percentage was unchanged, we
experienced lower margins in our children's handbag and better handbag business
offset by better margins in our premium business.

                                       11
<PAGE>

         Shipping, selling and administrative expenses increased to 24.5%, up
2.2% from fiscal 2001, due to the addition of Topsville's related shipping,
selling and administrative costs and includes a $900,000 non-cash charge related
to amortization of an open order backlog in connection with the Topsville
acquisition, in accordance with FAS 141. Without the $900,000 charge, shipping,
selling and administrative expenses increased to 23.4% of net sales, or a 1.1%
increase from fiscal 2001. This increase reflects the increased shipping,
selling and administrative costs associated with the Topsville operations.

         Interest expense increased to $293,000 from $234,000 last fiscal year,
primarily the result of much higher average borrowing needed to finance the
acquisition of Topsville, Inc. and the related increased volume of business in
fiscal 2002 compared to fiscal 2001.

         Interest income decreased by $106,000 due to the elimination of
securities available for sale which were sold during fiscal 2001 in order to
utilize such investment funds for current working capital purposes.

         Other income was lower by $23,000 for the fiscal year 2002 compared to
the prior fiscal year.

         The loss before income taxes for the fiscal year ended June 30, 2002
compared to earnings in the prior fiscal year was primarily due to accounting
for the acquisition of Topsville, Inc. Excluding an after-tax charge of $825,000
in fiscal 2002, the Company had earnings of $86,000 compared to $100,000 in the
prior fiscal year.


Recently Issued Accounting Standards

In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"), replacing
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, instead of at the date an entity
commits to an exit plan. This statement also established that fair value is the
objective for the initial measurement of the liability. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS No. 146 has not had, and is not expect to have, a
material impact on our consolidated financial statements.


In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that
upon issuance of a guarantee, a guarantor must recognize a liability for the
fair value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 will be effective for any guarantees that are
issued or modified after December 31, 2002. The disclosure requirement is
effective for our Fiscal year ended June 30, 2003. We have evaluated the
accounting provisions of the interpretations and there was no material impact on
our financial condition, results of operations or cash flows for the year ended
June 30, 2003. The Company has not provided any financial guarantees as of June
30, 2003.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation" ("SFAS No. 148"). SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of FASB Statement No. 123, "Accounting For Stock-Based
Compensation" ("SFAS 123") to require more prominent and more frequent
disclosures in financial statements about the effects of stock-based
compensation. SFAS 148 is effective for fiscal years ending after December 31,
2002. We will continue to account for stock-based equity compensation using the
intrinsic value method of APB Opinion 25. We are required to follow the
prescribed disclosure format and have provided the additional disclosures
required by SFAS No. 148 for the year ended June 30, 2003.

                                       12
<PAGE>

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), --
Consolidation of Variable Interest Entities -- with the objective of improving
financial reporting by companies involved with variable interest entities. A
variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights, or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
Historically, entities generally were not consolidated unless the entity was
controlled through voting interests. FIN 46 changes that by requiring a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. A
company that consolidates a variable interest entity is called the "primary
beneficiary" of that entity. FIN 46 also requires disclosures about variable
interest entities that a company is not required to consolidate but in which it
has a significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003.
The consolidation requirements of FIN 46 apply to existing entities in the first
fiscal year or interim period after January 31, 2003, regardless of when the
variable interest entity was established. We have evaluated the accounting
provisions of the interpretations and there was no material impact on our
financial condition, results of operations or cash flows, since the Company is
not the primary beneficiary of any variable interest entity.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
This statement is effective for contracts entered into or modified after June
30, 2003. We are currently evaluating the impact of adopting this statement on
our consolidated financial position and results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This statement
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The statement will be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance date of the statement and
still existing at the beginning of the period of adoption. Although we are still
in the process of reviewing the new statement, we believe this statement will
have no material impact on our consolidated financial statements.

                                       13
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- -------  ----------------------------------------------------------

         The Company, in the normal course of doing business, is exposed to
interest rate change market risk. Since our borrowing patterns are cyclical, the
Company is not dependent on borrowing throughout the year. Nevertheless, a
sudden increase in interest rates (which under our bank line of credit is at the
prime rate or at LIBOR plus 250 basis points) may, especially during peak
borrowing, potentially have a significant negative impact on the Company's
results of operations. The Company estimates that a 100 basis point fluctuation
in applicable market interest rates would increase or decrease interest expense
by approximately $77,000, based on fiscal 2003 borrowing levels.

         We have not used, and currently do not anticipate using, any derivative
financial instruments. In addition, we have not been materially impacted by
fluctuations in foreign currency exchange rates as substantially all of our
business is transacted in, and is expected to continue to be transacted in U.S.
dollar-based currencies.


Item 8.  Financial Statements and Supplementary Data.
- ------   -------------------------------------------

         Financial Statements
         --------------------

         The report dated September 24, 2003 of Deloitte & Touche LLP,
independent auditors, the consolidated balance sheets of Jaclyn, Inc. and
subsidiaries as of June 30, 2003 and 2002 and the related consolidated
statements of operations and comprehensive earnings (loss), stockholders' equity
and cash flows for each of the three fiscal years in the period ended June 30,
2003, and Notes to Consolidated Financial Statements appear on pages F-2 through
F-28 of this Form 10-K.

         Supplementary Data
         ------------------

         Selected unaudited quarterly financial data for the fiscal years ended
June 30, 2003 and June 30, 2002 is set forth at Note M, "Unaudited Quarterly
Financial Data" on page F-28 of this Form 10-K.

                                       14
<PAGE>

Item 9.  Changes in and Disagreements with Accountants
- ------   on Accounting and Financial Disclosure.
         ---------------------------------------

         Not Applicable.


Item 9A. 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 year ended June
30, 2003 that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.


                                    PART III
                                    --------

Item 10. Directors and Executive Officers of the Company.
- -------  -----------------------------------------------

         The information required by this item (other than certain information
as to the executive officers of the Company, which information is set forth
after Part I of this Form 10-K under the caption "Executive Officers of the
Registrant") is incorporated herein by reference to the Company's definitive
Proxy Statement relating to the Company's 2003 Annual Meeting of Stockholders to
be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended.

                                       15
<PAGE>

Item 11. Executive Compensation.
- -------  ----------------------

         The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the Company's
2003 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.


Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------  --------------------------------------------------------------

         The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the Company's
2003 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.


Item 13. Certain Relationships and Related Transactions.
- -------  ----------------------------------------------

         The information required by this item is incorporated herein by
reference to the Company's definitive Proxy Statement relating to the Company's
2003 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.


Item 14. Principal Accounting Fees and Services.
- -------  --------------------------------------

         Under rules adopted by the Securities and Exchange Commission relating
to the disclosures required by this Item 14, this Item and the disclosures
required hereby are not yet applicable to the Company.


                                     PART IV
                                     -------

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- -------  ---------------------------------------------------------------

(a)      The following financial statements, financial statement schedules and
         exhibits are filed as part of this report:

(1)      Financial Statements:
         --------------------

         Independent Auditors' Report

         Consolidated Balance Sheets -- June 30, 2003 and 2002

         Consolidated Statements of Operations and Comprehensive Earnings (Loss)
         -- for the years ended June 30, 2003, 2002 and 2001

         Consolidated Statements of Stockholders' Equity -- for the years ended
         June 30, 2003, 2002 and 2001

         Consolidated Statements of Cash Flows -- for the years ended June 30,
         2003, 2002 and 2001

         Notes to Consolidated Financial Statements

                                       16
<PAGE>

(2)      Financial Statement Schedules:
         -----------------------------

         Schedule II - Valuation and Qualifying Accounts

         All other schedules are omitted because they are either inapplicable,
not required, or because the required information is included in the
consolidated financial statements or notes thereto.

(3)      Exhibits:
         --------

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

         3(a)              Certificate of Incorporation of the Registrant
                           (incorporated herein by reference to Exhibit 3(a) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1994).

         3(b)              By-Laws of the Registrant (incorporated herein by
                           reference to Exhibit 3(b) to the Registrant's Annual
                           Report on Form 10-K, File No. 1-5863, for the fiscal
                           year ended June 30, 1991).

         4(a)              Promissory Note of the Registrant dated August 14,
                           2002 payable to the order of Hudson United Bank
                           ("HUB") in the principal amount of $3,250,000
                           (incorporated herein by reference to Exhibit 4(a) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2002).

         4(b)              Mortgage, Security Agreement and Financing Statement
                           dated August 14, 2002 between the Registrant and HUB
                           (incorporated herein by reference to Exhibit 4(b) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2002).

         4(c)              Revolving Loan Agreement dated December 23, 2002
                           between the Registrant and HUB.

         10(a)             Incentive Stock Option Plan of the Registrant
                           (incorporated herein by reference to Exhibit 10(f) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1988).

         10(b)             1984 Employee Stock Option Plan of the Registrant
                           (incorporated herein by reference to Exhibit 10(f) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1989).*

         10(c)             1990 Stock Option Plan of the Registrant, as amended
                           (incorporated herein by reference to Exhibit 10(g) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1991).*

         10(d)             Second Amended and Restated Stockholders' Agreement
                           dated May 12, 2003 among the Registrant and the
                           persons listed on Schedule A thereto (incorporated
                           herein by reference to Exhibit U to Amendment No. 9
                           to the Schedule 13D dated May 15, 2003 of Allan
                           Ginsburg, Robert Chestnov, Abe Ginsburg and Howard
                           Ginsburg.).

         10(e)             Key Executive Disability Plan of the Registrant
                           (incorporated herein by reference to Exhibit 10(m) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1988).*

         10(f)             Non-Qualified Stock Option Contract dated December 2,
                           1998 between the Registrant and Martin Brody
                           (incorporated herein by reference to Exhibit 10(I) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1999).

         10(g)             Non-Qualified Stock Option Contract dated December 2,
                           1998 between the Registrant and Richard Chestnov
                           (incorporated herein by reference to Exhibit 10(j) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1999).

         10(h)             Non-Qualified Stock Option Contract dated December 2,
                           1998 between the Registrant and Albert Safer
                           (incorporated herein by reference to Exhibit 10(j) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1999).

                                       17
<PAGE>

         10(i)             1996 Non-Employee Director Stock Option Plan
                           (incorporated by reference to Exhibit 10(o) to the
                           Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1998).*

         10(j)             Non-Qualified Stock Option Contract dated December 3,
                           1996 between the Registrant and Martin Brody
                           (incorporated by reference to Exhibit 10(p) to the
                           Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1997).

         10(k)             Non-Qualified Stock Option Contract dated December 3,
                           1996 between the Registrant and Richard Chestnov
                           (incorporated by reference to Exhibit 10(q) to the
                           Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1997).

         10(l)             Non-Qualified Stock Option Contract dated August 19,
                           1997 between the Registrant and Al Safer
                           (incorporated by reference to Exhibit 10(r) to the
                           Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1997).

         10(m)             Non-Qualified Stock Option Contract dated December 3,
                           1997 between the Registrant and Martin Brody
                           (incorporated by reference to Exhibit 10(s) to the
                           Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1998).

         10(n)             Non-Qualified Stock Option Contract dated December 3,
                           1997 between the Registrant and Richard Chestnov
                           (incorporated by reference to Exhibit 10(t) to the
                           Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1998).

         10(o)             Non-Qualified Stock Option Contract dated December 3,
                           1997 between the Registrant and Albert Safer
                           (incorporated by reference to Exhibit 10(u) to the
                           Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1998).

         10(p)             Letter Agreement dated as of December 29, 1997
                           between the Registrant and Robert Chestnov
                           (incorporated herein by reference to Exhibit 2.1 to
                           the Registrant's Current Report on Form 8-K, file No.
                           1-5863, for the fiscal year ended June 30, 1998).*

         10(q)             Purchase and Sale Agreement dated January 11, 1999
                           between Banner Industries of New York, Inc. and
                           Jaclyn, Inc.(incorporated herein by reference to
                           Exhibit 2.1 to the Registrant's Current Report on
                           Form 8-K, file No. 1-5863, dated January 26, 1999).

         10(r)             Non-Qualified Stock Option Contract dated November
                           30, 1999, between the Registrant and Richard Chestnov
                           (incorporated herein by reference to Exhibit 10(x) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2000).

         10(s)             Non-Qualified Stock Option Contract dated November
                           30, 1999, between the Registrant and Albert Safer
                           (incorporated herein by reference to Exhibit 10(y) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2000).

         10(t)             Non-Qualified Stock Option Contract dated November
                           30, 1999, between the Registrant and Martin Brody
                           (incorporated herein by reference to Exhibit 10(z) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 2000).

         10(u)             Non-Qualified Stock Option Contract dated June 12,
                           2000, between the Registrant and Norman Axelrod
                           (incorporated herein by reference to Exhibit 10(aa)
                           to the Registrant's Annual Report on Form 10-K, File
                           No. 1-5863, for the fiscal year ended June 30, 2000).

         10(v)             Non-Qualified Stock Option Contract dated December 2,
                           1998 between the Registrant and Richard Chestnov
                           (incorporated herein by reference to Exhibit 10(j) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1999).

         10(w)             Non-Qualified Stock Option Contract dated December 2,
                           1998 between the Registrant and Albert Safer
                           (incorporated herein by reference to Exhibit 10(k) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1999).

                                       18
<PAGE>

         10(x)             Non-Qualified Stock Option Contract dated December 2,
                           1998 between the Registrant and Martin Brody
                           (incorporated herein by reference to Exhibit 10(I) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1999).

         10(y)             Non-Qualified Stock Option Contract dated November
                           30, 2001, between the Registrant and Richard Chestnov
                           (incorporated herein by reference to Exhibit 10(I) to
                           the Registrant's Annual Report on Form 10-K, File No.
                           1-5863, for the fiscal year ended June 30, 1999).

         10(z)             Non-Qualified Stock Option Contract dated November
                           30, 2001, between the Registrant and Albert Safer
                           (incorporated herein by reference to Exhibit 10(cc)
                           to the Registrant's Annual Report on Form 10-K, File
                           No. 1-5863, for the fiscal year ended June 30, 1999).

         10(aa)            Non-Qualified Stock Option Contract dated November
                           30, 2001, between the Registrant and Martin Brody
                           (incorporated herein by reference to Exhibit 10(dd)
                           to the Registrant's Annual Report on Form 10-K, File
                           No. 1-5863, for the fiscal year ended June 30, 1999).

         10(bb)            Non-Qualified Stock Option Contract dated November
                           30, 2001, between the Registrant and Norman Axelrod
                           (incorporated herein by reference to Exhibit 10(ee)
                           to the Registrant's Annual Report on Form 10-K, File
                           No. 1-5863, for the fiscal year ended June 30, 1999).

         10(cc)            Purchase and Sale Agreement dated January 10, 2002
                           between Mark Nitzberg and the Registrant
                           (incorporated herein by reference to Exhibit 2.1 to
                           the Registrant's Current Report on Form 8-K, File No.
                           1-5863, dated January 24, 2002).

         10(dd)            Consulting Agreement dated January 10, 2002 between
                           Natoosh, LLC, Mark Nitzberg and the Registrant
                           (incorporated herein by reference to Exhibit 2.2 to
                           the Registrant's Current Report on Form 8-K, File No.
                           1-5863, dated January 24, 2002).

         10(ee)            Payment and Indemnification Agreement dated January
                           10, 2002 by and among Capital Factors, Inc.,
                           Topsville, Inc., Mark Nitzberg and the Registrant
                           (incorporated herein by reference to Exhibit 2.3 to
                           the Registrant's Current Report on Form 8-K, File No.
                           1-5863, dated January 24, 2002).

         10(ff)            Non-Qualified Stock Option Contract dated December 3,
                           2002 between the Registrant and Richard Chestnov.

         10(gg)            Non-Qualified Stock Option Contract dated December 3,
                           2002 between the Registrant and Albert Safer.

         10(hh)            Non-Qualified Stock Option Contract dated December 3,
                           2002 between the Registrant and Martin Brody.

         10(ii)            Non-Qualified Stock Option Contract dated December 3,
                           2002 between the Registrant and Norman Axelrod.

         10(jj)            Non-Qualified Stock Option Contract dated March 19,
                           2003, between the Registrant and Harold Schechter.

         21                Subsidiaries of the Registrant (incorporated herein
                           by reference to Exhibit 21 to the Registrant's Annual
                           Report on Form 10-K, File No. 1-5863, for the fiscal
                           year ended June 30, 2002).

         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.

                                       19
<PAGE>

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

         --------------------
         *Management contract or compensatory plan or arrangement

(b)      Reports on Form 8-K.
         -------------------

         The Company filed a Form 8-K dated May 15, 2003 furnishing under Item
         12, Results of Operations and Financial Condition, a press release
         announcing its financial results for the fiscal quarter ended March 31,
         2003.

(c)      Exhibits.
         --------

         Exhibits are listed in response to Item 14(a)(3).

(d)      Financial Statement Schedules.
         -----------------------------

         Financial Statement Schedules are listed in response to Item 14(a)(2).

                                       20
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) 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.

                                            By: /s/ ALLAN GINSBURG
                                                --------------------------------
September 24, 2003                              ALLAN GINSBURG, Chairman
                                                  of the Board

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

/s/ Allan Ginsburg          Chairman of the Board            September 24, 2003
- ------------------------    and Director
ALLAN GINSBURG

/s/ Robert Chestnov         President, Principal             September 24, 2003
- ------------------------    Executive Officer and
ROBERT CHESTNOV             Director

/s/ Anthony Christon        Chief Financial Officer,         September 24, 2003
- ------------------------    Principal Financial and
ANTHONY CHRISTON            Accounting Officer

/s/ Abe Ginsburg            Director                         September 24, 2003
- ------------------------
ABE GINSBURG

/s/ Howard Ginsburg         Director                         September 24, 2003
- ------------------------
HOWARD GINSBURG

/s/ Norman Axelrod          Director                         September 24, 2003
- ------------------------
NORMAN AXELROD

/s/ Martin Brody            Director                         September 24, 2003
- ------------------------
MARTIN BRODY

/s/ Richard Chestnov        Director                         September 24, 2003
- ------------------------
RICHARD CHESTNOV

/s/ Al Safer                Director                         September 24, 2003
- ------------------------
AL SAFER

/s/ Harold Schechter        Director                         September 24,2003
- ------------------------
HAROLD SCHECHTER

                                       21
<PAGE>
                         JACLYN, INC. AND SUBSIDIARIES

                               TABLE OF CONTENTS


                                                                            Page
                                                                            ----

INDEPENDENT AUDITORS' REPORT                                                F-1

FINANCIAL STATEMENTS:

         Consolidated Balance Sheets - As of June 30, 2003 and 2002         F-2

         Consolidated Statements of Operations and Comprehensive
         Earnings (Loss) - For the years ended June 30, 2003, 2002
         and 2001                                                           F-3

         Consolidated Statements of Cash Flows - For the years ended
         June 30, 2003, 2002 and 2001                                 F-4 - F-5

         Consolidated Statements of Stockholders' Equity - For the
         years ended June 30, 2003, 2002 and 2001                           F-6

         Notes to Consolidated Financial Statements                   F-7 - F-28

FINANCIAL STATEMENT SCHEDULE:

         Valuation and Qualifying Accounts                                  F-29

<PAGE>

INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of
Jaclyn, Inc.
West New York, New Jersey


         We have audited the accompanying consolidated balance sheets of Jaclyn,
Inc. and subsidiaries as of June 30, 2003 and 2002, and the related consolidated
statements of operations and comprehensive earnings (loss), stockholders' equity
and cash flows for each of the three fiscal years in the period ended June 30,
2003. Our audits also included the consolidated financial statement schedule
listed in the Index at Item 15(a)2. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Jaclyn, Inc. and
subsidiaries as of June 30, 2003 and 2002, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended June
30, 2003, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.

         As discussed in Note I to the consolidated financial statements, the
Company changed its method of accounting for goodwill and other intangible
assets as of July 1, 2001 to conform with Financial Accounting Standards Board
Statement No. 142.



Deloitte & Touche LLP
September 24, 2003
New York, New York

                                      F-1

<PAGE>

JACLYN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 AND 2002
================================================================================
<TABLE>
<CAPTION>
ASSETS                                                              2003          2002
                                                                -----------   -----------
<S>                                                             <C>           <C>
CURRENT ASSETS:

CASH AND CASH EQUIVALENTS                                       $    66,000   $    95,000

ACCOUNTS RECEIVABLE, LESS SALES RETURNS, SALES DISCOUNTS,
SALES ALLOWANCES & ALLOWANCE FOR DOUBTFUL ACCOUNTS:
2003, $2,692,000; 2002, $969,000                                 14,778,000    14,667,000

INVENTORIES                                                       9,665,000    11,395,000

PREPAID EXPENSES AND OTHER CURRENT ASSETS                         1,888,000     1,732,000

DEFERRED INCOME TAXES                                             1,079,000       862,000
                                                                -----------   -----------
    TOTAL CURRENT ASSETS                                         27,476,000    28,751,000

PROPERTY, PLANT AND EQUIPMENT - NET                               1,147,000     1,211,000

GOODWILL                                                          3,338,000     3,342,000

OTHER ASSETS                                                        150,000       309,000

DEFERRED INCOME TAXES                                               894,000     1,805,000
                                                                -----------   -----------
                                                                $33,005,000   $35,418,000
                                                                ===========   ===========
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:

NOTES PAYABLE - BANK                                            $ 3,975,000   $ 9,095,000

ACCOUNTS PAYABLE                                                  7,405,000     7,081,000

COMMISSIONS PAYABLE                                                 369,000       129,000

ACCRUED PAYROLL AND RELATED EXPENSES                                840,000       985,000

OTHER CURRENT LIABILITIES                                           940,000     1,714,000
                                                                -----------   -----------
    TOTAL CURRENT LIABILITIES                                    13,529,000    19,004,000
                                                                -----------   -----------
LONG TERM LIABILITIES                                             3,023,000        61,000
                                                                -----------   -----------
DEFERRED INCOME TAXES                                               233,000       529,000
                                                                -----------   -----------
COMMITMENTS & CONTINGENCIES - NOTE D

STOCKHOLDERS' EQUITY:

PREFERRED STOCK, PAR VALUE $1: AUTHORIZED, 1,000,000  SHARES;
ISSUED AND OUTSTANDING, NONE                                             --            --


COMMON STOCK, PAR VALUE $1: AUTHORIZED, 5,000,000 SHARES;
ISSUED AND OUTSTANDING 2003 and 2002: 3,368,733 SHARES            3,369,000     3,369,000

ADDITIONAL PAID-IN CAPITAL                                       12,117,000    12,117,000

RETAINED EARNINGS                                                 8,258,000     7,575,000
                                                                -----------   -----------

                                                                 23,744,000    23,061,000

LESS: TREASURY STOCK AT COST (2003: 907,053 AND 2002:
807,342 SHARES)                                                   7,524,000     7,237,000
                                                                -----------   -----------

    TOTAL STOCKHOLDERS' EQUITY                                   16,220,000    15,824,000
                                                                -----------   -----------
                                                                $33,005,000   $35,418,000
                                                                ===========   ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-2
<PAGE>

JACLYN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS (LOSS)
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
================================================================================
<TABLE>
<CAPTION>
                                              2003             2002             2001
                                          -------------    -------------    -------------
<S>                                       <C>              <C>              <C>
Net sales                                 $ 108,960,000    $  81,031,000    $  79,570,000

Cost of goods sold                           83,506,000       62,083,000       61,575,000
                                          -------------    -------------    -------------
Gross profit                                 25,454,000       18,948,000       17,995,000
                                          -------------    -------------    -------------
Shipping, selling and administrative
expenses                                     23,631,000       19,823,000       17,748,000

Interest expense                                546,000          293,000          234,000

Interest income                                  (5,000)          (3,000)        (109,000)

Other income                                    (11,000)         (11,000)         (34,000)
                                          -------------    -------------    -------------
EARNINGS (LOSS) BEFORE INCOME TAXES           1,293,000       (1,154,000)         156,000

