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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

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

                            For the fiscal year ended
                                December 31, 2004

                             Commission File Number
                                     0-50186

                           LEVCOR INTERNATIONAL, INC.
                 (Name of Small Business Issuer 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
                (Issuer's Telephone Number, Including Area Code)

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

                                      None

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

                     Common Stock, par value $0.01 per share

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

                                 Yes [X] No [ ]

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]

         Issuer's revenues for the fiscal year ended December 31, 2004:
$33,736,000

         At March 28, 2005 approximately 5,331,881 shares of common stock, par
value $0.01 per share, of the issuer were outstanding and the aggregate market
value of the voting common stock held by non-affiliates was $7,251,705.

         Documents incorporated by reference: Portions of Registrant's Proxy
Statement for the 2004 Annual Meeting of Stockholders are incorporated into Part
III of this Form 10-KSB.

         Transitional Small Business Disclosure Format: Yes [ ] No [X]
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<PAGE>

                INDEX TO ANNUAL REPORT ON FORM 10-KSB FILED WITH
                     THE SECURITIES AND EXCHANGE COMMISSION
                          YEAR ENDED DECEMBER 31, 2004

                              ITEMS IN FORM 10-KSB
                              --------------------



                                                                            Page

PART I.   ....................................................................2
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   Item 1.  DESCRIPTION OF BUSINESS...........................................2

   Item 2.  DESCRIPTION OF PROPERTY..........................................11

   Item 3.  LEGAL PROCEEDINGS................................................11

   Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............12

PART II.  ...................................................................13
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   Item 5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
            BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES...................13

   Item 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION........14

   Item 7.  FINANCIAL STATEMENTS.............................................23

   Item 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE.............................................47

   Item 8A. CONTROLS AND PROCEDURES..........................................47

   Item 8B. OTHER INFORMATION................................................48

PART III. ...................................................................49
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   Item 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............49

   Item 10. EXECUTIVE COMPENSATION...........................................49

   Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            AND RELATED STOCKHOLDER MATTERS..................................49

   Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................49

   Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K..........................49

   Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES...........................53

<PAGE>

                                    PART I.

This 2004 Annual Report on Form 10-KSB 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, future
revenue opportunities, development and growth of the Company's contract garment
manufacturing business, reliance on a limited number of significant customers,
reliance on third party suppliers and manufacturers, 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
the merger, each five shares of Carlyle common stock were converted into one
share of Company common stock, par value $0.01 per share, 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. In addition, the Company assumed
Carlyle stock options which became options to purchase approximately 220,000
shares of Company 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.

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
$5,367,000 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. As a strategic response to these pressures, the Company took steps to

                                      -2-
<PAGE>

transition the focus of its Textile division from fabric converting to garment
manufacturing, which the Company believes offers greater potential for growth.

Strategy

The Company's strategy to expand its business and improve profitability
includes, among other things:

     o    expanding the sales of its new contract garment manufacturing product
          lines and introduction of additional garment lines; and

     o    expanding its craft distribution product offerings, business and
          customer base within retail and wholesale markets, including an
          expansion into international markets, primarily in Canada and Europe.

Products and Customers

Textile Division

In 2003, as a result of declining margins, the Company recorded a charge to
earnings for the impairment of goodwill in the Textile division's fabric
converting business. The Company began to transition the Textile division to
contract garment manufacturing beginning in the second half of 2003, and the
Textile division is now primarily engaged in construction of garments by third
party manufacturers according to customer orders. The Textile division, to a
very limited extent, also converts woven textile fabrics and processes woven and
knit textile fabrics. These fabrics are either sold for production principally
to domestic manufacturers of women's apparel or, to a limited extent, used when
Levcor contracts construction of garments by third party manufacturers according
to customer's orders.

Sales related to contract garment manufacturing represented 96% of the Textile
division's sales in 2004 as compared to 57% in 2003. The Company anticipates
that sales related to contract garment manufacturing by the Textile division
will continue to represent in excess of 90 % of the Textile division's revenue
base in 2005.

The Company currently manufactures primarily women's coordinated sportswear,
tops, blazers and pants, which are targeted for the classical consumer and are
marketed at moderate price points, primarily in department and retail chain
stores.

The Company's garment manufacturing business consists of (i) receiving customer
orders for the manufacturing of garments, (ii) purchasing raw materials from
various U.S. sources, (iii) shipping the raw material to off shore manufacturers
who manufacture the garments according to the customer's specifications and (iv)
directing the flow of production, quality control and shipment of the finished
goods. The Company uses several third party manufacturers to eliminate the
significant capital investment requirements associated with maintaining
manufacturing facilities. Upon completion of the manufacturing process, the
Company's products are shipped from the contract manufacturers to the customer.

The principal raw materials used by the Textile division to manufacture garments
are typically a combination or blend of two or more fibers, such as rayon,
acetate, polyester and acrylic. Two suppliers accounted for approximately 16%
and 10%, respectively, of the Textile division's purchases in 2004.

                                      -3-
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The Textile division's two largest customers accounted for approximately 90% and
6%, respectively, during 2004, and 71% and 4%, respectively, during 2003, of the
division's sales; the largest customer has been purchasing textile fabrics and
garments from the Company for over 20 years.

The textile fabric converting process consists of (i) designing fabrics, (ii)
purchasing yarns both dyed and undyed and commissioning knitting mills to knit
the yarns into greige (unfinished) fabric according to the Company's
specifications, and (iii) commissioning fabric finishers to finish the fabrics
through a process of washing, bleaching, dyeing and applying certain chemical
finishes to greige fabric according to the Company's specifications. Finished
apparel fabric is fabric that is ready to be cut and sewn into garments.

During 2003, the Textile division results were adversely affected by ongoing
competitive pressures in the fabric converting industry, including reduced
margins and significant foreign competition. As a strategic response to these
pressures, the Company took steps to transition the focus of its Textile
division from fabric converting to contract garment manufacturing, which the
Company believes offers greater potential for growth. The Company also initiated
a series of cost savings initiatives in the Textile division, including reducing
headcount, in an effort to achieve future improved results.

As a result of operating losses incurred by the Textile division during 2003,
the Company recorded a $5,367,000 charge to fiscal 2003 earnings to reflect the
impairment of goodwill associated with the Textile division. The charge was
based upon on a third party goodwill impairment evaluation conducted in
connection with the fiscal 2003 audit. There was no further impairment in 2004.

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.

                                      -4-
<PAGE>

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 conducted business with three customers (one mass
merchandiser and two specialty chains) representing approximately 47%, 22% and
9%, respectively, in 2004 and 48%, 22% and 8%, respectively, in 2003, of the
division's net revenues. These customers also represented approximately 74% of
the Craft division's outstanding accounts receivable as of December 31, 2004.

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.

Competition

The Company faces significant competition in connection with its new contract
garment manufacturing business, where it competes on the basis of price, quality
and on-time delivery. The contract garment manufacturing industry is highly
fragmented. The Company competes with many companies, including foreign
competitors, engaged in the production and distribution of women's apparel, some
of which have longer operating histories and financial, sales and marketing
capabilities and other competitive resources which are substantially greater
than those of the Company. Foreign competition, in particular, is a significant
factor in the textile business, as the United States textile industry has been
and continues to be negatively impacted by existing worldwide trade practices.
The textile fabric converting business in which the Company competes is
extremely competitive, and it competes on the basis of the price and uniqueness
in styling of its fabrics. The Company competes with numerous domestic and
foreign fabric manufacturers, including companies that are larger in size and
have financial resources that are greater than that of the Company.

