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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

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FORM 10-Q


xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March
31, 2008 ORo
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.)

|                                           |  |             
|------------------------------------------ |  | ------------
|110 West 40th Street, New York, New York   |  | 10018       
|                                           |  |             
|(Address
  of Principal Executive Offices) |  | (Zip
  Code)

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

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 x No o

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

|                                                                        |                            
|----------------------------------------------------------------------- | ---------------------------
|Large accelerated filer o                                               | Accelerated filer o        
|                                                                        |                            
|Non-accelerated filer o (Do not check if a smaller reporting
  company) | Smaller reporting company x

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

As of May 14, 2008,
5,331,881 shares of Common Stock, par value $0.01 per share, were issued and
outstanding.

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LEVCOR INTERNATIONAL, INC.

INDEX

|         |                                                                                                                              |  |      | 
|-------- | ---------------------------------------------------------------------------------------------------------------------------- |  | ---- | 
|         |                                                                                                                              |  | Page
|         |                                                                                                                              |  |     
|PART I.  | FINANCIAL INFORMATION                                                                                                        |  |      | 
|         |                                                                                                                              |  |      | 
|Item 1.  | Financial Statements                                                                                                         |  |      | 
|         |                                                                                                                              |  |      | 
|         | Condensed Consolidated Balance Sheets as of
  March 31, 2008 (Unaudited) and December 31, 2007                               |  | 1    | 
|         |                                                                                                                              |  |      | 
|         | Condensed Consolidated Statements of Income
  (Unaudited) for the three months ended March 31, 2008 and 2007                 |  | 2    | 
|         |                                                                                                                              |  |      | 
|         | Condensed Consolidated Statements of
  Comprehensive Income (Unaudited) for the three months ended March 31, 2008
  and 2007 |  | 3    | 
|         |                                                                                                                              |  |      | 
|         | Condensed Consolidated Statements of Cash
  Flows (Unaudited) for the three months ended March 31, 2008 and 2007             |  | 4    | 
|         |                                                                                                                              |  |      | 
|         | Notes to Condensed Consolidated Financial
  Statements (Unaudited)                                                           |  | 5    | 
|         |                                                                                                                              |  |      | 
|Item 2.  | Managements Discussion and Analysis of
  Financial Condition and Results of Operations                                      |  | 16   | 
|         |                                                                                                                              |  |      | 
|Item 3.  | Quantitative and Qualitative Disclosures
  About Market Risk                                                                 |  | 26   | 
|         |                                                                                                                              |  |      | 
|Item 4T. | Controls and Procedures                                                                                                      |  | 27   | 
|         |                                                                                                                              |  |      | 
|PART II. | OTHER INFORMATION                                                                                                            |  |      | 
|         |                                                                                                                              |  |      | 
|Item 1.  | Legal Proceedings                                                                                                            |  | 28   | 
|         |                                                                                                                              |  |      | 
|Item 1A. | Risk Factors                                                                                                                 |  | 28   | 
|         |                                                                                                                              |  |      | 
|Item 2.  | Unregistered Sales of Equity Securities
  and the Use of Proceeds                                                            |  | 29   | 
|         |                                                                                                                              |  |      | 
|Item 3.  | Defaults Upon Senior Securities                                                                                              |  | 29   | 
|         |                                                                                                                              |  |      | 
|Item 4.  | Submission of Matters to a Vote of Security
  Holders                                                                        |  | 29   | 
|         |                                                                                                                              |  |      | 
|Item 5.  | Other Information                                                                                                            |  | 29   | 
|         |                                                                                                                              |  |      | 
|Item 6.  | Exhibits                                                                                                                     |  | 29   | 
|         |                                                                                                                              |  |      | 
|         | Signatures                                                                                                                   |  | 30   | 

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PART I.
FINANCIAL INFORMATION

|        |                     
|------- | --------------------
|ITEM 1. | FINANCIAL STATEMENTS

LEVCOR INTERNATIONAL, INC.
AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts)

|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | ------- | -
|                                                                                                                                                                                                   |  | March 31, 2008 |         | December 31, 2007 |  
|                                                                                                                                                                                                   |  |                |         |                   |  
|                                                                                                                                                                                                   |  | (Unaudited)    |         |                   |  
|                                                                                                                                                                                                   |  |                |         |                   |  
|ASSETS                                                                                                                                                                                             |  |                |         |                   |  
|Current
  Assets:                                                                                                                                                                                  |  |                |         |                   |   |         |  
|Cash                                                                                                                                                                                               |  | $              | 87      |                   | $ | 46      |  
|Accounts receivable trade, net                                                                                                                                                                     |  |                | 2,804   |                   |   | 2,383   |  
|Inventories, net                                                                                                                                                                                   |  |                | 5,085   |                   |   | 4,715   |  
|Other current assets                                                                                                                                                                               |  |                | 157     |                   |   | 139     |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Total current assets                                                                                                                                                                               |  |                | 8,133   |                   |   | 7,283   |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Property,
  Plant and Equipment, net                                                                                                                                                               |  |                | 1,708   |                   |   | 1,720   |  
|Goodwill                                                                                                                                                                                           |  |                | 2,543   |                   |   | 2,543   |  
|Other
  assets                                                                                                                                                                                     |  |                | 405     |                   |   | 378     |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Total Assets                                                                                                                                                                                       |  | $              | 12,789  |                   | $ | 11,924  |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                              |  |                |         |                   |   |         |  
|Current
  Liabilities:                                                                                                                                                                             |  |                |         |                   |   |         |  
|Revolving loan and current maturities of
long-term debt                                                                                                                                            |  | $              | 9,324   |                   | $ | 4,721   |  
|Stockholder loans                                                                                                                                                                                  |  |                | 350     |                   |   |        |  
|Accrued interest, stockholder loans                                                                                                                                                                |  |                | 644     |                   |   |        |  
|Accounts payable                                                                                                                                                                                   |  |                | 1,477   |                   |   | 1,346   |  
|Pension liabilities, current portion                                                                                                                                                               |  |                | 305     |                   |   | 273     |  
|Other current liabilities                                                                                                                                                                          |  |                | 611     |                   |   | 544     |  
|Mandatorily Redeemable Preferred Stock, par
value $0.01 per share
  8,000,000 shares authorized: Shares issued and outstanding: Series A 
  3,036,671 as of March 31, 2008                        |  |                | 3,037   |                   |   |        |  
|Accumulated dividends on Mandatorily Redeemable
Stock                                                                                                                                              |  |                | 666     |                   |   |        |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Total current liabilities                                                                                                                                                                          |  |                | 16,414  |                   |   | 6,884   |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Long-term
  debt, less current maturities                                                                                                                                                          |  |                |        |                   |   | 4,211   |  
|Stockholder
  loans                                                                                                                                                                                |  |                |        |                   |   | 350     |  
|Accrued
  interest, stockholder loans                                                                                                                                                              |  |                |        |                   |   | 639     |  
|Pension
  liabilities, less current portion                                                                                                                                                        |  |                | 1,514   |                   |   | 1,647   |  
|Environmental
  liabilities                                                                                                                                                                        |  |                | 1,287   |                   |   | 1,287   |  
|Mandatorily
  Redeemable Preferred Stock, par value $0.01 per share Shares issued and
  outstanding: Series A  1,518,336 and 4,555,007 as of March 31, 2008 and
  December 31, 2007, respectively |  |                | 1,518   |                   |   | 4,555   |  
|Accumulated
  dividends on Mandatorily Redeemable Stock                                                                                                                                            |  |                |        |                   |   | 587     |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Total Liabilities                                                                                                                                                                                  |  |                | 20,733  |                   |   | 20,160  |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Commitments
  and contingencies                                                                                                                                                                    |  |                |         |                   |   |         |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Stockholders
  Deficit:                                                                                                                                                                           |  |                |         |                   |   |         |  
|Common
  Stock, par value $0.01 per share 15,000,000 shares authorized; Shares issued
  and outstanding: 5,331,881 as of March 31, 2008 and December 31, 2007                                      |  |                | 54      |                   |   | 54      |  
|Additional
  paid-in capital                                                                                                                                                                       |  |                | 33,235  |                   |   | 33,235  |  
|Accumulated
  Deficit                                                                                                                                                                              |  |                | (39,889 | )                 |   | (40,088 | )
|Accumulated
  Other Comprehensive Loss                                                                                                                                                             |  |                | (1,344  | )                 |   | (1,437  | )
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Total
  Stockholders Deficit                                                                                                                                                                      |  |                | (7,944  | )                 |   | (8,236  | )
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  
|Total
  Liabilities and Stockholders Deficit                                                                                                                                                      |  | $              | 12,789  |                   | $ | 11,924  |  
|                                                                                                                                                                                                   |  |                |         |                   |   |         |  

