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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                ----------------
                                    FORM 10-Q

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

For the quarterly period ended June 30, 2005
                               -------------


                 [ ] 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.)

              1065 Avenue of the Americas, 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
          ---

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 [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes [ ] No [X]

As of August 12, 2005, 5,331,881 shares of Common Stock, par value $0.01 per
share, were issued and outstanding.

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

                           LEVCOR INTERNATIONAL, INC.

                                      INDEX

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets
         as of June 30, 2005 and December 31, 2004 (audited)..................1

         Condensed Consolidated Statements of Operations
         for the Three and Six Months Ended June 30, 2005 and 2004............2

         Condensed Consolidated Statements of Comprehensive Income (Loss)
         for the Three and Six Months Ended June 30, 2005 and 2004............2

         Condensed Consolidated Statements of Cash Flows
         for the Six Months Ended June 30, 2005 and 2004......................3

         Notes to Condensed Consolidated Financial Statements
         June 30, 2005 and 2004...............................................4


Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations ..............................................13

Item 3.  Quantitative and Qualitative Disclosures About Market Risk..........30

Item 4.  Controls and Procedures.............................................31

PART II. OTHER INFORMATION

Item 1   Legal Proceedings...................................................31

Item 6.  Exhibits ...........................................................32

         Signatures..........................................................33

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                   LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
ASSETS
Current Assets:                                                       June 30, 2005       December 31, 2004
                                                                        (Unaudited)           (Audited)
                                                                     ----------------     ----------------
<S>                                                                  <C>                  <C>
     Cash                                                            $              5     $             32
     Accounts receivable trade, net                                             3,126                3,601
     Inventories, net                                                          11,125                7,729
     Deferred income taxes                                                      1,097                  898
     Other current assets                                                         309                  214
                                                                     ----------------     ----------------
         Total current assets                                                  15,662               12,474

Property, Plant and Equipment, net                                              2,134                2,305
Goodwill                                                                        4,843                4,843
Deferred income taxes                                                           3,646                3,611
Other assets                                                                    1,758                1,651
                                                                     ----------------     ----------------
         Total Assets                                                $         28,043     $         24,884
                                                                     ================     ================

LIABILITIES
Current Liabilities:
     Revolving loan and current maturities of long-term debt         $          5,508     $          3,987
     Due to factor                                                                574                1,403
     Stockholder loan, current portion                                          2,498                   --
     Accounts payable                                                           3,250                1,848
     Other current liabilities                                                    741                1,219
                                                                     ----------------     ----------------
         Total current liabilities                                             12,571                8,457
                                                                     ----------------     ----------------
Long-term debt, less current maturities                                         4,371                4,443
Stockholder loan                                                                  832                  816
Pension liabilities                                                             5,860                5,907
Post retirement medical liabilities                                             2,073                2,154
Environmental liabilities                                                       1,361                1,388
Other liabilities                                                                 208                  349
Mandatory Redeemable Preferred Stock, par value $0.01 per share
     8,000,000 shares authorized:  Shares issued and outstanding:
     Series A - 4,555,007                                                       4,555                4,555
                                                                     ----------------     ----------------
         Total Liabilities                                                     31,831               28,069
                                                                     ----------------     ----------------

STOCKHOLDERS' DEFICIT
Common Stock, par value $0.01 per share
     15,000,000 shares authorized;
     Shares issued and outstanding: 5,331,881 as of June 30, 2005
         and 5,329,564 at December 31, 2004                                        54                   54
Paid in Capital                                                                33,238               33,234
Accumulated Deficit                                                           (34,136)             (33,535)
Accumulated Other Comprehensive Loss                                           (2,872)              (2,858)
Unearned Compensation                                                             (72)                 (80)
                                                                     ----------------     ----------------
Total Stockholders' Deficit                                                    (3,788)              (3,185)
                                                                     ----------------     ----------------
Total Liabilities and Stockholders' Deficit                          $         28,043     $         24,884
                                                                     ================     ================
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                     Page 1
<PAGE>

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

<TABLE>
<CAPTION>
                                                         Three Months Ended            Six Months Ended
                                                               June 30,                    June 30,
                                                      -------------------------    -------------------------
                                                         2005           2004          2005           2004
                                                      ----------     ----------    ----------     ----------
<S>                                                   <C>            <C>           <C>            <C>
Net sales                                             $    5,933     $    6,661    $   12,041     $   13,274
Cost of sales                                              4,296          4,323         8,518          8,499
                                                      ----------     ----------    ----------     ----------
                                                           1,637          2,338         3,523          4,775
Selling, general and administrative expenses               1,920          2,067         3,893          4,233
                                                      ----------     ----------    ----------     ----------
Income (loss) before interest, preferred dividends
     and income taxes                                       (283)           271          (370)           542
Interest expense, net                                        196            142           358            266
Dividends on mandatory redeemable preferred stock             68             68           136            137
                                                      ----------     ----------    ----------     ----------
Income (loss) before income taxes                           (547)            61          (864)           139
Provision (benefit) for income taxes                        (170)            49          (263)           105
                                                      ----------     ----------    ----------     ----------
Net income (loss)                                     $     (377)    $       12    $     (601)    $       34
                                                      ==========     ==========    ==========     ==========

Earnings (loss) per share:
         Basic                                        $     (.07)    $       --*   $     (.11)    $       --*
                                                      ==========     ==========    ==========     ==========
         Diluted                                      $     (.07)    $       --*   $     (.11)    $       --*
                                                      ==========     ==========    ==========     ==========

Weighted average shares outstanding - basic                5,332          5,303         5,332          5,262
Potential common stock                                        --             70            --             86
                                                      ----------     ----------    ----------     ----------
Weighted average shares outstanding - diluted              5,332          5,373         5,332          5,348
                                                      ==========     ==========    ==========     ==========

</TABLE>
*  Less than $.005

See Notes to Condensed Consolidated Financial Statements.

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

<TABLE>
<CAPTION>
                                                        Three Months Ended             Six Months Ended
                                                             June 30,                      June 30,
                                                    -------------------------     -------------------------
                                                       2005           2004           2005           2004
                                                    ----------     ----------     ----------     ----------
<S>                                                 <C>            <C>            <C>            <C>
Net income (loss)                                   $     (377)    $       12     $     (601)    $       34
Other comprehensive loss:
         Foreign currency translation adjustment            (9)            (1)           (14)           (12)
                                                    ----------     ----------     ----------     ----------
Comprehensive income (loss)                         $     (386)    $       11     $     (615)    $       22
                                                    ==========     ==========     ==========     ==========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                     Page 2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                       Six Months Ended June 30,
                                                                       -------------------------
                                                                          2005           2004
                                                                       ----------     ----------
<S>                                                                    <C>            <C>
Cash Flows Used In Operating Activities:
Net income (loss)                                                      $     (601)    $       34
Reconciliation of net income (loss) to net cash used in operations:
      Depreciation and amortization                                           188            222
      Deferred tax provision (benefit)                                       (234)            90
      Stock based compensation                                                  4             17
      Changes in operating assets and liabilities:
        Accounts receivable trade, net                                        475         (1,104)
        Inventories, net                                                   (3,343)        (3,459)
        Other current assets                                                  (95)          (178)
        Other assets                                                         (131)            17
        Accounts payable                                                    1,402          1,532
        Other current liabilities                                            (478)           (76)
        Pension liabilities                                                   (47)           (43)
        Post retirement medical liabilities                                   (81)           (90)
        Environmental liabilities                                             (27)            (1)
        Other liabilities                                                    (141)          (249)
                                                                       ----------     ----------
             Net cash used in operating activities                         (3,109)        (3,288)
                                                                       ----------     ----------

