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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 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
                                December 31, 2005


                             Commission File Number
                                     0-50186


                           LEVCOR INTERNATIONAL, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)


             Delaware                                       06-0842701
   -------------------------------                     -------------------
   (State or Other Jurisdiction of                      (I.R.S. Employer
    Incorporation or Organization)                     Identification No.)


              1065 Avenue of the Americas, New York, New York 10018
              -----------------------------------------------------
                    (Address of Principal Executive Offices)


                                 (212) 354-8500
              ----------------------------------------------------
              (Registrant's Telephone Number, Including Area Code)


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

                                      None


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

                     Common Stock, par value $0.01 per share


Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

                Yes [ ]                           No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.

                Yes [  ]                          No [X]

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 [ ]                           No [X]

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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [ ]   Accelerated  filer [ ]   Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell Company (as defined in
Rule 12b-2 of the Exchange Act)

                Yes [ ]                           No [X]

As of March 27, 2006 there were 5,331,881 shares of the registrant's Common
Stock outstanding, par value $.01 per share. The aggregate market value of the
voting common stock held by non-affiliates of the registrant as of June 30, 2005
was approximately $4,082,646.

                    DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>

                 INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH
                     THE SECURITIES AND EXCHANGE COMMISSION
                          YEAR ENDED DECEMBER 31, 2005

                               ITEMS IN FORM 10-K
                               ------------------

                                                                            Page

PART I

ITEM 1.     BUSINESS.                                                         2
ITEM 1A.    RISK FACTORS                                                      5
ITEM 2.     PROPERTIES.                                                      10
ITEM 3.     LEGAL PROCEEDINGS.                                               11
ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.             11

PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
            MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.               12
ITEM 6.     SELECTED FINANCIAL DATA.                                         14
ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS.                                       15
ITEM 7A.    QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.     29
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                     30
ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE.                                        60
ITEM 9A.    CONTROLS AND PROCEDURES.                                         60
ITEM 9B.    OTHER INFORMATION.                                               61


PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.              62
ITEM 11.    EXECUTIVE COMPENSATION.                                          66
ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT AND RELATED STOCKHOLDER MATTERS.                      69
ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                  71
ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.                          72
ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.                      74

                                       -1-
<PAGE>

                                     PART I

This 2005 Annual Report on Form 10-K contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include statements regarding the intent and belief
or current expectations of the Company and its management team. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements. Such risks and uncertainties include, among other things, the
Company's ability to continue to operate as a going concern, the Company's
lenders continuing to support the Company, the Company's ability to secure
additional financing to meet future capital needs, the timing and amount of
required defined benefit plan contributions, the Company's ability to generate
increased revenues from its Craft division, reliance on short term advances from
a significant stockholder, the Company's ability to generate free cash flow or
obtain additional financing in excess of its debt service and other current
obligations in order to support and grow its Craft business, reliance on a
limited number of significant customers, future revenue opportunities, inventory
risk, growth of the Company's Craft business in Europe and North America, the
expansion and future growth of the Company's customer base and strategic and
distribution relationships future capital, marketing and sales force needs, the
Company's ability to manage expenses and maintain margins, the possible
acquisition of complementary products and businesses, and other risks and
uncertainties that may be detailed herein, and from time-to-time, in the
Company's other reports filed with the Securities and Exchange Commission. The
Company undertakes no obligation to publicly update any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.

Item 1.  DESCRIPTION OF BUSINESS.
General

Levcor International, Inc. ("Levcor" or the "Company") was incorporated in 1964
as Pantepec International, Inc. under the laws of the Islands of Bermuda and was
reorganized in 1967 under the laws of the State of Delaware. In 1995, Pantepec
International, Inc. changed its name to Levcor International, Inc.

In 1995, the Company acquired a woven fabric converting business that converts
cotton, synthetics and blended fabrics for sale to domestic apparel
manufacturers. In 1999, the Company purchased a knit fabric and processing
business that produces knit fabrics used in the production of apparel. These
acquisitions formed the basis of the Textile division's historic fabric
conversion business.

In 2003, the Company acquired by merger Carlyle Industries, Inc. ("Carlyle").
This acquisition formed the basis of the Company's current Craft business.

In 2003, the Company took steps to transition the focus of its Textile division
from fabric converting to contract garment manufacturing, which the Company
believed offered greater potential for growth. In this regard, in 2004, the
Company's Textile division began providing contract garment manufacturing
services for a major customer. During 2004 and 2005, the Textile division
continued to focus on garment manufacturing.

                                      -2-
<PAGE>

During 2003, the Textile division results were adversely affected due to ongoing
competitive pressures in the fabric converting industry. As a result of
operating losses incurred by the Textile division, the Company recorded a $5.4
million charge to fiscal 2003 earnings to reflect the impairment of goodwill
associated with the Textile division. The charge was based upon a third party
goodwill impairment evaluation conducted in connection with the fiscal 2003
audit.

On November 9, 2005, the Company's Board of Directors approved management's plan
to exit the garment manufacturing business. The decision to exit this business
was the result of operating losses incurred this year resulting from lower than
planned business volume from our major customer and an inability to attract
additional customers. In addition, a decrease in margins due to an increase in
raw material costs, the long production lead times and the related working
capital requirements of the business contributed to interest costs that exceeded
the segment's operating profits. The Company has been disposing of the remaining
garment manufacturing inventory since early in the fourth quarter of 2005 and
will continue to dispose of such inventory until fully depleted. The Company
presently intends to continue to conduct until June 30, 2006 the Textile
division's fabric conversion business to a very limited extent but may not be
required to report the Textile division as a separate segment in the future.
Garment manufacturing represented 85%, 96% and 57% of the Textile segment's
revenue during the years ended December 31, 2005, 2004 and 2003. Textile segment
revenues were 28%, 32% and 27% of total sales in 2005, 2004 and 2003
respectively, and as a result of exiting this business, the Company's future
revenue is expected to be significantly lower than in those years.

Management has determined that its disposal of the garment manufacturing
business does not meet the requirements of Financial Accounting Standards Board
No. 144, "Accounting for the Impairment or Disposal of Long-Termed Assets", for
classification as discontinued operations at December 31, 2005.

The results of operations of the garment manufacturing business which the
Company is exiting will not be reported as discontinued operations until the
period in which the related assets are abandoned, distributed or exchanged. At
December 31, 2005, the assets and liabilities of the garment manufacturing
business continue to be classified as held for use and the results of operations
for the twelve months then ended are included in the results of continuing
operations. During the fourth quarter of 2005, the Company wrote down
approximately $396,000 of the carrying value of its remaining Textile division
inventory.

In connection with the preparation of the financial statements for the three and
nine months ended September 30, 2005, management concluded that the carrying
amounts of goodwill and trademarks related to the textile segment totaling $2.3
million and $709 thousand, respectively, were deemed to be fully impaired as of
September 30, 2005 and were written off accordingly.

In addition, in connection with the preparation of the financial statements for
the year ended December 31, 2005, the Company has provided a full valuation
allowance totaling $6.0 million against the deferred tax assets as of December
31, 2005 as a result of the Company's historical losses. This valuation
allowance adjustment is reflected partially in the Company's 2005 income tax
provision of $3.1 million and that portion of the deferred tax asset valuation
reserve related to the Company's pension plan totaling $1.6 million is reflected
in other accumulated comprehensive losses.

                                      -3-
<PAGE>

Products and Customers

Craft Division

The Craft division manufactures, packages and distributes buttons,
embellishments, craft products and complimentary product lines, including
appliques, craft kits and fashion and jewelry accessories. These products are
marketed to the home sewing and craft customers. The Craft division's products
are sold to mass merchandisers, specialty chains and independent retailers and
wholesalers. Products are sold under the La Mode (R), Le Chic (R), Streamline
(R), Favorite Findings (R), Crafter's Images (R), and Button Fashion (R)
registered trademarks and the Le Bouton, La Petite, Classic, Boutique Elegant
and Mill Mountain brand names. The Craft division also produces and distributes
a private-label button line for one of the nation's best-known retailers.

The button products are sold primarily for use in the home sewing market where
buttons are used for garment construction, replacement and the upgrading and/or
restyling of ready-to-wear clothing. More modest button usage is found in craft
projects, home decorating and garment manufacturing. The domestic market is
concentrated and is served by national and regional fabric specialty chains,
mass merchandisers, independent fabric stores, notions wholesalers and craft
stores and chains.

All imported and domestically purchased products for sale in the North American
market are shipped to the Company's Lansing, Iowa facility for packaging and
distribution to customers. As thousands of button styles are received in bulk,
computerized card printing systems enable the Company's wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal") to economically imprint millions
of button cards with such necessary data as style number, price, number of
buttons, bar code, country of origin and care instructions. The Company also
blister-packages and shrink-wraps some products. Domestic shipments are made
primarily to individual stores with a smaller percentage to warehouse locations.
The European business is primarily serviced by third party distributors from the
Company's button manufacturing and distribution facility in Veendam, the
Netherlands.

The Craft division's accounts include fabric and craft specialty chains, mass
merchandisers carrying buttons and crafts, distributors and many independent
stores. Mass merchandisers and specialty chain customers are characterized by
the need for sophisticated electronic support, rapid turn-around of merchandise
and direct-to-store service to customers with hundreds to thousands of locations
nationwide. The Crafts division enjoys long-standing ties to all of its key
accounts and the average relationship with its ten largest customers extends
over 30 years. Due to the large account nature of its customer base, most
customer contact is coordinated by management and additional sales coverage is
provided by regional sales managers. Many smaller retailers are serviced by
independent representatives and representative organizations.

The Craft division's largest three customers (Wal-Mart, a mass merchandiser and
Jo-Ann Stores and Hancock Fabrics, each a specialty chain,) represented
approximately 46%, 25% and 8% respectively, in 2005, 45%, 21% and 8%,
respectively, in 2004, and 47%, 21% and 7%, respectively, in 2003 of the
division's net revenues. These customers also represented approximately 80% and
79% of the Craft division's outstanding accounts receivable as of December 31,
2005, and December 31, 2004, respectively. The Company believes that its craft
business depends on trends within the craft market including the more mature
home-sewing market. The retail customer base for buttons has changed
substantially over the past two decades as department stores and small
independent fabric stores have been replaced by mass merchandisers and specialty
retail chains which have continued to consolidate. In response to this trend,
the Company has broadened its lines to include embellishments, novelty buttons
and products used in the craft industry which are not viewed by management as
mature markets. In addition, the Company has sought to expand its markets beyond
the traditional U.S. retail outlets by expansion into the major European
countries.

                                      -4-
<PAGE>

Textile Division

As described above, the Company experienced significant operating losses in the
Textile division and is now in the process of exiting this business. The Company
presently intends to continue to conduct until June 30, 2006 the Textile
division's fabric conversion business to a very limited extent but may not be
required to report the Textile division as a separate segment in the future.

Competition

The bulk of the Company's Craft revenues are derived in the United States. The
general craft market in the United States is served by many competitors
including companies that are larger in size and have financial resources that
are greater than that of the Company. The Company competes on the basis of
product innovation, range of selection, brand names, price, display techniques
and speed of distribution. The Company competes primarily with full-line button
packagers and distributors in the general button market and several smaller
competitors in the promotional button market. The Craft division's button
product lines are sourced from more than 75 button manufacturers from around the
world, with most buttons coming from the traditional markets of Europe and Asia.
Button manufacturers specialize in different materials (e.g., plastic, wood,
glass, leather, metal, jewel and pearl) and have varying approaches to fashion,
coloration, finishing and other factors. Craft products are developed by the
Craft division's product development team and most of these products are sourced
and produced in the U.S. and Asia. The general craft market is served by many
and varied competitors with innovation and competitive pricing being of major
importance.

Backlog

The Craft division fills at least 95% of its orders within 48 hours and as a
result, had no backlog of any significance at either December 31, 2005 or 2004.
The Textile division had no material backlog as of December 31, 2005.

Employees

The Company currently employs 130 persons, all of whom are employed full time,
and none of its employees are represented by a collective bargaining agreement.
The Company believes relations with employees are satisfactory.

Item 1A. RISK FACTORS

Going Concern Consideration

Our recurring losses from operations in the Textile division and resulting
negative cash flows from operations raise substantial doubt about our ability to
continue as a going concern. These circumstances caused our independent
registered public accounting firm to include an explanatory paragraph in their
report dated March 15, 2006, regarding their concerns about our ability to
continue as a going concern. Substantial doubt about our ability to continue as
a going concern may create negative reactions to the price of the common shares
of our stock and we may have a more difficult time obtaining financing.

                                      -5-
<PAGE>

We have prepared our consolidated financial statements on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts of liabilities that might be
necessary should we be unable to continue in existence.

Due To Limited Cash Resources The Company Is Dependent Upon Its Principal
Stockholder, and Its Lenders To Fund Its Future Operations.

The Company's principal sources of cash flow are from internally generated
funds, borrowings under revolving credit facilities, advances under its
factoring agreement and advances from Robert A. Levinson, a principal
stockholder, officer and director of the Company.

Losses sustained in 2005 and in prior years have materially adversely affected
the Company's liquidity. The Company has no availability under its existing
credit facilities, and there can be no assurance the Company will not require
additional financing to support its operations, that the Company will be able to
obtain any needed additional financing, or that it can obtain additional
financing on favorable terms. Robert A. Levinson, the Company's Chairman and
principal stockholder, has agreed to continue to personally support the
Company's cash requirements through January 1, 2008 by providing short-term
loans to the Company up to a maximum of $3 million. There is currently $1
million of borrowing available from Mr. Levinson. If we (1) do not substantially
achieve our overall projected revenue levels for 2006, (2) fail to operate
within our projected expense levels as reflected in our business operating
plans, or (3) do not receive the ongoing support of our lenders, then we will be
unable to meet our cash and operating requirements for the next twelve months,
which would in turn require us to seek additional financing to fund operations
and/or implement additional expense reductions. Levcor has implemented several
actions to reduce losses and improve cash flow, including exiting the textile
business, reduction of headcount, elimination of non-profitable product lines
and reductions in other general and administrative costs. However, there can be
no assurance that Mr. Levinson will continue to personally support the Company's
cash requirements, that such support from Mr. Levinson, together with the
support of the Company's commercial lenders, will be sufficient to address the
Company's liquidity needs and cash requirements or that the actions taken will
be sufficient to allow the Company to generate net income from continuing
operations.

Maintenance of Existing Credit Facilities is Necessary for the Company to
Continue Operations.

The Company is dependent on the ongoing support of its commercial lenders. Under
its existing credit facilities (which are secured by all the Company's assets),
the lenders have the right to accelerate payment of the loans in the event of
material adverse changes in the Company's business. In addition, CIT has the
right to require repayment of the Company's indebtedness with them on 60 days
notice. The Company has had and continues to have discussions with its lenders
and has provided them with operating forecasts for 2006. The Company's lenders
continue to support the Company, although there is no assurance they will
continue to do so. Management of the Company believes that the likelihood of the
lenders accelerating the payment of any of the obligations under the Company's
facility during the next twelve months is not likely.

Failing to substantially achieve our projected revenue levels for 2006 may also
result in a default under our credit agreement with our lenders. If a default
were to occur and is not timely cured by us or waived by our lenders, or if this
were to happen and our debt could not be refinanced or restructured, our lenders
could pursue remedies, including: (1) penalty rates of interest; (2) demand for
immediate repayment of the debt; and/or (3) the foreclosure on any of our assets

                                      -6-
<PAGE>

securing the debt. If this were to happen and we were liquidated or reorganized
after payment to our creditors, there would likely be insufficient assets
remaining for any distribution to our stockholders.

If Cash Flows from Operations are Not Sufficient to Meet Our Operational Needs,
We may Be Forced to Sell Assets, Refinance Debt, or Further Downsize our
Operations

During the second half of 2005 and first quarter of 2006, we have commenced and
will continue to implement certain expense reduction initiatives which we
anticipate will reduce our operating expenses so that our operating expenses are
in line with our sales forecasts. Our operating plan for 2006 focuses on
eliminating Textile segment operations and lowering fixed and variable expenses.
Although we believe the actions we are taking should allow us to generate profit
from continuing operations, we cannot assure our stockholders that we will
achieve the sales necessary to achieve sufficient liquidity and avoid further
expense reduction actions such as selling assets or consolidating operations,
reducing staff, refinancing debt and/or otherwise restructuring our operations.

Pension Funding

The Company's accumulated benefit obligation with its defined benefit plan at
December 31, 2005 was $21.4 million. The Plan's portfolio of investments totaled
$17.6 million. The current actuarial estimate is that a contribution with
respect to the 2006 Plan Year in the approximate amount of $1.5 million will be
required by September 15, 2007 based on current legislated discount rates and
other actuarial assumptions. The Company is investigating its options regarding
seeking a deferral of such 2006 Plan Year contribution to later years. In
addition, legislation is currently being proposed in the United States Senate
and House of Representatives which could mitigate a portion of this contribution
requirement. There can be no assurance that the Company will be granted a
deferral or that legislation favorable to the Company will be passed, in which
case the Company will be required to obtain additional financing to allow it to
make the payment. There can be no assurance the Company will be able to obtain
such additional financing.

Our Business Is In An Industry That Is Subject To Significant Fluctuations In
Operating Results That May Result In Unexpected Reductions In Revenue.

Our business is in an industry that is subject to significant fluctuations in
operating results, which may lead to unexpected reductions in revenues. Factors
that may influence the Company's operating results include:

         o        the volume and timing of customer orders received;

         o        the timing and magnitude of customers' marketing campaigns;

         o        the loss or addition of a major customer;

         o        the availability and pricing of materials for our products;

         o        the increased expenses incurred in connection with the
                  introduction of new products;

         o        currency fluctuations;

         o        delays caused by third parties; and

         o        changes in our product mix.

                                      -7-
<PAGE>

The Company's Business Is Extremely Competitive.

Competition in the Craft business is based on product innovation, range of
selection, brand names, price, display techniques and speed of distribution. We
cannot assure you that our domestic or foreign competitors will not be able to
offer products that are more attractive to our customers or potential customers
than what we are able to provide. A large number of domestic and foreign
manufacturers supply craft products to the United States market, many of which
have a much more significant market presence and also have substantially greater
financial, marketing, personnel and other resources than the Company. This may
enable the Company's competitors to compete more aggressively in pricing and
marketing and to react more quickly to market trends and to better weather
market downturns. Increased competition by existing and future competitors could
result in reductions in sales or reductions in prices of the Company's products.
There is no assurance that the Company will be able to compete successfully
against present or future competitors or that competitive pressures faced by the
Company will not have a material adverse effect on the Company's results of
operations or financial condition.

A Substantial Portion Of The Company's Revenues And Gross Profits Is Derived
From A Small Number Of Large Customers And The Loss Of Any Of These Customers
Could Substantially Reduce Our Revenues.

The Company's customer base has been and continues to be highly concentrated.
The Textile division's two largest customers (Alfred Dunner, Inc. and Lana Winer
International) accounted for approximately 76% and 21%, respectively, during
2005 and 90% and 6%, respectively, during 2004, and 71% and 4%, respectively,
during 2003 of the division's sales. The Textile division accounted for 28%, 32%
and 27% of the Company's total sales in 2005, 2004 and 2003 respectively. The
Company is in the process of exiting the garment manufacturing business, which
represented substantially all of the Textile division sales.

The Craft division's largest three customers (Wal-Mart, a mass merchandiser and
Jo-Ann Stores and Hancock Fabrics, specialty chains,) represented approximately
46%, 25% and 8%, respectively, in 2005 and 45%, 21% and 8%, respectively, in
2004 and 47%, 21% and 7% respectively, in 2003 of the division's net revenues.
These customers also represented approximately 80% and 79% of the Craft
division's outstanding accounts receivable as of December 31, 2005 and 2004,
respectively.

Based upon historical and recent results and existing relationships with
customers, the Company believes that a substantial portion of its net sales and
gross profits will continue to be derived from a small number of large
customers. Customers generally have the right to terminate their relationship
with the Company without penalty and with little or no notice. Without long-term
contracts with the majority of its customers, the Company cannot be certain that
its customers will continue to purchase its products or that it will be able to
maintain a consistent level of sales. A decision by any of our major customers,
whether motivated by competitive conditions, financial difficulties or
otherwise, to decrease significantly the amount of merchandise purchased from
us, or to change their manner of doing business with us, could substantially
reduce our revenues and have a material adverse effect on our financial
condition and results of operations. There can be no assurance that the
Company's largest customers will continue to place orders with the Company or
that orders by such customers will continue at their previous levels.

The Company's Crafts Business is Subject To The Seasonal Nature Of The Industry

The Craft business is largely based on reorders from its retail customers and on
its ability to place new product lines with retail customers; as a result, the
business is influenced by the buying habits of consumers. Home sewing and craft
activities take place on a year-round basis; however, they are generally indoor

                                      -8-
<PAGE>

activities and as a result they experience an increased participation level
during the fall, winter and early spring months. Anticipating this pattern, the
Company's retail customers place somewhat larger reorders during the July
through March period. Sales are influenced by the introduction of new product
lines and the discontinuance of existing product lines. A successful new program
requires the retail customer to add the program and experience an acceptable
level of sell-through. The Company develops and introduces new program ideas on
a regular basis. However, there is no assurance that its retail customers will
buy the new product lines and if they do, there is no assurance the consumer
will purchase the new product at an acceptable level.

The Company's seasonality, along with other factors that are beyond its control,
including general economic conditions, changes in consumer behavior, weather
conditions, availability of import quotas and currency exchange rate
fluctuations, could adversely affect the Company and cause its results of
operations to fluctuate. Results of operations in any period should not be
considered indicative of the results to be expected for any future period. The
sale of the Company's products can be subject to substantial cyclical
fluctuation. Sales may decline in periods of recession or uncertainty regarding
future economic prospects that affect consumer spending, particularly on
discretionary items. This cyclicality and any related fluctuation in consumer
demand could have a material adverse effect on the Company's results of
operations and financial condition.

The Future Of The Company Will Depend On Key Personnel That It May Not Be Able
To Retain.

If the Company does not succeed in retaining and motivating existing personnel,
its business will be affected, and the loss of such personnel might result in
the Company not being able to retain customer accounts, generate new business or
maintain sales. The Company depends on the continued services of its key
personnel particularly its employees comprising its sales and marketing
department, product development, purchasing and distribution groups as well as
its two executive officers, Robert A. Levinson and Edward F. Cooke. Each of
these individuals has acquired specialized knowledge and skills with respect to
the Company's lines of businesses and their respective operations. As a result,
if any of these individuals were to leave the Company, the Company could face
substantial difficulty in hiring qualified successors and could experience a
loss in productivity while any such successor obtains the necessary training and
experience.

Recently enacted changes in the Securities Laws and Regulations are likely to
increase costs.

The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") has required changes
in some of our corporate governance, securities disclosure and compliance
practice. In response to the requirements of the Sarbanes-Oxley Act, the SEC has
promulgated new rules in a variety of subjects. Compliance with these new rules
has increased our legal and accounting costs, and we expect these increased
costs to continue indefinitely. These developments may also make it more
difficult for us to attract and retain qualified members of our board of
directors or qualified executive officers.

If we receive other than an unqualified opinion on the adequacy of our internal
control over financial reporting as of December 31, 2007 and future year-ends as
required by Section 404 of the Sarbanes-Oxley Act, investors could lose
confidence in the reliability of our financial statements, which could result in
a decrease in the value of our common stock.

As required by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules
requiring public companies to include a report of management on the company's
internal control over financial reporting in their annual reports on Form 10-K
or 10-KSB that contains an assessment by management of the effectiveness of the

                                      -9-
<PAGE>

Company's internal control over financial reporting. In addition, the public
accounting firm auditing a company's financial statements must attest to and
report on both management's assessment as to whether the company maintained
effective internal control over financial reporting and on the effectiveness of
the company's internal control over financial reporting.