PROVISION (BENEFIT) FOR INCOME TAXES            610,000         (415,000)          56,000
                                          -------------    -------------    -------------

NET EARNINGS (LOSS)                       $     683,000    $    (739,000)   $     100,000

Other comprehensive income, net of tax:

Unrealized holding loss on securities
arising during period                                --               --           (5,000)
                                          -------------    -------------    -------------

NET COMPREHENSIVE EARNINGS (LOSS)         $     683,000    $    (739,000)   $      95,000
                                          =============    =============    =============

NET EARNINGS (LOSS) PER COMMON SHARE
- - BASIC                                   $         .27    $        (.29)   $         .04
                                          -------------    -------------    -------------

Weighted average number of shares
outstanding - basic                           2,521,000        2,561,000        2,644,000
                                          -------------    -------------    -------------

NET EARNINGS (LOSS) PER COMMON SHARE
- - DILUTED                                 $         .27    $        (.29)   $         .04
                                          -------------    -------------    -------------

Weighted average number of shares
outstanding - diluted                         2,547,000        2,561,000        2,644,000
                                          -------------    -------------    -------------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-3
<PAGE>

JACLYN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
================================================================================
<TABLE>
<CAPTION>
                                                          2003           2002           2001
                                                       -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings (loss)                                    $   683,000    $  (739,000)   $   100,000

Adjustments to reconcile net earnings (loss) to net
    cash provided by (used in) operating activities:

     Depreciation and amortization                         364,000        341,000        295,000

     Deferred income taxes                                 398,000       (463,000)        (3,000)

     Provision for doubtful accounts                         5,000        123,000         (5,000)

     Fair Value Adjustment - Topsville acquisition              --      1,289,000             --

     Amortization of goodwill                                   --             --        112,000

Changes in assets and liabilities:

     (Increase) decrease in accounts receivable           (116,000)    (5,837,000)       746,000

     Decrease (increase) in inventories                  1,730,000       (230,000)      (865,000)

     (Increase) decrease in prepaid expenses and
     other current assets                                 (156,000)      (833,000)      (208,000)

     Decrease (increase) in other assets                   163,000        (73,000)         9,000

     Increase (decrease) in accounts payable and
     other current liabilities                             745,000      2,853,000     (2,115,000)
                                                       -----------    -----------    -----------

Net cash provided by (used in) operating activities      3,816,000     (3,569,000)    (1,934,000)
                                                       -----------    -----------    -----------
</TABLE>

                                      F-4

<PAGE>

JACLYN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2003, 2002 AND 2001
================================================================================
<TABLE>
<CAPTION>
                                                              2003           2002           2001
                                                           -----------    -----------    -----------
<S>                                                        <C>            <C>            <C>
CASH FLOWS FROM INVESTING ACTIVITIES:

    Purchases of property and equipment                       (300,000)       (89,000)      (388,000)

    Acquisition cost                                                --     (2,153,000)      (400,000)

    Purchases of securities available for sale                      --             --       (816,000)

    Proceeds from sales of securities available for sale            --             --      2,443,000
                                                           -----------    -----------    -----------

Net cash (used in) provided by investing activities           (300,000)    (2,242,000)       839,000
                                                           -----------    -----------    -----------


CASH FLOWS FROM FINANCING ACTIVITIES:

    (Decrease) increase in notes payable - bank             (5,120,000)     6,540,000      1,285,000

    Proceeds from mortgage loan                              3,023,000             --             --

    Payment of long-term debt                                  (61,000)            --             --

    Payment of acquisition notes                            (1,100,000)      (700,000)       (50,000)

    Repurchase of common stock                                (287,000)            --       (389,000)
                                                           -----------    -----------    -----------

Net cash (used in) provided by financing activities         (3,545,000)     5,840,000        846,000
                                                           -----------    -----------    -----------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS           (29,000)        29,000       (249,000)

CASH AND CASH EQUIVALENTS,
    BEGINNING OF YEAR                                           95,000         66,000        315,000
                                                           -----------    -----------    -----------

CASH AND CASH EQUIVALENTS,
    END OF YEAR                                            $    66,000    $    95,000    $    66,000
                                                           -----------    -----------    -----------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
    Interest                                               $   564,000    $   276,000    $   241,000
                                                           -----------    -----------    -----------

    Income taxes                                           $   148,000    $   322,000    $   284,000
                                                           -----------    -----------    -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.                                                      (Concluded)

                                      F-5
<PAGE>

JACLYN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 2003, 2002, AND 2001
================================================================================

<TABLE>
<CAPTION>
                                        COMMON STOCK          Additional   Accumulated                         TREASURY STOCK
                                  -------------------------     Paid-in   Comprehensive     Retained      -------------------------
                                    Shares        Amount        Capital       Income        Earnings        Shares         Amount
                                  -----------   -----------   -----------   -----------    -----------    -----------   -----------
<S>                                 <C>         <C>           <C>           <C>            <C>                <C>       <C>
BALANCE, JUNE 30, 2000              3,368,733   $ 3,369,000   $12,117,000   $     5,000    $ 8,214,000        677,342   $ 6,848,000

Unrealized loss on securities
available for sale at July 1, 2000         --            --            --        (5,000)            --             --            --

Net earnings                               --            --            --            --        100,000             --            --


Repurchase of Common Stock                 --            --            --            --             --        130,000       389,000
                                  -----------   -----------   -----------   -----------    -----------    -----------   -----------

BALANCE, JUNE 30, 2001              3,368,733     3,369,000    12,117,000            --      8,314,000        807,342     7,237,000

Net loss                                                                             --       (739,000)            --            --
                                  -----------   -----------   -----------   -----------    -----------    -----------   -----------

BALANCE, JUNE 30, 2002              3,368,733     3,369,000    12,117,000            --      7,575,000        807,342     7,237,000

Net earnings                               --            --            --            --        683,000             --            --

Repurchase of Common Stock                 --            --            --            --             --         99,711       287,000
                                  -----------   -----------   -----------   -----------    -----------    -----------   -----------

BALANCE, JUNE 30, 2003              3,368,733   $ 3,369,000   $12,117,000   $        --    $ 8,258,000        907,053   $ 7,524,000
                                  ===========   ===========   ===========   ===========    ===========    ===========   ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      F-6
<PAGE>

JACLYN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================


NOTE A - SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
Jaclyn, Inc. and its subsidiaries (the "Company") are engaged in the design,
manufacture, marketing and sale of apparel, handbags accessories and related
products. The Company sells its products to retailers, including department and
specialty stores, national chains, major discounters and mass volume retailers,
throughout the United States.

The consolidated financial statements include the accounts of the Company and
all of its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and the reported amounts of revenues and expenses during the
reporting period. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America also
requires management to make estimates and assumptions that affect the
disclosures of contingent assets and liabilities at the date of the financial
statements. Significant estimates include inventory provision, sales returns,
allowance for doubtful accounts, allowance for sales discounts, goodwill and
lives of finite-lived assets. Actual results could differ from those estimates.

Cash and Cash Equivalents
Cash in excess of daily requirements is invested in certificates of deposits and
money market funds with original maturities of three months or less. Such
investments are presented as cash equivalents.

Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts and notes payable and
accrued expenses are assumed to approximate fair value due to their short
maturities. The carrying value of the bank loan, which bears interest at a
variable rate, approximates fair value. The carrying value of the mortgage loan
approximates fair value based upon the relatively small change in interest rates
since inception of the mortgage.

                                      F-7
<PAGE>

Inventories
Inventory is carried at the lower of cost on a first-in, first-out basis, or
market. Management writes down inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions.

Allowances for Doubtful Accounts/Sales Discounts
The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of its customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

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

Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation and amortization on the straight-line method over the following
estimated useful lives:


Buildings                       25 to 40 years

Machinery and equipment         5 years

Furniture and fixtures          5 years

Leasehold improvements          Lesser of life of the asset or life of the lease

Automobiles and trucks          3 to 5 years


Trademarks
Trademarks, included in other assets, are being amortized on a straight-line
basis over periods not exceeding 10 years.

                                      F-8
<PAGE>

Impairment of Finite-Lived Assets
The Company evaluates finite-lived assets in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 144, Accounting for the Impairment
or Disposal of Long-lived assets. This statement supersedes SFAS No. 121,
Accounting for Impairment of Long-lived Assets and for finite-lived Assets to Be
Disposed of. Finite-lived assets are evaluated for recoverability in accordance
with SFAS No. 144 whenever events or changes in circumstances indicate that an
asset may have been impaired. In evaluating an asset for recoverability, the
Company estimates the future cash flows expected to result from the use of the
asset and eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss, equal to the excess of the carrying amount over
the fair market value of the asset is recognized. Management believes at this
time, that carrying values are not impaired and useful lives continue to be
appropriate

Goodwill
The Company adopted SFAS No. 142, "Goodwill and Other Intangible Asset"
effective July 1, 2001, which changes the accounting for goodwill from an
amortization method to an "impairment only" approach. Under SFAS No. 142,
goodwill is no longer amortized, but reviewed for impairment annually or more
frequently if certain indicators arise. Management believes at this time, based
on the valuation process undertaken, that the carrying value continues to be
appropriate.

Stock-Based Compensation
The Company periodically grants stock options to employees. Pursuant to
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, the Company accounts for stock-based employee compensation
arrangements using the intrinsic value method. Accordingly, no compensation
expense has been recorded in the Consolidated Financial Statements with respect
to option grants. The Company has adopted the disclosure-only provisions of
Financial Accounting Standards Board Statement No. 123, Accounting for Stock
Based Compensation, as amended by Financial Accounting Standards Board Statement
No. 148, Accounting for Stock Based Compensation - Transition and Disclosure, an
Amendment of FASB Statement No.123. See Note F to the Company's Consolidated
Financial Statements. If compensation cost for the Company's stock option plans
had been determined in accordance with the fair value method prescribed by SFAS
No. 123, the Company's net earnings (loss) would have been:

                                      F-9
<PAGE>

<TABLE>
<CAPTION>
                                                           June 30,
                                           ----------------------------------------
                                               2003          2002           2001
                                           -----------   -----------    -----------
<S>                                        <C>           <C>            <C>
Net earnings (loss)
  As reported                              $   683,000   $  (739,000)   $   100,000
  Deduct:  Total stock based employee
   compensation expense determined under
   fair value based method, net of taxes       150,000            --         222000
  Pro forma Net Earnings (Loss)                533,000      (739,000)      (122,000)
Basic net earnings (loss) per share:
  As reported                              $       .27   $      (.29)   $       .04
  Pro forma                                $       .21   $      (.29)   $      (.05)
Diluted net earnings (loss) per share:
  As reported                              $       .27   $      (.29)   $       .04
  Pro forma                                $       .21   $      (.29)   $      (.05)
</TABLE>

The fair value of each option grant is estimated on the date of each grant using
the Black-Scholes option pricing model. The following weighted average
assumptions were used for grants in 2003 and 2001: risk-free interest rate of
4.75% and 4.2, expected life of 10 years; expected volatility of 43%; and 177%;
dividend yield of 0%. The fair values generated by the Black-Scholes model may
not be indicative of the future benefit, if any, that may be received by the
option holder.

Revenue Recognition
Revenue is recognized at the time merchandise is shipped or received by a third
party consolidator, normally the same day of the shipment. Sales returns,
discounts and allowances are recorded as a component of net sales in the period
in which the related revenue is recorded. Products are shipped directly to
customers using third party carriers. The customer takes title and assumes the
risks and rewards of ownership of the products when the merchandise leaves the
Company's warehouse or is received by a third party consolidator, as applicable.

Shipping and Handling Costs
Included in Shipping, Selling and Administrative expenses are all shipping and
handling costs incurred by the Company. Included in revenues are all amounts
billed to a customer in a sale transaction related to shipping and handling.
Shipping and handling reimbursements included in revenue amounted to
approximately $7,000, $24,000 and $20,000 for the years ended June 30, 2003,
2002, and 2001, respectively.

                                      F-10
<PAGE>

Segment Reporting
The Company operates in a single operating segment - the manufacture of apparel,
women's handbags and related accessories. Revenues from customers are derived
from merchandise sales. The Company's merchandise sales mix by product category
for the last three years was as follows:


                                              Year ended June 30,
                                       ------------------------------

         Product Category              2003         2002         2001
         ----------------              ----         ----         ----

         Apparel                         78%          60%          54%

         Handbags                        22%          40%          46%
                                       ----         ----         ----

                                        100%         100%         100%
                                       ----         ----         ----

During the years ended June 30, 2003, 2002 and 2001, sales revenues derived from
one customer were 36%, 19% and 17%, respectively. Sales to a second customer
were 12%, 11% and 15%, and to a third customer were 8%, 10% and 12%,
respectively. The loss of any one of these customers would have a material
adverse effect on the Company's operations.

The Company relies on suppliers to purchase a variety of raw materials. The
Company had one supplier who in the aggregate constituted 44% of the Company's
purchases for the year ended June 30, 2003. The loss of this supplier would not
have a material adverse effect on the Company's operations since there are
alternative suppliers available.

                                      F-11
<PAGE>

Recently Issued Accounting Standards
In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"), replacing
Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, instead of at the date an entity
commits to an exit plan. This statement also established that fair value is the
objective for the initial measurement of the liability. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS No. 146 has not had, and is not expected to have, a
material impact on the consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that
upon issuance of a guarantee, a guarantor must recognize a liability for the
fair value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 will be effective for any guarantees that are
issued or modified after December 31, 2002. The disclosure requirement is
effective for our fiscal year ended June 30, 2003. The Company has evaluated the
accounting provisions of the interpretations and there was no material impact on
our financial condition, results of operations or cash flows for the year ended
June 30, 2003. The Company has not provided any financial guarantees as of June
30, 2003.

                                      F-12
<PAGE>

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation" ("SFAS No. 148"). SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of FASB Statement No. 123, "Accounting For Stock-Based
Compensation" ("SFAS 123") to require more prominent and more frequent
disclosures in financial statements about the effects of stock-based
compensation. SFAS 148 is effective for fiscal years ending after December 31,
2002. The Company will continue to account for stock-based equity compensation
using the intrinsic value method of APB Opinion 25. The Company is required to
follow the prescribed disclosure format and have provided the additional
disclosures required by SFAS No. 148 for the year ended June 30, 2003.

In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"), --
Consolidation of Variable Interest Entities -- with the objective of improving
financial reporting by companies involved with variable interest entities. A
variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights, or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
Historically, entities generally were not consolidated unless the entity was
controlled through voting interests. FIN 46 changes that by requiring a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. A
company that consolidates a variable interest entity is called the "primary
beneficiary" of that entity. FIN 46 also requires disclosures about variable
interest entities that a company is not required to consolidate but in which it
has a significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003.
The consolidation requirements of FIN 46 apply to existing entities in the first
fiscal year or interim period after January 31, 2003, regardless of when the
variable interest entity was established. The Company has evaluated the
accounting provisions of the interpretations and there was no material impact on
its financial condition, results of operations or cash flows, since the Company
is not the primary beneficiary of any variable interest entity.

                                      F-13
<PAGE>

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
This statement is effective for contracts entered into or modified after June
30, 2003. The Company is currently evaluating the impact of adopting this
statement on its consolidated financial position and results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity. This statement
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The statement will be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created before the issuance date of the statement and
still existing at the beginning of the period of adoption. Although we are still
in the process of reviewing the new statement, the Company believes this
statement will have no material impact on its consolidated financial statements.

Reclassifications
Certain items in prior years have been reclassified for comparative purposes.

                                      F-14
<PAGE>

NOTE B - INVENTORIES

Inventories consist of the following:

                                                     June 30,
                                          -----------------------------
                                             2003              2002
                                          -----------       -----------
         Raw material                     $ 3,874,000       $ 4,816,000

         Work in process                    1,506,000         1,482,000

         Finished goods                     4,285,000         5,097,000
                                          -----------       -----------
                                          $ 9,665,000       $11,395,000
                                          ===========       ===========


NOTE C - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is summarized as follows:

                                                                 June 30,
                                                         -----------------------
                                                            2003         2002
                                                         ----------   ----------
         Land                                            $  162,000   $  162,000

         Buildings                                        1,181,000    1,181,000

         Machinery and equipment                          1,183,000    2,117,000

         Furniture and fixtures                             317,000      444,000

         Leasehold improvements                           1,127,000    1,054,000

         Automobiles and trucks                              94,000       97,000
                                                         ----------   ----------
                                                          4,064,000    5,055,000


         Less: accumulated depreciation and
         amortization                                     2,917,000    3,844,000
                                                         ----------   ----------

                                                         $1,147,000   $1,211,000
                                                         ==========   ==========

Depreciation expense of $364,000, $341,000 and $295,000 was recorded during the
years ended June 30, 2003, 2002 and 2001, respectively

                                      F-15
<PAGE>

NOTE D - COMMITMENTS & CONTINGENCIES

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

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


                  Year Ended              Office and Showroom
                   June 30,                   Facilities

                     2004                      $717,000

                     2005                       553,000

                     2006                       498,000

                     2007                       483,000

                     2008                       340,000

                  After 2008                    154,000


Rental expense, including real estate taxes, for all operating leases, totaled
$969,000, $669,000, and $448,000 for the years ended June 30, 2003, 2002 and
2001, respectively.


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 agreements expire in various years
through 2007. Aggregate minimum commitments by fiscal year are as follows:


                    Year Ended               Minium
                      June 30,             Commitments

                        2004                $ 351,000

                        2005                  154,000

                        2006                  175,000

                        2007                  200,000

                                      F-16
<PAGE>

Various legal proceedings, in the form of lawsuits and claims, which occur in
the normal course of business are pending against the Company and its
subsidiaries. In the opinion of management, disposition of these matters is not
expected to materially affect the Company's financial position, cash flows or
results of operations.

The Company has not provided any financial guarantees as of June 30, 2003

NOTE E - CREDIT FACILITIES

On December 23, 2002 the Company entered into a line of credit agreement with a
new bank. The new credit facility, which expires December 1, 2004, provides for
short-term loans and the issuance of letters of credit in an aggregate amount
not exceeding $32,000,000. Based on a borrowing formula, the Company may borrow
up to $22,000,000 in short-term loans and up to $32,000,000 including letters of
credit. 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 of $11,000,000 through June 30,
2003 and $12,000,000 through June 30, 2004. As of June 30, 2003, borrowing on
the short-term line of credit was $3,975,000, and the Company had $3,658,000 of
additional availability (based on the borrowing formula) under its credit
facility. At June 30, 2003, the Company was contingently obligated on open
letters of credit for approximately $19,927,000. Borrowing during the year was
at the bank's prime rate or below, at the option of the Company. The bank's
prime rate at June 30, 2003 was 4.00%.

During fiscal 2003, the average amount outstanding under the short-term line was
$7,657,000 with a weighted average interest rate of 4.16%. During 2002, the
average amount outstanding under the short-term line was $6,235,000 with a
weighted average interest rate of 4.75%. The maximum amount outstanding during
fiscal 2003 and fiscal 2002 was $18,000,000 and $10,000,000, respectively.

                                      F-17
<PAGE>

On August 14, 2002, the Company consummated a mortgage loan 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 $3,250,000 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.

NOTE F - STOCK OPTIONS

The Company maintains a Stock Option Plan (the "Plan") for key employees and
consultants of the Company. The plan provides for the grant of incentive stock
options and non-qualified stock options to purchase up to 300,000 shares of
common stock. Under the Plan, the Board of Directors determines the per share
option price which, in the case of incentive stock options, may not be less than
the fair market value of the stock on the date of the 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. Options, which may
be granted to November 2010, are exercisable as determined by the Board of
Directors.

Stock option transactions are summarized below:

<TABLE>
<CAPTION>

                                         2003                           2002                          2001
                              ------------------------------------------------------------------------------------------
                                               Weighted                        Weighted                      Weighted
                                                Average                         Average                       Average
                                 Shares      Exercise Price     Shares       Exercise Price    Shares      Exercise Price
                              ------------------------------------------------------------------------------------------
<S>                              <C>             <C>            <C>             <C>            <C>             <C>
Outstanding -
  beginning of year              412,161         $ 3.53         422,161         $ 3.99         347,661         $ 4.09

Granted                          203,000           1.75              --             --         150,500           2.74

Forfeited                        (14,000)          2.86         (10,000)          4.06         (76,000)          4.45
                              ------------------------------------------------------------------------------------------
Outstanding and
  exercisable - end
  of year                        601,161         $ 2.95         412,161         $ 3.53         422,161         $ 3.99

Weighted-average fair
  value of options
  granted during the year                        $ 1.75                         $   --                         $ 2.74
                              ------------------------------------------------------------------------------------------
</TABLE>

                                      F-18
<PAGE>

The following table summarizes information about stock options outstanding at
June 30, 2003:

<TABLE>
<CAPTION>
                             Options Outstanding and Exercisable
  -----------------------------------------------------------------------------------------

                                                        Weighted
  Range of Exercise     Number Outstanding at      Average Remaining       Weighted Average
       Prices               June 30, 2003        Contractual Life (Yrs)     Exercise Price
  -----------------     ---------------------    ----------------------    ----------------
<S>                             <C>                        <C>                   <C>
  $1.65 to $2.10                201,000                    8.32                  $ 1.75

  $2.25 to $2.89                295,500                    5.49                  $ 2.55

  $4.06 to $4.13                 72,500                    2.60                  $ 4.08

  $5.13                           4,000                    3.43                  $ 5.13

  $12.38                         28,161                    0.47                  $12.38
                            -----------

  Totals                        601,161
                            ===========
</TABLE>


NOTE G - PREFERRED STOCK

The Board of Directors of the Company has authority (without action by the
stockholders) to issue the authorized and unissued preferred stock in one or
more series and, within certain limitations, to determine the voting rights,
preference as to dividends and in liquidation, conversion and other rights of
each such series. No shares of preferred stock have been issued.

                                      F-19
<PAGE>

NOTE H - INCOME TAXES

The components of the Company's tax provision (benefit) are as follows:


                                             June 30,
                           --------------------------------------------

                               2003            2002            2001
                           ------------    ------------    ------------
Current:
    Federal                $    (11,000)   $         --    $         --
    State and Local             195,000          32,000          17,000
Foreign                          26,000          16,000          42,000
                           ------------    ------------    ------------
                                210,000          48,000          59,000
Deferred:
Federal and State               400,000        (463,000)         (3,000)
                           ------------    ------------    ------------
Provision (benefit)        $    610,000    $   (415,000)   $     56,000
                           ------------    ------------    ------------

Reconciliation between the provision for income taxes computed by applying the
federal statutory rate to income before income taxes and the actual provision
for income taxes is as follows:


<TABLE>
<CAPTION>
June 30,                                                    2003        2002         2001
                                                          --------    --------     --------
<S>                                                           <C>        <C>           <C>
Provision (benefit) for income taxes at statutory rate        34.0%      (34.0)%       34.0%

State and local income taxes net of federal tax benefit        5.7        (3.0)         5.0

Foreign tax credits                                            4.7          --           --

Tax exempt interest                                             --          --         (8.0)

Other                                                          2.9         1.0          5.0
                                                          --------    --------     --------

Effective tax rate percent                                    47.3%       36.0%        36.0%
                                                          --------    --------     --------
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The income tax effects of
significant items comprising the Company's net deferred tax assets and
liabilities as of June 30, 2003 and 2002 are as follows:

                                      F-20
<PAGE>

June 30,                                2003                      2002
                               -----------------------   -----------------------

                                 Assets    Liabilities     Assets    Liabilities
                               ----------  -----------   ----------  -----------

Depreciation
and amortization               $       --   $  159,000   $       --   $  427,000

Leases                                 --       74,000           --      102,000

Foreign taxes                     669,000           --      370,000           --

Inventory                         743,000           --      564,000           --

Bad debt, sales allowances and
other reserves                    111,000           --      133,000           --

NOL and tax credit
carryforwards                          --           --    1,270,000           --

Other                             449,000           --      330,000           --
                               ----------   ----------   ----------   ----------

                               $1,972,000   $  233,000   $2,667,000   $  529,000
                               ----------   ----------   ----------   ----------


NOTE I - ACQUISITIONS

On January 2002, the Company acquired all of the issued and outstanding stock of
Topsville, Inc., a New York City based manufacturer and distributor of private
label infants' and children's clothing. The tangible and intangible assets
acquired include, among other things, finished goods, work-in-process and raw
material inventory, customer orders, trade names, office leases in New York City
and Hong Kong, an office/warehouse facility in Florida, and office equipment,
furniture and fixtures. The Company used its line of bank credit other working
capital to pay for a portion of the purchase price at closing.

