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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

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

                                    FORM 10-Q

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

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


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

                For the transition period from       to

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

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


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

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

                                 (212) 354-8500
                           ---------------------------
                           (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 Securities Exchange Act of 1934 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]

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

As of November 14, 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 September 30, 2005 and December 31, 2004 (audited)..............1

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

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

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

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


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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........31

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

PART II. OTHER INFORMATION

Item 1   Legal Proceedings....................................................32

Item 5   Other Information....................................................32

Item 6.  Exhibits ............................................................33

         Signatures...........................................................34
<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:                                                        September 30, 2005    December 31, 2004
                                                                           (Unaudited)           (Audited)
                                                                          ------------          ------------
<S>                                                                       <C>                   <C>
     Cash                                                                 $         62          $         32
     Accounts receivable trade, net                                              4,117                 3,601
     Inventories, net                                                            7,769                 7,729
     Deferred income taxes                                                       1,244                   898
     Other current assets                                                          238                   214
                                                                          ------------          ------------
         Total current assets                                                   13,430                12,474

Property, Plant and Equipment, net                                               2,068                 2,305
Goodwill                                                                         2,543                 4,843
Deferred income taxes                                                            3,457                 3,611
Other assets                                                                     1,017                 1,651
                                                                          ------------          ------------
         Total Assets                                                     $     22,515          $     24,884
                                                                          ============          ============

LIABILITIES
Current Liabilities:
     Revolving loan and current maturities of long-term debt              $      5,582          $      3,987
     Due to factor                                                                 173                 1,403
     Stockholder loan, current portion                                           2,000                    --
     Accounts payable                                                            1,872                 1,848
     Other current liabilities                                                     819                 1,219
                                                                          ------------          ------------
         Total current liabilities                                              10,446                 8,457
                                                                          ------------          ------------
Long-term debt, less current maturities                                          4,335                 4,443
Stockholder loan                                                                   839                   816
Pension liabilities                                                              5,836                 5,907
Post retirement medical liabilities                                              2,005                 2,154
Environmental liabilities                                                        1,354                 1,388
Other liabilities                                                                  204                   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                                                      29,574                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 September 30, 2005
         and 5,329,564 at December 31, 2004                                         54                    54
Paid in capital                                                                 33,238                33,234
Accumulated Deficit                                                            (37,411)              (33,535)
Accumulated Other Comprehensive Loss                                            (2,872)               (2,858)
Unearned Compensation                                                              (68)                  (80)
                                                                          ------------          ------------
Total Stockholders' Deficit                                                     (7,059)               (3,185)
                                                                          ------------          ------------
Total Liabilities and Stockholders' Deficit                               $     22,515          $     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             Nine Months Ended
                                                              September 30,                 September 30,
                                                        -------------------------     -------------------------
                                                           2005           2004           2005           2004
                                                        ----------     ----------     ----------     ----------
<S>                                                     <C>            <C>            <C>            <C>
Net sales                                               $   10,894     $   13,141     $   22,935     $   26,415
Cost of sales                                                8,870          9,836         17,388         18,335
                                                        ----------     ----------     ----------     ----------
                                                             2,024          3,305          5,547          8,080
Selling, general and administrative expenses                 1,908          2,214          5,801          6,447
Goodwill and Trademarks impairment - Textile segment         3,009             --          3,009             --
Other income                                                    --           (102)            --           (102)
                                                        ----------     ----------     ----------     ----------
Income (loss) before interest, preferred dividends
     and income taxes                                       (2,893)         1,193         (3,263)         1,735
Interest expense, net                                          234            178            592            444
Dividends on mandatory redeemable preferred stock               69             68            205            205
                                                        ----------     ----------     ----------     ----------
Income (loss) before income taxes                           (3,196)           947         (4,060)         1,086
Provision (benefit) for income taxes                            79            378           (184)           483
                                                        ----------     ----------     ----------     ----------
Net income (loss)                                       $   (3,275)    $      569     $   (3,876)    $      603
                                                        ==========     ==========     ==========     ==========

Earnings (loss) per share:
         Basic                                          $     (.61)    $      .11     $     (.73)    $      .11
                                                        ==========     ==========     ==========     ==========
         Diluted                                        $     (.61)    $      .11     $     (.73)    $      .11
                                                        ==========     ==========     ==========     ==========

Weighted average shares outstanding - basic                  5,332          5,323          5,332          5,283
Potential common stock                                          --             61             --             79
                                                        ----------     ----------     ----------     ----------
Weighted average shares outstanding - diluted                5,332          5,384          5,332          5,362
                                                        ==========     ==========     ==========     ==========

See Notes to Condensed Consolidated Financial Statements.

<CAPTION>

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


                                                       Three Months Ended            Nine Months Ended
                                                          September 30,                September 30,
                                                    -------------------------    -------------------------
                                                       2005           2004          2005           2004
                                                    ----------     ----------    ----------     ----------
<S>                                                 <C>            <C>           <C>            <C>
Net income (loss)                                   $   (3,275)    $      569    $   (3,876)    $      603
Other comprehensive income (loss):
         Foreign currency translation adjustment            --              3           (14)            (9)
                                                    ----------     ----------    ----------     ----------
Comprehensive income (loss)                         $   (3,275)    $      572    $   (3,890)    $      594
                                                    ==========     ==========    ==========     ==========
</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>
                                                                      Nine Months Ended September 30,
                                                                       -----------------------------
                                                                           2005             2004
                                                                       ------------     ------------
<S>                                                                    <C>              <C>
Cash Flows Used In Operating Activities:
Net income (loss)                                                      $     (3,876)    $        603
Reconciliation of net income (loss) to net cash used in operations:
   Goodwill and Trademarks impairment - Textile segment                       3,009               --
   Depreciation and amortization                                                291              338
   Deferred tax provision (benefit)                                            (192)             415
   Stock based compensation                                                       4               27
    Gain on sale of investment                                                   --             (102)
Changes in operating assets and liabilities:
   Accounts receivable trade, net                                              (516)          (1,545)
   Inventories, net                                                              15           (1,758)
   Other current assets                                                         (24)             (89)
   Other assets                                                                (129)              13
   Accounts payable                                                              24            1,512
   Other current liabilities                                                   (400)            (194)
   Pension liabilities                                                          (71)             (64)
   Post retirement medical liabilities                                         (149)            (164)
   Environmental liabilities                                                    (34)              (1)
   Other liabilities                                                           (145)            (240)
                                                                       ------------     ------------
        Net cash used in operating activities                                (2,193)          (1,249)
                                                                       ------------     ------------

