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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-QSB

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

For the quarterly period ended June 30, 2004
                               -------------

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

            For the transition period from ___________to ___________

Commission File No.  0-50186
                     -------

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


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


                  462 Seventh Avenue, New York, New York 10018
                  --------------------------------------------
                    (Address of Principal Executive Offices)

                                 (212) 354-8500
                           ---------------------------
                           (Issuer's Telephone Number)

Former name, former address and former fiscal year, if changed since last
report:   N/A
          ---

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. ): Yes [X] No [ ]

As of August 6, 2004, 5,327,499 shares of Common Stock, par value $0.01 per
share, were issued and outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

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

<PAGE>

                           LEVCOR INTERNATIONAL, INC.

                                      INDEX


                                                                            Page
                                                                            ----
PART I.      FINANCIAL INFORMATION

Item 1.      Financial Statements (Unaudited)

             Condensed Consolidated Balance Sheet
             as of June 30, 2004 .............................................1

             Condensed Consolidated Statements of Income (Loss)
             for the Three and Six Months Ended June 30, 2004 and 2003........2

             Condensed Consolidated Statements of Comprehensive Income (Loss)
             for the Three and Six Months Ended June 30, 2004 and 2003........2

             Condensed Consolidated Statements of Cash Flows
             for the Six Months Ended June 30, 2004 and 2003..................3

             Notes to Condensed Consolidated Financial Statements -
             June 30, 2004....................................................4


Item 2.      Management's Discussion and Analysis or Plan of Operation ......11

Item 3.      Controls and Procedures.........................................20

PART II.     OTHER INFORMATION

Item 2       Changes In Securities, Use of Proceeds and Issuer Purchases
             of Equity Securities............................................21

Item 6.      Exhibits and Reports on Form 8-K................................22

             Signatures......................................................23

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

                   LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
ASSETS
Current Assets:                                                        June 30, 2004
                                                                       -------------
<S>                                                                    <C>
     Cash                                                              $          48
     Accounts receivable trade, net                                            3,879
     Inventories, net                                                         10,035
     Deferred income taxes                                                       842
     Other current assets                                                        409
                                                                       -------------
         Total current assets                                                 15,213

Property, Plant and Equipment, at cost                                         4,596
Less: Accumulated Depreciation and Amortization                                2,226
                                                                       -------------
         Net property, plant and equipment                                     2,370

Goodwill                                                                       4,843
Deferred income taxes                                                          4,081
Other assets                                                                   1,691
                                                                       -------------
         Total Assets                                                  $      28,198
                                                                       =============

LIABILITIES
Current Liabilities:
     Revolving loan and current maturities of long-term debt           $       4,833
     Due to factor                                                             1,057
     Accounts payable                                                          3,359
     Other current liabilities                                                 1,574
     Loan payable to stockholder                                               1,436
                                                                       -------------
         Total current liabilities                                            12,259
Long-term debt, less current maturities                                        4,515
Loan payable to stockholder                                                      798
Pension liabilities                                                            5,667
Post retirement medical liabilities                                            2,296
Environmental liabilities                                                      1,238
Other liabilities                                                                757
Mandatory Redeemable Preferred Stock, par value $0.01 per share
     8,000,000 shares authorized:  Shares issued and outstanding:
     Series A - 4,555,007                                                      4,555
                                                                       -------------
         Total Liabilities                                                    32,085
                                                                       -------------

STOCKHOLDERS' DEFICIT
Common Stock, par value $0.01 per share
      15,000,000 shares authorized;
      5,303,541 shares issued and outstanding                                     53
Paid in Capital                                                               33,201
Accumulated Deficit                                                          (34,160)
Accumulated Other Comprehensive Loss                                          (2,893)
Unearned Compensation                                                            (88)
                                                                       -------------
Total Common Stockholders' Deficit                                            (3,887)
                                                                       -------------
Total Liabilities and Stockholders' Deficit                            $      28,198
                                                                       =============
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                     Page 1
<PAGE>

                           LEVCOR INTERNATIONAL, INC.
                                AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                                   (UNAUDITED)
                  (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                            Three Months Ended         Six Months Ended
                                                                 June 30,                   June 30,
                                                         -----------------------    -----------------------
                                                            2004         2003          2004         2003
                                                         ----------   ----------    ----------   ----------
<S>                                                      <C>          <C>           <C>          <C>
Net sales                                                $    6,661   $    6,106    $   13,274   $   13,337
Cost of sales                                                 4,323        4,074         8,499        8,490
                                                         ----------   ----------    ----------   ----------
                                                              2,338        2,032         4,775        4,847
Selling, general and administrative expenses                  2,067        2,076         4,233        4,298
                                                         ----------   ----------    ----------   ----------
Income (loss) before interest, preferred dividends
     and income taxes                                           271          (44)          542          549
Interest expense, net                                           142          127           266          256
Dividends on mandatory redeemable preferred stock                68           --           137           --
                                                         ----------   ----------    ----------   ----------
Income (loss) before income taxes                                61         (171)          139          293
Provision (benefit) for income taxes                             49          (64)          105          113
                                                         ----------   ----------    ----------   ----------
Net income (loss)                                                12         (107)           34          180
Less dividends on mandatory redeemable preferred stock           --           69            --          137
                                                         ----------   ----------    ----------   ----------
Income (loss) applicable to common stock                 $       12   $     (176)   $       34   $       43
                                                         ==========   ==========    ==========   ==========

Earnings (loss) per share:
         Basic                                           $       --*  $     (.03)   $       --*  $      .01
                                                         ==========   ==========    ==========   ==========
         Diluted                                         $       --*  $     (.03)   $       --*  $      .01
                                                         ==========   ==========    ==========   ==========

Weighted average shares outstanding - basic                   5,303        5,132         5,262        5,052
Potential common stock                                           70          202            86          186
                                                         ----------   ==========    ----------   ==========
Weighted average shares outstanding - diluted                 5,373        5,334         5,348        5,238
                                                         ==========   ==========    ==========   ==========
</TABLE>

*  Less than $.005

See Notes to Condensed Consolidated Financial Statements.


