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


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

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

                                   FORM 10-QSB

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

                For the quarterly period ended September 30, 2003
                                               ------------------

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

           For the transition period from ____________ to ____________

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

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

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


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

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

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

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

As of November 12, 2003, 5,135,944 shares of Common Stock, par value $0.01 per
share, were issued and outstanding.

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


================================================================================
<PAGE>

                           LEVCOR INTERNATIONAL, INC.

                                      INDEX

                                                                            Page
                                                                            ----

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheet
         as of September 30, 2003 .............................................1

         Condensed Consolidated Statements of Income
         for the Three and Nine Months Ended September 30, 2003 and 2002.......2

         Condensed Consolidated Statements of Comprehensive Income
         for the Three and Nine Months Ended September 30, 2003 and 2002.......3

         Condensed Consolidated Statements of Cash Flows
         for the Three and Nine Months Ended September 30, 2003 and 2002.......4

         Notes to Condensed Consolidated Financial Statements -
         September 30, 2003....................................................5


Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations .......................14


Item 3.  Controls and Procedures..............................................22


PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K.....................................23

         Signatures...........................................................24
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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


                                                              September 30, 2003
ASSETS                                                        ------------------
Current Assets:
    Cash                                                          $       64
    Accounts receivable trade, net                                     3,063
    Inventories, net                                                   7,319
    Deferred income taxes                                                885
    Other current assets                                                 210
                                                                  ----------
        Total current assets                                          11,541
                                                                  ----------
Property, Plant and Equipment, at cost                                 4,495
Less: Accumulated Depreciation and Amortization                        2,059
                                                                  ----------
      Net property, plant and equipment                                2,436
Goodwill                                                              10,210
Deferred income taxes                                                  4,684
Other assets                                                           1,751
                                                                  ----------
        Total Assets                                              $   30,622
                                                                  ==========

LIABILITIES
Current Liabilities:
    Accounts payable                                              $    1,896
    Due to factor                                                        827
    Revolving loan and current maturities of long-term debt            2,871
    Loan payable stockholder                                             830
    Other current liabilities                                          1,116
                                                                  ----------
        Total current liabilities                                      7,540
                                                                  ----------
Long-term debt, less current maturities                                4,624
Loan payable to stockholder, less current maturities                     807
Other liabilities                                                     11,015
Redeemable Preferred Stock, par value $0.01 per share
    8,000,000 shares authorized:
    Shares issued and outstanding:
        Series A - 4,555,007                                           4,555
Accumulated dividends on preferred stock                                  12
                                                                  ----------
        Total Liabilities                                             28,553
                                                                  ----------

STOCKHOLDERS' EQUITY
Common Stock, par value $0.01 per share
    15,000,000 shares authorized;
    5,135,944 shares issued and outstanding                               51
Paid in Capital                                                       33,230
Accumulated Deficit                                                  (27,592)
Accumulated Other Comprehensive Loss                                  (3,443)
Treasury stock, 57,600 shares, at cost                                   (77)
Unearned compensation                                                   (100)
                                                                  ----------
Total Stockholders' Equity                                             2,069
                                                                  ----------
Total Liabilities and Stockholders' Equity                        $   30,622
                                                                  ==========


            See Notes to Condensed Consolidated Financial Statements.

                                     Page 1
<PAGE>

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


                                                     Three Months Ended     Nine Months Ended
                                                        September 30,         September 30,
                                                       2003       2002       2003       2002
                                                     --------   --------   --------   --------

<S>                                                  <C>        <C>        <C>        <C>
Net sales                                            $ 10,781   $  5,912   $ 24,118   $ 17,514
Cost of sales                                           7,689      3,860     16,179     10,928
                                                     --------   --------   --------   --------
Gross profit                                            3,092      2,052      7,939      6,586
Selling, general and administrative expenses            2,124      1,593      6,422      4,929
                                                     --------   --------   --------   --------
Income before interest and income taxes                   968        459      1,517      1,657
Interest expense, net                                     148        111        404        315
Dividends on redeemable preferred stock                    69         --         69         --
                                                     --------   --------   --------   --------
Income before income taxes                                751        348      1,044      1,342
Provision for income taxes                                306        128        419        485
                                                     --------   --------   --------   --------
Net income                                                445        220        625        857
Less dividends on redeemable preferred stock               --         68        137        204
                                                     --------   --------   --------   --------
Income applicable to common stock                    $    445   $    152   $    488   $    653
                                                     ========   ========   ========   ========
Earnings per common share:
     Basic                                           $    .08   $    .05   $    .09   $    .23
                                                     ========   ========   ========   ========
     Diluted                                         $    .08   $    .05   $    .09   $    .23
                                                     ========   ========   ========   ========

Weighted average common shares outstanding - basic      5,136      2,787      5,080      2,787
Potential common shares                                   250         --        207         --
                                                     --------   --------   --------   --------
Weighted average common
     shares outstanding - diluted                       5,386      2,787      5,287      2,787
                                                     ========   ========   ========   ========
</TABLE>


            See Notes to Condensed Consolidated Financial Statements.

