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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

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

     For the quarterly period ended March 31, 2006
                                    --------------

[ ]  TRANSITION REPORT PURSUANT TO 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 Registrant as Specified in Its Charter)


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


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

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


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

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


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

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

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [ ] No [X]

As of May 12, 2006, 5,331,881 shares of Common Stock, par value $0.01 per share,
were issued and outstanding.

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<PAGE>

                           LEVCOR INTERNATIONAL, INC.

                                      INDEX

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets
         as of March 31, 2006 (Unaudited) and December 31, 2005................1

         Condensed Consolidated Statements of Operations (Unaudited)
         for the Three Months Ended March 31, 2006 and 2005....................2

         Condensed Consolidated Statements of Comprehensive Income (Loss)
         (Unaudited) for the Three Months Ended March 31, 2006 and 2005........2

         Condensed Consolidated Statements of Cash Flows (Unaudited)
         for the Three Months Ended March 31, 2006 and 2005....................3

         Notes to Condensed Consolidated Financial Statements (Unaudited)
         March 31, 2006 and 2005...............................................4

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations ...............................................19

Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........34

Item 4.  Controls and Procedures..............................................35

PART II. OTHER INFORMATION

Item 1   Legal Proceedings....................................................36

Item 1A  Risk Factors.........................................................36

Item 5   Other Information....................................................42

Item 6.  Exhibits ............................................................43

         Signatures...........................................................44

<PAGE>
<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

                                                                      March 31,      December 31,
                                                                        2006             2005
                                                                     (Unaudited)      (Audited)
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
ASSETS
Current Assets:
   Cash                                                              $         79    $         50
   Accounts receivable trade, net                                           4,101           2,760
   Inventories, net                                                         6,953           7,725
   Other current assets                                                       292             173
                                                                     ------------    ------------
       Total current assets                                                11,425          10,708

Property, Plant and Equipment, net                                          2,025           2,067
Goodwill                                                                    2,543           2,543
Other assets                                                                  774             751
                                                                     ------------    ------------
         Total Assets                                                $     16,767    $     16,069
                                                                     ============    ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
   Revolving loan and current maturities of long-term debt           $      5,599    $      4,203
   Due to factor                                                              346             775
   Current maturities of stockholder loan                                     850             850
   Accounts payable                                                         1,373           1,897
   Other current liabilities                                                1,159           1,315
                                                                     ------------    ------------
       Total current liabilities                                            9,327           9,040
                                                                     ------------    ------------
Long-term debt, less current maturities                                     4,263           4,299
Stockholder loan, less current maturities                                   1,989           1,954
Pension liabilities                                                         5,654           5,677
Post retirement medical liabilities                                         1,912           1,960
Environmental liabilities                                                   1,314           1,348
Other liabilities                                                             214             179
Mandatory Redeemable Preferred Stock, par value $0.01 per share
   8,000,000 shares authorized:  Shares issued and outstanding:
   Series A - 4,555,007                                                     4,635           4,555
                                                                     ------------    ------------
       Total Liabilities                                                   29,308          29,012
                                                                     ------------    ------------

Commitments and  Contingencies                                                 --              --

STOCKHOLDERS' DEFICIT
Common Stock, par value $0.01 per share
   15,000,000 shares authorized;
   5,331,881 shares issued and outstanding                                     54              54
Paid in Capital                                                            33,201          33,238
Accumulated Deficit                                                       (41,454)        (41,839)
Accumulated Other Comprehensive Loss                                       (4,342)         (4,332)
Unearned Compensation                                                          --             (64)
                                                                     ------------    ------------
Total Stockholders' Deficit                                               (12,541)        (12,943)
                                                                     ------------    ------------
Total Liabilities and Stockholders' Deficit                          $     16,767    $     16,069
                                                                     ============    ============
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                     Page 1
<PAGE>
<TABLE>
<CAPTION>

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

                                                                     Three Months Ended March 31,
                                                                         2006            2005
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
Net sales                                                            $      7,689    $      6,108
Cost of sales                                                               5,283           4,222
                                                                     ------------    ------------
                                                                            2,406           1,886
Selling, general and administrative expenses
     (including stock based compensation of $27 and $4)                     1,745           1,973
                                                                     ------------    ------------
Income (loss) before interest, preferred dividends
     and income taxes                                                         661             (87)
Interest expense                                                              231             162
Dividends on mandatory redeemable preferred stock                              68              68
                                                                     ------------    ------------
Income (loss) before income taxes                                             362            (317)
Income tax benefit                                                             23              93
                                                                     ------------    ------------
Net income (loss)                                                    $        385    $       (224)
                                                                     ============    ============
Earnings (loss) per share:
     Basic                                                           $        .07    $       (.04)
                                                                     ============    ============
     Diluted                                                         $        .07    $       (.04)
                                                                     ============    ============

Weighted average shares outstanding - basic                                 5,332           5,331
Potential common stock                                                          8              --
                                                                     ------------    ------------
Weighted average shares outstanding - diluted                               5,340           5,331
                                                                     ============    ============
<CAPTION>

See Notes to Condensed Consolidated Financial Statements.

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

                                                                     Three Months Ended March 31,
                                                                         2006            2005
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
Net income (loss)                                                    $        385    $       (224)
Other comprehensive loss:
     Foreign currency translation adjustment                                  (10)             (5)
                                                                     ------------    ------------
Comprehensive income (loss)                                          $        375    $       (229)
                                                                     ============    ============
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                     Page 2
<PAGE>
<TABLE>
<CAPTION>

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

                                                                          Three Months Ended March 31,
                                                                              2006            2005
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
Cash Flows Used in Operating Activities:
Net income (loss)                                                         $        385    $       (224)
Reconciliation of net income (loss) to net cash used in operations:
  Depreciation and amortization                                                     91              96
  Deferred income taxes                                                             --             (80)
  Non-cash stock based compensation                                                 27               4
  Accrued interest on stockholder loan                                              35              15
  Changes in operating assets and liabilities:
    Accounts receivable trade, net                                              (1,341)            203
    Inventories, net                                                               748            (825)
    Other current assets                                                          (119)           (141)
    Other assets                                                                   (45)            (23)
    Accounts payable                                                              (524)            747
    Other current liabilities                                                     (127)           (448)
    Pension liabilities                                                            (23)            (24)
    Post retirement medical liabilities                                            (48)            (42)
    Environmental liabilities                                                      (34)             --
    Other liabilities                                                               86             (61)
                                                                          ------------    ------------
         Net cash used in operating activities                                    (889)           (803)
                                                                          ------------    ------------
Cash Flows Used In Investing Activities:
Capital expenditures                                                                (4)             (2)
Investment in other assets                                                          (9)            (20)
                                                                          ------------    ------------
         Net cash used in investing activities                                     (13)            (22)
                                                                          ------------    ------------
Cash Flows From Financing Activities:
Borrowings under revolving loan                                                  5,944           4,823
Repayments under revolving loan                                                 (4,548)         (4,641)
Repayment of long term debt                                                        (36)            (36)
Borrowings under stockholder loan                                                   --           1,400
Due to factor                                                                     (429)           (701)
                                                                          ------------    ------------
         Net cash provided by financing activities                                 931             845
                                                                          ------------    ------------

Increase in cash                                                                    29              20
Cash at beginning of period                                                         50              32
                                                                          ------------    ------------
Cash at end of period                                                     $         79    $         52
                                                                          ============    ============
Supplemental Disclosure of Cash Flow Information:
Cash paid (refunded) during the period for:
  Interest                                                                $        197    $        141
                                                                          ============    ============
  Income taxes                                                            $        (11)   $         19
                                                                          ============    ============
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                     Page 3
<PAGE>

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

                             MARCH 31, 2006 AND 2005

NOTE 1:  UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------------------------

Nature of Operations:
--------------------
Levcor International, Inc. & Subsidiaries (the "Company" or "Levcor" or "we")
operates in two segments. The Company manufactures, packages and distributes a
line of buttons and other craft products for sale in the home sewing and craft
retail industry ("Craft Segment") and operates a textile business ("Textile
Segment"). The Company sells its products to customers primarily in the United
States and also has distribution in Canada and Europe.