                           LEVCOR INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                             CONDENSED CONSOLIDATED
                    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                           Three Months Ended          Six Months Ended
                                                                June 30,                    June 30,
                                                        ------------------------    ------------------------
                                                           2004          2003          2004          2003
                                                        ----------    ----------    ----------    ----------
<S>                                                     <C>           <C>           <C>           <C>
Net income (loss) before dividends on preferred stock   $       12    $     (107)   $       34    $      180
Other comprehensive income (loss):
         Foreign currency translation adjustment                (1)           34           (12)           46
                                                        ----------    ----------    ----------    ----------
Comprehensive income (loss)                             $       11    $      (73)   $       22    $      226
                                                        ==========    ==========    ==========    ==========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                     Page 2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                  Six Months Ended June 30,
                                                                  ------------------------
                                                                     2004          2003
                                                                  ----------    ----------
<S>                                                               <C>           <C>
Cash Flows From Operating Activities:
Net income                                                        $       34    $      180
Reconciliation of net income to net cash used in operations:
      Depreciation and amortization                                      222           223
      Deferred tax provision                                              90            52
      Stock based compensation expense                                    17            13
      Changes in operating assets and liabilities:
        Accounts receivable trade, net                                (1,104)           39
        Inventories                                                   (3,459)       (2,587)
        Other current assets                                            (178)            9
        Other assets                                                      17           (51)
        Accounts payable                                               1,532         1,291
        Other current liabilities                                        (76)       (1,061)
        Pension liabilities                                              (43)          (41)
        Post retirement medical liabilities                              (90)          (49)
        Environmental liabilities                                         (1)           --
        Other liabilities                                               (120)         (275)
                                                                  ----------    ----------
             Net cash used in operating activities                    (3,288)       (2,257)
                                                                  ----------    ----------

Cash Flows From Investing Activities:
Capital expenditures                                                     (74)          (70)
Cash acquired from acquisition                                            --             4
Investment in other assets                                               (35)          (36)
                                                                  ----------    ----------
             Net cash used in investing activities                      (109)         (102)
                                                                  ----------    ----------

Cash Flows From Financing Activities:
Revolving loan and long-term debt, net                                 1,753          (533)
Due to factor                                                            212         1,697
Proceeds from stockholder loan, net                                    1,420         1,332
Dividends on preferred stock                                              --          (137)
Proceeds from exercise of stock options                                   16            --
                                                                  ----------    ----------
             Net cash provided by financing activities                 3,401         2,359
                                                                  ----------    ----------

Increase in cash                                                           4            --
Cash at beginning of period                                               44            71
                                                                  ----------    ----------
Cash at end of period                                             $       48    $       71
                                                                  ==========    ==========

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
   Interest                                                       $      254    $      239
                                                                  ==========    ==========
   Income taxes                                                   $       48    $      365
                                                                  ==========    ==========

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

See Notes to Condensed Consolidated Financial Statements

                                     Page 3
<PAGE>

                           LEVCOR INTERNATIONAL, INC.
                          NOTES TO UNAUDITED CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004


NOTE 1:  BASIS OF PRESENTATION
------------------------------

The Unaudited Condensed Consolidated Balance Sheet as of June 30, 2004 and the
Unaudited Condensed Consolidated Statements of Income (Loss) and Cash Flows for
the three and six months ended June 30, 2004 and 2003 include the accounts of
Levcor International, Inc. ("Levcor" or "the Company") and its subsidiaries.

The accompanying Unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included.

Operating results for the three and six-month periods ended June 30, 2004 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. For further information, refer to Management's
Discussion and Analysis or Plan of Operation, the consolidated financial
statements and footnotes included in the Company's annual report on Form 10-KSB
for the year ended December 31, 2003.

NOTE 2:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

Nature of Operation: The Company (i) operates a textile business that produces
fabrics and manufactures garments on a contract basis for sale in the apparel
industry and (ii) manufactures, packages and distributes a line of buttons and
other craft products for sale in the home sewing and craft retail industry. The
Company sells its products to customers primarily in the United States and also
has distribution in Canada and Europe.

Consolidation: The accompanying Unaudited Condensed Consolidated Financial
Statements include the accounts of the Company and all subsidiaries after
elimination of intercompany items and transactions.

Depreciation and Amortization: Depreciation and amortization are computed
principally by the straight-line method for each class of depreciable and
amortizable asset based on their estimated useful lives. Buildings and
improvements, machinery and equipment, and furniture, fixtures and leasehold
improvements are generally depreciated over periods of 20-35, 3-25 and 5-10
years, respectively.

Revenue Recognition:  Revenue is recognized upon shipment of merchandise.

                                     Page 4
<PAGE>

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

Goodwill: The Company reviews goodwill for impairment annually, or more
frequently if impairment indicators arise.