Cash Flows Used In Investing Activities:
Capital expenditures                                                          (19)           (74)
Investment in other assets                                                    (33)           (35)
                                                                       ----------     ----------
             Net cash used in investing activities                            (52)          (109)
                                                                       ----------     ----------

Cash Flows From Financing Activities:
Revolving loan and long-term debt, net                                      1,449          1,753
Due to/from factor                                                           (829)           212
Stockholder loans, net                                                      2,514          1,420
Proceeds from exercise of stock options                                        --             16
                                                                       ----------     ----------
             Net cash provided by financing activities                      3,134          3,401
                                                                       ----------     ----------

Increase (decrease) in cash                                                   (27)             4
Cash at beginning of period                                                    32             44
                                                                       ----------     ----------
Cash at end of period                                                  $        5     $       48
                                                                       ==========     ==========

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
   Interest                                                            $      296     $      254
                                                                       ==========     ==========
   Income taxes                                                        $       46     $       48
                                                                       ==========     ==========

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

See Notes to Condensed Consolidated Financial Statements

                                     Page 3
<PAGE>

                           LEVCOR INTERNATIONAL, INC.
                          NOTES TO UNAUDITED CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS
                             JUNE 30, 2005 and 2004


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

The Condensed Consolidated Balance Sheets as of June 30, 2005 (Unaudited) and
December 31, 2004 (Audited) and the Unaudited Condensed Consolidated Statements
of Operations for the three and six months ended June 30, 2005 and 2004 and
Unaudited Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2005 and 2004 include the accounts of Levcor International, Inc.
("Levcor" or "the Company") and its subsidiaries.

The accompanying unaudited condensed consolidated financial statements have been
prepared in 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 GAAP for
complete financial statements. In the opinion of management, all normal and
recurring adjustments and accruals considered necessary for a fair presentation
have been included. The interim results are not necessarily indicative of the
results for a full year and do not contain information included in the Company's
annual consolidated financial statements and notes for the year ended December
31, 2004. The consolidated balance sheet as of December 31, 2004 was derived
from audited financial statements, but does not include all disclosures required
by GAAP. It is suggested that these financial statements be used in conjunction
with the financial statements and notes thereto included in the Company's latest
annual report.

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

Nature of Operation: The Company (i) operates a textile business that
manufactures 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 also has distribution in Canada and
Europe.

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

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

                                     Page 4
<PAGE>

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

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

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

Goodwill: The Company reviews goodwill for impairment annually, or more
frequently if impairment indicators arise. Goodwill is written off when
impaired.

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

<TABLE>
<CAPTION>
                                                  Three Months Ended           Six Months Ended
                                                        June 30,                    June 30,
                                               ------------------------     ------------------------
                                                  2005          2004           2005          2004
                                               ----------    ----------     ----------    ----------
<S>                                            <C>           <C>            <C>           <C>
         Net income (loss)
              As Reported                      $     (377)   $       12     $     (601)   $       34
               Pro Forma                       $     (394)   $       (4)    $     (636)   $        3
         Basic Earnings (loss) per share:
              As Reported                      $     (.07)   $       --*    $     (.11)   $       --*
              Pro Forma                        $     (.07)   $       --*    $     (.12)   $       --*
         Diluted Earnings (loss) per share:
              As Reported                      $     (.07)   $       --*    $     (.11)   $       --*
              Pro Forma                        $     (.07)   $       --*    $     (.12)   $       --*
</TABLE>

*Less than $.005

Earnings (loss) per share: Basic and diluted earnings (loss) per share ("EPS")
are calculated in accordance with Financial Accounting Standards Board ("FASB")
Statement No. 128, Earnings Per Share. Weighted average shares used in computing
basic and diluted EPS are as follows:

                                     Page 5
<PAGE>

<TABLE>
<CAPTION>
                                                     Three Months Ended           Six Months Ended
                                                          June 30,                    June 30,
                                                  -----------------------     -----------------------
                                                     2005          2004          2005          2004
                                                  ---------     ---------     ---------     ---------
<S>                                               <C>           <C>           <C>           <C>
         Weighted average shares outstanding:
         Basic                                    5,331,881     5,302,918     5,331,651     5,262,483
         Effect of dilutive securities                   --        70,137            --        85,656
                                                  ---------     ---------     ---------     ---------
         Diluted                                  5,331,881     5,373,055     5,331,651     5,348,139
                                                  =========     =========     =========     =========
</TABLE>

Dilutive securities include stock options.

For the three and six months ended June 30, 2005, there were outstanding options
to purchase 81,200 shares of common stock which were "in the money" but not
included in the computation of diluted EPS, as the effect on net loss per share
would be anti-dilutive. In addition, for the three and six months ended June 30,
2005, there were 364,400 shares of common stock which were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the closing market price at June 30, 2005.

For the three and six months ended June 30, 2004, outstanding options to
purchase 362,800 shares of common stock were not included in the computations of
diluted EPS, because the options' exercise prices were greater than the closing
market price of the common stock at June 30, 2004.

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

New Accounting Pronouncements: In March 2005, Staff Accounting Bulletin No. 107
("SAB 107") was issued which expressed views of the Securities and Exchange
Commission ("SEC") regarding the interaction between Statement of Financial
Accounting Standards ("SFAS") No. 123R, "Share-based Payment" and certain SEC
rules and regulations and provides the staff's views regarding the valuation of
share-based payment arrangements for public companies. The accounting provisions
of SFAS 123R are effective for reporting periods beginning after June 15, 2005.
Although the Company has not yet determined whether adoption of SFAS 123R will
result in amounts that are similar to the current pro forma disclosures under
SFAS 123, the Company is evaluating the requirement under SFAS 123R, acceptable
methods of determining fair market value, and the magnitude of the impact on its
2005 consolidated net income and earnings per share. However, in April 2005, the
SEC announced the adoption of an Amendment to Rule 4-01(a) of Regulation S-X
regarding the compliance date for SFAS 123R that amends the compliance dates and
allows companies to implement SFAS 123R beginning with the first annual
reporting period beginning on or after June 15, 2005. The Company intends to
adopt SFAS 123R in its fiscal year beginning January 1, 2006.

In June 2005, the FASB issued Statement of Financial Accounting Standards No.
154, Accounting Changes and Error Corrections (" FAS 154"). FAS 154 replaces APB
Opinion No. 20, Accounting Changes and FAS No. 3, Reporting Accounting Changes
in Interim Financial Statements. FAS 154 requires that a voluntary change in
accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle. FAS 154 also requires that
a change in method of depreciating or amortizing a long-lived nonfinancial asset
be accounted for prospectively as a change in estimate, and correction of errors
in previously issued financial statements should be termed a restatement. FAS
154 is effective for accounting changes and correction of errors made in fiscal
years beginning after December 15, 2005. The implementation of FAS 154 is not
expected to have a material impact on the Company's consolidated financial
statements.

                                     Page 6
<PAGE>

The FASB issued Staff Position FIN46(R)-5, Implicit Variable Interests Under
FASB Interpretation No. 46 (revised December 2003), in March 2005. It addresses
whether a reporting enterprise should consider whether it holds an implicit
variable interest in a variable interest entity ("VIE") or potential VIE when
specific conditions exist. The Company did not experience any impact on its
financial position or results of operations as a result of its adoption of Fin
46(R)-5 in the second quarter of 2005.

NOTE 3:  SEGMENT INFORMATION
----------------------------

The Company operates in two reportable segments: Textile and Craft. Accounting
policies of the two segments are substantially the same as those described in
the summary of significant accounting policies as presented in the financial
statements as of and for the year ended December 31, 2004, which were included
in the Company's most recent Form 10-KSB. All revenues generated in the segments
are external.