We will be implementing a comprehensive effort to comply with Section 404 of the
Sarbanes-Oxley Act. If we are unable to complete our assessment in a timely
manner or if our independent auditors issue other than an unqualified opinion on
the design, operating effectiveness or management's assessment of internal
control over financial reporting, this could result in an adverse reaction in
the financial markets due to a loss of confidence in the reliability of our
financial statements, which could cause the market price of our shares to
decline.

The Company Is Impacted By Environmental Laws And Regulations.

The Company is subject to a number of federal, state and local environmental
laws and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and comparable
state statutes that impose joint and several liability on present and former
owners and operators, transporters and generators for remediation of
contaminated properties regardless of fault. In addition, the Company is subject
to laws concerning treatment, storage and disposal of waste, the discharge of
effluents into waterways, the emissions of substances into the air and various
health and safety matters. The Company's operations must meet extensive federal,
state and local regulatory standards in the areas of safety, health and
environmental pollution controls. Although the Company believes that its
business is operating in compliance in all material respects with such laws,
statutes and regulations, many of which provide for substantial penalties for
violations, there can be no assurance that future changes in federal, state, or
local regulations, interpretations of existing regulations or the discovery of
currently unknown problems or conditions will not require substantial additional
expenditures.

The Company May Not Have The Necessary Funds To Finance A Required Mandatory
Redemption Of The Series A Preferred Stock.

The Company's Series A preferred stock is subject to mandatory redemption, in
three equal annual installments on June 15, 2007, June 15, 2008 and June 15,
2009, at a price per share of Series A preferred stock equal to $1 per share,
together with an amount representing accrued and unpaid dividends, whether or
not declared, to the date of redemption. This represents a significant future
liability of the Company. There can be no assurance that the Company's business
will generate sufficient cash flow from operations or that future borrowings
will be available in sufficient amounts to enable the Company to redeem the
Series A preferred stock when required to do so. In the event that the Company
fails to redeem the Series A preferred stock on any of the mandatory redemption
dates, the Series A preferred stockholders will be entitled to receive
cumulative cash dividends, and no distribution or dividend in cash, shares of
capital stock or other property will be paid or declared on the common stock.
Similarly, if the redemption on the Series A preferred is not met, and should
the Company liquidate or dissolve, no payment of any kind may be made to the
common stockholders without first satisfying the accrued cash dividends owed to
the Series A preferred stockholders. In addition, Series A preferred stock
redemption payments are currently restricted under the Company's financing
arrangements with its lenders.

Item 2. PROPERTIES.

The Company's principal offices are located at 1065 Avenue of the Americas -
28th floor, New York, New York 10018. The Company leases this property,
approximately 2,700 square feet, at approximately $6,250 per month, from
National Spinning, Inc. The lease expires in August 2007. National Spinning,
Inc. was also a raw material supplier to the Company's Textile division.

The Company also leases an 11,000 square foot office facility in Carlstadt, New
Jersey, at approximately $17,798 per month. The lease expires on May 31, 2009.
The Company also owns a 104,000 square foot packaging and distribution facility
located in Lansing, Iowa and a 35,000 square foot manufacturing and distribution
facility located in Veendam, the Netherlands.

The Company owns a former dye facility located in Emporia, Virginia, which is
leased at a nominal amount to the purchaser of the Company's former Home
Furnishings division under a triple net fifty-year lease which lease expires in
2046.

The Company believes that the facilities are adequate and suitable to service
its present and reasonably foreseeable needs.

                                      -10-
<PAGE>

Item 3. LEGAL PROCEEDINGS.

The Company is subject to a number of federal, state and local environmental
laws and regulations, including those concerning the treatment, storage and
disposal of waste, the discharge of effluents into waterways, the emissions of
substances into the air and various health and safety matters. In addition,
CERCLA and comparable state statutes generally impose joint and several
liability on present and former owners and operators, transporters and
generators for remediation of contaminated properties regardless of fault. These
parties are typically identified as "potentially responsible parties" or "PRPs."

A property owned by the Carlyle Manufacturing Company, Inc. ("CM") (a
non-operating subsidiary) located at 30 Echo Lake Road in Watertown, Connecticut
was being investigated by the United States Environmental Protection Agency
("EPA") during the early 1990's for possible inclusion on the National
Priorities List promulgated pursuant to CERCLA but no such listing ever
occurred. A Site Inspection conducted at this location detected certain on-site
soil and groundwater contamination, as well as contamination of nearby water.
This site is listed on the Connecticut State Hazardous Waste Disposal Site list,
but remediation activity has not been required by the Connecticut Department of
Environmental Protection ("CTDEP"). On December 30, 2005, the Company completed
the sale of this property for a nominal dollar amount. There was no gain or loss
related to this transaction because the property had been fully impaired in an
earlier year.

On or about June 1992, Carlyle received notices from the EPA that Carlyle,
Belding Corticelli Thread Co. ("BCTC") (a discontinued operation) and CM had
been identified, along with 1,300 other parties, as PRPs in connection with the
alleged release of hazardous substances from the Solvents Recovery Service of
New England Superfund Site in Southington, Connecticut (the "SRS site"). Carlyle
settled its alleged liability in connection with the SRS sites by paying $1,626
in connection with a settlement offered to de minimis parties at the SRS site in
1994. BCTC and CM, along with other PRPs, committed to perform the Remedial
Investigation and Feasibility Study ("RIFS") and two Non-Time Critical Removal
Actions ("NTCRA") at the SRS site. The RIFS, and the first NTCRA (except for
certain maintenance activities) have been completed. BCTC and CM have been
allocated approximately 0.04% and 1. 32%, respectively, of costs incurred to
date, based on their alleged volume of waste shipped to the SRS site. The
Company is unable, at this time, to estimate the ultimate cost of the remedy for
the SRS site. In September of 2005, the EPA issued its Record of Decision (ROD)
for the SRS site. The EPA has not yet sent special notice letters to the PRPs to
initiate consent decree negotiations concerning, among other things, the scope
of the work to be performed under the ROD.

The issues referred to above do not include costs that the Company or its
subsidiaries may incur for consultants' or attorneys' fees or for administrative
expenses in connection with the Company's participation as part of a PRP group.
The reserve the Company has established for environmental liabilities, in the
amount of $1.3 million, represents the Company's best current estimate of the
costs of addressing all identified environmental situations, based on the
Company's review of currently available evidence, and takes into consideration
the Company's prior experience in remediation and that of other companies, as
well as public information released by EPA and by the PRP groups in which the
Company or its subsidiaries are participating. Although the reserve currently
appears to be sufficient to cover these environmental liabilities, there are
uncertainties associated with environmental liabilities, and no assurances can
be given that the Company's estimate of any environmental liability will not
increase or decrease in the future. The uncertainties relate to the difficulty
of estimating the ultimate cost of any remediation that may be undertaken,
including any operating costs associated with remedial measures, the duration of
any remediation required, the amount of consultants' or attorneys' fees that may
be incurred, the administrative costs of participating in the PRP groups, and
any additional regulatory requirements that may be imposed by the federal or
state environmental agencies.

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

During 2005 no matters were submitted to stockholders for a vote.

                                      -11-
<PAGE>

                                    PART II.

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES.

The Company's common stock is traded on the Over The Counter Bulletin Board
under the symbol "LEVC.OB." The common stock is thinly traded and no established
liquid trading market currently exists therefor.

The following table sets forth the range of high and low bids of the Company's
common stock for the calendar quarters indicated.

     2005                                       High            Low
                                             ----------     ----------
     First Quarter                           $     2.27     $     2.05
     Second Quarter                                2.07           1.10
     Third Quarter                                 1.29            .85
     Fourth Quarter                                1.25            .46

     2004                                       High            Low
                                             ----------     ----------
     First Quarter                           $     3.95     $     2.50
     Second Quarter                                2.70           1.83
     Third Quarter                                 2.48           1.45
     Fourth Quarter                                2.45           1.55

Holders of Record

As of March 28, 2006 there were approximately 6,350 holders of record of Company
common stock.

Dividend Policy

The Company has not paid any cash dividends on shares of its common stock and
has no present intention to declare or pay cash common stock dividends in the
foreseeable future. The Company is restricted under the financing arrangements
it has with CIT Group/Financial Services, Inc. ("CIT") from declaring or paying
dividends on its common stock without first obtaining CIT's consent. Future
dividends, if any, will be determined by our Board of Directors. For a
description of the financing arrangements, see "Liquidity and Capital
Resources."

                                      -12-
<PAGE>

Stock Option Plans

         The following table provides information, as of December 31, 2005, with
respect to all of the Company's compensation plans under which Common Stock is
authorized for issuance:
<TABLE>
<CAPTION>

                                                                                             Number of securities
                                                                                            remaining available for
                                                                                             future issuance under
                               Number of securities to be     Weighted-average exercise    equity compensation plans
                                 issued upon exercise of        price of outstanding         (excluding securities
Plan Category                     outstanding options,         options, warrants and        reflected in the first
                                  warrants and rights                  rights                       column)
                                  -------------------          ---------------------        -----------------------
<S>                                      <C>                            <C>                         <C>
Equity compensation plans
approved by security holders             411,200                        $2.79                       330,000

Equity compensation plans
not approved by security
holders*                                    0                             0                            0
                                  -------------------          ---------------------        -----------------------
                      Total:             411,200                        $2.79                       330,000
</TABLE>

         * Each director of the Company who is not an employee of the Company
receives an annual director's fee of $15,000, plus $1,000 for each Board meeting
attended by such director and $250 for each Board committee meeting which is not
held on the same day as a Board meeting. The fees are payable in cash or Common
Stock, at the election of the director.

                                      -13-
<PAGE>

Item 6. SELECTED FINANCIAL DATA.

The following selected financial information is qualified by reference to, and
should be read in conjunction with, the Company's consolidated financial
statements and the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere herein. The
selected consolidated income statement data for the years ended December 31,
2005, December 31, 2004 and December 31, 2003 and the selected consolidated
balance sheet data as of December 31, 2005 and December 31, 2004 are derived
from the Company's audited consolidated financial statements which are included
elsewhere herein. The selected consolidated income statement data for the years
ended December 31, 2002 and December 31, 2001 and the selected consolidated
balance sheet data as of December 31, 2003, December 31, 2002, and December 31,
2001 are derived from the Company's audited consolidated financial statements
not included herein.
<TABLE>
<CAPTION>

                                                                        Years Ended December 31,
                                                      --------------------------------------------------------
                                                        2005        2004        2003         2002       2001
                                                      --------    --------    --------    --------    --------
                                                               (In thousands, except per share data)
<S>                                                   <C>         <C>         <C>         <C>         <C>
Consolidated Statement of Operations Data:
Net sales                                             $ 29,401    $ 33,736    $ 30,784    $ 23,728    $ 24,925
Gross profit                                             6,759      10,435       9,535       8,977       9,469
Operating income (loss)                                 (4,148)      2,120      (4,816)      2,637       2,227
Income taxes (benefit)                                   3,077         582         499         800         672
Net income (loss)                                       (8,304)        659      (5,977)      1,429         900
Cost of sales                                           22,642      23,301      21,249      14,751      15,456
Selling, general and administrative expenses             7,898       8,315       8,984       9,340       7,242
Interest expense, net                                      806         605         526         408         565

Per Share Data:
Net income (loss) per common share:
Basic                                                 $  (1.56)   $   0.12    $  (1.20)   $   0.08    $   0.04
Diluted                                               $  (1.56)   $   0.12    $  (1.20)   $   0.08    $   0.04
Average shares outstanding:
Basic                                                    5,332       5,294       5,104      13,935      13,935
Diluted                                                  5,332       5,294       5,104      13,935      13,935

Cash Flow and Related Data:
Net cash provided by (used in) operating activities   $ (1,167)   $ (1,382)   $   (740)   $  1,266    $  1,240
Capital expenditures                                       100          96         158         247          24
Depreciation and amortization
   (excluding amortization of debt issuance costs)         392         459         470         571         717

Balance Sheet Data:
Cash                                                  $     50    $     32    $     44    $     71    $    398
Working capital                                          1,561       4,017       3,137       3,719       2,999
Total assets                                            16,069      24,884      23,677      18,007      16,286
Total long-term debt, net of current maturities          4,299       4,443       3,008       1,732       1,868
Total liabilities                                       29,012      28,069      27,627      18,521      15,833
Total shareholders' deficit                            (12,943)     (3,185)     (3,950)     (5,081)     (4,115)
</TABLE>

                                      -14-
<PAGE>

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and judgments related to
the application of certain accounting policies.

While we base our estimates on historical experience, current information and
other factors deemed relevant, actual results could differ from those estimates.
We consider accounting estimates to be critical to our reported financial
results if (i) the accounting estimate requires us to make assumptions about
matters that are uncertain and (ii) different estimates that we reasonably could
have used for the accounting estimate in the current period, or changes in the
accounting estimate that are reasonably likely to occur from period to period,
would have a material impact on our financial statements.

We consider our policies for revenue recognition to be critical due to the
continuously evolving standards and industry practice related to revenue
recognition, changes to which could materially impact the way we report
revenues. Accounting polices related to: allowance for doubtful accounts,
inventories, impairment of long-lived assets, deferred taxes, pension
liabilities and loss contingencies are also considered to be critical as these
policies involve considerable subjective judgment and estimation by management.
Critical accounting policies, and our procedures related to these policies, are
described in detail below. Also, see Note 1 -- Summary of Business and
Significant Accounting Policies.

Allowance for Doubtful Accounts

The Company extends credit to Craft segment customers that satisfy established
credit criteria. The Craft segment has a significant concentration of credit
risk due to the large volume of business conducted with a few major retail
customers. Our largest retail customers are public companies and as such, the
Company monitors their financial reports on a regular basis and obtains accounts
receivable insurance in certain circumstances.

Accounts receivable, trade, is reported net of reserves for bad debts, returns
and allowances. A reserve for bad debts is determined through analysis of the
aging of accounts receivable at the date of the financial statements and
assessments of collectability based on historical trends. The reserve for bad
debts includes 100% of all invoices that management deems doubtful of
collection. The Company also estimates reserves for sales returns and allowances
based on historical experience.

The Textile segment factors substantially all of its accounts receivable;
therefor, the accounts receivable amount shown on the Consolidated Balance Sheet
is substantially all related to the Company's Craft segment.

Inventories

Inventories are stated at the lower of cost (principally average cost) or
market. Inventories consist of loose buttons, yarn and greige goods, packaged
craft and button products, finished fabric and garments. The Company estimates
markdowns required for inventories based upon future marketability as well as
general economic conditions. The Company regularly reviews inventory quantities
on hand, by item, and records a provision for excess inventory based primarily

                                      -15-
<PAGE>

upon the Company's historical experience and estimated forecast of product
demand using historical and recent ordering data relative to the quantity on
hand for each item. A significant decrease in demand for the Company's products
could result in an increase in the amount of excess inventory quantities on
hand; however, the Company manages inventory and monitors product purchasing to
reduce this risk.

Impairment of Long-Lived Assets

The Company evaluates goodwill and indefinite lived intangible assets on an
annual basis and whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable. Long-lived assets, including
property and equipment, long-term assets and amortizable intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be fully recoverable. Conditions that would
necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. The Company assesses impairment in accordance with the requirements
of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
The Company assesses the impairment of goodwill and intangible assets in
accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets. The Company determines the recoverability of the assets by comparing the
carrying amount of the assets to net future cash flows that the assets are
expected to generate. The impairment recognized is the amount by which the
carrying amount exceeds the fair market value of the assets.

In the quarter ended September 30, 2005, management concluded that the carrying
amounts of goodwill and trademarks related to the Textile segment totaling $2.3
million and $0.7 million, respectively, were deemed to be fully impaired and
were written off accordingly. The Company's annual goodwill and other intangible
asset impairment tests performed in the fourth quarter of 2005 with respect to
the Craft segment indicated no impairment of goodwill as of December 31, 2005.
In the fourth quarter of 2003 the Company recorded a goodwill impairment charge
of $5.4 million related to the Textile segment.

Deferred Taxes

Deferred tax assets and liabilities represent estimated future tax amounts
attributable to the differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and their respective tax
bases. These estimates are computed using the tax rates in effect for the
applicable period. Realization of our deferred tax assets is, for the most part,
dependent upon our U.S. consolidated tax group of companies having sufficient
federal taxable income in future years to utilize our domestic net operating
loss carry-forwards before they expire. We adjust our deferred tax valuation
allowance on a quarterly basis in light of certain factors, including our
financial performance.

Pension Liabilities

The determination of pension obligations and the related pension expense or
credits to operations involves significant estimates. The most significant
estimates are the discount rate used to calculate the actuarial present value of
benefit obligations and the expected long-term rate of return on assets used in
calculating the pension charges or credits for the year. The Company uses
discount rates based on yields of highly rated fixed income debt securities at
the end of the year. At December 31, 2005, the weighted average discount rate
for all plans was 5.75%. The Company uses an expected long-term rate of return
on assets that is based on both past performance of the plan's assets and
estimated future performance of the assets. At December 31, 2005, the expected

                                      -16-
<PAGE>

long-term rate of return used was 8%. Due to the nature of the plan's assets and
the volatility of debt and equity markets, results may vary significantly from
year to year. See Note 12 of Notes to Consolidated Financial Statements.

Loss Contingencies

There are times when non-recurring events occur that require management to
consider whether an accrual for a loss contingency is appropriate. Accruals for
loss contingencies typically relate to certain legal proceedings, customer and
other claims and litigation. As required by SFAS No. 5, we determine whether an
accrual for a loss contingency is appropriate by assessing whether a loss is
deemed probable and can be reasonably estimated. We analyze our legal
proceedings, warranty and other claims and litigation based on available
information to assess potential liability. We develop our views on estimated
losses in consultation with outside counsel handling our defense in these
matters, which involves an analysis of potential results assuming a combination
of litigation and settlement strategies. The adverse resolution of any one or
more of these matters over and above the amounts that have been estimated and
accrued in the current consolidated financial statements could have a material
adverse effect on our business, results of operations and financial condition.

Revenue Recognition

In the Craft segment, revenue is recognized when goods are shipped to customers.
Shipment is made by UPS or common carrier. Deliveries generally take place
within three days of shipment. Standard terms for shipments are F.O.B. shipping
point, at which time the Company has completed all performance obligations to
consummate the sale. In some circumstances, shipments are made F.O.B.
destination, in which case the Company insures the sales value of most
shipments.

In the Textile segment, shipments are generally made F.O.B. destination and
revenue is recognized when goods are received by the customer. In some
circumstances, shipments are made F.O.B. shipping point, in which case revenue
is recognized when goods are shipped to the customer.

Revenue is reported net of a reserve for sales returns and allowances. Sales
returns and allowances are estimated based upon specific agreements and
historical patterns with major accounts and are accrued in the period in which a
customer becomes entitled to an allowance or return of product.

Results of Operations

Year Ended December 31, 2005 Compared Year Ended December 31, 2004

Net sales for the year ended December 31, 2005 totaled $29.4 million as compared
to $33.7 million during the year ended December 31, 2004.

Net sales in the Craft segment totaled $21.2 million during the year ended
December 31, 2005 as compared to $23.1 million during the year ended December
31, 2004. The decrease in Craft segment sales totaling $1.9 million was a result
of reduced holiday and seasonal craft orders in the amount of approximately
$800,000 and an increase in sales allowances totaling approximately $360,000 and
lower reorders of everyday product during the first two quarters of the year.
Overall, excluding the effects of the increase in sales allowance, the Company
experienced a 7% reduction in unit volume and a 6% reduction in revenue dollars

                                      -17-
<PAGE>

during the year ended December 31, 2005 as compared to the same period in 2004.
The reduction in holiday and seasonal orders as well as everyday reorders was
the result of our retailer customers more cautious outlook with regard to
inventory commitments in 2005 as compared to 2004.

Net sales in the Textile segment for the year ended December 31, 2005 totaled
$8.2 million as compared to $10.6 million during the year ended December 31,
2004. The decrease in Textile segment sales during 2005 was the result of lower
sales to our major customer, which lower sales were a reflection of weaker
retail demand for our customer's product in the general apparel marketplace.
Shipments of manufactured garments during the year ended December 31, 2005
reflected a 28.5% volume reduction compared to 2004. The average unit selling
price during the year ended December 31, 2005 was approximately 4.4% lower than
in 2004.

Gross margin during the year ended December 31, 2005 was $6.8 million as
compared to $10.4 million during the year ended December 31, 2004. The gross
margin percent totaled 23.0% during the year ended December 31, 2005 as compared
to 30.9% during the year ended December 31, 2004.

Gross margin in the Craft segment totaled $7.3 million during the year ended
December 31, 2005 as compared to $8.3 million during the same period last year.
The Craft segment gross margin percent during the year ended December 31, 2005
totaled 34.2% as compared to 36.0% during the year ended December 31, 2004. The
decrease in Craft segment gross margin dollars was the result of lower net sales
as described above. The decrease in Craft segment gross profit percent was
primarily the result of $360,000 of incremental sales allowances related to a
merchandise change at a major customer during the second quarter.

Gross margin in the Textile segment totaled a loss of $501,000 during the year
ended December 31, 2005 versus gross profit of $2.1 million during the year
ended December 31, 2004. The gross (loss) percent for the year ended December
31, 2005 totaled (6.1%) as compared to a gross margin of 19.8% for the year
ended December 31, 2004. The decrease in Textile segment gross margin for the
year ended December 31, 2005 was the result of the $2.4 million reduction in
sales contributing to an inability to leverage costs, an increase in variable
cost of goods sold associated with raw material and freight costs that could not
be passed on to our customer and a $404,000 write-down of inventory components.

Selling, general and administrative expenses totaled approximately $7.9 million
for the year ended December 31, 2005, as compared to $8.3 million for the year
ended December 31, 2004. The reduction in general and administrative expenses
was primarily the result of reduced compensation expense and lower rent expense.

Impairment of goodwill and trademarks related to the Textile segment totaled
$3.0 million for the year ended December 31, 2005 as compared to none for the
same period in 2004.

Other income of $102,000 resulted from the sale of an investment in 2004. There
was no such sale in 2005.

Loss before interest, preferred dividends and income taxes for the year ended
December 31, 2005 totaled $4.1 million as compared to income of $2.1 million for
the year ended December 31, 2004. The decrease in income before interest,
preferred dividends and income taxes for the year ended December 31, 2005
compared to the year ended December 31, 2004 was due to the reduction in gross
profit totaling $3.6 million, as discussed above, combined with the goodwill and
trademark impairment charges of $3.0 million, offset in part by the reduction in
selling, general and administrative expenses.

                                      -18-
<PAGE>

Net interest expense for the year ended December 31, 2005 totaled $806,000 as
compared to net interest expense of $605,000 for the year ended December 31,
2004. The increase in interest expense as compared to the same period in 2004
was primarily the result of higher average interest rates of approximately 200
basis points in 2005 as compared to 2004 in addition to a higher level of
indebtedness during 2005.

Dividends on mandatory redeemable preferred stock totaled $273,000 in 2005 as
compared to $274,000 in 2004.

The provision for income taxes for the year ended December 31, 2005 was $3.1
million as compared to a provision of $582,000 for the year ended December 31,
2004. Because the Textile division's goodwill and trademark did not have tax
basis, there was no related tax benefit resulting from the impairment charges.
In addition, that portion of the Company's deferred tax asset related to NOLs
expiring in 2005 totaling $317,000 was written off as unutilized and, further, a
valuation allowance in the amount of $6.0 million was recorded against the
Company's remaining deferred tax assets, $3.1 million of which is included in
the provision for income tax for the year ended December 31, 2005 and $1.6
million of which related to the Company's defined benefit plan liability and was
recorded as an adjustment to Other Accumulated Comprehensive Loss in
stockholders' equity.

Total assets in the Textile segment were $1.2 million as of December 31, 2005 as
compared to $5.5 million as of December 31, 2004. The reduction was largely the
result of the $3.0 million goodwill and trademark impairment as well as
operating losses incurred in the business in 2005.

