<PAGE>
                                      The following items were the subject of 
                                      a Form 12b-25 and are included herein:

                                         Items 6, 7 and 13.

                                         Exhibits 10.5, 10.6, 10.7, 10.8 and 27.

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

                               FORM 10-KSB




/x/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
    ACT OF 1934

For the fiscal year ended December 31, 1997


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

For the transition period from _________ to __________


                      Commission file number   811-3584
                                            --------------


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

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

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


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

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

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


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

Yes  _X_    No _____

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

      Issuer's revenues for the fiscal year ended December 31, 1997:  $3,392,171


      As of March 30, 1998, 1,743,499 shares of Common Stock of the
issuer were outstanding and the aggregate market value of the voting
common stock held by non-affiliates, computed by reference to the sale
price of the Common Stock as of March 30, 1998, was approximately
$2,506,165.

      Transitional Small Business Disclosure Format:  Yes _____   No _X_

      Documents incorporated by reference:  None


<PAGE>

                                                        Table of Contents


<TABLE>
<CAPTION>
                                                              PART I
                                                                                                                                Page
<S>               <C>                                                                                                           <C>

Item     1.       Description of Business......................................................................................... 1

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

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

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


                                                             PART II


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

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

Item     7.       Financial Statements and Supplementary Data.....................................................................12

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


                                                             PART III


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

Item 10.          Executive Compensation..........................................................................................31

Item 11.          Security Ownership of Certain Beneficial Owners and
                  Management......................................................................................................32

Item 12.          Certain Relationships and Related Transactions..................................................................33

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

                  Signatures......................................................................................................37

</TABLE>

<PAGE>



                                    PART I


Item 1.  DESCRIPTION OF BUSINESS.

BUSINESS DEVELOPMENT

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

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

         In 1995, the Company acquired a woven fabric converting business
that produces fabrics used in the production of apparel. This acquisition
formed the basis of the Company's new line of business, the Looms
Division, which concentrates on converting cotton and cotton-blend
fabrics for sale to domestic apparel manufacturers.

         On October 1, 1997, the Company formed the Paradox Division,
which specializes in converting pure-synthetic-fiber fabrics for sale to
domestic apparel manufacturers.

         With significantly reduced revenues from its oil and gas
properties, a naturally diminishing asset, the operation of the Looms and
Paradox Divisions (collectively, the "Woven Fabrics Division") now
comprise the Company's primary business focus for the foreseeable future.
It is anticipated that the Paradox Division line of business will
substantially contribute to the Company's sales figures in 1998.


BUSINESS OF THE ISSUER

(A)      The Woven Fabrics Division

         The Company's current business activities in the woven fabrics
industry consist of the business of the Woven Fabrics Division, which is 
engaged in converting textiles for sale to domestic apparel manufacturers. 
The converting process consists of (i) designing fabrics and commissioning 
textile mills to weave the greige fabric (i.e., undyed) according to 
the Company's specifications, and (ii) commissioning fabric finishers 
(i.e., dye plants) to dye, print and finish the greige fabric again 
according to the Company's specifications. The Company contracts with 
commercial transporters to deliver greige fabric from textile mills 

to dyers, and to deliver finished fabric from dyers 

<PAGE>


to apparel manufacturers. The Company places orders for the sale of finished
fabrics through its sales personnel and independent commissioned contractors.

         The raw materials used by the Woven Fabrics Division to fabricate
textiles are typically a combination or blend of two or more fibers, such as
rayon, acetate, polyester, cotton and flax. The principal suppliers of the
greige fabric (i.e., undyed) used by the Woven Fabrics Division are Kaltex
America, Inc., JPS Converter and Industrial Corp., Duro Industries, Inc. and
Imtex International Corp. The primary dyers in the conversion process used by
the Woven Fabrics Division are Oxford Textiles, TextPrint, Inc., Brittany Dyeing
and Finishing Co., Priority Finishing Corp. and Dorado Processing.

         In 1997, Banner Industries, Inc., a manufacturer of women's
apparel, accounted for $387,744 (approximately 12%) of the Woven Fabrics
Division's sales revenues, and Star City Sportswear, Inc., a manufacturer
of women's apparel, accounted for $280,767 (approximately 8%) of the
Woven Fabrics Division's sales revenues.

         In 1997, research and development expenses related to the Woven
Fabrics Division, the costs of which were not passed on to the Company's
customers, were approximately $16,000.


(B)  Ownership of Interests in Oil and Gas Wells

         The Company's current business activities in this industry
segment consist of the ownership of fractional interests in oil and gas
wells and leases with respect thereto. At December 31, 1997, the Company
held fractional interests in four wells located in the United States. All
of the Company's fractional interests in wells are owned pursuant to
working interest ("WI") agreements. Such agreements provide that the
Company is obligated to pay its proportionate share of the cost of
developing and operating such wells and will be paid its proportionate
share of any revenues derived from such wells only after all owners of
royalty interests therein have been paid their proportionate share of any
revenues derived from such wells. During 1997, the Company earned
revenues and incurred production costs (exclusive of severance taxes)
under the terms of such agreements of $43,123 and $19,518, respectively.
Other than one well for which the Company acts as titular operator, the
Company is not directly involved in operating any of such wells or in the
marketing and sale of any oil and/or gas derived therefrom. Such
operations and marketing activities are conducted by third parties, who
typically have substantial interests in the wells, pursuant to the terms
of operating agreements which provide that such third-party operators,
for a fee, are responsible for the development and operation of such wells 
and the marketing and sale of the resources derived therefrom. 
During 1997, the Company's share of 

                                      2


<PAGE>


the fees payable to well operators for services performed pursuant to the terms
of such agreements was approximately $7,000.

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

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

         In November 1988, the Company acquired a 70% WI in a well
located in Oklahoma which, after payment of all royalty interests
therein, earned a 56% net revenue interest ("NRI"). This interest was
acquired in a public auction from the bankruptcy trustee of Schick Energy
Corporation for $11,167. Although the Company is the titular operator of
the well, the Company has retained Petroleum Management Professionals,
Inc. of Oklahoma City, Oklahoma to perform all of its duties as operator
of the well. From December 1, 1988, the effective date of the acquisition
of the well, through December 31, 1997, the well produced 117,000 MCF and
13,700 BC (average daily production during 1997 was 31 MCF and 2 BC). Of
such amounts, approximately 66,000 MCF and 7,670 BC (average daily
production of 17 MCF and 1 BC during 1997) represented the Company's
proportionate share of production from this well. During 1997, gross
production revenues earned from the well's activities were $56,200, of
which $31,500 were attributed to the Company, representing 73.0% of the
Company's total revenues derived from oil and gas sales during such year.
The total production costs (exclusive of severance taxes) estimated to
have been incurred during 1997 in connection with such activities were
$19,100, of which $13,300 were attributed to the Company.

