U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

---
|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
---   OF 1934

For the fiscal year ended December 31, 1996

---
| |   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
---   OF 1934

For the transition period from _________ to __________

                         Commission file number 811-3584

                           LEVCOR INTERNATIONAL, INC.
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer In Its Charter)

             Delaware                                    06-0842701
------------------------------------         ----------------------------------
  (State or Other Jurisdiction of                    (I.R.S. Employer
   Incorporated or Organization)                   Identification Number)

1071 Avenue of the Americas, New York, New York                10018
-----------------------------------------------       -------------------------
  (Address of Principal Executive Offices)                   (Zip Code)

Issuer's telephone number, including area code      (203) 264-7428
                                               --------------------------

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:  Common Stock,
                                                par value $0.56 per share

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

Yes  X      No

      Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. ---
                               | |
                               ---

      Issuer's revenues for the fiscal year ended December 31, 1996:  $2,897,999


      As of March 21, 1997, 1,733,499 shares of Common Stock of the issuer were
outstanding and the aggregate market value of the voting common stock held by
non-affiliates, computed by reference to the sale price of the Common Stock as
of March 21, 1997, was approximately $178,047.

      Transitional Small Business Disclosure Format:  Yes         No  X

      Documents incorporated by reference:  None
<PAGE>
                                Table of Contents

                                     PART I
                                                                            Page
                                                                            ----
Item  1.    Description of Business........................................... 1

Item  2.    Description of Property........................................... 6

Item  3.    Legal Proceedings..................................................7

Item  4.    Submission of Matters to a Vote of Security Holders................9

                                     PART II

Item  5.    Market for Common Equity and Related
            Stockholder Matters...............................................10

Item  6.    Management's Discussion and Analysis of Financial
            Condition and Results of Operations...............................11

Item  7.    Financial Statements and Supplementary Data.......................14

Item  8.    Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure...............................28

                                    PART III

Item 9.     Directors, Executive Officers, Promoters and Control
            Persons; Compliance with Section 16(a) of the
            Exchange Act......................................................29

Item 10.    Executive Compensation............................................30

Item 11.    Security Ownership of Certain Beneficial Owners and
            Management........................................................31

Item 12.    Certain Relationships and Related Transactions....................32

Item 13.    Exhibits, Lists and Reports on Form 8-K...........................33

            Signatures........................................................36
<PAGE>
                                     PART I
Item 1.  DESCRIPTION OF BUSINESS.

BUSINESS DEVELOPMENT

      Levcor International, Inc., formerly named Pantepec International, Inc.
(the "Company"), was incorporated in 1964 under the laws of the Islands of
Bermuda and was reorganized in 1967 under the laws of the State of Delaware. On
September 7, 1995, by amendment to its Certificate of Incorporation, the Company
changed its name from Pantepec International, Inc. to Levcor International, Inc.
and effected a one-for-four reverse stock split of its common stock par value
$0.56 per share (the "Common Stock").

      Since its incorporation, the Company has been engaged in the ownership of
fractional interests in oil and gas wells and leases with respect thereto.

      In 1995, the Company acquired a woven fabric converting business that
produces fabrics used in the production of apparel. This acquisition formed the
basis of the Company's new line of business, the Looms Division. With
significantly reduced revenues from its oil and gas properties, a naturally
diminishing asset, and with the maturity of the Company's medical equipment
financing agreements in June 1995, the operation of the Looms Division now
comprises the Company's primary business focus for the foreseeable future.

      The Company ceased its operations in the medical equipment financing
industry in June 1995 and currently does not intend to conduct any operations or
otherwise participate in the medical equipment financing industry in the future.

BUSINESS OF THE ISSUER

(A)   The Looms Division

      The Company's current business activities in the woven fabrics industry
consist of the business of the Looms Division, which is engaged in converting
textiles for sale to domestic apparel manufacturers. The converting process
consists of (i) designing fabrics and commissioning textile mills to weave the
greige fabric (i.e., undyed) according to the Company's specifications, and (ii)
commissioning fabric finishers (i.e., dye plants) to dye and finish the greige
fabric again according to the Company's specifications. Commercial transporters
are contracted with to deliver greige fabric from textile mills to dyers and
finished fabric from dyers to apparel manufacturers. Orders for the sale of
finished fabrics are placed through the efforts of the Company's sales personnel
and independent commissioned contractors.
<PAGE>
      The raw materials used by the Looms Division in the fabrication of
textiles generally consist of a combination or blend of two or more of rayon,
acetate, polyester, cotton and flax fibers. The principal suppliers of the
greige fabric (i.e., undyed) used by the Looms Division are Stonecutter Mills,
Jackson Mills and Doran Textiles. The primary dyers in the conversion process
used by the Looms Division are Oxford Textiles and Torado Processing.

      In 1996, research and development expenses related to the Looms Division,
the costs of which were not passed on to the Company's customers, were
approximately $20,000.

      In 1996, Jody California, a manufacturer of women's apparel, accounted for
$414,289 (approximately 14%) of the Looms Division's sales revenues, and Briggs
of New York, a manufacturer of women's apparel, accounted for $220,938
(approximately 8%) of the Looms Division's sales revenues.

(B)   Ownership of Interests in Oil and Gas Wells

      The Company's current business activities in this industry segment consist
of the ownership of fractional interests in oil and gas wells and leases with
respect thereto. At December 31, 1996, the Company held fractional interests in
four wells located in the United States. All of the Company's fractional
interests in wells are owned pursuant to working interest ("WI") agreements.
Such agreements provide that the Company is obligated to pay its proportionate
share of the cost of developing and operating such wells and will be paid its
proportionate share of any revenues derived from such wells only after all
owners of royalty interests therein have been paid their proportionate share of
any revenues derived from such wells. During 1996, the Company earned revenues
and incurred production costs (exclusive of severance taxes) under the terms of
such agreements of $49,141 and $17,871, respectively. Other than one well for
which the Company acts as titular operator, the Company is not directly involved
in the operation of any of the wells or in the marketing and sale of any of the
oil and gas derived therefrom. Such operations and marketing activities are
conducted by third parties, typically with substantial interests in the wells,
pursuant to the terms of operating agreements which provide that the operator,
for a fee, is responsible for the development and operation of the well and the
marketing and sale of the resources derived therefrom. During 1996, the
Company's share of the fees payable to operators of wells for services performed
pursuant to the terms of such agreements approximated $7,000.

      A description of the Company's significant oil and gas well holdings by
geographic area and the revenues earned and expenses incurred therefrom is
contained below.


                                        2
<PAGE>
Texas Independent Exploration, Inc. Projects

      From 1986 through 1989, the Company participated in drilling and/or
recompletion-workover ventures involving 11 wells located in three southern
Texas counties. The ventures were sponsored by Texas Independent Exploration,
Inc. The Company invested $242,000 in such ventures, which resulted in nine
producing wells, six of which continued to produce at December 31, 1996. Only
one of such six wells, however, was even marginally profitable during 1995. On
January 1, 1996, the Company, in the interest of eliminating continued losses on
the six wells, ceded all its interest in such wells and the leases thereto to
Texas Independent Exploration, the operator of such wells, in satisfaction of
the outstanding production costs due to Texas Independent Exploration.

Other Wells

      Wehrenberg #26-1 Well, Sooner Trend Field, Kingfisher
      County, Oklahoma

      In November 1988, the Company acquired a 70% WI in a well located in
Oklahoma which, after payment of all royalty interests therein, earned a 56% net
revenue interest ("NRI"). This interest was acquired in a public auction from
the bankruptcy trustee of Schick Energy Corporation for $11,167. Although the
Company is the titular operator of the well, the Company has retained Petroleum
Management Professionals, Inc. of Oklahoma City, Oklahoma to perform all of its
duties as operator of the well. From December 1, 1988, the effective date of the
acquisition of the well, through December 31, 1996, the well produced 106,000
MCF and 13,000 BC (average daily production during 1996 was 35 MCF and 4 BC). Of
such amounts, approximately 59,000 MCF and 7,280 BC (average daily production of
20 MCF and 2 BC during 1996) represented the Company's proportionate share of
production from this well. During 1996, gross production revenues earned from
the well's activities were $56,000, of which $33,500 were attributed to the
Company, representing 68.2% of the Company's total revenues derived from oil and
gas sales during such year. The total production costs (exclusive of severance
taxes) estimated to have been incurred during 1996 in connection with such
activities were $16,600, of which $11,600 were attributed to the Company.