The aggregate purchase price for the acquisition was $3,246,000, of which
$1,746,000 was paid at the closing of the transaction and the remainder of which
was paid during the fifteen-month period after closing. At June 30, 2003 the
entire obligation under the purchase agreement had been paid.

                                      F-21
<PAGE>

The following table sets forth the excess of purchase price over book value:


     Cash paid for 100% of stock in Topsville, Inc.                 $ 1,746,000

     Deferred portion of purchase price                               1,500,000

     Purchase price                                                   3,246,000

     Transaction expenses                                               407,433

     Historical book value of net assets acquired, primarily
     inventory, adjusted for assets and liabilities not assumed      (1,146,000)
                                                                    -----------

     Excess of purchase price over historical book value of
     assets acquired                                                $ 2,507,433
                                                                    -----------

The excess of purchase price over net book value of assets acquired totaling
$2,507,433 was allocated to the tangible and intangible assets in accordance
with SFAS No. 141 "Business Combinations." The following table reflects the
excess purchase price allocated to tangible and intangible assets based on their
fair values:


     Adjust inventories to fair value                          $   388,830

     Order backlog                                                 972,990

     Adjust property & equipment to fair value                      16,134

     Trademarks & patents                                          100,000

     Goodwill                                                    1,561,542

     Changes in tax effect of the above adjustments
            (except goodwill)                                     (532,063)
                                                               -----------

                                                               $ 2,507,433
                                                               -----------

                                      F-22
<PAGE>

The Company recorded a pre-tax charge to earnings of $1,289,000 ($389,000 to
cost of goods sold and $900,000 to amortization expense within selling and
administrative expenses) for the year ended June 30, 2002. These charges
primarily represent, the allocation of a portion of the purchase price to fair
value the inventory and to assign a value to those open orders (backlog)
purchased from Topsville, Inc. which have been shipped from the date of
acquisition to June 30, 2002. The remaining $79,000 of backlog allocated to open
orders acquired with the acquisition was charged to earnings during the first
quarter of fiscal year 2003.

Other intangibles totaling $174,000, included in "Other Assets", consist of
amounts allocated to trade names, patents and backlog relating to the
acquisition of Topsville, Inc. The Company incurred $89,000 of amortization
expense in 2003. Additional amortization expense of $10,000 will be incurred
through 2011.

Assuming the acquisition was acquired on July 1, 2000, the pro forma results
would have been as follows (in thousands, except per share amounts) (unaudited):


                                                       Year Ended June 30,
                                                --------------------------------
                                                  2003        2002        2001
                                                --------    --------    --------

Total revenues                                  $108,960    $111,474    $104,940

Net income                                      $    683    $    385    $    383

Basic and diluted earnings per share            $    .27    $    .15    $    .14

                                      F-23
<PAGE>

The changes in the carrying amount of goodwill during the year ended June 30,
2003 and 2002, are as follows:



                                                      2003              2002
                                                   -----------       -----------

Balance as of beginning of year                    $ 3,342,000       $ 1,781,000

Goodwill acquired during the period                         --         1,561,000

Goodwill adjusted during the period                     (4,000)               --
                                                   -----------       -----------

                                                   $ 3,338,000       $ 3,342,000
                                                   -----------       -----------

On January 19, 2001, the Company completed the acquisition of certain assets of
I. Appel Corporation, which manufactures and distributes robes, dusters and
loungewear to department stores. The aggregate purchase price for the
acquisition was approximately $700,000 for goodwill, certain tangible fixed
assets and including $100,000 in acquisition costs. A total of $400,000 was paid
during the year ended June 30, 2001 with the remainder to be paid in quarterly
instalments through October 2002. These amounts were paid from current working
capital. The proforma impact of the acquisition on the Company's operations for
fiscal 2001 was not significant.

Had the Company been accounting for its goodwill under SFAS No. 142 for all
periods presented, the Company's net earnings (loss) and earnings (loss) per
share would have been as follows (in thousands, except per share amounts):

                                                       Year Ended
                                        ----------------------------------------
                                                        June 30,
                                        ----------------------------------------
                                            2003          2002           2001
                                        -----------   -----------    -----------

Net earnings (loss)                     $   683,000   $  (739,000)   $   100,000

Goodwill amortization (net of taxes)             --            --         79,000
                                        -----------   -----------    -----------

Adjusted net earnings (loss)            $   683,000   $  (739,000)   $   179,000
                                        -----------   -----------    -----------

Basic and diluted:

Earnings (loss) per share               $       .27   ($      .29)   $       .04

Goodwill amortization (net of taxes)             --            --            .03
                                        -----------   -----------    -----------

Adjusted net earnings (loss) per share  $       .27   ($      .29)   $       .07
                                        -----------   -----------    -----------

                                      F-24
<PAGE>

NOTE J - EMPLOYEE'S BENEFIT PLANS

The Company has a trusteed, defined-benefit pension plan for certain of their
salaried and hourly personnel. The plan provides pension benefits that are based
on a fixed amount of compensation per year of service, career average pay or on
the employee's compensation during a specified number of years before
retirement. The Company's funding policy is to make annual contributions
required by the Employee Retirement Security Act of 1974.


Fiscal Year Ended June 30,                              2003           2002
                                                    -----------    -----------
CHANGE IN BENEFIT OBLIGATION:

   Net benefit obligation at beginning of year      $ 4,442,000    $ 3,731,000

   Service cost                                         311,000        288,000

   Interest cost                                        260,000        247,000

   Actuarial loss                                       424,000        278,000

   Gross benefits paid                                 (702,000)      (102,000)
                                                    -----------    -----------

   Net benefit obligation at end of year            $ 4,735,000    $ 4,442,000
                                                    -----------    -----------



CHANGE IN PLAN ASSETS:

   Fair value of plan assets at beginning of year   $ 4,379,000    $ 3,450,000

   Employer contributions                               573,000        871,000

   Gross benefits paid                                 (702,000)      (102,000)

   Actual return on plan assets                         324,000        160,000

   Fair value of plan assets at end of year           4,574,000      4,379,000

   Funded status at end of year                        (160,000)       (63,000)

   Unrecognized net actuarial loss                    1,399,000      1,125,000

   Unrecognized transition amount                       (48,000)       (87,000)

   Unrecognized prior service cost                        1,000          2,000
                                                    -----------    -----------

   Prepaid benefit costs                            $ 1,192,000    $   977,000
                                                    ===========    ===========

                                      F-25
<PAGE>

Pension expenses includes the following components:

Fiscal Year Ended June 30,                  2003          2002          2001
                                         ----------    ----------    ----------
COMPONENTS OF NET PERIODIC BENEFIT COST:

   Service cost                          $  311,000    $  288,000    $  264,000

   Interest cost                            260,000       247,000       216,000

   Expected return on assets               (259,000)     (249,000)     (208,000)

   Amortization of prior service cost         1,000         1,000         1,000

   Amortization of transition assets        (39,000)      (39,000)      (39,000)

   Amortization of actuarial loss            85,000        54,000        45,000
                                         ----------    ----------    ----------

   Net periodic cost                     $  359,000    $  302,000    $  279,000
                                         ----------    ----------    ----------

 Assumptions used in determining the net periodic cost:


June 30,                                             2003      2002      2001
                                                     ----      ----      ----
Discount rate                                        5.75%     6.25%     6.50%

Rate of increase in compensation levels              3.00%     3.00%     3.00%

Expected long-term rate of return on assets          6.00%     6.50%     7.00%


The Defined Benefit Pension Plan assets include 22,654 shares of the Company's
common stock with a market value of approximately $57,000 and $41,000 at June
30, 2003 and 2002, respectively.

The Company maintains a non-contributory Employee Stock Ownership Plan (the
"ESOP") and Trust, for its employees who are not covered by a collective
bargaining agreement. Contributions to the ESOP are at the discretion of the

Company's Board of Directors. There was no ESOP expense for the years ended June
30, 2003, 2002 and 2001.

Vesting occurs after five years of service. However, if the ESOP is deemed
"top-heavy", vesting will occur at the rate of 20% per year after the completion
of the second year of service.

The Company has a 401-K savings plan for the benefit of its Topsville, Inc.
employees, which existed prior to the Company's acquisition of Topsville. No
contributions by the Company were made during fiscal 2003.

                                      F-26
<PAGE>

NOTE K - NET EARNINGS (LOSS) PER SHARE

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

<TABLE>
<CAPTION>
                                                          Year Ended June 30,
                                               ----------------------------------------
                                                  2003          2002           2001
                                               -----------   -----------    -----------
<S>                                            <C>           <C>            <C>
Basic Net Earnings (Loss) Per Share:

Net Earnings (Loss)                            $   683,000   $  (739,000)   $   100,000
                                               -----------   -----------    -----------

Basic Weighted Average Shares Outstanding        2,521,000     2,561,000      2,610,000
                                               -----------   -----------    -----------

Basic Net (Loss) Earnings Per Common Share     $       .27   $      (.29)   $       .04



Diluted Net Earnings (Loss) Per Share:

Net Earnings (Loss)                            $   683,000   $  (739,000)   $   100,000
                                               -----------   -----------    -----------

Basic Weighted Average Shares Outstanding        2,521,000     2,561,000      2,610,000

Add: Dilutive Options                               26,000           (a)         34,000
                                               -----------   -----------    -----------

Diluted Weighted Average Shares Outstanding      2,547,000     2,561,000      2,644,000
                                               -----------   -----------    -----------

Diluted Net (Loss) Earnings Per Common Share   $       .27   $      (.29)   $       .04
                                               -----------   -----------    -----------
</TABLE>

(a): Options are not considered part of the diluted weighted average share
calculation where there is a loss for the period, since they would be
anti-dilutive.

Options to purchase 256,000 and 344,000 common shares were outstanding as of
June 30, 2003 and 2001, respectively, but were not included in the computation
of diluted earnings per share because the exercise price of the options exceeded
the average market price and would have been anti-dilutive.

NOTE L - REPURCHASE OF SHARES FOR TREASURY

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.
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 is financing these repurchases from its own funds from operations and/or
from its bank credit facility. As of June 30, 2003, the Company purchased 99,700
shares of its Common Stock at a cost of approximately $287,000.

                                      F-27
<PAGE>

NOTE M - UNAUDITED QUARTERLY FINANCIAL DATA

Summarized quarterly financial data, in thousands of dollars except for per
share amounts, for the fiscal years ended June 30, 2003, and 2002 are as
follows:

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                       -----------------------------------------------------------
                                         June 30,        March 31,     December 31,   September 30,
                                           2003            2003            2002           2002
                                       ------------    ------------    ------------   ------------
<S>                                    <C>             <C>             <C>            <C>
Net sales                              $ 22,510,000    $ 20,816,000    $ 35,689,000   $ 29,945,000
Gross profit                              5,259,000       5,400,000       8,313,000      6,482,000
Net earnings (loss)                        (209,000)       (213,000)        799,000        306,000
Net earnings (loss) per common share
- - basic and diluted                    $       (.06)   $       (.09)   $        .30   $        .12
</TABLE>

In the fourth quarter of fiscal 2003, the Company recorded tax expense of
$61,000 relating to foreign tax credits that expired prior to the Company's
ability to realize such asset.


<TABLE>
<CAPTION>
                                                           Three Months Ended
                                       -----------------------------------------------------------
                                         June 30,        March 31,     December 31,   September 30,
                                           2002            2002            2001           2001
                                       ------------    ------------    ------------   ------------
<S>                                    <C>             <C>             <C>            <C>
Net sales                              $ 25,133,000    $ 22,020,000    $ 15,658,000    $ 18,220,000
Gross profit                              5,845,000       4,832,000       3,705,000       4,566,000
Net (loss) earnings - See Note below       (171,000)       (505,000)       (116,000)         53,000
Net (loss) earnings per common share
- - basic and diluted - See Note below   $       (.07)   $       (.20)   $       (.04)   $        .02
</TABLE>

The periods ended June 30, 2002 and March 31, 2002 include charges of $307 and
$518 ($.12 and $.20 per share, respectively) for the amortization of open order
backlog and an adjustment to fair value in connection with the Topsville
acquisition.

                                      F-28
<PAGE>

JACLYN INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
================================================================================
<TABLE>
<CAPTION>
            Column                             Column       Column         Column         Column
              A                                  B            C               D              E


                                             Balance at     Charged
                                            beginning of  to costs and                  Balance at end
Description                                    period       expenses      Deductions     of period
<S>                                         <C>           <C>            <C>            <C>
Fiscal Year ended June 30, 2003

Allowance for doubtful accounts             $   160,000    $   39,000   ($    34,000)      $   165,000

Allowance for sales discounts, returns and
allowances                                  $   809,000    $6,309,000   ($ 4,591,000)      $ 2,527,000

Fiscal Year ended June 30, 2002

Allowance for doubtful accounts             $    37,000   $   108,000    $    15,000(1)    $   160,000

Allowance for sales discounts, returns and
allowances                                  $   928,000    $2,372,000   ($ 2,491,000)      $   809,000

Fiscal Year ended June 30, 2001

Allowance for doubtful accounts             $    42,000   ($   16,000)   $    11,000(1)    $    37,000

Allowance for sales discounts, returns and
allowances                                  $   693,000    $3,222,000   ($ 2,987,000)      $   928,000
</TABLE>

(1) Collection of amounts previously written off.

                                      F-29
<PAGE>

             ======================================================



                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                    ----------------------------------------




                                    EXHIBITS
                                       to
                           ANNUAL REPORT ON FORM 10-K
                               FOR THE FISCAL YEAR
                               ENDED JUNE 30, 2003



                    ----------------------------------------



                                  JACLYN, INC.



             ======================================================
<PAGE>

                                  EXHIBIT INDEX
                                  -------------

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

    3(a)          Certificate of Incorporation of the Registrant
                  (incorporated herein by reference to Exhibit 3(a) to
                  the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1994).

    3(b)          By-Laws of the Registrant (incorporated herein by
                  reference to Exhibit 3(b) to the Registrant's Annual
                  Report on Form 10-K, File No. 1-5863, for the fiscal
                  year ended June 30, 1991).

    4(a)          Promissory Note of the Registrant dated August 14,
                  2002 payable to the order of Hudson United Bank
                  ("HUB") in the principal amount of $3,250,000
                  (incorporated herein by reference to Exhibit 4(a) to
                  the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  2002).

    4(b)          Mortgage, Security Agreement and Financing Statement
                  dated August 14, 2002 between the Registrant and HUB
                  (incorporated herein by reference to Exhibit 4(b) to
                  the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  2002).

    4(c)          Revolving Loan Agreement dated December 23, 2002
                  between the Registrant and HUB.

    10(a)         Incentive Stock Option Plan of the Registrant
                  (incorporated herein by reference to Exhibit 10(f)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1988).

    10(b)         1984 Employee Stock Option Plan of the Registrant
                  (incorporated herein by reference to Exhibit 10(f)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1989).*

    10(c)         1990 Stock Option Plan of the Registrant, as amended
                  (incorporated herein by reference to Exhibit 10(g)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1991).*
<PAGE>

    10(d)         Second Amended and Restated Stockholders' Agreement
                  dated May 12, 2003 among the Registrant and the
                  persons listed on Schedule A thereto (incorporated
                  herein by reference to Exhibit U to Amendment No. 9
                  to the Schedule 13D dated May 15, 2003 of Allan
                  Ginsburg, Robert Chestnov, Abe Ginsburg and Howard
                  Ginsburg.).

    10(e)         Key Executive Disability Plan of the Registrant
                  (incorporated herein by reference to Exhibit 10(m)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1988).*

    10(f)         Non-Qualified Stock Option Contract dated December
                  2, 1998 between the Registrant and Martin Brody
                  (incorporated herein by reference to Exhibit 10(I)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1999).

    10(g)         Non-Qualified Stock Option Contract dated December
                  2, 1998 between the Registrant and Richard Chestnov
                  (incorporated herein by reference to Exhibit 10(j)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1999).

    10(h)         Non-Qualified Stock Option Contract dated December
                  2, 1998 between the Registrant and Albert Safer
                  (incorporated herein by reference to Exhibit 10(j)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1999).

    10(i)         1996 Non-Employee Director Stock Option Plan
                  (incorporated by reference to Exhibit 10(o) to the
                  Registrant's Annual Report on Form 10-K, File No.
                  1-5863, for the fiscal year ended June 30, 1998).*

    10(j)         Non-Qualified Stock Option Contract dated December
                  3, 1996 between the Registrant and Martin Brody
                  (incorporated by reference to Exhibit 10(p) to the
                  Registrant's Annual Report on Form 10-K, File No.
                  1-5863, for the fiscal year ended June 30, 1997).

    10(k)         Non-Qualified Stock Option Contract dated December
                  3, 1996 between the Registrant and Richard Chestnov
                  (incorporated by reference to Exhibit 10(q) to the
                  Registrant's Annual Report on Form 10-K, File No.
                  1-5863, for the fiscal year ended June 30, 1997).
<PAGE>

    10(l)         Non-Qualified Stock Option Contract dated August 19,
                  1997 between the Registrant and Al Safer
                  (incorporated by reference to Exhibit 10(r) to the
                  Registrant's Annual Report on Form 10-K, File No.
                  1-5863, for the fiscal year ended June 30, 1997).

    10(m)         Non-Qualified Stock Option Contract dated December
                  3, 1997 between the Registrant and Martin Brody
                  (incorporated by reference to Exhibit 10(s) to the
                  Registrant's Annual Report on Form 10-K, File No.
                  1-5863, for the fiscal year ended June 30, 1998).

    10(n)         Non-Qualified Stock Option Contract dated December
                  3, 1997 between the Registrant and Richard Chestnov
                  (incorporated by reference to Exhibit 10(t) to the
                  Registrant's Annual Report on Form 10-K, File No.
                  1-5863, for the fiscal year ended June 30, 1998).

    10(o)         Non-Qualified Stock Option Contract dated December
                  3, 1997 between the Registrant and Albert Safer
                  (incorporated by reference to Exhibit 10(u) to the
                  Registrant's Annual Report on Form 10-K, File No.
                  1-5863, for the fiscal year ended June 30, 1998).

    10(p)         Letter Agreement dated as of December 29, 1997
                  between the Registrant and Robert Chestnov
                  (incorporated herein by reference to Exhibit 2.1 to
                  the Registrant's Current Report on Form 8-K, file
                  No. 1-5863, for the fiscal year ended June 30,
                  1998).*

    10(q)         Purchase and Sale Agreement dated January 11, 1999
                  between Banner Industries of New York, Inc. and
                  Jaclyn, Inc.(incorporated herein by reference to
                  Exhibit 2.1 to the Registrant's Current Report on
                  Form 8-K, file No. 1-5863, dated January 26, 1999).

    10(r)         Non-Qualified Stock Option Contract dated November
                  30, 1999, between the Registrant and Richard
                  Chestnov (incorporated herein by reference to
                  Exhibit 10(x) to the Registrant's Annual Report on
                  Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 2000).

    10(s)         Non-Qualified Stock Option Contract dated November
                  30, 1999, between the Registrant and Albert Safer
                  (incorporated herein by reference to Exhibit 10(y)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  2000).
<PAGE>

    10(t)         Non-Qualified Stock Option Contract dated November
                  30, 1999, between the Registrant and Martin Brody
                  (incorporated herein by reference to Exhibit 10(z)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  2000).

    10(u)         Non-Qualified Stock Option Contract dated June 12,
                  2000, between the Registrant and Norman Axelrod
                  (incorporated herein by reference to Exhibit 10(aa)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  2000).

    10(v)         Non-Qualified Stock Option Contract dated December
                  2, 1998 between the Registrant and Richard Chestnov
                  (incorporated herein by reference to Exhibit 10(j)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1999).

    10(w)         Non-Qualified Stock Option Contract dated December
                  2, 1998 between the Registrant and Albert Safer
                  (incorporated herein by reference to Exhibit 10(k)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1999).

    10(x)         Non-Qualified Stock Option Contract dated December
                  2, 1998 between the Registrant and Martin Brody
                  (incorporated herein by reference to Exhibit 10(I)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1999).

    10(y)         Non-Qualified Stock Option Contract dated November
                  30, 2001, between the Registrant and Richard
                  Chestnov (incorporated herein by reference to
                  Exhibit 10(I) to the Registrant's Annual Report on
                  Form 10-K, File No. 1-5863, for the fiscal year
                  ended June 30, 1999).

    10(z)         Non-Qualified Stock Option Contract dated November
                  30, 2001, between the Registrant and Albert Safer
                  (incorporated herein by reference to Exhibit 10(cc)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1999).

    10(aa)        Non-Qualified Stock Option Contract dated November
                  30, 2001, between the Registrant and Martin Brody
                  (incorporated herein by reference to Exhibit 10(dd)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1999).
<PAGE>

    10(bb)        Non-Qualified Stock Option Contract dated November
                  30, 2001, between the Registrant and Norman Axelrod
                  (incorporated herein by reference to Exhibit 10(ee)
                  to the Registrant's Annual Report on Form 10-K, File
                  No. 1-5863, for the fiscal year ended June 30,
                  1999).

    10(cc)        Purchase and Sale Agreement dated January 10, 2002
                  between Mark Nitzberg and the Registrant
                  (incorporated herein by reference to Exhibit 2.1 to
                  the Registrant's Current Report on Form 8-K, File
                  No. 1-5863, dated January 24, 2002).

    10(dd)        Consulting Agreement dated January 10, 2002 between
                  Natoosh, LLC, Mark Nitzberg and the Registrant
                  (incorporated herein by reference to Exhibit 2.2 to
                  the Registrant's Current Report on Form 8-K, File
                  No. 1-5863, dated January 24, 2002).

    10(ee)        Payment and Indemnification Agreement dated January
                  10, 2002 by and among Capital Factors, Inc.,
                  Topsville, Inc., Mark Nitzberg and the Registrant
                  (incorporated herein by reference to Exhibit 2.3 to
                  the Registrant's Current Report on Form 8-K, File
                  No. 1-5863, dated January 24, 2002).

    10(ff)        Non-Qualified Stock Option Contract dated December
                  3, 2002 between the Registrant and Richard Chestnov.

    10(gg)        Non-Qualified Stock Option Contract dated December
                  3, 2002 between the Registrant and Albert Safer.

    10(hh)        Non-Qualified Stock Option Contract dated December
                  3, 2002 between the Registrant and Martin Brody.

    10(ii)        Non-Qualified Stock Option Contract dated December
                  3, 2002 between the Registrant and Norman Axelrod.

    10(jj)        Non-Qualified Stock Option Contract dated March 19,
                  2003, between the Registrant and Harold Schechter.
<PAGE>

    21            Subsidiaries of the Registrant (incorporated herein
                  by reference to Exhibit 21 to the Registrant's
                  Annual Report on Form 10-K, File No. 1-5863, for the
                  fiscal year ended June 30, 2002).

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

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

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

- --------------------
*Management contract or compensatory plan or arrangement

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.C
<SEQUENCE>3
<FILENAME>ex4_c.txt
<DESCRIPTION>EXHIBIT 4C
<TEXT>



                  ============================================

                  ============================================




                            REVOLVING LOAN AGREEMENT

                                     between

                                  JACLYN, INC.