The accompanying unaudited condensed consolidated financial statements have been
prepared in compliance with Rule 10-01 of regulation S-X and accounting
principles generally accepted in the United States of America (GAAP), as
applicable to interim financial information and following other requirements of
the Securities and Exchange Commission (SEC) for interim reporting. Accordingly,
the unaudited condensed consolidated financial statements do not include all of
the information and footnotes normally required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all normal and recurring adjustments
and accruals considered necessary for a fair presentation have been included.
The interim results are not necessarily indicative of the results for a full
year and do not contain information included in the Company's annual
consolidated financial statements and notes for the year ended December 31,
2005. The consolidated balance sheet as of December 31, 2005 was derived from
audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America. It is
suggested that these financial statements be used in conjunction with the
financial statements and notes thereto included in the Company's latest annual
report on Form 10-K.

The Condensed Consolidated Balance Sheets as of March 31, 2006 (Unaudited) and
December 31, 2005 (Audited) and the Unaudited Condensed Consolidated Statements
of Operations, Comprehensive Income (Loss) and Cash Flows for the three months
ended March 31, 2006 and 2005 include the accounts of the Company and
subsidiaries.

NOTE 2:  TEXTILE SEGMENT
------------------------

During the fourth quarter of 2005, the Company's Board of Directors approved
management's plan to exit the garment manufacturing business. Garment
manufacturing represented 85%, 48% and 42% of the Textile segment's revenue
during the year ended December 31, 2005 and the quarters ended March 31, 2006
and 2005, respectively. The Textile segment accounted for 24% and 26% of the
Company's total sales during the first quarters of 2006 and 2005, respectively.
Because garment manufacturing represented such a substantial portion of the
Textile segment's business, management has now determined that the Company will
exit the Textile segment completely by June 30, 2006. As a result, the Company's
revenue in 2006 is expected to be significantly lower than in 2005. The decision

                                     Page 4
<PAGE>

to exit this business was the result of operating losses incurred during 2005
resulting from lower than planned business volume from our major customer and an
inability to attract additional customers. In addition, a decrease in margins
due to an increase in raw material costs, and the long production lead times and
the related working capital requirements of the business contributed to interest
costs that exceeded the segment's operating profits. During the first and second
quarters of 2006, the Company has been and will continue disposing of the
remaining Textile segment inventory.

Management has determined that disposal of the textile business does not meet
the requirements of Financial Accounting Standards Board No. 144, "Accounting
for the Impairment or Disposal of Long-Termed Assets", for classification as
discontinued operations at March 31, 2006.

The results of operations of the textile business which the Company is exiting
will not be reported as discontinued operations until the period in which the
related assets are abandoned, distributed or exchanged. At March 31, 2006, the
assets and liabilities of the textile business continue to be classified as held
for use and the results of operations for the three months then ended are
included in the results of continuing operations.

Management concluded that the carrying amounts of goodwill and trademarks
totaling $2.3 million and $709,000, respectively, related to the Textile segment
were deemed to be fully impaired as of September 30, 2005 and were written off
accordingly at that time.

NOTE 3:  GOING CONCERN
----------------------

The accompanying unaudited condensed consolidated financial statements have been
prepared on a basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
The Company incurred a net loss attributable to common stockholders of $8.3
million for the year ended December 31, 2005 of which $6.1 million was
represented by non cash impairment. In addition, the Company has an accumulated
deficit of $41.5 million and a total stockholders deficit of $12.5 million at
March 31, 2006. The Company's ability to continue as a going concern is
dependent upon its ability to continue to generate profitable operations in the
future and/or to obtain the necessary financing to meet its obligations and
repay its liabilities arising from normal business operations when they come
due. Although management continues to pursue these plans, there is no assurance
that the Company will be successful in generating such profitable operations or
obtaining financing on terms acceptable to the Company. The outcome of these
matters cannot be predicted with any certainty at this time. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management plans to continue to provide for its capital needs through
stockholder loans and advances. These financial statements do not include any
adjustments to the amounts and classification of assets and liabilities that may
be necessary should the Company be unable to continue as a going concern.

NOTE 4:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

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

                                     Page 5
<PAGE>

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

Cash and Cash Equivalents:
-------------------------
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The Company did not have
any cash equivalents at March 31, 2006 and December 31, 2005.

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

Credit Risk
-----------
Financial instruments which potentially subject us to concentration of credit
risk consist principally of accounts receivable from Craft division customers.
We perform ongoing credit evaluations of our customers' financial condition and,
generally, require no collateral from our customers.

Accounts Receivable
-------------------
Accounts receivable (substantially all related to the Company's Craft segment)
are stated at the net realizable value. An allowance for doubtful accounts is
recorded based on a combination of historical experience, aging analysis and
information on specific accounts. Accounts balances are written off against the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. The allowance for doubtful accounts was
$54,000 at March 31, 2006 and $50,000 at December 31, 2005.

Due from Factor:
---------------
Under a factoring agreement with CIT Group/Financial Services, Inc. ("CIT" or
the "factor"), the factor purchases the Textile segment's trade accounts
receivable without recourse and assumes substantially all credit risks with
respect to such accounts. The factoring agreement allows the Company to obtain
advances, computed on a borrowing base formula from the factor at 8.25% (prime
rate plus 0.5%). The amounts due to the Company from the factor earn no
interest. The Company has pledged its accounts receivable and property and
equipment as collateral under the factoring agreement.

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

                                     Page 6
<PAGE>

Long-Lived Assets
-----------------
The Company evaluates the carrying value of long-lived assets whenever events or
changes in circumstances indicate the carrying value of an asset may not be
recoverable. When factors indicate the asset may not be recoverable, the Company
compares the related undiscounted future net cash flows to the carrying value of
the asset to determine if impairment exists. If the expected future net cash
flows are less than the carrying value, the asset is written down to its
estimated fair value. When assets are removed from operations and held for sale,
the impairment loss is estimated as the excess of the carrying value of the
assets over their fair value. No such impairments of long-lived assets were
recorded for the three-month periods ended March 31, 2006 and 2005.

Goodwill:
--------
The Company reviews goodwill for impairment annually, or more frequently if
impairment indicators arise and goodwill is written off when impaired.
Impairment, if any, would be determined based on an implied fair value model for
determining the carrying value of goodwill. The impairment test is a two-step
process. The first step requires comparing the fair value of each reporting unit
to its net book value. The Company uses management estimates of future cash
flows to perform the first step of the goodwill impairment test. Estimates made
by management include assumptions about future conditions such as future
revenues, gross margins and operating expenses. The second step is only
performed if impairment is indicated after the first step is performed, as it
involves measuring the actual impairment to goodwill. Goodwill on the balance
sheet as of March 31, 2006 and December 31, 2005, was all related to the Craft
segment.

Income Taxes:
------------
The liability method is used in accounting for income taxes as required by SFAS
No. 109, Accounting for Income Taxes. Under this method, deferred tax assets and
liabilities are recognized for operating income and tax credit carryforwards and
for the future tax consequences attributable to the differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the results of operations in the period that includes the
enactment date.

Realization of our deferred tax assets is, for the most part, dependent upon our
U.S. consolidated tax group of companies having sufficient federal taxable
income in future years to utilize our domestic net operating loss carry-forwards
before they expire. We adjust our deferred tax valuation allowance on a
quarterly basis in light of certain factors, including our financial
performance.

The Company has significant deferred tax assets, resulting from net operating
loss carryforwards and deductible temporary differences. As of March 31, 2006
and December 31, 2005, the Company has provided a full valuation allowance
against our deferred tax assets. Management weighs the positive and negative
evidence to determine if it is more likely than not that some or all of the
deferred tax assets will be realized. Forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in past years. The Company will continue to maintain a full
valuation allowance on our tax benefits until profitability has been sustained

                                     Page 7
<PAGE>

over a time period and in amounts that are sufficient to support a conclusion
that it is more likely than not that a portion or all of the deferred tax assets
will be realized. A decrease in our valuation allowance would result in an
immediate material income tax benefit, an increase in total assets and
stockholder's equity, and could have a significant impact on earnings in future
periods.

An income tax benefit of $23,000 was recorded during the first quarter of 2006
and was the result of a refund of state income taxes during the period. Because
of the Company's net operating loss carryforward, the company is not required to
record a provision for income taxes related to its pretax income except in
instances where minimum taxes are payable. An income tax benefit of $93,000 was
recorded during the first quarter of 2005 as a result of the pretax loss during
the quarter in 2005.