                                        3
<PAGE>
      J.F. Curry Nos. 1 and 2, Mollie Hasson #1-27, Alfalfa
      County, Oklahoma, American Exploration Co., Operator

      In March 1989, the Company acquired a 22.2% WI in each of the J.F. Curry 1
and 2 wells and a 31.7% WI in the Mollie Hasson #1-27 well which, after payment
of all royalty interests therein, earned 19.4%, 19.4%, 23.8% NRI, respectively.
These interests were acquired from Energetics, Inc. at a public auction for
$14,000. From April 1, 1989, the effective date of the acquisition, until
December 31, 1996, these wells produced 292,000 MCF and 18,000 BC (average daily
production during 1996 was 69 MCF and 4 BC). Of such amounts, approximately
58,000 MCF and 3,730 BC (average daily production of 13 MCF and 1 BC during
1996) represented the Company's proportionate share of production from these
wells. During 1996, gross production revenues earned from the activities of
these wells were $60,000, of which $12,400 were attributed to the Company,
representing 25.2% of the Company's total revenues derived from oil and gas
sales during such year. The total production costs (exclusive of severance
taxes) estimated to have been incurred during such year in connection with such
activities were $23,400, of which $6,000 were attributed to the Company.

      Maze Federal 32-35 and Powell Federal E-1, Campbell County
      and Converse County, Wyoming - Various Operators

      The Company sold its interest in the Maze Federal 32-35 Well (the "Maze
Well") on August 1, 1996 for $3,000, and also sold its interest in the Powell
Federal E-1 Well (the "Powell Well") on September 1, 1996 for $7,500. Each of
the Maze Well and the Powell Well was sold at a price above book value. Through
the date of its sale, the Maze Well had a WI of 12.5% and an NRI of 10.825%.
Through the date of its sale, the Powell Well had a WI of 1.5625% and an NRI of
0.9791% for oil and 1.4687% for gas. From the effective date of the acquisition
of the Maze Well and the Powell Well by the Company through August 31, 1996,
such wells in the aggregate produced 1,024,000 MCF and 74,000 BC (average daily
production during 1996 was 415 MCF and 16 BC). Of such amounts, approximately
15,000 MCF and 1,900 BC (average daily production of 6 MCF and 0.5 BC during
1996) represented the Company's proportionate share of production from these
wells. Through the date of sale of the Powell Well on September 1, 1996, gross
production revenues earned from the activities of the Maze Well and the Powell
Well in the aggregate were $197,000, of which $3,200 were attributed to the
Company, representing 6.5% of the Company's total revenues derived from oil and
gas sales in 1996. The total production costs (exclusive of severance taxes)
estimated to have been incurred from January 1, 1996 through September 1, 1996
in connection with such activities were $40,000, of which $1,700 were attributed
to the Company.


                                        4
<PAGE>
COMPETITION

      The textile conversion business is extremely competitive, particularly in
light of existing trade laws that allow low-cost imported fabric and finished
garments into the domestic apparel market. Within the domestic textile
converting business, the Company competes on the basis of the uniqueness in
styling of its fabrications and also on price.

      The exploration for and production of oil and gas are highly competitive
operations, both within the oil and gas industry and with producers of other
types of energy. The ability to exploit a discovery of oil or gas is dependent
upon such considerations as the ability to finance development costs, the
availability of equipment and engineering, and construction delays and
difficulties. Competitive conditions may also be substantially affected by
various forms of energy and trade legislation currently being considered.
However, it is not possible to predict the nature of any such legislation which
may ultimately be adopted or the possible effects such legislation may have upon
the future operations of the Company.

      In pursuing its business objectives, the Company must compete with
companies having substantially greater financing and other resources.

SEASONALITY

      The Company's Looms Division business is seasonal and typically realizes
higher revenues and operating income in the first and fourth calendar quarters.
Such seasonality, taking into account the standard lead time required by the
fashion industry to manufacture apparel, corresponds respectively to the autumn
and spring retail selling seasons.

      The Company's oil and gas business is not seasonal, except that sales of
natural gas peak during the winter heating season.

ENVIRONMENTAL REGULATION

      Environmental laws and regulations of the jurisdictions in which the
Company conducts business could potentially have a significant impact on the
exploration for and development of natural resources by the Company. The Company
believes that its operations are in compliance with all environmental laws and
regulations applicable thereto.

EMPLOYEES

      The Company currently employs four persons, all of whom are employed full
time. The Company relies on consultants for legal, income tax, data processing,
geological, sales and administrative services.


                                        5
<PAGE>
Item 2.  DESCRIPTION OF PROPERTY.

The Looms Division

      In connection with the acquisition of the Looms Division from Andrex
Industries Corp., a New York corporation ("Andrex"), the Company entered into a
three-year agreement with Andrex in May 1995 pursuant to which the Company
leases office space located at 1071 Avenue of the Americas, 7th Floor, New York,
New York 10018 from Andrex, and Andrex provides the Company with certain
administrative services. The cost to the Company in 1996 for the lease of such
property under the Agreement was $55,000.

Oil and Gas Properties

      The Company's oil and gas properties consist of WI in wells located in the
State of Oklahoma. The Company has an interest in four wells, with an aggregate
WI equivalent to 1.46 wells with an aggregate NRI of 1.19 wells.

      Set forth below is certain information with respect to the Company's oil
and gas properties.

1.    Reserves Reported to Other Agencies.

      Not applicable.

2.    Production:  Average Sales Price Per Unit and Average
      Production Cost for Oil and Gas Produced During the Last
      Three Years.

              Average Sales Price         Average Production Cost
              -------------------         -----------------------
                 Oil        Gas              Oil           Gas
Year          (Per BC)  (Per MCF)         (Per BC)      (Per MCF)
----          --------  ---------         --------       --------
1996 . . . .   $19.27     $1.67            $6.75          $0.75
1995 . . . .   $15.62     $1.25            $8.62          $1.46
1994 . . . .   $15.55     $1.51            $8.44          $0.85

3.    Productive Wells And Acreage.
                                             Oil            Gas
      (a)   Productive wells as of       -----------    -----------
            December 31, 1996            Gross   Net    Gross   Net
                                         -----   ---    -----   ---

                                           1     0.27     3    1.19

                                         Gross Acres    Net Acres
      (b)   Developed Acreage            -----------    ---------
            as of December 31, 1996         320            114


                                        6
<PAGE>
4.    Undeveloped Acreage as of December 31, 1996.

                                         Gross Acres    Net Acres
                                         -----------    ---------
      Working Interest                      552            200

5.    Drilling Activity.

      There was no drilling activity in any of the Company's wells in the United
      States during the three years ended December 31, 1996.

6.    Present Activities.

      On December 31, 1996, no wells in which the Company has interests were
      drilling. The status of the Company's interest in four productive wells is
      as follows:

            Number of Wells           Status
            ---------------           ------
                  4             Producing oil or gas

Item 3.     LEGAL PROCEEDINGS.

      The 0.67% carried interest in the Kotaneelee gas field sold by the Company
in August 1991, as well as Magellan Petroleum Corporation's 2.67% carried
interest in such field, is held in trust by Canada Southern Petroleum Ltd.
("Canada Southern"), which has a 30% carried interest in such field. In late
1987, Canada Southern commenced an action against Allied-Signal, Inc. in Florida
alleging its failure to fulfill certain contractual obligations to develop the
field. In September 1988, Allied Signal, Inc. commenced an action (the
"Allied-Signal Action") in Calgary, Canada against Dome Petroleum Limited, Amoco
Production Company and Amoco Canada Petroleum Company, Ltd. ("Amoco Canada" and
collectively, the "Amoco-Dome Group") seeking a declaration that the defendants
were responsible for the development of the field, and also seeking
reimbursement of its legal costs incurred in the Florida litigation. The Florida
litigation has since been dismissed.