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

                                      -5-
<PAGE>

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 Textile division's customers order specific quantities of goods on a
fixed-price basis significantly in advance of scheduled delivery periods. This
standard lead-time results in significant backlogs during the second and third
quarters. The Company generally ships orders to customers during the third and
fourth quarters, and, as a result, the Textile division has no material backlog
as of December 31, 2004. Although the Company has not had significant
cancellations in the past, no assurance can be given that it will not experience
a significant level of cancellations in the future or that its backlog at any
point in time will be converted to sales.

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, 2004 or 2003.

Employees

The Company currently employs 140 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.


Factors That Could Affect Our Future Results

The Company May Be Dependent Upon Its Principal Stockholder, Officer and
Director To Fund Its Future Operations.

Losses sustained in prior years have adversely affected the Company's liquidity.
Robert A. Levinson has agreed to continue to personally support the Company's
cash requirements through January 1, 2007. Levcor has successfully implemented
several actions to reduce losses and improve cash flow. There can be no
assurance that Mr. Levinson will continue to personally support the Company's
cash requirements, or that these measures will otherwise continue to be
successful.

Expansion of Garment Manufacturing Business.

During 2004, the Textile division results were favorably affected by a 26%
increase in revenues as our contract garment manufacturing business expanded.
There is no assurance that the Company will be able to continue to expand its
garment manufacturing business or that such expansion and certain cost saving
initiatives will further improve results in the Textile division. The Company
remains vulnerable to a variety of business risks generally associated with the
entry into a new line of business, the introduction of new product lines and the
broadening of its product offerings. The Company will be required to continue to
implement changes to certain aspects of its business and could need to expand
operations to respond to increased demands. Accordingly, the Company's past
growth in 2004 in contract garment manufacturing cannot be assumed to be
indicative of its future operating results. In addition, the encountering of
unexpected difficulties or delays, loss of a key customer or manufacturing
relationship could adversely affect the Company's business, financial condition
or results of operations.

                                      -6-
<PAGE>

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.

The Company's Business Is Extremely Competitive.

In the event the Company is unable to continue to be competitive in its product
offerings and services, the Company's business, results of operations and
financial condition may suffer. Competition in contract garment manufacturing is
based on price, quality and on-time delivery. The contract garment manufacturing
industry is highly fragmented. The Company competes with many companies,
including foreign competitors, engaged in the production and distribution of
women's apparel, some of which have longer operating histories and financial,
sales and marketing capabilities and other competitive resources which are
substantially greater than those of the Company. The Company also faces
competition from its existing customers, who may themselves begin to produce
women's apparel directly.

Competition in the domestic textile fabric converting business is based on
price, uniqueness in styling of fabrics and the ability to quickly respond to
customers' orders.

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.

                                      -7-
<PAGE>

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 Revenue's.

The Company's customer base has been and continues to be highly concentrated.
The Textile division's two largest customers accounted for approximately 90% and
6%, respectively, during 2004 and 71% and 4%, respectively, during 2003, of the
division's sales. The Craft division conducted business with three customers
(one mass merchandiser and two specialty chains) representing approximately 47%,
22% and 9%, respectively, in 2004 and 48%, 22% and 8%, respectively, in 2003, of
the division's net revenues. These customers also represented approximately 74%
of the Craft division's outstanding accounts receivable as of December 31, 2004.
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. We do not have long-term agreements with any of our major customers
and purchases generally occur on an order-by-order basis. As a result, a
customer that generates substantial revenue for the Company in one period may
not be a substantial source of revenue in a future period. In addition,
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.

Dependence On Contract Manufacturers

Substantially all of the Company's textile products are manufactured by
unaffiliated foreign contract manufacturers. The Company does not have long-term
contracts or formal arrangements with any of these manufacturers. Foreign
manufacturing is subject to a number of risks, including transportation delays
and interruptions, political and economic disruptions, tariffs, import and
export controls and changes in governmental policies. In addition, stringent
controls, such as review and inspection of fabrics, samples, specifications, fit
and completed garments and factory visits, must be undertaken to ensure the
production of quality products. Although the Company believes that it has
instituted such controls, there can be no assurance that such events will not
occur in the future, resulting in possible increases in costs and delays of
product deliveries resulting in losses of revenue and goodwill. During 2004, the
Textile division relied upon three manufacturers for 100% of its production. The
Company believes that alternate sources of manufacturing are available if the
need were to arise, although there can be no assurance that such alternate
facilities would be available on a timely basis or on commercially reasonable
terms. Any substantial delay in locating, or inability to locate, acceptable
alternate sources of manufacturing could have a material adverse effect on the
Company's business, financial condition or results of operations.

The Textile Division Depends On Third Parties For Crucial Raw Materials And
Services.

The principal raw materials used by the Textile division are rayon, acetate,
acrylic and polyester. The price of polyester varies and is determined by supply
and demand as well as the price of petroleum used to produce polyester. If any
of its third party knitters, finishers and transporters fail to timely produce

                                      -8-
<PAGE>

quality products and in sufficient quantity or fail to timely deliver finished
products, the Company's results would suffer. Two suppliers provided
approximately 16% and 10%, respectively, of the Textile division's purchases in
2004.

The Company's Business Is Subject To The Seasonal Nature Of The Industry.

The textile business is seasonal and the Company expects to realize higher
revenues and operating income in the third quarter, as compared to other
quarters of the year. Such seasonality takes into account the standard lead-time
required by the fashion industry to manufacture apparel, which corresponds to
the respective retail selling seasons. Standard lead-time is the period of time
commencing when the Company receives an order from a customer and ending when
the order ships. In response to this seasonality, the Company generally
increases its inventory levels, and therefor has higher working capital needs
during the second and third quarters of its fiscal year. This standard lead-time
also results in significant backlogs during the second and third quarters. The
Company ships these large seasonal orders to the customers during the third and
fourth quarters, and, as a result, the Textile division has no material backlog
as of December 31, 2004. Although the Company has not had significant
cancellations in the past, no assurance can be given that it will not experience
a significant level of cancellations in the future or that its backlog at any
point in time will be converted to sales. The Company and the U.S. apparel
industry in general are sensitive to the business cycle of the national economy.
Moreover, the popularity, supply and demand for particular apparel products can
change significantly from year to year based on prevailing fashion trends and
other factors. The Company may be unable to compete successfully in any industry
downturn.

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
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.

Tariffs, Import Restrictions and Other Risks Associated with International
Business

The Company's textile products are subject to bilateral textile agreements
between the United States and a number of foreign countries. Such agreements,
which have been negotiated under the framework established by the Arrangement

                                      -9-
<PAGE>

Regarding International Trade in Textiles, allow the United States to impose
restraints at any time on the importation of categories of merchandise that,
under the terms of the agreements are not currently subject to specified limits.
A substantial portion of our products is manufactured by contractors located
outside the United States. These products are imported and are subject to U.S.
customs laws, which impose tariffs as well as import quota restrictions for
textiles and apparel established by the U.S. government. In addition, a portion
of our imported products is eligible for certain duty-advantage programs
commonly known as NAFTA and CBI.

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.

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

                                      -10-
<PAGE>

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
payments are currently restricted under the Company's financing arrangements
with its lenders.

Item 2.     DESCRIPTION OF PROPERTY.

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. National Spinning, Inc. is 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 $15,633 per month. The lease expires on May 31, 2006.
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 has
forty-one years remaining. In addition, the Company owns one facility no longer
used in operations: a 100,000 square foot former production facility at
Watertown, Connecticut of which approximately 42,000 square feet are leased to
unrelated third parties.

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

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,

                                      -11-
<PAGE>

but remediation activity has not been required by the Connecticut Department of
Environmental Protection ("CTDEP").

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 1.30%, respectively, of costs incurred to
date, based on their alleged volume of waste shipped to the SRS site. It is
presently anticipated that the EPA will issue a proposed plan this spring and
issue the record of decision for this site in September 2005. The Company is
unable, at this time, to estimate the ultimate cost of the remedy for the SRS
site.

