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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

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

     For the quarterly period ended March 31, 2007
                                    --------------

                                       OR

[ ]  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)                       (Zip Code)


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


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

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

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

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

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

As of May 14, 2007, 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

          Condensed Consolidated Balance Sheets
          as of March 31, 2007 (Unaudited) and December 31, 2006...............1

          Condensed Consolidated Statements of Income (Unaudited)
          for the Three Months Ended March 31, 2007 and 2006...................2

          Condensed Consolidated Statements of Comprehensive Income
          (Unaudited) for the Three Months Ended March 31, 2007 and 2006 ......3

          Condensed Consolidated Statements of Cash Flows (Unaudited)
          for the Three Months Ended March 31, 2007 and 2006...................4

          Notes to Condensed Consolidated Financial Statements (Unaudited).....5

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

Item 3.   Quantitative and Qualitative Disclosures About Market Risk..........35

Item 4.   Controls and Procedures.............................................36

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings...................................................37

Item 1A.  Risk Factors........................................................38

Item 6.   Exhibits ...........................................................41

          Signatures..........................................................42


<PAGE>
<TABLE>
<CAPTION>

                          PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

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

                                                                            March 31,
ASSETS                                                                         2007        December 31,
Current Assets:                                                            (Unaudited)         2006
                                                                          --------------   --------------
<S>                                                                       <C>              <C>
    Cash                                                                  $           81   $           69
    Accounts receivable trade, net                                                 3,124            2,946
    Inventories, net                                                               5,154            5,343
    Other current assets                                                             220               86
                                                                          --------------   --------------
        Total current assets                                                       8,579            8,444

Property, Plant and Equipment, net                                                 1,858            1,917
Goodwill                                                                           2,543            2,543
Other assets                                                                         262              281
                                                                          --------------   --------------
        Total Assets                                                      $       13,242   $       13,185
                                                                          ==============   ==============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
    Revolving loan and current maturities of long-term debt               $        5,080   $        4,591
    Accounts payable                                                               1,426            1,058
    Pension liabilities, current portion                                           2,134            1,859
    Income taxes payable                                                             179              204
    Other current liabilities                                                        737              859
                                                                          --------------   --------------
        Total current liabilities                                                  9,556            8,571
                                                                          --------------   --------------
Long term debt, less current maturities                                            4,119            4,155
Stockholder loans                                                                    750            1,500
Accrued interest, stockholder loans                                                  598              587
Pension liabilities, less current portion                                          1,135            1,494
Environmental liabilities                                                          1,289            1,290
Other liabilities                                                                    356              335
Mandatorily 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
Accumulated dividends on Mandatorily Redeemable Stock                                354              285
                                                                          --------------   --------------

        Total Liabilities                                                         22,712           22,772
                                                                          --------------   --------------

Commitments and contingencies

STOCKHOLDERS' DEFICIT
Common Stock, par value $0.01 per share
    15,000,000 shares authorized;
    Shares issued and outstanding: 5,331,881 as of
        March 31, 2007 and December 31, 2006                                          54               54
Additional paid in capital                                                        33,232           33,231
Accumulated Deficit                                                              (40,091)         (40,213)
Accumulated Other Comprehensive Loss                                              (2,665)          (2,659)
                                                                          --------------   --------------
Total Stockholders' Deficit                                                       (9,470)          (9,587)
                                                                          --------------   --------------
Total Liabilities and Stockholders' Deficit                               $       13,242   $       13,185
                                                                          ==============   ==============