Cash Flows Used In Investing Activities:
Capital expenditures                                                            (19)             (93)
Investment in other assets                                                      (38)             (49)
Proceeds from sale of investment                                                 --              102
                                                                       ------------     ------------
        Net cash used in investing activities                                   (57)             (40)
                                                                       ------------     ------------

Cash Flows From Financing Activities:
Borrowings under revolving loan                                              16,047           18,810
Repayments under revolving loan                                             (14,452)         (16,422)
Repayment of long term debt                                                    (108)            (108)
Due to factor                                                                (1,230)            (992)
Stockholder loans, net                                                        2,023               (5)
Proceeds from exercise of stock options                                          --               35
                                                                       ------------     ------------
        Net cash provided by financing activities                             2,280            1,318
                                                                       ------------     ------------

Increase in cash                                                                 30               29
Cash at beginning of period                                                      32               44
                                                                       ------------     ------------
Cash at end of period                                                  $         62     $         73
                                                                       ============     ============

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
   Interest                                                            $        523     $        449
                                                                       ============     ============
   Income taxes                                                        $         50     $         66
                                                                       ============     ============

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
                           SEPTEMBER 30, 2005 AND 2004


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

The Condensed Consolidated Balance Sheets as of September 30, 2005 (Unaudited)
and December 31, 2004 (Audited) and the Unaudited Condensed Consolidated
Statements of Operations for the three and nine months ended September 30, 2005
and 2004 and Unaudited Condensed Consolidated Statements of Cash Flows for the
nine months ended September 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. Reference should be made to the Company's annual report filed on Form
10-KSB for the year ended December 31, 2004.

NOTE 2:   SUBSEQUENT EVENT
--------------------------

On November 9, 2005, the Company's Board of Directors approved management's plan
to exit the garment manufacturing business. Garment manufacturing represented
96% and 89% of the Textile segment's revenue during the year ended December 31,
2004 and the nine months ended September 30, 2005, respectively, and as a
result, the Company's future revenue is expected to be significantly lower. The
decision to exit this business was the result of operating losses incurred this
year resulting from lower than planned business volume from our major customer
and an inability to attract additional customers. In addition, a decrease in
margins due to an increase in raw material costs, and the long production lead
times and the related working capital requirements of the business contributed
to interest costs that exceeded the segment's operating profits. The Company is
in the process of identifying possible opportunities for disposing of the
remaining garment manufacturing inventory. The Company intends to continue to
conduct the Textile division's fabric conversion business to a very limited
extent but may not be required to report the Textile division as a separate
segment in the future.

Management has determined that its plan to dispose of the garment manufacturing
business does not meet the requirements of Financial Accounting Standards Board
No. 144, "Accounting for the Impairment or Disposal of Long-Termed Assets", for
classification as discontinued operations at September 30, 2005.

                                     Page 4
<PAGE>

The results of operations of the garment manufacturing business which the
Company plans to exit will not be reported as discontinued operations until the
period in which the related assets are abandoned, distributed or exchanged. At
September 30, 2005, the assets and liabilities of the garment manufacturing
business continue to be classified as held for use and the results of operations
for the nine months then ended are included in the results of continuing
operations.

In connection with the preparation of the financial statements for the three and
nine months ended September 30, 2005, management concluded that the carrying
amounts of goodwill and trademarks related to the textile segment were deemed to
be fully impaired as of September 30, 2005 and were written off accordingly.

NOTE 3:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

Nature of Operation: The Company (i) operated a textile business that
manufactured garments for sale in the apparel industry and converts fabrics into
piece goods that are sold to apparel manufacturers 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.

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

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

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

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.

                                     Page 5
<PAGE>

Intangible Assets: The Company reviews goodwill and trademarks intangible assets
for impairment annually, or more frequently if impairment indicators arise. In
connection with this review and the preparation of the financial statements for
the three and nine months ended September 30, 2005, the Company determined that
the goodwill and trademark amounts related to the Textile segment were fully
impaired and these amounts were written off as of September 30, 2005.

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           Nine Months Ended
                                                     September 30,                September 30,
                                               -------------------------    -------------------------
                                                  2005           2004          2005           2004
                                               ----------     ----------    ----------     ----------
<S>                                            <C>            <C>           <C>            <C>
         Net income (loss)
              As Reported                      $   (3,275)    $      569    $   (3,876)    $      603
              Pro Forma                        $   (3,292)    $      553    $   (3,929)    $      556
         Basic Earnings (loss) per share:
              As Reported                      $     (.61)    $      .11    $     (.73)    $      .11
              Pro Forma                        $     (.62)    $      .10    $     (.74)    $      .11
         Diluted Earnings (loss) per share:
              As Reported                      $     (.61)    $      .11    $     (.73)    $      .11
              Pro Forma                        $     (.62)    $      .10    $     (.74)    $      .10

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:

<CAPTION>

                                                    Three Months Ended           Nine Months Ended
                                                       September 30,               September 30,
                                                 ------------------------    ------------------------
                                                    2005          2004          2005          2004
                                                 ----------    ----------    ----------    ----------
<S>                                               <C>           <C>           <C>           <C>
         Weighted average shares outstanding:
         Basic                                    5,331,881     5,323,242     5,331,728     5,282,884
         Effect of dilutive securities                   --        60,630            --        78,897
                                                 ----------    ----------    ----------    ----------
         Diluted                                  5,331,881     5,383,872     5,331,728     5,361,781
                                                 ==========    ==========    ==========    ==========
</TABLE>

Dilutive securities include stock options.