Total operating loss for the Textile segment was $5.1 million during the year
ended December 31, 2005 as compared to $71,000 operating profit during the year
ended December 31, 2004.

Total assets in the Craft segment were $14.5 million as of December 31, 2005 and
2004.

Total operating income for Craft segment was $2.4 million during the year ended
December 31, 2005 as compared to $3.1 million during the year ended December 31,
2004.

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Net sales for the year ended December 31, 2004 increased approximately $3.0
million to $33.7 million from $30.8 million for the year ended December 31,
2003.

Net sales in the Textile segment increased $2.2 million to $10.6 million for the
year ended December 31, 2004 from $8.4 million for the same period in 2003. The
increase in Textile segment sales during 2004 was the result of additional sales
to existing customers of additional contract garment manufacturing product lines
in 2004 as compared to 2003. The women's wear segment of the contract garment
manufacturing business in which the Textile division competes is very seasonal
and, based upon our current customer base, sales are heavily weighted primarily
to the third quarter and to a lesser extent the fourth quarter.

                                      -19-
<PAGE>

Net sales in the Craft segment totaled $23.1 million in 2004 as compared to
$22.3 million in 2003. The increase in Craft segment sales was the result of
higher seasonal craft orders and increased button sales in 2004 as compared to
2003 and lower reserves for sales returns and allowances in 2004 as compared to
2003. Craft segment 2004 sales reflected an 11% increase in unit volume and a 6%
increase in revenue dollars as compared to 2003. The reserves for sales returns
are anticipated to increase in 2005, as discussed below.

Gross margin in 2004 was $10.4 million as compared to $9.5 million in 2003. The
increase in gross margin dollars was the result of increased sales
volume/pricing as described above. The gross margin percent totaled 31.0% for
each of the years ended December 31, 2004 and 2003.

Gross margin in the Textile segment totaled $2.1 million for then year ended
December 31, 2004 versus $1.3 million for the same period in December 31, 2003.
The increase in Textile segment gross margin in 2004 was the result of the
higher level of sales in the segment. The gross margin percent in 2004 totaled
19.8% as compared to 15.4% in 2003. The increase in gross margin percent was the
result of the Company's improved leverage of fixed cost of sales.

Gross margin in the Craft segment totaled $8.3 million for the year ended
December 31, 2004 as compared to $8.2 million for the same period in 2003. The
gross margin percent in 2004 totaled 36.1% as compared to 36.9% in 2003. The
increase in Craft segment gross margin dollars was the result of increased
sales. The decrease in Craft segment gross margin percent was the result of
higher variable cost of goods sold, particularly in the categories of product
development and freight and shipping.

Selling, general and administrative expenses totaled $8.3 million for the year
ended December 31, 2004 as compared to $9.0 million for the same period in 2003.
The reduction in general and administrative expenses was primarily the result of
reduced compensation expense.

Other income of $102,000 included in selling, general and administrative
expenses in 2004 was the result of a sale of an investment. There was no
comparable item in 2003.

Goodwill impairment totaling $5.4 million was recorded in 2003 as a result of
operating losses sustained by the Textile division. There was no further
impairment recorded in 2004.

Income before interest, preferred dividends and income taxes for the year ended
December 31, 2004 totaled $2.1 million as compared to a loss of $4.8 million for
the same period in 2003. The increase in income before interest, preferred
dividends and income taxes in 2004 compared to 2003 was due to the improvement
in gross profit, lower general and administrative expenses, the absence of
goodwill impairment and the gain on sale of investment, as discussed above.

Net interest expense for then year ended December 31, 2004 totaled $605,000 as
compared to net interest expense of $526,000 for the same period in 2003. The
increase in interest expense as compared to the same period last year was
primarily the result of higher average debt levels in 2004 as compared to 2003.

Dividends on mandatory redeemable preferred stock totaled $274,000 in 2004 as
compared to $273,000 in 2003.

The provision for income taxes for the year ended December 31, 2004 was $582,000
as compared to $499,000 for the same period in 2003. The increase in the
provision for income taxes was the result of the higher level of income before
income taxes in 2004 as compared to 2003. Because of the Company's net operating
loss carry-forward, the Federal income tax provision at 34% reduces the deferred
tax asset and does not require a cash payment.

                                      -20-
<PAGE>

Total assets in the Textile segment were $5.5 million as of December 31, 2004 as
compared to $5.8 million as of December 31, 2003.

Total operating profit for the Textile segment was $71,000 for the year ended
December 31, 2004 as compared to an operating loss of $6.5 million for the year
ended December 31, 2003.

Total assets in the Craft segment were $14.5 million as of December 31, 2004 as
compared to $13.8 million as of December 31, 2003.

Total operating profit for the Craft segment was $3.1 million for the years
ended December 31, 2004 and 2003.

Liquidity and Capital Resources

The Company's principal sources of cash flow are from internally generated
funds, borrowings under revolving credit facilities, advances under its
factoring agreement and advances from Robert A. Levinson, a principal
stockholder, officer and director of the Company. The Company believes these
sources of cash will be sufficient to meet its liquidity needs for at least the
next 12 months. However, there can be no assurance that the Company will not
require additional financing, due to ongoing losses, debt service requirements
or other factors to meet its liquidity needs, including its obligation to make a
$1.5 million pension plan contribution by September 2007. There can be no
assurance the Company will be able to obtain such additional financing if
needed, in which case the Company's operations would be materially adversely
affected and it could be forced to cease operations

At December 31, 2005 the Company's principal sources of liquidity included cash
of $50,000 and trade accounts receivable of $2.8 million. At March 15, 2006,
cash was approximately $50,000 and trade accounts receivable were approximately
$2.5 million. There was no borrowing capacity available under the Company's
credit facility with CIT as of December 31, 2005; and no such capacity at March
15, 2006. There was an additional $1 million of borrowing available from Mr.
Levinson who has agreed to fund up to $3 million of temporary advances to the
Company.

Following is a summary of our cash flow activities in 2005 as compared to 2004
and 2003.

Cash Flow Summary:
(in thousands)
                                        2005           2004            2003
                                     ----------     ----------     ----------
 Net cash (used in) provided by:
            Operating activities     $   (1,167)    $   (1,382)    $     (740)
            Investing activities           (141)           (61)          (239)
            Financing activities          1,326          1,431            952
                                     ----------     ----------     ----------
            Net change in cash       $       18     $      (12)    $      (27)
                                     ==========     ==========     ==========

         Losses sustained in 2005 and in prior years have materially adversely
affected the Company's long-term liquidity. The Company has limited availability
under its existing credit facilities, and there can be no assurance the Company
will not require additional financing to support its operations, that the
Company will be able to obtain any needed additional financing, or that it can

                                      -21-
<PAGE>

obtain additional financing on favorable terms. Robert A. Levinson, the
Company's Chairman and principal stockholder, has agreed to continue to
personally support the Company's cash requirements through January 1, 2008 by
providing short-term loans to the Company up to a maximum of $3 million. There
is currently $1 million of borrowing available from Mr. Levinson. If we (1) do
not substantially achieve our overall projected revenue levels for 2006, (2)
fail to operate within our projected expense levels as reflected in our business
operating plans, or (3) do not receive the ongoing support of our lenders, then
we will be unable to meet our cash and operating requirements for the next
twelve months, which would in turn require us to seek additional financing to
fund operations and/or implement additional expense reductions. Levcor has
implemented several actions to reduce losses and improve cash flow, including
exiting the garment construction business, reduction of headcount, elimination
of non-profitable product lines and reductions in other general and
administrative costs. However, there can be no assurance that Mr. Levinson will
continue to personally support the Company's cash requirements, that such
support from Mr. Levinson, together with the support of the Company's commercial
lenders, will be sufficient to address the Company's liquidity needs and cash
requirements or that the actions taken will be sufficient to allow the Company
to generate net income from continuing operations.

The Company is dependent on the ongoing support of its commercial lenders. Under
its existing credit facilities (which are secured by all the Company's assets),
the lenders have the right to accelerate payment of the loans in the event of
material adverse changes in the Company's business. CIT has the right to require
repayment of the Company's indebtedness with them on 60 days notice. The
Company's lenders continue to support the Company, although there is no
assurance they will continue to do so. Management of the Company believes that
the likelihood of the lenders accelerating the payment of any of the obligations
under the Company's facility during the next twelve months is unlikely.

Failing to substantially achieve our projected revenue levels for 2006 may also
result in a default under our credit agreement with our lenders. If a default
were to occur and is not timely cured by us or waived by our lenders, or if this
were to happen and our debt could not be refinanced or restructured, our lenders
could pursue remedies, including: (1) penalty rates of interest; (2) demand for
immediate repayment of the debt; and/or (3) the foreclosure on any of our assets
securing the debt. If this were to happen and we were liquidated or reorganized
after payment to our creditors, there would likely be insufficient assets
remaining for any distribution to our stockholders.

Until recently, the Company's Textile division provided offshore contract
garment manufacturing services for a major customer. The nature of this business
was such that a significant inventory investment was required in the early
phases of the production cycle. The Company's borrowing agreement with CIT did
not provide working capital funding for this production until the finished goods
were shipped and billed to the customer. As a result, the Company had utilized
short term credit advances from Mr. Levinson to cover the Textile division's
working capital requirements, which advances were then expected to be repaid at
the completion of the product cycle (when garments were shipped and were billed
to the customer). In 2005, Mr. Levinson advanced $2.5 million to cover the
Textile division's working capital requirements. Because of the operating losses
of this division in 2005, the Company`s repayment to Mr. Levinson has been
limited to $650,000 of such advances leaving an unpaid balance of $1.850 million
as of December 31, 2005. In previous years, the short term stockholder advance
was repaid in full as the Textile division's working capital cycle was
completed. The Company has and will continue to rely on temporary advances from
Robert A. Levinson, a stockholder, officer and director of the Company. As noted
above, on November 9, 2005, the Company adopted a plan to exit the contract
garment manufacturing business.

                                      -22-
<PAGE>

Net cash flow used in operating activities totaled $1.2 million during the year
ended December 31, 2005, as compared to $1.4 million net cash flow used in
operating activities during the same period last year resulting in a net
decrease in cash flow used in operating activities totaling $215,000.

In 2005, the components of the $1.2 million of net cash used in operating
activities were $1.7 million of the 2005 net loss adjusted for noncash items,
primarily impairment, depreciation and deferred tax valuation allowance, offset
by $580,000 of cash provided by operating assets and liabilities.

In 2004, the components of the $1.4 million of net cash used in operating
activities were $1.5 million of the 2004 net income adjusted for noncash items,
primarily depreciation, deferred tax provision and gain on sale of investment
offset by $2.9 million of cash used by operating assets and liabilities.

Major components of the changes in operating assets and liabilities in 2005 as
compared to 2004 were accounts receivable, inventories and accounts payable.

Changes in accounts receivable provided $841,000 of cash flow in 2005 as
compared to a usage of $826,000 of cash flow in 2004. The primary reason for the
increase in cash flow was a favorable improvement in payment terms with a major
Craft segment customer beginning in the first quarter of 2005.

Changes in inventories provided $83,000 in cash flow in 2005 and used $1.2
million of cash flow in 2004. The favorable comparison was driven primarily by
an inventory increase in the Textile segment in 2004 as compared to 2003 in the
amount of $1.1 million. In 2005, the Textile segment inventory decreased by a
similar amount but that decrease was offset by an increase in the Craft segment
totaling $1.1 million. The increase in the Craft segment inventory was the
result of preparations for a major customer making program changes in the first
quarter of 2006 as compared to the third quarter of 2005 and previous years.

Changes in accounts payable provided $49,000 of cash flow in 2005 as compared to
$21 thousand in 2004. The increase in accounts payable in 2005 was directly
related to the inventory build in the Craft segment as discussed above.

Net cash flow used in investing activities totaled $141,000 during the year
ended December 31, 2005, as compared to $61,000 during the year ended December
31, 2004. This increase was primarily a result of $102,000 of proceeds in 2004
from sale of an investment.

Net cash provided by financing activities totaled $1.3 million during the year
ended December 31, 2005, as compared to $1.4 million during the same period last
year. The decrease in cash provided by financing activities was the result of
reduced borrowing needs due to the lower amounts of cash used in net operating
activities.

Included in net cash provided by financing activities was net proceeds from
stockholder loans during the year ended December 31, 2005 which totaled $2.5
million as compared to $2.1 million during the same period last year. The
increase in stockholder loan is primarily the result of the funding of the
operating activities of the textile segment, which activities are not eligible
for funding under our line of credit with CIT to the extent such activities
relate to off-shore inventory and in transit shipments. In 2004 those activities
produced positive cash flow in that the stockholder loan balance was repaid in
its entirety. In 2005, the operating activities of the Textile segment did not
produce positive cash flow and as a result, the stockholder loan balance has not
been repaid in full. Total borrowings under the stockholder loan for the Textile

                                      -23-
<PAGE>

segment in 2005 were $2.5 million, of which $1.850 million was outstanding as of
the end of the year. $1.0 million of this balance is classified as long term and
$850,000 is classified as short term debt in the consolidated balance sheet as
of December 31, 2005.

Total borrowings in 2005 and 2004 under the CIT revolving credit facility were
$21.0 million and $23.3 million respectively; total repayments in 2005 and 2004
under this facility were $20.8 million and $22.4 million, respectively.
Repayments under the Company's term loan totaled $144,000 in 2005 and 2004. Net
amount repaid to factor during the year ended December 31, 2005 totaled $628,000
as compared to net borrowings of $558,000 during the year ended December 31,
2004.

The Company has a credit facility with CIT and a promissory note payable to
JPMorgan Chase Bank ("JPMorgan"). In addition, the Company has borrowings and
advances outstanding from Robert A. Levinson, a stockholder, officer and
director of the Company.

The Company's credit facility with CIT (the "CIT Facility") provides for maximum
aggregate borrowings of up to $7.5 million in the form of revolving credit,
letters of credit and term loans. The CIT Facility is comprised of separate
financing agreements with the Company and its wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal"). There was no borrowing capacity
available under the Company's credit facility with CIT as of December 31, 2005
or at March 15, 2006.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.4 million of which was outstanding at
December 31, 2005, (ii) revolving credit advances to the Company, $845,000 of
which was outstanding at December 31, 2005 and (iii) revolving credit advances
to Blumenthal based upon eligible accounts receivable and inventory, $3,214,000
of which was outstanding at December 31, 2005, and a Letter of Credit facility
with a limit of $500,000, of which there was none outstanding at December 31,
2005. The Term Loan amortizes $12,000 per month followed by a final installment
payment of $1.2 million due on January 1, 2008. The revolving credit advances
are also due on January 1, 2008. CIT may terminate the Credit Facility upon 60
days written notice. All amounts outstanding under the CIT Facility bear
interest at the Chase Bank N.A. prime rate plus 0.5% with a minimum rate of
5.0%. At December 31, 2005, the applicable Chase rate was 7.75%

In connection with the CIT Facility, the Company and its subsidiary have made
cross corporate guarantees and have issued first priority liens covering
substantially all of the assets of the Company and its subsidiary. The
guarantees are full and unconditional. The non-guarantor subsidiary is
immaterial and the Company's consolidated financial statements are
representative of the combined guarantors of which the guarantor subsidiary is
100% owned. In addition, Mr. Robert A. Levinson, a stockholder, officer and
director of the Company, provided certain collateral against advances provided
under the CIT Facility.

The CIT Facility contains representations and warranties and events of default
customary for agreements of this nature such as restrictions on incurring more
debt, acquisitions, the use of proceeds from the sales of assets, the
prohibition of preferred stock redemptions, dividend payments in excess of
$300,000 per year, and a change in voting control of the Company. The CIT
Facility also contains a subjective acceleration clause which states that,
except for the Term Loan, all obligations shall, at CIT's option, be immediately
due and payable without notice or demand upon the occurrence of any change in
the Company's condition or affairs (financial or otherwise) that, in CIT's sole
discretion exercised by CIT in accordance with CIT's business judgment,
materially impairs the collateral or increases CIT's risk. In the case of the
Term Loan, CIT may accelerate the maturity in the event of a default by the
Company after thirteen months notice of such acceleration. Management of the
Company believes that the likelihood of CIT accelerating the payment of any of
the obligations under the CIT Facility during the next twelve months is remote.

                                      -24-
<PAGE>

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (7.25% at December 31, 2005). The Company pledged
its Textile segment's eligible accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of April 30, 2007 as amended. The note bears
interest at a fixed rate per annum equal to the Adjusted LIBO Rate applicable to
such note plus 0.75% (a "Eurodollar Loan"). The interest rate on the note at
December 31, 2005 was 5.22%. In addition, Robert A. Levinson, a stockholder,
officer and director of the Company, has provided certain additional collateral
guaranteeing the note.

Robert A. Levinson, a stockholder, has agreed to personally support the
Company's cash requirements to enable it to fulfill its obligations through
January 1, 2008, to the extent necessary, up to a maximum amount of $3.0
million. The Company believes its reliance on such commitment is reasonable and
that Mr. Levinson has sufficient liquidity and net worth to honor such
commitment. The Company believes that Mr. Levinson's written commitment provides
the Company with the legal right to request and receive such advances. In the
event that Mr. Levinson did not honor such commitment, the Company would have
the right to sue Mr. Levinson for breach of his agreement. Mr. Levinson
reaffirmed this undertaking in writing on March 21, 2006.

Mr. Levinson has provided loans of $2,804,000 including accrued interest of
$454,000 to the Company as of December 31, 2005. During 2005, he made short term
advances of approximately $2.5 million during the twelve months ended December
31, 2005 of which $1.850 million was outstanding at December 31, 2005. Mr.
Levinson has agreed not to seek repayment of $1.0 million of these 2005 advances
before January 1, 2008 and as such $1.0 million of these advances are classified
as non-current on the Company's December 31, 2005 Balance Sheet. He has pledged
collateral in support of certain Company obligations. See Note 8 for a
description of these transactions.

The Series A Preferred Stock is subject to mandatory redemption, to the extent
the Company may lawfully do so, in three equal annual installments on June 15,
2007, June 15, 2008 and June 15, 2009, in each case, from funds legally
available therefor, at a price per share of Series A Preferred Stock equal to $1
per share, together with an amount representing accrued and unpaid dividends,
whether or not declared, to the date of redemption. Dividends on the Series A
Preferred Stock accrue at a rate of $0.06 per annum per share when, as and if
declared by the Company and are payable quarterly on March 15, June 15,
September 15 and December 15. Quarterly dividends which are not paid in full in
cash on any dividend payment date will accumulate without interest. Under the
terms of the CIT Facilities, preferred stock redemption payments are prohibited
and preferred stock dividend payments are limited to $300,000 per year.

The availability of resources to make dividend payments to the holders of Series
A Preferred Stock in the future will depend on the Company's future earnings and
cash flow. Under Delaware law, preferred dividend payments are restricted to the

                                      -25-
<PAGE>

Company's accumulated or current earnings and profits. Losses in 2005 and
earlier years have depleted the Company's accumulated earnings and profits and,
as such, future preferred dividend payments will be limited to future earnings
and profits. In this regard, the Company was unable to pay the March 15, 2006
Preferred Stock dividend. Preferred dividends which cannot be paid under
Delaware law will continue to accrue and will be added to the Preferred Stock
liability account.

A summary of the Company's December 31, 2005 contractual obligations and
commitments is as follows:
<TABLE>
<CAPTION>

                                                       Less than                                   More than
                                          Total         1 year        1-3 years      3-5 years      5 years
                                       ----------     ----------     ----------     ----------     ----------
<S>                                    <C>            <C>            <C>            <C>            <C>
CIT asset based loan                   $    4,059     $    4,059     $       --     $       --     $       --
CIT Factor payable                            775            775             --             --             --
Short term loan - stockholder                 850            850             --             --             --
Term loans                                  4,443            144          4,299             --             --
Long term debt - stockholder                1,847             --          1,847             --             --
Pension liabilities                         5,677            133          1,444            252          3,848
Post retirement medical liabilities         1,960            142            389            216          1,213
Environmental liabilities                   1,348             30            200            200            918
Preferred stock                             4,555             --          4,555             --             --
Preferred dividends                         1,092            273            819             --             --
Operating lease obligations                   976            334            642             --             --
                                       ----------     ----------     ----------     ----------     ----------
                                       $   27,582     $    6,740     $   14,195     $      668     $    5,979
                                       ==========     ==========     ==========     ==========     ==========
</TABLE>

Interest is payable monthly at 8% on third-party loans and accrues at a 6% rate
on stockholder loans pursuant to the terms of these loans.

Seasonality and New Product Lines

The Company's Craft business is largely based on its ability to fulfill reorders
of existing product lines and to place new product lines with its retail
customers. The business is fundamentally influenced by the buying habits of
consumers. Home sewing and craft activities take place on a year-round basis;
however, they are generally indoor activities and as a result they experience an
increased participation level during the fall, winter and early spring months.
Anticipating this pattern, the Company's retail customers place somewhat larger
reorders during the July through March period. Sales are influenced by the
introduction of new product lines and the discontinuance of existing product
lines. A successful new program requires the retail customer to add the program
and experience an acceptable level of sell-through. The Company develops and
introduces new program ideas on a regular basis. However, there is no assurance
that its retail customers will buy the new product lines and if they do, there
is no assurance the consumer will purchase the new product at an acceptable
level.

The sale of the Company's products can be subject to substantial cyclical
fluctuation. Sales may decline in periods of recession or uncertainty regarding
future economic prospects that affect consumer spending, particularly on
discretionary items. This cyclicality and any related fluctuation in consumer
demand could have a material adverse effect on the Company's results of
operations and financial condition.

                                      -26-
<PAGE>

Impact of Inflation

The Company's results are affected by the impact of inflation on operating
costs. Historically, the Company has used selling price adjustments, cost
containment programs and improved operating efficiencies to offset the otherwise
negative impact of inflation on its operations.

Recently Issued Accounting Pronouncements

SFAS No. 123 (Revised 2004) ("SFAS No. 123R"), "Share-Based Payment," issued in
December 2004, is a revision of FASB Statement 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. The Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SFAS No. 123R requires a public
entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during
which an employee is required to provide service in exchange for the award. On
March 29, 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB No.
107"), which provides the Staff's views regarding interactions between SFAS No.
123R and certain SEC rules and regulations and provides interpretations of the
valuation of share-based payments for public companies.

SFAS No. 123(R) permits public companies to adopt its requirements using one of
two methods:

(1) A "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of SFAS No.
123(R) for all share-based payments granted after the effective date and (b)
based on the requirements of SFAS No. 123 for all awards granted to employees
prior to the effective date of SFAS No. 123(R) that remain unvested on the
effective date.

(2) A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under SFAS No. 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b)
prior interim periods of the year of adoption.

This statement is effective for the beginning of the first annual reporting
period that begins after June 15, 2005, therefore, we will adopt the standard in
the first quarter of fiscal 2006 using the modified prospective method. As
permitted by SFAS No. 123, we currently account for share-based payments to
employees using the intrinsic value method prescribed in APB Opinion 25 and, as
such, generally recognize no compensation cost for employee stock options.
Although we have not completed our assessment, we believe the impact on our
consolidated financial position or results or operations will not be material
given the current number of outstanding stock options. The effect on our results
of operations of expensing stock options using the Black-Scholes method is
presented in the disclosure of pro forma net income and earnings per share in
Note 1. SFAS No. 123(R) also requires the benefits of tax deductions in excess
of recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS No. 154"). SFAS No. 154 requires the retrospective application to prior

                                      -27-
<PAGE>

periods' financial statements of changes in accounting principle, unless it is
impractible to determine either the period-specific effects or cumulative effect
of the accounting change. SFAS No. 154 also requires that a change in
depreciation, amortization, or depletion method for long-lived non-financial
assets be accounted for as a change in accounting estimate affected by a change
in accounting principle. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005 and
we will adopt this provision, as applicable, during fiscal year 2006.