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

Page 1

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LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share data)

|                                                                                                                           |  |                    |       |      |   |       |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | ---- | - | ----- | -
|                                                                                                                           |  | Three Months Ended |      
|                                                                                                                           |  | March 31,          |      
|                                                                                                                           |  |                    |      
|                                                                                                                           |  | 2008               |       | 2007 |  
|                                                                                                                           |  |                    |       |      |  
|                                                                                                                           |  |                    |       |      |   |       |  
|Net
  sales                                                                                                                |  | $                  | 4,634 |      | $ | 5,265 |  
|Cost
  of sales                                                                                                            |  |                    | 3,030 |      |   | 3,484 |  
|                                                                                                                           |  |                    |       |      |   |       |  
|Gross
  profit                                                                                                             |  |                    | 1,604 |      |   | 1,781 |  
|Selling,
  general and administrative expenses                                                                             |  |                    | 1,153 |      |   | 1,401 |  
|                                                                                                                           |  |                    |       |      |   |       |  
|Income
  from continuing operations before interest, preferred dividends, income
  tax expense and discontinued operations |  |                    | 451   |      |   | 380   |  
|Interest
  expense                                                                                                         |  |                    | 171   |      |   | 204   |  
|Dividends
  on mandatorily redeemable preferred stock                                                                      |  |                    | 79    |      |   | 68    |  
|                                                                                                                           |  |                    |       |      |   |       |  
|Income
  from continuing operations before income tax expense and discontinued
  operations                                |  |                    | 201   |      |   | 108   |  
|Income
  tax expense                                                                                                       |  |                    | 2     |      |   |      |  
|                                                                                                                           |  |                    |       |      |   |       |  
|Net
  income from continuing operations                                                                                    |  |                    | 199   |      |   | 108   |  
|Income
  from discontinued operations, net of tax                                                                          |  |                    |      |      |   | 14    |  
|                                                                                                                           |  |                    |       |      |   |       |  
|Net
  income                                                                                                               |  | $                  | 199   |      | $ | 122   |  
|                                                                                                                           |  |                    |       |      |   |       |  
|Income
  per share:                                                                                                        |  |                    |       |      |   |       |  
|Basic and Diluted:                                                                                                         |  |                    |       |      |   |       |  
|Income from continuing operations                                                                                          |  | $                  | .04   |      | $ | .02   |  
|Income from discontinued operations                                                                                        |  |                    |       | *    |   |       | *
|                                                                                                                           |  |                    |       |      |   |       |  
|Net income                                                                                                                 |  | $                  | .04   |      | $ | .02   |  
|                                                                                                                           |  |                    |       |      |   |       |  
|                                                                                                                           |  |                    |       |      |   |       |  
|Weighted
  average common shares outstanding  basic and diluted                                                           |  |                    | 5,332 |      |   | 5,332 |  
|                                                                                                                           |  |                    |       |      |   |       |  
|* Less than $.005                                                                                                         

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

Page 2

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LEVCOR INTERNATIONAL, INC.
AND SUBSIDIARIESCONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)(In thousands)

|                                        |  |                    |     |      |   |     |  
|--------------------------------------- |  | ------------------ | --- | ---- | - | --- | -
|                                        |  | Three Months Ended |    
|                                        |  | March 31,          |    
|                                        |  |                    |    
|                                        |  | 2008               |     | 2007 |  
|                                        |  |                    |     |      |  
|                                        |  |                    |     |      |   |     |  
|Net income                              |  | $                  | 199 |      | $ | 122 |  
|Other comprehensive income
  (loss):    |  |                    |     |      |   |     |  
|Foreign currency translation
adjustment |  |                    | 93  |      |   | (6  | )
|                                        |  |                    |     |      |   |     |  
|                                        |  |                    |     |      |   |     |  
|Comprehensive income                    |  | $                  | 292 |      | $ | 116 |  
|                                        |  |                    |     |      |   |     |  

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

Page 3

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LEVCOR
INTERNATIONAL, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)(In thousands)

|                                                                            |  |                              |        |      |   |        |  
|--------------------------------------------------------------------------- |  | ---------------------------- | ------ | ---- | - | ------ | -
|                                                                            |  | Three Months Ended March 31, |       
|                                                                            |  |                              |       
|                                                                            |  | 2008                         |        | 2007 |  
|                                                                            |  |                              |        |      |  
|Cash Flows From Operating
Activities:                                       |  |                              |        |      |   |        |  
|Net income                                                                  |  | $                            | 199    |      | $ | 122    |  
|Reconciliation of net income to net
cash provided by (used in)
 operations: |  |                              |        |      |   |        |  
|Depreciation
 and amortization                                              |  |                              | 98     |      |   | 97     |  
|Non-cash
 stock-based compensation                                          |  |                              |       |      |   | 1      |  
|Accrued
 interest on stockholder loans                                      |  |                              | 5      |      |   | 11     |  
|Accrued
 dividends on mandatorily redeemable preferred stock                |  |                              | 79     |      |   | 68     |  
|Changes
 in operating assets and liabilities:                               |  |                              |        |      |   |        |  
|Accounts
 receivable trade, net                                             |  |                              | (421   | )    |   | (178   | )
|Inventories,
 net                                                           |  |                              | (311   | )    |   | 179    |  
|Other
 current assets                                                       |  |                              | (18    | )    |   | (134   | )
|Other
 assets                                                               |  |                              | (55    | )    |   | (3     | )
|Accounts
 payable                                                           |  |                              | 131    |      |   | 368    |  
|Income
 taxes payable                                                       |  |                              |       |      |   | (25    | )
|Other
 current liabilities                                                  |  |                              | 67     |      |   | (122   | )
|Pension
 liabilities                                                        |  |                              | (101   | )    |   | (84    | )
|Environmental
 liabilities                                                  |  |                              |       |      |   | (1     | )
|Other
 liabilities                                                          |  |                              |       |      |   | 21     |  
|                                                                            |  |                              |        |      |   |        |  
|Net
 cash provided by (used in) operating activities                        |  |                              | (327   | )    |   | 320    |  
|                                                                            |  |                              |        |      |   |        |  
|Cash Flows From Investing
Activities:                                       |  |                              |        |      |   |        |  
|Capital expenditures                                                        |  |                              | (12    | )    |   |       |  
|Investment in other assets                                                  |  |                              | (12    | )    |   | (11    | )
|                                                                            |  |                              |        |      |   |        |  
|Net
 cash used in investing activities                                      |  |                              | (24    | )    |   | (11    | )
|                                                                            |  |                              |        |      |   |        |  
|                                                                            |  |                              |        |      |   |        |  
|Cash Flows From Financing
Activities:                                       |  |                              |        |      |   |        |  
|Borrowings under revolving
loan                                             |  |                              | 4,210  |      |   | 5,087  |  
|Repayments of revolving
loan                                                |  |                              | (3,782 | )    |   | (4,598 | )
|Repayment of long - term
debt                                               |  |                              | (36    | )    |   | (36    | )
|Repayments of stockholder
loans                                             |  |                              |       |      |   | (750   | )
|                                                                            |  |                              |        |      |   |        |  
|Net
 cash provided by (used in) financing activities                        |  |                              | 392    |      |   | (297   | )
|                                                                            |  |                              |        |      |   |        |  
|                                                                            |  |                              |        |      |   |        |  
|Increase in cash                                                            |  |                              | 41     |      |   | 12     |  
|Cash at beginning of
period                                                 |  |                              | 46     |      |   | 69     |  
|                                                                            |  |                              |        |      |   |        |  
|Cash at end of period                                                       |  | $                            | 87     |      | $ | 81     |  
|                                                                            |  |                              |        |      |   |        |  
|                                                                            |  |                              |        |      |   |        |  
|Supplemental Disclosure of Cash
Flow
 Information:                          |  |                              |        |      |   |        |  
|Cash paid during the period
for:                                            |  |                              |        |      |   |        |  
|Interest                                                                    |  | $                            | 168    |      | $ | 204    |  
|                                                                            |  |                              |        |      |   |        |  
|Income
 taxes                                                               |  | $                            |       |      | $ | 25     |  
|                                                                            |  |                              |        |      |   |        |  