For the three and nine months ended September 30, 2005, there were outstanding
options to purchase 86,300 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 nine months ended

                                     Page 6
<PAGE>

September 30, 2005, there were 359,300 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 September 30, 2005.

For the three and nine months ended September 30, 2004, outstanding options to
purchase 344,800 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 September 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: On July 14, 2005, FASB issued its Exposure Draft,
"Accounting for Uncertain Tax Positions", which is a proposed interpretation to
FASB Statement No. 109, "Accounting for Income Taxes." This proposed
interpretation would require an enterprise to recognize, in its financial
statements, the best estimate of the impact of a tax position. In evaluating
whether the probable recognition threshold has been met, this proposed
interpretation would require the presumption that the tax position will be
evaluated during an audit by taxing authorities. The term probable is used in
this proposed interpretation consistent with its use in FASB Statement No. 5,
"Accounting Contingencies", to mean "the future event or events are likely to
occur." Individual tax positions that fail to meet the probable recognition
threshold will generally result in either (a) a reduction in the deferred tax
asset or an increase in a deferred tax liability or (b) an increase in a
liability for income taxes payable or the reduction of an income tax refund
receivable. The impact may also include both (a) and (b). The proposed
interpretation would be effective as of the end of the first fiscal year ending
after December 15, 2005. The initial recognition of the effect of applying the
proposed interpretation would be a cumulative effect of a change in accounting
principle. The comment period for the proposed interpretation ends on October
28, 2005. The Company is currently evaluating the impact of the Exposure Draft
on its financial statements

In December 2004, the FASB issued Emerging Issues Task Force ("EITF") 04-8, The
Effect of Contingently Convertible Debt on Diluted Earnings per Share, requiring
the inclusion of convertible shares in diluted EPS regardless of whether the
market price trigger has occurred for all periods presented. This requirement
will not have an impact on the presentation of our consolidated financial
statements in future periods of profitability.

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

Through the third quarter of 2005, the Company operated 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.

                                     Page 7
<PAGE>

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

<TABLE>
<CAPTION>
                                                    Three Months Ended            Nine Months Ended
                                                       September 30,                 September 30,
                                                 -------------------------     -------------------------
                                                    2005           2004           2005           2004
                                                 ----------     ----------     ----------     ----------
<S>                                              <C>            <C>            <C>            <C>
         Revenue:
           Textile                               $    4,798     $    6,968     $    7,171     $    8,895
           Craft                                      6,096          6,173         15,764         17,520
                                                 ----------     ----------     ----------     ----------
                                                 $   10,894     $   13,141     $   22,935     $   26,415
                                                 ==========     ==========     ==========     ==========
         Operating income (loss):
           Textile - operating income (loss)
                     before impairment           $     (613)    $      858     $   (1,086)    $      290
           Textile - impairment                      (3,009)            --         (3,009)            --
           Craft                                        942            594          1,676          2,250
                                                 ----------     ----------     ----------     ----------
                                                 $   (2,680)    $    1,452     $   (2,419)    $    2,540
                                                 ==========     ==========     ==========     ==========
         Corporate general and
           administrative expense                       213            361            844            907
         Other income                                    --           (102)            --           (102)
         Interest expense, net                          234            178            592            444
         Dividends on mandatory
           redeemable preferred stock                    69             68            205            205
         Provision (benefit) for income taxes            79            378           (184)           483
                                                 ----------     ----------     ----------     ----------
         Net income (loss)                       $   (3,275)    $      569     $   (3,876)    $      603
                                                 ==========     ==========     ==========     ==========

         Depreciation and amortization:
           Textile                               $        7     $       12     $       19     $       36
           Craft                                         93            100            260            286
           Corporate                                      4              4             12             16
                                                 ----------     ----------     ----------     ----------
                                                 $      104     $      116     $      291     $      338
                                                 ==========     ==========     ==========     ==========

         Capital expenditures:
           Textile                               $       --     $       --     $       --     $       21
           Craft                                         --             19             19             72
                                                 ----------     ----------     ----------     ----------
                                                 $       --     $       19     $       19     $       93
                                                 ==========     ==========     ==========     ==========
</TABLE>


                                        September 30, 2005    December 31, 2004
                                        ------------------    -----------------
         Total assets:
           Textile                         $      1,940         $      5,482
           Craft                                 20,575               19,402
                                           ------------         ------------
                                           $     22,515         $     24,884
                                           ============         ============

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

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

                                       September 30, 2005    December 31, 2004
                                       ------------------    -----------------

         Raw materials                    $      3,670         $      4,641
         Work in progress                          418                  167
         Finished goods                          3,681                2,921
                                          ------------         ------------
                                          $      7,769         $      7,729
                                          ============         ============

                                     Page 8
<PAGE>

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

NOTE 6:  PROPERTY, PLANT AND EQUIPMENT
--------------------------------------

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

<TABLE>
<CAPTION>
                                                         September 30, 2005     December 31,2004
                                                         ------------------     ----------------
<S>                                                         <C>                   <C>
         Land and improvements                              $         77          $         80
         Buildings and improvements                                2,471                 2,497
         Machinery and equipment                                   2,055                 2,128
                                                            ------------          ------------
                                                                   4,603                 4,705
         Less: Accumulated depreciation and amortization          (2,535)               (2,400)
                                                            ------------          ------------
                                                            $      2,068          $      2,305
                                                            ============          ============
</TABLE>

Depreciation and amortization expense for the nine months ended September 30,
2005 and 2004 were approximately $291,000 and $338,000, respectively, and
approximately $104,000 and $116,000, respectively, for the three months ended
September 30, 2005 and 2004.