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


NOTE 3:  MERGER WITH CARLYLE INDUSTRIES, INC.
---------------------------------------------

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

NOTE 4:  SEGMENT INFORMATION
----------------------------

The Company operates in two reportable segments: Textile and Craft. Accounting
policies of the two segments are substantially the same as those described in
the summary of significant accounting policies as presented in the financial
statements as of and for the year ended December 31, 2003, which were included
in the Company's most recent Form 10-KSB. All revenues generated in the segments
are external. The following table sets forth information regarding revenue and
operating income by reportable segment (dollars in thousands):

<TABLE>
<CAPTION>
                                 Three Months Ended June 30,     Six Months Ended June 30,
                                ----------------------------    ----------------------------
                                    2004            2003            2004            2003
                                ------------    ------------    ------------    ------------
<S>                             <C>             <C>             <C>             <C>
     Revenue:
       Textile                  $      1,026    $        471    $      1,927    $      1,943
       Craft                           5,635           5,635          11,347          11,394
                                ------------    ------------    ------------    ------------
                                $      6,661    $      6,106    $     13,274          13,337
                                ============    ============    ============    ============
     Operating income (loss):
       Textile                  $       (254)   $       (354)   $       (568)   $       (618)
       Craft                             806             568           1,656           1,715
                                ------------    ------------    ------------    ------------
                                $        552    $        214    $      1,088    $      1,097
                                ============    ============    ============    ============
</TABLE>

                                     Page 5
<PAGE>

<TABLE>
<CAPTION>
                                             Three Months Ended June 30,     Six Months Ended June 30,
                                             ---------------------------    ---------------------------
                                                 2004           2003            2004           2003
                                             ------------   ------------    ------------   ------------
<S>                                          <C>            <C>             <C>            <C>
     Corporate general and
       administrative expense                $        281   $        258    $        546   $        548
     Interest expense, net                            142            127             266            256
     Dividends on mandatory
       redeemable preferred stock                      68             --             137             --
     Provision (benefit) for income taxes              49            (64)            105            113
                                             ------------   ------------    ------------   ------------
     Net income (loss)                                 12           (107)             34            180
     Less dividends on mandatory
       redeemable preferred stock                      --             69              --            137
                                             ------------   ------------    ------------   ------------
     Net income applicable to common stock   $         12   $       (176)   $         34   $         43
                                             ============   ============    ============   ============

     Depreciation and amortization:
       Textile                               $         12   $          9    $         24   $         16
       Craft                                           98            103             198            207
                                             ------------   ------------    ------------   ------------
                                             $        110   $        112    $        222   $        223
                                             ============   ============    ============   ============

     Capital expenditures:
       Textile                               $         --   $         --    $         21   $         35
       Craft                                           15              9              53             35
                                             ------------   ------------    ------------   ------------
                                             $         15   $          9    $         74   $         70
                                             ============   ============    ============   ============
</TABLE>

See Note 8 for a description of changes in presentation of dividends on
mandatory redeemable preferred stock in accordance with SFAS 150.

NOTE 5:  INVENTORIES
--------------------

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

                                   June 30, 2004     December 31, 2003
                                 -----------------   -----------------
              Raw materials      $           2,879   $           2,715
              Work in progress                  54                  69
              Finished goods                 7,102               3,779
                                 -----------------   -----------------
                                 $          10,035   $           6,563
                                 =================   =================

At June 30, 2004 inventories were valued on an average cost method basis.
Inventories are stated at the lower of cost or market.

NOTE 6:  SHORT TERM AND LONG TERM DEBT
--------------------------------------

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

The Company's credit facility with CIT (the "CIT Facility") provides for maximum
aggregate borrowings of up to $7.5 million in the form of revolving credit,
letters of credit and term loans. The CIT Facility is comprised of separate

                                     Page 6
<PAGE>

financing agreements with the Company and its wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal"), which now includes the former
Westwater Industries, LLC ("Westwater") which was merged into Blumenthal as of
May 1, 2004.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.7 million of which was outstanding at
June 30, 2004, (ii) revolving credit advances to the Company in an amount up to
$500,000 and (iii) revolving credit advances to Blumenthal based upon eligible
accounts receivable and inventory, and a Letter of Credit facility with a limit
of $500,000. The Term Loan amortizes $12,000 per month followed by a final
installment payment of $1.4 million due on January 1, 2006. The revolving credit
advances are also due on January 1, 2006. All amounts outstanding under the CIT
Facility bear interest at the Chase Bank N.A. prime rate plus 0.5% with a
minimum rate of 5.0%.

In connection with the CIT Facility, the Company and its subsidiary have made
cross corporate guarantees and have issued first priority liens covering
substantially all of the assets of the Company and its subsidiary. In addition,
Mr. Robert A. Levinson, a stockholder, officer and director of the Company,
provided certain collateral against advances provided under the CIT Facility.

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

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (4.25% at June 30, 2004). The Company pledged its
Textile segment's accounts receivable and property and equipment as collateral
under the factoring agreement. There is no set limit on borrowings. The amount
available for borrowing is based on a formula consisting of 90% of eligible
accounts receivable increased by side collateral and reduced by both the current
loan balance and outstanding letters of credit.

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of August 16, 2005, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBO Rate

                                     Page 7
<PAGE>

applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on
the note at June 30, 2004 was 1.93705%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Robert A. Levinson has made long-term loans totaling $500,000 to the Company at
an interest rate of 6% per annum. Mr. Levinson has agreed not to require payment
of these loans and $298,000 of related accrued interest at June 30, 2004 prior
to January 1, 2006. Approximately $28,000 of accrued interest payable to Mr.
Levinson has also been classified as a current liability as the Company expects
to pay such amount within the next twelve months.