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

         In March 1989, the Company acquired a 22.2% WI in each of the
J.F. Curry 1 and 2 wells and a 31.7% WI in the Mollie Hasson #1-27 well,
which, after payment of all royalty interests therein, earned 19.4%,
19.4% and 23.8% NRI, respectively. These interests were acquired from
Energetics, Inc. at a public auction for $14,000. From April 1, 1989, the
effective date of the acquisition, until December 31, 1997, these wells
produced 317,000 MCF and 19,000 BC (average daily production during 1997
was 68 MCF and 3 BC). Of such amounts, approximately 63,000 MCF and 3,940
BC (average daily production of 13 MCF and 1 BC during 1997) represented
the Company's proportionate share of production from these wells. During
1997, gross production revenues earned from the activities of these wells
were $59,000, of which $11,700 were attributed to the Company, representing 
27% of the Company's total revenues derived from oil and gas sales during 
such year. The total production costs (exclusive of severance taxes) 

                                      3


<PAGE>


estimated to have been incurred during such year in connection with such
activities were $22,300, of which $5,700 were attributed to the Company.

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

         On August 1, 1996, the Company sold its interest in the Maze
Federal 32-35 Well (the "Maze Well") for $3,000, and on September 1, 1996
sold its interest in the Powell Federal E-1 Well (the "Powell Well") for
$7,500. Each of the Maze Well and the Powell Well was sold at a price
above book value.

         Through the date of its sale, the Maze Well had a WI of 12.5%
and an NRI of 10.825%. Through the date of its sale, the Powell Well had
a WI of 1.5625% and an NRI of 0.9791% for oil and 1.4687% for gas. From
the effective date of the acquisition of the Maze Well and the Powell
Well by the Company through August 31, 1996, such wells in the aggregate
produced 1,024,000 MCF and 74,000 BC. Of such amounts, approximately
15,000 MCF and 1,900 BC represented the Company's proportionate share of
production from these wells.


                                      4

<PAGE>



COMPETITION

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

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

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


SEASONALITY

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

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

ENVIRONMENTAL REGULATION

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

EMPLOYEES

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

                                      5

<PAGE>


Item 2.  DESCRIPTION OF PROPERTY.

The Woven Fabrics Division

         In connection with the acquisition of the Looms Division from
Andrex Industries Corp., a New York corporation ("Andrex"), the Company
entered into a three-year agreement with Andrex in May 1995 pursuant to
which the Company leases office space located at 1071 Avenue of the
Americas, 7th Floor, New York, New York 10018 from Andrex, and Andrex
provides the Company with certain administrative services. The Company's
cost in 1997 for the lease of such property pursuant to the Agreement was
$55,000.

Oil and Gas Properties

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

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


1.       Reserves Reported to Other Agencies.

         Not applicable.


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

              Average Sales Price         Average Production Cost
              -------------------         -----------------------
                 Oil        Gas              Oil           Gas
Year          (Per BC)  (Per MCF)         (Per BC)      (Per MCF)
----          --------  ---------         --------      ---------
1997 . . . .   $19.92     $2.22            $6.89         $1.18
1996 . . . .   $19.27     $1.67            $6.75         $0.75
1995 . . . .   $15.62     $1.25            $8.62         $1.46

3.       Productive Wells And Acreage.

         (a)      Productive wells as of           Oil            Gas
                  December 31, 1997            Gross   Net    Gross   Net
                                               -----   ---    -----   ---
                                                 1    0.27      3    1.19

                                               Gross Acres    Net Acres
         (b)      Developed Acreage            -----------    ---------
                  as of December 31, 1997         320            114


                                      6

<PAGE>



4. Undeveloped Acreage as of December 31, 1997.

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

5.       Drilling Activity.

         There was no drilling activity in any of the Company's wells in
         the United States during the three years ended December 31,
         1997.

6.       Present Activities.

         On December 31, 1997, no wells in which the Company has
         interests were drilling. The status of the Company's interest in
         four productive wells is as follows:


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



Item 3.           LEGAL PROCEEDINGS.

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

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

                                      7

<PAGE>


         Shortly after the Allied-Signal Action commenced, the Amoco-Dome
Group filed a counterclaim against the Company, Canada Southern and
Magellan seeking certain declaratory relief with respect to their alleged
failure to fulfill certain contractual obligations to develop and market
gas from the Kotaneelee gas field. The trial on the counterclaim action
commenced on September 3, 1996, and is ongoing.

         On October 27, 1989, in the Court of Queen's Bench of Alberta,
Judicial District of Calgary, Canada (the "Canada Court"), Canada
Southern filed a statement of claim against the Amoco-Dome Group,
Columbia Gas Development of Canada Ltd. ("Columbia"), Mobil Oil Canada
Ltd. ("Mobil") and Esso Resources of Canada Ltd. ("Esso") seeking a
declaratory judgment (the "Declaratory Action") regarding two issues
relating to the Kotaneelee field: (1) whether interest accrued on the
carried interest account, which is the account for costs recoverable by

the working interest parties prior to such time as the carried interest
parties are entitled to participate in revenues derived from the field's
activities (Canada Southern maintains it does not), and (2) whether
expenditures for gathering lines and dehydration equipment are
expenditures chargeable to the carried interest account (Canada Southern
maintains they are). Mobil, Esso and Columbia have filed answers
essentially agreeing to the granting of the relief requested by Canada
Southern. The Amoco-Dome group has now admitted one of two claims, i.e.,
that interest does not accrue on the carried interest account.

         In 1991, Anderson Exploration Ltd. acquired all of the
shares in Columbia, and changed its name to Anderson Oil & Gas
Inc. ("Anderson").  Anderson is now the sole operator of the
field, and is a direct defendant in the Declaratory Action.
Columbia's previous parent, The Columbia Gas System, Inc., was
reorganized in a bankruptcy proceeding in the United States, and
is contractually liable to Anderson in the Declaratory Action.