      In March 1989, Allied-Signal, Inc. amended its complaint in the
Allied-Signal Action to add the Company, Canada Southern and Magellan Petroleum
Corporation ("Magellan") as additional defendants. Certain of the other
defendants in the Allied-Signal Action have filed counterclaims against the
Company and other defendants seeking indemnification for unspecified costs and
expenses incurred by them in defending the Allied-Signal Action. In January
1996, the Company, Allied-Signal, Inc., Canada Southern and Magellan Petroleum
Corporation entered into a settlement whereby each party agreed not to sue any
of the other parties and, subsequently, the Allied-Signal Action was
discontinued.


                                        7
<PAGE>
      Shortly after the Allied-Signal Action commenced, the Amoco-Dome Group
filed a counterclaim against the Company, Canada Southern and Magellan seeking
certain declaratory relief with respect to their alleged failure to fulfill
certain contractual obligations to develop and market gas from the Kotaneelee
gas field. The trial on the counterclaim action commenced on September 3, 1996,
but was adjourned in October 1996 due to a conflict of interest involving
counsel for Amoco Canada ("Amoco Counsel"). Amoco Counsel has applied to the
court to continue its representation of Amoco Canada, and the trial is expected
to re-commence upon the court's final determination of the issue.

      On October 27, 1989, in the Court of Queen's Bench of Alberta, Judicial
District of Calgary, Canada (the "Canada Court"), Canada Southern filed a
statement of claim against the Amoco-Dome Group, Columbia Gas Development of
Canada Ltd. ("Columbia"), Mobil Oil Canada Ltd. ("Mobil") and Esso Resources of
Canada Ltd. ("Esso") seeking a declaratory judgment (the "Declaratory Action")
regarding two issues relating to the Kotaneelee field: (1) whether interest
accrued on the carried interest account, which is the account for costs
recoverable by the working interest parties prior to such time as the carried
interest parties are entitled to participate in revenues derived from the
field's activities (Canada Southern maintains it does not), and (2) whether
expenditures for gathering lines and dehydration equipment are expenditures
chargeable to the carried interest account (Canada Southern maintains they are).
Mobil, Esso and Columbia have filed answers essentially agreeing to the granting
of the relief requested by Canada Southern. The Amoco-Dome group has now
admitted one of two claims, i.e., that interest does not accrue on the carried
interest account.

      On March 7, 1990, Canada Southern filed a statement of claim in the Canada
Court against the Amoco-Dome Group, Columbia, Mobil and Esso seeking forfeiture
of the Kotaneelee gas field, damages and other relief for breach of fiduciary
duty (the "Forfeiture Action"). The Company was added as a party plaintiff to
this action in November 1993. If such claim is upheld, the Company could recover
a 2 percent interest in the Kotaneelee field and damages. The defendants have
contested the claim and Canada Southern is pursuing discovery and trial.
Columbia filed a counterclaim seeking, if Canada Southern is successful in its
claims, repayment from Canada Southern, the Company and Magellan Petroleum
Corporation of all sums expended by Columbia on the Kotaneelee fields before
Canada Southern, the Company and Magellan Petroleum Corporation are entitled to
their interests. The trial commenced in September 1996, but was adjourned in
October 1996 due to the conflict of interest involving Amoco Counsel. The trial
is expected to re-commence upon the court's final determination of the issue.

      The field operator has entered into a contract for the sale of Kotaneelee
gas. The Company believes that it is too early to


                                       8
<PAGE>
determine the impact, if any, that this contract may have on the status of these
cases.

      On August 6, 1991, the Company sold to an independent third party (the
"Buyer") its carried interest in a lease in property including the Kotaneelee
field. The agreement for the transfer of the Company's interest provides that
the Company shall continue to prosecute the Declaratory Action and the
Forfeiture Action. The Company and the Buyer have agreed to share equally all
costs and expenses of the Declaratory Action and the Forfeiture Action and to
share equally any payments or other benefit resulting from the resolution of
such actions. The agreement further provides that the Company shall indemnify
the Buyer against all actions, proceedings, claims, demands, damages and
expenses brought against or suffered by the Buyer which arise out of, or are
attributable to, the Allied-Signal Action.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      No matters were submitted to a vote of security holders during the fourth
quarter of 1996.


                                        9
<PAGE>
                                    PART II

Item 5.     MARKET FOR COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS.

      The Company's common stock, par value $0.56 per share (the "Common
Stock"), is traded in the "pink sheets" in the over-the-counter market under the
symbol "LEVC". On March 21, 1997, the closing bid price of the Common Stock was
$0.125 per share. The Common Stock is traded sporadically and no established
liquid trading market currently exists therefor.

      As of March 21, 1997, there were approximately 6,718 holders of record of
the Common Stock.

      The following table sets forth the range of high and low bid prices in the
"pink sheets" in the over-the-counter market for the periods indicated. Such
quotations reflect interdealer prices or transactions solely between
market-makers without retail mark-up, mark-down or commissions, and may not
necessarily represent actual transactions. The prices have been adjusted to give
retroactive effect to the one-for-four reverse stock split of the issued Common
Stock which became effective September 11, 1995.

          Period                  Price
          ------                  -----

      1996                  High           Low
      ----                  ----           ---
      First Quarter         $0.75          $0.25
      Second Quarter        $0.75          $0.25
      Third Quarter         $0.63          $0.625
      Fourth Quarter        $0.38          $0.125

      1995                  High           Low
      ----                  ----           ---
      First Quarter         $0.34          $0.04
      Second Quarter        $0.50          $0.004
      Third Quarter         $1.50          $0.25
      Fourth Quarter        $0.75          $0.125


                                       10
<PAGE>
Dividend Policy

      The Company has not paid any cash dividends on the Common Stock and has no
present intention to declare or pay cash dividends on the Common Stock in the
foreseeable future. The Company intends to retain any earnings which it may
realize in the foreseeable future to finance its operations.

Item 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
            OPERATION.

      The following discussion should be read in conjunction with the Financial
Statements and Notes to Financial Statements included elsewhere herein.

Results of Operations

      Year Ended December 31, 1996 Compared to Year Ended
      December 31, 1995

      The Company's revenues for 1996 were $75,572, an increase of $41,240, or
120%, from $34,332 for 1995. Such increase was primarily attributable to (i) an
increase of $76,952 in sales, less the cost of goods sold, from oil and gas
operations in 1996, compared to 1995, due primarily to an upward revaluation of
remaining petroleum reserves attributable to improved year-end 1996 oil and gas
prices on which such reserves are valued, and (ii) an increase of $4,450 in
sales, less the cost of goods sold, on sales from the Looms Division in 1996
compared to 1995 (the Company acquired the Looms Division in May 1995). Such
increase was partially offset by a reduction of $40,162 in interest and
royalties attributable to certain loans which were repaid to the Company in June
1995.

      The Company's expenses for 1996 were $796,243, an increase of $180,861, or
29%, from $615,382 for 1995. Such increase was due primarily to (i) an increase
in selling expenses in 1996 of the Looms Division of $133,115, or 47%, compared
to 1995, and (ii) to a lesser extent, an increase in general and administrative
expenses in 1996 of $47,746, or 14%, compared to 1995, including increases in
1996 of accounting and administrative fees, factors fees and interest expense,
partially offset by reductions in legal fees and stockholder communications
expenses.

      As a result of the foregoing, net losses for 1996 were $720,671, an
increase of $139,621, or 24%, from $581,050 for 1995.


                                       11
<PAGE>
      Year Ended December 31, 1995 Compared to Year Ended
      December 31, 1994

      The Company's revenues for 1995, inclusive of interest income and
royalties, were $34,332, a decrease of $63,768, or 65%, from $98,100 for 1994.
Such decrease was attributable to (i) the decrease in sales, less the cost of
goods sold, from the Looms Division of $20,025 in the year ended December 31,
1995 (the Company acquired the Looms Division in May 1995) and (ii) a reduction
in interest and royalties attributable to certain loans made by the Company,
which were repaid as of June 30, 1995. The decrease in revenues was partially
offset by an increase in sales, less the cost of goods sold, from oil and gas
operations in 1995 of $26,123 reflecting the change from a loss of $12,008 in
1994 to a profit of $14,115 in 1995, primarily due to an upward revaluation of
remaining petroleum reserves attributable to improved year-end 1995 oil and gas
prices on which such reserves are valued.