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

<TABLE>
<CAPTION>
                                                  Three Months Ended              Six Months Ended
                                                        June 30,                      June 30,
                                               -------------------------     -------------------------
                                                  2005           2004           2005           2004
                                               ----------     ----------     ----------     ----------
<S>                                            <C>            <C>            <C>            <C>
       Revenue:
         Textile                               $      776     $    1,026     $    2,373     $    1,927
         Craft                                      5,157          5,635          9,668         11,347
                                               ----------     ----------     ----------     ----------
                                               $    5,933     $    6,661     $   12,041     $   13,274
                                               ==========     ==========     ==========     ==========
       Operating income (loss):
         Textile                               $     (292)    $     (254)    $     (473)    $     (568)
         Craft                                        277            806            698          1,656
                                               ----------     ----------     ----------     ----------
                                                      (15)           552            225          1,088
       Corporate general and
         administrative expense                      (268)          (281)          (595)          (546)
       Interest expense, net                         (196)          (142)          (358)          (266)
       Dividends on mandatory
         redeemable preferred stock                   (68)           (68)          (136)          (137)
       (Provision) benefit for income taxes           170            (49)           263           (105)
                                               ----------     ----------     ----------     ----------
       Net income (loss)                       $     (377)    $       12     $     (601)    $       34
                                               ==========     ==========     ==========     ==========

Depreciation and amortization:
         Textile                               $        6     $       12     $       12     $       24
         Craft                                         82             90            168            186
         Corporate                                      4              8              8             12
                                               ----------     ----------     ----------     ----------
                                               $       92     $      110     $      188     $      222
                                               ==========     ==========     ==========     ==========

       Capital expenditures:
         Textile                               $       --     $       --     $       --     $       21
         Craft                                         15             15             19             53
                                               ----------     ----------     ----------     ----------
                                               $       15     $       15     $       19     $       74
                                               ==========     ==========     ==========     ==========
</TABLE>

                                     Page 7
<PAGE>

                                    June 30, 2005     December 31, 2004
                                  ----------------    -----------------
          Total assets:
            Textile               $          7,716    $          5,482
            Craft                           20,327              19,402
                                  ----------------    ----------------
                                  $         28,043    $         24,884
                                  ================    ================


NOTE 4:  INVENTORIES
--------------------

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

                                   June 30, 2005      December 31, 2004
                                 -----------------    -----------------
         Raw materials           $           6,452    $           4,641
         Work in progress                      283                  167
         Finished goods                      4,390                2,921
                                 -----------------    -----------------
                                 $          11,125    $           7,729
                                 =================    =================

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

NOTE 5:  PROPERTY, PLANT AND EQUIPMENT
--------------------------------------

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

<TABLE>
<CAPTION>
                                                              June 30, 2005       December 31, 2004
                                                            -----------------     -----------------
<S>                                                         <C>                   <C>
         Land and improvements                              $              77     $              80
         Buildings and improvements                                     2,471                 2,497
         Machinery and equipment                                        2,059                 2,128
                                                            -----------------     -----------------
                                                                        4,607                 4,705
         Less: Accumulated depreciation and amortization               (2,473)               (2,400)
                                                            -----------------     -----------------
                                                            $           2,134     $           2,305
                                                            =================     =================
</TABLE>

Depreciation and amortization expense for the six months ended June 30, 2005 and
2004 were approximately $188,000 and $222,000, respectively, and approximately
$92,000 and $110,000, respectively, for the three months ended June 30, 2005 and
2004.

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

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

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

                                     Page 8
<PAGE>

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.5 million of which was outstanding at
June 30, 2005, (ii) revolving credit advances to the Company, $685,000 of which
was outstanding at June 30, 2005 and (iii) revolving credit advances to
Blumenthal based upon eligible accounts receivable and inventory, $4,679,000 of
which was outstanding at June 30, 2005, and a Letter of Credit facility with a
limit of $500,000, of which there was none outstanding at June 30, 2005. The
Term Loan amortizes $12,000 per month followed by a final installment payment of
$1.4 million due on January 1, 2007. The revolving credit advances are also due
on January 1, 2007. All amounts outstanding under the CIT Facility bear interest
at the Chase Bank N.A. prime rate plus 0.5% with a minimum rate of 5.0%.

In connection with the CIT Facility, the Company and its subsidiary have made
cross corporate guarantees and have issued first priority liens covering
substantially all of the assets of the Company and its subsidiary. The
guarantees are full and unconditional. The non-guarantor subsidiary is
immaterial and the Company's financial statements are representative of the
combined guarantors of which the guarantor subsidiary is 100% owned. In
addition, Mr. Robert A. Levinson, a stockholder, officer and director of the
Company, provided certain collateral against advances provided under the CIT
Facility.

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

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (6.25% at June 30, 2005). 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 December 31, 2006, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBO Rate
applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on
the note at June 30, 2005 was 3.84%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

                                     Page 9
<PAGE>

Robert A. Levinson has made long-term loans totaling $500,000 to the Company at
an interest rate of 6% per annum. Mr. Levinson has agreed not to require payment
of these loans and $332,000 of related accrued interest at June 30, 2005 prior
to January 1, 2007.

Mr. Levinson has agreed to personally support the Company's cash requirements to
enable it to fulfill its obligations through January 1, 2007, to the extent
necessary, up to a maximum amount of $3.0 million. The Company believes its
reliance on such commitment is reasonable and that Mr. Levinson has sufficient
liquidity and net worth to honor such commitment. The Company believes that Mr.
Levinson's written commitment provides the Company with the legal right to
request and receive such advances. In the event that Mr. Levinson did not honor
such commitment, the Company would have the right to sue Mr. Levinson for breach
of his agreement. Mr. Levinson reaffirmed this undertaking in writing on March
9, 2005. In connection with this agreement, Mr. Levinson advanced approximately
$2,500,000 to the Company at an interest rate of 6% per annum during the first
six months of 2005.

During the six months ended June 30, 2005, the Company was in compliance with
all debt covenants.

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

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

The benefits under this plan are determined based on formulas, which reflect the
employees' years of service and compensation during their employment period. The
projected unit credit method is used to determine pension cost. Funding
requirements for the plan are based on the unit credit method. The Company's
policy is to fund pension cost as required by ERISA. For 2005, the minimum
funding requirements for the plan totals $52,000.

The Company provides certain health and life insurance benefits for eligible
retirees and their dependents. The Company accounts for post-retirement benefits
in accordance with SFAS Number 106, "Employers' Accounting for Post-retirement
Benefits Other Than Pensions", whereby the cost of post-retirement benefits are
accrued during employees' working careers. The plan is not funded. The Company's
policy is to pay the cost of benefits as incurred. Certain benefits are
available to full-time employees who were over age 30, as of January 1, 1992,
provided such employees work for the Company for 25 years and reach certain
ages, but not less than age 55. Employees hired after January 1, 1993 are not
eligible to receive benefits under this plan.