                                     Page 2
<PAGE>

<TABLE>
<CAPTION>
                               LEVCOR INTERNATIONAL, INC.
                                    AND SUBSIDIARIES
                                 CONDENSED CONSOLIDATED
                           STATEMENTS OF COMPREHENSIVE INCOME
                                       (UNAUDITED)
                                 (Dollars in thousands)


                                                Three Months Ended     Nine Months Ended
                                                   September 30,          September 30,
                                                 2003        2002       2003       2002
                                               --------    --------   --------   --------
<S>                                            <C>         <C>        <C>        <C>
Net income before dividends on redeemable
     preferred stock                           $    445    $    220   $    625   $    857
Other comprehensive income:
     Foreign currency translation adjustment         (4)          1         42        102
                                               --------    --------   --------   --------
Comprehensive income                           $    441    $    221   $    667   $    959
                                               ========    ========   ========   ========
</TABLE>


            See Notes to Condensed Consolidated Financial Statements.

                                     Page 3
<PAGE>

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


                                                                  Nine Months Ended September 30,
                                                                        2003          2002
                                                                     ----------    ----------
<S>                                                                  <C>           <C>
Cash Flows From Operating Activities:
Net income                                                           $      625    $      857
Reconciliation of net income to net cash provided by
   (used in) operations:
      Depreciation and amortization                                         344           415
      Deferred tax provision                                                317            --
      Stock based compensation                                               21            --
      Changes in operating assets and liabilities:
         Accounts receivable                                               (434)          102
         Inventories                                                       (627)         (916)
         Other current assets                                                93           (92)
         Other assets                                                       (91)         (107)
         Accounts payable                                                  (459)           39
         Other current liabilities                                         (867)           55
         Other liabilities                                                 (410)         (315)
                                                                     ----------    ----------
            Net cash provided by (used in) operating activities          (1,488)           38
                                                                     ----------    ----------

Cash Flows From Investing Activities:
Capital expenditures                                                       (108)          (71)
Cash acquired from acquisition                                                4            --
Investment in other assets                                                  (67)          (50)
                                                                     ----------    ----------
            Net cash used in investing activities                          (171)         (121)
                                                                     ----------    ----------

Cash Flows From Financing Activities:
Revolving loan and long-term debt, net                                     (208)          (67)
Due to factor                                                             1,144            --
Proceeds from stockholder loan, net                                         852            --
Dividends on redeemable preferred stock                                    (137)         (204)
Deferred financing costs                                                     --           (30)
                                                                     ----------    ----------
            Net cash provided by (used in) financing activities           1,651          (301)
                                                                     ----------    ----------

Effect of exchange rate changes on cash                                       1            --
                                                                     ----------    ----------

Decrease in cash                                                             (7)         (384)
Cash at beginning of period                                                  71           398
                                                                     ----------    ----------
Cash at end of period                                                $       64    $       14
                                                                     ==========    ==========

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
   Interest                                                          $      358    $      322
                                                                     ==========    ==========
   Dividends on redeemable preferred stock                           $       69    $       --
                                                                     ==========    ==========
   Income taxes                                                      $      339    $      428
                                                                     ==========    ==========
</TABLE>


            See Notes to Condensed Consolidated Financial Statements

                                     Page 4
<PAGE>

                           LEVCOR INTERNATIONAL, INC.
                               NOTES TO CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2003


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

The Unaudited Condensed Consolidated Balance Sheet as of September 30, 2003 and
the Unaudited Condensed Consolidated Statements of Income for the three and nine
months ended September 30, 2003 include the accounts of Levcor International,
Inc. ("Levcor" or "the Company") and of Carlyle Industries, Inc. ("Carlyle"),
which was merged with and into the Company effective January 6, 2003. For
accounting purposes, Carlyle is deemed to have been the acquiror in the merger.
Accordingly, the comparative Unaudited Condensed Consolidated Statements of
Income, Cash Flows, and Comprehensive Income for the three and nine months ended
September 30, 2002 represent the historical accounts of Carlyle only. See Note 3
for a description of the transaction, the purchase price allocation and pro
forma information. The comparative weighted average shares outstanding for the
three and nine months ended September 30, 2002 have been adjusted to reflect the
one for five reverse stock split assumed to have occurred due to the merger.

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

Operating results for the three and nine month periods ended September 30, 2003
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2003. For further information, refer to Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
consolidated financial statements and footnotes included in the Company's annual
report on Form 10-KSB for the year ended December 31, 2002 and Current Report on
Form 8-K/A filed on March 21, 2003 for information regarding the historical
financial statements of Carlyle.

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

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

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

                                     Page 5
<PAGE>

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

Revenue Recognition: Revenue is recognized upon shipment of merchandise.

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

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

New Accounting Pronouncements: In January 2003, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"), to
clarify when a company should consolidate in its financial statements the
assets, liabilities and activities of a variable interest entity. The adoption
of FIN 46 did not have an impact on the Company's financial reporting and
disclosures, because the Company did not have any transactions with variable
interest entities.