      The Company's expenses in 1995 were $615,382, an increase of $368,075, or
149%, from $247,307 for 1994, due primarily to $285,222 of selling expenses for
the Looms Division in 1995 and, to a lesser extent, an increase in general and
administrative expenses in 1995 of $82,853, or 34%, compared to 1994, despite
the one-time litigation expense of $100,000 incurred in 1994. General and
administrative expenses increased in 1995 due primarily to increases in
accounting and administrative fees, interest expense and legal fees related to
the acquisition of the Looms Division, and expenses incurred in connection with
the stockholders' meeting on September 7, 1995 (no such meeting was held in
1994).

      Net loss for 1995 was $581,050, an increase of $431,843 or 289%, from
$149,207 for 1994. From May 1, 1995 through December 31, 1995, the Looms
Division incurred an operating loss of $305,247 (approximately 71% of the total
net loss) consisting of a gross loss on sales plus selling expenses. The decline
in revenues from interest income and royalties in 1995 was $69,866
(approximately 12% of the total net loss). The remaining net loss was
attributable to the costs of the acquisition of the Looms Division in 1995 and
the increase in general and administrative expenses associated with its
start-up, partially offset by the 1995 increased gross profit from oil and gas
sales.

Liquidity and Capital Resources

      The primary source of the Company's working capital during 1996 was, and
in 1997 will be, derived from proceeds from the sale of woven fabrics produced
by the Company's Looms Division and, to a lesser extent, proceeds from the sale
of oil and gas from the Company's ownership interest in oil and gas wells. The
Company's unrestricted cash and cash equivalents at December 31,


                                       12
<PAGE>
1996 was $4,900, a decrease of $21,392, from $26,296 at December 31, 1995.

      In connection with the operation of the Looms Division, the Company
entered into a Factoring Agreement with NationsBanc Commercial Cooperation
("NationsBanc") as of June 1, 1995 (the "Factoring Agreement") which was
subsequently amended effective September 1, 1996 and January 1, 1997. Pursuant
to the terms of the Factoring Agreement, the Company, among other things, (i)
has agreed to (a) assign to NationsBanc its interest in all receivables derived
from the sale of the woven fabrics produced by the Looms Division and (b) pay
NationsBanc a commission of 1% of the gross amount on such receivables, with a
minimum commission of $36,000 for the period June 1, 1995 to December 31, 1996
and no minimum annual commission thereafter and (ii) may (a) request advances up
to 95% of the net purchase price of the receivables and (b) pay interest on such
advances at the rate of 0.5% above NationsBanc's prime rate for the period June
1, 1995 to August 31, 1996 and at 1% above such prime rate thereafter. The
amended Factoring Agreement has an initial term expiration date of September 1,
1998 and is renewable for two year periods thereafter unless terminated on the
initial term expiration date (or any anniversary thereof) by either party giving
not less than sixty days prior written notice.

      The Company continues to sustain substantial losses which have adversely
affected the Company's liquidity. In addition, in connection with the purchase
of the woven fabric inventory, the Company issued a promissory note to Andrex in
May 1996 which bears interest at the rate of 6% per annum pursuant to which the
Company, commencing on May 1, 1996 and continuing through May 1, 2000, is
required to make five annual debt payments of approximately $283,000 to Andrex.
In order to meet the $282,800 debt payment that was due on May 1, 1996, Robert
A. Levinson, the Chief Executive Officer of the Company, made a loan to the
Company of $370,000 on such date at a rate of 6% per annum, for which no
repayment date has yet been set, and has agreed to continue to personally
support the Company's cash requirements to enable it to meet its current
obligations through December 31, 1997. The Company also plans to continue to
aggressively market and sell the woven fabric product. Although there can be no
assurances that these measures will be successful, the Company believes that its
current operations and the financial arrangements described above will provide
sufficient liquidity to fund the Company's operations for 1997.


                                       13
<PAGE>
Item 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
    Levcor International, Inc.

We have audited the accompanying balance sheet of Levcor International, Inc. as
of December 31, 1996 and the related statements of operations, stockholders'
equity (deficiency) and cash flows for the years ended December 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Levcor International, Inc. at
December 31, 1996 and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.

/s/ Grant Thornton LLP
GRANT THORNTON LLP

New York, New York
March 13, 1997


                                       14
<PAGE>
                           Levcor International, Inc.

                                  BALANCE SHEET

                                December 31, 1996

                                     ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                    $     4,904
     Accounts receivable                                                7,814
     Due from factor                                                  344,503
     Inventories                                                      876,320
     Prepaid expenses                                                   9,576
                                                                  -----------

              Total current assets                                  1,243,117

OIL AND GAS PROPERTIES (using full cost
   method), net of accumulated depletion and
   depreciation of $841,759                                            85,815
                                                                  -----------

                                                                  $ 1,328,932
                                                                  ===========

                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES
   Accounts payable and accrued expenses                          $   760,105
   Current maturities of long-term debt                               282,800
                                                                  -----------

              Total current liabilities                             1,042,905

LONG-TERM DEBT, less current maturities                               848,400

DUE TO OFFICER                                                        370,000

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIENCY)
   Common stock - par value $.56 per share;
      authorized, 15,000,000 shares; outstanding,
      1,673,499 shares                                                964,394
   Capital in excess of par value                                   5,003,566
   Accumulated deficit                                             (6,900,333)
                                                                   ----------

                                                                     (932,373)

                                                                  $ 1,328,932
                                                                  ===========

The accompanying notes are an integral part of this statement.


                                       15
<PAGE>

                           Levcor International, Inc.

                            STATEMENTS OF OPERATIONS

                             Year ended December 31,

                                                        1996           1995
                                                     -----------    -----------

Revenue
    Looms Division sales                             $ 2,848,778    $ 1,058,386
    Less cost of sales                                 2,864,353      1,078,411
                                                     -----------    -----------
         Gross profit (loss)                             (15,575)       (20,025)
                                                     -----------
    Oil and gas sales                                     49,141         40,432
    Less cost of sales                                   (41,926)        26,317
                                                     -----------    -----------
         Gross profit (loss)                              91,067         14,115
    Interest income and royalties                             80         40,242
                                                     -----------    -----------
                                                          75,572         34,332
Expenses
    Selling expenses - Looms Division
      Salaries, benefits and payroll taxes               236,759        151,436
      Commissions                                        133,494        113,294
      Other selling expenses                              48,084         20,492
                                                     -----------    -----------

                                                         418,337        285,222
    General and administrative expenses
      Salaries, benefits and payroll taxes                71,684         81,916
      Accounting and administrative fees                  58,803         37,792
      Audit fees                                          21,000         14,500
      Directors' fees and expenses                         5,000          5,000
      Factor fees                                         26,232          8,651
      Insurance                                           15,122          7,622
      Interest expense                                   125,015         65,550
      Legal fees                                          29,929         53,103
      Shareholder communications                                         25,800
      Transfer agent fees                                  7,558          8,400
      Other business taxes                                 2,816          1,523
      Other expenses                                      14,747         20,303
                                                     -----------    -----------
         Total general and administrative expenses       377,906        330,160
                                                     -----------    -----------
         Total expenses                                  796,243        615,382
                                                     -----------    -----------
         NET LOSS                                       (720,671)      (581,050)
                                                     -----------
Accumulated deficit - beginning of year               (6,179,662)    (5,598,612)
                                                     -----------    -----------
Accumulated deficit - end of year                    $(6,900,333)   $(6,179,662)
                                                     ===========    ===========
Average number of shares outstanding                   1,713,499      1,656,158
                                                     ===========    ===========
Net loss per common share                                 $(.42)         $(.35)
                                                          =====          =====

The accompanying notes are an integral part of these statements.


                                       16
<PAGE>
                           Levcor International, Inc.