</TABLE>

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

                                       1

<PAGE>
<TABLE>
<CAPTION>

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

                                                                              Three Months Ended
                                                                                   March 31,
                                                                          ---------------------------
                                                                              2007           2006
                                                                          ------------   ------------
<S>                                                                       <C>            <C>
Net sales                                                                 $      5,265   $      5,821
Cost of sales                                                                    3,484          3,587
                                                                          ------------   ------------
Gross profit                                                                     1,781          2,234
Selling, general and administrative expenses (including stock-based
        compensation expense of $1 and $27 for the three months
        ended March 31, 2007 and 2006, respectively)                             1,401          1,588
                                                                          ------------   ------------
Income from continuing operations before interest and
        and income tax                                                             380            646
Interest expense                                                                   204            139
Dividends on mandatorily redeemable preferred stock                                 68             68
                                                                          ------------   ------------
Income from continuing operations before income tax                                108            439
Income tax benefit                                                                  --             23
                                                                          ------------   ------------
Income from continuing operations                                                  108            462
Income (loss) from discontinued operations, net of tax                              14            (77)
                                                                          ------------   ------------
Net income                                                                $        122   $        385
                                                                          ============   ============
Income per share:
        Basic:
           Income from continuing operations                              $        .02   $        .08
           Income (loss) from discontinued operations                                *           (.01)
                                                                          ------------   ------------
           Net income                                                     $        .02   $        .07
                                                                          ============   ============
        Diluted:
           Income from continuing operations                              $        .02   $        .08
           Income (loss) from discontinued operations                                *           (.01)
                                                                          ------------   ------------
           Net income                                                     $        .02   $        .07
                                                                          ============   ============

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

*Less than $.005

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

                                       2

<PAGE>
<TABLE>
<CAPTION>

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

                                                                               Three Months Ended
                                                                                   March 31,
                                                                          ---------------------------
                                                                              2007           2006
                                                                          ------------   ------------
<S>                                                                       <C>            <C>
Net income                                                                $        122   $        385
Other comprehensive loss:
        Foreign currency translation adjustment                                     (6)           (10)
                                                                          ------------   ------------
Comprehensive income                                                      $        116   $        375
                                                                          ============   ============
</TABLE>

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


                                       3
<PAGE>
<TABLE>
<CAPTION>

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

                                                                               Three Months Ended
                                                                                   March 31,
                                                                          ---------------------------
                                                                              2007           2006
                                                                          ------------   ------------
<S>                                                                       <C>            <C>

Cash Flows Provided By (Used In) Operating Activities:
Net income                                                                $        122   $        385
Reconciliation of net income to net cash provided by
   (used in) operations:
    Depreciation and amortization                                                   97             91
    Non-cash stock-based compensation                                                1             27
    Accrued interest on stockholder loans                                           11             35
    Accrued dividends on mandatorily redeemable preferred stock                     68             68
    Changes in operating assets and liabilities:
        Accounts receivable trade, net                                            (178)        (1,341)
        Inventories, net                                                           179            748
        Other current assets                                                      (134)          (119)
        Other assets                                                                (3)           (45)
        Income taxes payable                                                       (25)           (13)
        Accounts payable                                                           368           (524)
        Other current liabilities                                                 (122)          (162)
        Pension liabilities                                                        (84)           (23)
        Environmental liabilities                                                   (1)           (34)
        Other liabilities                                                           21             18
                                                                          ------------   ------------
           Net cash provided by (used in) operating activities                     320           (889)
                                                                          ------------   ------------

Cash Flows Used In Investing Activities:
Capital expenditures                                                                --             (4)
Investment in other assets                                                         (11)            (9)
                                                                          ------------   ------------
        Net cash used in investing activities                                      (11)           (13)
                                                                          ------------   ------------

Cash Flows Provided By (Used In) Financing Activities:
Borrowings under revolving loan                                                  5,087          5,944
Repayments under revolving loan                                                 (4,598)        (4,548)
Repayment of long - term debt                                                      (36)           (36)
Repayments of stockholder loans                                                   (750)            --
Due to factor                                                                       --           (429)
                                                                          ------------   ------------
        Net cash provided by (used in) financing activities                       (297)           931
                                                                          ------------   ------------

Increase in cash                                                                    12             29
Cash at beginning of period                                                         69             50
                                                                          ------------   ------------
Cash at end of period                                                     $         81   $         79
                                                                          ============   ============