                                       And

                               HUDSON UNITED BANK




                  ============================================

                  ============================================


                            Dated: December 23, 2002


<PAGE>

                            REVOLVING LOAN AGREEMENT
                            ------------------------

         This REVOLVING LOAN AGREEMENT is made this 23rd day of December, 2002,
between JACLYN, INC. ("Borrower"), a corporation organized and existing pursuant
to the laws of the State of Delaware having an address at 635 59th Street, West
New York, New Jersey 07093 and HUDSON UNITED BANK ("Lender"), a New Jersey
corporation, with a place of business at 1000 MacArthur Boulevard, Mahwah, New
Jersey 07430.

                              W I T N E S S E T H:
                              --------------------

         WHEREAS, Borrower has requested that Lender extend a THIRTY-TWO MILLION
and 00/100 ($32,000,000.00) DOLLAR revolving credit facility, the proceeds of
which will be used to repay existing indebtedness to Fleet Bank N.A. and to
provide Borrower with working capital support including, without limitation, the
issuance of letters of credit.

         WHEREAS, Lender is willing to extend the credit facility on the terms
and subject to the conditions set forth in this Agreement.

                                    AGREEMENT
                                    ---------

         1.       DEFINITIONS. As used herein, the following terms shall have
the following meanings (terms defined in the singular to have the same meaning
when used in the plural and vice versa):

                  1.1.     "Account Debtor" shall mean any Person who is or may
become obligated under or on account of any Receivable.

                  1.2.     "Advance" shall mean any loan or advance made by
Lender in connection with the Revolving Loan.

                  1.3.     "Affiliate" shall mean any Person which, directly or
indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with, Borrower. For purposes hereof, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting stock or other equity interests, by contract or otherwise.

                  1.4.     "Authenticate" shall mean to sign or to execute or
otherwise adopt a symbol, or encrypt or similarly process a record in whole or
in part, with the present intent of the authenticating person to identify the
person and adopt or accept a Record.

                                        1
<PAGE>

                  1.5.     "Bank Accounts" shall have the meaning set forth in
Section 5.23 of this Agreement.

                  1.6.     "Banking Day" shall mean any day on which commercial
banks are not authorized or required to close in New Jersey.

                  1.7.     "Borrower" shall mean Jaclyn, Inc.
                            --------

                  1.8.     "Borrowing Base Certificate" shall mean a borrowing
base certificate substantially in the form of Exhibit C attached hereto.

                  1.9.     "Intentionally omitted"
                            ---------------------

                  1.10.    "Code" shall mean the Internal Revenue Code of the
United States.

                  1.11.    "Collateral" shall mean all of the Property and
interests in Property described in the General Security Agreement, and all other
personal property of Borrower and interests of Borrower in personal property
that now or hereafter secures the payment and performance of any of the
Obligations pursuant to any of the Loan Documents or otherwise including,
without limitation, any proceeds and insurance proceeds of the foregoing.

                  1.12.    "Default" shall mean an event or condition the
occurrence of which would, with the lapse of time or the giving of notice, or
both, become an Event of Default, whether or not Lender has declared an Event of
Default to have occurred.

                  1.13.    "Effective Tangible Net Worth" shall mean the total
assets, less intangible assets, less due from Affiliates, officers and
shareholders, less total liabilities plus subordinated debt, all as reflected on
the financial statements of Borrower submitted to Lender in accordance with
Article 6.

                  1.14.    "Eligible Inventory" shall mean Inventory which has
been identified and described on the monthly reports to be submitted in
accordance with Section 6.2 and the quarterly inventory report to be submitted
in accordance with Section 6.4, is represented by Borrower (by its acceptance of
Revolving Loans thereon) as meeting all of the following criteria on the date of
any Revolving Loan based thereon and thereafter while any Obligation is
outstanding:

                  (a)      Borrower or a Guarantor is the sole owner of the
Inventory; none of the Inventory is being held or shipped by Borrower or the
Guarantor on a consignment or approval basis; Borrower or the Guarantor has not
sold, assigned or otherwise transferred all or any portion thereof; and none of
the Inventory is subject to any claim, lien or security interest;

                                        2
<PAGE>

                  (b)      If any of the Inventory is represented or covered by
any document of title, instrument or chattel paper, Borrower is the sole owner
of all such documents, instruments and chattel paper, all thereof are in the
possession of Borrower to the extent that such possession is necessary for the
perfection of Lender's security interest therein pursuant to the UCC, none
thereof has been sold, assigned or otherwise transferred, and none thereof is
subject to any claim, lien or security interest other than the foregoing
security interest in favor of Lender; and

                  (c)      The Inventory consists of saleable non-obsolete
finished goods manufactured or acquired by Borrower in the ordinary course of
Borrower's business, as conducted, subject to its contract or sole possession
and located in compliance with Section 5.15 of this Agreement or at locations
for which, if requested by Lender, landlord or bailee waivers in form and
substance approved by Lender, which approval will not be unreasonably withheld,
have been executed and delivered by such landlord or bailee to Lender, or in
transit by ship from foreign manufacturers pursuant to Letters of Credit.

                  1.15.    "Eligible Receivables" shall mean and include only
Receivables of Borrower or a Guarantor, the records and accounts of which are
located in compliance with Section 5.14 of this Agreement, arise out of sales in
the ordinary course of Borrower's business, made by Borrower to a Person which
is not an Affiliate of Borrower nor an employee of Borrower nor controlled by an
Affiliate of Borrower, which do not then violate in any material respect any
warranty with respect to Eligible Receivables set forth in the General Security
Agreement and except for receivables from Wal-Mart, Kohl's, Sears, Target
Corporation, and May's Department Stores, such receivables are insured pursuant
to credit insurance described in Section 8.6. No Receivable shall be an Eligible
Receivable if more than ninety (90) days have passed since the original invoice
date and the Inventory covered by such Receivable were shipped to the customer
on or prior to the invoice date, or the services described in such invoice were
provided on or prior to the invoice date. Lender may treat any Receivable as
ineligible if:

                           (a)      any warranty contained in this Agreement or
in the General Security Agreement with respect to Eligible Receivables or any
warranty with respect to such Receivable contained in this Agreement or in the
General Security Agreement has been breached in any material respect; or

                           (b)      the Account Debtor has disputed liability
with respect to more than fifty (50) percent of the face amount thereof (except
that

                                        3
<PAGE>

with respect to such Receivable the undisputed amount shall be considered
eligible provided such Receivable would otherwise be considered an Eligible
Receivable), or made any claim with respect to such Receivable or with respect
to any other Receivable due from such customer or Account Debtor to Borrower,
with respect to any Receivable which Lender, in the good faith exercise of its
credit judgment, deems material; or

                           (c)      the Account Debtor has filed a case for
bankruptcy or reorganization under the Bankruptcy Code, or if any case under the
Bankruptcy Code has been filed against the Account Debtor, or if the Account
Debtor has assigned for the benefit of creditors, or if the Account Debtor has
failed, suspended business operations, become insolvent, or had or suffered a
receiver or a trustee to be appointed for all or a significant portion of its
assets or affairs; or

                           (d)      if the Account Debtor is also a supplier to
or creditor of Borrower or if the Account Debtor has or asserts any right of
offset with respect to any Receivable or asserts any claim or counterclaim
against Borrower with respect to any Receivable or otherwise in each case in
excess of fifty (50) percent of the face amount of the applicable Receivable
(except that with respect to such Receivable the undisputed amount shall be
considered eligible provided such Receivable would otherwise be considered an
Eligible Receivable); or

                           (e)      the sale is to an Account Debtor outside the
United States, unless the sale is on letter of credit, acceptance or other terms
acceptable to Lender; or

                           (f)      fifty (50) percent or more of the
Receivables of any Account Debtor and its Affiliates is ineligible, then all the
Receivables of such Account Debtor and its Affiliates may be deemed ineligible
by Lender under this Agreement; or

                           (g)      it relates to a sale of goods or services to
the United States of America, or any agency or department thereof, unless
Borrower assigns its right to payment of such Receivable to Lender, in form and
substance satisfactory to Lender, so as to comply with the Assignment of Claims
Act of 1940, as amended; or

                           (h)      it relates to sale of goods or services to a
state or local governmental authority or an agent or department thereof; or

                           (i)      it relates to intercompany sales, employee
sales or any Receivable due from an Affiliate of Borrower; or

                                        4
<PAGE>

                           (j)      it consists of a sale to an Account Debtor
on consignment, bill and hold, guaranteed sale, sale or return, sale on
approval, payment plan, scheduled installment plan, extended payment terms or
any other repurchase or return basis; or

                           (k)      the Account Debtor is located in a state in
which Borrower is deemed to be doing business under the laws of such state and
which denies creditors access to its courts in the absence of qualifications to
transact business in such state or of the filing of any reports with such state,
unless Borrower has qualified as a foreign corporation authorized to do business
in such state or has filed all required reports; or

                           (l)      the Receivable is evidenced by chattel paper
or an instrument of any kind which has not been assigned or endorsed and
delivered to Lender and such endorsement is necessary to perfect the security
interest in and to such chattel paper or instrument granted by Borrower in favor
of Lender pursuant to the General Security Agreement; or

                           (m)      the Receivable arises from a sale of goods
or services to an individual who is purchasing such goods primarily for
personal, family or household purposes; or

                           (n)      except with respect to any Receivable for
which credit insurance described in Section 8.6 shall have been obtained, if
Lender believes, in the exercise of its good faith credit judgment, that
collection of such Receivable is insecure or that such Receivable may not be
paid by reason of the Account Debtor's financial inability to pay.

                  1.16.    "Environment" shall mean any water or water vapor,
any land surface or subsurface, air, fish, wildlife, biota and all other natural
resources.

                  1.17.    "Environmental Laws" shall mean all federal, state
and local environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances and codes relating to the protection of
the Environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of "hazardous
substances" and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.

                  1.18.    "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.

                  1.19.    "Events of Default" shall have the meaning set forth
in Article 12 of this Agreement.

                                        5
<PAGE>

                  1.20.    "Fiscal Year" shall mean with respect to any Person,
a year of 365 or 366 days, as the case may be, ending on the last day of June in
any calendar year.

                  1.21.    "GAAP" shall mean generally accepted accounting
principles consistently applied and maintained throughout the period indicated
and consistent with the prior financial practice of Borrower, except for changes
mandated or permitted to be adopted by the Financial Accounting Standards Board
or any similar accounting authority of comparable standing. Whenever any
accounting term is used herein which is not otherwise defined, it shall be
interpreted in accordance with GAAP.

                  1.22.    "General Security Agreement" shall mean the general
security agreement dated the date hereof executed and delivered by Borrower to
Lender as the same may be amended, modified or supplemented from time to time.

                  1.23.    "Governmental Rules" shall have the meaning given to
such term in Section 5.24 of this Agreement.

                  1.24.    "Guarantor" shall mean Bonnie International (Hong
Kong) Ltd., JLN, Inc., The Bag Factory Inc., Investments (JLN) Inc., Max N.
Nitzberg, Inc., Topsville, Inc., Josell Global Sourcing Ltd., and any other
Person who shall, at any time, agree to be a guarantor or surety for Borrower.

                  1.25.    "Indebtedness" shall mean and include all obligations
for borrowed money of any kind or nature, including funded debt and unfunded
liabilities, contingent obligations under guaranties or letters of credit, and
all obligations for the acquisition or use of any fixed asset, including
capitalized leases, or improvements which are payable over a period longer than
one year, regardless of the term thereof or the Person or Persons to whom the
same is payable and the Obligations, but only to the extent that such
obligations are required to be capitalized on the financial statements of the
Person incurring such obligations.

                  1.26.    "Inventory" shall have the meaning given to such term
in the General Security Agreement.

                  1.27.    "Letter of Credit" shall mean any documentary letter
of credit issued by Lender for the account of Borrower or any Guarantor for the
acquisition of Inventory or any air releases, guaranties or similar documents
issued by Lender in connection therewith.

                  1.28.    "LIBOR" shall mean the London Inter-Bank Offered Rate
as quoted in the "Money Rates" section of The Wall Street Journal.

                                        6
<PAGE>

                  1.29.    "Loan Documents" shall mean this Agreement, the
General Security Agreement and all other documents and instruments to be
delivered by Borrower or any other Person under or in connection with this
Agreement or the Loans, as the same may be amended, modified or supplemented
from time to time.

                  1.30.    "Loan Interest Rate" shall mean Lender's Prime Rate.

                  1.31.    "Loans" shall mean the loans and advances made by
Lender under this Agreement, including all Advances.

                  1.32.    Intentionally omitted
                           ---------------------

                  1.33.    "Material Adverse Effect" shall mean any material
adverse effect on (a) the business, assets, operations, prospects or condition,
financial or otherwise, of Borrower and the Guarantors taken as a whole; (b)
Borrower's ability to pay or perform the Obligations in accordance with their
terms; (c) the value, collectability or salability of the Collateral taken as a
whole or the perfection or priority of Lender's liens; (d) the validity or
enforceability of this Agreement or any of the Loan Documents; or (e) the
practical realization of the benefits, rights and remedies inuring to Lender
under this Agreement and the other Loan Documents.

                  1.34.    "Maximum Facility" shall mean THIRTY-TWO MILLION and
00/100 (32,000,000.00) Dollars.

                  1.35.    "Notice of Borrowing" shall mean a borrowing request
in a Record substantially in the form of Exhibit B attached hereto.

                  1.36.    "Obligations" shall mean and include all loans
(including the Loans), advances, debts, liabilities, obligations, covenants and
duties owing by Borrower to Lender of any kind or nature, present or future,
whether or not evidenced by any note, guaranty or other instrument, under or in
connection with this Agreement and the other Loan Documents, including, without
limitation, Lender's indemnity obligations to Fleet National Bank in accordance
with Section 2.B hereof, whether direct or indirect, absolute or contingent, due
or to become due, now due or hereafter arising and howsoever acquired including,
without limitation, all interest, charges, expenses, fees, reasonable out of
pocket attorneys' fees and expenses, and any other sum chargeable to Borrower
under this Agreement or the other Loan Documents.

                  1.37.    "Person" shall mean an individual, partnership,
limited liability company, limited liability partnership, corporation, joint
venture, joint stock company, land trust, business trust or unincorporated
organization, or a government or agency or political subdivision thereof.

                                        7
<PAGE>

                  1.38.    "Plan" shall mean an employee benefit plan or other
plan now or hereafter maintained for employees of Borrower or any subsidiary of
Borrower and covered by Title IV of ERISA

                  1.39.    "Prime Rate" means the fluctuating rate of interest,
which is determined periodically, announced from time to time by Lender as its
"Prime Rate".

                  1.40.    "Property" shall have the meaning set forth in the
General Security Agreement.

                  1.41.    "Receivables" shall have the meaning set forth in the
General Security Agreement.

                  1.42.    "Record" shall mean information that is inscribed on
a tangible medium or which is stored in an electronic or other medium and is
retrievable in perceivable form. If Lender so specifies with respect to a
particular type of Record, that type of Record shall be signed or otherwise
authenticated by Borrower.

                  1.43.    "Reportable Event" shall have the meaning assigned to
that term in Title IV of ERISA.

                  1.44.    "Revolving Loan" shall mean the Advances to be made
by Lender to Borrower pursuant to Section 2.1 of this Agreement, and all
interest thereon and all fees, costs and expenses payable by Borrower in
connection therewith.

                  1.45.    "Revolving Note" shall mean, the promissory note
substantially in the form annexed hereto as Exhibit A, to be given by Borrower
to Lender to evidence the Revolving Loan.

                  1.46.    "Solvent" shall mean when used with respect to any
Person, such Person (i) owns property the fair value of which is greater than
the amount required to pay all of such Person's Indebtedness (including
contingent debts), (ii) owns property the present fair salable value of which is
greater than the amount that will be required to pay the probable liabilities of
such Person on its then existing Indebtedness as such become absolute and
matured, (iii) is able to pay all of its Indebtedness as such Indebtedness
matures, and (iv) has capital sufficient to carry on its then existing business.

                  1.47.    "Termination Date" shall mean the earlier of December
1, 2004, or the date on which Lender terminates this Agreement pursuant to
Section 12.1 of this Agreement.

                  1.48.    "UCC" means the Uniform Commercial Code as in effect
from time to time.

                                        8
<PAGE>

         2.       THE REVOLVING LOAN.
                  ------------------

                  2.1.     Advances. Subject to the terms and conditions of this
Agreement including, without limitation, the Maximum Facility and relying upon
the representations and warranties set forth in this Agreement, for so long as
no Default or Event of Default shall have occurred and shall be continuing,
Lender shall make Advances to Borrower on its request, from time to time during
the term of this Agreement in an amount ("Borrowing Capacity") not to exceed at
any one time outstanding the lesser of:

                           (a)      TWENTY-TWO MILLION and 00/100
(22,000,000.00) Dollars, or

                           (b)      the sum of (i) eighty-five (85) percent of
the face amount of Borrower's Eligible Receivables, (ii) fifty (50) percent of
the Value of Borrower's Eligible Inventory, and (iii) fifty (50) percent of the
outstanding face amount of Letters of Credit issued under this Agreement,

plus in each case, for the period from July 1 through September 30 only,
$5,000,000.00 provided an officer of Borrower submits to Lender an Authenticated
Record within ten (10) days of the end of July, August and September stating
that sixty-five (65) percent of the value of all Eligible Inventory is subject
to confirmed bona fide purchase orders with unrelated third parties. Value shall
mean the lower of cost or the fair market value of such Inventory, as reflected
on the books and records of Borrower.

                  For the purpose of calculating the Borrowing Capacity under
Subsection 2.1(b), the face of all Letters of Credit shall be deducted from such
sum. Within the limits of the Borrowing Capacity, and subject to the limitations
set forth in this Agreement, Borrower may borrow, repay and reborrow Advances.

                  2.2.     Overline. Borrower acknowledges that Lender has
advised Borrower that Lender does not intend to permit Borrower to incur
Obligations at any time in an outstanding principal amount exceeding either the
Borrowing Capacity or the Maximum Facility; however, it is agreed that should
the Obligations of Borrower to Lender incurred under the Loans or otherwise
exceed either then, all such Obligations shall (a) constitute Obligations under
this Agreement, (b) be entitled to the benefit of all security and protection
under this Agreement and the other Loan Documents, (c) be secured by the
Collateral and (d) be payable immediately without notice or demand by Lender.

                                        9
<PAGE>

                  2.3.     Reserves. The Borrowing Capacity shall be subject to
such reserves as Lender shall deem necessary in the exercise of its good faith
credit judgment.

                  2.4.     Manner of Borrowing. Each Advance shall be requested
in an Authenticated Record sent via facsimile or electronic transmission
including, without limitation, via e-mail by a Notice of Borrowing executed by
an authorized officer of Borrower, not later than 3:00 p.m. Eastern Time on any
Banking Day on which an Advance is requested. Provided that Borrower shall have
satisfied all conditions precedent set forth in this Agreement, including the
reaffirmation of the representations and warranties and covenants as required
under Article 10 of this Agreement, and Borrower shall have sufficient Borrowing
Capacity to permit an Advance under this Agreement in accordance with Section
2.1 of this Agreement, Lender shall make the Advance to Borrower in the amount
requested in the Record by Borrower in immediately available funds for credit to
any account of Borrower (other than a payroll account) at Lender.

                  2.5.     Evidence of Borrower's Obligations. Borrower's
obligation to pay the principal of, and interest on, the Advances made to
Borrower shall be evidenced by the Revolving Note executed by Borrower and
delivered to Lender.

                  2.6.     Payment on Termination Date. Notwithstanding anything
herein to the contrary, the entire outstanding principal balance of the Loans,
plus all accrued and unpaid interest thereon and all fees and other amounts
payable under this Agreement and the Loan Documents, shall be due and payable in
full, on the Termination Date.

                  2.A      Letters of Credit. At the request of Borrower or a
Guarantor, and upon execution of Lender's customary Letter of Credit
documentation, Lender shall issue Letter(s) of Credit on behalf of Borrower or a
Guarantor. The Letters of Credit shall be on terms mutually acceptable to Lender
and Borrower or the Guarantor, as the case may be, and no Letter of Credit shall
have an expiration date later than ninety (90) days after the Termination Date
and shall not contain an evergreen clause or any other automatic renewal
provision. Any drawing under the Letter of Credit shall be deemed an Advance
made to Borrower, without request therefore, immediately upon payment on any
such draft or drawing. In connection with the issuance of a Letter of Credit,
Borrower shall pay to Lender an issuance fee of $275.00 and a wire fee of
$35.00. In addition, Lender shall charge Borrower its standard discrepancy fees
as they may vary from time to time. If there is any dispute between the
beneficiary and Borrower or the Guarantor regarding the terms and conditions of

                                       10
<PAGE>

any Letter of Credit or the issuance or the payment of any drawing(s) under any
such Letter of Credit, any such dispute shall be solely between the beneficiary
and Borrower and/or the Guarantor and Borrower shall be obligated to pay to
Lender any and all amounts paid by Lender, in the absence of Lender's gross
negligence or willful misconduct, to the beneficiary of the Letter of Credit
without any defense, counterclaim or set-off, all of which are expressly waived.

                  Subject to the terms and conditions of this Agreement, for so
long as no Event of Default shall exist and be continuing, Lender shall issue
Letters of Credit in its discretion at the request of Borrower or a Guarantor
having an aggregate outstanding face amount equal to the lesser of (a) the
Maximum Facility or (b) the amount calculated in accordance with Subsection
2.1(b). The sum calculated in accordance with clause (b) of the immediately
preceding sentence shall be reduced by the outstanding principal balance of all
Revolving Loans as they may vary from time to time.

                  Lender has previously issued Letters of Credit for the account
of Borrower and/or Guarantors. These Letters of Credit shall be considered
issued under and in accordance with the terms and conditions of this Agreement
and shall be subject to all of the benefits of and secured by the Collateral
described in the General Security Agreement and the various Guaranty and
Security Agreements.

                  2.B.     Fleet Indemnity.
                           ---------------

                  At the request of Borrower, Lender has executed and indemnity
letter in favor of Fleet National Bank as set forth on Exhibit F hereto. Such
indemnity letter indemnifies Fleet National Bank in connection with letters of
credit issued on behalf of Borrower or its Affiliates. Pursuant to such
indemnity letter, Lender is obligated to indemnify and reimburse Fleet National
Bank for claims arising out of such letters of credit. Lender's obligations in
connection with such indemnity letter shall be considered an Obligation or
Obligations under this Agreement. So long as the indemnity letter is in effect,
the maximum amount of Lender's liability to Fleet National Bank thereunder shall
reduce the amount of funds the Borrower may obtain under Section 2 hereof. If
there is any dispute between Fleet National Bank and Borrower and/or Lender
arising out of any such letter of credit (including, without limitation, any
drawing under any such letter of credit), any such dispute shall be solely the
Borrower's responsibility, and Borrower shall be obligated to pay Lender any and
all amounts paid by Lender to Fleet National Bank without any defense,
counterclaim or setoff, all of which are expressly waived; provided, that the

                                       11
<PAGE>

foregoing shall not be considered a waiver of any defense, counterclaim or
setoff that may be available to Borrower against or in respect of Fleet National
Bank.

         3.       LENDER'S COMPENSATION.
                  ---------------------

                  3.1.     Interest on Advances. Except as provided below,
Borrower shall pay interest monthly, in arrears, on the first day of each month,
commencing January 1, 2003 on the average daily unpaid principal amount of the
Revolving Loan at a fluctuating rate which is equal to the Loan Interest Rate
or, as provided below, the LIBOR rate. Notwithstanding the foregoing, on and
after the occurrence and during the continuance of an Event of Default, Borrower
shall pay interest on the Revolving Loan at a rate which is three (3) percent
per annum above the Prime Rate; provided, however, in no event shall any
interest to be paid under this Agreement or under any Loan Document exceed the
maximum rate permitted by law.

                  Notwithstanding the foregoing, Borrower, at the time of any
Advance, shall be permitted to fix the interest rate payable on such advance for
a period of one, two or three months based on the corresponding LIBOR rate for
such time period plus two hundred fifty (250) basis points. The interest on any
such fixed rate Advance shall be due and payable on the maturity date of such
Advance.