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

Page 4

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LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1: SUMMARY OF BUSINESS AND BASIS FOR
PRESENTATION

Nature of Operations:

Levcor
International, Inc. and Subsidiaries (the Company or Levcor or we)
manufacture, package and distribute a line of buttons and other craft products
for sale in the home sewing and craft retail industry. The Company sells its
products to customers primarily in North America and also has distribution in
Canada and Europe.

The 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
all the information included in the Companys annual consolidated financial
statements and notes for the year ended December 31, 2007. It is suggested that
these condensed consolidated 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, 2008 (unaudited) and December 31, 2007 (audited)
and the unaudited condensed consolidated
statements of income, comprehensive income and cash flows for the three months
ended March 31, 2008 and 2007 include the accounts of the Company and its
wholly-owned subsidiaries, Blumenthal Lansing Company, LLC and Button Fashion
B.V.

NOTE 2: GOING CONCERN

The 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s ability to continue
as a going concern is dependent upon its ability to execute managements plans
to be profitable, generate positive cash flow from operations and to continue
to have access to existing financing, including the ability to refinance the
existing revolving loans and long-term debt, to meet obligations and repay
liabilities when they come due, including amounts payable with respect to
claimed environmental liabilities in connection with the Solvents Recovery
Service of New England Superfund Site in Southington, Connecticut (the SRS
site) in the event the parent corporation is determined to be responsible for
these claimed liabilities and the redemption of preferred stock in 2008 and
thereafter. Although management continues to pursue these plans and believes it
will be successful, there is no assurance that the Company will be successful
in generating such profitable operations or maintaining such access to existing
financing or be able to refinance the existing debt at favorable terms or obtaining
financing for such environmental obligations 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 satisfy the Companys capital
needs through cash generated from operations, advances under its facilities
with CIT Group/Financial Services, Inc. (CIT) and stockholder loans. These
unaudited condensed consolidated 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.

Page 5

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NOTE 3: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

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.

Credit Risk:

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

Accounts Receivable:

Accounts
receivable 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. Account 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 $21,000 at March 31, 2008 and $17,000 at December 31, 2007.

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.

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.

Fair Value of Financial Instruments:

The Companys
financial instruments include revolving debt, a term loan, promissory notes
payable, loans payable to stockholder, Robert A. Levinson, and Series A
Mandatory Redeemable Preferred Stock at March 31, 2008 and December 31, 2007.
The fair values of the revolving debt, term loan and promissory notes payable
approximate their carrying values because these obligations have market-based
interest rates. The stockholder loans and Series A Mandatory Redeemable
Preferred Stock are recorded at their carrying value, because there is no market
for these obligations and it was impracticable to estimate their fair value.

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Income Per Common Share:

Basic income
per share is computed by dividing income available to common stockholders by
the weighted average number of common shares outstanding for the period.
Diluted income per share reflects the potential increase in outstanding shares
that could result from exercising in-the-money stock options.

Recently
Issued Accounting Pronouncements

In April 2008, the Financial Accounting Standards Board (FASB) posted
FASB Staff Position (FSP) Financial Accounting Standard (FAS) 142-3,
Determination of the Useful Life of Intangible Assets (FSP FAS 142-3). This
FSP amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets. The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141 (Revised 2007), Business Combinations, and other
U.S. generally accepted accounting principles (GAAP). This FSP is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early adoption is
prohibited. The Company is currently assessing the potential impact, if any, of
the adoption of FSP FAS 142-3 on the Companys unaudited condensed consolidated
financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities (SFAS 161), an amendment of
FASB 133, Accounting for Derivative Instruments and Hedging Activities. SFAS
161 requires enhanced disclosures about an entitys derivative and hedging
activities and thereby improves the transparency of financial reporting. SFAS
161 is effective for financial statements for fiscal years and interim periods
beginning after November 15, 2008 and is not expected to have an impact on the
Companys unaudited condensed consolidated financial statements.

In December 2007, the Emerging Issues Task Force (EITF) met and
ratified EITF No. 07-01, Accounting for Collaborative Arrangements
(EITF 07-01), in order to define collaborative arrangements and to establish
reporting requirements for transactions between participants in a collaborative
arrangement and between participants in the arrangement and third parties. EITF
07-01 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years.
EITF 07-01 is to be applied retrospectively to all prior periods presented for
all collaborative arrangements existing as of the effective date. The Company
is currently assessing the potential impact, if any, of the adoption of EITF
07-01 on its unaudited condensed consolidated financial statements.

In June 2007, the FASB ratified the consensus on EITF Issue No. 06-11,
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards
(EITF 06-11). EITF 06-11 requires companies to recognize the income tax
benefit realized from dividends or dividend equivalents that are charged to
retained earnings and paid to employees for non-vested equity-classified
employee share-based payment awards as an increase to additional paid-in
capital. EITF 06-11 is effective for fiscal years beginning after September 15,
2007 (fiscal year 2008 for the Company). The Company adopted EITF 06-11
effective January 1, 2008, and it did not have any impact on its unaudited
condensed consolidated financial statements.