In May 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS No. 150 changes the
accounting for certain financial instruments that, under previous guidance,
could be classified as equity or "mezzanine" equity, by now requiring those
instruments to be classified as liabilities (or assets in some circumstances) in
the statement of financial position. Further, SFAS No. 150 requires disclosure
regarding the terms of those instruments and settlement alternatives. The
guidance in SFAS No. 150 generally is effective for all financial instruments
entered into or modified after May 31, 2003, and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
has evaluated SFAS No. 150 and determined that beginning July 1, 2003 the new
pronouncement will require its Redeemable Preferred Stock and accumulated
dividends of $4.6 million to be included in total liabilities. (See Note 9).

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

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

                                     Page 6
<PAGE>

The transaction has been accounted for as a reverse acquisition under the
purchase method of accounting in accordance with SFAS No. 141, "Business
Combinations." As a reverse acquisition, Carlyle is treated as the acquiror and
the continuing entity for financial accounting and reporting purposes. Under
reverse acquisition accounting rules, Carlyle is treated as if it declared a
1-for-5 reverse stock split of its common stock and subsequently exchanged its
common stock for the Company's Common Stock on a one-to-one ratio and its stock
options for the Company's stock options on a one-to-one ratio. The aggregate
estimated purchase price plus liabilities assumed totaled $12,542,000, based
upon the fair value of the Common Stock and options deemed acquired for similar
Carlyle instruments. The purchase price reflects Carlyle's acquisition of the
Company's net assets, which are total assets less the assumption of $5,730,000
of the Company's debt and liabilities. The merger agreement did not require any
contingent consideration to be issued.

The pro forma purchase price allocation presented below is preliminary and
subject to change based on the completion of various studies and appraisals.
During the third quarter, the Company obtained an appraisal of the trademark and
adjusted the carrying value accordingly. The calculation of the purchase price
and the preliminary allocation to assets and liabilities are as follows (dollars
in thousands):

<TABLE>
<CAPTION>
<S>                                                                             <C>
         Purchase price allocation:
                 Fair value of shares of Carlyle common stock deemed issued     $  5,986
                 Fair value of outstanding vested and unvested options,
                    net of unearned compensation of $112                             601
                 Direct acquisition costs incurred by Carlyle                        225
                                                                                --------
                         Total purchase price                                      6,812
                 Fair value of Levcor liabilities deemed assumed by Carlyle        5,730
                                                                                --------
                         Total purchase price plus liabilities deemed
                              assumed by Carlyle                                $ 12,542
                                                                                ========

         Fair value of Levcor assets deemed acquired:
                 Current assets                                                 $  1,972
                 Fixed assets                                                         59
                 Deferred tax asset                                                2,100
                 Other assets                                                         35
                 Trademark                                                           709
                 Goodwill                                                          7,667
                                                                                --------
                 Total assets deemed acquired                                     12,542
                                                                                --------
                 Current liabilities                                              (1,945)
                 Long term debt                                                   (3,785)
                                                                                --------
                 Total liabilities deemed assumed                                 (5,730)
                                                                                --------
                 Net assets deemed acquired                                     $  6,812
                                                                                ========
</TABLE>


Pro Forma Financial Information

The results of operations of Carlyle are included in the Company's Condensed
Consolidated Statements of Operations as of the acquisition date of January 6,
2003. Because there was no material business conducted by Carlyle in the two
business days before the merger, the results of operations for the nine months
ended September 30, 2003 represent the results of operations of the combined
entities for the full nine-month period.

                                     Page 7
<PAGE>

The following pro forma income statements for the three and nine months ended
September 30, 2002 have been prepared assuming the merger was consummated on
January 1, 2002. All pro forma information is based on estimates and assumptions
deemed appropriate by the Company. The pro forma information is presented for
illustrative purposes only. The pro forma information should not be relied upon
as an indication of the operating results that the Company would have achieved
if the transactions had occurred on January 1, 2002. The pro forma information
also should not be used as an indication of the future results that the Company
will achieve after the transaction.

<TABLE>
<CAPTION>
                                                          Three Months      Nine Months
                                                              Ended            Ended
                                                          September 30,    September 30,
                                                              2002             2002
                                                          -------------    -------------
                                                              (dollars in thousands)

<S>                                                       <C>              <C>
         Net revenues                                     $       7,343    $      26,066
         Cost of sales                                            5,054           17,609
                                                          -------------    -------------
         Gross profit                                             2,289            8,457
         Selling, general and administrative expenses             2,367            7,093
                                                          -------------    -------------
         Income (loss) before interest and income taxes             (78)           1,364
         Interest expense                                           152              476
                                                          -------------    -------------
         Income (loss) before income taxes                         (230)             888
         (Provision) benefit for income taxes                        83             (320)
                                                          -------------    -------------
         Income (loss) before preferred dividends                  (147)             568
         Dividends on redeemable preferred stock                    (68)            (204)
                                                          -------------    -------------
         Net income (loss)                                $        (215)   $         364
                                                          =============    =============

         Earnings (loss) per common share:
         Basic income (loss) per common share             $        (.04)   $         .07
                                                          =============    =============