NOTE 7:  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"). Availability under the Company's
credit facility with CIT as of September 30, 2005 totaled $24,000.

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
September 30, 2005, (ii) revolving credit advances to the Company, $763,000 of
which was outstanding at September 30, 2005 and (iii) revolving credit advances
to Blumenthal based upon eligible accounts receivable and inventory, $4,675,000
of which was outstanding at September 30, 2005, and a Letter of Credit facility
with a limit of $500,000, of which there was none outstanding at September 30,
2005. The Term Loan amortizes $12,000 per month followed by a final installment
payment of $1.3 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 9
<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 (6.75% at September 30, 2005). The Company pledged
its Textile segment's eligible accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of 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 September 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 $339,000 of related accrued interest at September 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
$2.5 million to the Company at an interest rate of 6% per annum during the first
nine months of 2005 of which $2.0 million was outstanding at September 30, 2005.

                                    Page 10
<PAGE>

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

Future maturities of long-term debt during each of the next five years ending
September 30 and thereafter were as follows (in thousands):

                           2006            $      144
                           2007                 5,174
                           Thereafter              --
                                           ----------
                                           $    5,318
                                           ==========

NOTE 8:  PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
--------------------------------------------------------

The Company sponsors a defined benefit plan, which requires no contribution from
the employees. The plan was frozen as of December 31, 1994, and no new employees
have been eligible to join 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.

In addition to the liability of $4.4 million for this Company sponsored plan,
the Company also has an additional pension liability in the amount of $1.1
million at September 30, 2005 in connection with a terminated multi-employer
plan which requires annual payments of $142,000 through 2016. In addition, the
Company has a $331,000 deferred compensation liability payable to the former
owner of an acquired business.

The Company provides certain health and life insurance benefits for eligible
retirees and their dependents. The plan was frozen as of January 1, 1993 and
Employees hired after January 1, 1993 are not eligible to receive benefits under
this plan. 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. As of September 30, 2005, the liability for these post retirement
benefits totaled $2.0 million.

                                    Page 11
<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 September 30, 2005
and 2004, respectively, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                     September 30
                                               -------------------------------------------------------
                                                   Three Months Ended             Nine Months Ended
                                               -------------------------     -------------------------
         Pension Benefits                         2005           2004           2005           2004
         ----------------                      ----------     ----------     ----------     ----------
<S>                                            <C>            <C>            <C>            <C>
         Service                               $       --     $       --     $       --     $       --
         Interest cost                                304            323            912            969
         Expected return on plan assets              (342)          (341)        (1,026)        (1,023)
         Amortization of prior service cost            --             --             --             --
         Recognized net actuarial loss                 46             38            138            114
                                               ----------     ----------     ----------     ----------
         Net periodic benefit cost             $        8     $       20     $       24     $       60
                                               ==========     ==========     ==========     ==========


                                                                     September 30
                                               -------------------------------------------------------
                                                   Three Months Ended             Nine Months Ended
                                               -------------------------     -------------------------
         Other Benefits                           2005           2004           2005           2004
         --------------                        ----------     ----------     ----------     ----------
         Service                               $        4     $       --     $       12     $       --
         Interest cost                                 14             17             42             51
         Expected return on plan assets                --             --             --             --
         Amortization of prior service cost            (4)            (4)           (12)           (12)
         Recognized net actuarial gain                (26)           (20)           (78)           (60)
                                               ----------     ----------     ----------     ----------
         Net periodic benefit (gain)           $      (12)    $       (7)    $      (36)    $      (21)
                                               ==========     ==========     ==========     ==========
</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 9:  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.

The Company accounts for Series A Preferred Stock in accordance with 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 September 30, 2005 and December 31, 2004. The Statements
of Operations for the nine months ended September 30, 2005 and 2004 include
$205,000 of preferred stock dividends paid. For the three months ended September
30, 2005 and 2004, $69,000 and $68,000, respectively, of preferred stock
dividends paid have been included in the determination of operating income
(loss).

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

During the nine months ended September 30, 2005 and 2004, the Company issued an
aggregate of 2,317 shares and 9,484 shares, respectively, of common stock to a
director and recorded such issuance as stock based compensation expense. The
aggregate values of the shares were approximately $4,000 and $27,000,
respectively, for the nine months ended September 30, 2005 and 2004.

                                    Page 12
<PAGE>

During the nine months ended September 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 nine months ended September 30,
2004.

NOTE 11:  CUSTOMER AND SUPPLIER CONCENTRATIONS
----------------------------------------------

The Craft division's three largest customers (one mass merchandiser and two
specialty chains) represented approximately 45%, 25% and 8%, respectively, in
the nine months ended September 30, 2005 and 45%,21% and 8%, respectively, in
the nine months ended September 30, 2004, of the division's net revenues. These
Craft division customers also represented approximately 86% of the total
outstanding accounts receivable as of September 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 Textile division's two largest customers for contract garment manufacturing
accounted for approximately 79% and 20%, respectively, during the nine months
ended September 30, 2005 and 90% and nil, respectively, during the nine months
ended September 30, 2004, of the division's sales.

NOTE 12:  RELATED PARTY TRANSACTIONS
------------------------------------

Robert A. Levinson has provided long-term loans of $839,000 including accrued
interest of $339,000 to the Company as of September 30, 2005. He has also made
short term advances of approximately $2.5 million during the nine months ended
September 30, 2005 of which $2.0 million was outstanding at September 30, 2005
and he has pledged collateral in support of certain Company obligations. See
Note 7 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
nine months ended September 30, 2005 and 2004, fees for services provided to the
Company by Katten Muchin Rosenman LLP totaled approximately $159,000 and $98,000
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 13:  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 13
<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, 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.

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

                                    Page 14
<PAGE>

production principally to domestic manufacturers of women's apparel. The Company
anticipates that fabric conversion, while profitable, will be a small component
of the Company's overall business and revenue.