Supplemental Disclosure of Cash Flow Information:
Cash paid (refunded) during the period for:
    Interest                                                              $        204   $        197
                                                                          ============   ============
    Income taxes                                                          $         25   $        (11)
                                                                          ============   ============
</TABLE>


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

                                       4

<PAGE>

                   LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES
                         NOTES TO CONDENSED CONSOLIDATED
                        FINANCIAL STATEMENTS (UNAUDITED)


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

Nature of Operations:
---------------------
Levcor International, Inc. and Subsidiaries (the "Company" or "Levcor" or "we")
manufacture, package and distribute a line of buttons and other craft products
for sale in the home sewing and craft retail industry. The Company formerly
operated a textile business which is treated as a discontinued operation as
described in Note 3. The Company sells its products to customers primarily in
North America and also has distribution in Canada and Europe.

The accompanying unaudited condensed consolidated financial statements have been
prepared in compliance with Rule 10-01 of regulation S-X and accounting
principles generally accepted in the United States of America ("GAAP"), as
applicable to interim financial information and following other requirements of
the Securities and Exchange Commission ("SEC") for interim reporting.
Accordingly, the unaudited condensed consolidated financial statements do not
include all of the information and footnotes normally required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all normal and recurring
adjustments and accruals considered necessary for a fair presentation have been
included. The interim results are not necessarily indicative of the results for
a full year and do not contain information included in the Company's annual
consolidated financial statements and notes for the year ended December 31,
2006. The consolidated balance sheet as of December 31, 2006 was derived from
audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America. It is
suggested that these condensed consolidated financial statements be used in
conjunction with the financial statements and notes thereto included in the
Company's latest annual report on Form 10-K.

The condensed consolidated balance sheets as of March 31, 2007 (unaudited) and
December 31, 2006 (audited) and the unaudited condensed consolidated statements
of income, comprehensive income and cash flows for the three months ended March
31, 2007 and 2006 include the accounts of the Company and subsidiaries.


NOTE 2:  GOING CONCERN
----------------------

The accompanying unaudited condensed consolidated financial statements have been
prepared on a basis which contemplates the realization of assets and the
satisfaction of liabilities and commitments in the normal course of business.
The Company's ability to continue as a going concern is dependent upon its
ability to execute management's plans to be profitable, generate positive cash
flow from operations, obtain financing to meet the Company sponsored defined
benefit pension funding obligations currently estimated to be $1.8 million in
2007 and to continue to have access to existing financing to meet obligations
and repay liabilities when they come due, including amounts payable with respect
to claimed environmental liabilities in connection with the Solvents Recovery
Service of New England Superfund Site (see Note 13) in the event the parent

                                     Page 5
<PAGE>

corporation is determined to be responsible for these claimed liabilities and
the redemption of preferred stock due in 2007 and thereafter. Although
management continues to pursue these plans and believes it will be successful,
there is no assurance that the Company will be successful in generating such
profitable operations or maintaining such access to existing financing or
obtaining financing for such pension and environmental obligations on terms
acceptable to the Company. The outcome of these matters cannot be predicted with
any certainty at this time. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management plans to satisfy
the Company's capital needs through cash generated from operations, advances
under its facilities with CIT and stockholder loans. These unaudited condensed
consolidated financial statements do not include any adjustments to the amounts
and classification of assets and liabilities that may be necessary should the
Company be unable to continue as a going concern.

NOTE 3:  DISCONTINUED OPERATIONS
--------------------------------

During the fourth quarter of 2005, the Company's Board of Directors approved
management's plan to exit the garment manufacturing business. On May 11, 2006,
management determined to exit its remaining Textile business completely. As a
result, Textile segment operations for the current and prior comparative periods
have been presented as discontinued operations.

During 2006, the Company disposed of substantially all significant Textile
business inventory and had inventory of $15,000 and no liabilities at December
31, 2006. As of March 31, 2007 the Company had no Textile business assets or
liabilities remaining. The Company does not expect to incur any additional exit
costs.