         Diluted income (loss) per common share           $        (.04)   $         .07
                                                          =============    =============

         Weighted average common shares outstanding:
         Basic                                                5,125,166        5,122,544
         Potential common shares                                     --           95,425
                                                          -------------    -------------
         Diluted                                              5,125,166        5,217,969
                                                          =============    =============
</TABLE>

NOTE 4:  GOODWILL AND OTHER INTANGIBLE ASSETS
---------------------------------------------

In 2002, the Company adopted SFAS No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires business
combinations completed after June 30, 2001 to be accounted for using the
purchase method of accounting. Under SFAS No. 142, goodwill and other intangible
assets (with indefinite lives) will not be amortized but will be tested for
impairment at least annually. This test involves the use of estimates related to
the fair value of the business with which the goodwill and other intangible
assets with indefinite lives is allocated. There were no impairment losses as a
result of this test.

A summary of the change in the carrying amount of goodwill by reportable segment
for the period ended September 30, 2003 is as follows (dollars in thousands):

                                             Textile     Craft      Total
                                            --------   --------   --------

         Balance as of January 1, 2003      $     --   $  2,543   $  2,543
         Goodwill acquired                     7,667         --      7,667
                                            --------   --------   --------
         Balance as of September 30, 2003   $  7,667   $  2,543   $ 10,210
                                            ========   ========   ========

                                     Page 8
<PAGE>

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

The Company operates in two reportable segments: Textile and Craft. Prior to the
merger of Carlyle and Levcor, the Company operated only the Craft segment.
Accounting policies of the two segments are substantially the same as those
described in the summary of significant accounting policies as presented in Note
2. All revenues generated in the segments are external. The following table sets
forth information regarding operations and assets by reportable segment (dollars
in thousands):

<TABLE>
<CAPTION>
                                                   Three Months Ended     Nine Months Ended
                                                      September 30,         September 30,
                                                     2003       2002       2003        2002
                                                   --------   --------   --------    --------
<S>                                                <C>        <C>        <C>         <C>
         Revenue:
           Textile                                 $  4,753   $     --   $  6,696    $     --
           Craft                                      6,028      5,912     17,422      17,514
                                                   --------   --------   --------    --------
                                                   $ 10,781   $  5,912   $ 24,118    $ 17,514
                                                   ========   ========   ========    ========
         Operating income (loss):
           Textile                                 $    435   $     --   $   (183)   $     --
           Craft                                        816        711      2,531       2,423
                                                   --------   --------   --------    --------
                                                   $  1,251   $    711   $  2,348    $  2,423
                                                   ========   ========   ========    ========

         Corporate general and
           administrative expense                  $    283   $    252   $    831    $    766
         Interest expense, net                          148        111        404         315
         Dividends on redeemable preferred stock         69         --         69          --
         Provision for income taxes                     306        128        419         485
                                                   --------   --------   --------    --------
         Net income                                $    445   $    220   $    625    $    857
                                                   ========   ========   ========    ========
         Depreciation and amortization:
           Textile                                 $      9   $     --   $     25    $     --
           Craft                                        105        146        319         415
                                                   --------   --------   --------    --------
                                                   $    114   $    146   $    344    $    415
                                                   ========   ========   ========    ========

         Capital expenditures:
           Textile                                 $     27   $     --   $     62    $     --
           Craft                                         11         19         46          71
           Corporate                                     --         --         --          --
                                                   --------   --------   --------    --------
                                                   $     38   $     19   $    108    $     71
                                                   ========   ========   ========    ========
</TABLE>

NOTE 6:  EARNINGS PER COMMON SHARE
----------------------------------

Earnings per common share have been computed on the basis of weighted average
common shares outstanding after providing for quarterly preferred dividend
requirements. Diluted earnings per common share includes the effect of stock
options. For the three and nine months ended September 30, 2003, there were
249,795 and 207,103, respectively, of stock options outstanding included in the
fully diluted earnings per share calculations. There were no dilutive options
outstanding during the three or nine months ended September 30, 2002.

                                     Page 9
<PAGE>

The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per common share computations for the three and nine
months ended September 30, 2003 (dollars in thousands, except per share
amounts):

<TABLE>
<CAPTION>
Three months ended September 30, 2003:                     Income       Shares      Per Share
                                                         ----------   ----------   ----------
<S>                                                      <C>           <C>         <C>
    Basic income attributable to common stockholders     $      445    5,135,944   $      .08
    Effect of dilutive options                                   --      249,795           --
                                                         ----------   ----------   ----------
    Diluted income attributable to common stockholders   $      445    5,385,739   $      .08
                                                         ==========   ==========   ==========


Nine months ended September 30, 2003:
    Basic income available to common stockholders        $      488    5,080,310   $      .09
    Effect of dilutive options                                   --      207,103           --
                                                         ----------   ----------   ----------
    Diluted income available to common stockholders      $      488    5,287,413   $      .09
                                                         ==========   ==========   ==========
</TABLE>

NOTE 7:  INVENTORIES
--------------------

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

                                         September 30, 2003    December 31, 2002
                                         ------------------    -----------------
              Raw materials                   $  2,984              $  2,622
              Work in Progress                      39                    22
              Finished goods                     4,296                 2,606
                                              --------              --------
                                              $  7,319              $  5,250
                                              ========              ========

At September 30, 2003 inventories were valued on an average cost method basis.
Inventories are stated at the lower of cost or market.