                  3.2.     Field Examination Fees. Borrower shall promptly
reimburse Lender for all reasonable out of pocket costs and expenses associated
with periodic field examinations as deemed necessary by Lender; provided, that
so long as no Event of Default shall have occurred and is continuing, Lender
shall only conduct one such periodic field examination during any twelve (12)
month period; and further, provided, that the total amount of costs and expenses
for which Borrower shall be required to reimburse Lender in any twelve (12)
month period during the term of this Agreement shall not exceed $5,000.00 except
the initial field examination in connection with the closing of the Loans.

                  3.3.     Computation of Interest and Fees. All interest and
fees under this Agreement shall be computed on the basis of a year consisting of
three hundred sixty (360) days for the number of days actually elapsed.

                  3.4.     Payments. All payments with respect to the
Obligations shall be charged by Lender to Borrower's demand account deposit
maintained with Lender without any defense, offset or counterclaim of any kind.
Whenever any payment to be made shall otherwise be due on a day that is not a

                                       12
<PAGE>

Banking Day, such payment shall be made on the next succeeding Banking Day and
such extension of time shall be included in computing interest in connection
with any such payment. Lender may make an Advance to reimburse itself for any
payments on the Obligations (including fees and expenses payable by Borrower),
which are not paid when due, without notice or demand to Borrower. Any delay or
failure by Lender submitting any invoice for such interest or fee or in the
making of an Advance against the Revolving Loan shall not discharge or relieve
Borrower of its obligation to make such interest or fee payment.

          4.      APPLICATION OF PROCEEDS. The proceeds of the Advances shall be
used solely by Borrower to repay existing indebtedness incurred in connection
therewith, for working capital purposes, and otherwise as permitted by this
Agreement and the other Loan Documents.

         5.       INDUCING REPRESENTATIONS. In order to induce Lender to make
the Loans, Borrower makes the following representations and warranties to
Lender:

                  5.1.     Organization and Qualifications. Borrower is a
corporation duly organized and existing under the laws of the State of Delaware.
Borrower's tax identification number is 22-1432053, and its organizational
identification number is 0684419. Borrower is qualified to do business in every
jurisdiction where the nature of its business requires it to be so qualified,
except where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect.

                  5.2.     Name and Address. During the preceding five (5)
years, Borrower has not been known by any other corporate or fictitious name,
except as set forth on Schedule 5.2 attached hereto. Borrower's principal office
on the date hereof is at the address set forth above.

                  5.3.     Structure. Borrower has no subsidiaries or Affiliates
on the date hereof, except as set forth on Schedule 5.3 attached hereto.

                  5.4.     Legally Enforceable Agreement. The execution,
delivery and performance of this Agreement, each and all of the other Loan
Documents and each and all other instruments and documents to be delivered by
Borrower or the Guarantors under this Agreement and the creation of all liens
and security interests provided for herein are within Borrower's corporate
power, have been duly authorized by all necessary or proper corporate action

                                       13
<PAGE>

(including the consent of shareholders where required), are not in contravention
of any agreement or indenture to which Borrower is a party or by which it is
bound, or of the Certificate of Incorporation or By-Laws of Borrower, and are
not in contravention of any provision of law and the same do not require the
consent or approval of any governmental body, agency, authority or any other
Person which has not been obtained and a copy thereof furnished to Lender, other
than agreements that comprise Collateral and that by their respective terms may
not be pledged, assigned or otherwise transferred and which, individually or in
the aggregate, are not material.

                  5.5.     Solvent Financial Condition. Borrower is Solvent.
                           ---------------------------

                  5.6.     Financial Statements. The unqualified audited
financial statements of Borrower as of June 30, 2002, copies of which have been
delivered to Lender, fairly present Borrower's financial condition and results
of operations as relevant and as of such date and there has been no Material
Adverse Effect since such date. Borrower has no contingent liabilities,
liabilities for taxes, unusual forward or long-term commitments, or unrealized
or unanticipated losses from any unfavorable commitments which were required to
be disclosed in such financial statements but which were not disclosed.

                  5.7.     Joint Ventures. On the date hereof, Borrower is not
engaged in any joint venture or partnership with any other Person.

                  5.8.     Real Estate. Attached hereto as Schedule 5.8 is a
list showing all real property owned or leased by Borrower, and if leased, the
correct name and address of the landlord and the date and term of the applicable
lease.

                  5.9.     Patents, Trademarks, Copyrights and Licenses.
Borrower owns or possesses all the patents, trademarks, service marks, trade
names, copyrights and licenses necessary for the present and planned future
conduct of its business and, to the best of Borrower's knowledge, without any
conflict with the rights of others. All such registered patents, registered
trademarks, service marks, trade names, registered copyrights and licenses for
the manufacture or sale of products in the ordinary course of business existing
on the date hereof are listed on Schedule 5.9 attached hereto, if any.

                  5.10.    Existing Business Relationship. To the knowledge of
Borrower, there exists no actual or threatened termination, cancellation or
limitation of, or any adverse modification or change in, the business
relationship of Borrower with any supplier, customer or group of customers which
individually or in the aggregate would have a Material Adverse Effect.

                                       14
<PAGE>

                  5.11.    Investment Company Act: Federal Reserve Board
Regulations. Borrower is not an "investment company", or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company", as
such terms are defined in the Investment Company Act of 1940, as amended (15
U.S.C. ss.ss. 80(a)(1), et seq.). The making of the Loans under this Agreement
by Lender, the application of the proceeds and repayment thereof by Borrower and
the performance of the transactions contemplated by this Agreement will not
violate any provision of such Act, or any rule, regulation or order issued by
the Securities and Exchange Commission thereunder. Borrower does not own any
margin security as that term is defined in Regulation U of the Board of
Governors of the Federal Reserve System and the proceeds of the Loans made
pursuant to this Agreement will be used only for the purposes contemplated under
this Agreement. None of the proceeds will be used, directly or indirectly, for
the purpose of purchasing or carrying any margin security or for the purpose of
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry margin security or for any other purpose which might constitute any of
the Loans under this Agreement a "purpose credit" within the meaning of said
Regulation U or Regulations T or X of the Federal Reserve Board. Borrower will
not take, or authorize any agent acting on its behalf to take, any action which
might cause this Agreement or any document or instrument delivered pursuant
hereto to violate any regulation of the Federal Reserve Board.

                  5.12.    Tax Returns. Borrower and the Guarantors have filed
all tax returns (Federal, state or local) required to be filed and paid all
taxes shown thereon to be due including interest and penalties or has provided
adequate reserves therefor. No assessments have been made against Borrower or
any Guarantor(s), by any taxing authority nor has any penalty or deficiency been
made by any such authority. To the best of Borrower's knowledge, no Federal
income tax return of Borrower or any Guarantor, is being examined on the date
hereof by the Internal Revenue Service nor are the results of any prior
examination by the Internal Revenue Service or any State or local tax authority
being contested on the date hereof by Borrower or any Guarantor.

                  5.13.    Litigation. Except as disclosed in Schedule 5.13, no
action or proceeding is now pending or, to the knowledge of Borrower, is
threatened against Borrower or any Guarantor, at law, in equity or otherwise,
before any court, board, commission, agency or instrumentality of the Federal or
state government or of any municipal government or any agency or subdivision
thereof, or before any arbitrator or panel of arbitrators, which, in any case,

                                       15
<PAGE>

would, individually or in the aggregate, have a Material Adverse Effect and
neither Borrower nor any Guarantor, has accepted liability for any such action
or proceeding. There is no proceeding pending before any governmental agency
(Federal, state or local) and, to the best of Borrower's knowledge, no
investigation has been commenced before any such governmental agency the effect
of which, if adversely decided, would, individually or in the aggregate, have a
Material Adverse Effect.

                  5.14.    Receivables Locations. Annexed hereto as Schedule
5.14 is a list showing all places at which Borrower presently maintains records
relating to Receivables on the date hereof.

                  5.15.    Inventory Locations. Annexed hereto as Schedule 5.15
is a list showing all places where Borrower on the date hereof maintains
Inventory. Such list indicates whether the premises are owned or leased by
Borrower or whether the premises are the premises of a warehouseman or other
third party, and if owned by a third party, the name and address of such third
party.

                  5.16.    Equipment List and Locations. Annexed hereto as
Schedule 5.16 is a list showing the places where Borrower's Equipment is located
on the date hereof. Such list indicates whether such premises are owned or
leased by Borrower or whether the premises are the premises of another third
party, and if leased, the name and address of such third party.

                  5.17.    Title/ Liens. Borrower has good and marketable title
to the Collateral as sole owner thereof. There are no existing liens on any
Property of Borrower, except for (i) liens in favor of Lender, (ii) liens
described in Schedule 5.17 and (iii) liens permitted by Section 9.5.

                  5.18.    Existing Indebtedness. Borrower has no existing
Indebtedness except the Indebtedness described in Schedule 5.18.

                  5.19.    ERISA Matters. The present value of all accrued
vested benefits under any Plan (calculated on the basis of the actuarial
evaluation for the Plan) did not exceed as of the date of the most recent
actuarial evaluation for such Plan the fair market value of the assets of such
Plan allocable to such benefits. Borrower is not aware of any information since
the date of such evaluation which would affect the information contained
therein. Such Plan does not presently have an accumulating funding deficiency,
as that term is defined in Section 302 of ERISA or Section 412 of the Code
(whether or not waived), no liability to the Pension Benefit Guaranty
Corporation (other than required premiums which have become due and payable, all
of which have been paid) has been incurred with respect to the Plan which would

                                       16
<PAGE>

have a Material Adverse Effect, and there has not been any Reportable Event
which presents a risk of termination of the Plan by the Pension Benefit Guaranty
Corporation which would have a Material Adverse Effect. Borrower has not engaged
in any transaction which would subject Borrower to tax, penalty or liability for
prohibited transactions imposed by ERISA or the Code which would have a Material
Adverse Effect.

                  5.20.    O.S.H.A. Borrower has duly complied with, and its
facilities, business, leaseholds, Equipment and other property are in compliance
in all respects with, the provisions of the federal Occupational Safety and
Health Act and all rules and regulations thereunder and all similar state and
local Governmental Rules except for failure to comply which would not have a
Material Adverse Effect. There are no outstanding citations, notices or orders
of non-compliance issued to Borrower or relating to its facilities, business,
leaseholds, Equipment or other property under any such Governmental Rules which
would, individually or in the aggregate, have a Material Adverse Effect.

                  5.21.    Intentionally omitted.
                           ---------------------

                  5.22.    Labor Disputes. There are no pending or, to
Borrower's knowledge, threatened labor disputes which could have a Material
Adverse Effect.

                  5.23.    Location of Bank and Securities Accounts. Annexed
hereto as Schedule 5.23 hereto sets forth a complete and accurate list of all
deposit, checking and other bank accounts, all securities and other accounts
maintained with any broker dealer and all other similar accounts maintained by
Borrower on the date hereof (collectively, "Bank Accounts"), together with a
description thereof.

                  5.24.    Compliance With Laws. Borrower is in compliance with
all Federal, state and local governmental rules, ordinances and regulations
("Governmental Rules") applicable to its ownership or use of properties or the
conduct of its business except where the failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect.

                  5.25.    No Other Violations. Borrower is not in violation of
any term of its Certificate of Incorporation or By-laws and no event or
condition has occurred or is continuing which constitutes or results in (or
would constitute or result in, with the giving of notice, lapse of time or other
condition) (a) a breach of, or a default under, any agreement, undertaking or
instrument to which Borrower is a party or by which it or any of its Property
may be affected, which would have a Material Adverse Effect, or (b) the
imposition of any lien on any Property of Borrower.

                                       17
<PAGE>

                  5.26.    Survival of Representations and Warranties. Borrower
covenants, warrants and represents to Lender that all representations and
warranties of Borrower contained in this Agreement or in any other Loan
Documents shall be true in all material respects at the time of Borrower's
execution of this Agreement and the other Loan Documents, and Lender's right to
bring an action for breach of any such representation or warranty or to exercise
any remedy under this Agreement based upon the breach of such representation or
warranty shall survive the execution, delivery and acceptance hereof by Lender
and the closing of the transactions described herein or related hereto until the
Obligations are finally and irrevocably paid in full.

         6.       FINANCIAL STATEMENTS AND INFORMATION; CERTAIN NOTICES TO
LENDER. So long as Borrower shall have any Obligations to Lender under this
Agreement, Borrower shall deliver to Lender, or shall cause to be delivered to
Lender:

                  6.1.     Borrowing Base Certificate. Monthly (within twenty
(20) days after the end of each month) and contemporaneously with each request
for an Advance, a completed and executed Borrowing Base Certificate.

                  6.2.     Monthly Reports. Within twenty (20) days after the
end of each month, an accounts receivable aging, an inventory, designation
statement and a corporate daybook summary of sales and backlog, all in form
approved by Lender, which approval will not be unreasonably withheld, prepared
by Borrower together with a compliance certificate in the form of Exhibit D
attached hereto; provided, that the inventory designation statement only shall
not be required for the last month of a quarter for which a physical inventory
required by Section 6.4 shall be required.

                  6.3.     Annual Financial Statements. Within one hundred fifty
(150) days after the close of each Fiscal Year of Borrower, a complete copy of
Borrower's annual report on Form 10-K filed with the United Stated Securities
and Exchange Commission containing an unqualified audit report on the financial
statements of Borrower contained therein prepared by an independent certified
public accountant, consisting of a balance sheet, statements of operations,
statements of stockholders' equity and statements of cash flow.

                  6.4.     Quarterly Inventory Report. Within thirty (30) days
after the end of each quarter, a complete copy of Borrower's physical inventory
performed as of the end of such quarter together with such other information
related thereto as Lender may reasonably request.

                                       18
<PAGE>

                  6.5.     Insurance. Annually, within thirty (30) days of the
renewal date of such insurance policy, evidence of insurance in form and content
approved by Lender which approval will not be unreasonably withheld and
otherwise in compliance with Section 8.6 of this Agreement, together with a copy
of the original insurance policy.

                  6.6.     Notice of Event of Default and Adverse Business
Developments. Promptly after becoming aware of the existence of an Event of
Default including, without limitation, the following:

                           (a)      any dispute that may arise between Borrower
and any governmental regulatory body or law enforcement authority, including any
action relating to any tax liability of Borrower or Guarantor if any which
adversely determined, would have, individually or in the aggregate, a Material
Adverse Effect;

                           (b)      any labor controversy resulting in or
threatening to result in a strike or work stoppage against Borrower;

                           (c)      any proposal by any public authority to
exercise its eminent domain powers to acquire the assets or business of
Borrower;

                           (d)      the location of any Collateral other than at
Borrower's place of business or as permitted under this Agreement;

                           (e)      any proposed or actual change of Borrower's
name, identity, state of organization or corporate structure; or

                           (f)      any other matter which has resulted or may
result in a Material Adverse Effect.

         In each case, Borrower will provide Lender with telephonic notice
followed by notice in a Record specifying and describing the nature of such
Default, Event of Default or development or information, and such anticipated
effect.

                  6.7.     Other Information. Such other information respecting
the financial condition of Borrower or any Guarantor, or any Property of
Borrower or a Guarantor in which Lender may have a lien as Lender may from time
to time reasonably request.

         7.       ACCOUNTING. Lender may account monthly to Borrower with
respect to the amounts due in connection with the Loans and Letters of Credit.
Each and every account shall be deemed final, binding and conclusive upon
Borrower in all respects, as to all matters reflected therein, unless Borrower,
within one hundred twenty (120) days after the date the account was rendered,
delivers to Lender notice in a Record of any objections which Borrower may have
to any such account and in that event only those items expressly objected to in

                                       19
<PAGE>

such notice shall be deemed to be disputed by Borrower. If Borrower disputes the
correctness of any statement, Borrower's notice shall specify in detail the
particulars of its basis for contending that such statement is incorrect.

         8.       AFFIRMATIVE COVENANTS. Borrower represents and warrants that,
so long as it shall have any Obligations to Lender under this Agreement,
Borrower will:

                  8.1.     Business and Existence. Preserve and maintain
Borrower's separate existence and rights, privileges and franchises.

                  8.2.     Trade Names. Transact business in Borrower's own name
other than for the trade names set forth on Schedule 5.9 and invoice all of
Borrower's Receivables in Borrower's own name or the names "Bonnie", "Jaclyn
Apparel", "Aetna", "Banner New York" and/or "Shane" unless Borrower shall have
provided thirty (30) days prior notice in writing to Lender of the use of a new
or additional name.

                  8.3.     Transactions with Affiliates. Whenever Borrower
engages in transactions with any of Borrower's Affiliates, conduct the same on
an arms-length basis or other basis more favorable to Borrower.

                  8.4.     Taxes. Pay and discharge all taxes, assessments,
government charges and levies imposed upon Borrower, Borrower's income or
Borrower's profits or upon any Property belonging to Borrower prior to the date
on which penalties attach thereto, except where the same may be contested in
good faith by appropriate proceedings, if necessary, being diligently conducted,
or appropriate reserves therefore have been established. Borrower will pay all
costs to be paid on taxes, assessments or governmental charges levied, assessed,
imposed or payable upon or with respect to the Inventory, Equipment or other
Collateral or any part thereof except where the same may be contested in good
faith, by appropriate proceedings, if necessary, being diligently conducted or
appropriate reserves therefore have been established.

                  8.5.     Compliance with Laws. Comply with all Governmental
Rules applicable to Borrower including, without limitation, all laws and
regulations regarding the collection, payment and deposit of employees' income,
unemployment and Social Security taxes, where the failure to comply would have
individually or in the aggregate a Material Adverse Effect.

                                       20
<PAGE>

                  8.6.     Maintain Properties: Insurance. Safeguard and protect
all Property used in the conduct of Borrower's business and keep all of
Borrower's Property insured with insurance companies licensed to do business in
the states where the Property is located against loss or damage by fire or other
risk under extended coverage endorsement and against theft, burglary, and
pilferage together with such other hazards as Lender may from time to time
reasonably request, in amounts usually carried on similar Property by similar
companies. In addition to the foregoing, Borrower shall maintain credit
insurance in form and content acceptable to Lender in the exercise of its
reasonably credit judgment insuring all of Borrower's and each Guarantor's
Eligible Receivables except for those from Wal-Mart, Kohl's, Target, Sear's and
May Department Stores with insurance companies and in amounts acceptable to
Lender in the exercise of its reasonable credit judgment. As of the date of this
Agreement, Kemper Insurance Company and its Affiliates are acceptable to Lender
as insurance carriers. If requested by Lender, Borrower shall deliver complete,
certified to be true copies of each insurance policy or policies or certificates
of insurance to Lender containing endorsements in form satisfactory to Lender
naming Lender as lender/loss payee with reference to the foregoing credit
insurance and hazard insurance insuring the Collateral, and as additional
insured with respect to the foregoing required insurance other than credit
insurance and hazard insurance insuring the Collateral, and providing that the
insurance shall not be canceled, amended or terminated except upon thirty (30)
days' prior written notice to Lender. All insurance proceeds received by Lender
shall be retained by Lender and shall promptly be applied to the payment of such
portion of the Obligations as Lender may determine in Lender's sole discretion;
provided, that if no Obligations shall then be outstanding, Lender shall, within
three (3) Banking Days, deliver such proceeds, in kind, to Borrower. Borrower
shall promptly notify Lender of any event or occurrence causing a material loss
or a material decline in the value of Property or the existence of an event
justifying a material claim under any insurance and the estimated amount
thereof.

                  8.7.     Business Records. Keep adequate records and books of
account with respect to Borrower's business activities in which proper entries
are made in accordance with sound bookkeeping practices reflecting all financial
transactions of Borrower; and Borrower shall maintain its primary operating
account with Lender.

                  8.8.     Litigation. Give Lender prompt notice of any suit at
law or in equity against Borrower involving money or property except where the
uninsured portion of such claim would be less than $100,000.00.

                                       21
<PAGE>

                  8.9.     Damage or Destruction of Inventory. Maintain or cause
to be maintained in good condition and preserve the Inventory from material
loss, damage, or destruction of any nature whatsoever and provide Lender with
prompt notice in a Record of any material destruction or material damage to any
Inventory and of the occurrence of any condition or event which has caused, or
may cause, material loss or depreciation in the value of the Inventory.

                  8.10.    Name Change. Provide Lender with not fewer than
thirty (30) days notice in an Authenticated Record prior to any proposed change
of name or the creation of any subsidiary.

                  8.11.    Access to Books and Records. Provide Lender with such
reports and with such access, upon reasonable advance notice and during
Borrower's normal business hours, to Borrower's books and records and permit
Lender to copy and inspect such reports and books and records all as Lender
deems necessary or desirable to enable Lender to monitor the credit facilities
extended hereby. Upon reasonable advance notice, Lender may examine and inspect
the Inventory, Equipment or other Collateral and may examine, inspect and copy
all books and records with respect thereto at any time during Borrower's normal
business hours. Borrower shall maintain records respecting Inventory, including
a perpetual inventory, and all other Collateral at all times that are full,
accurate and complete in all material respects.

                  8.12.    Solvent. Continue to be Solvent.
                           -------

                  8.13.    Compliance With Environmental Laws. Comply with all
applicable Environmental Laws except where the failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect.

                  8.14.    Compliance with ERISA and other Employment Laws.
Comply with all applicable provisions of ERISA and the Internal Revenue Code of
1986, as amended, and any other applicable laws, rules or regulations relating
to the compensation of employees and funding of employee pension plans except
where the failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect.

                  8.15.    Intentionally Omitted.
                           ---------------------

                  8.16.    Delivery of Documents. Notify Lender if any proceeds
of Receivables shall include, or any of the Receivables shall be evidenced by,
notes, trade acceptances or instruments or documents, or if any Inventory is
covered by documents of title or chattel paper, whether or not negotiable, and

                                       22
<PAGE>

if required by Lender, in order to perfect its security interest in and to such
Property or, after the occurrence and during the continuance of an Event of
Default and in connection with the exercise of the rights and remedies of Lender
pursuant to the Loan Documents or applicable law, to realize the full value of
such Property, promptly deliver them to Lender appropriately endorsed. Borrower
waives protest regardless of the form of the endorsement. If Borrower fails to
endorse any instrument or document, Lender is authorized to endorse it on
Borrower's behalf.

                  8.17.    Securities and Exchange Commission. File any and all
reports required to be filed with the Securities and Exchange Commission under
the Securities Act of 1933 or the Securities and Exchange Act of 1934 as amended
as and when due (after taking into account such extensions as shall be available
under such laws).

                  8.18.    Inactive Affiliates. Promptly notify Lender in
writing if Aetna Handbags of Haiti S.A., Bonlyn Taiwan Co. Ltd. and/or
Cosmopolitan of Haiti S.A. actively commence doing business. If any such entity
commences actively conducting business, Borrower shall cause such entity to
grant Lender a perfected security interest in all the tangible and intangible
assets of such entity and to execute and deliver to Lender a guaranty and
security agreement in the form executed by the Guarantors and such other
documents as Lender may reasonably request.

                  8.19.    Insurance on Guarantors' Property. Cause each
Guarantor to safeguard and protect all of its Property, used in the conduct of
its business and keep all of its Property insured with insurance companies
licensed to do business in the states where the Property is located against loss
or damage by fire or other risk under extended coverage endorsement and against
theft, burglary, and pilferage together with such other hazards as Lender may
from time to time reasonably request, in amounts usually carried on similar
Property by similar companies. All insurance proceeds received by Lender shall
be retained by Lender and shall immediately be applied to the payment of such
portion of the Obligations as Lender may determine in Lender's sole discretion;
provided, that if no Obligations shall then be outstanding, Lender shall, within
three (3) Banking Days, deliver such proceeds, in kind, to Borrower on behalf of
the Guarantor incurring the particular insured loss. Borrower shall cause each
Guarantor to promptly notify Lender of any event or occurrence causing a
material loss or a material decline in the value of Guarantor's Property or the
existence of an event justifying a material claim under any insurance and the
estimated amount thereof.