The Textile segment generated the following operating results which have been
classified as discontinued operations in the unaudited condensed consolidated
statements of income (dollars in thousands):
<TABLE>
<CAPTION>

                                                                Three Months Ended March 31,
                                                                ---------------------------
                                                                    2007            2006
                                                                ------------   ------------
<S>                                                             <C>            <C>
Sales                                                           $         30   $      1,868
Cost of sales                                                             16          1,696
                                                                ------------   ------------
Gross profit                                                              14            172
Selling, general and administrative
    expense                                                               --            157
Interest expense                                                          --             92
                                                                ------------   ------------
Results of discontinued operations, net of tax                  $         14   $        (77)
                                                                ============   ============
</TABLE>

Effective June 30, 2006, the short and long term debt of the Textile business
became short and long term debt of the Company's continuing operations and as
such, interest expense related to this debt in future periods will be classified
as part of our continuing operations.

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

Consolidation:
-------------

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

                                     Page 6
<PAGE>

Use of Estimates:
----------------

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

Cash and Cash Equivalents:
-------------------------

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The Company did not have
any cash equivalents at March 31, 2007 and December 31, 2006.

Property, Plant and Equipment:
-----------------------------

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

Credit Risk:
-----------

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

Accounts Receivable:
-------------------

Accounts receivable are stated at the net realizable value. An allowance for
doubtful accounts is recorded based on a combination of historical experience,
aging analysis and information on specific accounts. Account balances are
written off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote. The allowance for
doubtful accounts was $192,000 at March 31, 2007 and $106,000 at December 31,
2006.

Inventories:
-----------

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

                                     Page 7
<PAGE>

Long-Lived Assets:
-----------------

The Company evaluates the carrying value of long-lived assets whenever events or
changes in circumstances indicate the carrying value of an asset may not be
recoverable. When factors indicate the asset may not be recoverable, the Company
compares the related undiscounted future net cash flows to the carrying value of
the asset to determine if impairment exists. If the expected future net cash
flows are less than the carrying value, the asset is written down to its
estimated fair value. When assets are removed from operations and held for sale,
the impairment loss is estimated as the excess of the carrying value of the
assets over their fair value. No such impairments of long-lived assets were
recorded for the three months ended March 31, 2007 and 2006.

Goodwill:
--------

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

Income Taxes:
------------

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

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

The Company has significant deferred tax assets, resulting from net operating
loss carryforwards and deductible temporary differences. As of March 31, 2007
and December 31, 2006, the Company has provided a full valuation allowance
against its deferred tax assets. Management weighs the positive and negative
evidence to determine if it is more likely than not that some or all of the
deferred tax assets will be realized. Forming a conclusion that a valuation
allowance is not needed is difficult when there is negative evidence such as
cumulative losses in past years. The Company will continue to maintain a full
valuation allowance on our tax benefits until profitability has been sustained
over a time period and in amounts that are sufficient to support a conclusion
that it is more likely than not that a portion or all of the deferred tax assets
will be realized. A decrease in our valuation allowance would result in an
immediate material income tax benefit, an increase in total assets and
stockholder's deficit, and could have a significant impact on earnings in future
periods.

                                     Page 8
<PAGE>

Because of the Company's net operating loss carryforward, the Company is not
required to record a provision for income taxes related to its pretax income
except in instances where minimum taxes are payable.

Environmental Liabilities:
-------------------------

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

Loss Contingencies:
------------------

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

Foreign Currency Translation:
----------------------------

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

Fair Value of Financial Instruments:
-----------------------------------

The Company's financial instruments are comprised of revolving debt, long-term
debt, loans payable to stockholder, Robert A. Levinson, and Series A Mandatory
Redeemable Preferred Stock at March 31, 2007 and December 31, 2006. The fair
values of the revolving debt, long-term debt, loans payable to Robert A.
Levinson and Series A Mandatory Redeemable Preferred Stock approximate the
carrying values because these obligations had market-based interest rates.

Revenue Recognition:
-------------------

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.

                                     Page 9
<PAGE>

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

Advertising:
-----------

The Company expenses the cost of advertising at the time the cost is incurred.
Advertising expense totaled approximately $1,600 and $17,000 during the three
months ended March 31, 2007 and 2006, respectively.