         On March 7, 1990, Canada Southern filed a statement of claim in
the Canada Court against the Amoco-Dome Group, Columbia, Mobil and Esso
seeking forfeiture of the Kotaneelee gas field, damages and other relief
for breach of fiduciary duty (the "Forfeiture Action"). The Company was
added as a party plaintiff to this action in November 1993. If such claim
is upheld, the Company could recover a 2 percent interest in the
Kotaneelee field and damages. The defendants have contested the claim and
Canada Southern is pursuing discovery and trial. Columbia filed a
counterclaim seeking, if Canada Southern is successful in its claims,
repayment from Canada Southern, the Company and Magellan Petroleum
Corporation of all sums expended by Columbia on the Kotaneelee fields
before Canada Southern, the Company and Magellan Petroleum Corporation
are entitled to their interests. The trial commenced in September 1996,
and is ongoing. Based on recently discovered evidence, Canada Southern
has petitioned the

                                      8

<PAGE>


Canada Court for leave to amend its complaint to add a claim that the
defendants failed to develop the field in a timely manner.

         The field operator has entered into a contract for the sale of
Kotaneelee gas. The Company believes that it is too early to determine
the impact, if any, that this contract may have on the status of these
cases.

         On August 6, 1991, the Company sold to an independent third
party (the "Buyer") its carried interest in a lease in property,
including the Kotaneelee field. The agreement for the transfer of the
Company's interest provides that the Company shall continue to prosecute
the Declaratory Action and the Forfeiture Action. The Company and the
Buyer have agreed to share equally all costs and expenses of the
Declaratory Action and the Forfeiture Action and to share equally any

payments or other benefit resulting from the resolution of such actions.
The agreement further provides that the Company shall indemnify the Buyer
against all actions, proceedings, claims, demands, damages and expenses
brought against or suffered by the Buyer which arise out of, or are
attributable to, the Allied-Signal Action.

         The Company has been advised that under Canadian law certain
costs (known as "taxable costs") of a litigation may be assessed against
a nonprevailing party. Taxable costs consist primarily of attorney's and
expert witness fees incurred during a trial. In addition, a judge in
complex and lengthy trials has the discretion to increase an award of
taxable costs.


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

         No matters were submitted to a vote of security holders during
the fourth quarter of 1997.


                                      9

<PAGE>

                                   PART II


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

         The Company's common stock, par value $0.56 per share (the
"Common Stock"), is traded in the "pink sheets" in the over-the-counter
market under the symbol "LEVC". On March 30, 1998, the closing bid price
of the Common Stock was $1.61 per share. The Common Stock is traded
sporadically and no established liquid trading market currently exists
therefor.

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


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

        1997                  High           Low
        ----                  ----           ---
        First Quarter         $0.25          $0.0625
        Second Quarter        $0.125         $0.0625
        Third Quarter         $0.3125        $0.0156
        Fourth Quarter        $1.00          $0.0156


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

Holders of Record

        As of March 30, 1998, there were approximately 6,658 holders of
record of the Common Stock.


                                      10

<PAGE>



Dividend Policy


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


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

         Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

         The Company's revenues for 1997 were $334,582, an increase of $259,010,
or 343%, from $75,572 for 1996. Such increase was primarily attributable to an
increase of $390,551 in sales, less the cost of goods sold, on sales from the
Woven Fabrics Division in 1997 as compared to 1996. Such increase was partially
offset by a reduction in sales, less the cost of goods sold, from oil and gas
operations of $131,461 in 1997 as compared to 1996. This reduction was primarily
due to a downward revaluation of the Company's remaining petroleum reserves,
based on the reduced oil and gas prices for such reserves at December 31, 1997.

         The Company's expenses for 1997 were $685,852, a decrease of $110,391,
or 14%, from $796,243 for 1996. Such decrease was due to a decrease in selling
expenses for the Woven Fabrics Division in 1997 of $110,510, or 26%, as compared
to 1996. General and administrative expenses for 1997 were $378,025, an increase
of $119, or less than 1%, as compared to 1996; in this respect, interest
expenses and factor fees increased for 1997, while salaries, benefits, payroll
taxes and legal expenses decreased for 1997.

         As a result of the foregoing, net losses for 1997 were $351,270, a
decrease of $369,401, or 51%, from net losses of $720,671 for 1996.

Results of Operations

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

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

         The Company's expenses for 1996 were $796,243, an increase of $180,861,
or 29%, from $615,382 for 1995. Such increase was due primarily to: (i) an
increase in selling expenses in 1996 of the Looms Division of $133,115, or 47%,

compared to 1995; and (ii) to a lesser extent, an increase in general and
administrative expenses in 1996 of $47,746, or 14%, compared to 1995, including
increases in 1996 of accounting and administrative fees, factors fees and
interest expense, partially offset by reductions in legal fees and stockholder
communications expenses.

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

Liquidity and Capital Resources

         The primary source of the Company's working capital during 1997 was,
and in 1998 will be, derived from proceeds from the sale of woven fabrics
produced by the Company's Woven Fabrics Division and, to a lesser extent,
proceeds from the sale of oil and gas from the Company's ownership interest in
oil and gas wells. The Company's unrestricted cash and cash equivalents at
December 31, 1997 as $42,043, an increase of $37,139 from $4,904 at December 31,
1996.

         In connection with the operation of the Looms Division, the Company
entered into a Factoring Agreement with NationsBanc Commercial Corporation
("NationsBanc") as of June 1, 1995 (the "NationsBanc Factoring Agreement")
which was subsequently amended effective September 1, 1996 and January 1,
1997. The amended NationsBanc Factoring Agreement was terminated on November
1, 1997.

         In connection with the operation of the Woven Fabrics Division, the
Company entered into a Discount Factoring Agreement with Congress Talcott
Corporation ("Congress Talcott") as of November 14, 1997 (the "Congress
Talcott Factoring Agreement"). Pursuant to the terms of the Congress Talcott
Factoring Agreement, the Company, among other things: (i) has agreed to (a)
assign to Congress Talcott its interest in all receivables derived from the
sale of the woven fabrics produced by the Woven Fabrics Division, and (b) pay
Congress Talcott a commission of 0.6% of the gross amount on such receivables,
with a minimum commission of $4,000 for each and every month of the term
thereof; and (ii) may (a) request advances up to 90% of the net purchase price
of the receivables, and (b) pay interest on such advances at the rate of 0.5%
above CoreStates Bank, N.A.'s prime rate for the term thereof. The Congress
Talcott Factoring Agreement has an initial term expiration date of November 14,
1998 and is automatically renewed for one-year periods thereafter, unless 
terminated on the initial term expiration date (or any anniversary thereof) by
either party giving not less than sixty days prior written notice.