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

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

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

Fair Value of Financial Instruments:
-----------------------------------
The Company's financial instruments are comprised of revolving debt, long-term
debt, loans payable to stockholder, Robert A. Levinson, and Series A Mandatory
Redeemable Preferred Stock at March 31, 2006 and December 31, 2005. The fair
values of the revolving debt, long-term debt and loans payable to Robert A.
Levinson approximate the carrying values because these obligations had
market-based interest rates.

                                     Page 8
<PAGE>

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

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

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

Advertising:
-----------
The Company expenses the cost of advertising at the time the cost is incurred.
Advertising expense totaled approximately $17,000 and $56,000 during the
three-month periods ended March 31, 2006 and 2005, respectively.

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

At March 31, 2005, the Company had 54,000 options outstanding that could
potentially dilute basic loss per share in the future but were not included in
the calculation of diluted loss per share because this inclusion would have been
anti-dilutive.

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

                                     Page 9
<PAGE>

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

Significant Accounting Policy Updates:
-------------------------------------

Stock-Based Compensation Plans:
------------------------------
On January 1, 2006, we adopted Financial Accounting Standards No. 123 (revised
2004), "Share-Based Payment" ("FAS 123(R)"), that addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for either equity instruments of the enterprise or
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation
transactions, as we formerly did, using the intrinsic value method as prescribed
by Accounting Principles Board, or APB, Opinion No. 25, "Accounting for Stock
Issued to Employees," and generally requires that such transactions be accounted
for using a fair-value-based method and recognized as expenses in our condensed
consolidated statement of operations.

We adopted FAS 123(R) using the modified prospective transition method which
requires the application of the accounting standard as of January 1, 2006. Our
condensed consolidated financial statements as of and for the first quarter of
2006 reflect the impact of adopting FAS 123(R). In accordance with the modified
prospective transition method, the condensed consolidated financial statements
for prior periods have not been restated to reflect, and do not include the
impact of FAS 123(R). See Note 10 "Common Stock and Stock Options" for further
details.

Stock-based compensation expense recognized during the period is based on the
value of the portion of stock-based payment awards that is ultimately expected
to vest. Stock-based compensation expense recognized in the condensed
consolidated statement of operations during the first quarter of 2006 included
compensation expense for stock-based payment awards granted prior to, but not
yet vested, as of December 31, 2005 based on the grant date fair value estimated
in accordance with the pro forma provisions of FAS 148.

The fair value of share-based payment awards is estimated at the grant date
using the Black-Scholes option valuation model. The Company's determination of
fair value of share-based payment awards on the date of grant using an
option-pricing model is affected by the Company's stock price as well as
assumptions regarding a number of highly complex and subjective variables. These
variables include, but are not limited to, the Company's expected stock price
volatility over the term of the awards, and actual and projected employee stock
option exercise behaviors.

Prior to fiscal 2006, the Company had used its historical stock price
volatility, in accordance with SFAS 123, for purposes of calculating its pro
forma information.

The risk-free interest rate assumption is based upon observed interest rates
appropriate for the expected life of the Company's employee stock options.

                                    Page 10
<PAGE>

The dividend yield assumption is based on the Company's history of not paying
dividends and the resultant future expectation of dividend payouts.

The expected life of employee stock options represents the weighted-average
period that the stock options are expected to remain outstanding and was
determined based on the contractual terms of the stock-based awards.

As the stock-based compensation expense recognized in the Condensed Consolidated
Statement of Operations for the first three months of 2006 is based on awards
ultimately expected to vest, such amount has been reduced for estimated
forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Forfeitures were estimated based on the Company's
historical experience.

Recently Issued Accounting Pronouncements:
-----------------------------------------
In February 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 155, "Accounting for Certain Hybrid Financial Instruments - an Amendment of
FASB Statements No. 133 and 140" ("SFAS No. 155"). SFAS No. 155 allows financial
instruments that contain an embedded derivative and that otherwise would require
bifurcation to be accounted for as a whole on a fair value basis, at the
holders' election. SFAS No. 155 also clarifies and amends certain other
provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all
financial instruments acquired or issued in fiscal years beginning after
September 15, 2006. We do not expect that the adoption of SFAS No. 155 will have
a material impact on our consolidated financial condition or results of
operations.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets - an Amendment of FASB Statement No. 140" ("SFAS No. 156").
SFAS No. 156 provides guidance on the accounting for servicing assets and
liabilities when an entity undertakes an obligation to service a financial asset
by entering into a servicing contract. This statement is effective for all
transactions in fiscal years beginning after September 15, 2006. We do not
expect that the adoption of SFAS No. 156 will have a material impact on our
consolidated financial condition or results of operations.

NOTE 5:  SEGMENT INFORMATION
----------------------------

During the first quarter of 2006, the Company operated in two reportable
segments: Craft and Textile. 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, 2005, which were included in the Company's most recent
Form 10-K. All revenues generated in the segments are external.

                                    Page 11
<PAGE>

The following table sets forth information regarding revenue and operating
income by reportable segment (dollars in thousands):

                                                   Three Months Ended
                                                       March 31,
                                            --------------------------------
                                                2006                2005
                                            ------------        ------------
    Revenue:
      Craft                                 $      5,821        $      4,511
      Textile                                      1,868               1,597
                                            ------------        ------------
                                            $      7,689        $      6,108
                                            ============        ============
    Operating income (loss):
      Craft                                 $        966        $        421
      Textile                                         15                (181)
                                            ------------        ------------
                                            $        981        $        240
    Corporate general and
      administrative expense                        (320)               (327)
    Interest expense, net                           (231)               (162)
    Dividends on mandatory
      redeemable preferred stock                     (68)                (68)
    Income tax benefit                                23                  93
                                            ------------        ------------
    Net income (loss)                       $        385        $       (224)
                                            ============        ============
    Depreciation and amortization:
      Craft                                 $         87        $         86
      Textile                                          4                   6
      Corporate                                       --                   4
                                            ------------        ------------
                                            $         91        $         96
                                            ============        ============
    Capital expenditures:
      Craft                                 $          4        $          2
                                            ============        ============


                                              March 31,         December 31,
                                                2006                2005
                                            ------------        ------------
    Total assets:
      Craft                                 $     15,713        $     14,478
      Textile                                        499               1,234
      Corporate                                      555                 357
                                            ------------        ------------
                                            $     16,767        $     16,069
                                            ============        ============


NOTE 6:  INVENTORIES

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

                                              March 31,         December 31,
                                                2006                2005
                                            ------------        ------------
    Raw materials                           $      3,161        $      4,245
    Work in progress                                 246                 245
    Finished goods                                 3,546               3,235
                                            ------------        ------------
                                            $      6,953        $      7,725
                                            ============        ============

                                    Page 12
<PAGE>

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

NOTE 7:  PROPERTY, PLANT AND EQUIPMENT
--------------------------------------

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

                                              March 31,         December 31,
                                                2006                2005
                                            ------------        ------------
    Land and improvements                   $         77        $         76
    Buildings and improvements                     2,472               2,466
    Machinery and equipment                        2,126               2,101
                                            ------------        ------------
                                                   4,675               4,643
    Less: Accumulated depreciation
       and amortization                           (2,650)             (2,576)
                                            ------------        ------------
                                            $      2,025        $      2,067
                                            ============        ============

Depreciation and amortization expense for the three months ended March 31, 2006
and 2005 were approximately $91,000 and $96,000, respectively.

NOTE 8:  SHORT TERM AND LONG TERM DEBT
--------------------------------------

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

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

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.4 million of which was outstanding at
March 31, 2006, (ii) revolving credit advances to the Company, $930,000 of which
was outstanding at March 31, 2006 and (iii) revolving credit advances to
Blumenthal based upon eligible accounts receivable and inventory, $4,525,000 of
which was outstanding at March 31, 2006, and a Letter of Credit facility with a
limit of $500,000, of which there was none outstanding at March 31, 2006. The
Term Loan amortizes $12,000 per month followed by a final installment payment of
$1.2 million due on January 1, 2008. The revolving credit advances are also due
on January 1, 2008. CIT may terminate the Credit facility upon 60 days written
notice. All amounts outstanding under the CIT Facility bear interest at the
Chase Bank N.A. prime rate (7.75% at March 31, 2006) 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. The
guarantees are full and unconditional. The non-guarantor subsidiary is
immaterial and the Company's financial statements are representative of the
combined guarantors of which the guarantor subsidiary is 100% owned. In
addition, Mr. Robert A. Levinson, a stockholder, officer and director of the
Company, provided certain collateral against advances provided under the CIT
Facility.