In 2003, the Company acquired by merger Carlyle Industries, Inc. ("Carlyle").
This acquisition formed the basis of the Company's current Craft business.

On November 9, 2005, the Company's Board of Directors approved management's plan
to exit the garment manufacturing business. Garment manufacturing represented
96% and 89% of the Textile segment's revenue during the year ended December 31,
2004 and the nine months ended September 30, 2005, respectively, and as a
result, the Company's future revenue is expected to be significantly lower. The
decision to exit this business was the result of operating losses incurred this
year resulting from lower than planned business volume from our major customer
and an inability to attract additional customers. In addition, a decrease in
margins due to an increase in raw material costs, and the long production lead
times and the related working capital requirements of the business contributed
to interest costs that exceeded the segment's operating profits. The Company is
currently in the process of identifying possible opportunities for disposing of
the remaining garment manufacturing inventory. The Company intends to continue
to conduct the Textile division's fabric conversion business to a very limited
extent, but may not be required to report the Textile division as a separate
segment in the future.

Management has determined that its plan to dispose of the garment manufacturing
business does not meet the requirements of Financial Accounting Standards Board
No. 144, "Accounting for the Impairment or Disposal of Long-Termed Assets", for
classification as discontinued operations at September 30, 2005.

The results of operations of the garment manufacturing business which the
Company plans to exit will not be reported as discontinued operations until the
period in which the related assets are abandoned, distributed or exchanged. At
September 30, 2005, the assets and liabilities of the garment manufacturing
business continue to be classified as held for use and the results of operations
for the nine months then ended are included in the results of continuing
operations.

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 is fabric that is ready to be cut and sewn into garments.

In connection with the preparation of the financial statements for the three and
nine months ended September 30, 2005, management concluded that the carrying
amounts of goodwill and trademarks related to the textile segment were deemed to
be fully impaired as of September 30, 2005 and were written off accordingly.

Craft Division

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

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

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

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

The Craft 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

                                    Page 15
<PAGE>

and Mill Mountain brand names. The Craft division also produces and distributes
a private-label button line for one of the nation's best-known retailers.

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

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 Craft 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.

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 45%, 25% and 8%, respectively,
during the nine months ended September 30, 2005, and 45%, 21% and 8%,
respectively, during the nine months ended September 30, 2004, of the division's
net revenues. These Craft division customers also represented approximately 86%
of the total outstanding accounts receivable as of September 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.

Textile Division

On November 9, 2005, the Company's Board of Directors approved management's plan
to exit the garment manufacturing business. Garment manufacturing represented
96% and 89% of the Textile segment's revenue during the year ended December 31,
2004 and the nine months ended September 30, 2005, respectively. The decision to
exit this business was the result of a variety of factors, operating losses
incurred this year resulting from lower than planned business volume from our

                                    Page 16
<PAGE>

major customer and an inability to attract additional customers. In addition, a
decrease in margins due to an increase in raw material costs, and the long
production lead times and the related working capital requirements of the
business contributed to interest costs that exceeded the segment's operating
profits. The Company is currently in the process of identifying possible
opportunities for disposing of the remaining garment manufacturing inventory.
The Company intends to continue to conduct the Textile division's fabric
conversion business to a very limited extent, but may not be required to report
the Textile division as a separate segment in the future.

In connection with the preparation of the financial statements for the three and
nine months ended September 30, 2005, management concluded that the carrying
amounts of goodwill and trademark related to the textile segment were deemed to
be fully impaired as of September 30, 2005 and were written off accordingly.




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 and specific agreements with major customers.

                                    Page 17
<PAGE>

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
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 or
historical patterns with major accounts.

                                    Page 18
<PAGE>

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
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 September 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 September 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 ("intrinsic
value"). We apply only the disclosure provisions of Financial Accounting
Standards Board ("FASB") SFAS No. 123, Accounting for Stock-Based Compensation.

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 in respect of 2005, and on our
financial statement disclosures for 2006 and thereafter. 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.

                                    Page 19
<PAGE>

Results of Operations

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

Net sales for the three months ended September 30, 2005 totaled $10.9 million as
compared to $13.1 million during the three months ended September 30, 2004.

Net sales in the Craft segment totaled $6.1 million during the three months
ended September 30, 2005 as compared to $6.2 million during the three months
ended September 30, 2004. Sales of domestic product was essentially unchanged
from the third quarter of last year. During the quarter, the Company experienced
a 3% increase in unit volume on a comparative basis to 2004, which was offset by
a 1.5% decrease in average unit price.

Net sales in the Textile segment for the three months ended September 30, 2005
totaled $4.8 million as compared to $7.0 million during the three months ended
September 30, 2004. Shipments of manufactured garments during the three months
ended September 30, 2005 represented a 32% volume reduction compared to the same
period in 2004. The average unit price during the third quarter of 2005 was
$8.40 per piece as compared to an average unit price of $8.53 per piece during
the same period last year, representing a 1.5% decline in the average unit
price. The decrease in Textile segment unit sales volume during the third
quarter of 2005 as compared to the third quarter of 2004 was the result of lower
sales to our major customer, which lower sales were a reflection of weaker
retail demand for our customer's product in the general apparel marketplace.

Gross margin during the three months ended September 30, 2005 was $2.0 million
as compared to $3.3 million during the three months ended September 30, 2004.
The gross margin percent totaled 18.6% during the three months ended September
30, 2005 as compared to 25.2% during the three months ended September 30, 2004.

Gross margin in the Craft segment totaled $2.2 million during the three months
ended September 30, 2005 as compared to $1.9 million during the same period last
year. The Craft segment gross margin percent during the three months ended
September 30, 2005 totaled 35.7% as compared to 31.1% during the three months
ended September 30, 2004. The increase in Craft segment gross margin was the
result of a favorable change in sales mix as we experienced an increase in
reorders of everyday merchandise which was partially offset by lower seasonal
orders. Seasonal orders generally carry a lower gross margin.