Mr. Levinson has agreed to personally support the Company's cash requirements to
enable it to fulfill its obligations through January 1, 2006, to the extent
necessary, up to a maximum amount of $3.0 million. The Company believes its
reliance on such commitment is reasonable and that Mr. Levinson has sufficient
liquidity and net worth to honor such commitment. The Company believes that Mr.
Levinson's written commitment provides the Company with the legal right to
request and receive such advances. In the event that Mr. Levinson did not honor
such commitment, the Company would have the right to sue Mr. Levinson for breach
of his agreement. Mr. Levinson reaffirmed this undertaking in writing on March
12, 2004. In connection with this agreement, Mr. Levinson has advanced
$1,436,000 to the Company at an interest rate of 6% per annum during the second
quarter of 2004, and all such advances are expected to be repaid by the Company
to Mr. Levinson during the third and fourth quarters of 2004.

During the period ended June 30, 2004, the Company was in compliance with all
debt covenants.

NOTE 7:  PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
--------------------------------------------------------

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

The benefits under this plan are determined based on formulas, which reflect the
employees' years of service and compensation during their employment period. The
projected unit credit method is used to determine pension cost. Funding
requirements for the plan are based on the unit credit method. The Company's
policy is to fund pension cost as required by ERISA. For 2004, there are no
minimum funding requirements for the plan.

The Company provides certain health and life insurance benefits for eligible
retirees and their dependents. The Company accounts for post-retirement benefits
in accordance with SFAS Number 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions", whereby the cost of post-retirement benefits are
accrued during employees' working careers. The plan is not funded. The Company's
policy is to pay the cost of benefits as incurred. Certain benefits are

                                     Page 8
<PAGE>

available to full-time employees who were over age 30, as of January 1, 1992,
provided such employees work for the Company for 25 years and reach certain
ages, but not less than age 55. Employees hired after January 1, 1993 are not
eligible to receive benefits under this plan.

A summary of net periodic benefit costs of the Company's defined benefit plan
and post retirement medical benefit plan for the three and six months ended June
30, 2004 and 2003, respectively, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                               Three Months Ended           Six Months Ended
                                                    June 30,                    June 30,
                                            ------------------------    ------------------------
     Pension Benefits                          2004          2003          2004          2003
     ----------------                       ----------    ----------    ----------    ----------
<S>                                         <C>           <C>           <C>           <C>
     Service                                $       --    $       --    $       --    $       --
     Interest cost                                 323           339           646           678
     Expected return on plan assets               (341)         (352)         (682)         (704)
     Amortization of prior service cost             --            --            --            --
     Recognized net actuarial loss                  38            18            76            36
                                            ----------    ----------    ----------    ----------
     Net periodic benefit cost              $       20    $        5    $       40    $       10
                                            ==========    ==========    ==========    ==========


                                               Three Months Ended           Six Months Ended
                                                    June 30,                    June 30,
                                            ------------------------    ------------------------
     Other Benefits                            2004          2003          2004          2003
     --------------                         ----------    ----------    ----------    ----------
     Service                                $       --    $       --    $       --    $       --
     Interest cost                                  17            31            34            62
     Expected return on plan assets                 --            --            --            --
     Amortization of prior service cost             (4)           (4)           (8)           (8)
     Recognized net actuarial loss (gain)          (20)          (10)          (40)          (20)
                                            ----------    ----------    ----------    ----------
     Net periodic benefit cost (gain)       $       (7)   $       17    $      (14)   $       34
                                            ==========    ==========    ==========    ==========
</TABLE>

For more information on the Company's pension and other post-retirement benefit
plans, refer to the consolidated financial statements and notes included in the
Company's Annual Report on Form 10-KSB.


NOTE 8:  MANDATORY REDEEMABLE PREFERRED STOCK
---------------------------------------------

Dividends on the Series A Preferred Stock accrue at an annual rate of 6% and are
payable quarterly. The availability of resources to make dividend payments to
the holders of Series A Preferred Stock in the future will depend on the
Company's future cash flow. Under the terms of the CIT Facility, preferred stock
redemption payments are prohibited and preferred stock dividend payments are
limited to $300,000 per year.

Effective July 1, 2003, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities" ("SFAS 150").
Accordingly, the redeemable preferred stock has been classified as a liability
in the balance sheet at redemption value as of June 30, 2004. The Statements of

                                     Page 9
<PAGE>

Income (Loss) for quarter ended June 30, 2004 includes $68,000 of preferred
stock dividends paid during the second quarter of 2004 which have been included
in the determination of operating income. For periods prior to July 1, 2003,
such redeemable preferred stock dividend payments are reported as an adjustment
to net income to arrive at net income available to common stock. In accordance
with SFAS 150, dividend payments made in the first and second quarters of 2003
are not permitted to be reclassified to the current accounting treatment and as
a result they continue to be presented on a separate line.

NOTE 9:  COMMON STOCK AND STOCK OPTIONS
---------------------------------------

Between January 1, 2004 and June 30, 2004, the Company issued an aggregate of
5,526 shares of common stock to Directors and recorded such issuance as stock
based compensation expense.

During the six months ended June 30, 2004, in connection with a stock option
exercise by Robert A. Levinson, a stockholder, officer and director of the
Company, the Company issued 170,000 shares of common stock and accepted 45,274
shares of common stock previously held by the optionee as payment of the option
exercise price. The common shares tendered were recorded as treasury stock. All
102,874 shares of treasury stock were retired as of March 31, 2004. The Company
also issued 16,000 shares of common stock in connection with the exercise of
employee stock options during the six months ended June 30, 2004.