         The Company continues to sustain substantial losses which have
adversely affected the Company's liquidity. In addition, in connection with the
purchase of the woven fabric inventory, the Company issued a promissory note to
Andrex in May 1996 which bears interest at the rate of 6% per annum, pursuant to
which the Company, commencing on May 1, 1996 and continuing through May 1, 2000,
is required to make five annual debt payments of approximately $283,000 to
Andrex. In order to meet the $282,800 debt payments that were due on May 1, 1996
and May 1, 1997, Robert A. Levinson, the Chief Executive Officer of the Company,
made a loan to the Company on each such date of $370,000 and $300,000,
respectively, at a rate of 6% per annum. No repayment date has yet been set for
either of these loans. Mr. Levinson has also agreed to continue to personally

support the Company's cash requirements to enable it to meet its current
obligations through December 31, 1998. The Company also plans to continue to
aggressively market and sell the woven fabric product. Although there can be no
assurances that these measures will be successful, the Company believes that its
current operations and the financial

                                      11
<PAGE>

arrangements described above will provide
sufficient liquidity to fund the Company's operations for 1998.

                                      12

<PAGE>

Item 7.           FINANCIAL STATEMENTS

                             REPORT OF INDEPENDENT
                         CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors and Stockholders
    Levcor International, Inc.

We have audited the accompanying balance sheet of Levcor International, Inc.
as of December 31, 1997 and the related statements of operations,
stockholders' equity (deficiency) and cash flows for the years ended December
31, 1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Levcor International, Inc. at
December 31, 1997 and the results of its operations and its cash flows for the
years ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles.

/s/GRANT THORNTON LLP

GRANT THORNTON LLP

New York, New York
April 10, 1998


                                      13
<PAGE>


                          Levcor International, Inc.

                                 BALANCE SHEET

                               December 31, 1997

                                    ASSETS

CURRENT ASSETS

     Cash and cash equivalents                             $      42,043
     Accounts receivable                                           9,653
     Due from factor                                             527,192
     Inventories                                               2,026,588
     Prepaid expenses                                              7,460
                                                           -------------
              Total current assets                             2,612,936
PLANT AND EQUIPMENT, net of accumulated
    depreciation of $1,611                                        14,493

OIL AND GAS PROPERTIES (using full cost 
   method), net of accumulated depletion and
   depreciation of $870,907                                       24,909

INTANGIBLE ASSETS, net of accumulated
    amortization of $418                                          12,651
                                                          --------------
 
                                                          $    2,664,989
                                                          ==============


        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES

   Accounts payable and accrued expenses                  $    2,425,232
   Current maturities of long-term debt                          282,800
                                                          --------------
              Total current liabilities                        2,708,032
LONG-TERM DEBT, less current maturities                          565,600
DUE TO OFFICER                                                   670,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
   Common stock - par value $.56 per share; authorized,
      15,000,000 shares; outstanding, 1,733,499 shares           969,994
   Capital in excess of par value                              5,002,966
   Accumulated deficit                                        (7,251,603)
                                                          --------------


                                                              (1,278,643)
                                                          --------------
                                                          $    2,664,989
                                                          ==============

The accompanying notes are an integral part of this statement.


                                      14
<PAGE>



                          Levcor International, Inc.

                           STATEMENTS OF OPERATIONS

                            Year ended December 31,


<TABLE>
<CAPTION>
                                                        1997                1996
                                                     -----------         -----------
<S>                                                  <C>                 <C>
Revenue

    Woven Fabrics Division sales                     $ 3,349,048         $ 2,848,778
    Less cost of sales                                 2,974,072           2,864,353
                                                     -----------         -----------
         Gross profit (loss)                             374,976             (15,575)
                                                     -----------         -----------
    Oil and gas sales                                     43,123              49,141
    Less cost of sales                                    83,517             (41,926)
                                                     -----------         -----------
         Gross profit (loss)                             (40,394)             91,067
    Interest income and royalties                                                 80
                                                     ------------        -----------
                                                         334,582              75,572
Expenses

    Selling expenses - Looms Division
      Salaries, benefits and payroll taxes               147,405             236,759
      Commissions                                         55,382             133,494
      Other selling expenses                             105,040              48,084
                                                     -----------         -----------

                                                         307,827             418,337
    General and administrative expenses
      Salaries, benefits and payroll taxes                55,347              71,684
      Accounting and administrative fees                  58,138              58,803
      Audit fees                                          16,000              21,000
      Directors' fees and expenses                         5,000               5,000
      Factor fees                                         30,024              26,232

      Insurance                                           11,106              15,122
      Interest expense                                   155,927             125,015
      Legal fees                                          19,859              29,929
      Transfer agent fees                                  4,200               7,558
      Other business taxes                                 2,949               2,816
      Other expenses                                      19,475              14,747
                                                     -----------         -----------
         Total general and administrative expenses       378,025             377,906
                                                     -----------         -----------
         Total expenses                                  685,852             796,243
                                                     -----------         -----------
         NET LOSS                                       (351,270)           (720,671)
                                                     -----------         -----------
Accumulated deficit - beginning of year               (6,900,333)         (6,179,662)
                                                     -----------         -----------
Accumulated deficit - end of year                    $(7,251,603)        $(6,900,333)
                                                     ===========         ===========
Average number of shares outstanding                   1,733,439           1,713,499
                                                     ===========         ===========
Net loss per common share                                  $(.20)              $(.42)
                                                           =====               =====
</TABLE>


The accompanying notes are an integral part of these statements.

                                      15

<PAGE>


                          Levcor International, Inc.

                STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                    Years ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                           
                                                            Common stock                 Capital in
                                                ---------------------------------       excess of par          Accumulated
                                                      Shares              Amount           value                  deficit
                                                ----------------    -------------      ----------------        ------------
<S>                                             <C>                 <C>                <C>                     <C>         
Balances at December 31, 1995                          1,673,499    $     936,394      $      5,006,566        $ (6,179,662)
Shares issued for services rendered                       50,000           28,000                (3,000)
Net loss                                                                                                           (720,671)
                                                ----------------    -------------      ----------------        ------------

Balances at December 31, 1996                          1,723,499          964,394             5,003,566          (6,900,333)
Shares issued for services rendered                       10,000            5,600                  (600)
Net loss                                                                                                           (351,270)
                                                ----------------    -------------      ----------------        ------------


Balances at December 31, 1997                          1,733,499    $     969,994      $      5,002,966        $ (7,251,603)
                                                ================    =============      ================        ============ 

</TABLE>


The accompanying notes are an integral part of this statement.