                                    Page 13
<PAGE>


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

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (7.75% at March 31, 2006). The Company pledged its
Textile segment's eligible accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of April 30, 2007, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBOR applicable
to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on the note at
March 31, 2006 was 5.22%. In addition, Robert A. Levinson, a stockholder,
officer and director of the Company, has provided certain additional collateral
guaranteeing the note.

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

Mr. Levinson has provided loans of $2,839,000 including accrued interest of
$489,000 to the Company as of March 31, 2006. During 2005, he made short term
advances of approximately $2.5 million of which $1.850 million was outstanding
at December 31, 2005 and March 31, 2006. Mr. Levinson has agreed not to seek
repayment of $1.0 million of these 2005 advances before January 1, 2008 and, as

                                    Page 14
<PAGE>

such, $1.0 million of these advances are classified as non-current on the
Company's March 31, 2006 and December 31, 2005 Condensed Consolidated Balance
Sheets. He has also pledged collateral in support of certain Company
obligations.

As of March 31, 2006, the Company was in compliance with all debt covenants, as
defined in the agreements.

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

                            2007           $     994
                            2008               6,252
                            Thereafter            --
                                           ---------
                                           $   7,246
                                           =========

NOTE 9:  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. The Company anticipates
quarterly contributions to this plan in 2006 of approximately $19,000 with an
additional $1.4 million due by September 15, 2007, based on current legislated
discount rates and actuarial assumptions.

In addition to the liability of $4.3 million for this Company sponsored plan,
the Company also has an additional pension liability in the amount of $1.0
million at March 31, 2006 in connection with a terminated multi-employer plan
which requires annual payments of $142,000 through 2016. In addition, the
Company has a $313,000 deferred compensation liability payable to the former
owner of an acquired business.

                                    Page 15
<PAGE>

A summary of net periodic benefit costs of the Company's defined benefit plan
and post retirement medical benefit plan for the three months ended March 31,
2006 and 2005, respectively, are as follows (dollars in thousands):


                                                  Three Months Ended
                                                       March 31,
                                            --------------------------------
    Pension Benefits                            2006                2005
    ----------------                        ------------        ------------
    Service                                 $         --        $         --
    Interest cost                                    297                 304
    Expected return on plan assets                  (334)               (342)
    Amortization of prior service cost                --                  --
    Recognized net actuarial loss                     45                  46
                                            ------------        ------------
    Net periodic benefit cost               $          8        $          8
                                            ============        ============


                                                  Three Months Ended
                                                       March 31,
                                            --------------------------------
    Other Benefits                              2006                2005
    ----------------                        ------------        ------------
    Service                                 $         --        $          4
    Interest cost                                     13                  14
    Expected return on plan assets                    --                  --
    Amortization of prior service cost                (4)                 (4)
    Recognized net actuarial (gain)                  (20)                (26)
                                            ------------        ------------
    Net periodic benefit (gain)             $        (11)       $        (12)
                                            ============        ============


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-K.

NOTE 10:  MANDATORILY REDEEMABLE PREFERRED STOCK
------------------------------------------------

Dividends on the Series A Preferred Stock accrue at an annual rate of 6%. The
availability of resources to make dividend payments to the holders of Series A
Preferred Stock in the future will depend on the Company's future earnings and
cash flow. Under Delaware law, preferred dividend payments are restricted to the
Company's accumulated or current earnings and profits. Losses in 2005 and
earlier years have depleted the Company's accumulated earnings and profits and,
as such, future preferred dividend payments will be limited to future earnings
and profits. Preferred dividends which cannot be paid under Delaware law will
continue to accrue and will be added to the Preferred Stock liability account.
In addition, under the terms of the CIT Facility, preferred stock redemption
payments are prohibited and preferred stock dividend payments are limited to
$300,000 per year. As of March 31, 2006, unpaid preferred stock dividends of
approximately $80,000 were included in Preferred Stock. The preferred stock is
owned 98.3% by Mr. Robert A. Levinson, a stockholder, officer and director of
the Company. The mandatorily redeemable preferred stock is redeemable at $1.00
per share plus accrued and unpaid dividends.

NOTE 11:  COMMON STOCK AND STOCK OPTIONS
----------------------------------------

We adopted FAS 123(R) using the modified prospective transition method beginning
January 1, 2006. Accordingly, during the three-month period ended March 31,
2006, we recorded stock-based compensation expense for awards granted prior to,

                                    Page 16
<PAGE>

but not yet vested, as of January 1, 2006, as if the fair value method required
for pro forma disclosure under FAS 123 were in effect for expense recognition
purposes, adjusted for estimated forfeitures. There were no stock-based awards
granted after January 1, 2006. However, for all future stock-based awards we
will recognize compensation expense based on the estimated grant date fair value
method using the Black-Scholes valuation model. For awards granted prior to, but
not yet vested, as of January 1, 2006, we have recognized compensation expense
using a straight-line amortization method. As FAS 123(R) requires that
stock-based compensation expense be based on awards that are ultimately expected
to vest, stock-based compensation for the three-month period ended March 31,
2006 has been reduced for estimated forfeitures. When estimating forfeitures, we
consider voluntary termination behaviors as well as trends of actual option
forfeitures. The impact on our results of operations of recording stock-based
compensation for the three-month period ended March 31, 2006 was an expense of
$27,000, which is included in general and administrative expense.

Prior to the adoption of FAS 123(R), the intrinsic value of unvested common
stock options assumed in the January 3, 2003 Carlyle acquisition were recorded
as unearned stock-based compensation. Upon the adoption of FAS 123(R) in January
2006, the unearned stock-based compensation balance of approximately $60,000 was
reclassified to additional-paid-in-capital.

Prior to the adoption of FAS No. 123(R), we provided the disclosures required
under FAS No. 123, as amended by FAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosures." Employee stock-based compensation
expense recognized under FAS 123(R) was not reflected in our results of
operations for the three-month period ended March 31, 2005 for employee stock
option awards as all options were granted with an exercise price equal to the
market value of the underlying common stock on the date of grant. Forfeitures of
awards were recognized as they occurred. Previously reported amounts have not
been restated.

The pro forma information for the three months ended March 31, 2005 was as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>

<S>                                                                            <C>
Net loss, as reported                                                          $       (224)
Add:     Amortization of stock-based compensation expense determined under
         the intrinsic value method (net of cancellations)                               --
Deduct:  Total stock-based compensation expense determined under fair value
         based method, net of tax                                                       (17)
                                                                               ------------
Pro forma net loss                                                             $       (241)
                                                                               ============

Earnings per share:
         Basic - Reported                                                      $       (.04)
              Pro forma                                                        $       (.05)
         Diluted - Reported                                                    $       (.04)
              Pro forma                                                        $       (.05)
</TABLE>


                                    Page 17
<PAGE>

The following table summarizes the stock option transactions for the three-month
periods ended March 31:
<TABLE>
<CAPTION>

                                                   2006                          2005
                                       ---------------------------   ---------------------------
                                                         Weighted                      Weighted
                                                         Average                       average
(In thousands except                                     exercise                      exercise
per share amounts)                       Options         price          Options        price
                                       ------------   ------------   ------------   ------------
<S>                                             <C>   <C>                     <C>   <C>
Options outstanding at January 1                411   $       2.79            445   $       2.70
Options granted                                  --             --             --             --
Options exercised                                --             --             --             --
Options forfeited/cancelled                      (5)         (1.10)            --
                                       ------------   ------------   ------------   ------------

Options outstanding at March 31                 406           2.81            445   $       2.70
                                       ============   ============   ------------   ------------

Exercisable at March 31                         326   $       2.93            292   $       2.87
                                       ============   ============   ============   ============
</TABLE>

During the three months ended March 31, 2005, the Company issued an aggregate of
2,317 shares of common stock to a director and recorded such issuance as stock
based compensation expense. There were no such issuances in 2006.