                                    Page 10
<PAGE>

A summary of net periodic benefit costs of the Company's defined benefit plan
and post retirement medical benefit plan for the three ended June 30, 2005 and
2004, respectively, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                  Three Months Ended              Six Months Ended
                                                        June 30,                      June 30,
                                               -------------------------     -------------------------
         Pension Benefits                         2005           2004           2005           2004
         ----------------                      ----------     ----------     ----------     ----------
<S>                                            <C>            <C>            <C>            <C>
         Service                               $       --     $       --     $       --     $       --
         Interest cost                                304            323            608            646
         Expected return on plan assets              (342)          (341)          (684)          (682)
         Amortization of prior service cost            --             --             --             --
         Recognized net actuarial loss                 46             38             92             76
                                               ----------     ----------     ----------     ----------
         Net periodic benefit cost             $        8     $       20     $       16     $       40
                                               ==========     ==========     ==========     ==========


                                                  Three Months Ended              Six Months Ended
                                                        June 30,                      June 30,
                                               -------------------------     -------------------------
         Other Benefits                           2005           2004           2005           2004
         --------------                        ----------     ----------     ----------     ----------
         Service                               $        4     $       --     $        8     $       --
         Interest cost                                 14             17             28             34
         Expected return on plan assets                --             --             --             --
         Amortization of prior service cost            (4)            (4)            (8)            (8)
         Recognized net actuarial gain                (26)           (20)           (52)           (40)
                                               ----------     ----------     ----------     ----------
         Net periodic benefit (gain)           $      (12)    $       (7)    $      (24)    $      (14)
                                               ==========     ==========     ==========     ==========
</TABLE>

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

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

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

Effective July 1, 2003, the Company adopted the provisions of SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equities". Accordingly, the redeemable preferred stock has been
classified as a liability on the balance sheet at redemption value as of June
30, 2005 and December 31, 2004. The Statements of Operations for the six months
ended June 30, 2005 and 2004 include $136,000 and $137,000, respectively, and
$68,000 for the three months ended June 30, 2005 and 2004 of preferred stock
dividends paid which have been included in the determination of operating income
(loss).

                                    Page 11
<PAGE>

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

During the six months ended June 30, 2005 and 2004, the Company issued an
aggregate of 2,317 shares and 5,526 shares, respectively, of common stock to a
director and recorded such issuance as stock based compensation expense.

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

NOTE 10:  CUSTOMER AND SUPPLIER CONCENTRATIONS
----------------------------------------------

The Textile division's two largest customers accounted for approximately 52% and
45%, respectively, during the six months ended June 30, 2005 and 81% and nil,
respectively, during the six months ended June 30, 2004, of the division's
sales. The Craft division's three largest customers (one mass merchandiser and
two specialty chains) represented approximately 44%, 21% and 9%, respectively,
in the six months ended June 30, 2005 and 43%, 23% and 9%, respectively, in the
six months ended June 30, 2004, of the division's net revenues. These Craft
division customers also represented approximately 69% of the total outstanding
accounts receivable as of June 30, 2005. A reduction in sales to any of these
customers could adversely impact the financial condition and results of
operations of the Company.

The principal raw materials used by the Textile division to fabricate textiles
are typically a combination or blend of two or more fibers, such as rayon,
acetate, polyester, cotton and acrylic. Two suppliers provided for approximately
16% and 10% respectively of the Textile division's purchases in 2005.

NOTE 11:  RELATED PARTY TRANSACTIONS
------------------------------------

Robert A. Levinson has provided long-term loans of $832,000 including accrued
interest of $332,000 to the Company as of June 30, 2005. He has also made short
term advances of approximately $2,500,000 during the six months ended June 30,
2005 and he has pledged collateral in support of certain Company obligations.
See Note 6 for a description of these transactions.

In addition to being a director of the Company, Edward H. Cohen serves as
counsel to Katten Muchin Rosenman LLP, legal counsel to the Company. During the
six months ended June 30, 2005 and 2004, fees for services provided to the
Company by Katten Muchin Rosenman LLP totaled approximately $90,000 and $65,000
respectively. Mr. Cohen does not share in the fees that the Company pays to such
law firm and his compensation is not based on such fees.

NOTE 12:  COMMITMENTS AND CONTINGENCIES
---------------------------------------

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

                                    Page 12
<PAGE>

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

Forward-Looking Statements

Introduction

You should read the following discussion and analysis in conjunction with our
condensed consolidated financial statements and the related notes thereto
included in this Report on Form 10-Q. The discussion in this Report contains
both historical information and forward-looking statements. A number of factors
affect our operating results and could cause our actual future results to differ
materially from any forward-looking results discussed below, including, but not
limited to, future revenue opportunities, reliance on short term advances from a
significant stockholder, development and growth of the Company's contract
garment manufacturing business, reliance on a limited number of significant
customers, reliance on third party suppliers and manufacturers, inventory risk,
growth of the Company's craft business in Europe and North America, the
expansion and future growth of the Company's customer base and strategic and
distribution relationships, future capital, marketing and sales force needs, the
Company's ability to manage expenses and maintain margins, the possible
acquisition of complementary products and businesses, and other risks and
uncertainties that may be detailed herein, and from time-to-time, in the
Company's other reports filed with the Securities and Exchange Commission. In
some cases, you can identify forward-looking statements by terminology such as
"anticipates", "appears", "believes", "continue", "could", "estimates",
"expects", "goal", "hope", "intends", "may", "our future success depends",
"plans", "potential", "predicts", "projects", "reasonably", "seek to continue",
"should", "thinks", "will" or the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In addition, historical information should not be considered
an indicator of future performance. Factors that could cause or contribute to
these differences include, but are not limited to, the risks discussed in the
section of this report titled "Factors Affecting Future Operating Results".
These factors may cause our actual results to differ materially from any
forward-looking statement.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this Report on Form 10-Q to conform these statements to actual results. These
forward-looking statements are made in reliance upon the safe harbor provision
of The Private Securities Litigation Reform Act of 1995.

Overview

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

                                    Page 13
<PAGE>

In 1995, the Company acquired a woven fabric converting business that converts
cotton, synthetics and blended fabrics for sale to domestic apparel
manufacturers. In 1999, the Company purchased a knit fabric and processing
business that produces knit fabrics used in the production of apparel. These
acquisitions formed the basis of the Textile division's historic fabric
conversion business. In 2003, the Company acquired by merger Carlyle Industries,
Inc. ("Carlyle"). This acquisition formed the basis of the Company's current
Craft business.

Currently, the Company (i) operates a textile business that manufactures
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 also has distribution in Canada and Europe.

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

     o    expanding the sales of its new contract garment manufacturing product
          lines and introduction of additional garment lines; and

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

Textile Division

In 2003, as a result of declining margins, the Company recorded a $5,367,000
charge to earnings for the impairment of goodwill in the Textile division's
fabric converting business. The charge was based upon a third party goodwill
impairment evaluation conducted in connection with the fiscal 2003 audit. As a
strategic response to these pressures, the Company began to transition the
Textile division to contract garment manufacturing beginning in the second half
of 2003, and the Textile division is now primarily engaged in manufacturing of
garments by third party manufacturers according to customer orders. The Textile
division, to a very limited extent, also converts woven textile fabrics and
processes woven and knit textile fabrics. These fabrics are either sold for
production principally to domestic manufacturers of women's apparel or, to a
limited extent, used when Levcor contracts construction of garments by third
party manufacturers according to customer's orders.

Sales related to contract garment manufacturing represented 85% of the Textile
division's net sales during the six months ended June 30, 2005 and 2004. The
Company anticipates that sales related to contract garment manufacturing by the
Textile division will represent in excess of 90 % of the Textile division's
annual revenue base in 2005.

The Company currently manufactures primarily women's coordinated sportswear,
tops, blazers and pants, which are targeted for the classical consumer and are
marketed at moderate price points, primarily in department and retail chain
stores.

The Company's garment manufacturing business consists of (i) receiving customer
orders for the manufacturing of garments, (ii) purchasing raw materials from
various U.S. sources, (iii) shipping the raw material to off shore manufacturers
who manufacture the garments according to the customer's specifications and (iv)
directing the flow of production, quality control and shipment of the finished
goods. The Company uses several third party manufacturers to eliminate the
significant capital investment requirements associated with maintaining
manufacturing facilities. Upon completion of the manufacturing process, the
Company's products are shipped from the contract manufacturers to the customer.