In March 2005, the FASB issued FIN No. 47, "Accounting for Conditional Asset
Retirement Obligations - an interpretation of FASB Statement No. 143 "Accounting
for Asset Retirement Obligations ("SFAS No. 143")" ("FIN 47"). FIN 47 clarifies
that the term conditional asset retirement obligation as used in SFAS No. 143,
refers to a legal obligation to perform an asset retirement activity in which
the timing and (or) method of settlement are conditional on a future event that
may or may not be within the control of the entity. Accordingly, an entity is
required to recognize a liability for the fair value of a conditional asset
retirement obligation if the fair value of the liability can be reasonably
estimated. The liability for the conditional asset retirement obligation should
be recognized when incurred. This Interpretation also clarifies when an entity
would have sufficient information to reasonably estimate the fair value of an
asset retirement obligation. FIN 47 is effective for fiscal periods beginning
after December 15, 2005, and we will adopt this provision, as applicable, during
fiscal year 2006.

In November 2005, the FASB issued Staff Position No. 115-1, "The Meaning of
Other Than Temporary Impairment and its Application to Certain Investments"
("FSP 115-1"). FSP 115-1 provides accounting guidance for determining and
measuring other-than-temporary impairments of debt and equity securities, and
confirms the disclosure for investments in unrealized loss positions as outlined
in EITF 03-01, "The Meaning of Other-Than-Temporary Impairments ands its
Application tom Certain Investments". The accounting requirements are effective
for us on January 1, 2006 and will not have a material impact on our financial
position or cash flows.

On July 14, 2005, FASB issued its Exposure Draft, "Accounting for Uncertain Tax
Positions", which is a proposed interpretation to FASB Statement No. 109,
"Accounting for Income Taxes." This proposed interpretation would require an
enterprise to recognize, in its financial statements, the best estimate of the
impact of a tax position. In evaluating whether the probable recognition
threshold has been met, this proposed interpretation would require the
presumption that the tax position will be evaluated during an audit by taxing
authorities. The term probable is used in this proposed interpretation
consistent with its use in FASB Statement No. 5, "Accounting Contingencies", to
mean "the future event or events are likely to occur." Individual tax positions
that fail to meet the probable recognition threshold will generally result in
either (a) a reduction in the deferred tax asset or an increase in a deferred
tax liability or (b) an increase in a liability for income taxes payable or the
reduction of an income tax refund receivable. The impact may also include both
(a) and (b). The proposed interpretation would be effective as of the end of the
first fiscal year ending after December 15, 2005. The initial recognition of the
effect of applying the proposed interpretation would be a cumulative effect of a
change in accounting principle. The comment period for the proposed
interpretation ends on October 28, 2005. The Company is currently evaluating the
impact of the Exposure Draft on its financial statements.

OFF BALANCE SHEET ARRANGEMENTS

         The Company has no off balance sheet arrangements.

                                      -28-
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks arising from transactions in the normal
course of our business, and from obligations under our short term and long term
debt arrangements. Such risk is principally associated with interest rate
fluctuation. We do not use derivative instruments to manage our exposure and do
not currently hold any market risk sensitive instruments for trading purposes.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for a detailed discussion of our
credit arrangements.

Interest Rate Risk

Our short term and long-term third party debt bears interest at floating rates,
and accordingly we are sensitive to changes in prevailing interest rates. At
December 31, 2005, our indebtedness with CIT was at a 7.75% interest rate (based
on the Chase Bank N.A. prime rate plus .5%), and our factoring arrangement with
CIT was at 7.75% (based on CIT's prime rate plus .5%), our indebtedness with JP
Morgan Chase was at a 5.22% interest rate (based on adjusted LIBOR plus .75%).
Our shareholder loan interest is not variable and bore a 6% interest rate. A 1%
increase or decrease in market interest rates that affect our borrowing
arrangements would have a material impact on earnings and cash flow of
approximately $85,000 during the next fiscal year.

Foreign Currency Exchange Rates

Foreign currency exposures arise from transactions denominated in a currency
other than an entity's functional currency and from foreign-denominated revenues
translated into U.S. dollars.

We generally purchase our products in U.S. dollars. However, we source most of
our products in Europe and Asia and, as such, the cost of these products may be
affected by changes in the value of the relevant currencies and related exchange
rates. Changes in currency exchange rates may also affect the relative prices at
which we and our foreign competitors sell products in the same market. We
currently do not hedge our exposure to changes in foreign currency exchange
rates. We cannot assure you that foreign currency fluctuations will not have a
material adverse impact on our financial condition and results of operations.

Customer Concentration

Our sales are concentrated with major retail chains and as such, approximately
40-50% of our sales in 2006 are expected to be from our top three accounts;
these accounts represented 80% of our trade accounts receivable at December 31,
2005. The loss of any one of our major accounts would have a material adverse
impact on our financial condition and results of operations.

                                      -29-
<PAGE>

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page

Levcor International, Inc.  Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm....................   31
Consolidated Balance Sheets as of December 31, 2005 and 2004...............   32
Consolidated Statements of Operations for the Years Ended
 December 31, 2005, 2004 and 2003..........................................   33
Consolidated Statements of Stockholders' Deficit for the Years Ended
 December 31, 2005, 2004 and 2003..........................................   34
Consolidated Statements of Cash Flows for the Years Ended
 December 31, 2005, 2004 and 2003..........................................   35
Notes to Consolidated Financial Statements.................................   36

                                      -30-
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Levcor International, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheets of Levcor
International, Inc. and Subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the years in the three-year period ended December 31, 2005.
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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 Levcor International, Inc. and
Subsidiaries as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2005, in conformity with accounting principles generally
accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's recurring losses from
operations and negative cash flows from operations raise substantial doubt about
its ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

/s/ Friedman LLP
-----------------------------
New York, New York
March 15, 2006

                                      -31-
<PAGE>
<TABLE>
<CAPTION>

                   LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                  (In thousands, except per share information)

                                                                         December 31,      December 31,
                                                                             2005              2004
                                                                        -------------     -------------
<S>                                                                     <C>               <C>
ASSETS
Current Assets:
     Cash                                                               $          50     $          32
     Accounts receivable trade, net                                             2,760             3,601
     Inventories, net                                                           7,725             7,729
     Deferred income taxes                                                         --               898
     Other current assets                                                         173               214
                                                                        -------------     -------------
         Total current assets                                                  10,708            12,474

Property, Plant and Equipment, net                                              2,067             2,305
Goodwill                                                                        2,543             4,843
Deferred income taxes                                                              --             3,611
Other assets                                                                      751             1,651
                                                                        -------------     -------------
         Total Assets                                                   $      16,069     $      24,884
                                                                        =============     =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
     Revolving loan and current maturities of long-term debt            $       4,203     $       3,987
     Due to factor                                                                775             1,403
     Current maturities of stockholder loan                                       850                --
     Accounts payable                                                           1,897             1,848
     Other current liabilities                                                  1,422             1,219
                                                                        -------------     -------------
         Total current liabilities                                              9,147             8,457
                                                                        -------------     -------------
Long-term debt, less current maturities                                         4,299             4,443
Stockholder loan, less current maturity                                         1,847                --
Pension liabilities                                                             5,677             5,907
Post retirement medical liabilities                                             1,960             2,154
Environmental liabilities                                                       1,348             1,388
Other liabilities                                                                 179               349
Mandatory Redeemable Preferred Stock, par value $0.01 per share
     8,000,000 shares authorized:  Shares issued and outstanding:
     Series A - 4,555,007                                                       4,555             4,555
                                                                        -------------     -------------
         Total Liabilities                                                     29,012            28,069
                                                                        -------------     -------------

Commitments and contingencies                                                      --                --

STOCKHOLDERS' DEFICIT
Common Stock, par value $0.01 per share
     15,000,000 shares authorized;
     Shares issued and outstanding: 5,331,881 as of December 31, 2005
         and 5,329,564 at December 31, 2004                                        54                54
Paid in capital                                                                33,238            33,234
Accumulated Deficit                                                           (41,839)          (33,535)
Accumulated Other Comprehensive Loss                                           (4,332)           (2,858)
Unearned Compensation                                                             (64)              (80)
                                                                        -------------     -------------
Total Stockholders' Deficit                                                   (12,943)           (3,185)
                                                                        -------------     -------------
Total Liabilities and Stockholders' Deficit                             $      16,069     $      24,884
                                                                        =============     =============
</TABLE>

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

                                      -32-
<PAGE>
<TABLE>
<CAPTION>

                           LEVCOR INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

                                                                    Years Ended December 31,
                                                           ----------------------------------------
                                                              2005           2004           2003
                                                           ----------     ----------     ----------
<S>                                                        <C>            <C>            <C>
Net sales                                                  $   29,401     $   33,736     $   30,784
Cost of sales                                                  22,642         23,301         21,249
                                                           ----------     ----------     ----------
Gross profit                                                    6,759         10,435          9,535
Selling, general and administrative expenses                    7,898          8,315          8,984
Goodwill and Trademarks impairment - Textile segment            3,009             --          5,367
                                                           ----------     ----------     ----------
Operating Income(loss)                                         (4,148)         2,120         (4,816)
Interest expense, net                                             806            605            526
 Dividends on mandatory redeemable preferred stock                273            274            136
                                                           ----------     ----------     ----------
Income (loss) before income taxes                              (5,227)         1,241         (5,478)
Provision for income taxes                                      3,077            582            499
                                                           ----------     ----------     ----------
Net income (loss)                                              (8,304)           659         (5,977)
Less dividends on mandatory redeemable preferred stock             --             --            137
                                                           ----------     ----------     ----------
Income (loss) applicable to common stock                   $   (8,304)    $      659     $   (6,114)
                                                           ==========     ==========     ==========

Earnings (loss) per share:
         Basic                                             $    (1.56)    $      .12     $    (1.20)
                                                           ==========     ==========     ==========
         Diluted                                           $    (1.56)    $      .12     $    (1.20)
                                                           ==========     ==========     ==========

Weighted average shares outstanding - basic                     5,332          5,294          5,104
Potential common stock                                             --             73             --
                                                           ----------     ----------     ----------
Weighted average shares outstanding - diluted                   5,332          5,367          5,104
                                                           ==========     ==========     ==========
</TABLE>

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

                                      -33-
<PAGE>
<TABLE>
<CAPTION>

                           LEVCOR INTERNATIONAL, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                     AND OTHER COMPREHENSIVE INCOME (LOSS)
                      (In thousands except per share data)

                                     Compre-                          Accum.Other
                                     hensive               Additional   Compre-       Common Stock       Treasury Stock
                                     Income    Accumulated   Paid in    hensive   ------------------  -----------------   Unearned
                            Total    (Loss)      Deficit     Capital    Losses     Amount   Shares     Amount   Shares  Compensation
                          --------   --------   ---------   --------   --------   -------  ---------  -------- --------  ---------
<S>                       <C>                   <C>         <C>        <C>        <C>        <C>       <C>                  <C>
January 1, 2003           $ (5,081)             $ (28,080)  $ 26,345   $ (3,485)  $   139  2,786,972  $     --       --  $       0
                          ========              =========   ========   ========   =======  =========  ========  =======  =========
Acquisition of
 Levcor                      6,588                          $  6,864              $   (87) 2,338,280  $    (77) (57,600) $    (112)
Common stock issued              6                                 6                          17,800
Stock-based
 compensation                   31                                31                          14,237
Net loss before
 preferred stock
 activity                   (5,977)    (5,977)     (5,977)
Preferred stock
 dividends                    (137)      (137)       (137)
Foreign translation
 adjustment                     42         42                                42
Amortization unearned
compensation                    16         16                                                                                   16
Pension adjustment             562        562                               562
                                     --------
Total comprehensive
 loss                                $ (5,494)
                                     ========
                          --------              ---------   --------   --------   -------  ---------  -------- --------
December 31, 2003         $ (3,950)             $ (34,194)  $ 33,246   $ (2,881)  $    52  5,157,289  $    (77) (57,600) $     (96)
                          ========              =========   ========   ========   =======  =========  ========  =======  =========
Treasury stock
 acquired in relation
 to stock option
 exercise                       --                               144                    1    170,000      (145) (45,274)
Common stock issued             36                                35                    1     36,000
Retirement of treasury
 stock                          --                              (222)                        (45,274)      222  102,874
Stock-based compensation        31                                31                          11,549
Net income                     659        659         659
Foreign translation
 adjustment                      2          2                                 2
Amortization unearned
 compensation                   16         16                                                                                   16
Pension adjustment              21         21                                21
                                     --------
Total comprehensive
 income                              $    698
                                     ========
                          --------              ---------   --------   --------   -------  ---------  -------- --------  ---------
December 31, 2004         $ (3,185)             $ (33,535)  $ 33,234   $ (2,858)  $    54  5,329,564        --       --  $     (80)
                          ========              =========   ========   ========   =======  =========  ========  =======  =========
Stock-based
 compensation                    4                                 4                           2,317
Net loss                    (8,304)    (8,304)     (8,304)
Foreign translation
 adjustment                     (9)        (9)                               (9)
Amortization unearned
 compensation                   16         16                                                                                    16
Pension adjustment          (1,465)    (1,465)                           (1,465)
                                     --------
Total comprehensive
 income                              $ (9,762)
                                     ========
                          --------              ---------   --------   --------   -------  ---------  -------- --------   ---------
December 31, 2005         $(12,943)             $ (41,839)  $ 33,238   $ (4,332)  $    54  5,331,881        --       --   $     (64)
                          ========              =========   ========   ========   =======  =========  ========  =======   =========

</TABLE>


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

                                      -34-
<PAGE>
<TABLE>

                   LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

                                                                                   Years Ended December 31,
                                                                          ----------------------------------------
                                                                             2005           2004           2003
                                                                          ----------     ----------     ----------
<S>                                                                       <C>            <C>            <C>
Cash Flows Used In Operating Activities:
Net income (loss)                                                         $   (8,304)    $      659     $   (5,977)
Reconciliation of net income (loss)
 to net cash used in operations:
     Goodwill and Trademarks impairment - Textile segment                      3,009             --          5,367
     Depreciation and amortization                                               392            459            470
     Deferred income taxes                                                     2,908            490            557
     Non-cash stock based compensation                                             4             31             31
     Gain on sale of investment                                                   --           (102)            --
     Changes in operating assets and liabilities:
         Accounts receivable trade, net                                          841           (826)          (146)
         Inventories, net                                                         83         (1,204)            85
         Other current assets                                                     41             17             72
         Other assets                                                            105             12           (121)
         Accounts payable                                                         49             21           (528)
         Other current liabilities                                               203           (560)          (345)
         Pension liabilities                                                     (94)          (126)           (10)
         Post retirement medical liabilities                                    (194)          (232)           (77)
         Environmental liabilities                                               (40)            (8)           (19)
         Other liabilities                                                      (170)           (13)           (99)
                                                                          ----------     ----------     ----------
              Net cash used in operating activities                           (1,167)        (1,382)          (740)
                                                                          ----------     ----------     ----------
Cash Flows Used In Investing Activities:
Capital expenditures                                                            (100)           (96)          (158)
Cash acquired from acquisition                                                    --             --              4
Investment in other assets                                                       (41)           (67)           (85)
Proceeds from sale of investment                                                  --            102             --
                                                                          ----------     ----------     ----------
         Net cash used in investing activities                                  (141)           (61)          (239)
                                                                          ----------     ----------     ----------
Cash Flows From Financing Activities:
Borrowings under revolving loan                                               21,055         23,337         21,261
Repayments under revolving loan                                              (20,838)       (22,358)       (21,224)
Repayment of long - term debt                                                   (144)          (144)          (144)
Borrowings under stockholder loan                                              2,531          2,110          1,761
Repayments under stockholder loan                                               (650)        (2,108)        (1,733)
Due to factor                                                                   (628)           558          1,162
Dividends on redeemable preferred stock                                           --             --           (137)
Proceeds from exercise of stock options                                           --             36              6
                                                                          ----------     ----------     ----------
         Net cash provided by financing activities                             1,326          1,431            952
                                                                          ----------     ----------     ----------

Increase (decrease)  in cash                                                      18            (12)           (27)
Cash at beginning of year                                                         32             44             71
                                                                          ----------     ----------     ----------
Cash at end of year                                                       $       50     $       32     $       44
                                                                          ==========     ==========     ==========

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
     Interest                                                             $      653     $      594     $      526
                                                                          ==========     ==========     ==========
     Income taxes                                                         $       17     $       69     $      299
                                                                          ==========     ==========     ==========

Non-cash transactions:
     Stock issued on option exercise                                      $       --     $      145     $       --
                                                                          ==========     ==========     ==========
     Treasury stock acquired in relation to stock option exercise         $       --     $      145     $       --
                                                                          ==========     ==========     ==========
     Retirement of treasury stock                                         $       --     $      222     $       --
                                                                          ==========     ==========     ==========
</TABLE>

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

                                      -35-
<PAGE>

                   LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2005

1 - SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Liquidity:
-----------------------------------
Levcor International, Inc. (the "Company") (i) manufactures, packages and
distributes a line of buttons and other craft products for sale in the home
sewing and craft retail industry and (ii) operates a textile business. The
Company sells its products to customers primarily in the United States and also
has distribution in Canada and Europe. Effective January 6, 2003 Carlyle
Industries, Inc. was merged into Levcor International, Inc. as discussed in note
4.

Consolidation:
--------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries, Blumenthal Lansing Company, LLC and Button Fashion B.V. after
elimination of intercompany items and transactions.

Use of Estimates:
-----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents:
--------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The Company did not have
any cash equivalents at December 31, 2005 and 2004

Property, Plant and Equipment:
------------------------------
Property, plant and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed principally by the
straight-line method for each class of depreciable and amortizable asset based
on their estimated useful lives. Buildings and improvements, machinery and
equipment, and furniture and fixtures are generally depreciated over periods of
20-35, 3-25 and 5-10 years, respectively. Leasehold improvements are amortized
over the shorter of the lease or its estimated useful life.

Credit Risk
-----------
Financial instruments which potentially subject us to concentration of credit
risk consist principally of accounts receivable from Craft division customers.
We perform ongoing credit evaluations of our customers' financial condition and,
generally, require no collateral from our customers. The allowance for non
collection of accounts receivable is based upon the expected collectibility of
all accounts receivable.

Accounts Receivable
-------------------
Accounts receivable (substantially all related to the Company's Craft segment)
are stated at the amount management expects to collect. An allowance for
doubtful accounts is recorded based on a combination of historical experience,
aging analysis and information on specific accounts. Accounts balances are
written off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. The allowance for
doubtful accounts was $50,000 as of December 31, 2005 and 2004, respectively.

                                      -36-
<PAGE>

Due from Factor:
----------------
Under a factoring agreement with CIT Group/Financial Services, Inc. ("CIT" or
the "factor"), the factor purchases the Textile division's trade accounts
receivable without recourse and assumes substantially all credit risks with
respect to such accounts. The factoring agreement allows the Company to obtain
advances, computed on a borrowing base formula from the factor at 8% (prime rate
plus 0.5%). The amounts due to the Company from the factor earn no interest. The
Company has pledged its accounts receivable and property and equipment as
collateral under the factoring agreement.

Inventories
-----------
Inventories are valued at the lower of cost or market using a weighted-average
cost method basis. We make provisions for obsolete or slow moving inventories as
necessary to properly reflect inventory value.

Long-Lived Assets
-----------------
The Company evaluates the carrying value of long-lived assets whenever events or
changes in circumstances indicate the carrying value of an asset may not be
recoverable. When factors indicate the asset may not be recoverable, the Company
compares the related undiscounted future net cash flows to the carrying value of
the asset to determine if impairment exists. If the expected future net cash
flows are less than the carrying value, the asset is written down to its
estimated fair value. When assets are removed from operations and held for sale,
the impairment loss is estimated as the excess of the carrying value of the
assets over their fair value. In the third quarter of 2005, $709,000 of Textile
segment trademark impairment was recorded in connection with this policy. No
such impairments of long-lived assets were recorded for the years ended December
31, 2004 and 2003.

Goodwill:
---------
The Company reviews goodwill for impairment annually, or more frequently if
impairment indicators arise and goodwill is written off when impaired.
Impairment, if any, would be determined based on an implied fair value model for
determining the carrying value of goodwill. The impairment test is a two-step
process. The first step requires comparing the fair value of each reporting unit
to its net book value. The Company uses management estimates of future cash
flows to perform the first step of the goodwill impairment test. Estimates made
by management include assumptions about future conditions such as future
revenues, gross margins and operating expenses. The second step is only
performed if impairment is indicated after the first step is performed, as it
involves measuring the actual impairment to goodwill. In connection with the
Company's plan to exit the garment manufacturing business, all remaining
goodwill related to the Textile segment totaling $2.3 million was written-off.
There was no impairment of goodwill for the year ended December 31, 2004. The
Company recorded a goodwill impairment charge of $5.4 million, also related to
the Textile segment for the year ended December 31, 2003.

Income Taxes:
-------------
The liability method is used in accounting for income taxes as required by SFAS
No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and
liabilities are recognized for operating income and tax credit carryforwards and
for the future tax consequences attributable to the differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in

                                      -37-
<PAGE>

which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the results of operations in the period that includes the
enactment date.

Deferred tax assets and liabilities represent estimated future tax amounts
attributable to the differences between the carrying amounts of assets and
liabilities in the consolidated financial statements and their respective tax
bases. These estimates are computed using the tax rates in effect for the
applicable period. Realization of our deferred tax assets is, for the most part,
dependent upon our U.S. consolidated tax group of companies having sufficient
federal taxable income in future years to utilize our domestic net operating
loss carry-forwards before they expire. We adjust our deferred tax valuation
allowance on a quarterly basis in light of certain factors, including our
financial performance.

The Company has significant deferred tax assets, resulting from net operating
loss carryforwards and deductible temporary differences. As of December 31,
2005, the Company has provided a full valuation allowance against our deferred
tax assets. Management weighs the positive and negative evidence to determine if
it is more likely than not that some or all of the deferred tax assets will be
realized. Forming a conclusion that a valuation allowance is not needed is
difficult when there is negative evidence such as cumulative losses in past
years. The Company will continue to maintain a full valuation allowance on our
tax benefits until profitability has been sustained over a time period and in
amounts that are sufficient to support a conclusion that it is more likely than
not that a portion or all of the deferred tax assets will be realized. A
decrease in our valuation allowance would result in an immediate material income
tax benefit, an increase in total assets and stockholder's equity, and could
have a significant impact on earnings in future periods.

Environmental Liabilities:
--------------------------
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Accruals for
estimated losses from environmental remediation obligations generally are
recognized no later than completion of the remedial feasibility study. Such
accruals are adjusted as further information develops or circumstances change.
Costs of future expenditures for environmental remediation obligations are not
discounted to their present value.

Foreign Currency Translation:
-----------------------------
The assets and liabilities of Levcor's foreign subsidiaries, whose functional
currencies are the local currencies, are translated into United States dollars
at the current exchange rate as of the applicable balance sheet date. Revenues
and expenses are translated at the average exchange rate prevailing during the
period. Gains and losses resulting from the translation of the financial
statements are reported as a separate component of stockholders' deficit. Net
currency transaction gains and losses included in income were not material

Fair Value of Financial Instruments:
------------------------------------
The Company's financial instruments are comprised of revolving debt, long-term
debt, loans payable to stockholder, Robert A. Levinson, and Series A Mandatory
Redeemable Preferred Stock at December 31, 2005 and 2004. The fair values of the
revolving debt, long-term debt and loans payable to Robert A. Levinson
approximate the carrying values because these obligations had market-based
interest rates.

                                      -38-
<PAGE>

Revenue Recognition:
--------------------
In the Craft segment, revenue is recognized when goods are shipped to customers.
Shipment is made by UPS or common carrier. Deliveries generally take place
within three days of shipment. Standard terms for shipments are F.O.B. shipping
point, at which time the Company has completed all performance obligations to
consummate the sale. In some circumstances, shipments are made F.O.B.
destination, in which case the Company insures the sales value of most
shipments.