The Company applies the recognition and measurement principles of Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for stock options. No stock-based employee
compensation expense is reflected in net income for employee stock options since
all stock options are granted at an exercise price equal to the market value of
the underlying common stock on the date of grant. Compensation expense is
recognized ratably over a period of up to 36 months based on the quarter-end
market values of the stock. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
recognition provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                   Three Months Ended           Six Months Ended
                                                        June 30,                    June 30,
                                                ------------------------    -----------------------
                                                   2004          2003          2004         2003
                                                ----------    ----------    ----------   ----------
<S>                                             <C>           <C>           <C>          <C>
     Income (loss) applicable to common stock
          As Reported                           $       12    $     (176)   $       34   $       43
           Pro Forma                            $       (4)   $     (176)   $        3   $       43
     Basic EPS:
          As Reported                           $       --*   $     (.03)   $       --*  $      .01
          Pro Forma                             $       --*   $     (.03)   $       --*  $      .01
     Diluted EPS:
          As Reported                           $       --*   $     (.03)   $       --*  $      .01
          Pro Forma                             $       --*   $     (.03)   $       --*  $      .01
</TABLE>

* Less than $.005

                                    Page 10
<PAGE>

The fair value of the option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions, risk-free interest rate of 3.93 percent, expected dividend yields
of zero percent; expected life of 10 years; expected volatility of 45 percent.

NOTE 10:  RELATED PARTY TRANSACTIONS
------------------------------------

Robert A. Levinson has provided long-term loans of $500,000 to the Company, has
made short term advances of $1,436,000 during the second quarter of 2004 and has
pledged collateral in support of certain Company obligations. See Note 7 for a
description of these transactions. During the first quarter of 2004, Mr.
Levinson exercised stock options and tendered previously held shares in payment
of the option price. See Note 9 for a description of this transaction.

In addition to being a director of the Company, Edward H. Cohen serves as
counsel to Katten Muchin Zavis Rosenman, New York, New York, legal counsel to
the Company. During the six months ended June 30, 2004, fees for services
provided to the Company by Katten Muchin Zavis Rosenman totaled approximately
$65,000. Mr. Cohen does not share in the fees that the Company pays to such law
firm and his compensation is not based on such fees.




ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Critical Accounting Policies and Estimates

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

Receivables

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

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

Accounts receivable, trade, is reported net of reserves for bad debts, returns
and allowances. A reserve for bad debts is determined through analysis of the
aging of accounts receivable at the date of the financial statements and
assessments of collectability based on historical trends. The reserve for bad

                                    Page 11
<PAGE>

debts includes 100% of all invoices that management deems doubtful of
collection. The Company also estimates reserves for sales returns and allowances
based on historical experience.

Inventories

Inventories are stated at the lower of cost (principally average cost) or
market. Inventories consist of loose buttons, unpackaged craft products, yarn
and greige goods (collectively considered raw materials), packaged craft and
button products, finished fabric and garments (collectively considered finished
goods). The Company estimates markdowns required for inventories based upon
future marketability as well as general economic conditions. The Company
regularly reviews inventory quantities on hand, by item, and records a provision
for excess inventory based primarily upon the Company's historical experience
and estimated forecast of product demand using historical and recent ordering
data relative to the quantity on hand for each item. A significant decrease in
demand for the Company's products could result in an increase in the amount of
excess inventory quantities on hand; however, the Company manages inventory and
monitors product purchasing to reduce this risk.

Intangible Assets

Goodwill and other intangible assets such as trademarks are evaluated for
impairment at least annually and, if necessary, impairment is recorded. Goodwill
and other intangible assets are not amortized.

Pension Liabilities

The Company used an estimated rate of return of 8.00% and a discount rate of
6.25% in computing its defined benefit plan pension liability.

Revenue Recognition

The Company recognizes revenue when goods are shipped to customers. Shipment is
made by UPS or common carrier. Deliveries generally take place within three days
of shipment. Standard terms for shipments are F.O.B. shipping point, at which
time the Company has completed all performance obligations to consummate the
sale. In some circumstances, shipments are made F.O.B. destination, in which
case the Company insures the sales value of most shipments. Revenue is reported
net of a reserve for sales returns and allowances. Sales returns and allowances
are estimated based upon specific agreements and historical patterns with major
accounts and are accrued in the period in which a customer becomes entitled to
an allowance or return of product.

Shipping and Handling Costs

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

                                    Page 12
<PAGE>

Results of Operations

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

Net sales for the three months ended June 30, 2004 totaled $6.7 million as
compared to $6.1 million during the three months ended June 30, 2003.

Net sales of the Craft segment totaled $5.6 million for each of the three-month
periods ended June 30, 2004 and 2003, respectively.

Net sales of the Textile segment totaled $1.0 million in the three months ended
June 30, 2004 as compared to $471,000 during the three months ended June 30,
2003. Revenues in the Textile segment in 2004 were derived primarily from
contract garment manufacturing activities whereas revenues in the Textile
segment in 2003 consisted primarily of fabric converting. The contract garment
manufacturing business in which the Textile division competes is very seasonal
and, based on our current customer base, sales are heavily weighted to the third
and fourth quarters. The Company is working to secure additional contract
garment manufacturing business in order to increase volume and to balance out
seasonal activity.

Gross margin during the three months ended June 30, 2004 totaled $2.3 million as
compared to $2.0 million during the second quarter of 2003.

Gross margin for the Craft segment totaled $2.1 million during the three months
ended June 30, 2004 as compared to $1.9 million during the second quarter of
2003. The improvement in gross margin as compared to the second quarter of 2003
was due to lower variable costs.

Gross margin for the Textile segment totaled $208,000 during the three months
ended June 30, 2004 as compared to $179,000 during the three months ended June
30, 2003. The improvement versus the second quarter of 2003 was due to the
increase in sales, which effect was partially offset by a lower gross margin
percent in 2004 as compared to 2003. Gross margin in 2003 also included $48,000
of other revenue related to the textile conversion business. There was no such
other revenue included in gross margin in 2004.