                                    Page 14
<PAGE>

The textile fabric converting process consists of (i) designing fabrics, (ii)
purchasing yarns both dyed and undyed and commissioning knitting mills to knit
the yarns into greige (unfinished) fabric according to the Company's
specifications, and (iii) commissioning fabric finishers to finish the fabrics
through a process of washing, bleaching, dyeing and applying certain chemical
finishes to greige fabric according to the Company's specifications. Finished
apparel fabric is fabric that is ready to be cut and sewn into garments.

The Textile division's two largest customers accounted for approximately 52% and
45%, respectively, during the six months ended June 30, 2005 and 81% and nil,
respectively, during the six months ended June 30, 2004.

The principal raw materials used by the Textile division to fabricate textiles
are typically a combination or blend of two or more fibers, such as rayon,
acetate, polyester, cotton and acrylic. Two suppliers provided for approximately
16% and 10% respectively of the Textile division's purchases in 2005.

Craft Division

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

The button products are sold primarily for use in the home sewing market where
buttons are used for garment 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.

Domestic shipments are made primarily to individual stores with a smaller
percentage to warehouse locations. The European business is primarily serviced
by third party distributors from the Company's button manufacturing and
distribution facility in Veendam, the Netherlands.

The Craft division'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 Crafts division 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.

                                    Page 15
<PAGE>

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

The Craft division's three largest customers (one mass merchandiser and two
specialty chains) represented approximately 44%, 21% and 9%, respectively,
during the six months ended June 30, 2005, and 43%, 23% and 9%, respectively,
during the six months ended June 30, 2004, of the division's net revenues. These
Craft division customers also represented approximately 69% of the total
outstanding accounts receivable as of June 30, 2005.

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

Critical Accounting Policies and Estimates

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

Receivables

The Textile segment factors substantially all of its accounts receivable,
therefore, the accounts receivable amount shown on the Condensed Consolidated
Balance Sheet is substantially all 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 several major retail customers.
Most of these retail customers are public companies and as such, the Company
monitors their financial reports on a regular basis and obtains accounts
receivable insurance in certain circumstances.

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

Inventories

Inventories are stated at the lower of cost (principally average cost) or
market. Inventories consist of loose buttons, unpackaged craft products, yarn
and greige goods, packaged craft and button products, finished fabric and
garments. The Company estimates markdowns required for inventories based upon
future marketability as well as general economic conditions. The Company

                                    Page 16
<PAGE>

regularly reviews inventory quantities on hand, by item, and records a provision
for excess inventory based primarily upon the Company's historical experience
and estimated forecast of product demand using historical and recent ordering
data relative to the quantity on hand for each item. A significant decrease in
demand for the Company's products could result in an increase in the amount of
excess inventory quantities on hand; however, the Company manages inventory and
monitors product purchasing to reduce this risk.

Intangible Assets

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

Pension Liabilities

The Company used an estimated rate of return of 8.00% and a discount rate of
5.75% in computing its defined benefit plan pension liability.

Revenue Recognition

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

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

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

Shipping and Handling Costs

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

Income Taxes

We are subject to taxation from federal, state and international jurisdictions.
A significant amount of management judgment is involved with our annual
provision for income taxes and the calculation of resulting deferred tax assets
and liabilities. We evaluate liabilities for estimated tax exposures in
jurisdictions of operation. These tax jurisdictions include federal, state and
international tax jurisdictions. Significant income tax exposures include
potential challenges on foreign entities, merger, acquisition and disposition
transactions and intercompany pricing. Exposures are settled primarily through
the completion of audits within these tax jurisdictions, but can also be

                                    Page 17
<PAGE>

affected by other factors. Changes could cause management to find a revision of
past estimates appropriate. The liabilities are frequently reviewed by
management for their adequacy and appropriateness. As of June 30, 2005, we were
not currently under audit by the U.S. taxing authorities. Tax periods within the
statutory period of limitations not previously audited are potentially open for
examination by the taxing authorities. Potential liabilities associated with
these years will be resolved when an event occurs to warrant closure, primarily
through the completion of audits by the taxing jurisdictions. To the extent
audits or other events result in a material adjustment to the accrued estimates,
the effect would be recognized during the period of the event. Management
believes that an appropriate liability has been established for estimated
exposures, though the potential exists for results to vary materially from these
estimates.

We record a valuation allowance to reduce deferred tax assets when it is more
likely than not that some portion or all of the deferred tax assets may not be
realized. We consider future taxable income and prudent and feasible tax
planning strategies in determining the need for a valuation allowance. We
evaluate the need for a valuation allowance on a regular basis and adjust as
needed. These adjustments have an impact on our financial statements in the
periods in which they are recorded. We determined that a valuation allowance
should be recorded against certain of our deferred tax assets based on the
criteria of Statement of Financial Accounting Standards ("SFAS") No. 109,
Accounting for Income Taxes. As of June 30, 2005, this valuation allowance is
still in place.

Stock-Based Compensation

We account for compensation cost related to employee stock options and other
forms of employee stock-based compensation plans other than ESOP in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market prices of the underlying stock exceeded the exercise price. We apply
Financial Accounting Standards Board ("FASB") SFAS No. 123, Accounting for
Stock-Based Compensation, which allows entities to continue to apply the
provision of APB No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants as if the fair value
based method defined in SFAS No. 123 had been applied.

The accounting for stock-based compensation involves a number of estimates about
the expected lives of stock options, interest rates, stock volatility, and
assumptions as well as the selection of a valuation model. We have elected to
use the Black-Scholes option valuation model. A change in any of these estimates
or a selection of a different option pricing model could have a material impact
on our pro forma net income (loss) disclosures. Beginning in the first quarter
of 2006, we will be required to account for stock-based compensation under SFAS
No. 123R, Share-Based Payment, which will require us to recognize the estimate
on our financial statements. See Note 2 of the Notes to Condensed Consolidated
Financial Statements for further discussion.


Results of Operations

Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004

Net sales for the three months ended June 30, 2005 totaled $5.9 million as
compared to $6.7 million during the three months ended June 30, 2004.

                                    Page 18
<PAGE>

Net sales in the Textile segment for the three months ended June 30, 2005
totaled $776,000 as compared to $1.0 million during the three months ended June
30, 2004. The decrease in Textile segment sales during the second quarter of
2005 as compared to the second quarter of 2004 was the result of lower sales to
one of our major customers, which lower sales were a reflection of weaker
seasonal retail demand in the general apparel marketplace. The women's wear
segment of the contract garment manufacturing business in which the Textile
division competes is very seasonal and, based upon our current customer base,
sales continue to be heavily weighted primarily to the third quarter.

Net sales in the Craft segment totaled $5.2 million during the three months
ended June 30, 2005 as compared to $5.6 million during the three months ended
June 30, 2004. The decrease in Craft segment sales was the result of an increase
in the reserve for sales returns in connection with a major program change for a
significant customer.

Gross margin during the three months ended June 30, 2005 was $1.6 million as
compared to $2.3 million during the three months ended June 30, 2004. The gross
margin percent totaled 27.6% during the three months ended June 30, 2005 as
compared to 35.1% during the three months ended June 30, 2004.

Gross margin in the Textile segment totaled $126,000 during the three months
ended June 30, 2005 versus $208,000 during the three months ended June 30, 2004.
The gross margin percent during the three months ended June 30, 2005 totaled
16.2% as compared to 20.3% during the three months ended June 30, 2004. The
decrease in Textile segment gross margin during the three months ended June 30,
2005 was the combination of reduced sales as described above and an increase in
variable cost of goods sold associated with an increase in raw material costs.