NOTE 12:  CUSTOMER AND SUPPLIER CONCENTRATIONS
----------------------------------------------

The Craft segment's three largest customers (Wal-mart, a mass merchandiser and
Jo-Ann Stores and Hancock Fabrics, each a specialty chain) represented
approximately 52%, 21% and 7%, respectively, in the three months ended March 31,
2006 and 48%, 15% and 10%, respectively, in the three months ended March 31,
2005, of the segment's net sales. These Craft segment customers also represented
approximately 67% and 80% of the total outstanding accounts receivable as of
March 31, 2006 and December 31, 2005, respectively. A reduction in sales to any
of these customers could adversely impact the financial condition and results of
operations of the Company.

The Textile segment's two largest customers, (Alfred Dunner, Inc. and Lana Winer
International) accounted for approximately 48% and 43%, respectively, during the
three months ended March 31, 2006 and 42% and 58%, respectively, during the
three months ended March 31, 2005, of the segment's net sales.

NOTE 13:  RELATED PARTY TRANSACTIONS
------------------------------------

Robert A. Levinson, a stockholder, officer and director, has outstanding loans
of $2,839,000 including accrued interest of $489,000 to the Company as of March
31, 2006. He has also pledged collateral in support of certain Company
obligations. See Note 8 for a description of these transactions.

In addition to being a director of the Company, Edward H. Cohen serves as
counsel to Katten Muchin Rosenman LLP, legal counsel to the Company. During the
three months ended March 31, 2006 and 2005, fees for services provided to the
Company by Katten Muchin Rosenman LLP totaled approximately $104,000 and

                                    Page 18
<PAGE>

$22,000, respectively. Mr. Cohen does not share in the fees that the Company
pays to such law firm and his compensation is not based on such fees.

NOTE 14:  COMMITMENTS AND CONTINGENCIES
---------------------------------------

Legal Proceedings. The Company is a party to various environmental claims, legal
proceedings and administrative actions, all arising from the ordinary course of
business. Although it is impossible to predict the outcome of any such claims or
legal proceedings, the Company believes any liability that may finally be
determined should not have a material effect on its consolidated financial
position, results of operations or cash flows.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Forward-Looking Statements

Introduction

This 2006 Report on Form 10-Q contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include statements regarding the intent and belief
or current expectations of the Company and its management team. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements. Such risks and uncertainties include, among other things, the
Company's ability to continue to operate as a going concern, the Company's
lenders continuing to support the Company, the Company's ability to secure
additional financing to meet future capital needs, the timing and amount of
required defined benefit plan contributions, the Company's ability to generate
increased revenues from its Craft division, reliance on short term advances from
a significant stockholder, the Company's ability to generate free cash flow or
obtain additional financing in excess of its debt service and other current
obligations in order to support and grow its Craft business, reliance on a
limited number of significant customers, future revenue opportunities, inventory
risk, growth of the Company's Craft business in Europe and North America, the
expansion and future growth of the Company's customer base and strategic and
distribution relationships, future capital, marketing and sales force needs, the
Company's ability to manage expenses and maintain margins, the possible
acquisition of complementary products and businesses, and other risks and
uncertainties that may be detailed herein, and from time-to-time, in the
Company's other reports filed with the Securities and Exchange Commission. The
Company undertakes no obligation to publicly update any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.

Overview

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

                                    Page 19
<PAGE>

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

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

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

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

On November 9, 2005, the Company's Board of Directors approved management's plan
to exit the garment manufacturing business lines of the Textile division.
Garment manufacturing represented 85%, 48% and 42% of the Textile segment's
revenue during the year ended December 31, 2005 and the quarters ended March 31,
2006 and 2005, respectively, and as a result, the Company's future revenue is
expected to be significantly lower. On May 11, 2006, the Company determined to
exit its remaining textile business completely. The decision to exit this
business was the result of operating losses incurred during 2005 resulting from
lower than planned business volume from our major customer and an inability to
attract additional customers. In addition, a decrease in margins due to an
increase in raw material costs, and the long production lead times and the
related working capital requirements of the business contributed to interest
costs that exceeded the segment's operating profits. The Company is in the
process of exiting the textile segment completely and is disposing of the
remaining inventory. The Company expects to cease all Textile segment activities
by June 30, 2006.

Management has determined that its disposal of the Textile segment business does
not meet the requirements of Financial Accounting Standards Board No. 144,
"Accounting for the Impairment or Disposal of Long-Termed Assets", for
classification as discontinued operations at March 31, 2006.

The results of operations of the Textile segment business which the Company is
exiting will not be reported as discontinued operations until the period in
which the related assets are abandoned, distributed or exchanged. At March 31,
2006, the assets and liabilities of the Textile segment continue to be

                                    Page 20
<PAGE>

classified as held for use and the results of operations for the three months
then ended are included in the results of continuing operations.

Management concluded that the carrying amounts of goodwill and trademarks
related to the Textile segment were deemed to be fully impaired as of September
30, 2005 and were written off accordingly at that time.

Craft Segment

The Craft segment sells product in the home sewing and craft retail industry.
Its retail customers are located primarily in the United States with some
additional distribution in Canada and Europe.

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

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

         o        acquiring new lines of business within the Craft industry
                  through acquisition.

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

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

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

                                    Page 21
<PAGE>

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

The Company believes that its craft business depends on trends within the craft
market including the more mature home-sewing market. The retail customer base
for buttons has changed substantially over the past two decades as department
stores and small independent fabric stores have been replaced by mass
merchandisers and specialty retail chains which have continued to consolidate.
In response to this trend, the Company has broadened its lines to include
embellishments, novelty buttons and products used in the craft industry which
are not viewed by management as mature markets. In addition, the Company has
sought to expand its markets beyond the traditional U.S. retail outlets by
expansion into the major European countries.

The Craft segment's three largest customers (Wal-Mart, a mass merchandiser and
Jo-Ann Stores and Hancock Fabrics, each a specialty chain) represented
approximately 52%, 21% and 7%, respectively, during the three months ended March
31, 2006, and 48%, 15% and 10%, respectively, during the three months ended
March 31, 2005, of the segment's net revenues. These Craft segment customers
also represented approximately 72% and 67% of the Craft segment's outstanding
accounts receivable as of March 31, 2006 and 2005, respectively.

A reduction in sales to any of the Craft segment's major customers could
adversely impact the financial condition and results of operations of the
Company.

Textile Segment

As described above, the Company experienced significant operating losses in the
Textile segment and is now in the process of exiting this business. The Company
presently intends to conclude Textile segment's operations by June 30, 2006.

Critical Accounting Policies and Estimates

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

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

                                    Page 22
<PAGE>

We consider our policies for revenue recognition to be critical due to the
continuously evolving standards and industry practice related to revenue
recognition, changes to which could materially impact the way we report
revenues. Accounting polices related to: allowance for doubtful accounts,
inventories, impairment of long-lived assets, deferred taxes, pension
liabilities and loss contingencies are also considered to be critical as these
policies involve considerable subjective judgment and estimation by management.
Critical accounting policies, and our procedures related to these policies, are
described in detail below. Also, see Note 4 -- Summary of Significant Accounting
Policies.

Allowance for Doubtful Accounts

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

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

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

Inventories

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

Impairment of Long-Lived Assets

The Company evaluates goodwill and indefinite lived intangible assets on an
annual basis and whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable. Long-lived assets, including
property and equipment, long-term assets and amortizable intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate

                                    Page 23
<PAGE>

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

Deferred Taxes

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

Pension Liabilities

The determination of pension obligations and the related pension expense or
credits to operations involves significant estimates. The most significant
estimates are the discount rate used to calculate the actuarial present value of
benefit obligations and the expected long-term rate of return on assets used in
calculating the pension charges or credits for the year. The Company uses
discount rates based on yields of highly rated fixed income debt securities at
the end of the year. At March 31, 2006, the weighted average discount rate for
the plan was 5.75%. The Company uses an expected long-term rate of return on
assets that is based on both past performance of the plan's assets and estimated
future performance of the assets. At March 31, 2006, the expected long-term rate
of return used was 8%. Due to the nature of the plan's assets and the volatility
of debt and equity markets, results may vary significantly from year to year.
Based on current estimates, the Company has an aggregate $5.3 million pension
obligation, $1.5 million of which is due by September 15, 2007. See note 9 to
the unaudited condensed Consolidated Financial Statements.