                        STATEMENT OF STOCKHOLDERS' EQUITY

                     Years ended December 31, 1996 and 1995

<TABLE>
<CAPTION>
                                             Common stock          Capital in
                                         --------------------     excess of par    Accumulated
                                         Shares        Amount         value          deficit
                                         ------        ------     -------------    -----------

<S>                                     <C>           <C>          <C>            <C>
Balances at December 31, 1994           6,468,532     $905,594     $5,018,616     $(5,598,612)

Shares issued for services rendered       220,000       30,800        (12,050)
Reverse stock split                    (5,015,033)
Net loss                                                                             (581,050)
                                        ---------     --------     ----------     -----------
Balances at December 31, 1995           1,673,499      936,394      5,006,566      (6,179,662)
Shares issued for services rendered        50,000       28,000         (3,000)
Net loss                                                                             (720,671)
                                        ---------     --------     ----------     -----------
Balances at December 31, 1996           1,723,499     $964,394     $5,003,566     $(6,900,333)
                                        =========     ========     ==========     ===========
</TABLE>

The accompanying notes are an integral part of this statement.


                                       17
<PAGE>
                           Levcor International, Inc.

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,

                                                             1996       1995
                                                          ----------  ---------

Cash flows from operating activities
    Net loss                                              $(720,671)  $(581,050)
    Adjustments to reconcile net loss to net
      cash used in operating activities
        Write-up of oil and gas properties                  (75,026)    (20,956)
        Depletion and depreciation                           11,129       9,262
        Services paid in common stock                        25,000      18,750
        Changes in operating assets and liabilities,
           net of assets acquired
               Accounts receivable                           32,642       5,678
               Due from factor                             (291,811)    (52,692)
               Inventories                                  646,420    (108,740)
               Other assets                                             225,000
               Prepaid expenses                              11,338     (18,696)
               Accounts payable and accrued expenses        267,565     365,016
                                                          ---------   ---------
           Net cash used in operating activities            (93,414)   (158,428)
                                                          ---------   ---------
Cash flows from investing activities
    Proceeds on sale of property - net                       14,822
    Decrease in notes receivable                                        150,000
                                                          ---------   ----------
           Net cash provided by investing activities         14,822     150,000
                                                          ---------   ---------
Cash flows from financing activities
    Advances from shareholder                               370,000      30,000
    Payment to shareholder                                  (30,000)
    Payment of long-term debt                              (282,800)
                                                          ---------
           Net cash provided by financing activities         57,200      30,000
                                                          ---------   ---------
           NET (DECREASE) INCREASE IN CASH AND
               CASH EQUIVALENTS                             (21,392)     21,572
Cash and cash equivalents at beginning of year               26,296       4,724
                                                          ---------   ---------
Cash and cash equivalents at end of year                  $   4,904   $  26,296
                                                          =========   =========
Supplemental disclosures of cash flow information:
    Cash paid during the year for
       Interest                                           $ 110,215   $  65,550

Supplemental disclosures of noncash activities:
    In 1995, the Company issued a note for $1,414,000 to purchase the Looms
Woven inventory.


The accompanying notes are an integral part of these statements.


                                       18
<PAGE>
                           Levcor International, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1996 and 1995

NOTE A - SUMMARY OF BUSINESS AND SIGNIFICANT
           ACCOUNTING POLICIES

     1.  Nature of Operations and Liquidity

         Levcor International, Inc. (the "Company") is engaged in two industry
         segments: the ownership of fractional interests in oil and gas wells
         and leases with respect thereto; and the operation of a woven fabric
         converting business producing fabrics used in the production of
         apparel.

         The Company continues to sustain substantial losses, which has
         adversely affected the Company's liquidity. The Company required a cash
         advance from the Chief Executive Officer amounting to $370,000 to pay
         the debt payment and interest that was due on May 1, 1996. The Company
         is also required to make another debt payment on May 1, 1997 amounting
         to approximately $283,000. The Chief Executive Officer of the Company
         has agreed to continue to personally support the Company's cash
         requirement to enable the Company to meet its current obligations
         through December 31, 1997 and fund future operations. In addition, the
         Company plans to aggressively market and sell its product and continue
         to contain costs. Although there can be no assurance that these
         measures will be successful, the Company believes that future
         operations and support from the Chief Executive Officer will provide
         sufficient liquidity to fund current operations.

     2.  Oil and Gas Properties

         The Company accounts for oil and gas properties using a lower of cost
         (full cost method) or market basis. The Company's oil and gas
         properties financial statement carrying value was determined in good
         faith by the Board of Directors in fiscal 1996. The fiscal 1996 oil and
         gas properties financial statement carrying values have been determined
         using year-end oil and gas prices and operating costs in the individual
         local producing areas. These have been held constant throughout the
         life of the properties. Established decline rates have been used and
         projected net revenues have been discounted ten percent a year in
         arriving at the present value shown. Plugging and abandonment costs are
         assumed to be balanced by the sale of lease equipment. The present
         worth values are not necessarily indicative of values that would be
         realized on the sale of these properties.


                                       19
<PAGE>
                           Levcor International, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1995

NOTE A (continued)

     3.  Inventories

         Inventories are stated at the lower of cost (principally average cost)
         or current value based on prevailing market prices. Inventories consist
         of greige and work-in-process goods.

         The Company estimates the markdowns required for the inventory based
         upon future marketability as well as general economic conditions.
         Consequently, an adverse change in those factors could affect the
         Company's estimate of the markdowns.

     4.  Net Loss per Common Share

         Loss per share was calculated by dividing the Company's net loss by the
         weighted average number of common shares outstanding during each year
         adjusted for the dilutive effect of common stock equivalents, when
         applicable.

         On September 7, 1995, by amendment to its Certificate of Incorporation,
         the Company changed its name to Levcor International, Inc. and
         authorized capital stock of 15,000,000 shares of common stock, par
         value $0.56, and effected a one-for-four reverse stock split of all
         outstanding shares of common stock. All references to the number of
         shares and per share amounts reflect the reverse stock split.

     5.  Taxes

         Deferred income taxes are recognized for the estimated future tax
         effects of the temporary differences between the financial reporting
         basis and the tax basis of assets and liabilities.

     6.  Statements of Cash Flows

         For purpose of the statements of cash flows, the Company considers all
         highly liquid debt instruments with a maturity of less than three
         months at the date of purchase as cash equivalents.


                                       20
<PAGE>
                           Levcor International, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1995

NOTE A (continued)

     7.  Stock-Based Compensation Plans

         The Company maintains a stock option plan, as more fully described in
         Note J to the financial statements, accounted for using the "intrinsic
         value" method pursuant to the provisions of Accounting Principles Board
         Opinion No. 25, "Accounting for Stock Issued to Employees." The fair
         value and pro forma effects on the Company's net loss and net loss per
         share are not presented as the fair value of the options granted
         (determined pursuant to Statement of Financial Accounting Standards No.
         123, "Accounting for Stock-Based Compensation") is not material to the
         financial statements.

     8.  Use of Estimates in Financial Statements

         In preparing financial statements in conformity with generally accepted
         accounting principles, management makes estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosures
         of contingent assets and liabilities at the date of the financial
         statements, as well as the reported amounts of revenues and expenses
         during the reporting period. Actual results could differ from those
         estimates.

NOTE B - ACQUISITION

     On May 30, 1995, the Company entered into an asset purchase agreement
     effective May 1, 1995, with Andrex Industries to purchase all of Andrex's
     woven inventory for $1,414,000. The Company issued a promissory note in
     payment of the purchase price. The inventory purchased constitutes
     substantially all of the inventory previously used by Andrex in the
     operation of its woven fabrics division. The chief executive officer and
     director of the Company was formerly the chief executive officer and a
     director of Andrex, and the president and director of Andrex was formerly a
     director of the Company. However, management believes that the terms of the
     asset purchase agreement were negotiated on an arm's-length basis.

     The accompanying financial statements include the results of the Looms
     Woven Operations since May 1, 1995.


                                       21
<PAGE>
                           Levcor International, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1995

NOTE C - CONDENSED FINANCIAL INFORMATION OF THE
           LOOMS WOVEN FABRIC DIVISION

     The following audited condensed financial information of the Looms Woven
     Fabric Division of Andrex Industries Corp. is presented for the period
     commencing September 26, 1994 through April 30, 1995, which represents the
     division's result of operations prior to the sale of the Looms Woven
     Operations to the Company on May 1, 1995.