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In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (SFAS 159),
which provides companies with an option to report selected financial assets and
liabilities at fair value in an attempt to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused by measuring
related assets and liabilities differently. SFAS 159 is effective as of the
beginning of an entitys first fiscal year beginning after November 15,
2007. Upon adoption of SFAS 159, the Company did not elect the SFAS 159 option
for its existing financial assets and liabilities and therefore adoption of
SFAS 159 did not have any impact on its unaudited condensed consolidated
financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157), which defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. SFAS 157 does not require any
new fair value measurements, but provides guidance on how to measure fair value
by providing a fair value hierarchy used to classify the source of the
information. For financial assets and liabilities, SFAS No. 157 is
effective for us beginning January 1, 2008. In February 2008, the
FASB deferred the effective date of SFAS No. 157 for all non-financial
assets and non-financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually) until January 1, 2009. The Company believes the impact
will not require material modification related to its non-recurring fair value
measurements and will be substantially limited to expanded disclosures in the
Notes to its condensed consolidated financial statements for notes that
currently have components measured at fair value. Effective January 1,
2008, the Company adopted SFAS No. 157 for financial assets and
liabilities measured at fair value on a recurring basis. The partial adoption
of SFAS No. 157 for financial assets and liabilities did not have a
material impact on the Companys unaudited condensed consolidated financial
statements. See Note 7 for information and related disclosures.

NOTE 4: INVENTORIES

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

|                 |  |                |       |                   |   |       | 
|---------------- |  | -------------- | ----- | ----------------- | - | ----- | 
|                 |  | March 31, 2008 |       | December 31, 2007 |  
|                 |  |                |       |                   |  
|Raw materials    |  | $              | 2,225 |                   | $ | 2,132 | 
|Work in progress |  |                | 102   |                   |   | 95    | 
|Finished goods   |  |                | 2,758 |                   |   | 2,488 | 
|                 |  |                |       |                   |   |       | 
|                 |  | $              | 5,085 |                   | $ | 4,715 | 
|                 |  |                |       |                   |   |       | 

NOTE
5: PROPERTY, PLANT AND EQUIPMENT

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

|                                                  |  |                |        |                   |   |        |  
|------------------------------------------------- |  | -------------- | ------ | ----------------- | - | ------ | -
|                                                  |  | March 31, 2008 |        | December 31, 2007 |  
|                                                  |  |                |        |                   |  
|Land and improvements                             |  | $              | 85     |                   | $ | 83     |  
|Buildings and improvements                        |  |                | 2,538  |                   |   | 2,516  |  
|Machinery and equipment                           |  |                | 2,095  |                   |   | 2,007  |  
|                                                  |  |                |        |                   |   |        |  
|                                                  |  |                | 4,718  |                   |   | 4,606  |  
|Less: Accumulated depreciation
  and amortization |  |                | (3,010 | )                 |   | (2,886 | )
|                                                  |  |                |        |                   |   |        |  
|                                                  |  | $              | 1,708  |                   | $ | 1,720  |  
|                                                  |  |                |        |                   |   |        |  

Depreciation and amortization expense was approximately $98,000 and $97,000 for the three months ended March 31, 2008 and 2007, respectively.

Page 8

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NOTE 6: SHORT-TERM AND LONG-TERM DEBT

The Company
has a credit facility with CIT (the CIT Facility) 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 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). The
CIT Facility provides advances up to 40% of eligible inventory and 90% of
eligible accounts receivable, as defined in the agreements. There was
approximately $428,000 of availability under the Companys CIT Facility as of
March 31, 2008.

The CIT
Facility provides for (i) a term loan to the Company (the Term Loan) in the
initial amount of $2.0 million, of which $1.1 million was outstanding at March
31, 2008, (ii) revolving credit advances to the Company, of which $1.7 million
was outstanding at March 31, 2008 and (iii) revolving credit advances to
Blumenthal based upon eligible accounts receivable and inventory, of which $3.3
million was outstanding at March 31, 2008, and a Letter of Credit facility with
a limit of $500,000, of which there was none outstanding at March 31, 2008. The
Term Loan amortizes $12,000 per month followed by a final installment payment
of $1.0 million due on January 1, 2009. The revolving credit advances are due
on January 1, 2009. $2.5 million of the amounts outstanding under the CIT
Facility bear interest at Chase Bank N.A. prime rate (6.00%) and amounts in
excess of $2.5 million bear interest at the Chase Bank N.A. prime rate plus
0.5% (6.50%) 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 in the approximate amount of
$2.5 million.

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. CIT may terminate the credit facility upon
60 days written notice. 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.

The Company
also has a factoring agreement with CIT. As of March 31, 2008 there was no
balance due to or from CIT under the factoring agreement.

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The promissory
note payable to JPMorgan in the amount of $3.2 million is dated May 2, 2002 and
has a maturity date of January 5, 2009. The first $3.0 million bears interest
at a fixed rate per annum equal to the Adjusted LIBOR Rate applicable to such
note plus 0.75% (a Eurodollar Loan) and the remaining $200,000 bears interest
at Chase Bank N.A. prime rate. The interest rate on the note at March 31, 2008
was 6.14% for the first $3.0 million and
6.00% for the remaining balance of $200,000. 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 5, 2009,
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 in a commitment letter dated March 24, 2008.

The Company
had outstanding loans payable to Mr. Levinson totaling $350,000 as of March 31,
2008 and December 31, 2007, respectively. In addition, Mr. Levinson has pledged
collateral in support of certain Company obligations. Accrued interest on Mr.
Levinsons loans totaled $644,000 and $639,000, respectively at March 31, 2008
and December 31, 2007. He has also agreed not to demand any repayment of
principal or interest currently owed until January 6, 2009. (See Note 11)

During the
three months ended March 31, 2008, the Company was in compliance with all debt
covenants as defined in the respective agreements.

NOTE 7: FAIR VALUE MEASUREMENTS

In the first
quarter of 2008, the Company adopted SFAS No. 157, Fair Value
Measurements, for financial assets and liabilities. This standard defines fair
value, provides guidance for measuring fair value and requires certain
disclosures. This standard does not require any new fair value measurements,
but rather applies to all other accounting pronouncements that require or
permit fair value measurements. SFAS No. 157 discusses valuation
techniques, such as the market approach (comparable market prices), the income
approach (present value of future income or cash flow), and the cost approach
(cost to replace the service capacity of an asset or replacement cost). The
statement utilizes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value into three broad levels. The
following is a brief description of those three levels:

|         |                                                                                                                                                                                                                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1: | Observable
  inputs such as quoted prices (unadjusted) in active markets for
  identical assets or liabilities.                                                                                                                                                                                        
|         |                                                                                                                                                                                                                                                                                                        
|Level 2: | Inputs other
  than quoted prices that are observable for the asset or liability, either
  directly or indirectly. These include quoted prices for similar assets or
  liabilities in active markets and quoted prices for identical or similar
  assets or liabilities in markets that are not active.
|         |                                                                                                                                                                                                                                                                                                        
|Level 3: | Unobservable
  inputs that reflect our own assumptions.                                                                                                                                                                                                                                                

The Company
chose not to elect the fair value option as prescribed by FASB SFAS No. 159,
The Fair Value Option For Financial Assets and Financial LiabilitiesIncluding
an Amendment of FASB Statement No. 115, for its financial assets and
liabilities that had not been previously carried at fair value. Therefore,
material financial assets and liabilities not carried at fair value, such as
stockholder loans, mandatorily redeemable preferred stock, accounts payable and
accounts receivable are reported at their carrying values.