Loss Contingencies

There are times when non-recurring events occur that require management to
consider whether an accrual for a loss contingency is appropriate. Accruals for
loss contingencies typically relate to certain legal proceedings, customer and
other claims and litigation. As required by SFAS No. 5, if the assessment of a
contingency indicates that it is probable that a material loss has been incurred
and the amount of liability can be estimated, then the estimated liability would
be accrued in our financial statements. If the assessment indicates that a
potentially material loss contingency is not probable but is reasonably
possible, or is probable but cannot be estimated, then the nature of the

                                     Page 24
<PAGE>

contingent liability, together with an estimate of the range of possible loss if
determinable and material, is disclosed. We analyze our legal proceedings,
warranty and other claims and litigation based on available information to
assess potential liability. We develop our views on estimated losses in
consultation with outside counsel handling our defense in these matters, which
involves an analysis of potential results assuming a combination of litigation
and settlement strategies. As a result of the significant judgment required in
assessing and estimating loss contingencies, actual losses realized in future
periods could differ significantly from our estimates. The adverse resolution of
any one or more of these matters over and above the amounts that have been
estimated and accrued in the current consolidated financial statements could
have a material adverse effect on our business, results of operations and
financial condition.


Revenue Recognition

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

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

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


Results of Operations

Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005

Net sales for the three months ended March 31, 2006 totaled $7.7 million as
compared to $6.1 million during the three months ended March 31, 2005.

Net sales in the Craft segment totaled $5.8 million during the first quarter of
2006 and totaled $4.5 million during the first quarter of 2005. The increase in
first quarter sales in the Craft segment was primarily the result of the timing
of an annual modular changeover for a major customer. In 2005, the annual
modular changeover for this customer occurred during the third quarter. During
the first quarter of 2006, the Craft segment experienced a 16.4% increase in
unit volume and a 13.1% increase in unit price as compared to the first quarter
of 2005.

                                    Page 25
<PAGE>

Net sales in the Textile segment totaled $1.9 million during the three months
ended March 31, 2006 as compared to $1.6 million during the same period last
year. As previously disclosed, the Company is in the process of exiting the
Textile segment and as such, sales during the first quarter were primarily being
made for the purpose of maximizing the realization of remaining inventory. The
Company does not expect to have sales of any consequence in the Textile segment
once inventory has been depleted. The Company does not expect any further sales
in the division after the conclusion of the second quarter of 2006.

Gross profit during the first quarter 2006 totaled $2.4 million as compared to
$1.9 million during the first quarter of 2005.

Gross profit in the Craft segment totaled $2.2 million during the first quarter
of 2006 as compared to $1.6 million during the first quarter of 2005. The gross
margin percent in the Craft segment during the first quarter of 2006 was 38.4%
as compared to 36.2% during the first quarter of 2005. The increase in gross
profit dollars was the result of the increase in sales volume as discussed
above. The increase in the gross margin percent in 2006 over 2005 was primarily
the result of improved leverage of our fixed cost of sales during the first
quarter of 2006 as compared to the first quarter of 2005.

Gross profit in the Textile segment totaled $172,000 as compared to $252,000
during the first quarter of 2005. The gross margin percent in the Textile
segment was 9% during the first quarter of 2006 as compared to 15.8% during the
first quarter of 2005. The lower gross margin percent in 2006 was the result of
the Company's on-going disposition of the Textile segment inventory.

Selling, general and administrative expenses totaled $1.7 million during the
first quarter of 2006 as compared to $2.0 million during the first quarter of
2005. The reduction in selling, general and administrative expenses was the
result of lower spending in support of the Textile segment in 2006 as compared
to 2005 as the Company continues to wind down activities related to the segment
and consequently reduces headcount directly related to the Textile business.

Income before interest expense, preferred dividends and income taxes totaled
$661,000 during the first quarter of 2006 as compared to a loss of $87,000
during the first quarter of 2005. The increase in income before interest
expense, preferred dividends and income taxes was the result of the increased
gross profit combined with the reduced selling, general and administrative
expenses all as described above.

Net interest expense during the first quarter of 2006 totaled $231,000 as
compared to $162,000 during the first quarter of 2005. The increase in interest
expense during the first quarter of 2006 was the result of an increase in
average interest rates in effect during 2006. The weighted average interest rate
on debt outstanding during the first quarter of 2006 was 6.84% as compared to
4.79% during the first quarter of 2005. Also contributing to the increase in
interest expense in 2006 was an increase in outstanding debt. The average
outstanding debt during the first quarter of 2006 totaled $11.2 million as
compared to $10.8 million during the first quarter of 2005.

Preferred dividend expense totaled $68,000 during the first quarter of 2006 and
2005. The preferred dividends were accrued during the first quarter of 2006 but
were not paid in cash. In 2005, the preferred dividends were paid in cash.

                                    Page 26
<PAGE>

An income tax benefit of $23,000 was recorded during the first quarter of 2006
and was the result of a refund of state income taxes during the period. Because
of the Company's net operating loss carryforward, the company is not required to
record a provision for income taxes related to its pretax income except in
instances where minimum taxes are payable. An income tax benefit of $93,000 was
recorded during the first quarter of 2005 as a result of the pretax loss during
the quarter in 2005.


Liquidity and Capital Resources

The Company's principal sources of cash flow are from internally generated
funds, borrowings under revolving credit facilities, advances under its
factoring agreement and advances from Robert A. Levinson, a principal
stockholder, officer and director of the Company. The Company believes these
sources of cash will be sufficient to meet its liquidity needs for at least the
next 12 months. However, there can be no assurance that the Company will not
require additional financing, due to historical losses, debt service
requirements or other factors to meet its liquidity needs, including its
obligation to make a $1.4 million pension plan contribution by September 2007.
There can be no assurance the Company will be able to obtain such additional
financing if needed, in which case the Company's operations would be materially
adversely affected and it could be forced to cease operations.

At March 31, 2006, the Company's principal sources of liquidity included cash of
$79,000 and trade accounts receivable of $4.1 million. There was no borrowing
capacity available under the Company's credit facility with CIT as of March 31,
2006. There was an additional $1 million of borrowing available from Mr.
Levinson who has agreed to fund up to $3 million of temporary advances to the
Company.

Following is a summary of our cash flow activities for the quarter ended March
31, 2006 as compared to 2005.

Cash Flow Summary:
(in thousands)
                                               2006           2005
                                            ----------     ----------
    Net cash (used in) provided by:
         Operating activities               $     (889)    $     (803)
         Investing activities                      (13)           (22)
         Financing activities                      931            845
                                            ----------     ----------
         Net increase in cash               $       29     $       20
                                            ==========     ==========

Losses sustained in 2005 and in prior years have materially adversely affected
the Company's long-term liquidity. The Company has limited availability under
its existing credit facilities, and there can be no assurance the Company will
not require additional financing to support its operations, that the Company
will be able to obtain any needed additional financing, or that it can obtain
additional financing on favorable terms. Robert A. Levinson, the Company's
Chairman and principal stockholder, has agreed to continue to personally support
the Company's cash requirements through January 1, 2008 by providing short-term
loans to the Company up to a maximum of $3 million. There is currently $1
million of borrowing available from Mr. Levinson under this agreement. If we (1)

                                    Page 27
<PAGE>

do not substantially achieve our overall projected revenue levels for 2006, (2)
fail to operate within our projected expense levels as reflected in our business
operating plans, or (3) do not receive the ongoing support of our lenders, then
we will be unable to meet our cash and operating requirements for the next
twelve months, which would in turn require us to seek additional financing to
fund operations and/or implement additional expense reductions. Levcor has
implemented several actions to reduce losses and improve cash flow, including
exiting the textile business, reduction of headcount, elimination of
non-profitable product lines and reductions in other general and administrative
costs. However, there can be no assurance that Mr. Levinson will continue to
personally support the Company's cash requirements, that such support from Mr.
Levinson, together with the support of the Company's commercial lenders, will be
sufficient to address the Company's liquidity needs and cash requirements or
that the actions taken by management will be sufficient to allow the Company to
generate net income from continuing operations.

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

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

Net cash flow used in operating activities totaled $889,000 during the three
months ended March 31, 2006, as compared to $803,000 net cash flow used in
operating activities during the same period last year resulting in a net
increase in cash flow used in operating activities totaling $86,000.

For the quarter ended March 31, 2006, the components of net cash used in
operating activities were $538,000 of cash provided by net income adjusted for
noncash items, primarily depreciation, noncash stock based compensation and
accrued interest on stockholder loan, offset by $1.4 million of cash used by
operating assets and liabilities.