Gross margin in the Textile segment totaled a loss of $150,000 during the three
months ended September 30, 2005 versus a profit of approximately $1.4 million
during the three months ended September 30, 2004. The decrease in Textile
segment gross margin during the three months ended September 30, 2005 was the
result of the reduction in sales to our major customer, reflecting weaker retail
demand in the apparel marketplace, an inability to leverage costs, an increase
in variable cost of goods sold associated with raw material costs that could not
be passed on to our customer and a write-down of certain inventory components.

Selling, general and administrative expenses totaled approximately $1.9 million
during the three months ended September 30, 2005, as compared to $2.2 million
during the three months ended September 30, 2004. The decrease in general and
administrative expenses was primarily the result of reduced compensation
expense.

                                    Page 20
<PAGE>

Impairment of goodwill and trademarks related to the Textile segment totaled
$3.0 million at September 30, 2005 as compared to none for the same period last
year.

Other income of $102,000 resulted from the sale of an investment in the third
quarter of 2004. There was no such sale in the third quarter of 2005.

Loss before interest, preferred dividends and income taxes during the three
months ended September 30, 2005 totaled $2.9 million as compared to income of
$1.2 million during the three months ended September 30, 2004. The decrease in
income before interest, preferred dividends and income taxes during the three
months ended September 30, 2005 compared to the three months ended September 30,
2004 was primarily due to the reduction in gross profit, as discussed above, in
addition to the $3.0 million impairment expense.

Net interest expense during the three months ended September 30, 2005 totaled
$234,000 as compared to net interest expense of $178,000 during the three months
ended September 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 third quarter 2005 as compared to the third quarter of 2004 combined
with an increase in the average interest rate.

Dividends on mandatory redeemable preferred stock totaled $69,000 and $68,000
during the three months ended September 30, 2005 and 2004 respectively.

The provision for income taxes during the three months ended September 30, 2005
was $79,000 as compared to a provision of $378,000 during the three months ended
September 30, 2004. Because the textile division's goodwill and trademark did
not have tax basis, there was no related tax benefit resulting from the
impairment charge. In addition, that portion of the Company's deferred tax asset
related to NOLs expiring in 2005 totaling $127,000 were written off because they
will expire unutilized.


Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30,
2004

Net sales for the nine months ended September 30, 2005 totaled $22.9 million as
compared to $26.4 million during the nine months ended September 30, 2004.

Net sales in the Craft segment totaled $15.8 million during the nine months
ended September 30, 2005 as compared to $17.5 million during the nine months
ended September 30, 2004. The decrease in Craft segment sales totaling $1.7
million was a result of reduced holiday/seasonal craft orders in the amount of
approximately $1.0 million and lower reorders of everyday product during the
first two quarters of the year. Overall, the Company experienced a 13% reduction
in unit volume and an 11% reduction in revenue dollars on a comparative basis
during the nine months ended September 30, 2005 as compared to the same period
in 2004. The reduction in holiday/seasonal and everyday reorders was the result
of our retailer customers more cautious outlook with regard to inventory
commitments in 2005 as compared to 2004.

Net sales in the Textile segment for the nine months ended September 30, 2005
totaled $7.2 million as compared to $8.9 million during the nine months ended
September 30, 2004. The decrease in Textile segment sales during 2005 was the
result of lower sales to our major customer, which lower sales were a reflection
of weaker retail demand for our customer's product in the general apparel
marketplace. Shipments of manufactured garments during the nine months ended

                                    Page 21
<PAGE>

September 30, 2005 reflected a 25% volume reduction compared to 2004. The
average unit price during the nine months ended September 30, 2005 was $8.61 per
piece as compared to an average unit price of $8.56 per piece during the same
period last year.

Gross margin during the nine months ended September 30, 2005 was $5.5 million as
compared to $8.1 million during the nine months ended September 30, 2004. The
gross margin percent totaled 24.2% during the nine months ended September 30,
2005 as compared to 30.6% during the nine months ended September 30, 2004.

Gross margin in the Craft segment totaled $5.3 million during the nine months
ended September 30, 2005 as compared to $6.3 million during the same period last
year. The Craft segment gross margin percent during the nine months ended
September 30, 2005 totaled 33.7% as compared to 36.0% during the nine months
ended September 30, 2004. The decrease in Craft segment gross margin dollars was
the result of lower net sales as described above. The decrease in Craft segment
gross profit percent was the result of costs related to a merchandise change at
a major customer during the second quarter.

Gross margin in the Textile segment totaled $228,000 during the nine months
ended September 30, 2005 versus $1.8 million during the nine months ended
September 30, 2004. The gross margin percent during the nine months ended
September 30, 2005 totaled 3.2% as compared to 20.0% during the nine months
ended September 30, 2004. The decrease in Textile segment gross margin during
the nine months ended September 30, 2005 was the result of the reduction in
sales to our major customer, an inability to leverage costs, an increase in
variable cost of goods sold associated with raw material costs that could not be
passed on to our customer and a write-down of certain inventory components.

Selling, general and administrative expenses totaled approximately $5.8 million
during the nine months ended September 30, 2005, as compared to $6.4 million
during the nine months ended September 30, 2004. The reduction in general and
administrative expenses was primarily the result of reduced compensation
expense.

Impairment of goodwill and trademarks related to the textile segment totaled
$3.0 million at the nine months ended September 30, 2005 as compared to none for
the same period last year.

Other income of $102,000 resulted from the sale of an investment in the third
quarter of 2004. There was no such sale in 2005.

Loss before interest, preferred dividends and income taxes during the nine
months ended September 30, 2005 totaled $3.3 million as compared to income of
$1.7 million during the nine months ended September 30, 2004. The decrease in
income before interest, preferred dividends and income taxes during the nine
months ended September 30, 2005 compared to the nine months ended September 30,
2004 was due to the reduction in gross profit, as discussed above, combined with
the impairment charge, offset in part by the lower level of selling, general and
administrative expenses.