Gross margin in the Craft segment totaled $1.5 million during the three months
ended June 30, 2005 as compared to $2.1 million during the same period last
year. The Craft segment gross margin percent during the three months ended June
30, 2005 totaled 29.3% as compared to 37.8% during the three months ended June
30, 2004. The decrease in Craft segment gross margin was the result of lower net
sales due to higher reserves for sales returns as described above and higher
variable costs related to seasonal program changes.

Selling, general and administrative expenses totaled approximately $1.9 million
during the three months ended June 30, 2005, as compared to $2.1 million during
the three months ended June 30, 2004. The reduction in general and
administrative expenses was primarily the result of reduced compensation
expense.

Loss before interest, preferred dividends and income taxes during the three
months ended June 30, 2005 totaled $283,000 as compared to income of $271,000
during the three months ended June 30, 2004. The decrease in income before
interest, preferred dividends and income taxes during the three months ended
June 30, 2005 compared to the three months ended June 30, 2004 was primarily due
to the reduction in gross profit, as discussed above, offset in part by the
lower level of selling, general and administrative expenses.

Net interest expense during the three months ended June 30, 2005 totaled
$196,000 as compared to net interest expense of $142,000 during the three months
ended June 30, 2004. The increase in interest expense as compared to the same
period last year was primarily the result of higher average debt levels during
the second quarter 2005 as compared to the second quarter of 2004 combined with
an increase in the average interest rate.

                                    Page 19
<PAGE>

Dividends on mandatory redeemable preferred stock totaled $68,000 during the
three months ended June 30, 2005 and 2004.

The benefit for income taxes during the three months ended June 30, 2005 was
$170,000 as compared to a provision of $49,000 during the three months ended
June 30, 2004.


Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004

Net sales for the six months ended June 30, 2005 totaled $12.0 million as
compared to $13.3 million during the six months ended June 30, 2004.

Net sales in the Textile segment for the six months ended June 30, 2005 totaled
$2.4 million as compared to $1.9 million during the six months ended June 30,
2004. The increase in Textile segment sales during 2005 was the result of a new
spring contract garment manufacturing program in 2005. The women's wear segment
of the contract garment manufacturing business in which the Textile division
competes is very seasonal and, based upon our current customer base, sales
continue to be heavily weighted primarily to the third quarter.

Net sales in the Craft segment totaled $9.7 million during the six months ended
June 30, 2005 as compared to $11.3 million during the six months ended June 30,
2004. The decrease in Craft segment sales totaling $1.6 million was the result
of an increase in the reserve for sales returns in connection with a major
program change for a significant customer, lower reorders reflecting reduced
retail traffic and lower spring promotional craft orders.

Gross margin during the six months ended June 30, 2005 was $3.5 million as
compared to $4.8 million during the six months ended June 30, 2004. The gross
margin percent totaled 29.3% during the six months ended June 30, 2005 as
compared to 36.0% during the six months ended June 30, 2004.

Gross margin in the Textile segment totaled $378,000 during the six months ended
June 30, 2005 versus $394,000 during the six months ended June 30, 2004. The
gross margin percent during the six months ended June 30, 2005 totaled 15.9% as
compared to 20.4% during the six months ended June 30, 2004. The decrease in
Textile segment gross margin during the six months ended June 30, 2005 was the
result of lower sales volume as described and higher variable cost of goods sold
associated with the spring garment program.

Gross margin in the Craft segment totaled $3.1 million during the six months
ended June 30, 2005 as compared to $4.4 million during the same period last
year. The Craft segment gross margin percent during the six months ended June
30, 2005 totaled 32.5% as compared to 38.6% during the six months ended June 30,
2004. The decrease in Craft segment gross margin was the result of lower net
sales due to higher reserves for sales returns as described above and higher
variable cost of goods sold related to seasonal program changes for a major
customer.

Selling, general and administrative expenses totaled approximately $3.9 million
during the six months ended June 30, 2005, as compared to $4.2 million during
the six months ended June 30, 2004. The reduction in general and administrative
expenses was primarily the result of reduced compensation expense.

                                    Page 20
<PAGE>

Loss before interest, preferred dividends and income taxes during the six months
ended June 30, 2005 totaled $370,000 as compared to income of $542,000 during
the six months ended June 30, 2004. The decrease in income before interest,
preferred dividends and income taxes during the six months ended June 30, 2005
compared to the six months ended June 30, 2004 was primarily due to the
reduction in gross profit, as discussed above, offset in part by the lower level
of selling, general and administrative expenses.

Net interest expense during the six months ended June 30, 2005 totaled $358,000
as compared to net interest expense of $266,000 during the six months ended June
30, 2004. The increase in interest expense as compared to the same period last
year was primarily the result of higher average debt levels during the first six
months of 2005 as compared to the first six months of 2004 combined with an
increase in the average interest rate.

Dividends on mandatory redeemable preferred stock totaled $136,000 during the
six months ended June 30, 2005 as compared to $137,000 during the same period
last year.

The benefit for income taxes during the six months ended June 30, 2005 was
$263,000 as compared to a provision of $105,000 during the six months ended June
30, 2004.

Liquidity and Capital Resources

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

At June 30, 2005 the Company's principal sources of liquidity included cash of
$5,000 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.

Cash Flow Summary:
(in thousands)

                                                   2005           2004
                                                ----------     ----------
         Net cash (used in) provided by:
                  Operating activities          $   (3,109)    $   (3,288)
                  Investing activities                 (52)          (109)
                  Financing activities               3,134          3,401
                                                ----------     ----------
         Net change in cash                     $      (27)    $        4
                                                ==========     ==========

Net cash flow used in operating activities totaled $3.1 million during the six
months ended June 30, 2005, as compared to $3.3 million net cash flow used in
operating activities during the same period last year. The reduction in net cash
flow used in operating activities totaling $179,000 was primarily the result of

                                    Page 21
<PAGE>

a decrease in cash used for operating assets and liabilities, primarily accounts
receivable.

Net cash flow used in investing activities totaled $52,000 during the during the
six months ended June 30, 2005, as compared to $109,000 during the during the
six months ended June 30, 2004, primarily as a result of a $55,000 decrease in
capital expenditures.

Net cash provided by financing activities totaled $3.1 million during the six
months ended June 30, 2005, as compared to $3.4 million during the same period
last year. The decrease in cash provided by financing activities was the result
of reduced cash needs due to the lower amounts of cash used in net operating
activities and investing activities as discussed above.

Net proceeds from stockholder loans during the six months ended June 30, 2005
totaled $2.5 million as compared to $1.4 million during the same period last
year. The increase in stockholder loan is primarily the result of an increase in
inventory in the Textile division totaling $736,000, which inventory does not
provide borrowing availability under the Company's credit facility as discussed
above.

Net borrowings under the Company's credit facilities during the six months ended
June 30, 2005, totaled $1.4 million as compared $1.8 million during the same
period last year. Net amount repaid to factor during the during the six months
ended June 30, 2005 totaled $829,000 as compared to borrowing from factor of
$212,000 during the during the six months ended June 30, 2004.

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 the Company and its wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal").

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.5 million of which was outstanding at
June 30, 2005, (ii) revolving credit advances to the Company, $685,000 of which
was outstanding at June 30, 2005 and (iii) revolving credit advances to
Blumenthal based upon eligible accounts receivable and inventory, $4,679,000 of
which was outstanding at June 30, 2005, and a Letter of Credit facility with a
limit of $500,000, of which there was none outstanding at June 30, 2005. The
Term Loan amortizes $12,000 per month followed by a final installment payment of
$1.4 million due on January 1, 2007. The revolving credit advances are also due
on January 1, 2007. All amounts outstanding under the CIT Facility bear interest
at the Chase Bank N.A. prime rate plus 0.5% with a minimum rate of 5.0%.