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 $1.2 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 2004 no matters were submitted to stockholders for a vote.

                                      -12-
<PAGE>

                                    PART II.

Item 5.     MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
            BUSINESS 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 par value of the Company's common stock was
changed from $0.56 to $0.01 per share, on January 6, 2003 in connection with its
merger with Carlyle. 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.

             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

             2003                              High              Low
                                              ------           ------
             First Quarter                    $ 3.00           $ 1.55
             Second Quarter                     2.80             1.75
             Third Quarter                      3.50             2.40
             Fourth Quarter                     4.00             2.60

Holders of Record

As of March 28, 2005 there were approximately 6,385 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. For a
description of the financing arrangements, see "Liquidity and Capital
Resources."

Recent Sales of Unregistered Securities

During the fourth quarter of 2004, the Company issued shares of its common stock
to one of its non-employee directors in lieu of cash for quarterly director
fees. The issue price was the average trading price on the last day of the
quarter. On October 14, 2004, 2,065 shares were issued to the director at a
price of $2.30 per share. These shares were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to Section 4(2) of the Securities Act.

                                      -13-
<PAGE>

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


Critical Accounting Policies and Estimates

The following is a brief discussion of the critical accounting policies used in
the preparation of the Company's financial statements, including those
accounting policies and methods used by the Company which require subjective
judgments and are considered very important to the understanding of the
Company's financial condition.

Receivables

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.

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 with major retail customers. Most of
these 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.

Inventories

Inventories are stated at the lower of cost (principally average cost) or
market. Inventories consist of loose buttons, unpackaged craft products, 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 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.

Intangible Assets

Goodwill and other intangible assets such as trademarks are evaluated for
impairment at least annually and, if necessary, impairment is recorded. Goodwill
and other intangible assets are not amortized. The Company's annual goodwill and
other intangible asset impairment tests performed in the fourth quarter of 2004
indicated no impairment of goodwill as of December 31, 2004. In the fourth
quarter of 2003 the Company recorded a goodwill impairment charge of $5.4
million.

                                      -14-
<PAGE>

Pension Liabilities

The Company used an estimated rate of return of 8.00% and a discount rate of
5.75% in computing its defined benefit plan pension liability.

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.

Shipping and Handling Costs

Shipping and handling costs are included in the cost of sales.


Results of Operations

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 during 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.

Net sales in the Craft segment totaled $23.1 million during 2004 as compared to
$22.3 million during 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. These reserves are anticipated to increase in 2005, as discussed below.

Gross margin during 2004 was $10.4 million as compared to $9.5 million during
2003. The increase in gross margin dollars was the result of increased sales as
described above. The gross margin percent totaled 31.0% during 2004 and 2003.

                                      -15-
<PAGE>

Gross margin in the Textile segment totaled $2.1 million during 2004 versus $1.3
million during 2003. The increase in Textile segment gross margin during 2004
was the result of the higher level of sales in the segment. The gross margin
percent during 2004 totaled 19.8% as compared to 15.4% during 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 during 2004 as compared
to $8.2 million during 2003. The gross margin percent during 2004 totaled 36.1%
as compared to 36.9% during 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.

The Company anticipates that it will incur a higher level of sales returns in
2005, primarily in connection with sales arrangements made with a large Craft
division customer. These returns are anticipated to result in lower reported
2005 net sales as compared to 2004, and accordingly earnings in 2005 are
anticipated to be materially lower as compared to 2004.

Selling, general and administrative expenses totaled $8.3 million during 2004 as
compared to $9.0 million 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 during 2004 totaled
$2.1 million as compared to a loss of $4.8 million during 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 during 2004 totaled $605,000 as compared to net interest
expense of $526,000 during 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 during 2004 was $582,000 as compared to $499,000
during 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.

                                      -16-
<PAGE>

Liquidity and Capital Resources

The Company's Textile division provides offshore contract garment manufacturing
services for a major customer. The nature of this business is such that a
significant inventory investment is required in our second and third fiscal
quarters, the early phases of the production cycle. The Company's borrowing
agreement with CIT does not provide funding for this production until the
finished goods are shipped and billed to the customer. As a result, the Company
has and will rely on temporary advances from Robert A. Levinson, a stockholder,
officer and director of the Company.

At December 31, 2004 the Company's principal sources of liquidity included cash
of $32,000 and trade accounts receivable of $3.6 million.

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

Cash Flow Summary:
(in thousands)

                                                  2004          2003
                                               ----------    ----------
         Net cash provided by (used in):
               Operating activities            $   (1,382)   $     (740)
               Investing activities                   (61)         (239)
               Financing activities                 1,431           952
                                               ----------    ----------
         Net change in cash                    $      (12)   $      (27)
                                               ==========    ==========


Net cash flow used in operating activities totaled $1.4 million in 2004, as
compared to $740,000 cash used in operating activities during 2003. The increase
in cash flow used in operating activities totaling $642,000 was primarily the
result of an increase in cash used for inventories and accounts receivable
totaling $2.0 million offset by an increase in net income.

Net cash flow used in investing activities totaled $61,000 during 2004, as
compared to $239,000 during 2003, as the Company recognized $102,000 in cash
from investing activity in 2004 from the sale of an investment.

Net cash provided by financing activities totaled $1.4 million during 2004, as
compared to $952,000 of net cash provided by financing activities during 2003.
The increase in cash provided by financing activities was the result of
increased cash needs due to the increase in net cash used in operating
activities and off set by the decrease in net cash used in investing activities
as discussed above.

Net borrowings under the Company's credit facilities during the year ended
December 31, 2004 totaled $837,000 as compared to repayments of $79,000 during
the same period last year. Net amount borrowed from factor during 2004 totaled
$558,000 as compared to $1.2 million borrowed in 2003.

Cash used for preferred stock dividend payments during 2004 totaled none as
compared to $137,000 during the year ended December 31, 2003. The reduction in
cash flows used in preferred stock dividend payments was due to the effect of

                                      -17-
<PAGE>

the adoption of SFAS 150 in the third quarter of 2003 which required that
preferred stock dividend payments be included in the determination of net
income.

Cash provided by the exercise of stock options totaled $36,000 during 2004 as
compared to $6,000 in 2003. Common stock was issued in connection with the
exercise of stock options and the payment of director fees to those directors
who have opted to receive shares of Company stock in lieu of cash in payment of
their fees.

The Company has a credit facility with the CIT Group, Inc. ("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"), which now includes the former
Westwater Industries, LLC ("Westwater") which was merged into Blumenthal as of
May 1, 2004.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.6 million of which was outstanding at
December 31, 2004, (ii) revolving credit advances to the Company in an amount up
to $500,000 and (iii) revolving credit advances to Blumenthal based upon
eligible accounts receivable and inventory, and a Letter of Credit facility with
a limit of $500,000. The Term Loan amortizes $12,000 per month followed by a
final installment payment of $1.4 million due on January 1, 2007. The revolving
credit advances are also due on January 1, 2007. 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%.

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. 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.

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

                                      -18-
<PAGE>

0.5% above CIT's prime rate (5.25% at December 31, 2004). The Company pledged
its Textile segment's 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 December 31, 2006 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, 2004 was 2.68%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Robert A. Levinson has made long-term loans totaling $500,000 to the Company at
an interest rate of 6% per annum. Mr. Levinson has agreed not to require payment
of these loans and $316,000 of related accrued interest at December 31, 2004
prior to January 1, 2007.

Mr. Levinson has agreed to personally support the Company's cash requirements to
enable it to fulfill its obligations through January 1, 2007, 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
12, 2004. In connection with this agreement, Mr. Levinson advanced $2,036,000 to
the Company at an interest rate of 6% per annum during the second and third
quarters of 2004. All such advances and related accrued interest had been repaid
by the Company to Mr. Levinson as of December 31, 2004. In addition, during the
first quarter of 2005, Mr. Levinson advanced approximately $1.4 million to the
Company under this agreement.