Selling, general and administrative expenses during each of the three months
ended June 30, 2004 and 2003 totaled $2.1 million, respectively.

Income before interest, preferred dividends and income taxes for the three
months ended June 30, 2004 totaled $271,000 as compared to a loss of $44,000
during the same period last year. The increase from 2003 to 2004 was due to the
improvement in gross profit, as discussed above.

Net interest expense during the three months ended June 30, 2004 totaled
$142,000 as compared to net interest expense of $127,000 during the three months
ended June 30, 2003. The increase in interest expense as compared to the same
period last year was primarily the result of higher average debt levels in the
second quarter of 2004 as compared to 2003.

                                    Page 13
<PAGE>

Income before income taxes for the three months ended June 30, 2004 was reduced
by the accrual of the Series A Redeemable Preferred Stock dividends which
totaled $68,000 for the period, due to the Company's adoption of the provisions
of Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equities
("SFAS 150") during the third quarter of 2003. The accrual of preferred stock
dividends totaling $69,000 during the second quarter of 2003 was previously
reported as an adjustment to Net Income to arrive at Net Income Attributable to
Common Stockholders and the provisions of SFAS 150 preclude the restatement of
prior year financial statements.

The provision for income taxes during the three months ended June 30, 2004 was
$49,000 as compared to a benefit of $64,000 during the three months ended June
30, 2003. Because of the Company's net operating loss carryforward, the Federal
income tax provision at 34% reduces the deferred tax asset and does not require
a cash payment.

Three-month results may not be indicative of full year results due to programs
with major apparel and retail customers which may vary as to timing and amount
from quarter to quarter. In addition, consolidation within the Company's
customer base and inventory reduction efforts by major retail customers may
adversely affect the Company's revenue and operating results in subsequent
quarters.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

Net sales for each of the six-month periods ended June 30, 2004 and 2003 was
$13.3 million. Net sales of the Craft segment was $11.4 million in each of the
six months ended June 30, 2004 and 2003.

Net sales of the Textile segment totaled $1.9 million in each of the six months
ended June 30, 2004 and 2003. The contract garment manufacturing business in
which the Textile division competes is very seasonal and, based on our current
customer base, sales are heavily weighted to the third and fourth quarters. The
Company is working to secure additional contract garment manufacturing business
in order to increase volume and to balance out seasonal activity.

Gross margin during each of the six-month periods ended June 30 of 2004 and 2003
totaled $4.8 million. Gross margin for the Craft segment totaled $4.4 million
during each of the six-month periods ended June 30, 2004 and 2003.

Gross margin for the Textile segment totaled $394,000 during the six months
ended June 30, 2004 as compared to $467,000 during the six months ended June 30,
2003. Gross margin in 2003 also included $85,000 of other revenue related to the
textile conversion business as compared to none in 2004.

Selling, general and administrative expenses during the six months ended June
30, 2004 totaled $4.2 million as compared to $4.3 million during the first six
months of 2003.

Income before interest, preferred dividends and income taxes for the six months
ended June 30, 2004 totaled $542,000 as compared to $549,000 during the same
period last year.

                                    Page 14
<PAGE>

Net interest expense during the six months ended June 30, 2004 totaled $266,000
as compared to net interest expense of $256,000 during the six months ended June
30, 2003. The increase in interest expense as compared to the same period last
year was primarily the result of higher average debt levels during the first
half of 2004 as compared to 2003.

Income before income taxes for the six months ended June 30, 2004 was reduced by
the accrual of the Series A Redeemable Preferred Stock dividends which totaled
$137,000 for the period, due to the Company's adoption of the provisions of
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equities
("SFAS 150") during the third quarter of 2003. The accrual of preferred stock
dividends totaling $137,000 during the first half of 2003 was previously
reported as an adjustment to Net Income to arrive at Net Income Attributable to
Common Stockholders and the provisions of SFAS 150 preclude the restatement of
prior year financial statements.

The provision for income taxes during the six months ended June 30, 2004 was
$105,000 as compared to $113,000 during the six months ended June 30, 2003.
Because of the Company's net operating loss carryforward, the Federal income tax
provision at 34% reduces the deferred tax asset and does not require a cash
payment.

Six-month results may not be indicative of full year results due to programs
with major apparel and retail customers which may vary as to timing and amount
from quarter to quarter. In addition, consolidation within the Company's
customer base and inventory reduction efforts by major retail customers may
adversely affect the Company's revenue and operating results in subsequent
quarters.


Liquidity and Capital Resources

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

At June 30, 2004 the Company's principal sources of liquidity included cash of
$48,000 and trade accounts receivable of $3.9 million.

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

                                    Page 15
<PAGE>

Cash Flow Summary:
(in thousands)
                                                        Six Months ended
                                                            June 30,
                                                   ---------------------------
                                                      2004              2003
                                                   ---------         ---------
         Net cash provided by (used in):
                  Operating activities             $  (3,288)        $  (2,257)
                  Investing activities                  (109)             (102)
                  Financing activities                 3,401             2,359
                                                   ---------         ---------
         Net change in cash                        $       4         $      --
                                                   =========         =========


Net cash flow used in operating activities totaled $3.3 million during the six
months ended June 30, 2004, as compared to $2.3 million cash used in operating
activities during the same period last year. The increase in cash flow used by
operating activities was primarily the result of higher levels of inventory and
accounts receivable as compared to the six-month period ended June 30, 2003. The
higher level of accounts receivable at June 30, 2004 was the result of a change
in customer mix in the Craft segment during the six months ended June 30, 2004
as compared to 2003.

Net cash flow used in investing activities totaled $109,000 during the six
months ended June 30, 2004, as compared to $102,000 during 2003.