        Assets                                                 $2,001,000
        Liabilities                                               510,000
        Divisional equity                                       1,491,000
        Net sales                                               2,724,000
        Cost of sales                                           2,661,000
        Selling, general and administrative expenses              287,000
        Interest expense                                           94,000

        Net loss                                                 (318,000)

NOTE D - OIL AND GAS PROPERTIES

     The Company holds various interests in oil and gas leases in the United
     States. At December 31, 1996 and 1995, the Company held interests in 4
     wells located in Oklahoma and 14 wells located in Oklahoma, Texas and
     Wyoming, having a total working interest equivalent of 1.46 wells and 2.18
     wells and a net revenue interest of 1.19 wells and 1.73 wells,
     respectively.

NOTE E - ACCOUNTS RECEIVABLE FACTORED

     Under the factoring agreement, the factor purchases the trade accounts
     receivable and assumes substantially all credit risks with respect to such
     accounts. The agreement allows the Company to obtain advances from the
     factor which bear interest at 1/2% through August 31, 1996 and 1%
     thereafter, above the bank's prime rate. These advances are collateralized
     by all of the factored accounts receivable.


                                       22
<PAGE>
                           Levcor International, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1995

NOTE F - LONG-TERM OBLIGATIONS

     Long-term obligations at December 31, 1996 are as follows:

        Promissory note payable in five equal consecutive
            annual installments of $282,800, commencing on
            May 1, 1996. The note shall bear interest prior
            to maturity at the rate of 6% per annum.              $1,131,200
        Less current maturities                                      282,800
                                                                  ----------

                 Total long-term obligations                      $  848,400
                                                                  ==========

NOTE G - REMUNERATION OF AFFILIATED PERSONS AND
           RELATED PARTY TRANSACTIONS

     1.  During 1996, the Chief Executive Officer advanced $370,000 to the
         Company to pay current obligations. The amount bears interest at 6% and
         has no specified due date.

     2.  During 1996 and 1995, the directors of the Company were paid $5,000 in
         fees for both years. In 1996 and 1995, the Chief Executive Officer
         received a salary of $25,000. The Treasurer received a salary of
         $37,800 and $50,000 in 1996 and 1995, respectively.

NOTE H - INCOME TAXES

     The Company accounts for income taxes under Statement of Financial
     Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
     Under SFAS No. 109, deferred income taxes are recognized for the estimated
     future tax effects of the temporary differences between the financial
     reporting basis and tax basis of assets and liabilities.

     At December 31, 1996, the Company had a net tax operating loss of
     approximately $5,771,000 available to reduce taxable income in future
     years, expiration of which occurs between 1997 and 2011 at the following
     respective amounts each year: $155,000, $227,000, $468,000, $771,000,
     $564,000, $324,000, $690,000, $391,000, $317,000, $156,000, $147,000,
     $188,000, $133,000, $473,000 and $767,000. No assurance can be given as to
     the Company's ability to realize the net


                                       23
<PAGE>
                           Levcor International, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1995

NOTE H (continued)

     operating loss carryforwards. Additionally, the net operating loss
     carryforwards are subject to Internal Revenue Code Section 382, which
     limits the use of the net operating loss, if there is a change in
     ownership.

     A deferred tax asset for this net operating loss carryforward
     (approximately $1,958,000) was reduced to zero by a valuation allowance.

NOTE I - LITIGATION

     The Company's interests in the Kotaneelee field are represented in trust by
     Canada Southern in a statement of claim filed in the Canada court by Canada
     Southern against Amoco Canada Petroleum Company Limited and other parties,
     seeking forfeiture of the Kotaneelee field, damages and other relief for
     breach of fiduciary duty, relating to their responsibility to develop the
     field. Canada Southern is expected to prosecute this case vigorously on
     behalf of itself and the Company. The Company believes that it is too early
     in the proceedings to determine the outcome of this litigation. In
     connection with the sale of the Kotaneelee field, the Company has agreed
     with the purchaser that it will continue to prosecute this action in
     consultation with the purchaser and that the Company and the purchaser will
     each be liable for half of all costs and expenses arising out of the
     action. The Company and the purchaser further agreed that any recovery
     resulting from the resolution of the action would be shared on a 50/50
     basis. The sale also provides that the Company shall indemnify the buyer
     against all actions, proceedings, claims, demands, damages and expenses
     brought against or suffered by the purchaser which arise out of, or are
     attributable to, the Allied - Signal Action. In January 1996, the Company,
     Canada Southern, and other parties entered into a settlement whereby each
     party agreed not to sue any of the other parties and, subsequently, the
     Allied-Signal Action was discontinued.

     In connection with the Company's interests in the Kotaneelee field, the
     Company is a named defendant in a suit brought to the Court of Queen's
     Bench, Province of Alberta by Allied-Signal, Inc. seeking declaratory
     action and claiming judgment for costs and expenses associated with the
     defense of an action brought by Canada Southern Petroleum Ltd. against
     Allied-Signal in a Florida court, a


                                       24
<PAGE>
                           Levcor International, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1995

NOTE I (continued)

     case since dismissed. The Company is vigorously defending the action and
     does not believe it will have a material adverse effect upon the Company's
     financial condition. In connection with the sale of the Kotaneelee field,
     the Company has agreed to indemnify the purchaser against all claims,
     demands, damages and expenses arising out of this action.

     On October 27, 1989, in the Court of Queens Bench of Alberta, Judicial
     District of Calgary, Canada (the Canada Court), Canada Southern filed a
     statement of claim against the Amoco-Dome Group, Columbia, Mobil Oil Canada
     Ltd. ("Mobil") and Esso Resources of Canada Ltd. ("Esso") seeking a
     declaratory judgment regarding two issues relating to the Kotaneelee field:
     (1) whether interest accrued on the carried interest account, which is the
     account for costs recoverable by the working interest parties prior to such
     time as the carried interest parties are entitled to participate in
     revenues derived from the field's activities (Canada Southern maintains it
     does not), and (2) whether expenditures for gathering lines and dehydration
     equipment are expenditures chargeable to the carried interest account
     (Canada Southern maintains they are). Mobil, Esso and Columbia have filed
     answers essentially agreeing to the granting of the relief requested by
     Canada Southern. The Amoco-Dome group has now admitted one of two claims,
     i.e., that interest does not accrue on the carried interest account.

     On September 21, 1989, Ronald M. Hedberg, a former President and director
     of the Company, commenced an action (the "Hedberg litigation") against the
     Company in the Superior Court in New Haven, Connecticut (a) alleging that
     the Company (i) breached an employment agreement (the "Hedberg employment
     agreement") it had entered into with Mr. Hedberg and (ii) wrongfully
     discharged Mr. Hedberg and (b) seeking a doubling of any sum due to him
     pursuant to certain wage payment statutes. Mr. Hedberg sought aggregate
     damages of approximately $250,000.

     Effective as of February 8, 1995, the Company and Mr. Hedberg entered into
     a settlement in respect to such action, pursuant to which: (i) the Company
     paid Mr. Hedberg the sum of $100,000, (ii) the Company received the balance
     of $125,000 from escrow, (iii) Mr. Hedberg withdrew the litigation with
     prejudice and executed a general release of claims against the Company, and
     (iv) the Company withdrew its appeal.


                                       25
<PAGE>
                           Levcor International, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1995

NOTE J - STOCK OPTION PLAN

     On December 8, 1992, the Board of Directors of the Company adopted a Stock
     Option Plan (the "Plan"). The Plan, as amended, authorizes the Company to
     grant options to purchase an aggregate of 500,000 shares of Common Stock to
     induce employees and directors to remain in the employ or service of the
     Company and its subsidiaries and to attract new employees. Options granted
     under the Plan are intended to qualify as incentive stock options ("ISOs")
     within the meaning of Section 422A(b) of the Internal Revenue Code of 1986
     (the "Code"), as amended, or as nonincentive stock options ("NISOs"). The
     Plan is administered by the Board of Directors. The Plan terminates in
     December 2002.