In connection with the CIT Facility, the Company and its subsidiary have made
cross corporate guarantees and have issued first priority liens covering
substantially all of the assets of the Company and its subsidiary. 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

                                    Page 22
<PAGE>

addition, Mr. Robert A. Levinson, a stockholder, officer and director of the
Company, provided certain collateral against advances provided under the CIT
Facility.

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

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (6.25% at June 30, 2005). 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 December 31, 2006, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBO Rate
applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on
the note at June 30, 2005 was 3.84%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Robert A. Levinson has made long-term loans totaling $500,000 to the Company at
an interest rate of 6% per annum. Mr. Levinson has agreed not to require payment
of these loans and $332,000 of related accrued interest at June 30, 2005 prior
to January 1, 2007.

Mr. Levinson has agreed to personally support the Company's cash requirements to
enable it to fulfill its obligations through January 1, 2007, to the extent
necessary, up to a maximum amount of $3.0 million. The Company believes its
reliance on such commitment is reasonable and that Mr. Levinson has sufficient
liquidity and net worth to honor such commitment. The Company believes that Mr.
Levinson's written commitment provides the Company with the legal right to
request and receive such advances. In the event that Mr. Levinson did not honor
such commitment, the Company would have the right to sue Mr. Levinson for breach
of his agreement. Mr. Levinson reaffirmed this undertaking in writing on March
9, 2005. In connection with this agreement, Mr. Levinson advanced approximately
$2,500,000 to the Company at an interest rate of 6% per annum during the first
six months of 2005.

                                    Page 23
<PAGE>

During the six months ended June 30, 2005, the Company was in compliance with
all debt covenants.

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


Seasonality and New Product Lines

The Company's Textile business is seasonal and as such the Company generally
realizes significantly higher revenues and operating income in the third
quarter, as compared to other quarters of the year. 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 therefore has higher working capital needs during the second and
third quarters of its fiscal year. This standard lead-time also results in
significant backlogs during the second and third quarters. The Company ships
most of these seasonal orders to customers during the third quarter. The Textile
division's backlog as of June 30, 2005 was approximately $4.5 million. Although
the Company has not had significant cancellations in the past, no assurance can
be given that it will not experience a significant level of cancellations in the
future or that its backlog at any point in time will be converted to sales. 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.

The Company's Craft business is largely based on its ability to fulfill reorders
of existing product lines and to place new product lines with 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 programs 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 programs at an acceptable level.

The sale of the Company's products can be subject to substantial cyclical
fluctuation. Sales may decline in periods of recession or uncertainty regarding
future economic prospects that affect consumer spending, particularly on

                                    Page 24
<PAGE>

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.

New Accounting Pronouncements

In March 2005, Staff Accounting Bulletin No. 107 ("SAB 107") was issued which
expressed views of the Securities and Exchange Commission ("SEC") regarding the
interaction between Statement of Financial Accounting Standards ("SFAS") No.
123R, "Share-based Payment" and certain SEC rules and regulations and provides
the staff's views regarding the valuation of share-based payment arrangements
for public companies. The accounting provisions of SFAS 123R are effective for
reporting periods beginning after June 15, 2005. Although the Company has not
yet determined whether adoption of SFAS 123R will result in amounts that are
similar to the current pro forma disclosures under SFAS 123, the Company is
evaluating the requirement under SFAS 123R, acceptable methods of determining
fair market value, and the magnitude of the impact on its 2005 consolidated net
income and earnings per share. However, in April 2005, the SEC announced the
adoption of an Amendment to Rule 4-01(a) of Regulation S-X regarding the
compliance date for SFAS 123R that amends the compliance dates and allows
companies to implement SFAS 123R beginning with the first annual reporting
period beginning on or after June 15, 2005. The Company intends to adopt SFAS
123R in its fiscal year beginning January 1, 2006.

In June 2005, the FASB issued Statement of Financial Accounting Standards No.
154, Accounting Changes and Error Corrections (" FAS 154"). FAS 154 replaces APB
Opinion No. 20, Accounting Changes and FAS No. 3, Reporting Accounting Changes
in Interim Financial Statements. FAS 154 requires that a voluntary change in
accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle. FAS 154 also requires that
a change in method of depreciating or amortizing a long-lived nonfinancial asset
be accounted for prospectively as a change in estimate, and correction of errors
in previously issued financial statements should be termed a restatement. FAS
154 is effective for accounting changes and correction of errors made in fiscal
years beginning after December 15, 2005. The implementation of FAS 154 is not
expected to have a material impact on the Company's consolidated financial
statements.

The FASB issued Staff Position FIN46(R)-5, Implicit Variable Interests Under
FASB Interpretation No. 46 (revised December 2003), in March 2005. It addresses
whether a reporting enterprise should consider whether it holds an implicit
variable interest in a variable interest entity ("VIE") or potential VIE when
specific conditions exist. The Company did not experience any impact on its
financial position or results of operations as a result of its adoption of Fin
46(R)-5 in the second quarter of 2005.

Factors That Could Affect Our Future Results

The Company May Be Dependent Upon Its Principal Stockholder, Officer and
Director To Fund Its Future Operations.

Losses sustained in prior years have adversely affected the Company's liquidity.
Robert A. Levinson has agreed to continue to personally support the Company's
cash requirements up to $3.0 million through January 1, 2007, $2.5 million of
which was outstanding at June 30, 2005. There can be no assurance that Mr.
Levinson will continue to personally support the Company's cash requirements.

                                    Page 25
<PAGE>

Expansion of Garment Manufacturing Business.

During the second quarter of 2005, the Textile division results experienced a
24% reduction in revenues compared to the second quarter of 2004. There is no
assurance that the Company will successfully expand its garment manufacturing
business or that such expansion and certain cost saving initiatives will further
improve results in the Textile division. The Company remains vulnerable to a
variety of business risks generally associated with the entry into a new line of
business, the introduction of new product lines and the broadening of its
product offerings. The Company will be required to continue to implement changes
to certain aspects of its business and could need to expand operations to
respond to increased demands. Accordingly, the Company's past growth in contract
garment manufacturing cannot be assumed to be indicative of its future operating
results. In addition, the encountering of unexpected difficulties or delays,
loss of a key customer or manufacturing relationship could adversely affect the
Company's business, financial condition or results of operations.

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

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

     o    the volume and timing of customer orders received;

     o    the timing and magnitude of customers' marketing campaigns;

     o    the loss or addition of a major customer;

     o    the availability and pricing of materials for our products;

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

     o    currency fluctuations;

     o    delays caused by third parties; and

     o    changes in our product mix.

The Company's Business Is Extremely Competitive.

In the event the Company is unable to continue to be competitive in its product
offerings and services, the Company's business, results of operations and
financial condition may suffer. Competition in contract garment manufacturing is
based on price, quality and on-time delivery. The contract garment manufacturing
industry is highly fragmented. The Company competes with many companies,
including foreign competitors, engaged in the production and distribution of
women's apparel, some of which have longer operating histories and financial,
sales and marketing capabilities and other competitive resources which are
substantially greater than those of the Company. The Company also faces
competition from its existing customers, who may themselves begin to produce
women's apparel directly.

                                    Page 26
<PAGE>

Competition in the domestic textile fabric converting business is based on
price, uniqueness in styling of fabrics and the ability to quickly respond to
customers' orders.