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

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

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

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.8 million of which was outstanding at
September 30, 2003, (ii) revolving credit advances to the Company in an amount
up to $500,000 and (iii) revolving credit advances to Blumenthal and Westwater
based upon eligible accounts receivable and inventory, and a Letter of Credit
facility with a limit of $500,000. The Term Loan amortizes $12,000 per month
followed by a final installment payment of $1.6 million due on January 1, 2005.
The revolving credit advances are also due on January 1, 2005. All amounts
outstanding under the CIT Facility bear interest at the Chase Bank N.A. prime
rate plus 0.5% with a minimum rate of 5.0%.

                                     Page 10
<PAGE>

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

The CIT Facility contains representations and warranties and events of default
customary for agreements of this nature such as restrictions on incurring more
debt, acquisitions and the use of proceeds from the sales of assets, and the
prohibition of preferred stock redemptions, dividend payments in excess of
$300,000 per year, and a change in voting control of the Company. The CIT
Facility also contains a subjective acceleration clause which states that,
except for the Term Loan, all obligations shall, at CIT's option, be immediately
due and payable without notice or demand upon the occurrence of any change in
the Company's condition or affairs (financial or otherwise) that, in CIT's sole
discretion exercised by CIT in accordance with CIT's business judgment,
materially impairs the collateral or increases CIT's risk. In the case of the
Term Loan, CIT may accelerate the maturity in the event of a default by the
Company after thirteen months notice of such acceleration. Management of the
Company believes that the likelihood of CIT accelerating the payment of any of
the obligations under the CIT Facility in 2003 is remote.

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

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of May 2, 2005, as amended. The note bears
interest at a fixed rate per annum equal to the Adjusted LIBO Rate applicable to
such note plus 0.75% (a "Eurodollar Loan"). The interest rate on the note at
September 30, 2003 was 2.03125%. In addition, Robert A. Levinson, a stockholder,
officer and director of the Company, has provided certain additional collateral
guaranteeing the note.

Robert A. Levinson has made long-term loans totaling $500,000 to the Company.
Mr. Levinson has agreed not to require payment of these loans and $307,000 of
related accrued interest at September 30, 2003 prior to January 2, 2005.

Robert A. Levinson has also agreed to continue to personally support the
Company's cash requirements as necessary, up to a maximum amount of $3.0
million, to enable the Company to meet its current obligations through January
2, 2005 and to fund future operations. In connection with this agreement, Mr.
Levinson advanced $1.730 million to the Company during the nine months ended
September 30, 2003, of which $830 thousand was outstanding as of September 30,
2003 and such amount is included in current liabilities in the Unaudited
Condensed Consolidated Balance Sheet as of September 30, 2003. As of October 31,
2003 the advances from Mr. Levinson had been repaid in full.

                                     Page 11
<PAGE>

The total amount of cash advances, long-term loans and accrued interest
outstanding and payable to Mr. Levinson was $1.6 million as of September 30,
2003. The loans and advances from Mr. Levinson all accrue interest at 6% per
annum.

During the period ended September 30, 2003, the Company was in compliance with
all debt covenants.

NOTE 9:  REDEEMABLE PREFERRED STOCK
-----------------------------------

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

During the three months ended September 30, 2003, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equities" ("SFAS 150"). Accordingly, the redeemable preferred stock has been
classified as a liability in the balance sheet as of September 30, 2003. The
Statements of Income for the three and nine months ended September 30, 2003
include $69,000 of preferred stock dividends paid during the third quarter of
2003 which have been included in the determination of operating income. For
periods prior to July 1, 2003, such redeemable preferred stock dividend payments
are reported as an adjustment to net income to arrive at net income attributable
to common stockholders. In accordance with SFAS 150, dividend payments made in
the first and second quarters of 2003 and all comparable quarters of 2002 are
not permitted to be reclassified to the current accounting treatment and as a
result they continue to be presented on a separate line.

NOTE 10: COMMON STOCK AND STOCK OPTIONS
---------------------------------------

Between January 1, 2003 and September 30, 2003, the Company issued an aggregate
of 10,692 shares of common stock to Directors and recorded such issuance as
stock based compensation expense.

During the three months ended September 30, 2003, the Company issued 200,000
employee options, with an exercise price of $2.45. The options vest over a
period of three years and expire after a period of ten years.

NOTE 11: RELATED PARTY TRANSACTION
----------------------------------

Robert A. Levinson has provided long-term loans of $500,000 to the Company,
pledged collateral in support of certain Company obligations and in the second
and third quarters of 2003 made cash advances to the Company totaling $1.730
million. See Note 8 for a description of these transactions.