During the period ended December 31, 2004, the Company was in compliance with
all debt covenants.

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.

                                      -19-
<PAGE>

Summary of Contractual Obligations
----------------------------------
A summary of the Company's December 31, 2004 contractual obligations and
commitments is as follows:

<TABLE>
<CAPTION>
                                                      Less than                           More than
                                            Total       1 year    1-3 years   4-5 years    5 years
                                          ---------   ---------   ---------   ---------   ---------
<S>                                       <C>         <C>         <C>         <C>         <C>
    CIT asset based loan                      3,843       3,843          --          --          --
    CIT Factor payable                        1,403       1,403          --          --          --
    Term loans                                4,587         144       4,443          --          --
    Long term loan - stockholder                816          --         816          --          --
    Pension liabilities                       5,907          94         311         238       5,264
    Post retirement medical liabilities       2,154         150         165         182       1,657
    Environmental liabilities                 1,388          --         200         200         988
    Preferred stock                           4,555          --       3,037       1,518          --
    Operating lease obligations                 379         242         114          23          --
                                          ---------   ---------   ---------   ---------   ---------
                                          $  25,032   $   5,876   $   9,086   $   2,161   $   7,909
                                          =========   =========   =========   =========   =========
</TABLE>

Seasonality and New Product Lines

The Company's Textile business is seasonal and as such the Company generally
realizes significantly higher revenues and operating income in the third
quarter, as compared to other quarters of the year. Such seasonality takes into
account the standard lead-time required by the fashion industry to manufacture
apparel, which corresponds to the respective retail selling seasons. Standard
lead-time is the period of time commencing when the Company receives an order
from a customer and ending when the Company ships the order to the customer. In
response to this seasonality, the Company generally increases its inventory
levels, and therefor has higher working capital needs during the second and
third quarters of its fiscal year. This standard lead-time also results in
significant backlogs during the second and third quarters. The Company ships
these seasonal orders to the customers during the third and fourth quarters,
and, as a result, the Textile division has no material backlog as of December
31, 2004. Although the Company has not had significant cancellations in the
past, no assurance can be given that it will not experience a significant level
of cancellations in the future or that its backlog at any point in time will be
converted to sales. The Company and the U.S. apparel industry in general are
sensitive to the business cycle of the national economy. Moreover, the
popularity, supply and demand for particular apparel products can change
significantly from year to year based on prevailing fashion trends and other
factors.

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.

                                      -20-
<PAGE>

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.

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.

New Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities". In December 2003, the FASB issued
FIN No. 46 (Revised) ("FIN 46-R") to address certain FIN 46 implementation
issues. This interpretation requires that the assets, liabilities, and results
of activities of a Variable Interest Entity ("VIE") be consolidated into the
financial statements of the enterprise that has a controlling interest in the
VIE. FIN 46-R also requires additional disclosures by primary beneficiaries and
other significant variable interest holders. For entities acquired or created
before February 1, 2003, this interpretation is effective no later than the end
of the first interim or reporting period ending after March 15, 2004, except for
those VIE's that are considered to be special purpose entities, for which the
effective date is no later than the end of the first interim or annual reporting
period ending after December 15, 2003. For all entities that were acquired
subsequent to January 31, 2003, this interpretation is effective as of the first
interim or annual period ending after December 31, 2003. The adoption of the
provisions of this interpretation has no effect on our financial condition or
results of operations.

In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard (SFAS") No. 151, Inventory Costs - an
amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No.
43, Chapter 4 Inventory Pricing, to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs and wasted material. SFAS No.
151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company believes that the impact that this statement
will have on its financial position or results of operations will not be
significant.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets
- an amendment of APB Opinion No. 29. SFAS No. 153 amends the guidance in APB
Opinion No. 29, Accounting for Nonmonetary Transactions, for certain exceptions
to the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. The Company believes that the impact that this statement will have on its
financial position or results of operations will not be significant.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Accounting for
Stock-Based Compensation. The statement supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS No. 123 (revised 2004) establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for goods
and services. SFAS No. 123 (revised 2004) focuses primarily on accounting for

                                      -21-
<PAGE>

transactions in which an entity obtains employee services in share-based payment
transactions. The statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
SFAS No. 123 as originally issued. SFAS No. 123 (revised 2004) is effective as
of the beginning of the first annual reporting period that begins after December
15, 2005. The Company believes that the impact that this statement will have on
its financial position or results of operations will not be significant.

                                      -22-
<PAGE>

Item 7.     FINANCIAL STATEMENTS



                           LEVCOR INTERNATIONAL, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page
Audited Consolidated Financial Statements


Report of Independent Registered Public Accounting Firm......................24


Consolidated Balance Sheet at December 31, 2004 .............................25


Consolidated Statements of Operations for the Years Ended December 31,
2004 and 2003................................................................26


Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 2004 and 2003...................................................27


Consolidated Statements of Cash Flows for the Years Ended December 31,
2004 and 2003................................................................28


Notes to Consolidated Financial Statements...................................29

                                      -23-
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
             -------------------------------------------------------


TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
  LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES


         We have audited the accompanying consolidated balance sheet of LEVCOR
INTERNATIONAL, INC. AND SUBSIDIARIES as of December 31, 2004, and the related
consolidated statements of operations, stockholders' deficit, cash flows for the
years ended December 31, 2004 and 2003. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES as of December 31, 2004, and the
results of their operations, stockholders' deficit and cash flows for the years
ended December 31, 2004 and 2003 in conformity with accounting principles
generally accepted in the United States of America.





                                          Friedman LLP


New York, New York
March 9, 2005

                                      -24-
<PAGE>

                           LEVCOR INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2004
                 (In thousands except share and per share data)

ASSETS
Current Assets:
   Cash                                                              $       32
   Accounts receivable trade, net                                         3,601
   Inventories, net                                                       7,729
   Deferred income taxes                                                    898
   Other current assets                                                     214
                                                                     ----------
      Total current assets                                               12,474
                                                                     ----------
Property, Plant and Equipment, net                                        2,305
Goodwill                                                                  4,843
Deferred income taxes                                                     3,611
Other assets                                                              1,651
                                                                     ----------
      Total Assets                                                   $   24,884
                                                                     ==========

LIABILITIES
Current Liabilities:
   Accounts payable                                                  $    1,848
   Due to factor                                                          1,403
   Revolving loan and current maturities of long-term debt                3,987
   Other current liabilities                                              1,219
                                                                     ----------
      Total current liabilities                                           8,457
                                                                     ----------
Long-term debt, less current maturities                                   4,443
Loan payable to stockholder                                                 816
Pension liabilities                                                       5,907
Post retirement medical liabilities                                       2,154
Environmental liabilities                                                 1,388
Other liabilities                                                           349
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
                                                                     ----------
      Total Liabilities                                                  28,069
                                                                     ----------

STOCKHOLDERS' DEFICIT
Common Stock, par value $0.01 per share
    15,000,000 shares authorized;
    5,329,564 shares issued and outstanding                                  54

Paid in Capital                                                          33,234
Accumulated Deficit                                                     (33,535)
Accumulated Other Comprehensive Loss                                     (2,858)
Unearned compensation                                                       (80)
                                                                     ----------
Total  Stockholders' Deficit                                             (3,185)
                                                                     ----------
Total Liabilities and Stockholders' Deficit                          $   24,884
                                                                     ==========