                                       23
<PAGE>

         9.       NEGATIVE COVENANTS. So long as Borrower shall have any
Obligation to Lender under this Agreement and unless Lender has first consented
thereto in an Authenticated Record, Borrower shall not:

                  9.1.     Indebtedness. Create, incur, assume or suffer to
exist, voluntarily or involuntarily, any Indebtedness, except (i) Obligations to
Lender, (ii) trade debt incurred in the ordinary course of Borrower's business;
(iii) purchase money financing and equipment leases for new equipment which
together with all purchase money financing and equipment leases for new
equipment of all Guarantors does not exceed in the aggregate $100,000.00 in any
Fiscal Year; and (iv) existing Indebtedness described on Schedule 7.18.

                  9.2.     Mergers; Consolidations; Acquisitions. Enter into any
merger, consolidation, reorganization or recapitalization with any other Person
other than a Guarantor, or acquire all or any substantial part of the Properties
of any Person except (i) a Guarantor, or (ii) where the cost of any such
merger(s), consolidation(s) or acquisition(s) in any Fiscal Year does not exceed
$1,000,000.00 in the aggregate and Borrower is the surviving entity; or take any
steps in contemplation of dissolution or liquidation; except for Guarantors and
other subsidiaries of Borrower who shall become Guarantors and who shall grant
Lender a security interest in all of its assets, conduct any part of its
business through any corporate subsidiary, unincorporated association or other
Person other than for independent sales representatives and agents and other
similar Persons engaged by Borrower in the ordinary course of business, or other
than upon not less than thirty (30) days' written notice to Lender and, further
provided such Person becomes a Guarantor and provides Lender with a security
interest in all of its assets; acquire the stock or assets of any Person,
whether by merger, consolidation, purchase of stock or otherwise where the cost
of any such merger(s), consolidation(s) or acquisition(s) in any Fiscal Year
does not exceed $1,000,000.00 in the aggregate.

                  9.3.     Sale or Disposition. Sell or dispose of all or any
Properties or grant any Person an option to acquire any such Property, provided,
however, that the foregoing shall not prohibit sales of Inventory in the
ordinary course of Borrower's business, or the sale of obsolete, worn out
Property or Property no longer used in the ordinary course of Borrower's
business.

                                       24
<PAGE>

                  9.4.     Defaults. Permit the landlord of the leased premises
of Topsville, Inc. located in Medlay, Florida, or any other landlord of any
other premises leased by Borrower or any Guarantor, to declare a default under
any lease with respect to such leased premises while Inventory of Borrower or
any Guarantor is stored at such leased premises, which default remains uncured
after any stated cure period or for a period in excess of thirty (30) days from
its occurrence, whichever is less, unless such default is being contested by
Borrower in good faith (and by appropriate proceedings if such proceedings are
required to make a good faith contest) and such good faith contest is being
diligently conducted.

                  9.5.     Limitations on Liens. Suffer any lien, encumbrance,
mortgage or security interest on any of its Property, except (i) purchase money
liens on new equipment securing not more than $100,000.00 in the aggregate in
any Fiscal Year less the aggregate amount of purchase money financing secured by
liens, encumbrance, mortgage or liens on any Property of any Guarantor; (ii)
liens for taxes, assessments and other governmental charges not yet due and
payable or which are being contested as contemplated by this Agreement and for
which adequate reserves have been established; (iii) liens of lessors,
landlords, and carriers, vendors, warehousemen, mechanics, laborers, repairmen,
materialmen and the like incurred in the ordinary course of business for sums
not yet due and payable or which are being contested as contemplated by this
Agreement and which, individually or in the aggregate, are not material; (iv)
liens incurred or deposits made in the ordinary course of business (1) in
connection with workers' compensation, unemployment insurance and other types of
social security, (2) to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, performance bonds, purchase,
construction or sales contracts and similar obligations, in each case to the
extent not incurred or made in connection with the borrowing of money, which
individually or in the aggregate, are not material; (v) other deposits made to
secure liability to insurance carriers under insurance arrangements; (vi) any
attachment or judgment lien, unless the judgment it secures is not, within
thirty (30) days discharged or appealed; (vii) as to real property owned by
Borrower, leases or subleases granted to others, easements, rights-of-way,
restrictions, and other similar charges and encumbrances granted, entered into
or created in the ordinary course of business and which do not, individually or
in the aggregate, present a reasonable, likelihood of a Material Adverse Effect;
and (viii) such liens as appear on Schedule 5.17 attached hereto, if any.

                                       25
<PAGE>

                  9.6.     Distributions. Make any capital distribution in
Property or return of capital, or purchase or redeem any of its stock or other
securities, or retire any of its stock, or take any action which would have an
effect equivalent to any of the foregoing provided, however, that so long as no
Event of Default shall have occurred and be continuing, Borrower may purchase or
redeem its stock or other securities or retire its stock up to an aggregate
amount of $1,000,000.00 during the term of this credit facility.

                  9.7.     Borrower's Name and Offices. Transfer Borrower's
chief executive office or change its organizational name or office where it
maintains its records (including computer printouts and programs) with respect
to Receivables or any other Collateral, except on not less than thirty (30)
days' prior written notice to Lender.

                  9.8.     Fiscal Year. Change its Fiscal Year except on not
less than thirty (30) days' prior written notice to Lender.

                  9.9.     Change of Management. Promptly notify Lender by an
Authenticated Record, if the chief financial officer is other than Anthony
Christon or the president is other than Robert Chestnov.

                  9.10.    Guaranties; Contingent Liabilities. Assume,
guarantee, endorse, contingently agree to purchase or otherwise become liable
upon the obligation of any Person other than a Guarantor, except by the
endorsement of negotiable instruments for deposit or collection or similar
transactions in its ordinary course of business as currently conducted.

                  9.11.    Removal of Collateral. Remove, or cause or permit to
be removed, any of the Collateral or other Property from the premises where such
Collateral or Property is currently located and as set forth on Schedule 5.14,
5.15 or 5.16 of this Agreement, except on not less than thirty (30) days' prior
written notice to Lender and except for sales of Inventory in the ordinary
course of business.

                  9.12.    Transfer of Notes or Accounts. Sell, assign,
transfer, discount or otherwise dispose of any Receivables or any promissory
note or other instrument payable to it with or without recourse except in the
ordinary course of business.

                  9.13.    Settlements. Compromise, settle or adjust any claim
relating to any Receivable in excess of $350,000.00.

                  9.14.    Change of Business. Cause or permit a material change
in the nature of its business as conducted on the date of this Agreement.

                                       26
<PAGE>

                  9.15.    Change of Accounting Practices. Change its present
accounting principles or practices in any respect, except, upon notice to Lender
in a Record, as may be required or by changes in, or permitted by GAAP.

                  9.16.    Inconsistent Agreement. Enter into any agreement
containing any provision which would be violated by the performance of
Borrower's Obligations or other obligations under this Agreement or any other
Loan Document if the result thereof would, individually or in the aggregate, be
a Material Adverse Effect.

                  9.17.    Loan or Advances. Make any loans or advances to any
Person other than loans and advances to employees incurred in the ordinary
course of business not in excess of $100,000.00 in the aggregate at any one time
outstanding, and other than extensions of trade credit or similar advances to
third parties in the ordinary course of business.

                  9.18.    Investments. Make any investment in any Person
including, without limitation, in any Affiliates or form any Affiliates or
subsidiaries not existing on the date hereof, except (a) as permitted by
Sections 9.2. and 9.6 and the other sections of this Agreement, and (b)
investments in cash and cash equivalents, and, to the extent not included in the
foregoing, the following: (i) direct obligations of the United States or any
agency thereof, (ii) commercial paper of a domestic issuer rated highest by one
of the major rating agencies, and (iii) stock, obligations and securities
received in the settlement of debts created in the ordinary course of business
not in excess of $100,000.00 in the aggregate at any one time outstanding.

                  9.19.    Effective Tangible Net Worth. Permit Borrower's
Effective Tangible Net Worth to be less than the amounts set forth below, tested
quarterly, during the periods set forth below:

                     Amount                       Time Period
                     ------                       -----------

                  10,500,000.00           Fiscal Year ending June 2002

                  11,000,000.00           Fiscal Year ending June 2003

                  12,000,000.00           Fiscal Year ending June 2004
                  -------------           ----------------------------

                                       27
<PAGE>

         10.      CONDITIONS TO ADVANCES.
                  ----------------------

                  10.1.    Lender's Right to Take Certain Actions. Lender's
obligation to make any Advance is subject to the condition that, as of the date
of the Advance, no Event of Default shall have occurred and be continuing and
that the representations and warranties set forth in Article 5 of this Agreement
and the representations and covenants set forth in the other Loan Documents
continue to be true and complete in all material respects (provided, that as to
representations and warranties that relate to a particular time or date, such
representations and warranties shall continue to be true and correct in all
material respects as of such particular time or date). Borrower's acceptance of
each Advance under this Agreement shall constitute a confirmation of the
foregoing. If requested by Lender, Borrower shall further confirm such matters
by delivery of a Record dated the day of the Advance and signed by an authorized
officer of Borrower.

         11.      TERM. Unless sooner terminated by Lender pursuant to the terms
of this Agreement, the period during which the Revolving Loan shall be available
shall initially be a period commencing on the date hereof and concluding on the
Termination Date.

         12.      EVENTS OF DEFAULT.
                  -----------------

                  12.1.    Defaults. Upon the happening of any of the following
events (individually, an "Event of Default," collectively, "Events of Default"):

                           (a)      if Borrower shall fail to make any payment
when due on any Obligation under this Agreement or any other Loan Document and
such failure shall continue for a period of five (5) days; or

                           (b)      if Borrower shall fail to maintain the
insurance required by Section 8.6 or Section 8.19 of this Agreement; or

                           (c)      if Borrower shall fail to comply with any
term, condition, covenant or warranty of or in this Agreement other than the
failure to maintain insurance in compliance with Section 8.6 and Section 8.19 of
this Agreement, and such failure continues for a period in excess of fifteen
(15) days after notice thereof is given by Lender to Borrower; or

                           (d)      if Borrower shall fail to comply with any
term, condition, covenant, warranty or representation contained in any other
agreement between Lender and Borrower executed and/or delivered in connection
with the mortgage loan from the Lender to Borrower in original principal amount
of $3,250,000.00 and the continuance of such failure beyond any applicable grace
and/or notice period; or

                                       28
<PAGE>

                           (e)      if Borrower shall cease to be Solvent, make
an assignment for the benefit of its creditors, call a meeting of its creditors
to obtain any general financial accommodation, suspend business or if any case
under any provision of the Bankruptcy Code including provisions for
reorganizations, shall be commenced by or against Borrower (and if commenced
against Borrower, such case shall not have been discharged or dismissed within
forty-five (45) days of its commencement) or if a receiver, trustee or
equivalent officer shall be appointed for all or any of the Properties of
Borrower; or

                           (f)      if any statement or representation contained
in any financial statement or certificate delivered by Borrower to Lender shall
be false, in any material respect, when made; or

                           (g)      if any federal or state tax lien is filed of
record against Borrower or any Guarantor(s), if any, and is not bonded or
discharged within sixty (60) days of filing, unless such lien is being contested
by Borrower in good faith and, if necessary, by appropriate proceedings
diligently conducted, or appropriate reserves therefore have been established
and which, individually or in the aggregate, are not material; or

                           (h)      intentionally omitted; or

                           (i)      if a judgment shall be entered against
Borrower in any action or proceeding and shall not be stayed, vacated, bonded,
paid or discharged within thirty (30) days of entry, except a judgment where the
uninsured portion of the claim together with the uninsured portion of all
judgments against all Guarantors is less than $100,000.00 in the aggregate and
the insurance companies has accepted liability for the insured portion of such
judgments in writing; or

                           (j)      if any obligation of Borrower in respect of
any Indebtedness (other than Indebtedness to Lender) in an amount in excess of
$500,000.00 shall be declared to be or shall become due and payable prior to its
stated maturity; or

                           (k)      upon the happening of any Reportable Event
which constitutes grounds for the termination of any Plan, or if a trustee shall
be appointed by an appropriate United States District Court or other court or
administrative tribunal to administer any Plan, or if the Pension Benefit
Guaranty Corporation shall institute proceedings to terminate any Plan or to
appoint a trustee to administer any Plan, and, in each case, such event,
individually or in the aggregate, would result in a Material Adverse Effect; or

                           (l)      upon the occurrence and continuance of any
Material Adverse Effect which impairs Lender's security, increases Lender's
risks; or impairs Borrower's ability to perform under this Agreement or under
the other Loan Documents; or

                                       29
<PAGE>

                           (m)      upon the happening of any of the events
described in Subsections 12.1 (d), (e), (f), (g), (h), (i) or (j) with respect
to any Guarantor, if any, or if any such Guarantor purports to terminate its
guaranty or upon the death of a Guarantor, if any, that is a natural person, if
any.

                  Then, and in any such event, Lender may terminate this
Agreement without prior notice or demand to Borrower or may demand payment in
full of all Obligations (whether otherwise then payable on demand or not)
without terminating this Agreement and shall, in any event, be under no further
responsibility to extend any credit or afford any financial accommodation to
Borrower, whether under this Agreement or otherwise.

                  12.2.    Obligations Immediately Due. Upon the Termination
Date for any reason, all of Borrower's Obligations to Lender including, but not
limited to, the Loans shall immediately become due and payable without further
notice or demand.

                  12.3.    Continuation of Security Interests. Notwithstanding
any termination, until all Obligations of Borrower shall have been fully paid
and satisfied, Lender shall retain all security in and title to all existing and
future Receivables, General Intangibles, Inventory, Equipment, Fixtures,
Investment Property, and other Collateral held by Lender under the General
Security Agreement or under any other Loan Document.

         13.      REMEDIES OF LENDER. Upon the occurrence and during the
continuance of any Event of Default or upon any termination of this Agreement,
then Lender shall have, in addition to all of its other rights under this
Agreement all of the rights and remedies provided in the General Security
Agreement.

         14.      GENERAL PROVISIONS.
                  ------------------

                  14.1.    Rights Cumulative. Lender's rights and remedies under
this Agreement shall be cumulative and non-exclusive of any other rights or
remedies which Lender may have under any other agreement or instrument, by
operation of law or otherwise.

                  14.2.    Successors and Assigns. This Agreement is entered
into for the benefit of the parties hereto and their successors and assigns. It
shall be binding upon and shall inure to the benefit of the parties, their
successors and assigns. Lender shall have the right, without the necessity of

                                       30
<PAGE>

any further consent or authorization by Borrower, to sell, assign, securitize or
grant participation in all, or a portion of, Lender's interest in the Loans, to
other financial institutions of the Lender's choice and on such terms as are
acceptable to Lender in its sole discretion.

                  14.3.    Notice. Wherever this Agreement provides for notice
to any party (except as expressly provided to the contrary), it shall be given
by messenger, facsimile, certified U.S. mail with return receipt requested, or
nationally recognized overnight courier with receipt requested, effective when
either received or receipt rejected by the party to whom addressed, and shall be
addressed as follows, or to such other address as the party affected may
hereafter designate:

                  If to Lender:                  Hudson United Bank
                                                 530 High Mountain Road
                                                 North Haledon, New Jersey 07508
                                                 Attention: David Yanagisawa
                                                 Tel: (973) 636-6024
                                                 Fax: (973) 636-6071

                  With a copy to:                Poff & Bowman LLC
                                                 1600 Route 208 North
                                                 Hawthorne, New Jersey 07507
                                                 Attention: Clinton A. Poff
                                                 Tel: (973) 636-9770
                                                 Fax: (973) 636-9777

                  If to Borrower:                Jaclyn, Inc.
                                                 635 59th Street
                                                 West New York, New Jersey 07093
                                                 Attn:  Robert Chestnov,
                                                        President
                                                 Attn:  Anthony Christon,
                                                        Chief Financial Officer
                                                 Tel: (201) 869-9400
                                                 Fax: (201) 295-8891

                  With a copy to:                William D. Freedman, Esq.
                                                 Jenkens & Gilchrist Parker
                                                 Chapin LLP
                                                 The Chrysler Building
                                                 405 Lexington Avenue
                                                 New York, New York 10174
                                                 Tel: (212) 704-6193
                                                 Fax: (212) 704-6288

                                       31
<PAGE>

                  14.4.    Strict Performance. The failure, at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement shall not waive, affect or diminish any right of Lender thereafter to
demand strict compliance and performance therewith. Any suspension or waiver by
Lender of any Default or Event of Default by Borrower under this Agreement or
any other Loan Document shall not suspend, waive or affect any other Default or
Event of Default by Borrower under this Agreement or any other Loan Document,
whether the same is prior or subsequent thereto and whether of the same or a
different type.

                  14.5.    Waiver. Borrower waives presentment, protest, notice
of dishonor and notice of protest upon any instrument on which it may be liable
to Lender as maker, endorser, guarantor or otherwise.

                  14.6.    Construction of Agreement. The parties hereto agree
that the terms and language of this Agreement were the result of negotiations
between the parties, and, as a result, there shall be no presumption that any
ambiguities in this Agreement shall be resolved against either party. Any
controversy over the construction of this Agreement shall be decided mutually
without regard to events of authorship or negotiation.

                  14.7.    Expenses. If, at any time or times prior or
subsequent to the date hereof, regardless of whether or not a Default or an
Event of Default then exists or any of the transactions contemplated under this
Agreement are concluded, Lender employs counsel for advice or other
representation, or incurs legal expenses, or consulting fees and expenses, or
other costs or out-of-pocket expenses in connection with: (A) the negotiation
and preparation of this Agreement or any other Loan Document, or any amendment
of or modification of this Agreement or any other Loan Document; (B) the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby; (C) periodic audits and appraisals
performed by Lender; (D) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Lender, Borrower or any other Person) in any way
relating to the Collateral, this Agreement or any other Loan Document or
Borrower's affairs; (E) the perfection of any lien on the Collateral; (F) any
attempt to enforce any rights or remedies of Lender against Borrower or any
other Person which may be obligated to Lender by virtue of this Agreement or any

                                       32
<PAGE>

other Loan Document including, without limitation, the Account Debtors; or (G)
any attempt to inspect, verify, protect, preserve, restore, collect, sell,
liquidate or otherwise dispose of or realize upon the Collateral; then, in any
such event, the reasonable attorneys' fees and expenses arising from such
services and all reasonable expenses, costs, charges and other fees of such
counsel of Lender or relating to any of the events or actions described in this
Section 14.7 shall be payable by Borrower to Lender, and shall be additional
Obligations under this Agreement secured by the Collateral. Additionally, if any
taxes (excluding taxes imposed upon or measured by the net income of Lender, but
including any intangibles tax, stamp tax or recording tax) shall be payable on
account of the execution or delivery of this Agreement, or the execution,
delivery, issuance or recording of any other Loan Document, or the creation of
any of the Obligations under this Agreement, by reason of any existing or
hereafter enacted federal or state statute, Borrower will pay (or will promptly
reimburse Lender for the payment of) all such taxes including, but not limited
to, any interest and penalties thereon, and will indemnify, defend and hold
Lender harmless from and against any liability in connection therewith. Borrower
shall also reimburse Lender for all other reasonable expenses incurred by Lender
in connection with the transactions contemplated under this Agreement or the
other Loan Documents.

                  14.8.    Reimbursements Charged to Revolving Loan. With
respect to any amount advanced by Lender and required to be reimbursed by
Borrower pursuant to the foregoing provisions of Section 14.7, it is hereby
agreed that Lender may charge any such amount to Borrowers' Revolving Loan on
the dates such reimbursement is made. Borrower's obligations under Section 14.7
shall survive termination of the other provisions of this Agreement.

                  14.9.    Waiver of Right to Jury Trial.
                           -----------------------------

                           A.       Borrower and Lender recognize that in
matters related to the Loans and this Agreement, and as it may be subsequently
modified and/or amended, any such party may be entitled to a trial in which
matters of fact are determined by a jury (as opposed to a trial in which such
matters are determined by a federal or state judge). By execution of this
Agreement, Lender and Borrower will give up their respective right to a trial by
jury. Borrower and Lender each hereby expressly acknowledge that this waiver is
entered into to avoid delays, minimize trial expenses, and streamline the legal
proceedings in order to accomplish a quick resolution of claims arising under or
in connection with the Note and this Agreement.

                                       33
<PAGE>

                           B.       WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, BORROWER AND LENDER EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVES ANY RIGHT THAT BORROWER OR LENDER MAY HAVE TO A TRIAL
BY JURY IN RESPECT TO ANY LITIGATION, DIRECTLY OR INDIRECTLY, AT ANY TIME
ARISING OUT OF, UNDER, OR IN CONNECTION WITH THE LOAN, THIS AGREEMENT, OR ANY
TRANSACTION CONTEMPLATED THEREBY OR HEREBY, BEFORE OR AFTER MATURITY.

                           C.       CERTIFICATIONS. BORROWER HEREBY CERTIFIES
THAT NEITHER ANY REPRESENTATIVE NOR AGENT OF LENDER NOR LENDER'S COUNSEL HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT LENDER WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. BORROWER ACKNOWLEDGES
THAT LENDER HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATION HEREIN.

                  14.10.   Indemnification by Borrower/Waiver of Claims.
Borrower hereby covenants and agrees to indemnify, defend (with counsel selected
by Lender) and hold harmless Lender and its officers, partners, employees,
consultants and agents from and against any and all claims, damages,
liabilities, costs and expenses (including, without limitation, the actual fees
and expenses of counsel) which may be incurred by or asserted against Lender or
any such other Person in connection with:

                           (a)      any investigation, action or proceeding
arising out of or in any way relating to this Agreement, any of the Loans, any
of the other Loan Documents, any other agreement relating to any of the
Obligations, any of the Collateral, or any act or omission relating to any of
the foregoing; or

                           (b)      any taxes, liabilities, claims or damages
relating to the Collateral or Lender's liens thereon; or

                           (c)      the correctness, validity or genuineness of
any instrument or document that may be released or endorsed to Borrower by
Lender (which shall automatically be deemed to be without recourse to Lender in
any event), or the existence, character, quantity, quality, condition, value or
delivery of any goods purporting to be represented by any such documents; or

                           (d)      any broker's commission, finder's fee or
similar charge or fee in connection with the Loans and the transactions
contemplated in this Agreement.

                                       34
<PAGE>

                  14.11.   Savings Clause for Indemnification. To the extent
that the undertaking to indemnify, pay and hold harmless set forth in Section
14.10 above may be unenforceable because it is violative of any law or public
policy, Borrower shall contribute the maximum portion which it is permitted to
pay and satisfy under applicable law to the payment and satisfaction of all
matters referred to under Section 14.10.

                  14.12.   Waiver. To the extent permitted by applicable law, no
claim may be made by Borrower or any other Person against Lender or any of its
Affiliates, partners, officers, employees, agents, attorneys or consultants for
any special, indirect, consequential or punitive damages in respect of any claim
for breach of contract, tort or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement or the other Loan
Documents or any act, omission or event occurring in connection therewith; and
Borrower hereby waives, releases and agrees not to sue upon any claim for any
such damages, whether or not accrued and whether or not known or suspected to
exist in its favor. Neither Lender nor any of its Affiliates, partners,
officers, employees, agents, attorneys or consultants shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
this Agreement or the transactions contemplated hereby, except for its or their
own gross negligence or willful misconduct.

                  14.13.   Entire Agreement; Amendments; Lender's Consent. This
Agreement (including the Exhibits and Schedules thereto) and the other Loan
Documents supersede, with respect to their subject matter, all prior and
contemporaneous agreements, understandings, inducements or conditions between
the respective parties, whether express or implied, oral or written. No
amendment or waiver of any provision of this Agreement or any other Loan
Document, nor consent to any departure by Borrower therefrom, shall in any event
be effective unless the same shall be in a Record Authenticated by Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.

                  14.14.   Cross Default. Borrower hereby agrees that all the
agreements between Borrower and Lender in connection with the mortgage loan from
Lender to Borrower in the original principal amount of $3,250,000.00 are hereby
amended so that an Event of Default under this Agreement is a default under all
such other agreements and an Event of Default under any one of the other
agreements is an Event of Default under this Agreement.