                                     Page 12
<PAGE>

In addition to being a director of the Company, Edward H. Cohen serves as
counsel to Katten Muchin Zavis Rosenman, New York, New York, legal counsel to
the Company. During the nine months ended September 30, 2003, fees for services
provided to the Company by Katten Muchin Zavis Rosenman totaled $412,000 of
which $357,000 was related to the merger transaction and had been accrued and
expensed as of December 31, 2002. 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.


                                     Page 13
<PAGE>

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

Critical Accounting Policies and Estimates

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

Receivables

Because the Textile segment factors substantially all of its accounts
receivable, accounts receivable, trade, as shown on the Unaudited Condensed
Consolidated Balance Sheet, is primarily related to the Company's Craft segment.

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

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

Inventories

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

Revenue Recognition

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

                                     Page 14
<PAGE>

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

Pension Liabilities

The Company used an estimated rate of return of 8.00% and a discount rate of
6.75% in computing its pension liabilities.

Shipping and Handling Costs

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

Results of Operations

Three Months Ended September 30, 2003 Compared to Three Months Ended September
30, 2002

Operating results in 2003 include the consolidated results of Levcor and
Carlyle, which merged on January 6, 2003. Because the merger has been accounted
for as a reverse acquisition, comparative results for 2002 as presented in the
accompanying Condensed Consolidated Statement of Operations and in this
Management's Discussion and Analysis of Results of Operations include only the
results of Carlyle.

Net sales for the three months ended September 30, 2003 totaled $10.8 million,
comprised of net sales in the Craft segment of $6.0 million and net sales in the
Textile segment of $4.8 million. Net sales for the three months ended September
30, 2002 totaled $5.9 million, all of which were in the Craft segment.

Gross margin during the third quarter of 2003 totaled $3.1 million as compared
to $2.1 million in the third quarter of 2002. The gross margin percent during
the third quarter of 2003 was 29% as compared to 35% during the third quarter of
2002. The increase in gross margin dollars was attributable to incremental
Textile division sales. The decline in gross margin percent was the result of
lower gross margin associated with the Textile division sales.

Selling, general and administrative expenses in the third quarter of 2003
totaled $2.1 million as compared to $1.6 million in the third quarter of 2002.
The increase in selling, general and administrative expenses was the result of
incremental expenses incurred by the Textile segment.

Income before interest and income taxes for the three months ended September 30,
2003 totaled $968,000 as compared to income before interest and income taxes of
$459,000 during the same period last year. The increase from 2002 to 2003 was
primarily attributable to the incremental income before interest and income
taxes provided by the Textile segment.

Net interest expense during the third quarter of 2003 totaled $148,000 as
compared to net interest expense of $111,000 during the third quarter of 2002.
The increase in interest expense as compared to the same period last year was
the result of higher average debt outstanding during the third quarter of 2003
primarily as a result of the Company's deemed assumption of Levcor's debt in the
merger.

                                     Page 15
<PAGE>

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

The provision for income taxes during the third quarter of 2003 was $306,000 as
compared to $128,000 during the third quarter of 2002. The combined effective
income tax rate was 40.7% in the third quarter of 2003 as compared to 36.8% in
the third quarter of 2002. The increase in the effective rate was the result of
an increase in the average combined state income tax rates in the third quarter
of 2003 as compared to the third quarter of 2002 and due to the non
deductibility of dividends on redeemable preferred stock that are included in
income before provision for income taxes. Because of the Company's net operating
loss carryforward, the Federal income tax provision at 34% reduces the deferred
tax asset and, beginning in 2003, does not require a cash payment.

Series A Preferred Stock dividend accruals during the third quarter of 2002
totaled $68,000.

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

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002

Net sales for the nine months ended September 30, 2003 totaled $24.1 million,
comprised of $17.4 million in Craft segment sales and $6.7 million in Textile
segment sales. Net sales for the nine months ended September 30, 2002 totaled
$17.5 million, all of which were Craft segment sales. Net sales in the Textile
segment increased sequentially in the third quarter as compared to the second
quarter of 2003 by approximately $6.1 million as the Company completed and
shipped the majority of a new seasonal finished garment program.

Gross margin during the first nine months of 2003 totaled $7.9 million as
compared to $6.6 million during the first nine months of 2002. The gross margin
percent during the nine months ended September 30, 2003 was 33% as compared to
38% during the nine months ended September 30, 2002. The gross margin dollar
increase in 2003 as compared to 2002 was the result of incremental sales volume
contributed by the Textile segment. The decline in gross margin percent was the
result of lower margins on Textile segment sales.

Selling, general and administrative expenses totaled $6.4 million during the
nine months ended September 30, 2003 as compared to $4.9 million during the
comparable period last year. The increase in selling, general and administrative
expense in 2003 was primarily the result of additional costs associated with the
Textile segment.

                                     Page 16
<PAGE>

Income before interest and income taxes for the nine months ended September 30,
2003 totaled $1.5 million as compared to $1.7 million for the same period in
2002. The decrease in income before interest and income taxes in 2003 as
compared to 2002 was primarily the result of the operating loss incurred by the
Textile segment.