Income (Loss) Per Common Share:
------------------------------

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

Mandatorily Redeemable Preferred Stock:
--------------------------------------

The Company accounts for mandatorily redeemable preferred stock in accordance
with SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 requires
an issuer to classify certain financial instruments within its scope, such as
mandatorily redeemable preferred stock, as liabilities (or assets in some
circumstances). SFAS 150 defines a financial instrument as mandatorily
redeemable if it embodies an unconditional obligation requiring the issuer to
redeem the instrument by transferring its assets at a specified or determinable
date(s) or upon an event certain to occur.

Stock-Based Compensation:
------------------------

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS No.
123(R)), "Share-Based Payment," to account for stock-based compensation. Among
other items, SFAS No. 123(R) eliminates the use of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and the
intrinsic value method of accounting and requires companies to recognize in
their financial statements the cost of services received in exchange for awards
of equity instruments based on the grant date fair value of those awards. The
Company elected to use the modified prospective method for adoption, which
requires compensation expense to be recorded for all unvested stock options and
other equity-based compensation beginning in the first quarter of adoption. For
all unvested options outstanding as of January 1, 2006, the previously measured
but unrecognized compensation expense, based on the fair value at the original
grant date, has been or will be recognized in the Company's financial statements
over the remaining vesting period. For equity-based compensation awards granted
or modified subsequent to January 1, 2006, compensation expense, based on the
fair value on the date of grant or modification has been or will be recognized
in the Company's consolidated financial statements over the vesting period. The
Company utilizes the Black-Scholes option pricing model to measure the fair
value of stock options. Prior to the adoption of SFAS No. 123(R), the Company
followed the intrinsic value method in accordance with APB Opinion No. 25 to
account fro stock-based compensation.

Reclassifications:
-----------------

Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.

                                    Page 10
<PAGE>

Recently Issued Accounting Pronouncements

In October 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position ("FSP") No. Financial Accounting Standard ("FAS") 123(R)-5,
Amendment of FSP FAS 123(R)-1, ("FSP FAS123(R)-5") to address whether a change
to an equity instrument in connection with an equity restructuring should be
considered a modification for the purpose of applying FSP No. FAS 123(R)-1,
Classification and Measurement of Freestanding Financial Instruments Originally
Issued in Exchange for Employee Services under FAS Statement No 123(R) ("FSP
FAS123(R)-1"). FSP FAS 123(R)-1 states that financial instruments issued to
employees in exchange for past or future services are subject to the provisions
of FAS 123(R) unless the terms of the award are modified when the holder is no
longer an employee. In FSP FAS 123(R)-5, the FASB staff concluded that changes
to the terms of an award that are made solely due to an equity restructuring are
not considered modifications as described in FSP FAS 123(R)-1 unless the fair
value of the award increases, anti-dilution provisions are added, or holders of
the same class of equity instruments are treated unequally. FSP FAS 123(R)-5 is
effective for the first reporting period beginning after October 10, 2006. The
adoption of FSP FAS 123(R)-5 did not have a material impact on the Company's
unaudited condensed consolidated financial statements.

On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). Under this standard,
the Company may elect to report financial instruments and certain other items at
fair value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS 159 provides an opportunity to
mitigate volatility in reported earnings that is caused by measuring hedged
assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex provisions
of SFAS 133 hedge accounting are not met. SFAS 159 is effective for years
beginning after November 15, 2007. Early adoption within 120 days of the
beginning of the Company's 2007 fiscal year is permissible, provided the Company
has not yet issued interim financial statements. The Company is currently
evaluating the impact SFAS 159 will have on its consolidated results of
operations, financial position and cash flows.

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

The components of inventories as of March 31, 2007 and December 31, 2006, net of
reserves are as follows (dollars in thousands):

                                               2007           2006
                                            ----------     ----------
                   Raw materials            $    2,443     $    2,614
                   Work in progress                 88             87
                   Finished goods                2,623          2,642
                                            ----------     ----------
                                            $    5,154     $    5,343
                                            ==========     ==========

At March 31, 2007 and December 31, 2006 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.