     The Plan provides for discretionary grants of ISOs and NISOs to employees
     (including directors or officers who are also employees) of the Company and
     an automatic annual grant to each non-employee director of options to
     purchase the number of shares derived by dividing $1,500 by the fair market
     value of a share of Common Stock on the date of grant. The initial per
     share option exercise price for an ISO may not be less than the fair market
     value thereof on the date of such grant, or 110% of such fair market value
     with respect to an employee who, at such time, owns stock representing more
     than 10% of the total combined voting power of all classes of stock of the
     Company. The initial per share option exercise price for a NISO may not be
     less than 85% of the fair market value thereof on the date of the grant of
     such option. The initial per share option exercise price for the options
     granted to the nonemployee directors is the fair market value of the common
     stock on the date of the grant thereof.

     As of December 31, 1993, 51,500 options had been granted at an exercise
     price of $.392. Additionally, on January 4, 1994 options for the purchase
     of 14,400 shares at an exercise price of $.312 were granted. During 1995,
     the Company granted to the Chief Executive Officer, 150,000 options at an
     exercise price of $.40 per share and 8,000 options to the Directors at an
     exercise price of $.375 per share. In 1996, the Directors were granted
     6,000 options at an exercise price of $.50 per share. No options were
     exercised for the periods ended December 31, 1995 and 1996; 10,800 options
     were cancelled during 1995.


                                       26
<PAGE>
                           Levcor International, Inc.

                    NOTES TO FINANCIAL STATEMENTS (continued)

                           December 31, 1996 and 1995

NOTE K - COMMITMENTS

     The Company entered into a use and occupancy agreement with Andrex, to
     lease certain office space and for Andrex to provide certain administrative
     services. The annual fee, commencing May 1, 1995, is $55,000 for a three
     year period.

NOTE L - MAJOR CUSTOMERS

     For the years ended December 31, 1996 and 1995, two customers of the Looms
     Division accounted for approximately 22% and 24% of sales, respectively.

NOTE M - SEGMENT INFORMATION

     Segment information for December 31, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>
                                                            Medical        Woven
                                                           equipment       fabric
                                            Oil and gas    financing     converting     Corporate    Consolidated
                     1996                   -----------    ---------     ----------     ---------    ------------
                     ----
       <S>                                    <C>          <C>          <C>            <C>           <C>
       Sales to unaffiliated customers        $49,141      $            $2,848,778     $      80     $2,897,999
       Operating profit (loss)                 91,067                     (433,912)     (377,826)       (720,671)
       Identifiable assets                     90,251                    1,224,101        14,580       1,328,932

                     1995
                     ----
       Sales to unaffiliated customers        $40,432       $36,750     $1,058,386     $   3,492      $1,139,060
       Operating profit (loss)                 14,115        36,750       (305,247)     (326,668)       (581,050)
       Identifiable assets                     41,508           480      1,631,554        16,296       1,699,838
</TABLE>


                                       27
<PAGE>

Item 8.     CHANGES IN, AND DISAGREEMENTS WITH, ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE.

      None.


                                       28
<PAGE>
                                    PART III

Item 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
            PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
            ACT.

      The following table sets forth information concerning each of the
directors and executive officers of the Company:

Names                         Age         Position
-----                         ---         --------
Robert A. Levinson            71          Chairman of the Board,
                                          President and Secretary
John McConnaughy              67          Director
Peter Sprague                 57          Director
Rudolph E. Bremser            65          Treasurer

      Robert A. Levinson has been the Chairman of the Board, President and
Secretary of the Company since June 1989. From 1979 until May 1, 1995, Mr.
Levinson was the Chairman of the Board of Directors of Andrex Industries Corp.,
a company engaged in textile manufacturing and processing. Mr. Levinson is a
member of the Advisory Board of The National Dance Institute and The Harlem
School of the Arts, is Vice Chairman of the Board of Directors of The National
Committee of U.S.-China Relations Inc. and is a director of Belding Hemingway
Corp.

     John McConnaughy has been a director of the Company since June 1989. Mr.
McConnaughy is Chairman and Chief Executive Officer of JEMC Corporation, a
company engaged in exploring investment opportunities. From 1981 until his
retirement in 1992, Mr. McConnaughy was the Chairman of the Board and Chief
Executive Officer of GEO International Corporation, a company engaged in screen
printing and oil services. Mr. McConnaughy also served as President of GEO
International Corporation from 1985 until his retirement in 1992. Mr.
McConnaughy serves as a director of Riddell Sports, Inc., Mego Corporation,
Transact International, Inc., DeVlieg-Bullard, Inc. and Wave Systems Corp.

     Peter Sprague has been a director of the Company since June 1989. Since
1988, Mr. Sprague has been the Chairman of the Board and Chief Executive Officer
of Wave Systems Corp. (formerly known as Cryptologics International, Inc.), a
company involved in data communication. From 1965 until May 1995, Mr. Sprague
served as the Chairman of the Board of National Semiconductor Corporation, a
manufacturer of linear, digital logic and interface integrated circuits, and
hybrid devices. Mr. Sprague serves as a director of Software Professionals, Inc.


                                       29
<PAGE>
      Rudolph E. Bremser has served as the Company's Treasurer since December
1986. From September 1985 to December 1986, Mr. Bremser was an independent
international financial and tax consultant. From 1980 to 1985, Mr. Bremser was a
Senior Financial Representative of Chevron Overseas Petroleum, Inc.

      There are no arrangements or understandings pursuant to which any person
has been elected as a director or executive officer of the Company. Directors
are elected annually by the stockholders and hold office until the next annual
meeting of stockholders and until their respective successors are elected and
qualified. Executive officers are elected by the Board of Directors and hold
office until their respective successors are elected and qualified. There is no
family relationship among any directors or executive officers of the Company.

      The Company believes that, for the year ended December 31, 1996, all
filing requirements of Section 16(a) of the Securities Exchange Act of 1934
applicable to its officers, directors and greater than 10% beneficial owners
were complied with.

      Certain Legal Proceedings.

      On October 25, 1993, GEO International Corporation, a corporation in which
Mr. McConnaughy served as a director and executive officer, filed a petition for
reorganization under Chapter 11 of the United States Bankruptcy Code.

Item 10.  EXECUTIVE COMPENSATION.

      The following table summarizes all compensation awarded to, earned by, or
paid to the President of the Company for services rendered in all capacities to
the Company for each of the Company's last three fiscal years. No other
executive officer of the Company received total salary and bonus in excess of
$100,000 during any of the last three fiscal years.

Summary Compensation Table

                                    Annual              Long-Term
                                   Compensation         Compensation Awards
                             ------------------------   ------------------------
                                               Other
                                               Annual   Securities
Name and                                       Compen-  Underlying    All Other
Principal                    Salary    Bonus   sation     Options   Compensation
Position             Year     ($)       ($)     ($)         (#)          ($)
                     ----    ------    -----   ------   ----------  ------------

Robert A. Levinson   1996   $25,000    - 0 -     N/A        N/A          N/A
 Chairman and        1995   $25,000    - 0 -     N/A      150,000        N/A
 President           1994   $25,000    - 0 -     N/A        N/A          N/A


                                       30
<PAGE>
Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year End Option Value Table(1)

                                             Number of
                                             Securities        Value of
                                             Underlying        Unexercised
                                             Unexercised       in-the-Money
                                             Options           Options
                      Shares                 at Fiscal         at Fiscal
                     Acquired                Year-End(#)       Year-End($)
                       on         Value      -------------     -------------
                     Exercise    Realized    Exercisable/      Exercisable/
Name                   (#)           ($)     Unexercisable     Unexercisable
----                 --------     --------   -------------     -------------

Robert A. Levinson     N/A         N/A       87,500/100,000      N/A(1)

------------------------------
1  At December 31, 1996, none of the options was in-the-money.

Compensation of Directors

      Directors who are not salaried employees of the Company receive an annual
fee of $2,500 and an annual grant (in January) of options to purchase the number
of shares of Common Stock derived by dividing $1,500 by the fair market value of
a share of Common Stock on the date of grant. In 1996, the non-employee
directors were granted 6,000 options to purchase shares of Common Stock at an
exercise price of $0.50 per share.

Item 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
           AND MANAGEMENT.