Net interest expense during the nine months ended September 30, 2005 totaled
$592,000 as compared to net interest expense of $444,000 during the nine months
ended September 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 nine months of 2005 as compared to the first nine months of
2004 combined with an increase in the average interest rate.

                                    Page 22
<PAGE>

Dividends on mandatory redeemable preferred stock totaled $205,000 during the
nine months ended September 30, 2005 and 2004, respectively.

The benefit for income taxes during the nine months ended September 30, 2005 was
$184,000 as compared to a provision of $483,000 during the nine months ended
September 30, 2004. Because the textile division's goodwill and trademark did
not have tax basis, there was no related tax benefit resulting from the
impairment charge. In addition, that portion of the Company's deferred tax asset
related to NOLs expiring in 2005 totaling $127,000 were written off because they
will expire unutilized.

Liquidity and Capital Resources

Until recently the Company's Textile division provided 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 in the past relied on temporary advances from Robert A.
Levinson, a stockholder, officer and director of the Company; such advances
totaled $2.0 million at September 30, 2005. As noted above, on November 9, 2005,
the Company adopted a plan to exit the contract garment manufacturing business.

At September 30, 2005 the Company's principal sources of liquidity included cash
of $62,000 and trade accounts receivable of $4.1 million. Availability under the
Company's credit facility with CIT as of September 30, 2005 totaled $24,000.
There was an additional $1 million of liquidity available from Mr. Levinson who
has agreed to fund up to $3 million of temporary advances to the company.

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      $   (2,193)    $   (1,249)
                  Investing activities             (57)           (40)
                  Financing activities           2,280          1,318
                                            ----------     ----------
                  Net change in cash        $       30     $       29
                                            ==========     ==========


Net cash flow used in operating activities totaled $2.2 million during the nine
months ended September 30, 2005, as compared to $1.2 million net cash flow used
in operating activities during the same period last year. The increase in net
cash flow used in operating activities totaling $1 million was primarily the
result of the $3.8 million operating loss incurred in 2005 after adjusting for
the $3.0 million non-cash impairment charge, compared to an operating profit of
$603,000 during the same period last year.

                                    Page 23
<PAGE>

Changes in accounts receivable trade utilized approximately $1.0 million less
cash flow during the nine months ended September 30, 2005 as compared to the
same period last year. The primary cause for this reduction was a favorable
improvement in payment terms with a major Craft segment customer effective
during the first quarter of 2005.

Changes in inventories provided $15,000 of cash flow in the nine months ended
September 30, 2005 as compared to a usage of $1.8 million during the same period
last year. Approximately $1.6 million of this favorable comparison was the
direct result of an inventory build in the Textile segment in 2004 at which time
the business was expanding and required a larger inventory investment. During
2005, the Textile segment inventory has declined in response to lower sales as
compared to both the September 30, 2004 and December 31, 2004 balances.

Changes in accounts payable provided $24,000 of cash flow during the nine months
ended September 30, 2005 as compared to $1.5 million during the nine months
ended September 30, 2004. The reduction in the year over year comparison was due
to the increase in Textile segment accounts payable in 2004 in response to the
growth of the garment manufacturing business and the related inventory build.

Net cash flow used in investing activities totaled $57,000 during the during the
nine months ended September 30, 2005, as compared to $40,000 during the during
the nine months ended September 30, 2004, primarily as a result of a lower level
of capital expenditures.

Net cash provided by financing activities totaled $2.3 million during the nine
months ended September 30, 2005, as compared to $1.3 million during the same
period last year. The increase in cash provided by financing activities was the
result of increased borrowing needs due to the higher amounts of cash used in
net operating activities.

Net proceeds from stockholder loans during the nine months ended September 30,
2005 totaled $2.0 million as compared to none during the same period last year.
The increase in stockholder loan is primarily the result of the funding of the
operating activities of the textile segment, which activities are not eligible
for funding under our line of credit with CIT to the extent such activities
relate to off-shore inventory and in transit shipments. In 2004 those activities
produced positive cash flow through September 30, 2004 to the extent that the
stockholder loan balance was repaid in its entirety by September 30, 2004. In
2005, the operating activities of the Textile segment did not produce positive
cash flow through September 30, 2005 and as a result, the stockholder loan
balance has not been repaid as of September 30, 2005. Total borrowings under the
stockholder loan for the Textile segment in 2005 were $2.5 million, of which
$2.0 million was outstanding as of the end of the third quarter. This balance is
classified as short term debt in the consolidated balance sheet as of September
30, 2005.

Net borrowings under the Company's credit facilities with CIT during the nine
months ended September 30, 2005, totaled $1.5 million as compared $2.3 million
during the same period last year. Net amount repaid to factor during the nine
months ended September 30, 2005 totaled $1.2 million as compared to $992,000
during the nine months ended September 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.

                                    Page 24
<PAGE>

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

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
September 30, 2005, (ii) revolving credit advances to the Company, $763,000 of
which was outstanding at September 30, 2005 and (iii) revolving credit advances
to Blumenthal based upon eligible accounts receivable and inventory, $4,675,000
of which was outstanding at September 30, 2005, and a Letter of Credit facility
with a limit of $500,000, of which there was none outstanding at September 30,
2005. The Term Loan amortizes $12,000 per month followed by a final installment
payment of $1.3 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 (6.75% at September 30, 2005). The Company pledged
its Textile segment's eligible accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.

                                    Page 25
<PAGE>

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of 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 September 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 $339,000 of related accrued interest at September 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
$2.5 million to the Company at an interest rate of 6% per annum during the first
nine months of 2005 of which $2.0 million was outstanding at September 30, 2005.

During the nine months ended September 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 historically
realized significantly higher volume in the third quarter, as compared to other
quarters of the year. The backlog in the Textile division as of September 30,
2005 was $1.3 million. As a result of exiting the garment manufacturing
business, seasonality should have a lesser impact on the Company's future
revenue.