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The Companys
population of financial assets and liabilities subject to recurring fair value
measurements and the necessary disclosures are as follows:

|                         |  |                   |       |                                                 |   |         |  |         |       |         |   |   |  |   |   | 
|------------------------ |  | ----------------- | ----- | ----------------------------------------------- | - | ------- |  | ------- | ----- | ------- | - | - |  | - | - | 
|(In thousands)           |  | At March 31, 2008 |       | Fair Value Measurements at March 31, 2008 using |  
|                         |  |                   |       | Fair Value Hierarchy                            |  
|                         |  | Cost              |       | Fair Value                                      |   | Level 1 |  | Level 2 |       | Level 3 |  
|                         |  |                   |       |                                                 |   |         |  |         |       |         |  
|LIABILITIES:             |  |                   |       |                                                 |   |         |  |         |       |         |   |   |  |   |   | 
|Revolving Loan           |  | $                 | 5,005 |                                                 | $ | 5,005   |  | $       | 5,005 |         | $ |  |  | $ |  | 
|Term Loan                |  |                   | 1,119 |                                                 |   | 1,119   |  |         | 1,119 |         | $ |  |  | $ |  | 
|Promissory notes payable |  |                   | 3,200 |                                                 |   | 3,200   |  |         | 3,200 |         | $ |  |  | $ |  | 
|                         |  |                   |       |                                                 |   |         |  |         |       |         |   |   |  |   |   | 
|                         |  | $                 | 9,324 |                                                 | $ | 9,324   |  | $       | 9,324 |         | $ |  |  | $ |  | 
|                         |  |                   |       |                                                 |   |         |  |         |       |         |   |   |  |   |   | 

NOTE 8: 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 the 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.

On August 17,
2006 The Pension Protection Act of 2006 was signed into law. New Pension
funding rules are effective for plan years beginning on or after January 1,
2008. Under the new law, the 90% funding target is replaced with a 100% target.
Shortfalls from the 100% target must be amortized over a seven year period.

The benefits
under the plan are determined based on formulas, which reflect the employees
years of service and compensation during their employment period. The projected
unit credit method is used to determine pension cost. Funding requirements for
the plan are based on the unit credit method. The Companys policy is to fund
pension cost as required by ERISA. In 2007 the Company applied for and was
granted a waiver by the Internal Revenue Service with regard to a deferral of
$713,000 which was the remainder of the contribution still due for the 2006
plan year. With respect to the deferral, the Company was required to make a
contribution of $275,000, which was made on September 13, 2007. The Company had
also applied to the Internal Revenue Service to permit a change in method of
accounting for plan assets which was also granted. With respect to the 2007
plan year, the Company has made contributions to the plan in 2007 of $52,000
with an additional approximately $72,000 due in 2008, based on current
legislated discount rates and actuarial assumptions. In addition, the Company
anticipates contributions with respect to the 2008 plan year of $93,000 based
on actuarial assumptions during the year ending December 31, 2008 and $31,000
by January 15, 2009.

In addition to
the liability of $684,000 for this Company sponsored plan, the Company also has
an additional pension liability in the amount of $894,000 at March 31, 2008 in
connection with a terminated multi-employer plan which requires annual payments
of $142,000 inclusive of principal and interest through 2016. The Company also
has a $241,000 deferred compensation liability payable to the former owner of
an acquired business.

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A summary of
net periodic benefit costs of the Companys defined benefit plan are as follows
(in thousands):

|                                      |  |                              |      |      |   |      |  
|------------------------------------- |  | ---------------------------- | ---- | ---- | - | ---- | -
|                                      |  | Three Months Ended March 31, |     
|                                      |  |                              |     
|Pension Benefits                      |  | 2008                         |      | 2007 |  
|                                      |  |                              |      |      |  
|Interest cost                         |  |                              | 285  |      |   | 284  |  
|Expected return on plan assets        |  |                              | (365 | )    |   | (351 | )
|Recognized net actuarial loss         |  |                              | 7    |      |   | 9    |  
|                                      |  |                              |      |      |   |      |  
|Net periodic benefit (income) expense |  | $                            | (73  | )    | $ | (58  | )
|                                      |  |                              |      |      |   |      |  

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.

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NOTE 9: INCOME TAXES

In June 2006, the FASB
issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an interpretation of FASB Statement No. 109 (FIN 48), which clarifies
the accounting for uncertainty in income taxes recognized in a companys
financial statements. The interpretation prescribes a recognition threshold and
measurement attribute criteria for the financial statement recognition and
measurement of an uncertain tax position taken or expected to be taken in a tax
return. The interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.

The Company adopted the
provisions of FIN 48 and FASB Staff Position No. FIN 48-1 on January 1, 2007.
The implementation of FIN 48 did not have a material impact on its unaudited
condensed consolidated financial statements. The Company files tax returns in
the U.S. federal jurisdiction and in various states. All federal and state tax
filings for the Company as of December 31, 2006 have been timely filed. The
Company is subject to U.S. federal or state income tax examinations by tax
authorities for years after 2003. During the periods open to examination, the
Company has utilized net operating loss carry forwards that have attributes
from closed periods. Since these net operating loss carry forwards were
utilized in the open periods, they remain subject to examination.

As of March
31, 2008, we do not have any uncertain tax positions under FIN 48. As a result,
there are no unrecognized tax benefits as of March 31, 2008. If we were to
incur any interest and penalties in connection with income tax deficiencies, we
would classify interest in the interest expense category and classify
penalties in the non-interest expense category within the condensed
consolidated statements of income.

NOTE 10: CUSTOMER CONCENTRATIONS

The Companys two largest customers
(Wal-mart, a mass merchandiser and Jo-Ann Stores a specialty chain) represented
approximately 40% and 30% respectively, of the Companys net sales in the three
months ended March 31, 2008 and represented approximately 46% and 27%
respectively, of the Companys net sales in the three months ended March 31,
2007. These customers in the aggregate also represented approximately 71% and
73% of the total outstanding accounts receivable as of March 31, 2008 and
December 31, 2007, respectively. A reduction in sales to either of these
customers could adversely impact the financial condition and results of
operations of the Company.

On March 21,
2007, Hancock Fabrics, the Companys third largest customer in 2006, announced
it will close approximately 134 of its 443 stores in 2007 as it reorganizes
under Chapter 11. As of March 31, 2007, the Company recorded an allowance of
$86,000 against 2007 pre-bankruptcy sales. The balance net of all reserves was
collected during the three months ended June 30, 2007.

NOTE 11: RELATED PARTY TRANSACTIONS

Robert A.
Levinson, a stockholder, officer and director had outstanding loans of $350,000
as of March 31, 2008 and December 31, 2007, respectively. The Company also had
$644,000 and $639,000 of accrued interest payable to Mr. Levinson with respect
to such loans as of March 31, 2008 and December 31, 2007, respectively. Mr.
Levinson has agreed not to demand any repayment of principal or interest
currently owed until January 6, 2009. He has also pledged collateral in support
of certain Company obligations. See Note 6 for a description of these
transactions.

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While serving as director of the Company, Edward H. Cohen served as
counsel to Katten Muchin Rosenman LLP, legal counsel to the Company. Mr Cohen
resigned as a director of the Company on December 31, 2007. During the three
months ended March 31, 2007, fees
for services provided to the Company by Katten Muchin Rosenman LLP totaled
approximately $20,000. Mr. Cohen does not share in the fees that
the Company pays to such law
firm and his compensation is not based on such fees.

NOTE 12: MANDATORILY REDEEMABLE PREFERRED STOCK

The Series A
Preferred Stock is subject to mandatory redemption, to the extent the Company
may lawfully do so, in three equal annual installments one of which was due on
June 15, 2007, and the remaining two on June 15, 2008 and June 15, 2009, in
each case, from funds legally available therefore, at a price per share of
Series A Preferred Stock equal to $1 per share, together with an amount
representing accrued and unpaid dividends, whether or not declared, to the date
of redemption. The first installment due on June 15, 2007 was not redeemed,
because under the terms of the Companys Certificate of Incorporation, the
mandatory redemption of the Series A Preferred Stock can only be made to the
extent that such redemptions do not contravene or cause default under any
contract, agreement or other instrument by which the Company or its
subsidiaries or any of their property is bound. 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. Because preferred stock
redemption payments are prohibited under the CIT Facility, the Company was and
continues to be precluded by its Certificate of Incorporation from making any
such payments so long as the CIT Facility is outstanding. The first installment
due on June 15, 2007 and the amount redeemable within the next twelve months,
including accumulated dividends, are classified as current liabilities as the
CIT Facility is currently scheduled to mature on January 1, 2009.