In the Textile segment, shipments are generally made F.O.B. destination and
revenue is recognized when goods are received by the customer. In some
circumstances, shipments are made F.O.B. shipping point, in which case revenue
is recognized when goods are shipped to the customer.

Revenue is reported net of a reserve for sales returns and allowances. Sales
returns and allowances are estimated based upon specific agreements and or
historical patterns with major accounts.

Advertising:
------------
The Company expenses the cost of advertising at the time the cost is incurred.
Advertising expense totaled approximately $133,000, $189,000 and $86,000 for the
years ended December 31, 2005, 2004 and 2003, respectively.

Stock-Based Compensation Plans:
-------------------------------
As permitted under SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which amended SFAS No. 123, "Accounting
for Stock-Based Compensation", the Company has elected to continue to account
for its stock-based compensation using the intrinsic value method in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees." Under APB No. 25, compensation
expense is recognized over the vesting period based on the excess of the market
closing price over the exercise price on the grant date.

For disclosure purposes, stock compensation expense has been estimated using the
Black-Scholes option-pricing model on the date of grant and assumptions related
to dividend yield, stock price volatility, weighted-average risk free interest
rate and expected life of the stock options which is a fair value based method.
Had the provisions of SFAS No. 123 been applied to the Company's stock option
grants for its stock-based compensation plans, the Company's net (loss) income
and net (loss) income per share for the years ended December 31, 2005, 2004 and
2003, would approximate the pro forma amounts below (in thousands, except per
share amounts):

                             2005          2004            2003
                        ------------   ------------   ------------
Income (loss) applicable
to common stock
         As Reported    $     (8,304)  $        659   $     (6,114)
         Pro Forma      $     (8,374)  $        591   $     (6,147)
         Basic EPS:
         As Reported    $      (1.56)  $        .12   $      (1.20)
         Pro Forma      $      (1.57)  $        .11   $      (1.20)
         Diluted EPS:
         As Reported    $      (1.56)  $        .12   $      (1.20)
         Pro Forma      $      (1.57)  $        .11   $      (1.20)

No options were granted in 2005. The fair value of each option grant in 2004 and
2003 was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions, risk-free interest rates
of 4.74% and 3.93%, expected dividend yields of zero percent; expected lives of
10 years; and expected volatility of 39% and 45%, respectively.

                                      -39-
<PAGE>

Earnings (Loss) Per Common Share:
---------------------------------
Basic earnings (loss) per share is computed by dividing earnings (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share reflects the
potential increase in outstanding shares that could result from exercising
in-the-money stock options. The shares issueable upon the exercise of
in-the-money stock options were not included in the computation of loss per
common share, for the years ended December 31, 2005 and 2003, as the effect
would be anti-dilutive. Accordingly, the 2005 and 2003 diluted loss per share is
the same as the basic loss per share.

Mandatorily Redeemable Preferred Stock:
---------------------------------------
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" (SFAS 150). SFAS 150 requires an issuer to classify
certain financial instruments within its scope, such as mandatorily redeemable
preferred stock, as liabilities (or assets in some circumstances). SFAS 150
defines a financial instrument as mandatorily redeemable if it embodies an
unconditional obligation requiring the issuer to redeem the instrument by
transferring its assets at a specified or determinable date(s) or upon an event
certain to occur. Levcor adopted this standard as required on July 1, 2003.

Reclassifications:
------------------
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.

Recently Issued Accounting Pronouncements:
------------------------------------------
SFAS No. 123 (Revised 2004) ("SFAS No. 123R"), "Share-Based Payment," issued in
December 2004, is a revision of FASB Statement 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. The Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SFAS No. 123R requires a public
entity to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award
(with limited exceptions). That cost will be recognized over the period during
which an employee is required to provide service in exchange for the award. On
March 29, 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB No.
107"), which provides the Staff's views regarding interactions between SFAS No.
123R and certain SEC rules and regulations and provides interpretations of the
valuation of share-based payments for public companies.

SFAS No. 123(R) permits public companies to adopt its requirements using one of
two methods:

(1) A "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of SFAS No.
123(R) for all share-based payments granted after the effective date and (b)
based on the requirements of SFAS No. 123 for all awards granted to employees
prior to the effective date of SFAS No. 123(R) that remain unvested on the
effective date.

                                      -40-
<PAGE>

(2) A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under SFAS No. 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b)
prior interim periods of the year of adoption.

This statement is effective for the beginning of the first annual reporting
period that begins after June 15, 2005, therefore, we will adopt the standard in
the first quarter of fiscal 2006 using the modified prospective method. As
permitted by SFAS No. 123, we currently account for share-based payments to
employees using the intrinsic value method prescribed in APB Opinion 25 and, as
such, generally recognize no compensation cost for employee stock options.
Although we have not completed our assessment, we believe the impact on our
consolidated financial position or results or operations will not be material
given the current number of outstanding stock options. The effect on our results
of operations of expensing stock options using the Black-Scholes method is
presented in the disclosure of pro forma net income and earnings per share in
Note 1. SFAS No. 123(R) also requires the benefits of tax deductions in excess
of recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS No. 154"). SFAS No. 154 requires the retrospective application to prior
periods' financial statements of changes in accounting principle, unless it is
impractible to determine either the period-specific effects or cumulative effect
of the accounting change. SFAS No. 154 also requires that a change in
depreciation, amortization, or depletion method for long-lived non-financial
assets be accounted for as a change in accounting estimate affected by a change
in accounting principle. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005 and
we will adopt this provision, as applicable, during fiscal year 2006.

In March 2005, the FASB issued FIN No. 47, "Accounting for Conditional Asset
Retirement Obligations - an interpretation of FASB Statement No. 143 "Accounting
for Asset Retirement Obligations ("SFAS No. 143")" ("FIN 47"). FIN 47 clarifies
that the term conditional asset retirement obligation as used in SFAS No. 143,
refers to a legal obligation to perform an asset retirement activity in which
the timing and (or) method of settlement are conditional on a future event that
may or may not be within the control of the entity. Accordingly, an entity is
required to recognize a liability for the fair value of a conditional asset
retirement obligation if the fair value of the liability can be reasonably
estimated. The liability for the conditional asset retirement obligation should
be recognized when incurred. This Interpretation also clarifies when an entity
would have sufficient information to reasonably estimate the fair value of an
asset retirement obligation. FIN 47 is effective for fiscal periods beginning
after December 15, 2005, and we will adopt this provision, as applicable, during
fiscal year 2006.

In November 2005, the FASB issued Staff Position No. 115-1, "The Meaning of
Other Than Temporary Impairment and its Application to Certain Investments"
("FSP 115-1"). FSP 115-1 provides accounting guidance for determining and
measuring other-than-temporary impairments of debt and equity securities, and
confirms the disclosure for investments in unrealized loss positions as outlined
in EITF 03-01, "The Meaning of Other-Than-Temporary Impairments and its
Application to Certain Investments". The accounting requirements are effective
for us on January 1, 2006 and will not have a material impact on our financial
position or cash flows.

                                      -41-
<PAGE>

On July 14, 2005, FASB issued its Exposure Draft, "Accounting for Uncertain Tax
Positions", which is a proposed interpretation to FASB Statement No. 109,
"Accounting for Income Taxes." This proposed interpretation would require an
enterprise to recognize, in its financial statements, the best estimate of the
impact of a tax position. In evaluating whether the probable recognition
threshold has been met, this proposed interpretation would require the
presumption that the tax position will be evaluated during an audit by taxing
authorities. The term probable is used in this proposed interpretation
consistent with its use in FASB Statement No. 5, "Accounting Contingencies", to
mean "the future event or events are likely to occur." Individual tax positions
that fail to meet the probable recognition threshold will generally result in
either (a) a reduction in the deferred tax asset or an increase in a deferred
tax liability or (b) an increase in a liability for income taxes payable or the
reduction of an income tax refund receivable. The impact may also include both
(a) and (b). The proposed interpretation would be effective as of the end of the
first fiscal year ending after December 15, 2005. The initial recognition of the
effect of applying the proposed interpretation would be a cumulative effect of a
change in accounting principle. The comment period for the proposed
interpretation ends on October 28, 2005. The Company is currently evaluating the
impact of the Exposure Draft on its financial statements.

2- GOING CONCERN

The accompanying consolidated financial statements have been prepared on a basis
which contemplates the realization of assets and the satisfaction of liabilities
and commitments in the normal course of business. The Company incurred a net
loss attributable to common stockholders of $8.3 million for the year ended
December 31, 2005 of which $3.0 million and $3.1 million represented goodwill
and trademarks impairment and the increase of the deferred tax asset valuation
allowance, respectively. $6.1 million was represented by non cash impairment. In
addition, the Company has an accumulated deficit of $41.8 million and a total
stockholders deficit of $12.9 million at December 31, 2005. The Company's
ability to continue as a going concern is dependent upon its ability to generate
profitable operations in the future and/or to obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal business
operations when they come due. Although management continues to pursue these
plans, there is no assurance that the Company will be successful in obtaining
financing on terms acceptable to the Company. The outcome of these matters
cannot be predicted with any certainty at this time. These factors raise
substantial doubt that the Company will be able to continue as a going concern.
Management plans to continue to provide for its capital needs through
stockholder loans and advances. These financial statements do not include any
adjustments to the amounts and classification of assets and liabilities that may
be necessary should the Company be unable to continue as a going concern.

The audit report prepared by our independent registered public accounting firm
relating to our consolidated financial statements for the year ended December
31, 2005 includes an explanatory paragraph expressing the substantial doubt
about our ability to continue as a going concern.

                                      -42-
<PAGE>

3- GARMENT MANUFACTURING BUSINESS

In 2003, the Company took steps to transition the focus of its Textile division
from fabric converting to contract garment manufacturing, which the Company
believed offered greater potential for growth. In this regard, in 2004, the
Company's Textile division began providing contract garment manufacturing
services for a major customer. During 2004 and 2005, the Textile division
continued to focus on garment manufacturing, although it incurred continuing and
increasing operating losses due to the factors described below.

On November 9, 2005, the Company's Board of Directors approved management's plan
to exit the garment manufacturing business. Garment manufacturing represented
85%, 96% and 57% of the Textile segment's revenue during the years ended
December 31, 2005, 2004 and 2003, respectively. The Textile segment accounted
for 28%, 32% and 27% of the Company's total sales in 2005, 2004 and 2003,
respectively; as a result, the Company's revenue in 2006 is expected to be
significantly lower than in 2005. The decision to exit this business was the
result of operating losses incurred this year resulting from lower than planned
business volume from our major customer and an inability to attract additional
customers. In addition, a decrease in margins due to an increase in raw material
costs, and the long production lead times and the related working capital
requirements of the business contributed to interest costs that exceeded the
segment's operating profits. The Company is in the process of disposing of the
remaining garment manufacturing inventory. The Company presently intends to
continue to conduct the Textile division's fabric conversion business to a very
limited extent but may not be required to report the Textile division as a
separate segment in the future.

Management has determined that disposal of the garment manufacturing business
does not meet the requirements of Financial Accounting Standards Board No. 144,
"Accounting for the Impairment or Disposal of Long-Termed Assets", for
classification as discontinued operations at December 31, 2005.

The results of operations of the garment manufacturing business which the
Company is exiting will not be reported as discontinued operations until the
period in which the related assets are abandoned, distributed or exchanged. At
December 31, 2005, the assets and liabilities of the garment manufacturing
business continue to be classified as held for use and the results of operations
for the year then ended are included in the results of continuing operations.

Management concluded that the carrying amounts of goodwill and trademarks
totaling $2.3 million and $709 thousand, respectively, related to the textile
segment were deemed to be fully impaired as of September 30, 2005 and were
written off accordingly.

4- MERGER WITH CARLYLE INDUSTRIES, INC.

On January 6, 2003, the Company completed its acquisition of Carlyle, which was
effected as a merger of Carlyle with and into the Company. In the merger, each
five shares of Carlyle common stock were converted into one share of Company
common stock, par value $0.01 per share ("Common Stock"), and each share of
Carlyle Series B preferred stock was converted into one share of Company Series
A preferred stock, par value $0.01 per share ("Series A Preferred Stock" or
"Redeemable Preferred Stock"). In addition, the Company assumed Carlyle stock
options, which became options to purchase approximately 220,000 shares of
Company Common Stock. The purchase price was valued at approximately $6.8
million.

                                      -43-
<PAGE>

The transaction was accounted for as a reverse acquisition under the purchase
method of accounting in accordance with SFAS No. 141, "Business Combinations."
As a reverse acquisition, Carlyle is treated as the acquiror and the continuing
entity for financial accounting and reporting purposes. Under reverse
acquisition accounting rules, Carlyle is treated as if it declared a 1-for-5
reverse stock split of its common stock and subsequently exchanged its common
stock for the Company's Common Stock on a one-to-one ratio and its stock options
for the Company's stock options on a one-to-one ratio. The aggregate estimated
purchase price plus liabilities assumed totaled $12,542,000, based upon the fair
value of the Common Stock and options deemed acquired for similar Carlyle
instruments. The purchase price reflects Carlyle's acquisition of the Company's
net assets, which are total assets less the assumption of $5,730,000 of the
Company's debt and liabilities. The merger agreement did not require any
contingent consideration to be issued.

The calculation of the purchase price and the allocation to assets and
liabilities are as follows (dollars in thousands):

    Purchase price allocation:
        Fair value of shares of Carlyle common stock deemed issued   $    5,986
        Fair value of outstanding vested and unvested options,
             net of unearned compensation of $112                           601
        Direct acquisition costs incurred by Carlyle                        225
                                                                     ----------
             Total purchase price                                         6,812
        Fair value of Levcor liabilities deemed assumed by Carlyle        5,730
                                                                     ----------
             Total purchase price plus liabilities deemed
                assumed by Carlyle                                   $   12,542
                                                                     ==========

    Fair value of Levcor assets deemed acquired:
        Current assets                                               $    1,972
        Fixed assets                                                         59
        Deferred tax asset                                                2,100
        Other assets                                                         35
        Trademark                                                           709
        Goodwill                                                          7,667
                                                                     ----------
        Total assets deemed acquired                                     12,542
                                                                     ----------
        Current liabilities                                              (1,945)
        Long term debt                                                   (3,785)
                                                                     ----------
        Total liabilities deemed assumed                                 (5,730)
                                                                     ----------
        Net assets deemed acquired                                   $    6,812
                                                                     ==========

The results of operations of Carlyle are included in the Company's Consolidated
Statements of Operations as of the acquisition date of January 6, 2003. Because
there was no material business conducted by Carlyle in the two business days
before the merger, the results of operations for the year ended December 31,
2003 represent the results of operations of the combined entities for the full
year.

                                      -44-
<PAGE>

5- SEGMENT INFORMATION

The Company operates in two reportable segments: Textile and Craft. Accounting
policies of the two segments are substantially the same as those described in
the summary of significant accounting policies as presented in Note 1. All
revenues generated in the segments are external. The following table sets forth
information regarding operations and assets by reportable segment (dollars in
thousands):

                                             Years  Ended December 31,
                                       ----------------------------------------
                                          2005           2004           2003
                                       ----------     ----------     ----------
Revenue:
  Textile                              $    8,184     $   10,632     $    8,436
                                       ----------     ----------     ----------
  Craft                                    21,217         23,104         22,348
                                       $   29,401     $   33,736     $   30,784
                                       ==========     ==========     ==========
Operating income (loss):
  Textile - operating income (loss)
            before impairment          $   (2,129)    $       71     $   (1,164)
  Textile - impairment                     (3,009)            --         (5,367)
  Craft                                     2,402          3,149          3,116
                                       ----------     ----------     ----------
                                       $   (2,736)    $    3,220     $   (3,415)
                                       ==========     ==========     ==========

Corporate general and
  administrative expense                    1,412          1,202          1,401
Other income                                   --           (102)            --
Interest expense, net                         806            605            526
Dividends on mandatory
  redeemable preferred stock                  273            274            273
Provision for income taxes                  3,077            582            499
                                       ----------     ----------     ----------
Net income (loss)                      $   (8,304)    $      659     $   (6,114)
                                       ==========     ==========     ==========

Depreciation and amortization:
  Textile                              $       24     $       50     $       34
  Craft                                       352            393            420
  Corporate                                    16             16             16
                                       ----------     ----------     ----------
                                       $      392     $      459     $      470
                                       ==========     ==========     ==========

Capital expenditures:
  Textile                              $       --     $       21     $       62
  Craft                                       100             75             96
                                       ----------     ----------     ----------
                                       $      100     $       96     $      158
                                       ==========     ==========     ==========


                                        Years Ended December 31,
                                       -------------------------
                                           2005           2004
                                       ----------     ----------
Total assets:
Textile                                $    1,234     $    5,482
Craft                                      14,478         14,537
Corporate                                     357          4,865
                                       ----------     ----------
                                       $   16,069     $   24,884
                                       ==========     ==========

                                      -45-
<PAGE>

6- INVENTORIES

The components of inventories as of December 31, 2005 and 2004, net of reserves
are as follows (dollars in thousands):

                                           2005           2004
                                       ----------     ----------
Raw materials                          $    4,245     $    4,641
Work in progress                              245            167
Finished goods                              3,235          2,921
                                       ----------     ----------
                                       $    7,725     $    7,729
                                       ==========     ==========

At December 31, 2005 and 2004 inventories were valued on a weighted-average cost
method basis. Inventories are stated at the lower of cost or market. Cost
elements included in inventory are material, labor and overhead, primarily using
standard cost, which approximates actual cost.

7 - PROPERTY, PLANT AND EQUIPMENT

The components of Property, Plant and Equipment as of December 31, are as
follows (dollars in thousands):

                                           2005           2004
                                       ----------     ----------
Land and improvements                  $       76     $       80
Buildings and improvements                  2,466          2,497
Machinery and equipment                     2,101          2,128
                                       ----------     ----------
                                            4,643          4,705
Less: Accumulated depreciation
 and amortization                          (2,576)        (2,400)
                                       ----------     ----------
                                       $    2,067     $    2,305
                                       ==========     ==========

Depreciation and amortization expense for the years ended December 31, 2005,
2004 and 2003 totaled approximately $392,000, $459,000 and $470,000,
respectively.

8- SHORT TERM AND LONG TERM DEBT

The Company has a credit facility with CIT and a promissory note payable to
JPMorgan Chase Bank ("JPMorgan"). In addition, the Company has borrowings and
advances outstanding from Robert A. Levinson, a stockholder, officer and
director of the Company.

The Company's credit facility with CIT (the "CIT Facility") provides for maximum
aggregate borrowings of up to $7.5 million in the form of revolving credit,
letters of credit and term loans. The CIT Facility is comprised of separate
financing agreements with the Company and its wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal"). There was no unused availability
under the Company's credit facility with CIT as of December 31, 2005.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.4 million of which was outstanding at
December 31, 2005, (ii) revolving credit advances to the Company, $845,000 of
which was outstanding at December 31, 2005 and (iii) revolving credit advances
to Blumenthal based upon eligible accounts receivable and inventory, $3,214,000
of which was outstanding at December 31, 2005, and a Letter of Credit facility
with a limit of $500,000, of which there was none outstanding at December 31,
2005. The Term Loan amortizes $12,000 per month followed by a final installment
payment of $1.2 million due on January 1, 2008. The revolving credit advances
are also due on January 1, 2008. CIT may terminate the Credit facility upon 60
days written notice. All amounts outstanding under the CIT Facility bear
interest at the Chase Bank N.A. prime rate plus 0.5% with a minimum rate of
5.0%. (7.25% at December 31, 2005).

                                      -46-
<PAGE>

In connection with the CIT Facility, the Company and its subsidiary have made
cross corporate guarantees and have issued first priority liens covering
substantially all of the assets of the Company and its subsidiary. The
guarantees are full and unconditional. The non-guarantor subsidiary is
immaterial and the Company's financial statements are representative of the
combined guarantors of which the guarantor subsidiary is 100% owned. In
addition, Mr. Robert A. Levinson, a stockholder, officer and director of the
Company, provided certain collateral against advances provided under the CIT
Facility.

The CIT Facility contains representations and warranties and events of default
customary for agreements of this nature such as restrictions on incurring more
debt, acquisitions, the use of proceeds from the sales of assets, the
prohibition of preferred stock redemptions, dividend payments in excess of
$300,000 per year, and a change in voting control of the Company. The CIT
Facility also contains a subjective acceleration clause which states that all
obligations shall, at CIT's option, be immediately due and payable without
notice or demand upon the occurrence of any change in the Company's condition or
affairs (financial or otherwise) that, in CIT's sole discretion exercised by CIT
in accordance with CIT's business judgment, materially impairs the collateral or
increases CIT's risk. In the case of the Term Loan, CIT may accelerate the
maturity in the event of a default by the Company after thirteen months notice
of such acceleration. Management of the Company believes that the likelihood of
CIT accelerating the payment of any of the obligations under the CIT Facility
during the next twelve months is remote.

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (7.25% at December 31, 2005). The Company pledged
its Textile segment's eligible accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of April 30, 2007, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBO Rate
applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on
the note at December 31, 2005 was 5.22%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Mr. Robert A. Levinson, a stockholder, has agreed to personally support the
Company's cash requirements to enable it to fulfill its obligations through
January 1, 2008, to the extent necessary, up to a maximum amount of $3.0
million. The Company believes its reliance on such commitment is reasonable and
that Mr. Levinson has sufficient liquidity and net worth to honor such
commitment. The Company believes that Mr. Levinson's written commitment provides
the Company with the legal right to request and receive such advances. In the
event that Mr. Levinson did not honor such commitment, the Company would have
the right to sue Mr. Levinson for breach of his agreement. Mr. Levinson
reaffirmed this undertaking in writing on March 21, 2006.

                                      -47-
<PAGE>

Mr. Levinson has provided loans of $2,804,000 including accrued interest of
$454,000 to the Company as of December 31, 2005. During 2005, he made short term
advances of approximately $2.5 million during the twelve months ended December
31, 2005 of which $1.850 million was outstanding at December 31, 2005. Mr.
Levinson has agreed not to seek repayment of $1.0 million of these 2005 advances
before January 1, 2008 and as such $1.0 million of these advances are classified
as non-current on the Company's December 31, 2005 Balance Sheet. He has pledged
collateral in support of certain Company obligations. See Note 8 for a
description of these transactions.

During the year ended December 31, 2005, the Company was in compliance with all
debt covenants.

Future maturities of long-term debt during each of the next five years ending
December 31 and thereafter were as follows (in thousands):

                           2006            $      144
                           2007                 4,000
                           2008                 2,146
                           Thereafter              --
                                           ----------
                                           $    6,290
                                           ==========

9- OTHER CURRENT LIABILITIES

Other current liabilities as of December 31 consist of the following (dollars in
thousands):

                                              2005              2004
                                           ----------      ----------
Salaries, wages, bonuses
 and other compensation                    $      660      $      573
Other                                             762             646
                                           ----------      ----------
                                           $    1,422      $    1,219
                                           ==========      ==========

10- LEASE TERMINATION CHARGE

Effective November 30, 2004, the lease (the "Original Lease") between the
Company, as lessee, and SIK Associates, as landlord, was terminated by agreement
of the parties. The Original Lease covered the Company's principal offices
located at 462 Seventh Avenue, New York, New York 10018, for approximately 6,500
square feet, at a cost of approximately $16,000 per month. The Original Lease
was to expire on January 31, 2007. In connection with the termination of the
Original Lease, the Company recorded a charge of approximately $71,000 during
the fourth quarter of 2004.

                                      -48-
<PAGE>

11- LEASE PAYMENTS

The following is a schedule of future minimum lease payments under
non-cancelable operating leases at December 31, 2005 (dollars in thousands):


             2006                                     334
             2007                                     308
             2008                                     233
             2009                                     101
                                                ---------
                                                $     976
                                                =========

Rental expense for premises leased by the Company under operating leases totaled
$294,000, $422,000 and $362,000 during the years ended December 31, 2005, 2004
and 2003, respectively.

12- PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

The Company sponsors a defined benefit plan, which requires no contribution from
the employees. The plan was frozen as of December 31, 1994, and no new employees
have been eligible to join this plan since that date. Prior to December 31,
1994, the plan covered substantially all employees. The employees covered under
the plan do not receive any additional accruals for service rendered after
December 31, 1994. Plan assets consist principally of common stocks and U.S.
Government and corporate obligations.

The benefits under this plan are determined based on formulas, which reflect the
employees' years of service and compensation during their employment period. The
projected unit credit method is used to determine pension cost. Funding
requirements for the plan are based on the unit credit method. The Company's
policy is to fund pension cost as required by ERISA.

In addition to the liability of $4.3 million for this Company sponsored defined
benefit plan, the Company also has an additional pension liability in the amount
of $1.0 million at December 31, 2005 in connection with a terminated
multi-employer plan which requires annual payments of $142,000 through 2016. In
addition, the Company has a $322,000 deferred compensation liability payable to
the former owner of an acquired business.

The Company provides certain health and life insurance benefits for eligible
retirees and their dependents. The Company accounts for post-retirement benefits
in accordance with SFAS Number 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions", whereby the cost of post-retirement benefits are
accrued during employees' working careers. The plan is not funded. The Company's
policy is to pay the cost of benefits as incurred. Certain benefits are
available to full-time employees who were over age 30, as of January 1, 1992,
provided such employees work for the Company for 25 years and reach certain
ages, but not less than age 55. Employees hired after January 1, 1993 are not
eligible to receive benefits under this plan.

The prepaid pension balances of $476,000 and $458,000 at December 31, 2005 and
2004, respectively are included in Other Assets on the Company's consolidated
balance sheets. Decreases in the minimum pension liability totaling $136,000 and
$35,000 have been recorded on the December 31, 2005 and 2004 balance sheets in
connection with this plan and corresponding credits to stockholders' deficit net
of deferred tax expense of $1,601,000 and $14,000, respectively, has also been

                                      -49-
<PAGE>

recorded. The 2005 deferred tax expense included the increase in the deferred
tax assets valuation allowance related to the pension liability. These
adjustments were recognized and credited to "Accumulated Other Comprehensive
Earnings". The minimum pension liabilities as of December 31, 2005 and 2004 were
based on the plan's portfolio investments as of such date which totaled $17.6
million and $18.0 million, respectively, and the actuarially determined
accumulated benefit obligation.

                                      -50-
<PAGE>

<TABLE>
<CAPTION>
                                                                   Pension Plan                      Other Post-
                                                                                               Retirement Benefit Plan
                                                                   Years Ended                       Years Ended
                                                                   December 31,                      December 31,
                                                           -----------------------------     -----------------------------
         Dollars in thousands:                                 2005             2004             2005             2004
                                                           ------------     ------------     ------------     ------------
<S>                                                        <C>              <C>              <C>              <C>
         Change in benefit obligation
         Benefit obligation at beginning of year           $     21,988     $     21,452     $      1,099     $      1,868
         Service cost                                                --               --               16               (2)
         Interest costs                                           1,216            1,292               57               67
         Actuarial (gain) loss                                       57            1,045              (47)            (631)
         Benefits paid                                           (1,874)          (1,801)            (146)            (203)
                                                           ------------     ------------     ------------     ------------
         Benefit obligation at end of year                 $     21,387     $     21,988     $        979     $      1,099
                                                           ============     ============     ============     ============

         Change in plan assets:
         Fair value of plan assets at beginning of year    $     17,998     $     17,506     $         --     $         --
         Actual return on plan assets                             1,374            2,293               --               --
         Employer contribution                                       52               --               --               --
         Benefits paid                                           (1,874)          (1,801)              --               --
                                                           ------------     ------------     ------------     ------------
         Fair value of plan assets at end of year          $     17,550     $     17,998     $         --     $         --
                                                           ============     ============     ============     ============

         Funded status                                     $     (3,837)    $     (3,990)    $       (979)    $     (1,099)
         Unrecognized net actuarial loss (gain)                   4,313            4,448             (910)            (970)
         Unrecognized prior service cost                             --               --              (71)             (85)
                                                           ------------     ------------     ------------     ------------
         Accrued benefit (cost) prepaid                    $        476     $        458     $     (1,960)    $     (2,154)
                                                           ============     ============     ============     ============
         Weighted average assumptions as of December 31:
         Discount rate                                             5.75%            5.75%            5.75%            5.75%
         Expected return on plan assets                            8.00%            8.00%             N/A              N/A
         Rate of compensation increase                              N/A              N/A              N/A              N/A

         Components of net periodic benefit cost:
         Service                                           $         --     $         --     $         16     $         (2)
         Interest cost                                            1,216            1,292               57               67
         Expected return on plan assets                          (1,368)          (1,363)              --               --
         Amortization of prior service cost                          --               --              (14)             (14)
         Recognized net actuarial loss (gain)                       186              150             (107)             (80)
                                                           ------------     ------------     ------------     ------------
         Net periodic benefit cost (gain)                  $         34     $         79     $        (48)    $        (29)
                                                           ============     ============     ============     ============
</TABLE>

The Company's accumulated benefit obligation under its defined benefit plan at
December 31, 2005 and 2004 was $21,387,000 and $21,988,000, respectively. The
Company anticipates quarterly contributions to this plan in 2006 of
approximately $19,000 with an additional $1.4 million due by September 30, 2007,
based on current legislated discount rates and actuarial assumptions.

                                      -51-
<PAGE>

The Company's defined benefit plan asset target allocation for 2006, the actual
allocation as of December 31, 2005 and 2004, and the expected long-term rates of
return by asset category for 2006 are as follows:

<TABLE>
<CAPTION>
                                                                                   Weighted Average
                                                        Percentage of Plan        Expected Long-term
                                Target Allocation     Asset as of December 31,     Rates of Return
         Asset Category               2006               2005      2004
         --------------------------------------------------------------------------------------------
<S>                                  <C>                 <C>       <C>                     <C>
         Equity securities           40-85%               82%       82%                    9.5%
         Debt securities              5-16%               18%       17%                    4.5%
         Other                        0-10%                0%        1%                      --
                                                        ----      ----                    ----
            Total                                        100%      100%                       %
                                                        ====      ====                    ====
</TABLE>

A one-percentage-point change in assumed health care cost trend rates would not
change the actuarial present value of the accumulated post-retirement benefit
obligations due to annual limitations of Company contributions per employee.
Estimated future benefit payments under the Company's post retirement medical
plan are as follows (in thousands of dollars):

                              2006           142
                              2007           137
                              2008           130
                              2009           122
                              2010           113
                           Thereafter        410

13-      EMPLOYEE BENEFIT PLAN

The Company's eligible employees may participate in a Company-sponsored 401(k)
benefit plan. This Plan covers substantially all employees and permits employees
to defer up to 15% of their salary up to statutory maximums. The plan also
provides for matching contributions by the Company of up to 75% of the first 2%
of salary deferral and 50% of the next 2% of salary deferral. Total Company
matching contributions for the years ended December 31, 2005, 2004 and 2003 were
$102,000, $105,000 and $82,000 respectively. As of December 31, 2005 there were
114 active employees participating in the plan.

14-      CUSTOMER CONCENTRATIONS

The Company's customer base has been and continues to be highly concentrated.
The Textile division's two largest customers, Alfred Dunner, Inc. and Lana Winer
International, accounted for approximately 76% and 21%, respectively, during
2005 and 90% and 6%, respectively, during 2004 and 71% and 4%, respectively,
during 2003 of the division's sales. The Craft division's largest three
customers (Wal-Mart, a mass merchandiser and Jo-Ann Stores and Hancock Fabrics,
each a specialty chain) represented approximately 46%, 25% and 8%, respectively,
in 2005 and 45%, 21% and 8%, respectively, in 2004 and 47%, 21% and 7%,
respectively, during 2003 of the division's net revenues. These Craft division
customers also represented approximately 80% and 79% of the total outstanding
accounts receivable as of December 31, 2005 and 2004, respectively. A reduction
in sales to any of these customers could adversely impact the financial
condition and results of operations of the Company.

                                      -52-
<PAGE>

15-      RELATED PARTY TRANSACTIONS

Robert A. Levinson, a stockholder, has provided loans of $2,804,000 including
accrued interest of $454,000 to the Company as of December 31, 2005. During
2005, he made short term advances of approximately $2.5 million during the
twelve months ended December 31, 2005 of which $1.850 million was outstanding at
December 31, 2005. Mr. Levinson has agreed not to seek repayment of $1.0 million
of these 2005 advances before January 1, 2008 and as such $1.0 million of these
advances are classified as non-current on the Company's December 31, 2005
Balance Sheet. He has pledged collateral in support of certain Company
obligations. See Note 8 for a description of these transactions.

In addition to being a director of the Company, Edward H. Cohen serves as
counsel to Katten Muchin Rosenman LLP, legal counsel to the Company. During the
years ended December 31, 2005, 2004 and 2003, fees for services provided to the
Company by Katten Muchin Rosenman LLP totaled approximately $177,000, $171,000
and $486,000, respectively. Mr. Cohen does not share in the fees that the
Company pays to such law firm and his compensation is not based on such fees.

 16-     INCOME TAXES

Income (loss) before income taxes for the years ended December 31 consisted of
the following components (thousands):

                                         2005          2004          2003
                                      ----------    ----------    ----------
         United States                $   (5,131)   $    1,470    $   (5,238)
         Foreign                             (96)         (229)         (240)
                                      ----------    ----------    ----------
                                      $   (5,227)   $    1,241    $   (5,478)
                                      ==========    ==========    ==========

The components of the income tax provision or (benefit) are (thousands):

<TABLE>
<CAPTION>
                                                          Years Ended December 31,
                                                  --------------------------------------
                                                     2005          2004          2003
                                                  ----------    ----------    ----------
<S>                                               <C>           <C>           <C>
         Current provision (benefit):
           Federal                                $       (4)   $       --    $       --
           State                                         (25)           92           (34)
                                                  ----------    ----------    ----------
                                                         (29)           92           (34)
                                                  ----------    ----------    ----------
         Deferred provision (benefit):
           Federal                                     2,640           416           453
           State                                         466            74            80
                                                  ----------    ----------    ----------
                                                       3,106           490           533
                                                  ----------    ----------    ----------
         Income tax provision as per
           Consolidated Statement of Operations   $    3,077    $      582    $      499
                                                  ==========    ==========    ==========
         Deferred provision
           -Tax effect of other comprehensive
           loss                                        1,601            14           340
                                                  ----------    ----------    ----------
         Total provision                          $    4,678    $      596    $      839
                                                  ==========    ==========    ==========
</TABLE>

                                      -53-
<PAGE>

At December 31, the components of the net deferred tax asset are (dollars in
thousands):

                                                              December 31,
                                                       ------------------------
                                                          2005          2004
                                                       ----------    ----------
Deferred tax assets:
Book value of fixed assets over tax basis              $     (494)   $     (499)
Pension liabilities                                         2,080         2,180
Other post-retirement benefit liability                       784           862
Environmental accruals                                        539           555
Operating and capital loss carryforwards                    2,570         1,935
Other, net                                                    495           148
                                                       ----------    ----------
Deferred tax asset                                          5,974         5,181
Valuation allowance                                        (5,974)         (672)
                                                       ----------    ----------
Deferred tax asset, net                                $       --    $    4,509
                                                       ==========    ==========


<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                                    ----------------------------------------
                                                       2005           2004           2003
                                                    ----------     ----------     ----------

A reconciliation of the federal statutory rate to the Company's effective tax rate is as follows:

<S>                                                     <C>             <C>            <C>
Tax provision (benefit) at statutory federal rate         34.0%          34.0%          34.0%
State income taxes, net                                    6.1%           6.0%           6.0%
Permanent items                                          (25.1)%          8.8%         (40.2)%
Change in valuation allowance                           (101.4)%        (20.5)%        (16.9)%
Over-accrual in prior year                                 0.5%           0.0%           0.6%
Non-includable (income) expense                           27.1%          18.6%           7.3%
                                                    ----------     ----------     ----------
Effective tax                                            (58.8)%         46.9%          (9.2)%
                                                    ==========     ==========     ==========
</TABLE>

The Company had a net operating loss carryforward of approximately $6,426,000
expiring through 2025.

17-      REDEEMABLE PREFERRED STOCK

Dividends on the Series A Preferred Stock accrue at an annual rate of 6% and are
payable quarterly. The availability of resources to make dividend payments to
the holders of Series A Preferred Stock in the future will depend on the
Company's future earnings and cash flow. Under Delaware law, preferred dividend
payments are restricted to the Company's accumulated or current earnings and
profits. Losses in 2005 and earlier years have depleted the Company's
accumulated earnings and profits and, as such, future preferred dividend
payments will be limited to future earnings and profits. Preferred dividends
which cannot be paid under Delaware law will continue to accrue and will be
added to the Preferred Stock liability account. In addition, under the terms of
the CIT Facility, preferred stock redemption payments are prohibited and
preferred stock dividend payments are limited to $300,000 per year. In this
regard, the Company was unable to pay the March 15, 2006 Preferred Stock
dividend. Preferred dividends which cannot be paid under Delaware law will
continue to accrue and will be added to the Preferred Stock liability account.


In accordance with the provisions of Statement of Financial Accounting Standards
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equities" ("SFAS 150"), the redeemable preferred stock has
been classified as a liability in the consolidated balance sheets at redemption

                                       -54-
<PAGE>

value as of December 31, 2005 and 2004. The consolidated statements of
operations for years ended December 31, 2005, 2004 and 2003 include $273,000,
$274,000 and $136,000 respectively, of preferred stock dividends paid which have
been included as part of interest expense, net in the determination of operating
income. For periods prior to July 1, 2003, such redeemable preferred stock
dividend payments are reported as an adjustment to net income to arrive at net
income available to common stock. In accordance with SFAS 150, dividend payments
made in the first and second quarters of 2003 are not permitted to be
reclassified to the current accounting treatment and as a result they continue
to be presented on a separate line. By its terms (but subject to the Company's
agreement with its commercial lenders), the preferred stock is mandatorily
redeemable by the Company in three installments on June 15, 2007, June 15, 2008,
and June 15, 2009.

The Series A Preferred Stock is subject to mandatory redemption, to the extent
the Company may lawfully do so, in three equal annual installments on June 15,
2007, June 15, 2008 and June 15, 2009, in each case, from funds legally
available therefor, at a price per share of Series A Preferred Stock equal to $1
per share, together with an amount representing accrued and unpaid dividends,
whether or not declared, to the date of redemption. Dividends on the Series A
Preferred Stock accrue at a rate of $0.06 per annum per share when, as and if
declared by the Company and are payable quarterly on March 15, June 15,
September 15 and December 15. Quarterly dividends which are not paid in full in
cash on any dividend payment date will accumulate without interest. Under the
terms of the CIT Facilities, preferred stock redemption payments are prohibited
and preferred stock dividend payments are limited to $300,000 per year.

18-      COMMON STOCK AND EARNINGS (LOSS) PER COMMON SHARE

During the years ended December 31, 2005 and 2004, the Company issued an
aggregate of 2,317, 11,549 and 14,237 shares, respectively, of common stock to
Directors in lieu of cash for Directors' fees and recorded such issuances as
stock based compensation expense.

In addition, during the year ended December 31, 2004, in connection with a stock
option exercise by Robert A. Levinson, a stockholder, officer and director of
the Company, the Company issued 170,000 shares of common stock and accepted
45,274 shares of common stock previously held by the optionee as payment of the
option exercise price. The common shares tendered were recorded as treasury
stock. All 102,874 shares of treasury stock were retired as of March 31, 2004.
The Company also issued 36,000 shares of common stock in connection with the
exercise of employee stock options during the year ended December 31, 2004.

Basic earnings (loss) per common share have been computed on the basis of
weighted average common shares outstanding after providing for preferred
dividend requirements. Diluted earnings per common share in 2004 includes the
effect of stock options.

                                      -55-
<PAGE>

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings (loss) per common share computations for the years
ended December 31, 2005, 2004 and 2003 (dollars in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                                          Weighted        Income
                                                           Income          Average        (Loss)
                                                           (Loss)          Shares        Per Share
                                                        ------------    ------------   ------------
<S>                                                     <C>                <C>         <C>
Year ended December 31, 2005:
     Basic and diluted loss applicable                  $     (8,304)      5,331,881   $      (1.56)
                                                        ============    ============   ============
            to common stockholders

Year ended December 31, 2004:
     Basic income applicable to common stockholders     $        659       5,294,544   $        .12
     Effect of dilutive options                                   --          72,770             --
                                                        ------------    ------------   ------------
     Diluted income applicable to common stockholders   $        659       5,367,314   $        .12
                                                        ============    ============   ============

Year ended December 31, 2003:
     Basic and diluted loss applicable
            to common stockholders                      $     (6,114)      5,103,520   $      (1.20)
                                                        ============    ============   ============
</TABLE>

19-      STOCK OPTION PLAN

Grants under the 2002 Stock Option Plan (the "Plan") may consist of incentive
stock options, non-qualified stock options, stock appreciation rights in tandem
with stock options or freestanding, restricted stock grants, or restored
options. In connection with the Plan, 550,000 shares of Common Stock were
available for grants at the start of the Plan. The Company has granted options
on 220,000 shares through December 31, 2005 in connection with the Plan. Under
the Plan, the option exercise price equals the stock's market price on date of
grant. Plan options vest over a three-year period and expire after ten years.

In connection with the merger as discussed in Note 4, there were 262,400 options
outstanding under a previous Levcor stock option plan which has terminated, at a
weighted average exercise price of $.81 per option as of December 31, 2002.
Also, in connection with the Levcor and Carlyle merger, 220,000 options which
were outstanding at December 31, 2002 were assumed by Levcor and became fully
vested.

During 2005, there were no options exercised. 206,000 shares and 18,000 shares
under the previous Levcor and Carlyle plans were exercised during 2004 and 2003,
respectively. There remain 191,200 options outstanding under these previous
plans as of December 31, 2005 at an average exercise price of $3.25 per share.

                                      -56-
<PAGE>

A summary of the status of outstanding grants and weighted average exercise
prices at December 31, 2005, 2004 and 2003 and changes during the years then
ended is presented in the table and narrative below (shares in thousands):

<TABLE>
<CAPTION>
                                            2005                    2004                    2003
                                    --------------------    --------------------    --------------------
                                     Shares      Price       Shares      Price       Shares      Price
                                    --------    --------    --------    --------    --------    --------
<S>                                 <C>         <C>         <C>         <C>         <C>         <C>
   Beginning of year                     445    $   2.70         661    $   3.05         220    $   6.05
   Issued in merger                       --          --          --          --         262         .81
   Granted                                --          --          20        1.83         200        2.45
   Exercised                              --          --        (206)       (.88)        (18)        .34
   Forfeited                             (32)       (.73)        (18)      (4.17)
   Expired                                (2)     (15.63)        (12)     (50.00)         (3)        .50
                                    --------    --------    --------    --------    --------    --------
   End of year                           411    $   2.79         445    $   2.70         661    $   3.05
                                    ========    ========    ========    ========    ========    ========
   Shares exercisable at year-end        331                     292                     447
                                    ========                ========                ========
   Weighted average exercise
     price of exercisable options   $   2.90                $   2.87                $   3.38
                                    ========                ========                ========
</TABLE>

There were no options issued in 2005. During 2004 and 2003, the Company issued
20,000 and 200,000 options with an estimated fair value of $21,000and $295,000,
respectively.

Summary information about the Company's stock options outstanding at December
31, 2005 is as follows:

<TABLE>
<CAPTION>
                                 Options Outstanding                        Options Exercisable
                     ---------------------------------------------     ----------------------------
                                         Weighted                                         Weighted
                                          Average                                          Average
     Date             Number             Exercise      Contractual      Number            Exercise
    Granted           of shares            Price         Periods        of shares          Price
 -------------       ----------        -------------   -----------     ----------        ----------
<S>                    <C>             <C>                 <C>           <C>             <C>
   05/09/1996              400            10.62500         0.3               400            10.625
   05/16/1997           25,056            10.00000         1.4            25,000            10.000
   02/11/1998           25,000              .62500         2.1            25,000              .625
   02/25/1998            4,444             6.56250         2.1             4,444             6.563
   12/10/1998           10,000             5.00000         2.9            10,000             5.00
   01/04/1999            1,500             2.00000         3.0             1,500             2.00
   12/29/1999           91,000             2.50000         4.0            91,000             2.50
   01/03/2000            2,700             1.11100         4.0             2,700             1.111
   01/02/2001            2,400             1.25000         5.0             2,400             1.250
   01/09/2001           12,500             1.10000         5.0            12,500             1.10
   02/14/2002           11,200              .95000         6.1            11,200              .95
   02/15/2002            5,000             2.10000         6.1             5,000             2.10
   07/14/2003          200,000             2.45000         7.5           133,400             2.45
   06/03/2004           20,000             1.83000         8.4             6,666             1.83
                     ---------         -----------       -----         ---------         --------
                       411,200         $   2.79000         5.7           331,210         $   2.90
                     =========         ===========       =====         =========         ========
</TABLE>

                                      -57-
<PAGE>

20-      COMMITMENT AND CONTINGENCIES

The Company may be involved in various legal actions from time to time arising
in the normal course of business. In the opinion of management, there are no
matters outstanding that would have a material adverse effect on the
consolidated financial position or results of operations of the Company.

The Company is subject to a number of federal, state and local environmental
laws and regulations, including those concerning the treatment, storage and
disposal of waste, the discharge of effluents into waterways, the emissions of
substances into the air and various health and safety matters. In addition, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), and comparable state statutes generally impose joint and
several liability on present and former owners and operators, transporters and
generators for remediation of contaminated properties regardless of fault. These
parties are typically identified as "potentially responsible parties" or
"PRP's".

A property owned by the Carlyle Manufacturing Company, Inc. ("CM") (a
non-operating subsidiary) located at 30 Echo Lake Road in Watertown, Connecticut
was being investigated by the United States Environmental Protection Agency
("EPA") during the early 1990's for possible inclusion on the National
Priorities List promulgated pursuant to CERCLA but no such listing ever
occurred. A Site Inspection conducted at this location detected certain on-site
soil and groundwater contamination, as well as contamination of nearby water.
This site is listed on the Connecticut State Hazardous Waste Disposal Site list,
but remediation activity has not been required by the Connecticut Department of
Environmental Protection ("CTDEP"). On December 31, 2005, the Company completed
the sale of this property for a nominal dollar amount. There was no gain or loss
recorded on the transaction as this property had been fully impaired in an
earlier year.

On or about June 1992 the Company received notices from the EPA that the
Company, Belding Corticelli Thread Co. ("BCTC") (a discontinued operation) and
CM had been identified, along with 1,300 other parties, as PRPs in connection
with the alleged release of hazardous substances from the Solvents Recovery
Service of New England Superfund Site in Southington, Connecticut (the "SRS
site"). The Company settled its alleged liability in connection with the SRS
sites by paying $1,626 in connection with a settlement offered to de minimis
parties at the SRS site in 1994. BCTC and CM, along with other PRPs, committed
to perform the Remedial Investigation and Feasibility Study ("RIFS") and two
Non-Time Critical Removal Actions ("NTCRA") at the SRS site. The RIFS, and the
first NTCRA (except for certain maintenance activities) have been completed.
BCTC and CM have been allocated approximately .04% and 1.32%, respectively, of
costs incurred to date, based on their alleged volume of waste shipped to the
SRS site. The Company is unable, at this time, to estimate the ultimate cost of
the remedy for the SRS site. In September of 2005, the EPA issued its Record of
Decision (ROD) for the SRS site. The EPA has not yet sent special notice letters
to the PRPs to initiate consent decree negotiations concerning, among other
things, the scope of the work to be performed under the ROD.