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.

                                    Page 26
<PAGE>

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
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

New Accounting Pronouncements: On July 14, 2005, FASB issued its Exposure Draft,
"Accounting for Uncertain Tax Positions", which is a proposed interpretation to
FASB Statement No. 109, "Accounting for Income Taxes." This proposed
interpretation would require an enterprise to recognize, in its financial
statements, the best estimate of the impact of a tax position. In evaluating
whether the probable recognition threshold has been met, this proposed
interpretation would require the presumption that the tax position will be
evaluated during an audit by taxing authorities. The term probable is used in
this proposed interpretation consistent with its use in FASB Statement No. 5,
"Accounting Contingencies", to mean "the future event or events are likely to
occur." Individual tax positions that fail to meet the probable recognition
threshold will generally result in either (a) a reduction in the deferred tax
asset or an increase in a deferred tax liability or (b) an increase in a
liability for income taxes payable or the reduction of an income tax refund
receivable. The impact may also include both (a) and (b). The proposed
interpretation would be effective as of the end of the first fiscal year ending
after December 15, 2005. The initial recognition of the effect of applying the
proposed interpretation would be a cumulative effect of a change in accounting
principle. The comment period for the proposed interpretation ends on October
28, 2005. The Company is currently evaluating the impact of the Exposure Draft
on its financial statements.

In December 2004, the FASB issued Emerging Issues Task Force ("EITF") 04-8, The
Effect of Contingently Convertible Debt on Diluted Earnings per Share, requiring
the inclusion of convertible shares in diluted EPS regardless of whether the
market price trigger has occurred for all periods presented. This requirement
will not have an impact on the presentation of our consolidated financial
statements in future periods of profitability.

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, $2.0 million of
which was outstanding at September 30, 2005. There can be no assurance that Mr.
Levinson will continue to personally support the Company's cash requirements.

                                    Page 27
<PAGE>

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    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 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.

Competition in the domestic textile converting business is based on price,
uniqueness in styling of fabrics and the ability to quickly respond to
customers' orders. The Company competes with numerous domestic and foreign
manufacturers, including companies that are larger in size and have financial
resources that are greater than that of the Company. Foreign competition, in
particular, is a significant factor in the textile business, as the United
States textile industry has been and continues to be negatively impacted by
existing worldwide trade practices.

                                    Page 28
<PAGE>

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

The Company's customer base has been and continues to be highly concentrated.
The Craft division's three largest customers (one mass merchandiser and two
specialty chains) represented approximately 45%, 25% and 8%, respectively, in
the nine months ended September 30, 2005 and 45%, 21% and 8%, respectively, in
the nine months ended September 30, 2004, of the division's net sales. These
customers also represented approximately 86% of the Craft division's outstanding
accounts receivable as of September 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.

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 79% and 20%, respectively, of the Textile division's purchases in
the nine months of 2005.

The Textile division's two largest customers for contract garment manufacturing
accounted for approximately 52% and 45%, respectively, during the nine months
ended September 30, 2005 and 81% and nil, respectively, during the same period
last year, of the division's net sales.

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

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

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<PAGE>

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.

The Company's Textile business is seasonal and as such the Company historically
realized significantly higher volume in the third quarter, as compared to other
quarters of the year. As a result of exiting the garment manufacturing business,
seasonality should have a lesser impact on the Company's future revenue.

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
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.

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<PAGE>

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 $12.8 million at September 30, 2005
under our revolving credit facility and stockholder loans. A change in interest
rates of one percent on the balance outstanding at September 30, 2005 would
cause a change in total annual interest costs of $128,000. The carrying values
of these borrowings approximate their fair values at September 30, 2005.


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

                                    Page 31
<PAGE>

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 third 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.



ITEM 5.   OTHER INFORMATION

(a) On November 9, 2005, the Board of Directors of Levcor International, Inc.
approved management's plan to exit the contract garment manufacturing business.
The Company intends to sell its inventories associated with the contract garment
manufacturing business and anticipates that this disposition will be
substantially completed by the end of fiscal 2005. The Company intends to focus
its efforts and resources on its Craft Division, and on its continuing Textile
division fabric conversion business, which the Company believes have greater
growth and profitability potential.

The decision to exit the contract garment manufacturing business was made after
a full review and analysis of this business and the Company's strategic
alternatives. The decision was based on a variety of factors, including, (i)
that the Company's contract garment manufacturing business has incurred
operating losses resulting from lower than planned business volume from our
major customer and has been unable to grow its customer base, (ii) that the
business has incurred sales decreases (iii) a decrease in margins due to an
increase in raw material costs that were unable to be passed to customers, and
(iv) the long production lead times and the related working capital requirements

                                    Page 32
<PAGE>

of the business which contributed to interest costs that exceeded the segment's
operating profits. At this time, the Company believes that future net revenues
and gross profits in its contract garment manufacturing business would continue
to deteriorate, and the Company concluded that a withdrawal from the business
was the appropriate course of action at this time.

In the fourth fiscal quarter of 2005, the Company believes that it will incur
disposal costs for inventories. The Company is currently formulating an estimate
of these exit costs and of total exit costs, which may be material, and will
report these exit costs and any estimate of related future cash expenditures
once a good faith estimate is determined.




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 33
<PAGE>

                                   SIGNATURES
                                   ----------

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


                                   LEVCOR INTERNATIONAL, INC.



Date: November 14, 2005            /s/ ROBERT A. LEVINSON
      -----------------            ---------------------------------------------
                                   Robert A. Levinson
                                   Chairman of the Board, President and Chief
                                   Executive Officer


Date: November 14, 2005            /s/ EDWARD F. COOKE
      -----------------            ---------------------------------------------
                                   Edward F. Cooke
                                   Chief Financial Officer, Vice President,
                                   Secretary and Treasurer

                                    Page 34
<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 35