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
until the next mandatory redemption date. In the event that the Company does
not redeem shares of Series A Preferred Stock, any unpaid accumulated dividends
will also begin to accrue dividends from the date of the required redemption forward
at the rate of 6% 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 Companys accumulated or current earnings and profits. Losses in 2006 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.

As of March
31, 2008, unpaid preferred stock dividends totaled approximately $666,000 and
have been classified as a current liability on the Companys balance sheet. The
preferred stock is owned 99.4% 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.

Page 14

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NOTE 13: COMMITMENT 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.

Page 15

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|        |                                                                                        
|------- | ---------------------------------------------------------------------------------------
|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking
Statements

Introduction

This Quarterly 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
operations, 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 business, reliance on a limited number of significant customers,
future revenue opportunities, inventory risk, growth of the Companys 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 (SEC). 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 or we) was incorporated in 1964 as Pantepec International, Inc. under the laws of
the Islands of Bermuda and was reorganized in 1967 under the laws of the State of Delaware. In 1995, Pantepec International, Inc. changed its name to Levcor International, Inc.
In 2003, the Company was acquired by merger with Carlyle Industries, Inc. (Carlyle). This acquisition formed the basis of the Companys craft business,
which constitutes all of its current operations.

Products and Customers

The Company
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:

| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | 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
| |   |                                                                                                                                                                                                                 
| | · | acquiring
  new lines of business within the Craft industry through acquisition.                                                                                                                                

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The Company
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 Companys products are sold to mass merchandisers,
specialty chains and independent retailers and wholesalers. Products are sold
under the La Mode ®, Le Chic ®, Streamline ®, Favorite Findings ®, Crafters
Images ®, and Button Fashion ® registered trademarks and the Le Bouton, La
Petite, Classic, Boutique Elegant and Mill Mountain brand names. The Company
also produces and distributes a private-label button line for one of the nations
best-known retailers.

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

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

The Company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 business 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 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 Companys two largest customers
(Wal-mart, a mass merchandiser and Jo-Ann Stores a specialty chain) represented
approximately 40% and 30% respectively, of the Companys net sales in the three
months ended March 31, 2008 and represented approximately 46% and 27%
respectively, of the Companys net sales in the three months ended March 31,
2007. These customers in the aggregate also represented approximately 71% and
73% of the total outstanding accounts receivable as of March 31, 2008 and
December 31, 2007, respectively. A reduction in sales to either of these
customers could adversely impact the financial condition and results of
operations of the Company.

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On March 21,
2007, Hancock, the Companys third largest customer in 2006, announced it will
close approximately 134 of its 443 stores in 2007 as it reorganizes under
Chapter 11. As of March 31, 2007, the Company recorded an allowance of $86,000
against 2007 pre-bankruptcy sales. The balance net of all reserves was
collected during the three months ended June 30, 2007. The Company believes
that going forward, 2008 will result in increased sales to Hancock as compared
to 2007.

Competition

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

Critical Accounting Policies and Estimates

The Companys
Annual Report on Form 10-K for the year ended December 31, 2007 includes a
discussion of the critical accounting policies and estimates that the Company
uses in the preparation of its consolidated financial statements. There were no
significant changes in the Companys critical accounting policies and estimates
during the three months ended March 31, 2008.

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Results of Operations

Three Months
Ended March 31, 2008 Compared with Three Months Ended March 31, 2007

Sales during
the three months ended March 31, 2008 totaled $4.6 million as compared to $5.3
million during the three months ended March 31, 2007. The decrease in sales is
primarily the result of the cancellation of two product lines by the Companys
largest customer and a lower number of new product introductions in 2008.

Gross profit
during the three months ended March 31, 2008 totaled $1.6 million as compared
to $1.8 million during the same period last year. The gross profit was 34.6%
during the first quarter of 2008 as compared to 33.8% during the first quarter
of 2007. The increase in gross profit percent in 2008 was the result of a
favorable product mix and reduced shipping costs during the first quarter of
2008.

Selling,
general and administrative expenses totaled $1.2 million during the three
months ended March 31, 2008 as compared to $1.4 million during the three months
ended March 31, 2007, a decrease of approximately $200,000 or 14%. The decrease
in selling, general and administrative expenses in the first quarter of 2008
was the direct result of managements efforts to lower operating costs due to
the reduction in sales as described above. This decrease included approximately
$125,000 of compensation costs due to lower headcount in 2008, $15,000 of
pension expense and $60,000 of various selling, general and administrative
expenses.

Interest
expense during the three months ended March 31, 2008 totaled $171,000 as
compared to $204,000 during the same period last year. The average outstanding
debt during the first quarter of 2008 was $9.3 million as compared to $9.8
million during the first quarter of 2007. The weighted average interest rate
during the first quarter of 2008 was 6.79% as compared to 7.57% during the
first quarter of 2007.

Dividends on
mandatorily redeemable preferred stock totaled $79,000 during the three months
ended March 31, 2008 as compared to $68,000 during the three months ended March
31, 2007. The increase in dividends was a result of the unpaid accumulated
dividends that also began to accrue dividends as of June 15, 2007, because the
Company was not able to redeem the first installment of the mandatorily
redeemable preferred stock on June 15, 2007, the first redemption date, which
under the terms of the Companys Certificate of Incorporation prohibit the
mandatory redemption of the Series A Preferred Stock when the redemption
contravene or cause default under any contract, agreement or other instrument
by which the Company or its subsidiaries or any of their property is bound.
Under the terms of the Companys credit facility with CIT, preferred stock
redemption payments are prohibited.

Page 19

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The Company
has a NOL carryforward and a full valuation allowance against its deferred tax
asset. The Company was not required to record a provision for income taxes
related to its 2008 or 2007 pretax income, except in instances where minimum
taxes are payable.

Liquidity and Capital Resources

The 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s ability to continue
as a going concern is dependent upon its ability to execute managements plans
to be profitable, generate positive cash flow from operations and to continue
to have access to existing financing, including the ability to refinance the
existing revolving loans and long-term debt, to meet obligations and repay
liabilities when they come due, including amounts payable with respect to
claimed environmental liabilities in connection with the Solvents Recovery
Service of New England Superfund Site in Southington, Connecticut (the SRS
site) in the event the parent corporation is determined to be responsible for
these claimed liabilities and the redemption of preferred stock in 2008 and
thereafter. Although management continues to pursue these plans and believes it
will be successful, there is no assurance that the Company will be successful
in generating such profitable operations or maintaining such access to existing
financing or be able to refinance the existing debt at favorable terms or
obtaining financing for such environmental obligations 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 satisfy
the Companys capital needs through cash generated from operations, advances
under its facilities with CIT Group/Financial Services, Inc. (CIT) and
stockholder loans. These unaudited condensed consolidated 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.

These
circumstances caused our independent registered public accounting firm to
include an explanatory paragraph in their reports dated March 26, 2008 and
March 16, 2007 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.