Net cash provided by financing activities totaled $3.4 million during the six
months ended June 30, 2004, as compared to $2.4 million of net cash provided by
financing activities during the six months ended June 30, 2003. Net borrowings
under the Company's credit facilities during the six months ended June 30, 2004
totaled $1.8 million as compared to repayments of $533,000 during the same
period last year. Net amount borrowed from factor during the six months ended
June 30, 2004 totaled $212,000 as compared to $1.7 million in 2003. Net proceeds
from stockholder loan totaled $1.4 million as compared to $1.3 million in 2003.

Cash used for preferred stock dividend payments during the six months ended June
30, 2004 totaled none as compared to $137,000 during the six months ended June
30, 2003. The reduction in cash flows used in preferred stock dividend payments
was due to the effect of the adoption of SFAS 150 in the third quarter of 2003
which required that the 2004 preferred stock dividend payment of $137,000 be
included in the determination of net income.

Cash provided by the exercise of stock options totaled $16,000 during the six
months ended June 30, 2004 as compared to none in the six months ended June 30,
2003. Common stock was issued in connection with the exercise of stock options
and the payment of director fees to those directors who have opted to receive
shares of Company stock in lieu of cash in payment of their fees.

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

                                    Page 16
<PAGE>

The Company's credit facility with CIT (the "CIT Facility") provides for maximum
aggregate borrowings of up to $7.5 million in the form of revolving credit,
letters of credit and term loans. The CIT Facility is comprised of separate
financing agreements with the Company and its wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal"), which now includes the former
Westwater Industries, LLC ("Westwater") which was merged into Blumenthal as of
May 1, 2004.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.7 million of which was outstanding at
June 30, 2004, (ii) revolving credit advances to the Company in an amount up to
$500,000 and (iii) revolving credit advances to Blumenthal based upon eligible
accounts receivable and inventory, and a Letter of Credit facility with a limit
of $500,000. The Term Loan amortizes $12,000 per month followed by a final
installment payment of $1.4 million due on January 1, 2006. The revolving credit
advances are also due on January 1, 2006. All amounts outstanding under the CIT
Facility bear interest at the Chase Bank N.A. prime rate plus 0.5% with a
minimum rate of 5.0%.

In connection with the CIT Facility, the Company and its subsidiary have made
cross corporate guarantees and have issued first priority liens covering
substantially all of the assets of the Company and its subsidiary. In addition,
Mr. Robert A. Levinson, a stockholder, officer and director of the Company,
provided certain collateral against advances provided under the CIT Facility.

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

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (4.25% at June 30, 2004). The Company pledged its
Textile segment's accounts receivable and property and equipment as collateral
under the factoring agreement. There is no set limit on borrowings. The amount
available for borrowing is based on a formula consisting of 90% of eligible
accounts receivable increased by side collateral and reduced by both the current
loan balance and outstanding letters of credit.

                                    Page 17
<PAGE>

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of August 16, 2005, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBO Rate
applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on
the note at June 30, 2004 was 1.93705%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Robert A. Levinson has made long-term loans totaling $500,000 to the Company at
an interest rate of 6% per annum. Mr. Levinson has agreed not to require payment
of these loans and $298,000 of related accrued interest at June 30, 2004 prior
to January 1, 2006. Approximately $28,000 of accrued interest payable to Mr.
Levinson has also been classified as a current liability as the Company expects
to pay such amount within the next twelve months.

Mr. Levinson has agreed to personally support the Company's cash requirements to
enable it to fulfill its obligations through January 1, 2006, to the extent
necessary, up to a maximum amount of $3.0 million. The Company believes its
reliance on such commitment is reasonable and that Mr. Levinson has sufficient
liquidity and net worth to honor such commitment. The Company believes that Mr.
Levinson's written commitment provides the Company with the legal right to
request and receive such advances. In the event that Mr. Levinson did not honor
such commitment, the Company would have the right to sue Mr. Levinson for breach
of his agreement. Mr. Levinson reaffirmed this undertaking in writing on March
12, 2004. In connection with this agreement, Mr. Levinson has advanced
$1,436,000 to the Company at an interest rate of 6% per annum during the second
quarter of 2004, and all such advances are expected to be repaid by the Company
to Mr. Levinson during the third and fourth quarters of 2004.

During the period ended June 30, 2004, the Company was in compliance with all
debt covenants.

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

Summary of Contractual Obligations
----------------------------------
A summary of the Company's June 30, 2004 contractual obligations and commitments
is as follows:

                                    Page 18
<PAGE>

<TABLE>
<CAPTION>
                                                        Less than                               More than
                                             Total        1 year      1-3 years    4-5 years     5 years
                                           ----------   ----------   ----------   ----------   ----------
<S>                                        <C>          <C>          <C>          <C>          <C>
     Due to Factor                         $    1,057   $    1,057   $       --   $       --   $       --
     CIT asset based loan                       4,833        4,833           --           --           --
     Short term loan - stockholder              1,436        1,436           --           --           --
     Term loans                                 4,515           --        4,515           --           --
     Long term loan - stockholder                 798           --          798           --           --
     Pension liabilities                        5,667          111          187          153        5,216
     Post retirement medical liabilities        2,296          150          165          181        1,800
     Environmental liabilities                  1,238           --          200          200          838
     Other liabilities                            533           27          108           72          326
     Preferred stock                            4,555           --        1,518        3,037           --
     Operating lease obligations                  907          204          398          273           32
                                           ----------   ----------   ----------   ----------   ----------
                                           $   27,835   $    7,818   $    7,889   $    3,916   $    8,212
                                           ==========   ==========   ==========   ==========   ==========
</TABLE>