Net interest expense during the nine months ended September 30, 2003 totaled
$404,000 as compared to $315,000 during the nine months ended September 30,
2002. The increase in interest expense was the result of higher average debt
outstanding during 2003, primarily as a result of the Company's deemed
assumption of Levcor's debt in the merger.

Income before income taxes for the nine months ended September 30, 2003 was
reduced by the accrual of the Series A Redeemable Preferred Stock dividends that
totaled $69,000 for the period, due to the Company's adoption of the provisions
of SFAS 150 during the third quarter of 2003. The accrual of preferred stock
dividends was previously reported as an adjustment to Net Income to arrive at
Net Income Attributable to Common Stockholders and the provisions of SFAS 150
preclude the restatement of prior year and prior quarter financial statements.

The provision for income taxes during the nine months ended September 30, 2003
totaled $419,000 as compared to $485,000 during the nine months ended September
30, 2002. The combined effective income tax rate was 40.1% during the nine
months ended September 30, 2003 as compared to 36.1% during the comparable
period in 2002. The increase in the effective rate was the result of an increase
in the average combined state income tax rates in 2003 as compared to 2002 and
due to the non deductibility of dividends on redeemable preferred stock that are
included in income before provision for income taxes. Because of the Company's
net operating loss carryforward, the Federal income tax provision at 34% reduces
the deferred tax asset and, beginning in 2003, does not require a cash payment.

Series A Preferred Stock dividends during the nine months ended September 30,
2003 and 2002 totaled $137,000 and $204,000 respectively.

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

Liquidity and Capital Resources

In early 2003, the Company's Textile segment began operating as a garment
contractor for a major account. The nature of this type of business is such that
a significant working capital investment is required in the early phases of the
business cycle in the form of inventory. The Company's factoring agreement with
CIT does not provide funding for inventory located outside of the United States,
where the production takes place, but does provide funding once the goods are
received in the United States. As a result, Robert A. Levinson, a stockholder,
officer and director of the Company, made advances to the Company during the
second and third quarters of 2003 totaling $1.730 million to fund these
operations. As the majority of this off-shore production was completed and
shipped by the end of the third quarter 2003, the Company's factoring agreement
with CIT provided funds for working capital and as such $900,000 of the advances
from Robert A. Levinson were repaid, leaving a balance of $830,000 as of
September 30, 2003. As of October 31, 2003 this balance had been repaid in full.

                                     Page 17
<PAGE>

At September 30, 2003 the Company's principal sources of liquidity included cash
of $64,000 and trade accounts receivable of $3.1 million.

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

Net cash flow used in operating activities totaled $1.5 million during the nine
months ended September 30, 2003, as compared to $38,000 cash provided by
operations during the same period last year. The increase in cash flow used by
operating activities was the result of a significant increase in inventory
levels associated with the Textile segment, and payment of certain current
liabilities.

Net cash flow used in investing activities totaled $171,000 during the nine
months ended September 30, 2003, as compared to $121,000 during 2002. The
increase in net cash flows used in investing activity was primarily the result
of incremental capital expenditures made by the Textile segment.

Net cash provided by financing activities totaled $1.7 million during the nine
months ended September 30, 2003, as compared to $301,000 of net cash used in
financing activities for the nine months ended September 30, 2002. Net
repayments under the Company's credit facilities during the nine months ended
September 30, 2003 totaled $208,000 as compared to repayments of $67,000 during
the same period last year. Net amount due to factor during the nine months ended
September 30, 2003 totaled $1.1 million versus none during the nine months ended
September 30, 2002. Net borrowings from Robert A. Levinson totaled $852,000
during the nine months ended September 30, 2003 as compared to no net borrowings
during the same period in 2002. Cash used for preferred stock dividend payments
during the nine months ended September 30, 2003 totaled $137,000 as compared to
$204,000 during the nine months ended September 30, 2002. The reduction in cash
flows used in preferred stock dividend payments is due to the effect of the
adoption of SFAS 150 in the third quarter 2003 as the preferred stock dividend
payment of $69,000 is included in the determination of net income. Deferred
financing costs totaling $30,000 were capitalized in connection with the CIT
Facility during the nine months ended September 30, 2002. There were no such
costs in 2003.

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (4.50% at September 30, 2003). The Company pledged
its Textile segment's accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.

On May 2, 2002, the Company borrowed $3.0 million from JPMorgan Chase Bank
("JPMorgan") pursuant to a promissory note due May 2, 2005 as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBO Rate
applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest on the

                                     Page 18
<PAGE>

note at September 30, 2003 was 2.03125%. In addition, Robert A. Levinson a
stockholder, officer and director of the Company has provided certain additional
collateral guaranteeing the note.

Mr. Levinson has agreed to personally support the Company's cash requirements to
enable it to fulfill its obligations through January 2, 2005, 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.