                                      16
<PAGE>


                          Levcor International, Inc.

                           STATEMENTS OF CASH FLOWS

                            Year ended December 31,

<TABLE>
<CAPTION>
                                                                                          1997                  1996
                                                                                      ------------           ---------
<S>                                                                                   <C>                    <C>
Cash flows from operating activities
    Net loss                                                                          $   (351,270)          $(720,671)
    Adjustments to reconcile net loss to net cash
      provided by (used in) operating activities
        Write-down of oil and gas properties                                                47,520             (75,026)
        Depletion, depreciation and amortization                                            15,415              11,129
        Services paid in common stock                                                        5,000              25,000
        Changes in operating assets and liabilities,
           net of assets acquired
               Accounts receivable                                                          (1,839)             32,642
               Due from factor                                                            (182,689)           (291,811)
               Inventories                                                              (1,150,268)            646,420
               Prepaid expenses                                                              2,116              11,338
               Accounts payable and accrued expenses                                     1,665,127             267,565
                                                                                      ------------           ---------
           Net cash provided by (used in) operating activities                              49,112             (93,414)
                                                                                      ------------           ---------
Cash flows from investing activities
    Proceeds on sale of property - net                                                                          14,822
    Purchase of property and equipment and intangible asset                                (29,173)
                                                                                      ------------ 
           Net cash (used in) provided by investing activities                             (29,173)             14,822
                                                                                      ------------           ---------
Cash flows from financing activities
    Advances from shareholder                                                              300,000             370,000
    Payment to shareholder                                                                                     (30,000)
    Payment of long-term debt                                                             (282,800)           (282,800)
                                                                                      ------------           ---------
           Net cash provided by financing activities                                        17,200              57,200
                                                                                      ------------           ---------

           NET INCREASE (DECREASE) IN CASH AND
               CASH EQUIVALENTS                                                             37,139             (21,392)
Cash and cash equivalents at beginning of year                                               4,904              26,296
                                                                                      ------------           ---------
Cash and cash equivalents at end of year                                              $     42,043          $    4,904
                                                                                      ============          ==========
Supplemental disclosures of cash flow information:
    Cash paid during the year for
       Interest                                                                       $    155,927          $  110,215
</TABLE>


The accompanying notes are an integral part of these statements.


                                      17
<PAGE>


                          Levcor International, Inc.

                         NOTES TO FINANCIAL STATEMENTS

                          December 31, 1997 and 1996

NOTE A - SUMMARY OF BUSINESS AND SIGNIFICANT
                  ACCOUNTING POLICIES

     1.  Nature of Operations and Liquidity

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

         The Company continues to sustain substantial losses, which has
         adversely affected the Company's liquidity. The Company required cash
         advances from the Chief Executive Officer amounting to $300,000 and
         $370,000 to pay the debt payment and interest that was due on May 1,
         1997 and 1996, respectively. The Company is also required to make
         another debt payment on May 1, 1998 amounting to approximately
         $283,000. The Chief Executive Officer of the Company has agreed to
         continue to personally support the Company's cash requirement to
         enable the Company to meet its current obligations through December
         31, 1998 and fund future operations. In addition, the Company plans
         to aggressively market and sell its product and continue to contain
         costs. Although there can be no assurance that these measures will be
         successful, the Company believes that future operations and support
         from the Chief Executive Officer will provide sufficient liquidity to
         fund current operations.

     2.  Oil and Gas Properties


         The Company accounts for oil and gas properties using a lower of cost
         (full cost method) or market basis. The Company's oil and gas
         properties financial statement carrying value was determined in good
         faith by the Board of Directors in fiscal 1997. The fiscal 1997 oil
         and gas properties financial statement carrying values have been
         determined using year-end oil and gas prices and operating costs in
         the individual local producing areas. These have been held constant
         throughout the life of the properties. Established decline rates have
         been used and projected net revenues have been discounted ten percent
         a year in arriving at the present value shown. Plugging and
         abandonment costs are assumed to be balanced by the sale of lease
         equipment. The present worth values are not necessarily indicative of
         values that would be realized on the sale of these properties.


                                      18
<PAGE>


                          Levcor International, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                          December 31, 1997 and 1996

NOTE A (continued)

     3.  New Pronouncements

         Earnings (Loss) Per Share

         In 1997, the Company adopted Statement of Financial Accounting
         Standards No. 128 ("SFAS No. 128"), "Earnings Per Share," which
         requires public companies to present basic earnings per share and,
         if applicable, diluted earnings per share. All comparative periods
         must be restated as of December 31, 1997 in accordance with SFAS No.
         128.

         The computation of basic loss per share of common stock is based upon
         the weighted average number of common shares outstanding during the
         period, plus (in periods in which they have a dilutive effect) the
         effect of common shares contingently issuable upon exercise of stock
         options (see Note H). Diluted earnings per share are considered equal
         to basic earnings per share for all years presented as the effect of
         other potentially dilutive securities would be antidilutive.

         Reporting Comprehensive Income

         In June 1997, the Financial Accounting Standards Board ("FASB")
         issued Statement of Financial Accounting Standards No. 130 ("SFAS No.
         130"), "Reporting Comprehensive Income," which is effective for the
         Company's year ending December 31, 1998. The statement addresses the
         reporting and displaying of comprehensive income and its components.
         Earnings per share will only be reported for net income and not for

         comprehensive income and its components. Adoption of SFAS No. 130
         related to disclosure within the financial statements and is not
         expected to have a material effect on the Company's financial
         statements.

         Segment Information

         In June 1997, the FASB also issued Statement of Financial Accounting
         Standards No. 131 ("SFAS No. 131"), "Disclosure About Segments of an
         Enterprise and Related Information," which is effective for the
         Company's year ending December 31, 1998. SFAS No. 131 changes the way
         public companies report information about segments of their business
         in their financial statements and requires them to report selected
         segment information in their quarterly reports. Adoption of SFAS No.
         131 relates to disclosure within the financial statements and is not
         expected to have a material effect on the Company's financial
         statements.