Seasonality and New Programs

The Company's Textile business is seasonal and as such the Company generally
realizes significantly higher revenues and operating income in the third and
fourth quarters. Such seasonality takes into account the standard lead-time
required by the fashion industry to manufacture apparel, which corresponds to
the respective retail selling seasons. Standard lead-time is the period of time
commencing when the Company receives an order from a customer and ending when
the Company ships the order to the customer. In response to this seasonality,
the Company generally increases its inventory levels, and thereby has higher
working capital needs during the second and third quarters of its fiscal year.
The Company and the U.S. apparel industry in general are sensitive to the
business cycle of the national economy. Moreover, the popularity, supply and
demand for particular apparel products can change significantly from year to
year based on prevailing fashion trends and other factors. Reflecting the
cyclical nature of the apparel industry, many apparel producers tend to increase
capacity during years in which sales are strong. These increases in capacity
tend to accelerate a general economic downturn in the apparel markets when
demand weakens. These factors have contributed historically to fluctuations in
the Company's results of operations and they are expected to continue to occur
in the future.

The Company's Craft business is largely based on its ability to fulfill reorders
of existing programs and to place new programs with its retail customers. The
business is fundamentally influenced by the buying habits of consumers. Home
sewing and craft activities take place on a year-round basis; however, they are
generally indoor activities and as a result they experience an increased
participation level during the fall, winter and early spring months.
Anticipating this pattern, the Company's retail customers place somewhat larger
reorders during the July through March period.

Sales are influenced by the introduction of new programs and the discontinuance
of existing programs. A successful new program requires the retail customer to
add the program and experience an acceptable level of sell-through. The Company
develops and introduces new program ideas on a regular basis. However, there is
no assurance that its retail customers will buy the new programs and if they do,
there is no assurance the consumer will purchase the new product at an
acceptable level.

                                     Page 19
<PAGE>

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


Impact of Inflation

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

Forward-Looking Statements

This Quarterly Report on Form 10-QSB contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Those
statements include statements regarding the intent and belief or current
expectations of the Company and its management team. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking statements. Such
risks and uncertainties include, among other things, future revenue
opportunities, development and growth of the Company's contract garment
manufacturing business, the future growth of the Company's customer base and
strategic and distribution relationships, future capital, marketing and sales
force needs, the possible acquisition of complementary products and businesses
and other risks and uncertainties that may be detailed herein, and from
time-to-time, in the Company's other reports filed with the Securities and
Exchange Commission. The Company undertakes no obligation to publicly update any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.

ITEM 3.       CONTROLS AND PROCEDURES

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

                                    Page 20
<PAGE>

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

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

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



                           PART II. OTHER INFORMATION

ITEM 2.       CHANGE IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF
              EQUITY SECURITIES

During 2004, the Company issued shares of its common stock, par value $0.01 per
share, to two of its non-employee directors in lieu of cash for quarterly
director fees. The issue price was the average trading price on the last day of
the quarter. On January 12, 2004, an aggregate of 2,378 shares were issued to
the directors at a price of $3.58 per share. On April 19, 2004, an aggregate of
3,148 shares were issued to the directors at a price of $2.70 per share. On July
9, 2004, an aggregate of 3,958 shares were issued to the directors at a price of
$2.40 per share. On July 19, 2004, 20,000 options were exercised resulting in
gross proceeds to the Company of $19,000. These shares were exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to Section 4(2) of the Securities Act.

              Small Business Issuer Purchases of Equity Securities
              ----------------------------------------------------

The following table sets forth information regarding the Company's purchases of
shares of its common stock for the six months ended June 30, 2004.

                                    Page 21
<PAGE>

<TABLE>
<CAPTION>
                                                                     Total Number of      Maximum Number of
                                                                   Shares Purchased as     Shares that May
                                                                    Part of Publicly      Yet Be Purchased
                          Total Number of     Average Price Paid   Announced Plans or    Under the Plans or
Period                    Shares Purchased         Per Share             Programs             Programs
------                    ----------------         ---------             --------             --------
<S>                          <C>                   <C>                      <C>                  <C>
January 1, 2004 to
         January 31,             --                   --                    --                   --
         2004
February 1, 2004 to
         February 29,        45,274(1)             $3.20                    --                   --
         2004
March 1, 2004, to
         March 31,               --                   --                    --                   --
         2004
April 1, 2004, to
         April 30,               --                   --                    --                   --
         2004
May 1, 2004, to May              --                   --                    --                   --
         31, 2004
June 1, 2004, to June            --                   --                    --                   --
         30, 2004
</TABLE>

(1) In connection with a stock option exercise by Robert A. Levinson, a
stockholder, officer and director of the Company, the Company issued 170,000
shares of common stock and accepted 45,274 shares of common stock previously
held by the optionee as payment of the option exercise price. The common shares
tendered were recorded as treasury stock and cancelled subsequently.


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

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

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

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

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

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

                                    Page 22
<PAGE>

(b)      Reports on Form 8-K

         There were no Current Reports on Form 8-K filed during the three months
ended June 30, 2004.




                                   SIGNATURES
                                   ----------

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                           LEVCOR INTERNATIONAL, INC.



Date: August 6, 2004                /s/ ROBERT A. LEVINSON
      --------------                --------------------------------------------
                                    Robert A. Levinson
                                    Chairman of the Board, President and Chief
                                    Executive Officer


Date: August 6, 2004                /s/ EDWARD F. COOKE
      --------------                --------------------------------------------
                                    Edward F. Cooke
                                    Chief Financial Officer, Vice President,
                                    Secretary and Treasurer

                                    Page 23
<PAGE>

                                  Exhibit Index
                                  -------------

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

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

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

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

                                    Page 24