As of September 30, 2003, the Company owes Mr. Levinson $1.6 million including
accrued interest. The long-term loans, which total $500,000, together with
accrued interest of $307,000, have been classified as a long-term obligation
because Mr. Levinson has promised not to demand payment until at least January
2, 2005. The Company believes its reliance on such written undertaking is
reasonable. In the event that Mr. Levinson did demand repayment prior to January
2, 2005, the Company believes that such demand would be unenforceable and that
the Company would have the right to sue Mr. Levinson for breach of his
agreement. Mr. Levinson reaffirmed this undertaking in writing on March 4, 2003.

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

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.8 million of which was outstanding at
September 30, 2003, (ii) revolving credit advances to the Company in an amount
up to $500,000 and (iii) revolving credit advances to Blumenthal and Westwater
based upon eligible accounts receivable and inventory, and a Letter of Credit
facility with a limit of $500,000. The Term Loan amortizes $12,000 per month
followed by a final installment payment of $1.6 million due on January 1, 2005.
The revolving credit advances are also due on January 1, 2005. All amounts
outstanding under the CIT Facility bear interest at the Chase Bank N.A. prime
rate plus 0.5% with a minimum rate of 5.0%.

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

The CIT Facility contains representations and warranties and events of default
customary for agreements of this nature such as restrictions on incurring more
debt, acquisitions and the use of proceeds from the sales of assets, and the
prohibition of preferred stock redemptions, dividend payments in excess of
$300,000 per year, and a change in voting control of the Company. The CIT
Facility also contains a subjective acceleration clause which states that,
except for the Term Loan, all obligations shall, at CIT's option, be immediately

                                     Page 19
<PAGE>

due and payable without notice or demand upon the occurrence of any change in
the Company's condition or affairs (financial or otherwise) that, in CIT's sole
discretion exercised by CIT in accordance with CIT's business judgment,
materially impairs the collateral or increases CIT's risk. In the case of the
Term Loan, CIT may accelerate the maturity in the event of a default by the
Company after thirteen months notice of such acceleration. Management of the
Company believes that the likelihood of CIT accelerating the payment of any of
the obligations under the CIT Facility in 2003 is remote.

During the period ended September 30, 2003, the Company was in compliance with
all debt covenants.

In connection with the merger, the Company issued 4,555,007 shares of its Series
A Preferred Stock for 4,555,007 shares of Carlyle's Series B 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 on June 15,
2007, June 15, 2008 and June 15, 2009, in each case, from funds legally
available therefor, at a price per share of Series A Preferred Stock equal to $1
per share, together with an amount representing accrued and unpaid dividends,
whether or not declared, to the date of redemption. Dividends on the Series A
Preferred Stock accrue at a rate of $0.06 per annum per share when, as and if
declared by the Company and are payable quarterly on March 15, June 15,
September 15 and December 15. Quarterly dividends which are not paid in full in
cash on any dividend payment date will accumulate without interest. Under the
terms of the CIT Facilities, preferred stock redemption payments are prohibited
and preferred stock dividend payments are limited to $300,000 per year.

Seasonality and New Programs

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

The Company's Craft business is largely based on its ability to place new
programs with its retail customers and to fulfill reorders of new and existing
programs. 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.

                                     Page 20
<PAGE>

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

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" ("FIN 46"), to clarify when a company should
consolidate in its financial statements the assets, liabilities and activities
of a variable interest entity. The adoption of FIN 46 did not have an impact on
the Company's financial reporting and disclosures, because the Company did not
have any transactions with variable interest entities.

In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 changes the accounting
for certain financial instruments that, under previous guidance, could be
classified as equity or "mezzanine" equity, by now requiring those instruments
to be classified as liabilities (or assets in some circumstances) in the
statement of financial position. Further, SFAS No. 150 requires disclosure
regarding the terms of those instruments and settlement alternatives. The
guidance in SFAS No. 150 generally is effective for all financial instruments
entered into or modified after May 31, 2003, and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The Company
has evaluated SFAS No. 150 and determined that beginning July 1, 2003 the new
pronouncement will require its Redeemable Preferred Stock and accumulated
dividends of $4.6 million to be included in total liabilities.

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.

                                     Page 21
<PAGE>

Forward-Looking Statements

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

ITEM 3.  CONTROLS AND PROCEDURES

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

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

In designing and evaluating the Company's disclosure 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.

                                     Page 22
<PAGE>

No change occurred in the Company's internal controls concerning financial
reporting during the third quarter of the fiscal year ended September 30, 2003
that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting.



                           PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

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

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

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

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

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


(b)  Reports on Form 8-K

None.


                                     Page 23
<PAGE>

                                   SIGNATURES
                                   ----------

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


                                  LEVCOR INTERNATIONAL, INC.



Date: November 14, 2003           /s/ ROBERT A. LEVINSON
      -----------------           ----------------------------------------------
                                  Robert A. Levinson
                                  Chairman of the Board, President and Chief
                                  Executive Officer



Date: November 14, 2003           /s/ EDWARD F. COOKE
      -----------------           ----------------------------------------------
                                  Edward F. Cooke
                                  Chief Financial Officer, Vice President,
                                  Secretary and Treasurer


                                     Page 24
<PAGE>

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


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

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

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

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


                                     Page 25