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

                                      -25-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                                                      ------------------------
                                                                         2004          2003
                                                                      ----------    ----------
<S>                                                                   <C>           <C>
Net sales                                                             $   33,736    $   30,784
Cost of sales                                                             23,301        21,249
                                                                      ----------    ----------
Gross profit                                                              10,435         9,535
Selling, general and administrative expenses                               8,315         8,984
Goodwill impairment - textile segment                                         --         5,367
                                                                      ----------    ----------
Income (loss) before interest, preferred dividends and income taxes        2,120        (4,816)
Interest expense, net                                                        605           526
Dividends on  mandatory redeemable preferred stock                           274           136
                                                                      ----------    ----------
Income (loss) before income taxes                                          1,241        (5,478)
Provision for income taxes                                                  (582)         (499)
                                                                      ----------    ----------
Net income (loss)                                                            659        (5,977)
Less dividends on mandatory redeemable preferred stock                        --           137
                                                                      ----------    ----------
Income (loss) applicable to common stock                              $      659    $   (6,114)
                                                                      ==========    ==========

Income (loss) per common share:
  Basic                                                               $      .12    $    (1.20)
                                                                      ==========    ==========
  Diluted                                                             $      .12    $    (1.20)
                                                                      ==========    ==========

Weighted average common shares outstanding:
  Basic                                                                    5,294         5,104
  Potential                                                                   73            --
                                                                      ----------    ----------
  Diluted                                                                  5,367         5,104
                                                                      ==========    ==========
</TABLE>

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

                                      -26-
<PAGE>

                           LEVCOR INTERNATIONAL, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                      (In thousands except per share data)

<TABLE>
<CAPTION>
                                                             Accumulated
                             Compre                             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>         <C>         <C>
January 1,
   2003         $   (5,081)            $  (28,080) $   26,345 $   (3,485) $      139  2,786,972  $       --          --  $
                ==========             ==========  ========== ==========  ==========  =========  ==========  ==========  ==========

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)
                ==========             ==========  ========== ==========  ==========  =========  ==========  ==========  ==========
</TABLE>

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

                                      -27-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                      Years Ended December 31
                                                                      ------------------------
                                                                         2004          2003
                                                                      ----------    ----------
<S>                                                                   <C>           <C>
Cash Flows From Operating Activities:
Net income (loss)                                                     $      659    $   (5,977)
Reconciliation of net income (loss) to net cash used in operations:
    Goodwill impairment - textile segment                                     --         5,367
    Depreciation and amortization                                            459           470
    Deferred tax provision                                                   490           557
    Stock based compensation                                                  31            31
    Gain on sale of investment                                              (102)           --
    Changes in operating assets and liabilities:
      Accounts receivable trade, net                                        (826)         (146)
      Inventories, net                                                    (1,204)           85
      Other current assets                                                    17            72
      Other assets                                                            12          (121)
      Accounts payable                                                        21          (528)
      Other current liabilities                                             (560)         (345)
      Pension liabilities                                                   (126)          (10)
      Post retirement medical liabilities                                   (232)          (77)
      Environmental liabilities                                               (8)          (19)
      Other liabilities                                                      (13)          (99)
                                                                      ----------    ----------
        Net cash used in operating activities                             (1,382)         (740)
                                                                      ----------    ----------

Cash Flows From Investing Activities:
Capital expenditures                                                         (96)         (158)
Cash acquired from acquisition                                                --             4
Investment in other assets                                                   (67)          (85)
Proceeds from sale of investment                                             102            --
                                                                      ----------    ----------
        Net cash used in investing activities                                (61)         (239)
                                                                      ----------    ----------

Cash Flows From Financing Activities:
Revolving loan and long-term debt, net                                       837           (79)
Due to factor                                                                558         1,162
Dividends on redeemable preferred stock                                       --          (137)
Proceeds from exercise of stock options                                       36             6
                                                                      ----------    ----------
        Net cash provided by financing activities                          1,431           952
                                                                      ----------    ----------

Decrease in cash                                                             (12)          (27)
Cash at beginning of year                                                     44            71
                                                                      ----------    ----------
Cash at end of year                                                   $       32    $       44
                                                                      ==========    ==========

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
   Interest                                                           $      594    $      526
                                                                      ==========    ==========
   Income taxes                                                       $       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.

                                      -28-
<PAGE>

                   Levcor International, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements



1 -      SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Liquidity:
----------------------------------
Levcor International, Inc. (the "Company") (i) operates a textile business that
manufactures garments for sale , and to a lesser extent fabrics, in the apparel
industry and (ii) manufactures, packages and distributes a line of buttons and
other craft products for sale in the home sewing and craft retail industry. 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
2.

Consolidation:
-------------
The Consolidated Financial Statements include the accounts of the Company and
all subsidiaries 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 Equivalents:
----------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

Property, Plant and Equipment:
-----------------------------
Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are computed principally by the straight-line
method for each class of depreciable and amortizable assets based on their
estimated useful lives. Buildings and improvements, machinery and equipment, and
furniture, fixtures and leasehold improvements are generally depreciated over
periods of 15-40, 5-25 and 5-10 years, respectively.

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, 2004.

                                      -29-
<PAGE>

Accounts Receivable Factored:
----------------------------
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 5.75% (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 regularly evaluates whether events or circumstances have occurred
that indicate the carrying value of its long-lived assets 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, as impairment charge is recognized based
on the fair value of the asset. No such impairments were recorded during 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. The
Company's annual goodwill and other intangible asset impairment tests performed
in the fourth quarter of 2004 indicated no impairment of goodwill as of December
31, 2004. In the fourth quarter of 2003 the Company recorded a goodwill
impairment charge of $5.4 million.

Income Taxes:
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach to
financial accounting and reporting for income taxes. The Company recognizes a
liability or asset for net operating loss carryforwards and the deferred tax
consequences of temporary differences between tax bases of assets and
liabilities and their reported amounts in the consolidated financial statements
that will result in taxable or deductible amounts in future years when the
reported amounts of the assets and liabilities are recovered or settled. A
valuation allowance is established to reduce deferred tax assets to the amount
expected to be realized.

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:
----------------------------
For translation of its non-U.S. dollar currencies, the Company has determined
that the local currency of its international subsidiary is the functional
currency. In consolidating the international subsidiary, balance sheet currency
effects are recorded as a component of accumulated other comprehensive income.

                                      -30-
<PAGE>

This equity account includes the results of translating all balance sheet assets
and liabilities at current exchange rates. Net currency transaction and
translation 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 Robert A. Levinson and Series A Redeemable Preferred
Stock at December 31, 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.

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.

Classification of Expenses:
--------------------------
The significant components of cost of sales are raw materials, labor, product
development, shipping and handling and depreciation. The significant components
of selling, general and administrative expenses are commissions, sales salaries,
trade and consumer advertising, trade show costs, management salaries, office
rent and professional fees.

Advertising:
-----------
The Company expenses the cost of advertising at the time the cost is incurred.
Advertising expense totaled approximately $189,000 in 2004 and $86,000 in 2003.

Stock-Based Compensation Plans:
------------------------------
The Company accounts for employee stock-based compensation in accordance with
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees", using an intrinsic value approach to measure compensation
expense, if any. Under this method, compensation expense is recorded on the date
of grant only if the current market price of the underlying stock exceeds the
exercise price. Options issued to non-employees are accounted for in accordance
with SFAS 123, "Accounting for Stock-Based Compensation" (which supersedes APB
No. 25 effective as of the beginning of the first annual reporting period that
begins after December 15, 2005), and Emerging Issues Task Force ("EITF") Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods and Services",
using a fair value approach.