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

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

The Company's customer base has been and continues to be highly concentrated.
The Textile division's two largest customers accounted for approximately 52% and
45%, respectively, during the six months ended June 30, 2005 and 81% and nil,
respectively, during the same period last year, of the division's net sales. The
Craft division's three largest customers (one mass merchandiser and two
specialty chains) represented approximately 44%, 21% and 9%, respectively, in
the six months ended June 30, 2005 and 43%, 23% and 9%, respectively, in the six
months ended June 30, 2004, of the division's net sales. These customers also
represented approximately 69% of the Craft division's outstanding accounts
receivable as of June 30, 2005. Based upon historical and recent results and
existing relationships with customers, the Company believes that a substantial
portion of its net sales and gross profits will continue to be derived from a
small number of large customers. We do not have long-term agreements with any of
our major customers and purchases generally occur on an order-by-order basis. As
a result, a customer that generates substantial revenue for the Company in one
period may not be a substantial source of revenue in a future period. In
addition, customers generally have the right to terminate their relationship
with the Company without penalty and with little or no notice. Without long-term
contracts with the majority of its customers, the Company cannot be certain that
its customers will continue to purchase its products or that it will be able to
maintain a consistent level of sales. A decision by any of our major customers,
whether motivated by competitive conditions, financial difficulties or
otherwise, to decrease significantly the amount of merchandise purchased from
us, or to change their manner of doing business with us, could substantially
reduce our revenues and have a material adverse effect on our financial
condition and results of operations. There can be no assurance that the
Company's largest customers will continue to place orders with the Company or
that orders by such customers will continue at their previous levels.

Dependence On Contract Manufacturers

Substantially all of the Company's textile products are manufactured by
unaffiliated foreign contract manufacturers. The Company does not have long-term
contracts with any of these manufacturers. Foreign manufacturing is subject to a
number of risks, including transportation delays and interruptions, political

                                    Page 27
<PAGE>

and economic disruptions, tariffs, import and export controls and changes in
governmental policies. In addition, stringent controls, such as review and
inspection of fabrics, samples, specifications, fit and completed garments and
factory visits, must be undertaken to ensure the production of quality products.
Although the Company believes that it has instituted such controls, there can be
no assurance that such events will not occur in the future, resulting in
possible increases in costs and delays of product deliveries resulting in losses
of revenue and goodwill. During the second quarter of 2005, the Textile division
relied upon three manufacturers for 100% of its production. The Company believes
that alternate sources of manufacturing are available if the need were to arise,
although there can be no assurance that such alternate facilities would be
available on a timely basis or on commercially reasonable terms. Any substantial
delay in locating, or inability to locate, acceptable alternate sources of
manufacturing could have a material adverse effect on the Company's business,
financial condition or results of operations.

The Textile Division Depends On Third Parties For Crucial Raw Materials And
Services.

The principal raw materials used by the Textile division are rayon, acetate,
acrylic and polyester. The price of polyester varies and is determined by supply
and demand as well as the price of petroleum used to produce polyester. If any
of its third party knitters, finishers and transporters fail to timely produce
quality products and in sufficient quantity or fail to timely deliver finished
products, the Company's results would suffer. Two suppliers provided
approximately 75% and 25%, respectively, of the Textile division's purchases in
the second quarter of 2005.

The Company's Business Is Subject To The Seasonal Nature Of The Industry.

The textile business is seasonal and the Company expects to realize higher
revenues and operating income in the third quarter, as compared to other
quarters of the year. 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 order ships. In response to this seasonality, the Company generally
increases its inventory levels, and therefore has higher working capital needs
during the second and third quarters of its fiscal year. This standard lead-time
also results in significant backlogs during the second and third quarters. The
Company ships these large seasonal orders to the customers during the third and
fourth quarters. The Textile division's backlog as of June 30, 2005 totaled
approximately $4.5 million. Although the Company has not had significant
cancellations in the past, no assurance can be given that it will not experience
a significant level of cancellations in the future or that its backlog at any
point in time will be converted to sales. 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. The Company may be unable to compete successfully in any industry
downturn.

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

                                    Page 28
<PAGE>

the retail customer to add the program and experience an acceptable level of
sell-through. The Company develops and introduces new programs 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 programs at an acceptable level.

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

Tariffs, Import Restrictions and Other Risks Associated with International
Business

The Company's textile products are subject to bilateral textile agreements
between the United States and a number of foreign countries. Such agreements,
which have been negotiated under the framework established by the Arrangement
Regarding International Trade in Textiles, allow the United States to impose
restraints at any time on the importation of categories of merchandise that,
under the terms of the agreements are not currently subject to specified limits.
A substantial portion of our products is manufactured by contractors located
outside the United States. These products are imported and are subject to U.S.
customs laws, which impose tariffs as well as import quota restrictions for
textiles and apparel established by the U.S. government. In addition, a portion
of our imported products is eligible for certain duty-advantage programs
commonly known as NAFTA and CBI.

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

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

The Company Is Impacted By Environmental Laws And Regulations.

The Company is subject to a number of federal, state and local environmental
laws and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), and comparable
state statutes that impose joint and several liability on present and former
owners and operators, transporters and generators for remediation of
contaminated properties regardless of fault. In addition, the Company is subject

                                    Page 29
<PAGE>

to laws concerning treatment, storage and disposal of waste, the discharge of
effluents into waterways, the emissions of substances into the air, the content
of the products it sells and various health and safety matters, including
product labeling requirements. The Company's operations must meet extensive
federal, state and local regulatory standards in the areas of safety, health and
environmental pollution controls. Although the Company believes that its
business is operating in compliance in all material respects with such laws,
statutes and regulations, many of which provide for substantial penalties for
violations, there can be no assurance that future changes in federal, state, or
local regulations, interpretations of existing regulations or the discovery of
currently unknown problems or conditions will not require substantial additional
expenditures.

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

The Company's Series A preferred stock is subject to mandatory redemption, in
three equal annual installments on June 15, 2007, June 15, 2008 and June 15,
2009, at a price per share of Series A preferred stock equal to $1 per share,
together with an amount representing accrued and unpaid dividends, whether or
not declared, to the date of redemption. This represents a significant future
liability of the Company. There can be no assurance that the Company's business
will generate sufficient cash flow from operations or that future borrowings
will be available in sufficient amounts to enable the Company to redeem the
Series A preferred stock when required to do so. In the event that the Company
fails to redeem the Series A preferred stock on any of the mandatory redemption
dates, the Series A preferred stockholders will be entitled to receive
cumulative cash dividends, and no distribution or dividend in cash, shares of
capital stock or other property will be paid or declared on the common stock.
Similarly, if the redemption on the Series A preferred is not met, and should
the Company liquidate or dissolve, no payment of any kind may be made to the
common stockholders without first satisfying the accrued cash dividends owed to
the Series A preferred stockholders. In addition, Series A preferred stock
payments are currently restricted under the Company's financing arrangements
with its lenders

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which could expose it to market risk.
Our exposure to market risks related to fluctuations in interest rates is
limited to our variable rate borrowings of $13.8 million at June 30, 2005 under
our revolving credit facility and stockholder loans. A change in interest rates
of one percent on the balance outstanding at June 30, 2005 would cause a change
in total annual interest costs of $138,000. The carrying values of these
borrowings approximate their fair values at June 30, 2005.

                                    Page 30
<PAGE>

ITEM 4.  CONTROLS AND PROCEDURES

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

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

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

No change occurred in the Company's internal controls concerning financial
reporting during the second quarter of the fiscal year ended December 31, 2005
that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting.



                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

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

                                    Page 31
<PAGE>

ITEM 6.  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 32
<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: August 15, 2005                   /s/ ROBERT A. LEVINSON
      ---------------                   ----------------------------------------
                                        Robert A. Levinson
                                        Chairman of the Board, President and
                                        Chief Executive Officer


Date: August 15, 2005                   /s/ EDWARD F. COOKE
      ---------------                   ----------------------------------------
                                        Edward F. Cooke
                                        Chief Financial Officer, Vice President,
                                        Secretary and Treasurer

                                    Page 33
<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 34