For the quarter ended March 31, 2005, the components of net cash used in
operating activities were $189,000 of cash used by the net loss adjusted for
noncash items, primarily depreciation and deferred income taxes and $614,000 of
cash used by operating assets and liabilities.

Major components of the changes in operating assets and liabilities in 2006 as
compared to 2005 were accounts receivable, inventories and accounts payable.

                                    Page 28
<PAGE>

Changes in accounts receivable used $1.3 million of cash flow in 2006 as
compared to providing $203,000 of cash flow in 2005. The primary reason for the
decrease in cash flow from accounts receivable was the $1.6 million increase in
sales during the first quarter of 2006 as compared to the first quarter of 2005.

Changes in inventories provided $748,000 in cash flow in 2006 and used $825,000
of cash flow in 2005. The favorable comparison was driven primarily by a
$978,000 inventory decrease in the Textile segment in 2006 as compared to an
increase in Textile inventory in the first quarter of 2005 in the amount of
$435,000.

Changes in accounts payable utilized $524,000 of cash flow in 2006 as compared
to providing $747,000 of cash flow in the first quarter of 2005. The reduction
in accounts payable in 2006 was directly related to the inventory reduction in
the Textile segment as discussed above.

Net cash flow used in investing activities totaled $13,000 during the quarter
ended March 31, 2006, as compared to $22,000 during the quarter ended March 31,
2005. This decrease was primarily a result of lower capital expenditures in the
Craft segment during the first quarter of 2006.

Net cash provided by financing activities totaled $931,000 during the quarter
ended March 31, 2006, as compared to $845,000 during the same period last year.
The increase in cash provided by financing activities was the result of
increased borrowing needs due to the higher amounts of cash used in operating
and investing activities.

Included in net cash provided by financing activities was net proceeds from
stockholder loans of $1.4 million during the first quarter of 2005. There were
no such proceeds during the first quarter of 2006. The decrease in stockholder
borrowings was primarily the result of the decrease in funding of the operating
activities of the Textile segment in 2006 as compared to 2005, which activities
were not eligible for funding under our line of credit with CIT to the extent
such activities relate to off-shore inventory and in transit shipments. In 2006
those activities produced positive cash flow as the result of the winding down
of the textile business and, consequently, additional stockholder borrowings
were not required.

Total borrowings during the first quarter of 2006 and 2005 under the CIT
revolving credit facility were $5.9 million and $4.8 million respectively; total
repayments during the first quarter of 2006 and 2005 under this facility were
$4.5 million and $4.6 million, respectively. Repayments under the Company's term
loan totaled $36,000 during the first quarter of 2006 and 2005. Net amount
repaid to factor during the quarters ended March 31, 2006 and 2005 totaled
$429,000 and $701,000 respectively.

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

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

                                    Page 29
<PAGE>

Blumenthal Lansing Company, LLC ("Blumenthal"). There was no unused availability
under the Company's credit facility with CIT as of March 31, 2006.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.4 million of which was outstanding at
March 31, 2006, (ii) revolving credit advances to the Company, $930,000 of which
was outstanding at March 31, 2006 and (iii) revolving credit advances to
Blumenthal based upon eligible accounts receivable and inventory, $4,525,000 of
which was outstanding at March 31, 2006, and a Letter of Credit facility with a
limit of $500,000, of which there was none outstanding at March 31, 2006. The
Term Loan amortizes $12,000 per month followed by a final installment payment of
$1.2 million due on January 1, 2008. The revolving credit advances are also due
on January 1, 2008. CIT may terminate the Credit facility upon 60 days written
notice. All amounts outstanding under the CIT Facility bear interest at the
Chase Bank N.A. prime rate (7.75% at March 31, 2006) 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. The
guarantees are full and unconditional. The non-guarantor subsidiary is
immaterial and the Company's financial statements are representative of the
combined guarantors of which the guarantor subsidiary is 100% owned. In
addition, Mr. Robert A. Levinson, a stockholder, officer and director of the
Company, provided certain collateral against advances provided under the CIT
Facility.

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

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (7.75% at March 31, 2006). The Company pledged its
Textile segment's eligible accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.

                                    Page 30
<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 April 30, 2007, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBOR applicable
to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on the note at
March 31, 2006 was 5.22%. In addition, Robert A. Levinson, a stockholder,
officer and director of the Company, has provided certain additional collateral
guaranteeing the note.

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

Mr. Levinson has provided loans of $2,839,000 including accrued interest of
$489,000 to the Company as of March 31, 2006. During 2005, he made short term
advances of approximately $2.5 million of which $1.850 million was outstanding
at December 31, 2005 and March 31, 2006. Mr. Levinson has agreed not to seek
repayment of $1.0 million of these 2005 advances before January 1, 2008 and, as
such, $1.0 million of these advances are classified as non-current on the
Company's March 31, 2006 and December 31, 2005 Condensed Consolidated Balance
Sheets. He has also pledged collateral in support of certain Company
obligations.

As of March 31, 2006, the Company was in compliance with all debt covenants, as
defined in the agreements.

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

                  2007            $    994
                  2008               6,252
                  Thereafter            --
                                  --------
                                  $  7,246
                                  ========

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

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

                                    Page 31
<PAGE>

Company's accumulated or current earnings and profits. Losses in 2005 and
earlier years have depleted the Company's accumulated earnings and profits and,
as such, future preferred dividend payments will be limited to future earnings
and profits. In this regard, the Company was unable to pay the March 15, 2006
Preferred Stock dividend. Preferred dividends which cannot be paid under
Delaware law will continue to accrue and will be added to the Preferred Stock
liability account. As of March 31, 2006, unpaid preferred dividends of
approximately $80,000 were included in Preferred Stock.

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.

Seasonality and New Product Lines

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

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

Significant  Accounting Policy Updates

Stock-Based Compensation Plans:
------------------------------
On January 1, 2006, we adopted Financial Accounting Standards No. 123 (revised
2004), "Share-Based Payment" ("FAS 123(R)"), that addresses the accounting for
share-based payment transactions in which an enterprise receives employee
services in exchange for either equity instruments of the enterprise or
liabilities that are based on the fair value of the enterprise's equity
instruments or that may be settled by the issuance of such equity instruments.
The statement eliminates the ability to account for share-based compensation
transactions, as we formerly did, using the intrinsic value method as prescribed
by Accounting Principles Board, or APB, Opinion No. 25, "Accounting for Stock
Issued to Employees," and generally requires that such transactions be accounted
for using a fair-value-based method and recognized as expenses in our condensed
consolidated statement of operations.

                                    Page 32
<PAGE>

We adopted FAS 123(R) using the modified prospective transition method which
requires the application of the accounting standard as of January 1, 2006. Our
condensed consolidated financial statements as of and for the first quarter of
2006 reflect the impact of adopting FAS 123(R). In accordance with the modified
prospective transition method, the condensed consolidated financial statements
for prior periods have not been restated to reflect, and do not include the
impact of FAS 123(R). See Note 11 "Common Stock and Stock Options" for further
details.

Stock-based compensation expense recognized during the period is based on the
value of the portion of stock-based payment awards that is ultimately expected
to vest. Stock-based compensation expense recognized in the condensed
consolidated statement of operations during the first quarter of 2006 included
compensation expense for stock-based payment awards granted prior to, but not
yet vested, as of December 31, 2005 based on the grant date fair value estimated
in accordance with the pro forma provisions of FAS 148.

The fair value of share-based payment awards is estimated at the grant date
using the Black-Scholes option valuation model. The Company's determination of
fair value of share-based payment awards on the date of grant using an
option-pricing model is affected by the Company's stock price as well as
assumptions regarding a number of highly complex and subjective variables. These
variables include, but are not limited to, the Company's expected stock price
volatility over the term of the awards, and actual and projected employee stock
option exercise behaviors.

Prior to fiscal 2006, the Company had used its historical stock price
volatility, in accordance with SFAS 123, for purposes of calculating its pro
forma information.

The risk-free interest rate assumption is based upon observed interest rates
appropriate for the expected life of the Company's employee stock options.

The dividend yield assumption is based on the Company's history of not paying
dividends and the resultant future expectation of dividend payouts.

The expected life of employee stock options represents the weighted-average
period that the stock options are expected to remain outstanding and was
determined based on the contractual terms of the stock-based awards.