                                      19
<PAGE>


                          Levcor International, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                          December 31, 1997 and 1996

NOTE A (continued)

     4.  Inventories

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

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

     5.  Taxes

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

     6.  Statements of Cash Flows

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


     7.  Stock-Based Compensation Plans

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


                                      20
<PAGE>


                          Levcor International, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                          December 31, 1997 and 1996

NOTE A (continued)

     8.  Use of Estimates in Financial Statements

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

 NOTE B - OIL AND GAS PROPERTIES

     The Company holds various interests in oil and gas leases in the United
     States. At December 31, 1997 and 1996, the Company held interests in 4
     wells located in Oklahoma having a total working interest equivalent of
     1.46 wells and a net revenue interest of 1.19 wells.

NOTE C - ACCOUNTS RECEIVABLE FACTORED

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

NOTE D - LONG-TERM OBLIGATIONS


     Long-term obligations at December 31, 1997 are as follows:


        Promissory note payable in five equal 
            consecutive annual installments
            of $282,800, commencing on May 1, 1996. 
            The note shall bear interest prior to
            maturity at the rate of 6% per annum.         $848,400
        Less current maturities                            282,800
                                                           -------

                 Total long-term obligations              $565,600
                                                          ========

                                      21
<PAGE>


                          Levcor International, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                          December 31, 1997 and 1996

NOTE E - REMUNERATION OF AFFILIATED PERSONS AND
                  RELATED PARTY TRANSACTIONS

     1.  During 1997 and 1996, the Chief Executive Officer advanced $300,000
         and $370,000, respectively, to the Company to pay current
         obligations. The amount bears interest at 6% and has no specified
         due date.

     2.  During 1997 and 1996, the directors of the Company accrued $5,000 in
         fees for both years. In 1997 and 1996, the Chief Executive Officer
         received a salary of $26,000 and $25,000 in 1997 and 1996,
         respectively, and the Treasurer received a salary of $25,200 and
         $37,800 in 1997 and 1996, respectively.

NOTE F - INCOME TAXES

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

     At December 31, 1997, the Company had a net tax operating loss of
     approximately $6,007,000 available to reduce taxable income in future
     years, expiration of which occurs between 1998 and 2012 at the following
     respective amounts each year: $227,000, $468,000, $771,000, $564,000,
     $324,000, $690,000, $391,000, $317,000, $156,000, $147,000, $188,000,
     $133,000, $473,000, $881,000 and $277,000. No assurance can be given as
     to the Company's ability to realize the net operating loss carryforwards.
     Additionally, the net operating loss carryforwards are subject to
     Internal Revenue Code Section 382, which limits the use of the net

     operating loss, if there is a change in ownership.

     A deferred tax asset for this net operating loss carryforward
     (approximately $2,042,000) was reduced to zero by a valuation allowance.


                                      22
<PAGE>


                          Levcor International, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                          December 31, 1997 and 1996

NOTE G - LITIGATION

     The Company's interests in the Kotaneelee field are represented in trust
     by Canada Southern in a statement of claim filed in the Canada court by
     Canada Southern against Amoco Canada Petroleum Company Limited and other
     parties, seeking forfeiture of the Kotaneelee field, damages and other
     relief for breach of fiduciary duty, relating to their responsibility to
     develop the field. On March 7, 1990, Canada Southern filed a statement of
     claim in the Canada Court against the Amoco-Dome Group, Columbia, Mobil
     and Esso seeking forfeiture of the Kotaneelee gas field, damages and
     other relief for breach of fiduciary duty (the "Forfeiture Action"). The
     Company was added as a party plaintiff to this action in November 1993.
     If such claim is upheld, the Company could recover a 2 percent interest
     in the Kotaneelee field and damages. The defendants have contested the
     claim and Canada Southern is pursuing discovery and trial. Columbia filed
     a counterclaim seeking, if Canada Southern is successful in its claims,
     repayment from Canada Southern, the Company and Magellan Petroleum
     Corporation of all sums expended by Columbia on the Kotaneelee fields
     before Canada Southern, the Company and Magellan Petroleum Corporation
     are entitled to their interests. The trial commenced in September 1996,
     and is ongoing. Based on recently discovered evidence, Canada Southern
     has petitioned the Canada Court for leave to amend its complaint to add a
     claim that the defendants failed to develop the field in a timely manner.

     The field operator has entered into a contract for the sale of Kotaneelee
     gas. The Company believes that it is too early to determine the impact,
     if any, that this contract may have on the status of these cases.

     The Company has been advised that under Canadian law certain costs (known
     as "taxable costs") of a litigation may be assessed against a
     nonprevailing party. Taxable costs consist primarily of attorney's and
     expert witness fees incurred during a trial. In addition, a judge in
     complex and lengthy trials has the discretion to increase an award of
     taxable costs.

     On October 27, 1989, in the Court of Queens Bench of Alberta, Judicial
     District of Calgary, Canada (the Canada Court), Canada Southern filed a
     statement of claim against the Amoco-Dome Group, Columbia, Mobil Oil

     Canada Ltd. ("Mobil") and Esso Resources of Canada Ltd. ("Esso") seeking
     a declaratory judgment regarding two issues relating to the Kotaneelee
     field: (1) whether interest accrued on the carried interest account,
     which is the account for costs recoverable by the working interest
     parties prior to such time as the carried interest parties are entitled
     to participate in revenues derived from the field's activities (Canada
     Southern maintains it does not), and (2) whether


                                      23
<PAGE>


                          Levcor International, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                          December 31, 1997 and 1996

NOTE G (continued)

     expenditures for gathering lines and dehydration equipment are
     expenditures chargeable to the carried interest account (Canada Southern
     maintains they are). Mobil, Esso and Columbia have filed answers
     essentially agreeing to the granting of the relief requested by Canada
     Southern. The Amoco-Dome group has now admitted one of two claims, i.e.,
     that interest does not accrue on the carried interest account.

NOTE H - STOCK OPTION PLAN

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

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

     directors is the fair market value of the common stock on the date of the
     grant thereof.