The issues referred to above do not include costs that the Company or its
subsidiaries may incur for consultants' or attorneys' fees or for administrative
expenses in connection with the Company's participation as part of a PRP group.
The reserve the Company has established for environmental liabilities as
described above, in the amount of $1.3 million, represents the Company's best
current estimate of the costs of addressing all identified environmental
situations, based on the Company's review of currently available evidence, and
takes into consideration the Company's prior experience in remediation and that
of other companies, as well as public information released by EPA and by the PRP

                                      -58-
<PAGE>

groups in which the Company or its subsidiaries are participating. Although the
reserve currently appears to be sufficient to cover these environmental
liabilities, there are uncertainties associated with environmental liabilities,
and no assurances can be given that the Company's estimate of any environmental
liability will not increase or decrease in the future. The uncertainties relate
to the difficulty of estimating the ultimate cost of any remediation that may be
undertaken, including any operating costs associated with remedial measures, the
duration of any remediation required, the amount of consultants' or attorneys'
fees that may be incurred, the administrative costs of participating in the PRP
groups, and any additional regulatory requirements that may be imposed by the
federal or state environmental agencies.

21-      UNAUDITED QUARTERLY RESULTS OF OPERATIONS: (IN THOUSANDS EXCEPT FOR
         PER SHARE DATA)

<TABLE>
<CAPTION>
                                                  December 31,    September 30,     June 30,        March 31,
Quarter Ended                                         2005            2005            2005            2005
                                                  ------------    ------------    ------------    ------------
<S>                                               <C>             <C>             <C>             <C>
Net sales                                         $      6,466    $     10,894    $     15,933    $      6,108
Cost of sales                                            5,254           8,870           4,296           4,222
                                                  ------------    ------------    ------------    ------------
Gross profit                                      $      1,212    $      2,024    $      1,637    $      1,886
                                                  ============    ============    ============    ============

Loss applicable to common stockholders            $     (4,428)   $     (3,275)   $       (377)   $       (224)
                                                  ============    ============    ============    ============

Basic and diluted loss per common share           $       (.83)   $       (.61)   $       (.07)   $       (.04)
                                                  ============    ============    ============    ============


                                                  December 31,    September 30,     June 30,        March 31,
Quarter Ended                                         2004            2004            2004            2004
                                                  ------------    ------------    ------------    ------------
Net sales                                         $      7,321    $     13,141    $      6,661    $      6,613
Cost of sales                                            4,966           9,836           4,323           4,176
                                                  ------------    ------------    ------------    ------------
Gross profit                                      $      2,355    $      3,305    $      2,338    $      2,437
                                                  ============    ============    ============    ============

Income applicable to common stockholders          $         56    $        569    $         12    $         22
                                                  ============    ============    ============    ============

Basic and diluted income per common share         $        .01    $       . 11    $         --    $         --
                                                  ============    ============    ============    ============


                                                  December 31,    September 30,     June 30,        March 31,
Quarter Ended                                         2003            2003            2003            2003
                                                  ------------    ------------    ------------    ------------
Net sales                                         $      6,666    $     10,781    $      6,106    $      7,231
Cost of sales                                            5,070           7,689           4,074           4,416
                                                  ------------    ------------    ------------    ------------
Gross profit                                      $      1,596    $      3,092    $      2,032    $      2,815
                                                  ============    ============    ============    ============

Income (loss) applicable to common stock          $     (6,602)   $        445    $       (176)   $        219
                                                  ============    ============    ============    ============

Basic and diluted income(loss) per common share   $      (1.29)   $        .08    $       (.03)   $        .04
                                                  ============    ============    ============    ============
</TABLE>

                                      -59-
<PAGE>

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL
                  DISCLOSURE

None


ITEM 9A.          CONTROLS AND PROCEDURES

(a)      Evaluation of disclosure controls and procedures.

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e)
promulgated under the Security Exchange Act of 1934, as amended (the "Exchange
Act")) that are designed to ensure that information that would be required to be
disclosed in Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and that such information is accumulated and
communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure.

As of December 31, 2005, we carried out an evaluation, under the supervision and
with the participation of management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
disclosure controls and procedures. Based on the foregoing, the Chief Executive
Officer and Chief Financial Officer concluded that disclosure controls and
procedures were effective as of the end of the period covered by this annual
report.

(b)      Section 404 compliance.

Beginning with the year ending December 31, 2007, Section 404 of the
Sarbanes-Oxley Act of 2002 will require us to include management's report on our
internal control over financial reporting in our Annual Report on Form 10-K. The
internal control report must contain (1) a statement of management's
responsibility for establishing and maintaining adequate internal control over
our financial reporting, (2) a statement identifying the framework used by
management to conduct the required evaluation of the effectiveness of our
internal control over financial reporting, (3) management's assessment of the
effectiveness of our internal control over financial reporting as of the end of
our most recent fiscal year, including a statement as to whether or not our
internal control over financial reporting is effective, and (4) a statement that
our registered independent public accounting firm has issued an attestation
report on management's assessment of our internal control over financial
reporting.

In order to achieve compliance with Section 404 within the prescribed period,
management will commence a Section 404 compliance project under which management
will adopt a detailed project work plan to assess the adequacy of our internal
control over financial reporting, remediate any control deficiencies that may be
identified, validate through testing that controls are functioning as documented
and implement a continuous reporting and improvement process for internal
control over financial reporting. During the fourth quarter of fiscal year 2005,
there have been no changes in our internal control over financial reporting that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

                                      -60-
<PAGE>

ITEM 9B.          OTHER INFORMATION

None.

                                      -61-
<PAGE>

                                    PART III


Item 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers

   The following table sets forth the names of the directors and executive
officers of the Company, their ages, and their current positions with the
Company:

<TABLE>
<CAPTION>
                                                                          Year Became
       Name               Age                    Title                    Director
------------------        ---      ------------------------------------   ------------
<S>                        <C>     <C>                                    <C>
Robert A. Levinson         80      Chairman of the Board, President and   June 1989
                                   Chief Executive Officer

Edward F. Cooke            52      Chief Financial Officer, Vice          January 2003
                                   President, Secretary, Treasurer
                                   and Director

Joseph S. DiMartino        62      Director                               January 2003

Giandomenico Picco         58      Director                               January 2003

John McConnaughy           76      Director                               June 1989

Edward H. Cohen            67      Director                               June 1998
</TABLE>

Each director is elected to serve on the Board of Directors of the Company until
the next annual meeting of stockholders and until their successors shall be duly
elected and qualified. The term of the current directors expires at the next
annual meeting of stockholders.

Mr. Levinson has been Chairman of the Board and President of the Company, and
its Chief Executive Officer, since June 1989. From June 1989 to January 2003, he
also served as Secretary and Principal Financial Officer of the Company. Mr.
Levinson served as Chairman of the Board, President and Chief Executive Officer
of Carlyle Industries, Inc. ("Carlyle") from May 1998 to January 2003. From 1979
until May 1, 1995, Mr. Levinson was Chairman of the Board of Andrex Industries
Corp., a company engaged in textile manufacturing and processing. Mr. Levinson
is a member of the Board of the National Committee on U.S. China Relations and
the World Policy Institute at New School University.

Mr. Cooke has been Chief Financial Officer, Vice President, Secretary, Treasurer
and a director of the Company since January 6, 2003. Prior to then, Mr. Cooke
served as a director (from May 2000 to January 2003), Chief Financial Officer,
Secretary and Vice President (from February 1998 to January 2003) of Carlyle.
Since January 1, 1999, Mr. Cooke has been President and Chief Executive Officer
of Blumenthal/Lansing Company, LLC, a wholly-owned subsidiary of the Company.
Mr. Cooke was previously appointed to serve as Carlyle's Chief Financial
Officer, Secretary and Vice President in February 1997, April 1996 and May 1996,
respectively, until he resigned from such positions in September 1997.

                                      -62-
<PAGE>

Mr. DiMartino has been a director of the Company since January 6, 2003. From May
1995 to January 2003, he served as a director of Carlyle. Mr. DiMartino was a
director of Noel Group, Inc. and served as a director and Chairman of the Board
of Noel from March 1995 until its dissolution in September 1999. Since January
1995, Mr. DiMartino has been a director, a trustee or the managing general
partner of various funds in the Dreyfus Family of Funds. He also currently
serves on the board of directors of Century Business Services, Inc.

Mr. Picco has been a director of the Company since January 6, 2003. Mr. Picco
served as a director of Carlyle from May 2000 until January 2003. Since 1994,
Mr. Picco has served as Chief Executive Officer of GDP Associates, Inc., a
consulting company to industrial corporations. Mr. Picco currently serves as
President of the Non-Governmental Peace Strategies Project, a Geneva,
Switzerland non-profit institute aimed at devising new vehicles for the private
sector to support peace efforts.

Mr. McConnaughy has been a director of the Company since June 1989. He 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 Chairman of the Board and Chief Executive Officer of GEO
International Corporation, a company engaged in screen-printing and oil
services. From 1985 until his retirement in 1992, Mr. McConnaughy also served as
President of GEO International Corporation. Mr. McConnaughy is Chairman of the
Board of the Excellence Group, LLC, which filed a petition for bankruptcy under
Chapter 11 of the Bankruptcy Code on January 13, 1999. The Excellence Group's
subsidiaries produced labels for a variety of customers. Mr. McConnaughy serves
as a director of Wave Systems Corp., Consumer Portfolio Services, Inc., Overhill
Farms, Inc. and Arrow Resources Development, Inc.

Mr. Cohen has been a director of the Company since June 1998. Mr. Cohen serves
as Counsel to the law firm of Katten Muchin Rosenman LLP New York, New York, and
for more than the past five years, until January 31, 2002, was a Senior Partner
at its predecessor law firm, Rosenman & Colin LLP. Mr. Cohen also serves as a
director of Franklin Electronic Publishers, Inc., a designer and developer of
electronic reference products, Phillips-Van Heusen Corporation, a manufacturer
and retailer of apparel and footwear, Merrimac Industries, Inc., a designer and
producer of microwave and radio frequency components, and Gilman & Ciocia, Inc.,
a financial planning and tax preparation firm. Mr. Cohen does not share in any
fees paid by the Company to Katten Muchin Rosenman LLP.

Officers serve at the discretion of the Board of Directors. There are no
arrangements or understandings pursuant to which any person has been elected as
a director or executive officer of the Company. There is no family relationship
among any directors or executive officers of the Company.

Committees of the Board of Directors

On January 6, 2003, the Company established an Audit Committee, Compensation
Committee and Corporate Governance Committee of its Board of Directors.

The Audit Committee currently consists of Messrs. DiMartino, McConnaughy and
Picco and each member meets the independence requirements of NASDAQ and the
Securities Exchange Act of 1934 (the "Exchange Act"). The Audit Committee's
function is to provide assistance to the Board of Directors in fulfilling the
Board's oversight functions relating to the quality and integrity of the
Company's financial reports, monitoring the Company's financial reporting
process and internal control system, and performing such other activities
consistent with its charter and the Company's By-laws as the Committee or the

                                      -63-
<PAGE>

Board of Directors deems appropriate. The Audit Committee is directly
responsible for the appointment, compensation and oversight of the work of the
outside auditors (including resolution of disagreements between management of
the Company and the outside auditors regarding financial reporting) for the
purpose of preparing or issuing an audit report or related work.

The Audit Committee must pre-approve all audit and non-audit services to be
provided to the Company by its outside auditors. The Committee carries out all
functions required by NASDAQ, the Securities and Exchange Commission and the
federal securities laws. During fiscal year 2004, the Audit Committee held three
meetings. The Audit Committee does not include an "audit committee financial
expert" as defined in the SEC's Regulation S-B, Item 401(e)(2) because the Board
of Directors believes that the members of the Audit Committee are collectively
capable of analyzing and evaluating the Company's financial statements. In
addition, the Board believes that retaining an independent director who would
qualify as an "audit committee financial expert" would be overly costly and
burdensome and is not warranted at this time. A copy of the Audit Committee
charter as adopted by the Board of Directors was filed as Exhibit 99.1 to the
Company's 10-KSB/A filed on April 29, 2004.

Messrs. McConnaughy, DiMartino and Picco currently serve on the Compensation
Committee and each member meets the independence requirements of NASDAQ and the
Securities Exchange Act of 1934. The purpose of the Compensation Committee is to
oversee the responsibilities relating to compensation of the Company's
executives and produce an annual report on executive compensation for inclusion
in the Company's proxy statement. Since its formation, the Compensation
Committee has administered the Company's 2002 Stock Option Plan, the Carlyle
1994 Incentive Program, as amended and the Company's 1992 Stock Option Plan, as
amended. During fiscal year 2004, the Compensation Committee held one meeting.

Messrs. Cohen, DiMartino and McConnaughy currently serve on the Corporate
Governance Committee and each member meets the independence requirements of
NASDAQ and the Securities Exchange Act of 1934. The Governance Committee is
responsible for identifying and recommending to the Board of Directors
individuals qualified to become Board and Committee members; maintaining that a
majority of the Board of Directors members are independent and that all the
members of the Audit, Compensation and Governance Committees are independent;
developing and recommending to the Board of Directors a set of corporate
governance principles applicable to the Company; and addressing corporate
governance issues for the Board. During fiscal year 2004 the Corporate
Governance Committee held two meetings. A copy of the Corporate Governance
Committee charter as adopted by the Board of Directors was filed as Exhibit 99.2
to the Company's 10-KSB/A filed on April 29, 2004.

Changes to Nominating Procedures

There were no material changes to the procedures by which the Company's
stockholders may recommend nominees to the Board of Directors since the adoption
of such procedures as disclosed in the Company's 2003 Annual Report on Form
10-KSB.

Stockholder Communications

Any stockholder or other interested party who desires to communicate with the
Company's Chairman of the Board of Directors or any of the other members of the
Board of Directors may do by writing to: Robert A. Levinson, Levcor
International, Inc., 1065 Avenue of the Americas, New York, New York 10018.
Communications may be addressed to the Chairman of the Board, an individual

                                      -64-
<PAGE>

director, a Board Committee, the non-management directors or the full Board.
Communications received by the Chairman of the Board will then be distributed to
the appropriate directors unless the Chairman determines that the information
submitted constitutes "spam," pornographic material and/or communications
offering to buy or sell products or services.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's executive officers, directors and persons who
beneficially own greater than 10% of a registered class of the Company's equity
securities to file certain reports ("Section 16 Reports") with the Securities
and Exchange Commission with respect to ownership and changes in ownership of
the Company's common stock, par value $0.01 per share ("Common Stock") and other
equity securities of the Company. Based solely on the Company's review of the
Section 16 Reports furnished to the Company, all Section 16(a) requirements
applicable to its officers, directors and greater than 10% beneficial owners
were complied with during the fiscal year ended December 31, 2005 except for the
following: Edward H. Cohen failed to timely file a Statement of Changes in
Beneficial Ownership on Form 4 in January 2005 with respect to his acquisition
of Common Stock in payment of director's fees in lieu of cash.

Code of Ethics

The Company has adopted a Code of Ethics for its Principal Executive Officer and
its Senior Financial Officers. A copy of the Code of Ethics was filed as Exhibit
14 to the Company's 2003 Annual Report on Form 10-KSB/A on April 29, 2004.

                                      -65-
<PAGE>

Item 11.          EXECUTIVE COMPENSATION

The following table summarizes compensation paid by the Company during fiscal
years 2003, 2004 and 2005 to the Company's executive officers during such
periods (the "Named Executive Officers") for services rendered in all capacities
to the Company.

<TABLE>
<CAPTION>
                                             Summary Compensation Table
                                                                                       Long-term Compensation
                                                                         ------------------------------------------------
                                                          Annual Compensation                  Awards                  Payouts
                                                -------------------------------------- -----------------------   -----------------

                                                                                       Restricted   Securities           All Other
                                                                         Other Annual    Stock      Underlying    LTIP    Compen-
                                                                         Compensation   Award(s)     Options/    Payouts  sation
   Name And Principal Position          Year    Salary($)    Bonus($)        ($)           ($)        SARs(#)      ($)      ($)
   ---------------------------          ----    ---------    --------    -------------  ---------   ----------   -------  --------
<S>                                     <C>    <C>           <C>         <C>                   <C>    <C>           <C>   <C>
    Robert A. Levinson                  2005   $  237,500    $ 97,029    $ 268,769 (1)         --          --       --    $   --
       Chairman of the Board, Chief     2004      237,500      93,742      268,769 (1)         --          --       --        --
         Executive Officer and          2003      237,500      91,812      268,769 (1)         --          --       --        --
         President


    Edward F. Cooke                     2005      150,000      72,771           --             --          --       --     3,801 (2)
         Chief Financial Officer,       2004      150,000      70,499           --             --                   --     3,799 (2)
         Vice President,                2003      150,000     105,103                                 200,000              3,800 (2)
          Secretary and Treasurer
</TABLE>

(1)   This amount reflects the aggregate dividend payments made to Mr. Levinson
      as holder of 98.3% of the Company's Series A Preferred Stock, which are
      payable on a quarterly basis.
(2)   This amount reflects the matching contributions to the Company's 401(k)
      Plan paid by the Company.


       The Company did not issue any stock options to the Named Executive
                                Officers in 2005.
           Aggregated Option Exercises in Last Fiscal Year and Fiscal
                             Year-End Option Values

The following table sets forth stock options exercised by Named Executive
Officers during the year ended December 31, 2005, and the number and value of
all unexercised options at fiscal year end.

<TABLE>
<CAPTION>
                                                                        Number Of           Value Of
                                                                       Securities        Unexercised In-
                                 Shares Acquired        Value          Underlying          The-Money
                                   On Exercise         Realized    Unexercised Options   Options At FY-
                                       (#)               ($)         At FY- End (#)        End($) (1)
                                 ---------------       --------    -------------------   ---------------

                                                                      Exercisable/        Exercisable/
                    Name                                              Unexercisable       Unexercisable
                    ----                                              -------------       -------------
<S>                                     <C>               <C>        <C>                     <C>
             Robert A. Levinson         --                --          35,200/0               --

             Edward F. Cooke            --                --         173,400/66,600          --
</TABLE>


1) Fair market value of securities underlying the options at fiscal year end
minus the exercise price of the options.

                                      -66-
<PAGE>

Stock Option Plans

On December 8, 1992, the Board of Directors adopted a Stock Option Plan. The
Stock Option Plan, as amended, authorized 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 to attract new
employees. The Stock Option Plan terminated in December 2002 and options to
purchase all of the shares available under the Stock Option Plan have heretofore
been granted.

On December 31, 2002, the stockholders of the Company adopted the 2002 Stock
Option Plan ("2002 Plan"). Under the 2002 Plan, options are granted to
employees, officers and non-employee directors. The purpose of the 2002 Plan is
to induce key personnel, including employees, officers, directors and
independent contractors, to remain in the employ or service of the Company, to
attract new individuals to enter into employment or service with the Company and
to increase such person's stock ownership in the Company. The 2002 Plan is
administered by the Company's Compensation Committee.

Under the 2002 Plan, options are granted at prices equal to the fair market
value at the date of grant, are not exercisable until the first anniversary of
the date of grant and do not become fully exercisable until the third
anniversary of the date of grant. The options generally remain exercisable
during employment until the tenth anniversary of the date of grant.

On January 6, 2003, the Company completed its acquisition of Carlyle. For
information about the merger, see "Certain Relationships and Related
Transactions--Merger with Carlyle." In connection with the merger, the Company
assumed Carlyle's outstanding stock options. As set forth in the merger
agreement, each five shares of Carlyle common stock was cancelled and converted
into the right to receive one share of common stock of the Company. Therefore,
the 1,100,000 shares of Carlyle common stock authorized to be issued for
outstanding stock options were converted into 220,000 shares of common stock of
the Company.

Under the Carlyle 1994 Incentive Program, as amended, options are granted at
prices equal to the fair market value at the date of grant and the options
generally remain exercisable during employment until the tenth anniversary of
the date of grant. The Carlyle 1994 Incentive Program terminated in December
2004 and options to purchase all of the shares available under the Program have
heretofore been granted.

Management Incentive Plans

The Company's 2005 Management Incentive Plan was adopted by the Board of
Directors on March 15, 2005. The 2005 Management Incentive Plan is a
performance-based bonus plan whereby management earn cash awards if targets are
reached in the areas of (i) return of total capital, (ii) sales growth and (iii)
individual objectives. All awards payable under the 2005 Management Incentive
Plan are subject to the approval of the Compensation Committee of the Board of
Directors. Awards aggregating $434,000 were earned under the 2005 Management
Incentive Plan. The 2005 Management Incentive Plan terminated on December 31,
2005. A copy of the 2005 Management Incentive Plan was attached as an Exhibit to
the Company's 2004 10-KSB/A filed on May 2, 2005. The Company's 2006 Management
Incentive Plan, which was adopted by the Board of Directors on March 27, 2006
and has the same material terms as the 2005 Management Incentive Plan, is
attached as an Exhibit to the Company's 2005 Annual Report on Form 10-K.

                                      -67-
<PAGE>

Compensation of Directors

Each director of the Company who is not an employee of the Company receives an
annual director's fee of $15,000, plus $1,000 for each Board meeting attended by
such director and $250 for each Board committee meeting which is not held on the
same day as a Board meeting. The fees are payable in cash or Common Stock, at
the election of the director.

Employment Agreements

The Company has employment agreements with the Robert A. Levinson and Edward F.
Cooke. See "Certain Relationships and Related Transactions--Merger with
Carlyle."

                                      -68-
<PAGE>

Item 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                  AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information as of March 27, 2006
regarding the ownership of equity securities by (i) each person who is known to
the management of the Company to have been the beneficial owner of more than 5%
of the outstanding shares of the Company's equity securities, (ii) each director
and nominee for director, (iii) the Named Executive Officers and (iv) all
directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
                                               Common Stock                    Preferred Stock
                                               ------------                    ---------------

     Name and Address of            Amount and Nature        % of      Amount and Nature     % of
      Beneficial Owner                of Beneficial         Class        of Beneficial       Class
     -------------------                Ownership           -----         Ownership          -----
                                        ---------                         ---------
<S>                                    <C>                   <C>          <C>                 <C>
GAMCO Investors, Inc.                    292,877 (1)         5.49%               --             --
Corporate Center
Rye, New York 10580

Robert A. Levinson                     1,453,726 (2)         27.1%        4,479,485 (3)       98.3%
1065 Avenue of the Americas
New York, New York 10018

Roger L. and Theresa S. Hueglin          268,850 (4)         5.04%
11 Blueberry Hill Road
Wilton, Connecticut 06897

Edward F. Cooke                          197,600 (5)         3.59%               --             --
c/o Blumenthal/Lansing, LLC
1 Palmer Terrace
Carlstadt, New Jersey 07072

John McConnaughy                          60,557 (6)          1.1%               --             --
1011 High Ridge Road
Stamford, Connecticut 06905

Joseph S. DiMartino                        8,993 (7)           *                 --             --
c/o Dreyfus Corporation
200 Park Avenue, 10th Floor
New York, New York 10166

Giandomenico Picco                         1,000               *                 --             --
c/o GDP Associates
950 Third Avenue, Suite 1800
New York, New York 10022

Luke Smith                               283,000 (8)          5.307%
2 Village Square,
Suite 200
Baltimore, MD 21210

Edward H. Cohen                           24,822 (9)           *                 --             --
c/o KMZ Rosenman
575 Madison Avenue
New York, New York 10022

All directors and executive officers   1,746,698 (10)        31.4%        4,479,485           98.3%
as a group (6 persons)
</TABLE>

                                      -69-
<PAGE>

------------------------------
*    Less than one percent (1%).