                  14.15.   Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.

                                       35
<PAGE>

                  14.16.   Severability of Provisions. Any provision of this
Agreement or any of the other Loan Documents that is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or the other Loan Documents or affecting the
validity or enforceability of such provision in any other jurisdiction.

                  14.17.   Table of Contents; Headings. The table of contents
and headings preceding the text of this Agreement are inserted solely for
convenience of reference and shall not constitute a part of this Agreement or
affect its meaning, construction or effect.

                  14.18.   Exhibits and Schedules. All of the Exhibits and
Schedules to this Agreement are hereby incorporated by reference herein and made
a part hereof.

         15.      GOVERNING LAW; CONSENT TO JURISDICTION.
                  --------------------------------------

                  (A)      THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW
JERSEY, AND MADE BY LENDER AND ACCEPTED BY BORROWER IN THE STATE OF NEW JERSEY,
AND THE PROCEEDS OF THE REVOLVING NOTE DELIVERED PURSUANT THERETO WERE DISBURSED
FROM THE STATE OF NEW JERSEY, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREIN,
AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
JERSEY APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE AND ANY
APPLICABLE LAW OF THE UNITED STATES OF AMERICA, IT BEING UNDERSTOOD THAT, TO THE
FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW
JERSEY SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF ALL LOAN DOCUMENTS
AND ALL OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO
THE FULLEST EXTENT PERMITTED BY LAW, LENDER AND BORROWER HEREBY UNCONDITIONALLY
AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION
GOVERNS THIS AGREEMENT AND THE REVOLVING NOTE, AND THIS AGREEMENT AND THE
REVOLVING NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW JERSEY.

                  (B)      ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER
OR BORROWER, ANY GUARANTOR OR OTHER PARTY TO THIS TRANSACTION ARISING OUT OF OR
RELATING TO THIS AGREEMENT SHALL BE INSTITUTED IN THE SOLE OPTION OF LENDER IN

                                       36
<PAGE>

ANY FEDERAL OR STATE COURT LOCATED IN NEW JERSEY, AND LENDER AND BORROWER WAIVE
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING, AND LENDER AND BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.
BORROWER SHALL DESIGNATE FROM TIME TO TIME AN AUTHORIZED AGENT HAVING AN OFFICE
IN THE STATE OF NEW JERSEY TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF
ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING
AND AGREES THAT SERVICE OF PROCESS UPON SUCH AGENT AT SUCH ADDRESS AND WRITTEN
NOTICE OF SUCH SERVICE ON SUCH BORROWER MAILED OR DELIVERED TO SUCH BORROWER IN
THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON SUCH BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE
OF NEW JERSEY. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGE OF
ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO
TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW JERSEY (WHICH
OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS), AND (III)
SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO
HAVE AN OFFICE IN NEW JERSEY OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
BORROWER REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS CONSENT TO
JURISDICTION PROVISION WITH ITS LEGAL COUNSEL, AND HAS MADE THIS WAIVER
KNOWINGLY AND VOLUNTARILY.


                                       37
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunto duly authorized on the day and year first
above written.

WITNESS:                               HUDSON UNITED BANK


/s/ CLINTON A. POFF                    By: /s/ DAVID S. YANAGISAWA
- ------------------------------------       -------------------------------------
Clinton A. Poff                            David S. Yanagisawa
                                           Senior Vice President



WITNESS:                               JACLYN, INC.


/s/ WILLIAM D. FREEDMAN                By: /s/ ANTHONY CHRISTON
- ------------------------------------       -------------------------------------
William D. Freedman                        Name:  Anthony Christon
                                           Title: Chief Financial Officer
                                                  & Treasurer


                                       38
<PAGE>

                                    EXHIBIT A
                                    ---------

                                 REVOLVING NOTE




                                       39
<PAGE>

                                    EXHIBIT B
                                    ---------

                           FORM OF NOTICE OF BORROWING


Hudson United Bank
1000 MacArthur Boulevard
Mahwah, New Jersey 07430

Re: Request for loan/advance


         The undersigned requests a $__________ loan advance pursuant to Section
2.1 of the Revolving Loan Agreement dated December 23, 2002 between Hudson
United Bank and the undersigned (the "Loan Agreement"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings given to them in
the Loan Agreement.

         Please deposit the requested loan advance to our operating account
number _________. Please call the undersigned to confirm receipt of this fax at
____________.

         Thank you.


                                       JACLYN, INC.


                                       By:______________________________________
                                          (title)


                                       40
<PAGE>

                                    EXHIBIT C
                                    ---------

                           BORROWING BASE CERTIFICATE



                                       41
<PAGE>

                                    EXHIBIT D
                                    ---------

                             COMPLIANCE CERTIFICATE

Jaclyn, Inc. ("Borrower") hereby certifies to HUDSON UNITED BANK in accordance
with the provisions of a Revolving Loan Agreement between Borrower and Lender
dated the 23rd day of December 2002, as the same from time to time may be
amended, supplemented or otherwise modified (the "Agreement") that:

         A.       General

                  (i)      Borrower has complied in all material respects with
all the terms, covenants and conditions of the Agreement which are binding upon
them;

                  (ii)     no Event of Default as defined in the Agreement has
occurred and is continuing;

                  (iii)    the representations and warranties contained in the
Agreement are true in all material respects with the same effect as though such
representations and warranties had been made on the date hereof except for those
representations and warranties that relate to a particular time or date, which
representations and warranties are true and correct in all material respects as
of such particular time or date; and

         B.       Financial Covenants

                  As of the date hereof or, from such period as may be
designated below, the computations, ratios and calculations as set forth below,
are true and correct:

                  (a)      Effective Tangible Net Worth

                  WITNESS the signature of the undersigned duly authorized
officer of Borrower on _____________, 20__.



                                       JACLYN, INC.

                                       By_______________________________________

                                       Name: ___________________________________

                                       Title:___________________________________


                                       42
<PAGE>

                                  Schedule 5.2

                      Other Corporate and Fictitious Names
                      ------------------------------------

                                      None



                                       43
<PAGE>

                                  Schedule 5.3

                           Subsidiaries and Affiliates
                           ---------------------------

         1.       A list of the subsidiaries of Borrower is attached hereto,
which list is incorporated by reference herein and made a part hereof.

         2.       Abe Ginsburg, Chairman of the Executive Committee of Borrower,
Allan Ginsburg, Chairman of Borrower, Robert Chestnov, President of Borrower,
and Howard Ginsburg, Vice Chairman of Borrower, certain other family members,
trusts and custodianships for the benefit of such individuals and family
members, and Borrower are parties to an amended and restated stockholders
agreement dated as of July 30, 1996 (the "Stockholders Agreement"). The
Stockholders Agreement, among other things, entitles Abe Ginsburg, Allan
Ginsburg, Robert Chestnov and Howard Ginsburg, in their capacity as a
stockholders' committee (in such capacity, collectively, the "Stockholders
Committee"), acting by the vote of at least two-thirds, or by the unanimous
written consent, of the members of the Stockholders Committee, for a period of
ten years from the date of the Stockholders Agreement, to direct the voting of
the shares of Common Stock, $1.00 par value per share (the "Common Stock"), of
Borrower with respect to which the signatory stockholders have or share, or may
hereafter have or share, voting power with respect to all matters submitted to
stockholders of the Company at any annual or special meeting of stockholders of
the Company or pursuant to a written consent in lieu thereof. At October 21,
2002, the Stockholders Committee was entitled, pursuant to the Stockholders
Agreement, to direct the vote as to 1,003,820 shares of Common Stock (39.2%).
Borrower does not consider the members of the Stockholders Committee to be
Affiliates for purposes of the Agreement and shall not be considered employees
for purposes of Section 9.17.

         3.       Borrower does not consider the directors or officers of
Borrower to be Affiliates of Borrower for purposes of the Agreement. The names
of each such director and officer has previously been furnished in writing to
Lender.


                                       44
<PAGE>

                            SUBSIDIARIES OF BORROWER
                            ------------------------

                                                           Percentage of Voting
                                    Jurisdiction of         Securities Owned by
Name                                Incorporation             the Registrant
- ----                                -------------             --------------

Bonnie International (Hong
   Kong) Ltd.                       Hong Kong                       100%

Aetna Handbags of Haiti, S.A.       Haiti                           100%

Bonlyn Taiwan Co., Ltd.             Taiwan                          100%

Cosmopolitan of Haiti, S.A.         Haiti                           100%

JLN, Inc. (1)                       Delaware                        100%

The Bag Factory Inc. (2)            New Jersey                      100%

Investments (JLN) Ltd.              Delaware                        100%

Max N. Nitzberg, Inc.               Pennsylvania                    100%

Topsville, Inc.                     Florida                         100%(3)

Josell Global Sourcing Ltd.         Hong Kong                       100%(4)

- -----------------------------
(1)  In the past, this entity also did business under the name "Marilyn USA."
     Such name is not presently used.
(2)  In the past, this entity also did business under the name "Satchels." Such
     name is not presently used.
(3)  Owned 100% by Max N. Nitzberg, Inc. which is a wholly-owned direct
     subsidiary of the Registrant.
(4)  Owned 100% by Topsville, Inc., which is a wholly-owned indirect subsidiary
     of the Registrant.

                                       45
<PAGE>

                                  Schedule 5.8

                                   Real Estate
                                   -----------

1.       Owned Facilities:
         ----------------

                  5801 Jefferson Street
                  West New York, NJ 07093
                  (also known as:
                  635 59th Street
                  West New York, NJ 07093)

         Owned within the last 5 years:
         ------------------------------

                  111 North Main Street
                  Ferris, Texas 75125
                  (by JLN, Inc.)

2.       Leased Properties:
         -----------------

                  1375 Broadway (5th  Floor)
                  New York, NY 10018
                  (Banner New York division of Jaclyn, Inc.)
                  Landlord Name and Address: Statecourt Enterprises, Inc.
                                             c/o Williams Real Estate Co. Inc.
                                             380 Madison Avenue
                                             New York, New York 10017


                                       46
<PAGE>

                  33 East 33rd Street (2nd Floor)
                  New York, NY 10016
                  (Jaclyn Apparel/Emerson Road/I. Appel division of
                  Jaclyn, Inc.)
                  Landlord Name and Address: Elias Kalimian as Trustee
                                             d/b/a/ Elk Investors
                                             641 Lexington Avenue
                                             New York, New York 10022


                  330 Fifth Ave.
                  New York, NY 10001
                  (Bonnie/Shane/ Kiddie division of Jaclyn, Inc.)
                  Landlord Name and Address: Skyler 330 LLC
                                             307 Fifth Avenue
                                             New York, New York 10001


Excluded from the foregoing list is a sourcing office of Borrower located in
Shanghai, China.

3.       Public Warehouses (finished goods shipping points)
         -------------------------------------------------

                  Integrated Distribution Systems Inc.
                  7101 N.W. 32nd Avenue
                  Miami, Florida  33147
                  Landlord Name and Address: Same as above


                  Pacific Connections
                  3600 LaSalle Street
                  Ontario, California 91761
                  Landlord Name and Address: Same as above


                  Three Star Distributors, Inc.
                  321 First Street
                  Elizabeth, New Jersey 07206
                  Landlord Name and Address: Same as above


                                       47
<PAGE>

                  Erlanger Distribution*
                  799 Palyrita Avenue
                  Riverside, California  92507
                  Landlord Name and Address: Same as above


                  Merchandise Warehouse Co., Inc.*
                  1414 South West Street
                  Indianapolis, Indiana 46206
                  Landlord Name and Address: Same as above


                  Schenker Indianapolis Warehouse
                  2375 Hadley Road
                  Plainfield, Indiana 446241
                  Landlord Name and Address: Same as above

- -------------------------------
This location has been used in the past as an outside warehouse location but is
not presently being used by Borrower as a location of its inventory or other
assets.

                                       48
<PAGE>

                                  Schedule 5.9

                  Registered Patents, Trademarks and Copyrights
                  ---------------------------------------------

         Borrower has no registered patents or copyrights. A list of the
registered trademarks and applications for registration of trademarks of
Borrower is attached hereto, which list in incorporated by reference herein and
made a part hereof.

         Borrower also uses the following tradenames: Jaclyn, Bonnie, Shane,
Aetna, Jaclyn Apparel, JLN and Banner New York. In addition, in connection with
sales of its products in the ordinary course of business, Jaclyn uses the
following names which, to its knowledge, are owned or may be used by the
following companies: Coldwater Creek, Blair, Estee Lauder, Faded Glory (Wal
Mart) and Cherokee (Target Stores).

         Borrower is a party to the license agreements listed as items 3 and 4
on Schedule 5.17.


                                       49
<PAGE>

                          JACLYN, INC. AND SUBSIDIARIES
                       REGISTERED TRADEMARKS/APPLICATIONS
                        U.S. Patent and Trademark Office
                        --------------------------------


Trademark                                  Application/Registration No.
- ---------                                  ----------------------------

111 MAIN (application)                     76/429,676 (application no.)
LINDSAY-LYN                                2,332,941
TURTLE CREEK                               2,156,659
EMERSON ROAD                               2,091,425
SUSAN GAIL                                 2,032,129
ON TOUR                                    1,990,042
REDWOOD FALLS                              2,099,782
ANDE                                       2,099,769
SMOKE VALLEY                               2,074,163
EURO TREND                                 2,062,451
SUSAN GAIL                                 1,806,109
SADDLE RIVER                               1,495,108
ANDE                                       1,480,805
SADDLE RIVER                               1,402,172
SMOKE VALLEY                               1,352,815
TRAVEL-PAK                                 1,259,427
MR. G                                        938,364
I-APPEL                                      876,584
CITY SPRITES BY JACLYN                       820,961
JACLYN U.S.A.                                784,632
SMART TIME                                   784,057
VANITY FAIR BY AETNA                         768,333
ME & COMPANY                               2,190,719
- --------------------

                                       50
<PAGE>

                                  Schedule 5.13

                                   Litigation
                                   ----------

                                      None



                                       51
<PAGE>

                                  Schedule 5.14

                  Locations of Records Relating to Receivables
                  --------------------------------------------


1.       635 59th Street
         West New York, NJ 07093

2.       11800 NW 102 Road
         Medlay, Florida 33178
         (Topsville, Inc.)


                                       52
<PAGE>

                                  Schedule 5.15

                               Inventory Locations
                               -------------------


         Reference is made to the information contained on Schedule 5.8 of these
Schedules, which information is incorporated by reference herein and made a part
hereof.


                                       53
<PAGE>

                                  Schedule 5.16

                               Equipment Locations
                               -------------------


         Reference is made to the information contained on Schedule 5.8 of these
Schedules, which information is incorporated by reference herein and made a part
hereof.


                                       54
<PAGE>

                                  Schedule 5.17

                                      Liens
                                      -----

1.       Liens in favor of Lender pursuant to the Mortgage dated August 14, 2002
between Borrower and Lender, including Uniform Commercial Code financing
statements in favor of Lender in connection therewith.

2.       Liens in favor of Fleet National Bank ("Fleet") in connection with the
Indebtedness of Borrower to Fleet which will be discharged in connection with
the closing of the Loans.

3.       Pursuant to the License Agreement dated February 12, 1999 between
Warner Bros., a division of Time Warner Entertainment Company L.P. ("Warner")
and Borrower (with regard to "Looney Tunes" cartoon characters), Borrower has
granted in favor of Warner a security interest in Borrower's inventory of
Licensed Products (as defined in such License Agreement) to secure amounts due
from Borrower to Warner under such License Agreement. Pursuant to the License
Agreement, such security interest is subordinate to any security interest that
Borrower's bank may have in Borrower's inventory.

4.       Pursuant to the License Agreement dated July 31, 2000 between Warner
and Borrower (with regard to "Harry Potter"), Borrower has granted in favor of
Warner a security interest in Borrower's inventory of Licensed Products (as
defined in such License Agreement) to secure amounts due from Borrower to Warner
under such License Agreement. Pursuant to the License Agreement, such security
interest is subordinate to any security interest that Borrower's bank may have
in Borrower's inventory.

5.       On June 18, 1996, McCrackin Industries ("McCrackin") transferred to
Borrower all right, title and interest in and to the registered trademarks
Redwood Falls, Saddle River, Smoke Valley and Ande, and certain trademark
applications relating thereto. Borrower understands that liens appear on the
official records of the United States Patent and Trademark Office reflecting the
filing, after June 18, 1996, by Finova Capital Corporation of liens against such
trademarks that purportedly were granted by McCrackin. Borrower has not granted
any such liens as to these trademarks (which are not material to the operation
of the present or the anticipated future business of Borrower).

6.       A list of additional liens is attached hereto, which list is
incorporated by reference and made a part hereof.

                                       55
<PAGE>

                                  Schedule 5.18

                                  Indebtedness
                                  ------------


1.       Indebtedness to Lender pursuant to a promissory note dated August 14,
2002 in the original principal amount of $3,250,000.

2.       Indebtedness to Fleet in connection with documentary letters of credit
issued by Fleet with an aggregate face amount not in excess of $3,000,000.


                                       56
<PAGE>
<TABLE>
<CAPTION>

                                  Schedule 5.23

                      List of Bank and Securities Accounts
                      ------------------------------------

 Account Owner                   Account Description       Account Location         Account No.
 -------------                   -------------------       ----------------         ----------
 --------------------------------------------------------------------------------------------------
<S>                              <C>                       <C>                       <C>
 Jaclyn, Inc.                    Payroll                   Fleet National Bank       0213-011-999
 --------------------------------------------------------------------------------------------------
 Jaclyn, Inc.                    Operating                 Fleet National Bank       0213-011-980
 --------------------------------------------------------------------------------------------------
 Jaclyn, Inc.                    Customs ACH               Fleet National Bank       0213-012-006
 --------------------------------------------------------------------------------------------------
 Jaclyn, Inc.                    Money Market              Fleet National Bank       2214-32-053
 --------------------------------------------------------------------------------------------------
 JLN, Inc.                       Operating                 Fleet National Bank       0213-012-022
 --------------------------------------------------------------------------------------------------
 JLN, Inc.                       Payroll                   Bank of America           0012-9075-9324
 --------------------------------------------------------------------------------------------------
 Investments (JLN) Ltd.          Operating                 Fleet National Bank       0213-012-014
 --------------------------------------------------------------------------------------------------
 Bonnie International (Hong      Operating (Hong Kong$)    Citibank                  08982953
 Kong) Ltd.
 --------------------------------------------------------------------------------------------------
 Bonnie International (Hong      Operating (US$)           Citibank                  08081727
 Kong) Ltd.
 --------------------------------------------------------------------------------------------------
 Jaclyn, Inc.                    Stock Repurchase          First Institutional       07F-428043
                                                           Securities, LLC
 --------------------------------------------------------------------------------------------------
</TABLE>

                                       57

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.FF
<SEQUENCE>4
<FILENAME>ex10_ff.txt
<DESCRIPTION>EXHIBIT 10(FF)
<TEXT>

                                  JACLYN, INC.
                  1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
                       NON-QUALIFIED STOCK OPTION CONTRACT
                       -----------------------------------


                  THIS NON-QUALIFIED STOCK OPTION CONTRACT entered into as of
the 3rd day of December 2002 between JACLYN, INC., a Delaware corporation (the
"Company"), and Richard Chestnov (the "Optionee").

                              W I T N E S S E T H:
                              - - - - - - - - - -

                  1.       The Company, in accordance with the terms and
conditions of the 1996 Non-Employee Director Stock Option Plan of the Company
(the "Plan"), grants as of December 3, 2002 o the Optionee an option to purchase
an aggregate of 2,000 shares of the Common Stock, $1.00 par value per share, of
the Company ("Common Stock"), at $3.15 per share, being 100% of the fair market
value of such shares of Common Stock on such date.

                  2.       The term of this option shall be 10 years, subject to
earlier termination as provided in the Plan. This option shall be exercisable
immediately as to 100% of the number of shares of Common Stock subject hereto;
provided, that this option shall not be exercisable at any time in an amount
less than 100 shares (or the remaining shares covered hereby if less than 100
shares).

                  3.       This option shall be exercised by giving written
notice to the Company at its principal office, presently 635 59th Street, West
New York, New Jersey 07093, Attention: Chief Financial Officer, stating that the
Optionee is exercising this option, specifying the number of shares being
purchased and accompanied by payment in full of the aggregate purchase price
therefor (a) in cash or by certified check, (b) with previously acquired shares
of Common Stock having an aggregate fair market value on the date of exercise
(determined in accordance with Article 5 of the Plan) equal to the aggregate
exercise price of all options being exercised, or (c) any combination of the
foregoing. In addition, the Optionee agrees to pay to the Company in cash, upon
demand, the amount, if any, which the Company determines is necessary to satisfy
its obligation to withhold federal, state and local income and other taxes or
other amounts incurred by reason of the grant or exercise of this option. In no
event may a fraction of a share of Common Stock be purchased hereunder.

                  4.       Notwithstanding the foregoing, and without limiting
the provisions of Article 11 of the Plan, this option shall not be exercisable
by the Optionee unless (a) a registration statement under the Securities Act of
1933, as amended (the "Securities Act") with respect to the shares of Common
Stock issuable upon the exercise of this option shall be effective and current
at the time of exercise or (b) there is an exemption from registration under the

<PAGE>

Securities Act for the issuance of such shares of Common Stock upon exercise. At
the request of the Board of Directors, the Optionee shall execute and deliver to
the Company representations and warranties, in form and substance satisfactory
to counsel to the Company, that the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the Optionee for his own account,
for investment only and not with a view to the resale or distribution thereof
within the meaning of the Securities Act. Nothing herein shall be construed so
as to obligate the Company to register the shares subject to this option under
the Securities Act.

                  5.       Nothing in the Plan or herein shall confer upon the
Optionee any right to continue as a director of the Company.

                  6.       The Company may endorse such legends upon the
certificates for shares of Common Stock issued upon exercise of this option and
may issue such "stop transfer" instructions to its transfer agent in respect of
such shares as it determines, in its discretion, to be necessary or appropriate
to prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act.

                  7.       The Company and the Optionee agree that they will
both be subject to and bound by all of the terms and conditions of the Plan, a
copy of which is attached hereto and made a part hereof. In the event the
Optionee is no longer a director of the Company or in the event of his death or
disability (as defined in the Plan), his rights hereunder shall be governed by
and be subject to the provisions of the Plan. In the event of a conflict between
the terms of this Contract and the terms of the Plan, the terms of the Plan
shall govern.

                  8.       The Optionee represents and agrees that he will
comply with all applicable laws relating to the Plan and to the grant and
exercise of this option and the disposition of the shares of Common Stock
acquired upon exercise of this option, including without limitation, federal and
state securities and "blue sky" laws.

                  9.       This option is not transferable otherwise than by
will or the laws of descent and distribution and may be exercised during the
lifetime of the Optionee only by him.

                  10.      This Contract shall be binding upon and inure to the
benefit of any successor or assign of the Company and to any heir, distributee,
executor, administrator or legal representative entitled under the Plan and by
law to the Optionee's rights hereunder.

                  11.      This Contract shall be governed by and construed in
accordance with the laws of the State of Delaware.

                                      -2-
<PAGE>

                  12.      The invalidity or illegality of any provision herein
shall not affect the validity of any other provision.

                  13.      The Optionee agrees that the Company may amend the
Plan and the options granted to the Optionee under the Plan, subject to the
limitations contained in the Plan.

                IN WITNESS WHEREOF, the parties hereto have executed this
Contract as of the day and year first above written.

                                            JACLYN, INC.


                                            By: /s/ Richard Chestnov
                                                --------------------------------

                                            Its:
                                                --------------------------------

                                            ------------------------------------
                                                Richard Chestnov, Optionee

                                            ------------------------------------

                                            ------------------------------------
                                                          Address

                                            ------------------------------------
                                               Tax Id. or Social Security No.