SFAS No. 123 established accounting and disclosure requirements using a fair
value-basis method of accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described in APB Opinion No. 25
above, and has adopted the disclosure requirements of SFAS No. 123. Had the
Company elected to recognize compensation cost based on fair value of the stock
options at the date of grant under SFAS 123, such costs would have been
recognized ratably over the vesting period of the underlying instruments and the
Company's net loss and net loss per common share would have decreased to the pro

                                      -31-
<PAGE>

forma amounts indicated in the table below. (dollars in thousands, except per
share amounts)

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

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 percent,
expected dividend yields of zero percent; expected lives of 10 years; and
expected volatility of 39 and 45 percent.

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 year ended December 31, 2003, as the effect would be
anti-dilutive. Accordingly, 2003 diluted loss per share is the same as basic
loss per share.

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

New Accounting Pronouncements:
-----------------------------
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities". In December 2003, the FASB issued
FIN No. 46 (Revised) ("FIN 46-R") to address certain FIN 46 implementation
issues. This interpretation requires that the assets, liabilities, and results
of activities of a Variable Interest Entity ("VIE") be consolidated into the
financial statements of the enterprise that has a controlling interest in the
VIE. FIN 46-R also requires additional disclosures by primary beneficiaries and
other significant variable interest holders. For entities acquired or created
before February 1, 2003, this interpretation is effective no later than the end
of the first interim or reporting period ending after March 15, 2004, except for
those VIE's that are considered to be special purpose entities, for which the
effective date is no later than the end of the first interim or annual reporting
period ending after December 15, 2003. For all entities that were acquired
subsequent to January 31, 2003, this interpretation is effective as of the first
interim or annual period ending after December 31, 2003. The adoption of the
provisions of this interpretation has no effect on our financial condition or
results of operations.

                                      -32-
<PAGE>

In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard (SFAS") No. 151, Inventory Costs - an
amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No.
43, Chapter 4 Inventory Pricing, to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs and wasted material. SFAS No.
151 is effective for inventory costs incurred during fiscal years beginning
after June 15, 2005. The Company believes that the impact that this statement
will have on its financial position or results of operations will not be
significant.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets
- an amendment of APB Opinion No. 29. SFAS No. 153 amends the guidance in APB
Opinion No. 29, Accounting for Nonmonetary Transactions, for certain exceptions
to the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. The Company believes that the impact that this statement will have on its
financial position or results of operations will not be significant.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Accounting for
Stock-Based Compensation. The statement supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS No. 123 (revised 2004) establishes standards for the accounting
for transactions in which an entity exchanges its equity instruments for goods
and services. SFAS No. 123 (revised 2004) focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. The statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
SFAS No. 123 as originally issued. SFAS No. 123 (revised 2004) is effective as
of the beginning of the first annual reporting period that begins after December
15, 2005. The Company believes that the impact that this statement will have on
its financial position or results of operations will not be significant.

2 -      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.

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.

                                      -33-
<PAGE>

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

<TABLE>
<CAPTION>
<S>                                                                      <C>
      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
                                                                         ========
</TABLE>

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.

3 -      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):

                                      -34-
<PAGE>

                                                          Year Ended
                                                         December 31,
                                                     --------------------
                                                       2004        2003
                                                     --------    --------
      Revenue:
        Textile                                      $ 10,632    $  8,436
        Craft                                          23,104      22,348
                                                     --------    --------
                                                     $ 33,736    $ 30,784
                                                     ========    ========
      Operating income (loss):
        Textile                                      $     71    $ (6,531)
        Craft                                           3,149       3,116
                                                     --------    --------
                                                     $  3,220    $ (3,415)
                                                     ========    ========

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

      Depreciation and amortization:
        Textile                                      $     50    $     34
        Craft                                             409         436
                                                     --------    --------
                                                     $    459    $    470
                                                     ========    ========
      Capital expenditures:
        Textile                                      $     21    $     62
        Craft                                              75          96
                                                     --------    --------
                                                     $     96    $    158
                                                     ========    ========
      Total assets:
        Textile                                      $  5,482    $  4,339
        Craft                                          19,402      19,338
                                                     --------    --------
                                                     $ 24,884    $ 23,677
                                                     ========    ========


4 -      INVENTORIES

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

                                                      2004
                                                    --------
                   Raw materials                    $  4,641
                   Work in progress                      167
                   Finished goods                      2,921
                                                    --------
                                                    $  7,729
                                                    ========

At December 31, 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.

                                      -35-
<PAGE>

5 -      PROPERTY, PLANT AND EQUIPMENT

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

                                                                  2004
                                                                --------
      Land and improvements                                     $     49
      Buildings and improvements                                   2,256
      Machinery and equipment                                      2,400
                                                                --------
                                                                   4,705
      Less: Accumulated depreciation and amortization             (2,400)
                                                                --------
                                                                $  2,305
                                                                ========

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

6 -      GOODWILL AND OTHER INTANGIBLE ASSETS

As required by Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"), the Company does not amortize its
goodwill and other intangible asset balances, but instead tests its goodwill and
other intangible assets for impairment annually and more frequently upon the
occurrence of certain events in accordance with the provisions of SFAS 142. The
Company's annual goodwill and other intangible asset impairment tests performed
in the fourth quarter of 2004 indicated no impairment of goodwill as of December
31, 2004. In the fourth quarter of 2003 the Company recorded a goodwill
impairment charge of $5.4 million.

7-       OTHER CURRENT LIABILITIES

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

                                                                2004
                                                              --------
      Salaries, wages, bonuses and other compensation......   $    573
      Other................................................        646
                                                              --------
                                                              $  1,219
                                                              ========


8-       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.

                                      -36-
<PAGE>

9-       LEASE PAYMENTS

The following is a schedule of future minimum lease payments under
non-cancelable operating leases at December 31, 2004 (dollars in thousands):

                        2005                    $    242
                        2006                         114
                        2007                          23
                                                --------
                                                $    379
                                                ========

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

10-     SHORT TERM AND LONG TERM DEBT

The Company has a credit facility with the CIT Group, Inc. ("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 each of the Company and its wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal").

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.6 million of which was outstanding at
December 31, 2004, (ii) revolving credit advances to the Company in an amount up
to $500,000 and (iii) revolving credit advances to Blumenthal based upon
eligible accounts receivable and inventory, and a Letter of Credit facility with
a limit of $500,000. The Term Loan amortizes $12,000 per month followed by a
final installment payment of $1.4 million due on January 1, 2007. The revolving
credit advances are also due on January 1, 2007. 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%.

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. 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 in 2005 is remote.

                                      -37-
<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 (5.25% at December 31, 2004). The Company pledged
its Textile segment's 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 December 31, 2006, 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, 2004 was 2.68%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Robert A. Levinson has made long-term loans totaling $500,000 to the Company at
an interest rate of 6% per annum. Mr. Levinson has agreed not to require payment
of these loans and $316,000 of related accrued interest at December 31, 2004
prior to January 1, 2007.

Robert A. Levinson has also agreed to continue to personally support the
Company's cash requirements as necessary, up to a maximum amount of $3.0
million, to enable the Company to meet its current obligations through January
1, 2007 and to fund future operations. In connection with this agreement, Mr.
Levinson advanced $2.036 million to the Company during 2004, and all such
advances were repaid by the Company to Mr. Levinson during the third quarter of
2004. In addition, during the first quarter of 2005, Mr. Levinson advanced
approximately $1.4 million to the Company under this agreement.

During the period ended December 31, 2004, the Company was in compliance with
all debt covenants.

11-      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.

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,

                                      -38-
<PAGE>

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 balance of $458,000 at December 31, 2004 is included in
Other Assets on the Company's consolidated balance sheets. A decrease in the
minimum pension liability in the amount of $35,000 has been recorded on the
December 31, 2004 balance sheet in connection with this plan and a corresponding
credit to stockholders' equity net of a deferred tax expense of $14,000 has also
been recorded. These adjustments were recognized and credited to "Accumulated
Other Comprehensive Earnings". The minimum pension liability as of December 31,
2004 was based on the plan's portfolio investments as of such date which totaled
$18.0 million, and the actuarially determined accumulated benefit obligation.