                                    Page 11
<PAGE>

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

The components of Property, Plant and Equipment as of March 31, 2007 and
December 31, 2006 are as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                                   2007           2006
                                                                ----------     ----------
<S>                                                             <C>            <C>
         Land and improvements                                  $       80     $       79
         Buildings and improvements                                  2,494          2,491
         Machinery and equipment                                     2,258          2,248
                                                                ----------     ----------
                                                                     4,832          4,818
         Less: Accumulated depreciation and amortization            (2,974)        (2,901)
                                                                ----------     ----------
                                                                $    1,858     $    1,917
                                                                ==========     ==========
</TABLE>

Depreciation and amortization expense for the three months ended March 31, 2007,
and 2006 totaled approximately $97,000, and $91,000, respectively.

NOTE 7:   SHORT TERM AND LONG TERM DEBT
---------------------------------------

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

The Company's credit facility with CIT (the "CIT Facility") provides for maximum
aggregate borrowings of up to $7.5 million in the form of revolving credit,
letters of credit and term loans. The CIT Facility is comprised of separate
financing agreements with the Company and its wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal"). Availability under the Company's
credit facility with CIT as of March 31, 2007 totaled $384,000.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.3 million of which was outstanding at
March 31, 2007, (ii) revolving credit advances to the Company, $1.3 million of
which was outstanding at March 31, 2007 and (iii) revolving credit advances to
Blumenthal based upon eligible accounts receivable and inventory, $3.6 million
of which was outstanding at March 31, 2007, and a Letter of Credit facility with
a limit of $500,000, of which there was none outstanding at March 31, 2007. The
Term Loan amortizes $12,000 per month followed by a final installment payment of
$1.0 million due on January 1, 2009. The revolving credit advances are also due
on January 1, 2009. CIT may terminate the Credit facility upon 60 days written
notice. $2.5 million of the amounts outstanding under the CIT Facility bear
interest at Chase Bank N.A. prime rate (8.25%) and amounts in excess of $2.5
million bear interest at the Chase Bank N.A. prime rate plus 0.5% (8.75%) with a
minimum rate of 5.0%.

In connection with the CIT Facility, the Company and its subsidiary have made
cross corporate guarantees and have issued first priority liens covering
substantially all of the assets of the Company and its subsidiary. The
guarantees are full and unconditional. The non-guarantor subsidiary is
immaterial and the Company's financial statements are representative of the
combined guarantors of which the guarantor subsidiary is 100% owned. In
addition, Mr. Robert A. Levinson, a stockholder, officer and director of the
Company, provided certain collateral against advances provided under the CIT
Facility in the approximate amount of $2.5 million.

The CIT Facility contains representations and warranties and events of default
customary for agreements of this nature such as restrictions on incurring more
debt, acquisitions, the use of proceeds from the sales of assets, the
prohibition of preferred stock redemptions, dividend payments in excess of

                                    Page 12
<PAGE>

$300,000 per year, and a change in voting control of the Company. The CIT
Facility also contains a subjective acceleration clause which states that all
obligations shall, at CIT's option, be immediately due and payable without
notice or demand upon the occurrence of any change in the Company's condition or
affairs (financial or otherwise) that, in CIT's sole discretion exercised by CIT
in accordance with CIT's business judgment, materially impairs the collateral or
increases CIT's risk. In the case of the Term Loan, CIT may accelerate the
maturity in the event of a default by the Company after thirteen months notice
of such acceleration. Management of the Company believes that the likelihood of
CIT accelerating the payment of any of the obligations under the CIT Facility
during the next twelve months is remote.