                                      24
<PAGE>


                          Levcor International, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                          December 31, 1997 and 1996

NOTE H (continued)

     As described in Note A-7, the Company has adopted the disclosure-only
     provisions of SFAS No. 123 and, accordingly, no compensation cost has
     been recognized for grants made under its stock option plan. Had
     compensation cost been determined based on the fair value at the grant
     date for stock option awards in 1997 and 1996 in accordance with the
     provisions of SFAS No. 123, the Company's net loss for 1997 and 1996
     would have been increased by approximately $22,000 or $20,000,
     respectively, and the Company's net loss per share for 1997 and 1996
     would have increased by approximately $.01 or $.01 per share,
     respectively. During the initial phase-in period of SFAS No. 123, such
     compensation may not be representative of the future effects of applying
     this statement.

     As of December 31, 1993, 51,500 options had been granted at an exercise
     price of $.392. Additionally, on January 4, 1994 options for the purchase
     of 14,400 shares at an exercise price of $.312 were granted. During 1995,
     the Company granted to the Chief Executive Officer, 150,000 options at an
     exercise price of $.40 per share and 78,000 options to the Directors at
     an exercise price of $.375 per share. In 1996, the Directors were granted
     6,000 options at an exercise price of $.50 per share. During 1997, the
     Directors were granted 12,000 options at an exercise price of $.25 per
     share. During 1995, 10,800 options were cancelled.

     Accordingly, at December 31, 1997, a total of 234,100 options remained
     outstanding.

     The weighted average fair value at date of grant for options granted
during 1997 and 1996 was $.25 and $.50 per option, respectively. The fair value
of each option at date of grant was estimated using the Black-Scholes option
pricing model with the following weighted average assumptions for grants in:

                                        1997                       1996
                                     ---------                  -------

        Risk-free interest rate          6%                         6%
        Expected life


            Employees                   10 years                   10 years
            Officers/directors          10 years                   10 years
        Expected volatility            200%                       200%


                                      25

<PAGE>


                          Levcor International, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                          December 31, 1997 and 1996

NOTE H (continued)

     The following table summarizes option activity for the years ended
December 31, 1997 and 1996:

                                                Incentive options
                                           ----------------------------
                                                              Weighted
                                            Number             average
                                              of              exercise
                                            options             price
                                         ------------         ---------
                                        (in thousands)

        Balance, January 1, 1996           216,100              $.392
            Granted                          6,000               .500
            Exercised
            Forfeited
            Expired
                                           -------
        Balance, December 31, 1996         222,100               .395
            Granted                         12,000               .25
            Exercised
            Forfeited
            Expired
                                           -------
        Balance, December 31, 1997         234,100              $.387
                                           =======

     The following table summarizes information about stock options as of
December 31, 1997:

<TABLE>
<CAPTION>

                                                  Options outstanding                            Options exercisable
                                    ------------------------------------------------         ---------------------------

                                                           Weighted
                                                            average         Weighted                           Weighted
                                                           remaining         average                            average
               Ranges of              Number              contractual       exercise           Number          exercise
            exercise prices         outstanding              life             price          exercisable         price
            ---------------         -----------           -----------       --------         -----------       ---------
<S>                                 <C>                   <C>               <C>              <C>               <C>  
            $.25 to $.50              234,100                7.5             $.387             165,500           $.394
                                      =======                                                  =======
</TABLE>


                                      26
<PAGE>


                          Levcor International, Inc.

                   NOTES TO FINANCIAL STATEMENTS (continued)

                          December 31, 1997 and 1996

NOTE I - COMMITMENTS

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

NOTE J - MAJOR CUSTOMERS

     For the year ended December 31, 1997, one customer of the Looms Division
     accounted for approximately 12% of sales and for the year ended December
     31, 1996, two customers of the Looms Division accounted for approximately
     22% of sales.

NOTE K - SEGMENT INFORMATION

     Segment information for December 31, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                                                                Woven
                                                                                fabric
                                                             Oil and gas       converting         Corporate       Consolidated
                                                             -----------       ----------         ---------       ------------
<S>                                                          <C>              <C>               <C>               <C>       
 
                            1997
                            ----

       Sales to unaffiliated customers                        $ 43,123        $3,349,048                          $3,392,171
       Operating profit (loss)                                 (40,394)           67,149         $(378,025)         (351,270)
       Identifiable assets                                      29,355         2,586,581            49,053         2,664,989


                             1996
                             ----

       Sales to unaffiliated customers                        $ 49,141        $2,848,778      $          80       $2,897,999
       Operating profit (loss)                                  91,067          (433,912)         (377,826)         (720,671)
       Identifiable assets                                      90,251         1,224,101            14,580         1,328,932
</TABLE>


                                      27

<PAGE>



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

         None.



                                      28


<PAGE>



                                   PART III


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

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


Names                          Age              Position
-----                          ---              --------
Robert A. Levinson             72               Chairman of the Board,
                                                President and Secretary
John McConnaughy               68               Director

Peter Sprague                  58               Director
Rudolph E. Bremser             66               Treasurer


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

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

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


                                      29

<PAGE>



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

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

among any directors or executive officers of the Company.

         The Company believes that, for the year ended December 31, 1997,
it has complied with all filing requirements of Section 16(a) of the
Securities Exchange Act of 1934 applicable to its officers, directors and
greater-than-10% beneficial owners.

         Certain Legal Proceedings

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


                                      30

<PAGE>


Item 10.          EXECUTIVE COMPENSATION.

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

Summary Compensation Table

<TABLE>
<CAPTION>
                                               Annual                           Long-Term
                                              Compensation                   Compensation Awards
                                      ------------------------------------------------------------
Payouts                                                          Other
-------                                                          Annual           Securities
Name and                                                         Compen-          Underlying               All Other
Principal                             Salary        Bonus        sation           Options                Compensation
Position                   Year         ($)          ($)          ($)               (#)                       ($)
--------                   ----       -------      -------      -------           --------                --------
<S>                        <C>        <C>          <C>          <C>               <C>                     <C>
Robert A. Levinson         1997       $25,000       - 0 -         N/A                N/A                      N/A
 Chairman and              1996       $25,000       - 0 -         N/A                N/A                      N/A
 President                 1995       $25,000       - 0 -         N/A              150,000                    N/A

</TABLE>

Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year End Option Value Table1

<TABLE>
<CAPTION>

                                                                  Number of
                                                                  Securities                 Value of
                                                                  Underlying                 Unexercised
                                                                  Unexercised                in-the-Money
                                                                  Options                    Options
                                Shares                            at Fiscal                  at Fiscal
                               Acquired                           Year-End(#)                Year-End($)
                                 on            Value              ------------               -----------
                               Exercise      Realized             Exercisable/               Exercisable/
Name                              #              $                Unexercisable              Unexercisable
----                           --------       --------            -------------              -------------
<S>                            <C>            <C>                 <C>                        <C>
Robert A. Levinson               N/A             N/A                137,500/50,000               N/A1

</TABLE>

------------------------------
1 At December 31, 1997, none of the options was in-the-money.