                                      -39-
<PAGE>

<TABLE>
<CAPTION>
                                                           Pension Benefits                Other Benefits
                                                              Years Ended                   Years Ended
                                                              December 31,                  December 31,
                                                        -------------------------     -------------------------
      Dollars in thousands:                                2004           2003           2004           2003
                                                        ----------     ----------     ----------     ----------
<S>                                                     <C>            <C>            <C>            <C>
      Change in benefit obligation
      Benefit obligation at beginning of year           $   21,452     $   21,056     $    1,868     $    1,981
      Service cost                                              --             --             (2)            (1)
      Interest costs                                         1,292          1,356             67            123
      Actuarial (gain) loss                                  1,045            820           (631)           (91)
      Benefits paid                                         (1,801)        (1,780)          (203)          (144)
                                                        ----------     ----------     ----------     ----------
      Benefit obligation at end of year                 $   21,988     $   21,452     $    1,099     $    1,868
                                                        ==========     ==========     ==========     ==========

      Change in plan assets:
      Fair value of plan assets at beginning of year    $   17,506     $   16,251     $       --     $       --
      Actual return on plan assets                           2,293          3,035             --             --
      Employer contribution                                     --             --             --             --
      Benefits paid                                         (1,801)        (1,780)            --             --
                                                        ----------     ----------     ----------     ----------
      Fair value of plan assets at end of year          $   17,998     $   17,506     $       --     $       --
                                                        ==========     ==========     ==========     ==========

      Funded status                                     $   (3,990)    $   (3,946)    $   (1,099)    $   (1,868)
      Unrecognized net actuarial loss (gain)                 4,448          4,483           (970)          (418)
      Unrecognized prior service cost                           --             --            (85)          (100)
                                                        ----------     ----------     ----------     ----------
      Accrued benefit (cost) prepaid                    $      458     $      537     $   (2,154)    $   (2,386)
                                                        ==========     ==========     ==========     ==========

      Weighted average assumptions as of December 31:
      Discount rate                                           5.75%          6.25%          5.75%          6.25%
      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                                           $       --     $       --     $       (2)    $       (1)
      Interest cost                                          1,292          1,356             67            123
      Expected return on plan assets                        (1,363)        (1,408)            --             --
      Amortization of prior service cost                        --             --            (14)           (15)
      Recognized net actuarial loss (gain)                     150             70            (80)           (40)
                                                        ----------     ----------     ----------     ----------
      Net periodic benefit cost (gain)                  $       79     $       18     $      (29)    $       67
                                                        ==========     ==========     ==========     ==========
</TABLE>

The Company's accumulated benefit obligation under its defined benefit plan at
December 31, 2004 and 2003 was $21,987,766 and $21,452,054 respectively. The
Company does not anticipate a contribution to this plan in 2005.

The Company's defined benefit plan asset target allocation for 2005, the actual
allocation as of December 31, 2004 and 2003, and the expected long-term rates of
return by asset category for 2005 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           2005               2004      2003                2004
      --------------------------------------------------------------------------------------
<S>                           <C>                  <C>       <C>                 <C>
      Equity securities       40-85%                82%       78%                9.5%
      Debt securities          5-16%                17%       21%                4.5%
      Other                    0-10%                 1%        1%                 --
                                                  ----      ----                ----
         Total                                     100%      100%                8.0%
                                                  ====      ====                ====
</TABLE>
                                      -40-
<PAGE>

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):


                         2005                $  150
                         2006                   147
                         2007                   141
                         2008                   133
                         2009                   124
                         Thereafter             469

On December 8, 2003, the President of the United States signed into law the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
"Act"). The Act introduces a prescription drug benefit under Medicare ("Medicare
Part D") as well as a federal subsidy to sponsors of retiree health care benefit
plans that provide a benefit that is at least actuarially equivalent to Medicare
Part D. The accumulated benefits obligation or net periodic post-retirement
benefits cost in the consolidated financial statements and accompanying notes do
not reflect the effects of the Act on the Company's post-retirement benefit
plan. Authoritative guidance on accounting for the Act's federal subsidy is
pending and the guidance when issued, could require changes to previously
reported information.

12-      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 in 2004 and 2003 were $105,317 and $82,243 respectively.
During 2004, 122 employees participated in the plan.

13-      CUSTOMER AND SUPPLIER CONCENTRATIONS

The Textile division's two largest customers accounted for approximately 90% and
6%, respectively, during 2004 and 71% and 4%, respectively, during 2003, of the
division's sales. The Craft division conducted business with three customers
(one mass merchandiser and two specialty chains) representing approximately 47%,
22% and 9%, respectively, in 2004 and 48%, 22% and 8%, respectively, in 2003, of
the division's net revenues. These Craft division customers also represented
approximately 74% of the total outstanding accounts receivable as of December
31, 2004. A reduction in sales to any of these customers could adversely impact
the financial condition and results of operations of the Company.

The principal raw materials used by the Textile division to fabricate textiles
are typically a combination or blend of two or more fibers, such as rayon,
acetate, polyester, cotton and acrylic. Two suppliers provided for approximately
16% and 10% respectively of the Textile division's purchases in 2004.

Effective December 1, 2004, the Company entered into a lease agreement with one
of its major suppliers in the Textile division for the Company to lease 2,700
square feet of headquarter office space at a cost of $6,250 per month.

                                      -41-
<PAGE>

14-      RELATED PARTY TRANSACTIONS

Robert A. Levinson has provided long-term loans of $500,000 to the Company,
pledged collateral in support of certain Company obligations and in has made
temporary cash advances to the Company totaling $2.0 million and $1.7 million
respectively during the years ended December 31, 2004 and 2003. Mr. Levinson's
outstanding advances and long-term loans accrue interest at a rate of 6% per
annum. See Note 10 for a description of these transactions.

In addition to being a director of the Company, Edward H. Cohen serves as
counsel to Katten Muchin Zavis Rosenman, New York, New York, legal counsel to
the Company. During the year ended December 31, 2004, fees for services provided
to the Company by Katten Muchin Zavis Rosenman totaled approximately $171,000.
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.

15-      INCOME TAXES

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

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

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


                                                Years Ended December 31,
                                                -----------------------
                                                   2004         2003
                                                ----------   ----------
        Current provision (benefit)             $       92   $      (34)
        Deferred provision
         -Temporary differences                        490          533
                                                ----------   ----------
        Income tax provision as per
         Consolidated Statement of Operations   $      582   $      499
                                                ==========   ==========
        Deferred provision
         -Tax effect of other comprehensive
            income (loss)                               14          340
                                                ----------   ----------
        Total provision                         $      596   $      839
                                                ==========   ==========

The Company's tax provision differed from that which would have been provided at
a 34% rate as follows (dollars in thousands):

                                                   Years Ended December 31,
                                                   ------------------------
                                                      2004          2003
                                                   ----------    ----------
    Federal (benefit) provision at 34%             $      422    $   (1,863)
    State and local provision, net                         92            --
    Permanent differences                                  99            52
    (Utilization) increase in net operating loss         (521)        1,811
    Over-accrual in prior year                             --           (34)
    Deferred tax provision                                490           533
                                                   ----------    ----------
                                                   $      582    $      499
                                                   ==========    ==========

                                      -42-
<PAGE>

At December 31, 2004, the components of the net deferred tax asset are (dollars
in thousands):

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

The Company had a net operating loss carryforward of approximately $4,838,000
expiring through 2022.

16-      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 cash flow. 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.