On July 26, 2006, the CIT Facility was amended to increase the advance
percentage against the value of Eligible Inventory (as defined in the agreement)
to 40% (from 20%) of Eligible Inventory with respect to the revolving credit
portion of the CIT Facility. Total borrowing availability under the entire CIT
Facility remains at $7.5 million. In addition, the guaranty of the CIT Facility
by Robert A. Levinson, the Company's Chief Executive Officer and principal
shareholder, was removed and the applicable interest rate was changed to the
Chase Rate on the first $2.5 million of average net balances owed, and the Chase
Rate plus .50% per annum on average net balances owed in excess of $2.5 million,
but in either case not less than 5% per annum.

The Company also has a factoring agreement with CIT, which matures on January 1,
2009. As of March 31,2007 there was no balance due to or from CIT under the
factoring agreement.

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of January 1, 2009, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBOR Rate
applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on
the note at March 31, 2007 was 6.1875%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Mr. Robert A. Levinson, a stockholder, has agreed to personally support the
Company's cash requirements to enable it to fulfill its obligations through
January 2, 2009, to the extent necessary, up to a maximum amount of $3.0
million. The Company believes its reliance on such commitment is reasonable and
that Mr. Levinson has sufficient liquidity and net worth to honor such
commitment. The Company believes that Mr. Levinson's written commitment provides
the Company with the legal right to request and receive such advances. In the
event that Mr. Levinson did not honor such commitment, the Company would have
the right to sue Mr. Levinson for breach of his agreement. On March 20, 2007,
Mr. Levinson reaffirmed this undertaking in writing in a commitment letter dated
March 13, 2007.

The Company had outstanding loans payable to Mr. Levinson totaling $750,000 and
$1,500,000 as of March 31, 2007 and December 31, 2006, respectively. In
addition, Mr. Levinson has pledged collateral in support of certain Company
obligations. Accrued interest on Mr. Levinson's loans has been classified as
noncurrent liabilities on the Company's balance sheet and totaled $598,000 and
$587,000, respectively, at March 31, 2007 and December 31, 2006. He has also
agreed not to demand any repayment of principal or interest currently owed until
January 1, 2009.

As of March 31, 2007, the Company was in compliance with all debt covenants as
defined in the respective agreements.

                                     Page 13
<PAGE>

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

                      2008          $    144
                      2009             4,869
                                    --------
                                    $  5,013
                                    ========

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

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

The benefits under the plan are determined based on formulas, which reflect the
employees' years of service and compensation during their employment period. The
projected unit credit method is used to determine pension cost. Funding
requirements for the plan are based on the unit credit method. The Company's
policy is to fund pension cost as required by ERISA. With respect to the 2006
plan year, the Company has $990,482 due on September 15, 2007, based on current
legislated discount rates and actuarial assumptions. In addition, current
actuarial assumptions project contributions with respect to the 2007 Plan year
totaling approximately $1.1 million of which $800,514 would be payable in 2007.
The financial statements have been prepared based on these current actuarial
assumptions.

On August 17, 2006 The Pension Protection Act of 2006 was signed into law. New
pension funding rules are effective for plan years beginning on or after January
1, 2008. For 2006 and 2007 the prior law funding rules remain in effect. Under
the new law, the 90% funding target is replaced with a 100% target. Shortfalls
from the 100% target must be amortized over a seven year period.

In addition to the liability of $2.0 million for this Company sponsored plan,
the Company also has an additional pension liability in the amount of $963,000
at March 31, 2007 in connection with a terminated multi-employer plan which
requires annual payments of $142,000 inclusive of principal and interest through
2016. In addition, the Company has a $277,000 deferred compensation liability
payable to the former owner of an acquired business.