(1)   Represents shares held by GAMCO Investors, Inc. and various other entities
      which are directly or indirectly controlled by Mario J. Gabelli and for
      which he acts as chief investment officer, including registered investment
      companies and pension plans. This information is based solely upon the
      contents of a filing on Schedule 13D/A dated January 5, 2006, made by
      Mario J. Gabelli and related entities with the Securities and Exchange
      Commission.

(2)   Includes: (i) 419,999 shares held by Swenvest Corporation, as to which Mr.
      Levinson has sole voting and investment power; (ii) 15,000 shares held by
      three trusts for the benefit of Mr. Levinson's children, as to all of
      which trusts Mr. Levinson serves as co-trustee; and (iii) 35,200 shares
      subject to currently exercisable stock options.

(3)   Includes 4,479,485 shares of Series A Preferred Stock held by Swenvest
      Corporation, as to which Mr. Levinson has sole voting and investment
      power.

(4)   This information is based solely upon the contents of a filing on Schedule
      13G dated April 5, 2005, made by Roger L. and Theresa S. Hueglin.

(5)   Includes 173,400 shares subject to currently exercisable stock options.

(6)   Includes 24,100 shares subject to currently exercisable stock options.

(7)   Includes 3,200 shares subject to currently exercisable stock options.

(8)   This information is based solely upon the contents of a filing on Schedule
      13G/A dated January 10, 2006, made by Mr. Smith with the Securities and
      Exchange Commission.

(9)   Includes 3,300 shares subject to currently exercisable stock options which
      are held by Mr. Cohen for the benefit of his law firm, Katten Muchin
      Rosenman LLP. Mr. Cohen disclaims beneficial ownership of all options he
      holds for the benefit of Katten Muchin Rosenman LLP.

(10)  Includes 239,200 shares subject to currently exercisable stock options.



                      Equity Compensation Plan Information

The following table provides information, as of December 31, 2005, with respect
to all of the Company's compensation plans under which Common Stock is
authorized for issuance:

<TABLE>
<CAPTION>
                                                                                             Number of securities
                                                                                            remaining available for
                               Number of securities to be     Weighted-average exercise      future issuance under
                                 issued upon exercise of        price of outstanding       equity compensation plans
                                  outstanding options,         options, warrants and         (excluding securities
Plan Category                     warrants and rights                  rights           reflected in the first column)
-------------                     -------------------          ---------------------    ------------------------------
<S>                                      <C>                            <C>                         <C>
Equity compensation plans
approved by security holders             411,200                        $2.79                       330,000

Equity compensation plans
not approved by security
holders*                                     0                            0                             0
                                  -------------------          ---------------------    ------------------------------
                      Total:             411,200                        $2.79                       330,000
</TABLE>

         * Each director of the Company who is not an employee of the Company
receives an annual director's fee of $15,000, plus $1,000 for each Board meeting
attended by such director and $250 for each Board committee meeting which is not
held on the same day as a Board meeting. The fees are payable in cash or Common
Stock, at the election of the director.

                                      -70-
<PAGE>

Item 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 6, 2003, the Company completed its acquisition of Carlyle. In the
merger each five shares of Carlyle common stock were converted into one share of
Common Stock and each share of Carlyle Series B preferred stock was converted
into one share of the Company's Series A Preferred Stock, par value $0.01 per
share. In addition, the Company assumed Carlyle stock options which became
options to purchase approximately 220,000 shares of Common Stock. The merger was
accounted for as a reverse acquisition. The purchase price, exclusive of assumed
liabilities, was valued at approximately $6.8 million. Liabilities of
approximately $5.7 million were also assumed.

The merger agreement provided that Mr. Levinson continue to serve as Chairman of
the Board, President and Chief Executive Officer of the Company and all three
members of the Board of Directors of the Company prior to the merger continue to
serve as directors after the merger. The merger agreement also provided that Mr.
Cooke, the then current Chief Financial Officer and Vice President of Carlyle,
become Vice President, Chief Financial Officer, Treasurer and Secretary of the
Company and that Mr. Cooke, Mr. DiMartino and Mr. Picco, each of whom was a
director of Carlyle, serve as directors of the Company.

The merger agreement also provided that upon the completion of the merger, the
Company would indemnify and hold harmless, and pay all applicable expenses to,
all past and present directors and officers of Carlyle in all of their
capacities, for acts or omissions occurring at or prior to the completion of the
merger to the same extent they were indemnified pursuant to Carlyle's
certificate of incorporation and bylaws and to the fullest extent permitted by
law.

Prior to the merger, Mr. Levinson served as the Chairman of the Board,
President, Secretary and Principal Financial Officer of the Company while also
serving as the Chairman of the Board, President and Chief Executive Officer of
Carlyle. Prior to the merger, Mr. Levinson was entitled to exercise
approximately 32% of the voting power of Common Stock and approximately 39.9% of
the voting power of the Carlyle capital stock entitled to vote at the respective
meetings.

Mr. Levinson's employment agreement with Carlyle, which by operation of law is
now an obligation of the Company (the "Employment Agreement"), commenced on
January 1, 1999, continuing for a period of one year (the "Term of Employment").
The Employment Agreement allows for the Term of Employment to be renewed
annually automatically thereafter, unless Mr. Levinson or the Company gives not
less than thirty days written notice to the other. No such notice has been
given. In addition, the Employment Agreement currently provides for a base
salary of $200,000 per year (subject to increases as may be approved by the
Board from time to time); Mr. Levinson also receives an additional $37,500
annually pursuant to his salary arrangement with Levcor (collectively the "Base
Salary"). If Mr. Levinson's employment is terminated without cause, Mr. Levinson
would be entitled to receive the Base Salary for a period equal to the remainder
of the Term of Employment. Further, in the event of a change in control of the
Company, Mr. Levinson would be entitled to a lump sum severance payment
generally equal to 2.99 times his average annual compensation for the five
calendar years preceding the calendar year during which a change in control
occurred. Mr. Levinson agreed to waive such provision in connection with the
merger with Carlyle.

Mr. Cooke's employment agreement with Carlyle, which by operation of law is now
an obligation of the Company, commenced in March 1998 and sets forth the terms
under which Mr. Cooke's employment with the Company may be terminated. Pursuant
to such agreement, if within one year after a change in control of the Company
Mr. Cooke's employment is terminated for any reason, the Company shall pay Mr.
Cooke an amount equal to one year of his base salary then in effect.

                                      -71-
<PAGE>

Loans and Guarantees

As of December 31, 2005, the Company owes Mr. Levinson $2.804 million, including
accrued interest. The long-term loans which total $1.8 million, together with
accrued interest of $454,000, have been classified as a long-term obligation
because Mr. Levinson has promised not to demand payment until at least January
1, 2008. Mr. Levinson reaffirmed this undertaking in writing on March 21, 2006

Additionally, Mr. Levinson has also provided certain collateral guaranteeing the
Company's obligations under the $3,000,000 loan from JPMorgan Chase Bank
pursuant to a promissory note due April 30, 2007 as amended. Furthermore, Mr.
Levinson serves as a limited guarantor with respect to the obligations of Levcor
and its subsidiaries under a financing arrangement with CIT, pursuant to which
CIT has agreed to make an aggregate of $7,500,000 available to the Company and
its subsidiaries. The Company accrues interest of 6% per annum on outstanding
loans and advances from Mr. Levinson.

Other Relationships

         The law firm of Katten Muchin Rosenman LLP, New York, New York, of
which Edward H. Cohen, a director of the Company, serves as Counsel, acts as
counsel to the Company. Legal fees for services rendered by Katten Muchin
Rosenman LLP to the Company during the fiscal year ended December 31, 2005 did
not exceed 5% of the revenues of such firm for its most recent fiscal year. Mr.
Cohen does not share in any fees paid by the Company to Katten Muchin Rosenman
LLP.

Item 14.          PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees

The aggregate fees billed or to be billed by Friedman LLP ("Friedman") for each
of the last two fiscal years for professional services rendered for the audit of
the Company's annual financial statements, review of financial statements
included in the Company's quarterly reports on Form 10-QSB and services that
were provided in connection with statutory and regulatory filings or engagements
were $155,000 for 2005 and $155,000 for 2004.

Audit-related Fees

The aggregate fees billed or to be billed by Friedman for each of the last two
fiscal years for assurance and related services that were reasonably related to
the performance of the audit or review of the Company's financial statements
were $10,000 for 2005 and $0 for 2004.

Tax Fees

The aggregate fees billed by Friedman in each of the last two fiscal years for
professional services rendered for tax compliance, tax advice and tax planning
were $0 for 2005 and 2004.

All Other Fees

The aggregate fees billed by Friedman in each of the last two fiscal years for
products and services other than those reported in the three prior categories
were $14,000 for 2005 and 2004. The nature of the services performed for these
fees included audit of the Company's pension and 401K plans.

                                      -72-
<PAGE>

Policy on Pre-Approval of Services Provided by Friedman LLP

The Audit Committee has established policies and procedures regarding
pre-approval of all services provided by the independent auditor. The Audit
Committee will annually review and pre-approve the services that may be provided
by the independent auditor without obtaining specific pre-approval from the
Audit Committee. Unless a type of service has received general pre-approval, it
requires specific pre-approval by the Audit Committee if it is to be provided by
the independent auditor. The Audit Committee may delegate, subject to any rules
or limitations it may deem appropriate, to one or more designated members of the
Audit Committee the authority to grant such pre-approvals; provided, however,
that the decisions of any member to whom authority is so delegated to
pre-approve an activity shall be presented to the full Audit Committee at its
next scheduled meeting. The Audit Committee has delegated such authority to Mr.
DiMartino, Chair of the Audit Committee.

                                      -73-
<PAGE>

Item 15.          EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


                        Valuation and Qualifying Accounts
                        December 31, 2005, 2004 and 2003

<TABLE>
<CAPTION>

                                              "Addition"
                              Balance         charged to          "Other                             Balance
                             beginning         costs and         additions         "Less"            at end
Description                   of year          expenses        (deductions)      deductions          of year
------------------------------------------------------------------------------------------------------------
<S>                          <C>               <C>              <C>               <C>              <C>
Year Ended
December 31,
2005

Allowance for
doubtful accounts            $    59           $    8           $    --           $   16 (b)       $    51

Deferred tax
asset valuation
allowance                    $     1           $4,420           $ 1,553 (a)           --             5,974

Year Ended
December 31,
2004

Allowance for
doubtful accounts            $   171           $  (17)           $    --           $   95 (b)       $    59

Deferred tax
asset valuation
allowance                    $     1               --           $    --               --           $     1

Year Ended
December 31,
2003

Allowance for
doubtful accounts            $   209           $    3           $    --           $   41 (b)       $   171

Deferred tax
asset valuation
allowance                    $     1           $   --           $    --           $   --           $     1
</TABLE>

        (a) Other Comprehensive Income related to the pension adjustment.
        (b) Uncollectible accounts written off

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

                                      -74-
<PAGE>

Exhibit Index

   Exhibit
   Number                            Description of Document


    2.1          Agreement and Plan of Merger, dated as of May 24, 2002, by and
                 among Levcor International, Inc. ("Levcor") and Carlyle
                 Industries, Inc. (incorporated herein by reference to Amendment
                 No. 6 to Levcor's Registration Statement on Form S-4 filed on
                 November 26, 2002).

    2.2          Asset Purchase Agreement, dated as of September 2, 1999,
                 between Levcor and Andrex Industries Corp. (incorporated herein
                 by reference to Levcor's Current Report on Form 8-K filed on
                 September 17, 1999).

    2.3          Amendment to Asset Purchase Agreement, dated August 3, 2000,
                 effective as of April 1, between Levcor and Andrex Industries
                 Corp. (incorporated herein by reference to Levcor's Form 10-KSB
                 filed on April 1, 2002).

    3.1          Amended and Restated Certificate of Incorporation filed January
                 7, 2003 (incorporated herein by reference to Amendment No. 6 to
                 Levcor's Registration Statement on Form S-4 filed on November
                 26, 2002).

    3.2          By-Laws (incorporated herein by reference to Amendment No. 6 to
                 Levcor's Registration Statement on Form S-4 filed on November
                 26, 2002).

    4.1          Specimen form of Levcor's Common Stock certificate
                 (incorporated herein by reference to Levcor's Form 10-KSB filed
                 on March 24, 1997).

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

    10.2         Factoring Agreement, dated September 17, 1998, between Levcor
                 and the CIT Group/Commercial Services, Inc. (incorporated
                 herein by reference to Levcor's Form 10-QSB filed on November
                 16, 1998).

    10.3         Amendment dated December 31, 2001 to the Factoring Agreement
                 dated September 17, 1998 between Levcor and the CIT
                 Group/Commercial Services, Inc. (incorporated herein by
                 reference to Levcor's Form 10-KSB filed on April 1, 2002).

    10.4         Guaranty dated April 30, 2002, executed by Robert A. Levinson
                 in favor of JPMorgan Chase Bank (incorporated herein by
                 reference to Levcor's Form 10-QSB filed on May 15, 2002).

    10.5         Pledge Agreement dated April 30, 2002, executed by Robert A.
                 Levinson in favor of JPMorgan Chase Bank (incorporated herein
                 by reference to Levcor's Form 10-QSB filed on May 15, 2002).

    10.6         Promissory Note dated May 3, 2002 executed by Levcor in favor
                 of JPMorgan Chase Bank (incorporated herein by reference to
                 Levcor's Form 10-QSB filed on May 15, 2002).

                                      -75-
<PAGE>

    10.7         Letter dated February 28, 2002 from Mr. Robert A. Levinson
                 (incorporated herein by reference to Levcor's Amendment No. 2
                 to Registration Statement on Form S-4 filed on October 4,
                 2002).

    10.8         Letter dated September 27, 2002 from Mr. Robert A. Levinson
                 (incorporated herein by reference to Levcor's Amendment No. 2
                 to Registration Statement on Form S-4 filed on October 4,
                 2002).

    10.9         2002 Stock Option Plan (incorporated herein by reference to
                 Amendment No. 6 to Levcor's Registration Statement on Form S-4
                 filed on November 26, 2002). +

    10.10        Financing Agreement dated January 24, 2002, among Carlyle and
                 The CIT Group/Commercial Services, Inc. (incorporated herein by
                 reference to Exhibit 99.1 to Carlyle's Current Report on Form
                 8-K/A filed on March 14, 2002).

    10.11        Accounts Receivable Financing Agreement dated January 24, 2002,
                 among Blumenthal/Lansing Company, and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.2 to Carlyle's Current Report on Form 8-K/A filed on March
                 14, 2002).

    10.12        Accounts Receivable Financing Agreement dated January 24, 2002,
                 among Westwater Industries, Inc., and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.3 to Carlyle's Current Report on Form 8-K/A filed on March
                 14, 2002).

    10.13        Guaranty dated January 24, 2002, executed by Blumenthal/Lansing
                 Company in favor of The CIT Group/Commercial Services, Inc.
                 (incorporated herein by reference to Exhibit 99.4 to Carlyle's
                 Current Report on Form 8-K/A filed on March 14, 2002).

    10.14        Guaranty dated January 24, 2002, executed by Carlyle in favor
                 of The CIT Group/Commercial Services, Inc. (incorporated herein
                 by reference to Exhibit 99.5 to Carlyle's Current Report on
                 Form 8-K/A filed on March 14, 2002).

    10.15        Guaranty dated January 24, 2002, executed by Westwater
                 Industries, Inc. in favor of The CIT Group/Commercial Services,
                 Inc. (incorporated herein by reference to Exhibit 99.6 to
                 Carlyle's Current Report on Form 8-K/A filed on March 14,
                 2002).

    10.16        Guaranty dated January 24, 2002, executed by Button Fashion BV
                 in favor of The CIT Group/Commercial Services, Inc.
                 (incorporated herein by reference to Exhibit 99.7 to Carlyle's
                 Current Report on Form 8-K/A filed on March 14, 2002).

    10.17        Guaranty dated January 24, 2002 executed by Robert Levinson in
                 favor of The CIT Group/Commercial Services, Inc. (incorporated
                 herein by reference to Exhibit 99.8 to Carlyle's Current Report
                 on Form 8-K/A filed on March 14, 2002).

    10.18        Inventory Security Agreement dated January 24, 2002, among
                 Blumenthal/Lansing Company and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.9 to Carlyle's Current Report on Form 8-K/A filed on March
                 14, 2002).

    10.19        Inventory Security Agreement dated January 24, 2002, among
                 Westwater Industries, Inc. and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.10 to Carlyle's Current Report on Form 8-K/A dated January
                 24, 2002, as filed on March 14, 2002).

                                      -76-
<PAGE>

    10.20        Inventory Security Agreement dated January 24, 2002, among
                 Carlyle and The CIT Group/Commercial Services, Inc.
                 (incorporated herein by reference to Exhibit 99.11 to Carlyle's
                 Current Report on Form 8-K/A filed on March 14, 2002).

    10.21        Equipment Security Agreement dated January 24, 2002, among
                 Blumenthal/Lansing Company and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.12 to Carlyle's current report on Form 8-K/A filed on March
                 14, 2002).

    10.22        Equipment Security Agreement dated January 24, 2002, among
                 Westwater Industries, Inc. and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.13 to Carlyle's Current Report on Form 8-K/A filed on March
                 14, 2002).

    10.23        Equipment Security Agreement dated January 24, 2002, among
                 Carlyle and The CIT Group/Commercial Services, Inc.
                 (incorporated herein by reference to Exhibit 99.14 to Carlyle's
                 current report on Form 8-K/A filed on March 14, 2002).

    10.24        Letter of Credit Agreement dated January 24, 2002, among
                 Blumenthal/Lansing Company and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.15 to Carlyle's Current Report on Form 8-K/A filed on March
                 14, 2002).

    10.25        Letter of Credit Agreement dated January 24, 2002, among
                 Westwater Industries, Inc. and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.16 to Carlyle's Current Report on Form 8-K/A filed on March
                 14, 2002).

    10.26        Patent and Trademark Agreement dated January 24, 2002, among
                 Blumenthal/Lansing Company and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.17 to Carlyle's Current Report on Form 8-K/A filed on March
                 14, 2002).

    10.27        Patent and Trademark Agreement dated January 24, 2002, among
                 Westwater Industries, Inc. and The CIT Group/Commercial
                 Services, Inc. (incorporated herein by reference to Exhibit
                 99.18 to Carlyle's Current Report on Form 8-K/A filed on March
                 14, 2002).

    10.28        1994 Carlyle Industries, Inc. 1994 Incentive Program, as
                 Amended (incorporated herein by reference to Levcor's
                 Registration Statement on Form S-8 filed on January 20,
                 2004). +

    10.29        2004 Management Incentive Plan (incorporated herein by
                 reference to exhibit 10.30 to Levcor's 10-KSB/A filed on May 2,
                 2005)

    10.30        2005 Management Incentive Plan (incorporated herein by
                 reference to exhibit 10.31 to Levcor's 10-KSB/A filed on May 2,
                 2005)

    10.31    *   2006 Management Incentive Plan +

    10.32    *   Amendment to Commitment letter dated March 21, 2006 between Mr.
                 Robert A. Levinson and Levcor International, Inc.

    10.33    *   Amendment to CIT Financing Agreement dated March 27, 2006

    10.34    *   Amendment to the CIT Factoring Agreement dated March 27, 2006

                                      -77-
<PAGE>

    10.35    *   Endorsement #5 dated as of March 16, 2006 to the Promissory
                 Note between Levcor International, Inc. and JP Morgan Chase
                 Bank dated May 3, 2002

    10.36    *   Acknowledgment and Consent of Endorsement #5 dated March 16,
                 2006 to the Promissory Note dated May 3, 2002 between Levcor
                 International, Inc. and JP Morgan Chase Bank

    10.37        Employment Agreement dated as of March 24, 1998 between Edward
                 F. Cooke and Carlyle Industries, Inc., incorporated herein by
                 reference to Exhibit 10.33 to Carlyle Industries, Inc.'s 1997
                 Annual Report on Form 10 K filed on March 26, 1998 (SEC file
                 number 001-03462). +

    10.38        Employment Agreement dated February 22, 1999 and made effective
                 as of January 1, 1999 between Robert A. Levinson and Carlyle
                 Industries, Inc., incorporated herein by reference to Exhibit
                 10.37 to Carlyle Industries, Inc.'s 1998 Annual Report on Form
                 10 K filed on March 31, 1999 (SEC file number 001-03462) +

    10.39        Bending Heminway Company, Inc. Supplemental Executive Savings
                 Investment Plan dated December 21, 1995 (incorporated herein by
                 reference to Exhibit 10.32 to Levcor's 10-KSB/A filed on May 2,
                 2005) +

    10.40        Letter dated January 13, 2005 from Mr. Robert A. Levinson
                 (incorporated herein by reference to Exhibit 10.33 to Levcor's
                 10-KSB/A filed on May 2, 2005)

    10.41        Endorsement No. 4 dated February 1, 2005 to the Promissory Note
                 dated May 3, 2002 executed by Levcor in favor of JP Morgan
                 Chase Bank (incorporated herein by reference to Exhibit 10.34
                 to Levcor's 10-KSB/A filed on May 2, 2005)

    14           Code of Ethics for Senior Financial Officers and the Principal
                 Executive Officer (incorporated herein by reference to Exhibit
                 14 to Levcor's 10-KSB/A filed on April 29, 2004)

    21       *   Subsidiaries of the Company.

    23       *   Consent of Independent Auditors.

    31.1     *   Chief Executive Officer's Certificate pursuant to Section 302
                 of the Sarbanes-Oxley Act of 2002.

    31.2     *   Chief Financial Officer's Certificate pursuant to Section 302
                 of the Sarbanes-Oxley Act of 2002.

                                      -78-
<PAGE>

    32.1     *   Chief Executive Officer's Certificate, pursuant to 18 U.S.C.
                 Section 1350, as adopted pursuant to Section 906 of the
                 Sarbanes-Oxley Act of 2002.

    32.2     *   Chief Financial Officer's Certificate, pursuant to 18 U.S.C.
                 Section 1350, as adopted pursuant to Section 906 of the
                 Sarbanes-Oxley Act of 2002.

    99.1         Charter for the Audit Committee of the Board of Directors
                 (incorporated herein by reference to Exhibit 99.1 to Levcor's
                 2003 Annual Report on Form 10-KSB/A filed on April 29, 2004.

    99.2         Charter for the Corporate Governance Committee of the Board of
                 Directors (incorporated herein by reference to Exhibit 99.2 to
                 Levcor's 2003 Annual Report on Form 10-KSB/A filed on April 29,
                 2004.

-----------------
+  Indicates that exhibit is a management contract or compensatory plan or
   arrangement.
*  Indicates that exhibit is filed as an exhibit hereto.

                                      -79-
<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.

Date: March 29, 2006                       By: /s/ ROBERT A. LEVINSON
                                               ---------------------------------
                                               Robert A. Levinson,
                                               Chairman of the Board,
                                               President and Chief Executive
                                               Officer

Date: March 29, 2006
                                           By: /s/ EDWARD F. COOKE
                                               ---------------------------------
                                               Edward F. Cooke,
                                               Chief Financial Officer,
                                               Vice President, Secretary,
                                               Treasurer and Director

In accordance with 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/ ROBERT A. LEVINSON     3/29/06       /s/ EDWARD F. COOKE            3/29/06
----------------------------------       --------------------------------------
Robert A. Levinson         Date          Edward F. Cooke                Date
Chairman of the Board, Chief             Chief Financial Officer,
Executive Officer and President          Vice President, Secretary, Treasurer
(Principal Executive Officer)            and Director
                                         (Principal Financial Officer)


/s/ EDWARD H. COHEN        3/29/06       /s/ JOSEPH S. DIMARTINO        3/30/06
----------------------------------       --------------------------------------
Edward H. Cohen            Date          Joseph S. DiMartino            Date
Director                                 Director


/s/ JOHN McCONNAUGHY       3/29/06       /s/ GIANDOMENICO PICCO         3/29/06
----------------------------------       --------------------------------------
John McConnaughy           Date          Giandomenico Picco             Date
Director                                 Director

                                      -80-