                                      -3-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.GG
<SEQUENCE>5
<FILENAME>ex10_gg.txt
<DESCRIPTION>EXHIBIT 10(GG)
<TEXT>

                                  JACLYN, INC.
                  1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
                       NON-QUALIFIED STOCK OPTION CONTRACT


                  THIS NON-QUALIFIED STOCK OPTION CONTRACT entered into as of
the 3rd day of December 2002 between JACLYN, INC., a Delaware corporation (the
"Company"), and Albert Safer (the "Optionee").

                              W I T N E S S E T H:
                              - - - - - - - - - -

                  1.       The Company, in accordance with the terms and
conditions of the 1996 Non-Employee Director Stock Option Plan of the Company
(the "Plan"), grants as of December 3, 2002 to the Optionee an option to
purchase an aggregate of 2,000 shares of the Common Stock, $1.00 par value per
share, of the Company ("Common Stock"), at $3.15 per share, being 100% of the
fair market value of such shares of Common Stock on such date.

                  2.       The term of this option shall be 10 years, subject to
earlier termination as provided in the Plan. This option shall be exercisable
immediately as to 100% of the number of shares of Common Stock subject hereto;
provided, that this option shall not be exercisable at any time in an amount
less than 100 shares (or the remaining shares covered hereby if less than 100
shares).

                  3.       This option shall be exercised by giving written
notice to the Company at its principal office, presently 635 59th Street, West
New York, New Jersey 07093, Attention: Chief Financial Officer, stating that the
Optionee is exercising this option, specifying the number of shares being
purchased and accompanied by payment in full of the aggregate purchase price
therefor (a) in cash or by certified check, (b) with previously acquired shares
of Common Stock having an aggregate fair market value on the date of exercise
(determined in accordance with Article 5 of the Plan) equal to the aggregate
exercise price of all options being exercised, or (c) any combination of the
foregoing. In addition, the Optionee agrees to pay to the Company in cash, upon
demand, the amount, if any, which the Company determines is necessary to satisfy
its obligation to withhold federal, state and local income and other taxes or
other amounts incurred by reason of the grant or exercise of this option. In no
event may a fraction of a share of Common Stock be purchased hereunder.

                  4.       Notwithstanding the foregoing, and without limiting
the provisions of Article 11 of the Plan, this option shall not be exercisable
by the Optionee unless (a) a registration statement under the Securities Act of
1933, as amended (the "Securities Act") with respect to the shares of Common
Stock issuable upon the exercise of this option shall be effective and current
at the time of exercise or (b) there is an exemption from registration under the

<PAGE>

Securities Act for the issuance of such shares of Common Stock upon exercise. At
the request of the Board of Directors, the Optionee shall execute and deliver to
the Company representations and warranties, in form and substance satisfactory
to counsel to the Company, that the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the Optionee for his own account,
for investment only and not with a view to the resale or distribution thereof
within the meaning of the Securities Act. Nothing herein shall be construed so
as to obligate the Company to register the shares subject to this option under
the Securities Act.

                  5.       Nothing in the Plan or herein shall confer upon the
Optionee any right to continue as a director of the Company.

                  6.       The Company may endorse such legends upon the
certificates for shares of Common Stock issued upon exercise of this option and
may issue such "stop transfer" instructions to its transfer agent in respect of
such shares as it determines, in its discretion, to be necessary or appropriate
to prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act.

                  7.       The Company and the Optionee agree that they will
both be subject to and bound by all of the terms and conditions of the Plan, a
copy of which is attached hereto and made a part hereof. In the event the
Optionee is no longer a director of the Company or in the event of his death or
disability (as defined in the Plan), his rights hereunder shall be governed by
and be subject to the provisions of the Plan. In the event of a conflict between
the terms of this Contract and the terms of the Plan, the terms of the Plan
shall govern.

                  8.       The Optionee represents and agrees that he will
comply with all applicable laws relating to the Plan and to the grant and
exercise of this option and the disposition of the shares of Common Stock
acquired upon exercise of this option, including without limitation, federal and
state securities and "blue sky" laws.

                  9.       This option is not transferable otherwise than by
will or the laws of descent and distribution and may be exercised during the
lifetime of the Optionee only by him.

                  10.      This Contract shall be binding upon and inure to the
benefit of any successor or assign of the Company and to any heir, distributee,
executor, administrator or legal representative entitled under the Plan and by
law to the Optionee's rights hereunder.

                  11.      This Contract shall be governed by and construed in
accordance with the laws of the State of Delaware.

                                      -2-
<PAGE>

                  12.      The invalidity or illegality of any provision herein
shall not affect the validity of any other provision.

                  13.      The Optionee agrees that the Company may amend the
Plan and the options granted to the Optionee under the Plan, subject to the
limitations contained in the Plan.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Contract as of the day and year first above written.

                                            JACLYN, INC.


                                            By: /s/ Albert Safer
                                                --------------------------------

                                            Its:
                                                --------------------------------

                                            ------------------------------------
                                                   Albert Safer, Optionee

                                            ------------------------------------

                                            ------------------------------------
                                                          Address

                                            ------------------------------------
                                               Tax Id. or Social Security No.

                                      -3-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.HH
<SEQUENCE>6
<FILENAME>ex10_hh.txt
<DESCRIPTION>EXHIBIT 10(HH)
<TEXT>

                                  JACLYN, INC.
                  1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
                       NON-QUALIFIED STOCK OPTION CONTRACT


                  THIS NON-QUALIFIED STOCK OPTION CONTRACT entered into as of
the 3rd day of December 2002 between JACLYN, INC., a Delaware corporation (the
"Company"), and Martin Brody (the "Optionee").

                              W I T N E S S E T H:
                              - - - - - - - - - -

                  1.       The Company, in accordance with the terms and
conditions of the 1996 Non-Employee Director Stock Option Plan of the Company
(the "Plan"), grants as of December 3, 2002 to the Optionee an option to
purchase an aggregate of 2,000 shares of the Common Stock, $1.00 par value per
share, of the Company ("Common Stock"), at $3.15 per share, being 100% of the
fair market value of such shares of Common Stock on such date.

                  2.       The term of this option shall be 10 years, subject to
earlier termination as provided in the Plan. This option shall be exercisable
immediately as to 100% of the number of shares of Common Stock subject hereto;
provided, that this option shall not be exercisable at any time in an amount
less than 100 shares (or the remaining shares covered hereby if less than 100
shares).

                  3.       This option shall be exercised by giving written
notice to the Company at its principal office, presently 635 59th Street, West
New York, New Jersey 07093, Attention: Chief Financial Officer, stating that the
Optionee is exercising this option, specifying the number of shares being
purchased and accompanied by payment in full of the aggregate purchase price
therefor (a) in cash or by certified check, (b) with previously acquired shares
of Common Stock having an aggregate fair market value on the date of exercise
(determined in accordance with Article 5 of the Plan) equal to the aggregate
exercise price of all options being exercised, or (c) any combination of the
foregoing. In addition, the Optionee agrees to pay to the Company in cash, upon
demand, the amount, if any, which the Company determines is necessary to satisfy
its obligation to withhold federal, state and local income and other taxes or
other amounts incurred by reason of the grant or exercise of this option. In no
event may a fraction of a share of Common Stock be purchased hereunder.

                  4.       Notwithstanding the foregoing, and without limiting
the provisions of Article 11 of the Plan, this option shall not be exercisable
by the Optionee unless (a) a registration statement under the Securities Act of
1933, as amended (the "Securities Act") with respect to the shares of Common
Stock issuable upon the exercise of this option shall be effective and current
at the time of exercise or (b) there is an exemption from registration under the

<PAGE>

Securities Act for the issuance of such shares of Common Stock upon exercise. At
the request of the Board of Directors, the Optionee shall execute and deliver to
the Company representations and warranties, in form and substance satisfactory
to counsel to the Company, that the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the Optionee for his own account,
for investment only and not with a view to the resale or distribution thereof
within the meaning of the Securities Act. Nothing herein shall be construed so
as to obligate the Company to register the shares subject to this option under
the Securities Act.

                  5.       Nothing in the Plan or herein shall confer upon the
Optionee any right to continue as a director of the Company.

                  6.       The Company may endorse such legends upon the
certificates for shares of Common Stock issued upon exercise of this option and
may issue such "stop transfer" instructions to its transfer agent in respect of
such shares as it determines, in its discretion, to be necessary or appropriate
to prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act.

                  7.       The Company and the Optionee agree that they will
both be subject to and bound by all of the terms and conditions of the Plan, a
copy of which is attached hereto and made a part hereof. In the event the
Optionee is no longer a director of the Company or in the event of his death or
disability (as defined in the Plan), his rights hereunder shall be governed by
and be subject to the provisions of the Plan. In the event of a conflict between
the terms of this Contract and the terms of the Plan, the terms of the Plan
shall govern.

                  8.       The Optionee represents and agrees that he will
comply with all applicable laws relating to the Plan and to the grant and
exercise of this option and the disposition of the shares of Common Stock
acquired upon exercise of this option, including without limitation, federal and
state securities and "blue sky" laws.

                  9.       This option is not transferable otherwise than by
will or the laws of descent and distribution and may be exercised during the
lifetime of the Optionee only by him.

                  10.      This Contract shall be binding upon and inure to the
benefit of any successor or assign of the Company and to any heir, distributee,
executor, administrator or legal representative entitled under the Plan and by
law to the Optionee's rights hereunder.

                  11.      This Contract shall be governed by and construed in
accordance with the laws of the State of Delaware.

                                      -2-
<PAGE>

                  12.      The invalidity or illegality of any provision herein
shall not affect the validity of any other provision.

                  13.      The Optionee agrees that the Company may amend the
Plan and the options granted to the Optionee under the Plan, subject to the
limitations contained in the Plan.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Contract as of the day and year first above written.

                                            JACLYN, INC.


                                            By: /s/ Martin Brody
                                                --------------------------------

                                            Its:
                                                --------------------------------

                                            ------------------------------------
                                                   Martin Brody, Optionee

                                            ------------------------------------

                                            ------------------------------------
                                                          Address

                                            ------------------------------------
                                               Tax Id. or Social Security No.

                                      -3-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.II
<SEQUENCE>7
<FILENAME>ex10_ii.txt
<DESCRIPTION>EXHIBIT 10(II)
<TEXT>

                                  JACLYN, INC.
                  1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
                       NON-QUALIFIED STOCK OPTION CONTRACT


                  THIS NON-QUALIFIED STOCK OPTION CONTRACT entered into as of
the 3rd day of December 2002 between JACLYN, INC., a Delaware corporation (the
"Company"), and Norman Axelrod (the "Optionee").

                              W I T N E S S E T H:
                              - - - - - - - - - -

                  1.       The Company, in accordance with the terms and
conditions of the 1996 Non-Employee Director Stock Option Plan of the Company
(the "Plan"), grants as of December 3, 2002 to the Optionee an option to
purchase an aggregate of 2,000 shares of the Common Stock, $1.00 par value per
share, of the Company ("Common Stock"), at $3.15 per share, being 100% of the
fair market value of such shares of Common Stock on such date.

                  2.       The term of this option shall be 10 years, subject to
earlier termination as provided in the Plan. This option shall be exercisable
immediately as to 100% of the number of shares of Common Stock subject hereto;
provided, that this option shall not be exercisable at any time in an amount
less than 100 shares (or the remaining shares covered hereby if less than 100
shares).

                  3.       This option shall be exercised by giving written
notice to the Company at its principal office, presently 635 59th Street, West
New York, New Jersey 07093, Attention: Chief Financial Officer, stating that the
Optionee is exercising this option, specifying the number of shares being
purchased and accompanied by payment in full of the aggregate purchase price
therefor (a) in cash or by certified check, (b) with previously acquired shares
of Common Stock having an aggregate fair market value on the date of exercise
(determined in accordance with Article 5 of the Plan) equal to the aggregate
exercise price of all options being exercised, or (c) any combination of the
foregoing. In addition, the Optionee agrees to pay to the Company in cash, upon
demand, the amount, if any, which the Company determines is necessary to satisfy
its obligation to withhold federal, state and local income and other taxes or
other amounts incurred by reason of the grant or exercise of this option. In no
event may a fraction of a share of Common Stock be purchased hereunder.

                  4.       Notwithstanding the foregoing, and without limiting
the provisions of Article 11 of the Plan, this option shall not be exercisable
by the Optionee unless (a) a registration statement under the Securities Act of
1933, as amended (the "Securities Act") with respect to the shares of Common
Stock issuable upon the exercise of this option shall be effective and current
at the time of exercise or (b) there is an exemption from registration under the

<PAGE>

Securities Act for the issuance of such shares of Common Stock upon exercise. At
the request of the Board of Directors, the Optionee shall execute and deliver to
the Company representations and warranties, in form and substance satisfactory
to counsel to the Company, that the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the Optionee for his own account,
for investment only and not with a view to the resale or distribution thereof
within the meaning of the Securities Act. Nothing herein shall be construed so
as to obligate the Company to register the shares subject to this option under
the Securities Act.

                  5.       Nothing in the Plan or herein shall confer upon the
Optionee any right to continue as a director of the Company.

                  6.       The Company may endorse such legends upon the
certificates for shares of Common Stock issued upon exercise of this option and
may issue such "stop transfer" instructions to its transfer agent in respect of
such shares as it determines, in its discretion, to be necessary or appropriate
to prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act.

                  7.       The Company and the Optionee agree that they will
both be subject to and bound by all of the terms and conditions of the Plan, a
copy of which is attached hereto and made a part hereof. In the event the
Optionee is no longer a director of the Company or in the event of his death or
disability (as defined in the Plan), his rights hereunder shall be governed by
and be subject to the provisions of the Plan. In the event of a conflict between
the terms of this Contract and the terms of the Plan, the terms of the Plan
shall govern.

                  8.       The Optionee represents and agrees that he will
comply with all applicable laws relating to the Plan and to the grant and
exercise of this option and the disposition of the shares of Common Stock
acquired upon exercise of this option, including without limitation, federal and
state securities and "blue sky" laws.

                  9.       This option is not transferable otherwise than by
will or the laws of descent and distribution and may be exercised during the
lifetime of the Optionee only by him.

                  10.      This Contract shall be binding upon and inure to the
benefit of any successor or assign of the Company and to any heir, distributee,
executor, administrator or legal representative entitled under the Plan and by
law to the Optionee's rights hereunder.

                  11.      This Contract shall be governed by and construed in
accordance with the laws of the State of Delaware.

                                      -2-
<PAGE>

                  12.      The invalidity or illegality of any provision herein
shall not affect the validity of any other provision.

                  13.      The Optionee agrees that the Company may amend the
Plan and the options granted to the Optionee under the Plan, subject to the
limitations contained in the Plan.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Contract as of the day and year first above written.

                                            JACLYN, INC.


                                            By: /s/ Norman Axelrod
                                                --------------------------------

                                            Its:
                                                --------------------------------

                                            ------------------------------------
                                                  Norman Axelrod, Optionee

                                            ------------------------------------

                                            ------------------------------------
                                                          Address

                                            ------------------------------------
                                               Tax Id. or Social Security No.

                                      -3-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.JJ
<SEQUENCE>8
<FILENAME>ex10_jj.txt
<DESCRIPTION>EXHIBIT 10(JJ)
<TEXT>

                                  JACLYN, INC.
                  1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
                       NON-QUALIFIED STOCK OPTION CONTRACT


                  THIS NON-QUALIFIED STOCK OPTION CONTRACT entered into as of
the 19th day of March 2003 between JACLYN, INC., a Delaware corporation (the
"Company"), and Harold A. Schechter (the "Optionee").

                              W I T N E S S E T H:
                              - - - - - - - - - -

                  1.       The Company, in accordance with the terms and
conditions of the 1996 Non-Employee Director Stock Option Plan of the Company
(the "Plan"), grants as of March 19, 2003 to the Optionee an option to purchase
an aggregate of 2,000 shares of the Common Stock, $1.00 par value per share, of
the Company ("Common Stock"), at $2.21 per share, being 100% of the fair market
value of such shares of Common Stock on such date.

                  2.       The term of this option shall be 10 years, subject to
earlier termination as provided in the Plan. This option shall be exercisable
immediately as to 100% of the number of shares of Common Stock subject hereto;
provided, that this option shall not be exercisable at any time in an amount
less than 100 shares (or the remaining shares covered hereby if less than 100
shares).

                  3.       This option shall be exercised by giving written
notice to the Company at its principal office, presently 635 59th Street, West
New York, New Jersey 07093, Attention: Chief Financial Officer, stating that the
Optionee is exercising this option, specifying the number of shares being
purchased and accompanied by payment in full of the aggregate purchase price
therefor (a) in cash or by certified check, (b) with previously acquired shares
of Common Stock having an aggregate fair market value on the date of exercise
(determined in accordance with Article 5 of the Plan) equal to the aggregate
exercise price of all options being exercised, or (c) any combination of the
foregoing. In addition, the Optionee agrees to pay to the Company in cash, upon
demand, the amount, if any, which the Company determines is necessary to satisfy
its obligation to withhold federal, state and local income and other taxes or
other amounts incurred by reason of the grant or exercise of this option. In no
event may a fraction of a share of Common Stock be purchased hereunder.

                  4.       Notwithstanding the foregoing, and without limiting
the provisions of Article 11 of the Plan, this option shall not be exercisable
by the Optionee unless (a) a registration statement under the Securities Act of
1933, as amended (the "Securities Act") with respect to the shares of Common
Stock issuable upon the exercise of this option shall be effective and current
at the time of exercise or (b) there is an exemption from registration under the

<PAGE>

Securities Act for the issuance of such shares of Common Stock upon exercise. At
the request of the Board of Directors, the Optionee shall execute and deliver to
the Company representations and warranties, in form and substance satisfactory
to counsel to the Company, that the shares of Common Stock to be issued upon the
exercise of the option are being acquired by the Optionee for his own account,
for investment only and not with a view to the resale or distribution thereof
within the meaning of the Securities Act. Nothing herein shall be construed so
as to obligate the Company to register the shares subject to this option under
the Securities Act.

                  5.       Nothing in the Plan or herein shall confer upon the
Optionee any right to continue as a director of the Company.

                  6.       The Company may endorse such legends upon the
certificates for shares of Common Stock issued upon exercise of this option and
may issue such "stop transfer" instructions to its transfer agent in respect of
such shares as it determines, in its discretion, to be necessary or appropriate
to prevent a violation of, or to perfect an exemption from, the registration
requirements of the Securities Act.

                  7.       The Company and the Optionee agree that they will
both be subject to and bound by all of the terms and conditions of the Plan, a
copy of which is attached hereto and made a part hereof. In the event the
Optionee is no longer a director of the Company or in the event of his death or
disability (as defined in the Plan), his rights hereunder shall be governed by
and be subject to the provisions of the Plan. In the event of a conflict between
the terms of this Contract and the terms of the Plan, the terms of the Plan
shall govern.

                  8.       The Optionee represents and agrees that he will
comply with all applicable laws relating to the Plan and to the grant and
exercise of this option and the disposition of the shares of Common Stock
acquired upon exercise of this option, including without limitation, federal and
state securities and "blue sky" laws.

                  9.       This option is not transferable otherwise than by
will or the laws of descent and distribution and may be exercised during the
lifetime of the Optionee only by him.

                  10.      This Contract shall be binding upon and inure to the
benefit of any successor or assign of the Company and to any heir, distributee,
executor, administrator or legal representative entitled under the Plan and by
law to the Optionee's rights hereunder.

                  11.      This Contract shall be governed by and construed in
accordance with the laws of the State of Delaware.

                                       -2-
<PAGE>

                  12.      The invalidity or illegality of any provision herein
shall not affect the validity of any other provision.

                  13.      The Optionee agrees that the Company may amend the
Plan and the options granted to the Optionee under the Plan, subject to the
limitations contained in the Plan.

                  IN WITNESS WHEREOF, the parties hereto have executed this
Contract as of the day and year first above written.

                                            JACLYN, INC.


                                            By: /s/ ROBERT CHESTNOV
                                                --------------------------------

                                            Its: President
                                                --------------------------------

                                            /s/ HAROLD A. SCHECHTER
                                            ------------------------------------
                                            Harold A. Schechter, Optionee


                                            ------------------------------------
                                                          Address

                                            ------------------------------------
                                               Tax Id. or Social Security No.

                                       -3-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.A
<SEQUENCE>9
<FILENAME>ex31_a.txt
<DESCRIPTION>EXHIBIT 31(A)
<TEXT>

                                                                   Exhibit 31(a)
                                                                   -------------

                                  CERTIFICATION
                                  -------------

I, Robert Chestnov, certify that:

1.   I have reviewed this Annual Report on Form 10-K of Jaclyn, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure
     controls and procedures to be designed under our supervision, to ensure
     that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

(b)  Evaluated the effectiveness of the registrant's disclosure controls and
     procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of the end of
     the period covered by this report based on such evaluation; and

(c)  Disclosed in this report any change in the registrant's internal control
     over financial reporting that occurred during the registrant's most recent
     fiscal quarter (the registrant's fourth fiscal quarter in the case of an
     annual report) that has materially affected, or is reasonably likely to
     materially affect, the registrant's internal control over financial
     reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or
     operation of internal control over financial reporting which are reasonably
     likely to adversely affect the registrant's ability to record, process,
     summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal control
     over financial reporting.

Date: September 24, 2003


/s/ ROBERT CHESTNOV
- ----------------------------------------------
Robert Chestnov, President and Principal
Executive Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.B
<SEQUENCE>10
<FILENAME>ex31_b.txt
<DESCRIPTION>EXHIBIT 31(B)
<TEXT>

                                                                   Exhibit 31(b)
                                                                   -------------

                                  CERTIFICATION
                                  -------------

I, Anthony Christon, certify that:

1.   I have reviewed this Annual Report on Form 10-K of Jaclyn, Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of
     a material fact or omit to state a material fact necessary to make the
     statements made, in light of the circumstances under which such statements
     were made, not misleading with respect to the period covered by this
     report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)  Designed such disclosure controls and procedures, or caused such disclosure
     controls and procedures to be designed under our supervision, to ensure
     that material information relating to the registrant, including its
     consolidated subsidiaries, is made known to us by others within those
     entities, particularly during the period in which this report is being
     prepared;

(b)  Evaluated the effectiveness of the registrant's disclosure controls and
     procedures and presented in this report our conclusions about the
     effectiveness of the disclosure controls and procedures, as of the end of
     the period covered by this report based on such evaluation; and

(c)  Disclosed in this report any change in the registrant's internal control
     over financial reporting that occurred during the registrant's most recent
     fiscal quarter (the registrant's fourth fiscal quarter in the case of an
     annual report) that has materially affected, or is reasonably likely to
     materially affect, the registrant's internal control over financial
     reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

(a)  All significant deficiencies and material weaknesses in the design or
     operation of internal control over financial reporting which are reasonably
     likely to adversely affect the registrant's ability to record, process,
     summarize and report financial information; and

(b)  Any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal control
     over financial reporting.

Date: September 24, 2003


/s/ ANTHONY CHRISTON
- ----------------------------------------------
Anthony Christon, Principal Financial Officer

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>11
<FILENAME>ex_32.txt
<DESCRIPTION>EXHIBIT 32
<TEXT>

                                                                      Exhibit 32


                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                    AS ADOPTED PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002

         In connection with the Annual Report on Form 10-K of Jaclyn, Inc. (the
"Company") for the fiscal year ended June 30, 2003 (the "Report"), the
undersigned each hereby certifies that: (1) the Report fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended; and (2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.

Dated: September 24, 2003                    /s/ ROBERT CHESTNOV
                                             -----------------------------------
                                             Robert Chestnov, President
                                             (Chief Executive Officer)


Dated: September 24, 2003                    /s/ ANTHONY CHRISTON
                                             -----------------------------------
                                             Anthony Christon, Chief Financial
                                             Officer

A signed original of this written statement required by Section 906 has been
provided to Jaclyn, Inc. and will be retained by Jaclyn, Inc. and forwarded to
the Securities and Exchange Commission or its staff upon request.

<PAGE>

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