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

Losses
sustained in prior years have materially adversely affected the Companys
long-term liquidity. While the Company has taken recent steps to improve its
long term liquidity outlook, the Company still 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 5, 2009 by providing
loans to the Company up to a maximum of $3.0 million. If we (1) do not
substantially achieve our overall projected revenue levels for 2008, (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. The Company has
implemented several actions to reduce losses and improve cash flow, including
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.

Page 20

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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.

Failing to
substantially achieve our projected cash flow levels for 2008 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.

At March 31,
2008, the Companys principal sources of liquidity included cash of $87,000 and
trade accounts receivable of $2.8million. There was approximately $428,000
of unused borrowing capacity available under the Companys credit facility with
CIT as of March 31, 2008. The Company also had an additional $2.7 million of
borrowing available from Mr. Levinson who has agreed to fund up to $3.0 million
of temporary advances to the Company.

Following is a
summary and discussion regarding the Companys cash flows for the three months
ended March 31, 2008 and 2007.

Cash Flow
Summary:(in thousands)

|                                  |  |                              |      |      |   |      |  
|--------------------------------- |  | ---------------------------- | ---- | ---- | - | ---- | -
|                                  |  | Three months Ended March 31, |     
|                                  |  |                              |     
|                                  |  | 2008                         |      | 2007 |  
|                                  |  |                              |      |      |  
|Net cash provided by (used
  in): |  |                              |      |      |   |      |  
|Operating activities              |  | $                            | (327 | )    | $ | 320  |  
|Investing activities              |  |                              | (24  | )    |   | (11  | )
|Financing activities              |  |                              | 392  |      |   | (297 | )
|                                  |  |                              |      |      |   |      |  
|Net increase in cash              |  | $                            | 41   |      | $ | 12   |  
|                                  |  |                              |      |      |   |      |  

Net cash flow
used in operating activities totaled $327,000 during the three months ended
March 31, 2008, as compared to $320,000 of net cash provided by operating
activities during the three months ended March 31, 2007.

In 2008, the
components of net cash used in operating activities were $383,000 of cash
provided by net income adjusted for non-cash items, consisting primarily of
depreciation and amortization, accrued interest on stockholder loans and
accrued dividends on preferred stock, which were offset by $710,000 of cash
used in operating assets and liabilities.

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In 2007, the
components of net cash provided by operating activities were $299,000 of cash
provided by net income adjusted for non-cash items, consisting primarily of
depreciation and amortization, accrued interest on stockholder loans and
accrued dividends on preferred stock plus $21,000 of cash provided by operating
assets and liabilities.

Major
components of the changes in operating assets and liabilities in 2008 as
compared to 2007 were accounts receivable, inventories, other current assets,
accounts payable and other current liabilities.

Changes in
accounts receivable utilized $421,000 of cash flow in 2008 as compared to
$178,000 in 2007. The primary reason for the decreased cash usage related to
accounts receivable was the timing of a large annual product changeover which
occurred in March of 2008 for a major customer and increased sales with the
introduction of a new product line.

Changes in
inventories utilized $311,000 in cash flow in 2008 as compared to $179,000 of
cash provided during the same period in 2007. During the three months ended
March 31, 2008, the Company had introduced a new product line and there was an annual
product changeover for a major customer as described above, a portion of which
shipped in the second quarter of 2008.

Changes in
other current assets utilized $18,000 in cash flow in 2008 as compared to
$134,000 in 2007. This reduction in 2008 was primarily due to lower prepaid
balances as the Company negotiated better terms with its vendors.

Changes in
accounts payable provided $131,000 of cash flow in 2008 as compared to $368,000
of cash flow in the three months ended March 31, 2007. The reduction in
accounts payable in 2007 was the result of lower inventory balances related to
the cancellation of two product lines by the Companys largest customer.

Changes in
other current liabilities provided $67,000 of cash flow in 2008 as compared to
$122,000 utilized in 2007. This was primarily due to severance costs incurred
in the first quarter of 2007. The Company had lowered its headcount as part of
the Companys cost reduction efforts.

Net cash used
in investing activities totaled $24,000 during the three months ended March 31,
2008, as compared to $11,000 during the same period in 2007. This increase was
primarily a result of higher capital expenditures during 2008.

Net cash
provided by financing activities totaled $392,000 during the three months ended
March 31, 2008 as compared to $297,000 used in financing activities during the
same period last year. In 2008 cash flow from operating activities was
negative. This was primarily due to a large product changeover in the first
quarter for a major customer and an increase in inventory related to the
introduction of the new product line, as discussed above. As a result, $392,000
was provided by financing activities to fund cash used in operations and cash
used in investing activities. In 2007 the cash flow from operating activities
was sufficient to fund operating and investing activities.

During the
three months ended March 31, 2008, the Company made no repayments to Mr.
Levinson against his stockholder loans as compared to $750,000 during the three
months ended March 31, 2007. The outstanding stockholder borrowings are the
result of funding of operating activities.

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Total
borrowings during the first three months of 2008 and 2007 under the CIT
revolving credit facility were $4.2 million and $5.1 million respectively;
total repayments during the periods under this facility were $3.8 million and
$4.6 million, respectively. Repayments under the Companys term loan totaled
$36,000 during the three months ended March 31, 2008 and 2007.

The Company
has a credit facility with CIT (the CIT Facility) 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.

At March 31,
2008, the CIT facility provided 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. The CIT Facility provides advances up
to 40% of eligible inventory and 90% of eligible accounts receivable, as
defined in the agreements. There was approximately $428,000 of unused
availability under the Companys credit facility with CIT as of March 31, 2008.

The CIT
Facility provides for (i) a term loan to the Company (the Term Loan) in the
initial amount of $2.0 million, of which $1.1 million was outstanding at March
31, 2008, (ii) revolving credit advances to the Company, of which $1.7 million
was outstanding at March 31, 2008 and (iii) revolving credit advances to
Blumenthal based upon eligible accounts receivable and inventory, of which $3.3
million was outstanding at March 31, 2008, and a Letter of Credit facility with
a limit of $500,000, of which there was none outstanding at March 31, 2008. The
Term Loan is amortized at $12,000 per month followed by a final installment
payment of $1.0 million due on January 1, 2009. The revolving credit advances
are also due on January 1, 2009. At March 31, 2008, all amounts outstanding
under the CIT Facility in excess of $2.5 million bear interest at 6.50% (the
Chase Bank N.A. prime rate plus 0.5%) with a minimum rate of 5.0%. The first
$2.5 million of advances from CIT bears interest at the prime rate (6.00%).

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 in the approximate amount of $2.5
million.

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.

The Company
also has a factoring agreement with CIT, which matures on January 1, 2009. As
of March 31, 2008 there was no balance due to or from CIT under the factoring
agreement

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The promissory
note payable to JPMorgan in the amount of $3.2 million is dated May 2, 2002 and
has a maturity date of January 5, 2009. The first $3.0 million bears interest
at a fixed rate per annum equal to the Adjusted LIBOR Rate applicable to such
note plus 0.75% (a Eurodollar Loan) and the remaining $200,000 bears interest
at Chase Bank N.A. prime rate. The interest rate on the note at March 31, 2008
was 6.14% for the first $3.0 million and 6.00% for the remaining balance of $200,000.
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 5, 2009,
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 in a commitment letter dated March 24, 2008.

The Company
had outstanding loans payable to Mr. Levinson totaling $350,000 as of March 31,
2008 and December 31, 2007, respectively. In addition, Mr. Levinson has pledged
collateral in support of certain Company obligations. Accrued interest on Mr.
Levinsons loans has been classified as current liabilities on the Companys
balance sheet and totaled $644,000 and $639,000, respectively at March 31, 2008
and December 31, 2007, respectively. He has also agreed not to demand any
repayment of principal or interest currently owed until January 6, 2009.