Compensation of Directors

     Directors who are not salaried employees of the Company receive an
annual fee of $2,500 and an annual grant (in January) of options to
purchase the number of shares of Common Stock derived by dividing $1,500
by the fair market value of a share of Common Stock on the date of grant.
In 1997, the non-employee directors were granted 12,000 options to
purchase shares of Common Stock at an exercise price of $0.25 per share.

                                      31

<PAGE>



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

     The following table sets forth certain information as of March 30,
1998 with respect to the number of shares of the Common Stock
beneficially owned by: (i) each person known to the Company to be the
beneficial owner of more than five percent of the Common Stock; (ii) each
of the directors of the Company; and (iii) all of the directors and
executive officers of the Company as a group. Except as otherwise
indicated, each such stockholder has sole voting and investment power
with respect to the shares beneficially owned by such stockholder. A
person is deemed to beneficially own a security if he has or shares the
power to vote or dispose of the security or has the right to acquire it
within 60 days.

<TABLE>
<CAPTION>
                                                          Amount and Nature
                                                          of Beneficial                      Percent of

Name and Address                                          Ownership                             Class
----------------                                    -------------------------            ------------------
<S>                                                       <C>                                 <C>
Robert A. Levinson                                        303,175(1)                          15.8%
     1071 Avenue of the Americas
     New York, NY 10018

Rosenman & Colin LLP                                      132,250                              6.9%
      575 Madison Avenue
      New York, NY 10022

John McConnaughy                                           25,775(2)                           1.3%
     1011 High Ridge Road
     Stamford, CT 06905

Peter Sprague                                              25,375(2)                           1.3%
     540 Madison Avenue
     New York, NY 10022

Rudolph Bremser                                             6,650(3)                             *
     342 B Heritage Village
     Southbury, CT 06488

All directors and executive                               360,975(4)                          18.8%
  officers as a group (4 persons)

</TABLE>
-------------------------

 *   Less than 1% of class.

(1)           Includes 137,500 shares of Common Stock subject to currently
              exercisable options.

(2)           Includes 15,800 shares of Common Stock subject to currently
              exercisable options.

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


                                      32

<PAGE>



(4)           Includes 174,100 shares of Common Stock subject to currently
              exercisable options.



Item 12.              CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


     In connection with the payments which the Company was required to
make in 1996 and 1997 relating to the purchase of inventory pursuant to
its purchase of the Looms Division from Andrex, Mr. Levinson made one
loan to the Company on May 1, 1996 for $370,000 and another loan to the
Company on May 1, 1997 for $300,000, both of which bear interest at the
rate of 6% per annum. No repayment date has yet been set for either of
these loans.

     As of March 30, 1998, Rosenman & Colin LLP ("Rosenman") beneficially
owned 132,250 shares, or approximately 6.9%, of the Company's Common
Stock (the "Shares"). The Shares were issued by the Company to Rosenman
in lieu of cash and in exchange for legal services provided by Rosenman
to the Company. The Company issued 10,000 of the Shares to Rosenman in
1997 for legal services provided by Rosenman to the Company in 1997.

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

(a)           (1)     Financial Statements:

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

     Report of Grant Thorton, LLP, Independent Auditors

     Balance Sheet at December 31, 1997 

     Statements of Operations for the Years
       Ended December 31, 1997 and 1996

     Statement of Stockholders' Equity for
       the Years Ended December 31, 1997
       and 1996

     Statements of Cash Flows for the Years
       Ended December 31, 1997 and 1996

     Notes to Financial Statements


                                      33

<PAGE>


  (a) (2)  Exhibits:

     The following exhibits are included in this report:

    Exhibit                              Description

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


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

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

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

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

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

       4         Specimen form of the Company's Common Stock certificate,
                 incorporated herein by reference to the Company's Form
                 10-KSB filed on March 24, 1997.

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

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


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

     10.4        Amendment, dated August 14, 1996, effective September 1,
                 1996, to the Factoring Agreement between the Company and
                 NationsBanc Commercial Corporation dated June 1, 1995,
                 incorporated herein by reference to the Company's Form
                 10-KSB filed on March 24, 1997.


     10.5        Amendment, dated January 16, 1997, effective January 1, 1997,
                 to the Factoring Agreement between the Company and NationsBanc
                 Commercial Corporation dated June 1, 1995.


     10.6        Discount Factoring Agreement, dated November 14, 1997, between
                 the Company and Congress Talcott Corporation.

     10.7        Rider "A", dated November 14, 1997, to the Factoring Agreement
                 between the Company and Nationsbanc Commercial Corporation 
                 dated June 1, 1995.

     10.8        Guarantee and Waiver, dated November 14, 1997, by Robert A. 
                 Levinson to the Discount Factoring Agreement, dated 
                 November 14, 1997, between the Company and Congress Talcott 
                 Corporation.

     27          Financial Data Schedule (Article 5) included for Electronic
                 Data Gathering, Analysis, and Retrieval (EDGAR) purposes only.
                 This Schedule contains summary financial information extracted
                 from the Company's balance sheets and statements of operations
                 dated as of and for the year ended December 31, 1997, and is
                 qualified in its entirety by reference to such financial
                 statements.

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


                                      34

<PAGE>



(b)           Reports on Form 8-K:

     None

                                      35

<PAGE>

                                  SIGNATURES


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

LEVCOR INTERNATIONAL, INC.


By/s/ Robert A. Levinson                                         April 16, 1998
  ------------------------------
   Robert A. Levinson
   Chairman of the Board,
   President and Secretary



By/s/ Rudolph E. Bremser                                         April 16, 1998
  ------------------------------
   Rudolph E. Bremser
   Treasurer (Chief Financial
   and Accounting Officer)


         In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


/s/ Robert A. Levinson             Chairman of the Board;        April 16, 1998
------------------------           President; Secretary;
Robert A. Levinson                 Director
                                   


                                   Director                      April   , 1998
------------------------
John McConnaughy



/s/ Peter Sprague                  Director                      April 16, 1998
------------------------
Peter Sprague



                                      36