As the stock-based compensation expense recognized in the Condensed Consolidated
Statement of Operations for the first three months of 2006 is based on awards
ultimately expected to vest, such amount has been reduced for estimated
forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Forfeitures were estimated based on the Company's
historical experience.

                                    Page 33
<PAGE>

Recently Issued Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 155, "Accounting for Certain Hybrid Financial Instruments - an Amendment of
FASB Statements No. 133 and 140" ("SFAS No. 155"). SFAS No. 155 allows financial
instruments that contain an embedded derivative and that otherwise would require
bifurcation to be accounted for as a whole on a fair value basis, at the
holders' election. SFAS No. 155 also clarifies and amends certain other
provisions of SFAS No. 133 and SFAS No. 140. This statement is effective for all
financial instruments acquired or issued in fiscal years beginning after
September 15, 2006. We do not expect that the adoption of SFAS No. 155 will have
a material impact on our consolidated financial condition or results of
operations.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets - an Amendment of FASB Statement No. 140" ("SFAS No. 156").
SFAS No. 156 provides guidance on the accounting for servicing assets and
liabilities when an entity undertakes an obligation to service a financial asset
by entering into a servicing contract. This statement is effective for all
transactions in fiscal years beginning after September 15, 2006. We do not
expect that the adoption of SFAS No. 156 will have a material impact on our
consolidated financial condition or results of operations.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risk

Our short term and long-term third party debt bears interest at floating rates,
and accordingly we are sensitive to changes in prevailing interest rates. At
March 31, 2006, our indebtedness with CIT was at a 8.25% interest rate (based on
the Chase Bank N.A. prime rate plus .5%), and our factoring arrangement with CIT
was also at 8.25% (based on CIT's prime rate plus .5%), our indebtedness with JP
Morgan Chase was at a 5.22% interest rate (based on adjusted LIBOR plus .75%).
Our shareholder loan interest is not variable and bore a 6% interest rate. A 1%
increase or decrease in market interest rates that affect our borrowing
arrangements would have a material impact on earnings and cash flow of
approximately $85,000 during the next fiscal year.

                                    Page 34
<PAGE>

Foreign Currency Exchange Rates

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

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

Customer Concentration

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

ITEM 4.  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.

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

                                    Page 35
<PAGE>

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 first quarter of the fiscal year ended December 31, 2006
that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting.


                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

Legal Proceedings. The Company is a party to various environmental claims, legal
proceedings and administrative actions, all arising from the ordinary course of
business. Although it is impossible to predict the outcome of any such claims or
legal proceedings, the Company believes any liability that may finally be
determined should not have a material effect on its consolidated financial
position, results of operations or cash flows.

ITEM 1A  RISK FACTORS

There have been no material changes to our risk factors from those presented in
our 2005 Form 10-K. Those risk factors are provided below for your convenience.

Going Concern

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

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

                                    Page 36
<PAGE>

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

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

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

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

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

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

                                    Page 37
<PAGE>

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

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

Pension Funding

The Company's projected benefit obligation with its defined benefit plan at
March 31, 2006 was $21.5 million. The Plan's portfolio of investments totaled
$18.5 million at March 31, 2006. The current actuarial estimate is that a
contribution with respect to the 2006 Plan Year in the approximate amount of
$1.5 million will be required by September 15, 2007. The Company is
investigating available alternatives to making such contributions. There can be
no assurance that the Company will not be required to obtain additional
financing to allow it to make these contributions. There can be no assurance the
Company will be able to obtain such additional financing.

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

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

         o        the volume and timing of customer orders received;

         o        the timing and magnitude of customers' marketing campaigns;

         o        the loss or addition of a major customer;

         o        the availability and pricing of materials for our products;

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

         o        currency fluctuations;

         o        delays caused by third parties; and

         o        changes in our product mix.

                                    Page 38
<PAGE>

The Company's Business Is Extremely Competitive.

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

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

The Company's customer base has been and continues to be highly concentrated.
The Textile division's two largest customers (Alfred Dunner, Inc. and Lana Winer
International) accounted for approximately 48% and 43%, respectively, during the
first quarter of 2006 and 42% and 58%, respectively, during the first quarter of
2005. The Textile division accounted for 24% and 26% of the Company's total
sales during the first quarter of 2006 and 2005, respectively. The Company is in
the process of exiting the Textile business.

The Craft division's largest three customers (Wal-Mart, a mass merchandiser and
Jo-Ann Stores and Hancock Fabrics, each a specialty chain,) represented
approximately 52%, 21% and 7%, respectively, during the first quarter of 2006
and 48%, 15% and 10%, respectively, during the first quarter of 2005 of the
division's net revenues. These customers also represented approximately 72% and
67% of the Craft division's outstanding accounts receivable as of March 31, 2006
and 2005, respectively.

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

                                    Page 39
<PAGE>

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

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

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

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

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

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

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

                                    Page 40
<PAGE>

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

As required by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules
requiring public companies to include a report of management on the company's
internal control over financial reporting in their annual reports on Form 10-K
or 10-KSB that contains an assessment by management of the effectiveness of the
Company's internal control over financial reporting. In addition, the public
accounting firm auditing a company's financial statements must attest to and
report on both management's assessment as to whether the company maintained
effective internal control over financial reporting and on the effectiveness of
the company's internal control over financial reporting.

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

The Company Is Impacted By Environmental Laws And Regulations.

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

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

The Company's Series A preferred stock is subject to mandatory redemption, in
three equal annual installments on June 15, 2007, June 15, 2008 and June 15,
2009, at a price per share of Series A preferred stock equal to $1 per share,
together with an amount representing accrued and unpaid dividends, whether or
not declared, to the date of redemption. This represents a significant future
liability of the Company. There can be no assurance that the Company's business
will generate sufficient cash flow from operations or that future borrowings
will be available in sufficient amounts to enable the Company to redeem the
Series A preferred stock when required to do so. In the event that the Company

                                    Page 41
<PAGE>

fails to redeem the Series A preferred stock on any of the mandatory redemption
dates, the Series A preferred stockholders will be entitled to receive
cumulative cash dividends, and no distribution or dividend in cash, shares of
capital stock or other property will be paid or declared on the common stock.
Similarly, if the redemption on the Series A preferred is not met, and should
the Company liquidate or dissolve, no payment of any kind may be made to the
common stockholders without first satisfying the accrued cash dividends owed to
the Series A preferred stockholders. In addition, Series A preferred stock
redemption payments are currently restricted under the Company's financing
arrangements with its lenders.

ITEM 5.  OTHER INFORMATION; COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

On May 11, 2006, Management determined to exit its remaining Textile business
completely. The Company intends to continue to sell off its inventories
associated with the contract garment manufacturing business and remaining
textile business and anticipates that its exit from the textile segment will be
substantially completed by June 30, 2006. The company intends to focus its
efforts and resources on its Craft Segment.

The decision to exit this business was made after a full review and analysis of
this business and the Company's strategic alternatives. The decision was based
on a variety of factors, including, (i) that the Company's contract garment
manufacturing and other textile business has incurred operating losses resulting
from lower than planned business volume from our major customers and has been
unable to grow its customer base, (ii) that the business has incurred sales
decreases (iii) a decrease in margins due to an increase in raw material costs
that were unable to be passed to customers, and (iv) the long production lead
times and the related working capital requirements of the business which
contributed to interest costs that exceeded the segment's operating profits. At
this time, the Company believes that the future net revenues and gross profits
in the Textile business would continue to deteriorate, and the Company concluded
that a withdrawal from the business was the appropriate course of action at this
time.

As a result of exiting this business, the Company's revenue in 2006 is expected
to be significantly lower than in 2005. The Company estimates exit costs
associated with exiting the garment manufacturing and remaining textile business
not to be material.

                                    Page 42
<PAGE>

ITEM 6.  EXHIBITS

(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 43
<PAGE>

                                   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: May 12, 2006                   /s/ ROBERT A. LEVINSON
      ------------                   -------------------------------------------
                                     Robert A. Levinson
                                     Chairman of the Board, President and Chief
                                     Executive Officer


Date: May 12, 2006                   /s/ EDWARD F. COOKE
     -------------                   -------------------------------------------
                                     Edward F. Cooke
                                     Chief Financial Officer, Vice President,
                                     Secretary and Treasurer


                                    Page 44
<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 45