During the
three months ended March 31, 2008, the Company was in compliance with all debt
covenants as defined in the respective agreements.

The Series A
Preferred Stock is subject to mandatory redemption, to the extent the Company
may lawfully do so, in three equal annual installments one of which was due on
June 15, 2007, and the remaining two on June 15, 2008 and June 15, 2009, in
each case, from funds legally available therefore, at a price per share of
Series A Preferred Stock equal to $1 per share, together with an amount
representing accrued and unpaid dividends, whether or not declared, to the date
of redemption. The first installment due on June 15, 2007 was not redeemed
because under the terms of the Companys Certificate of Incorporation, the
mandatory redemption of the Series A Preferred Stock can only be made to the
extent that such redemptions do not contravene or cause default under any
contract, agreement or other instrument by which the Company or its
subsidiaries or any of their property is bound. 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. Because preferred
stock redemption payments are prohibited under the CIT Facility, the Company
was and continues to be precluded by its Certificate of Incorporation from
making any such payments so long as the CIT Facility is outstanding. The first
installment due on June 15, 2007 and the amount redeemable within the next
twelve months, including accumulated dividends, are classified as current liabilities
as the CIT Facility is currently scheduled to mature on January 1, 2009.

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
until the next mandatory redemption date. In the event that the Company does
not redeem shares of Series A Preferred Stock, any unpaid accumulated dividends
will also begin to accrue dividends from that date forward at the rate of 6%
per year.

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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 2006 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.

As of March
31, 2008, unpaid preferred stock dividends totaled approximately $666,000 and
have been classified as a current liability on the Companys balance sheet. The
preferred stock is owned 99.4% 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.

The Company
sponsors a defined benefit plan. The benefits under the plan are determined
based on formulas, which reflect the employees years of service and
compensation during their employment period. The projected unit credit method
is used to determine pension cost. Funding requirements for the plan are based
on the unit credit method. The Companys policy is to fund pension cost as
required by ERISA. In 2007 the Company applied for and was granted a waiver by
the Internal Revenue Service with regard to a deferral of $713,000 which was
the remainder of the contribution still due for the 2006 plan year. With respect
to the deferral, the Company was required to make a contribution of $275,000,
which was made on September 13, 2007. The Company had also applied to the
Internal Revenue Service to permit a change in method of accounting for plan
assets which was also granted. With respect to the 2007 plan year, the Company
has made contributions to the plan in 2007 of $52,000 with an additional
approximately $72,000 due in 2008, based on current legislated discount rates
and actuarial assumptions. In addition, the Company anticipates contributions
with respect to the 2008 plan year of $93,000 based on actuarial assumptions
during the year ending December 31, 2008 and $31,000 by January 15, 2009.

In addition to
the liability of $684,000 for this Company sponsored plan, the Company also has
an additional pension liability in the amount of $894,000 at March 31, 2008 in
connection with a terminated multi-employer plan which requires annual payments
of $142,000 inclusive of principal and interest through 2016. The Company also
has a $241,000 deferred compensation liability payable to the former owner of
an acquired business.

Seasonality and New Product Lines

The Companys
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.

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

Impact of Inflation

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

|        |                                                             
|------- | ------------------------------------------------------------
|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, 2008, our indebtedness with CIT was at 6.00% interest rate (based on the
Chase Bank N.A. prime rate plus .5%). The applicable rate is the Chase Bank,
N.A. prime rate on the first $2.5 million of outstanding borrowing plus .05% on
outstanding borrowing in excess of $2.5 million but in either case not less
than 5% per annum. Our indebtedness with JP Morgan Chase was at a 6.14%
interest rate (based on adjusted LIBOR plus .75%) on the first $3.0 million and
6.50% (based on Chase Bank N.A. prime rate) in excess of the $3.0 million at
March 31, 2008. Our stockholder loan interest is not variable and bears 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 $93,000 during the next fiscal year.

Foreign Currency Exchange Rates

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

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

Page 26

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Customer Concentration

Our sales are
concentrated with major retail chains and as such, approximately 70-80% of our
sales in 2008 are expected to be from our top two accounts. These accounts
represented approximately 71% of our trade accounts receivable at March 31,
2008. The loss of any one of our major accounts would have a material adverse
impact on our financial condition and results of operations.

|         |                        
|-------- | -----------------------
|ITEM 4T. | 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 ensure that information required to be disclosed in the Companys reports
filed or submitted under the Exchange Act is (i) accumulated and communicated
to management, including the Chief Executive Officer and Chief Financial
Officer as appropriate to allow timely decisions regarding required disclosure
and (ii) recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms.

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

No change
occurred in the Companys internal controls concerning financial reporting
during the first quarter of the fiscal year ending December 31, 2008 that has
materially affected, or is reasonably likely to materially affect, the
Companys internal controls over financial reporting.

Page 27

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PART II. OTHER
INFORMATION

|        |                  
|------- | -----------------
|ITEM 1. | 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 has been
no material change to our Risk Factors from those presented in our 2007 Form
10-K, except for certain updating changes to the Risk Factor Going Concern,
as presented below.

Going
Concern

The 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s ability to continue as a going
concern is dependent upon its ability to execute managements plans to be
profitable, generate positive cash flow from operations and to continue to have
access to existing financing, including the ability to refinance the existing
revolving loans and long-term debt, to meet obligations and repay liabilities
when they come due, including amounts payable with respect to claimed
environmental liabilities in connection with the Solvents Recovery Service of
New England Superfund Site in Southington, Connecticut (the SRS site) in the
event the parent corporation is determined to be responsible for these claimed
liabilities and the redemption of preferred stock in 2008 and thereafter.
Although management continues to pursue these plans and believes it will be
successful, there is no assurance that the Company will be successful in
generating such profitable operations or maintaining such access to existing
financing or be able to refinance the existing debt at favorable terms or
obtaining financing for such environmental obligations 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 satisfy
the Companys capital needs through cash generated from operations, advances
under its facilities with CIT Group/Financial Services, Inc. (CIT) and
stockholder loans. These unaudited condensed consolidated 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.

These
circumstances caused our independent registered public accounting firm to
include an explanatory paragraph in their reports dated March 26, 2008 and
March 16, 2007 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.

Page 28

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|        |                                                              
|------- | -------------------------------------------------------------
|ITEM 2. | UNREGISTERED
  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|        |                                                              
|        | None.                                                        
|        |                                                              
|ITEM 3. | DEFAULTS
  UPON SENIOR SECURITIES                            
|        |                                                              
|        | None.                                                        
|        |                                                              
|ITEM 4. | SUBMISSION
  OF MATTERS TO A VOTE OF SECURITY HOLDERS        
|        |                                                              
|        | None.                                                        
|        |                                                              
|ITEM 5. | OTHER
  INFORMATION                                          
|        |                                                              
|        | None.                                                        
|        |                                                              
|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 29

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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
  15, 2008 |  | /s/ ROBERT A. LEVINSON                      
|                     |  |                                             
|                     |  | Robert A.
  Levinson                        
|                     |  | Chairman of
  the Board, President and Chief
|                     |  | Executive
  Officer                         
|                     |  |                                             
|Date: May
  15, 2008 |  | /s/ PRAMILA DEVI SHAHEED                    
|                     |  |                                             
|                     |  | Pramila Devi Shaheed                        
|                     |  | Chief Financial Officer and Secretary       

Page 30

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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 31

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