Effective July 1, 2003, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities" ("SFAS 150").
Accordingly, the redeemable preferred stock has been classified as a liability
in the balance sheet at redemption value as of December 31, 2004. The Statements
of Operations for years ended December 31, 2004 and 2003 include $274,000 and
$136,000 respectively, of preferred stock dividends paid which have been
included 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.

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

During the years ended December 31, 2004 and 2003, the Company issued an
aggregate of 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.

                                      -43-
<PAGE>

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.

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, 2004 and 2003 (dollars in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                                     Weighted     Income
                                                        Income        Average     (Loss)
Year ended December 31, 2004:                           (Loss)        Shares     Per Share
                                                      ----------     ---------   ----------
<S>                                                   <C>            <C>         <C>
   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>

18-      STOCK OPTION PLAN

As of December 31, 2002, the Company's stockholders adopted the 2002 Stock
Option Plan (the "Plan"). Grants under 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, 2004 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 2, 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 2004, 206,000 shares under the previous Levcor and Carlyle plans were
exercised. There remain 225,600 options outstanding under these previous plans
as of December 31, 2004 at an average exercise price of $2.99 per share.

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

                                      -44-
<PAGE>

                                           2004                    2003
                                   --------------------    --------------------
                                    Shares      Price       Shares       Price
                                   --------    --------    --------    --------
 Beginning of year                      661    $   3.05         220    $   6.05
 Issued in merger                        --          --         262         .81
 Granted                                 20        1.83         200        2.45
 Exercised                             (206)       (.88)        (18)        .34
 Forfeited                              (18)      (4.17)
 Expired                                (12)     (50.00)         (3)        .50
                                   --------    --------    --------    --------
 End of year                            445    $   2.70         661    $   3.05
                                   ========    ========    ========    ========
 Shares exercisable at year-end         292                     447
                                   ========                ========
 Weighted average exercise
    price of exercisable options   $   2.87                $   3.38
                                   ========                ========

During 2004 and 2003, the Company issued 20,000 and 200,000 options with an
estimated fair value of $21,472 and $295,964, respectively.

Summary information about the Company's stock options outstanding at December
31, 2004 is as follows:

<TABLE>
<CAPTION>
                                                   Options o/s                   Options o/s
            Date           Options      Exercise        X          Contractual        X
           Granted       Outstanding     Price     Exerc. Price      Periods        C.P  .
         -----------------------------------------------------------------------------------
<S>                       <C>             <C>       <C>                 <C>     <C>
         12/01/1995         1,900         15.63        29,688           0.9         1,728
         05/09/1996           400         10.63         4,250           1.3           539
         05/16/1997        25,056         10.00       250,556           2.4        59,310
         02/11/1998        50,000           .63        31,250           3.1       155,479
         02/25/1998         4,444          6.56        29,166           3.1        13,991
         12/10/1998        10,000          5.00        50,000           3.9        39,370
         01/04/1999         1,500          2.00         3,000           4.0         6,008
         12/29/1999        91,000          2.50       227,500           5.0       454,003
         01/03/2000         2,700          1.11         3,000           5.0        13,507
         01/02/2001         2,400          1.25         3,000           6.0        14,407
         01/09/2001        20,000          1.10        22,000           6.0       120,438
         02/14/2002        11,200           .95        10,640           7.1        79,750
         02/15/2002         5,000          2.10        10,500           7.1        35,616
         07/14/2003       200,000          2.45       490,000           8.5     1,706,301
         06/03/2004        20,000          1.83        36,600           9.4       188,438
                          ---------------------------------------------------------------
                          445,600                   1,201,150                   2,888,885
                            (2)                         (1)                         (3)
         Weighted Average
            Exercise Price           (1) / (2)   $ 2.70
                                              =========

         Weighted Average
            Contractual Periods      (3) / (2)     6.48
                                              =========
</TABLE>


19-      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.

                                      -45-
<PAGE>

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 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 1.30%, respectively, of
costs incurred to date, based on their alleged volume of waste shipped to the
SRS site. It is presently anticipated that EPA will issue a proposed plan this
spring and issue the record of decision for this site in September 2005. The
Company is unable, at this time, to estimate the ultimate cost of the remedy for
the SRS site.

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 $1.2 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.

                                      -46-
<PAGE>

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

<TABLE>
<CAPTION>
                                                  December 31,    September 30,    June 30,        March 31,
Quarter Ended                                         2004            2004           2004            2004
                                                  ------------    ------------   ------------    ------------
<S>                                               <C>             <C>            <C>             <C>
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 stock                 $         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>

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

            Not applicable.

Item 8A.    CONTROLS AND PROCEDURES.

The Company's senior management is responsible for establishing and maintaining
a system of disclosure controls and procedures (as defined in Rule 13a-15 and
15d-15 under the Securities Exchange Act of 1934 (the "Exchange Act")) designed
to ensure that information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by an issuer in the reports that it files
or submits under the Act is accumulated and communicated to the issuer's
management, including its principal executive officer or officers and principal
financial officer or officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.

In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out
an evaluation, with the participation of the Company's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the Company's disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures were
effective, as of the end of the period covered by this report, to provide
reasonable assurance that information required to be disclosed in the Company's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.

                                      -47-
<PAGE>

In designing and evaluating the Company's disclosure and procedures (as defined
in Rules 13a-15(e) or 15d-15(e) of the Exchange Act), management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurances of achieving the desired control objectives,
as ours are designed to do, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. We believe that our disclosure controls and procedures provide such
reasonable assurance.

No change occurred in the Company's internal controls concerning financial
reporting during the fourth quarter of the fiscal year ended December 31, 2004
that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting.

Item 8B.    OTHER INFORMATION.

None.

                                      -48-
<PAGE>

                                   PART III.

Item 9.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         The information required by this item is incorporated herein by
reference from the portion of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to 120 days
following the end of the Company's fiscal year.

Item 10.    EXECUTIVE COMPENSATION.

         The information required by this item is incorporated herein by
reference from the portion of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to 120 days
following the end of the Company's fiscal year.

Item 11.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
            RELATED STOCKHOLDER MATTERS.

         The information required by this item is incorporated herein by
reference from the portion of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to 120 days
following the end of the Company's fiscal year.

Item 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this item is incorporated herein by
reference from the portion of the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission on or prior to 120 days
following the end of the Company's fiscal year.

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

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

         The information required by this item is included in Item 7 of Part II
of this Form 10-KSB.

                                      -49-
<PAGE>

    (2)     Exhibits:
            --------

         The following exhibits are included in this report:


 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).

                                      -50-
<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).

                                      -51-
<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). +

 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.

 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.

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

                                      -52-
<PAGE>

Item 13.    PRINCIPAL ACCOUNTING FEES AND SERVICES.

         The information required by this item is incorporated herein by
reference from the portion of the Company's Proxy Statement to be filed with the
Securities and Exchange Commission on or prior to 120 days following the end of
the Company's fiscal year.

                                      -53-
<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 28, 2005
                                     By: /s/ ROBERT A. LEVINSON
                                         -------------------------------------
                                         Robert A. Levinson,
                                         Chairman of the Board,
                                         President and Chief Executive
                                         Officer


Date: March 28, 2005                 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      3/28/05         /s/ EDWARD F. COOKE       3/28/05
-------------------------------------       ------------------------------------
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         3/28/05         /s/ JOSEPH S. DIMARTINO   3/28/05
-------------------------------------       ------------------------------------
Edward H. Cohen              Date           Joseph S. DiMartino        Date
Director                                    Director


/s/ JOHN McCONNAUGHY        3/28/05         /s/ GIANDOMENICO PICCO    3/28/05
-------------------------------------       ------------------------------------
John McConnaughy             Date           Giandomenico Picco         Date
Director                                    Director

                                      -54-
<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).

 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).

                                      -55-
<PAGE>

 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).

 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).

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<PAGE>

 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). +

 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.

 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.

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

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