      The following table sets forth certain information as of March 21, 1997
with respect to the number of shares of the Common Stock beneficially owned by
(i) each person known to the Company to be the beneficial owner of more than
five percent of the Common Stock, (ii) each of the directors of the Company, and
(iii) all of the directors and executive officers of the Company as a group.
Except as otherwise indicated, each such stockholder has sole voting and
investment power with respect to the shares beneficially owned by such
stockholder. A person is deemed to beneficially own a security if he has or
shares the power to vote or dispose of the security or has the right to acquire
it within 60 days.


                                       31
<PAGE>
                                   Amount and Nature
                                      of Beneficial          Percent of
Name and Address                        Ownership               Class
----------------                   ------------------        -----------

Robert A. Levinson                      253,175(1)               13.9%
     1071 Avenue of the Americas
     New York, NY 10018

Rosenman & Colin LLP                    122,250                   7.1%
      575 Madison Avenue
      New York, NY 10022

John McConnaughy                         21,441(2)                1.2%
     1011 High Ridge Road
     Stamford, CT 06905

Peter Sprague                            21,041(2)                1.2%
     540 Madison Avenue
     New York, NY 10022

Rudolph Bremser                           6,650(3)                  *
     2213 Heritage Circle
     Southbury, CT 06488

All directors and executive             302,307(4)               16.4%
  officers as a group (4 persons)

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

 *   Less than 1% of class.

(1)  Includes 87,500 shares of Common Stock subject to currently exercisable
     options.

(2)  Includes 11,466 shares of Common Stock subject to currently exercisable
     options.

(3)  Includes 5,000 shares of Common Stock subject to currently exercisable
     options.

(4)  Includes 115,432 shares of Common Stock subject to currently exercisable
     options.

Item 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      On May 30, 1995, the Company purchased the Looms Divisions from Andrex for
a purchase price of $1,414,000. Robert A. Levinson, Chairman of the Board of
Directors and Chief Executive Officer of the Company, personally guaranteed the
Company's obligations under the promissory note evidencing the purchase price
paid. Although Mr. Levinson was formerly the Chief Executive Officer and a
director of Andrex, and the President of Andrex was formerly a director of the
Company, the Company


                                       32
<PAGE>
believes that the terms of the agreement relating to the acquisition of the
Looms Division were negotiated on an arm's length basis and were at lease as
favorable to the Company as could have been obtained from an unaffiliated third
party.

      In connection with the debt payment which the Company was required to make
in 1996 relating to the purchase of inventory, Mr. Levinson made a loan to the
Company on May 1, 1996 for $370,000 which bears interest at the rate of 6% per
annum. No repayment date has yet been set for such loan.

      As of March 21, 1997 Rosenman & Colin LLP ("Rosenman") beneficially owned
122,250 shares, or approximately 7.1%, of the Company's Common Stock (the
"Shares"). The Shares were issued by the Company to Rosenman in lieu of cash and
in exchange for legal services provided by Rosenman to the Company. The Company
issued 50,000 of the Shares to Rosenman in 1996 for legal services provided by
Rosenman to the Company in 1996.

Item 13.    EXHIBITS, LISTS AND REPORTS ON FORM 8-K.

(a)   (1)   Financial Statements:

      The following Financial Statements of the Company are included in Part II,
Item 7 of this report.

      Report of the Independent Auditors

      Balance Sheet at December 31, 1996

      Statements of Operations for the Years
        Ended December 31, 1996 and 1995

      Statement of Stockholders' Equity for
        the Years Ended December 31, 1996
        and 1995

      Statements of Cash Flows for the Years
        Ended December 31, 1996 and 1995

      Notes to Financial Statements


                                       33
<PAGE>
  (a) (2)   Exhibits:

      The following exhibits are included in this report:

 Exhibit                           Description
 -------   ---------------------------------------------------------------------

   2.1     Asset Purchase Agreement, dated as of May 1, 1995, between the
           Company and Andrex Industries Corp., incorporated herein by reference
           to the Company Current Report on Form 8-K filed on June 12, 1995.

   3.1     Certificate of Incorporation filed August 17, 1967, incorporated
           herein by reference to the Company's Registration Statement on Form
           8-B filed on November 27, 1967.

   3.2     Amendment to Certificate of Incorporation filed August 17, 1972,
           incorporated herein by reference to the Company's Current Report on
           Form 8-K for the month of August 1972.

   3.3     Amendment to Certificate of Incorporation filed December
           17, 1984, incorporated herein by reference to the Company's
           Form N-2 Amendment No. 2 filed on April 3, 1987.

   3.4     Amendment to Certificate of Incorporation filed September 8, 1995,
           incorporated herein by reference to the Company's Current Report on
           Form 8-K filed on September 12, 1995.

   3.5     By-Laws as amended, incorporated herein by reference to the
           Company's Form N-2 Amendment No. 4 filed on May 2, 1989.

    4      Specimen form of the Company's Common Stock certificate.

  10.1+    1992 Stock Option Plan, incorporated herein by reference to the
           Company's Form 10-K filed on March 30, 1993.

   10.2    Occupancy and Use Agreement, dated as of May 1, 1995, between the
           Company and Andrex Industries Corp., incorporated herein by reference
           to the Company's Current Report on Form 8-K filed on June 12, 1995.

   10.3    Factoring Agreement, dated June 1, 1995, between the Company and
           NationsBanc Commercial Corporation, incorporated herein by reference
           to the Company's Form 10-QSB filed on August 18, 1995.

   10.4    Amendment, dated August 14, 1996, effective September 1, 1996, to the
           Factoring Agreement between Levcor International, Inc. and
           NationsBanc Commercial Corporation dated June 1, 1995.

    27     Financial Data Schedule (Article 5) included for Electronic Data
           Gathering, Analysis, and Retrieval (EDGAR) purposes only. This
           Schedule contains summary financial information extracted from the
           Company's balance sheets and statements of operations dated as of and
           for the year ended December 31, 1996, and is qualified in its
           entirety by reference to such financial statements.

--------------------
+  Compensatory plan or arrangement required to be filed as an exhibit hereto.


                                       34
<PAGE>
(b)   Reports on Form 8-K:

      None


                                       35
<PAGE>
                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

LEVCOR INTERNATIONAL, INC.

By /s/ Robert A. Levinson                                  March 24, 1997
  ------------------------------
   Robert A. Levinson
   Chairman of the Board,
   President and Secretary

By /s/ Rudolph E. Bremser                                  March 24, 1997
  ------------------------------
   Rudolph E. Bremser
   Treasurer (Chief Financial
   and Accounting Officer)

      In accordance with 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/ Robert A. Levinson        Chairman of the Board;       March 24, 1997
--------------------------    President; Secretary;
Robert A. Levinson            Director

/s/ John McConnaughy          Director                     March 24, 1997
--------------------------
John McConnaughy

/s/ Peter Sprague             Director                     March 24, 1997
--------------------------
Peter Sprague


                                       36
<PAGE>
                                                                      Exhibit 27

                             Financial Data Schedule

     This schedule contains summary financial information extracted from the
Company's financial statements included in the Company's Form 10-KSB for the
year ended December 31, 1996, and is qualified in its entirety by reference to
such financial statements.

Period Type                              Year
Fiscal Year End                          December 31
Period Start                             January 1, 1996
Period End                               December 31, 1996
Cash                                     4,904
Securities                               0
Receivables                              352,317
Allowances                               0
Inventory                                876,320
Current Assets                           1,243,117
PP&E                                     927,574
Depreciation                             841,759
Total Assets                             1,328,932
Current Liabilities                      1,042,905
Bonds                                    1,218,400
Preferred Mandatory                      0
Preferred                                0
Common                                   964,394
Other                                    (1,896,767)
Total Liability and Equity               1,328,932
Sales                                    2,897,999
Total Revenues                           75,572
CGS                                      2,822,427
Total Costs                              3,618,670
Other Expenses                           0
Loss Provision                           0
Interest Expense                         125,015
Income Pretax                            (720,671)
Income Tax                               0
Income Continuing                        (720,671)
Discontinued                             0
Extraordinary                            0
Changes                                  0
Net Income                               (720,671)
EPS - Primary                            (0.42)
EPS - Diluted                            (0.42)