A summary of net periodic benefit costs of the Company's defined benefit plan
and post retirement medical benefit plan for the three months ended March 31,
2007 and 2006, respectively, are as follows (dollars in thousands):

                                    Page 14
<PAGE>
<TABLE>
<CAPTION>

                                                               Three Months Ended
                                                           -------------------------
                                                                   March 31,
                                                           -------------------------
         Pension Benefits                                     2007           2006
         ----------------                                  ----------     ----------
<S>                                                        <C>            <C>
         Service                                           $       --     $       --
         Interest cost                                            284            297
         Expected return on plan assets                          (351)          (334)
         Amortization of prior service cost                        --             --
         Recognized net actuarial loss                              9             45
                                                           ----------     ----------
         Net periodic benefit (income) expense             $      (58)    $        8
                                                           ==========     ==========
<CAPTION>

                                                               Three Months Ended
                                                           -------------------------
                                                                   March 31,
                                                           -------------------------
         Other Benefits                                       2007           2006
         ----------------                                  ----------     ----------
<S>                                                        <C>            <C>
         Service                                           $       --     $       --
         Interest cost                                             --             13
         Expected return on plan assets                            --             --
         Amortization of prior service cost                        --             (4)
         Recognized net actuarial (gain)                           --            (20)
                                                           ----------     ----------
         Net periodic benefit (gain)                       $       --     $      (11)
                                                           ==========     ==========
</TABLE>

In September 2006, the Company determined that it would terminate its post
retirement medical plan as of December 31, 2006. As a result, the Company
reduced the balance sheet liability for post retirement medical costs by $1.7
million as of September 30, 2006 and recorded a corresponding non-cash gain on
the plan termination. As of March 31, 2007, the Company continued to have
approximately $16,000 included in other current liabilities related to payments
expected to be made under the plan during the run off period in 2007 for 2006
claims.

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

NOTE 9: INCOME TAXES
--------------------

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

The Company adopted the provisions of FIN 48 on January 1, 2007. The
implementation of FIN 48 did not have a material impact on its unaudited
condensed consolidated financial statements. The Company files tax returns in
the U.S. federal jurisdiction and in various states. All federal and state tax
filings for the Company as of December 31, 2005 have been timely filed. The
Company is subject to U.S. federal or state income tax examinations by tax
authorities for years after 2002. During the periods open to examination, the
Company has utilized net operating loss carry forwards that have attributes from
closed periods. Since these net operating loss carry forwards were utilized in
the open periods, they remain subject to examination.

As of March 31, 2007, the Company has not recorded any provisions for accrued
interest and penalties related to uncertain tax positions.

                                    Page 15
<PAGE>

NOTE 10:   CUSTOMER CONCENTRATIONS
----------------------------------

The Company's customer base has been and continues to be highly concentrated.
The Company's largest three customers (Wal-Mart, a mass merchandiser and Jo-Ann
Stores and Hancock Fabrics, each a specialty chain) represented approximately
46%, 27% and 5%, respectively, during the three months ended March 31, 2007 and
52%, 21% and 7%, respectively, during the three months ended March 31, 2006.
These customers also represented approximately 77% and 63% of the total
outstanding accounts receivable as of March 31, 2007 and December 31, 2006,
respectively. A reduction in sales to any of these customers could adversely
impact the financial condition and results of operations of the Company.

On March 21, 2007, Hancock Fabrics, the Company's third largest customer in
2006, announced it will close approximately 134 of its 443 stores in 2007 as it
reorganizes under Chapter 11. On December 31, 2006 the Company recorded an
allowance of $75,000 against the uncollected 2006 accounts receivable balance of
Hancock Fabrics. In addition, as of March 31, 2007, the Company recorded an
additional allowance of $86,000 against 2007 pre-bankruptcy sales.

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

Robert A. Levinson, a stockholder, officer and director had outstanding loans of
$750,000 and $1.5 million as of March 31, 2007 and December 31, 2006,
respectively. The Company also had $598,000 and $587,000 of accrued interest
payable to Mr. Levinson with respect to such loans as of March 31, 2007 and
December 31, 2006, respectively. He has also 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
three months ended March 31, 2007 and 2006, fees for services provided to the
Company by Katten Muchin Rosenman LLP totaled approximately $20,000 and
$104,000, respectively. Mr. Cohen does not share in the fees that the Company
pays to such law firm and his compensation is not based on such fees.

NOTE 12:  MANDATORILY REDEEMABLE PREFERRED STOCK
------------------------------------------------

The Series A Preferred Stock is subject to mandatory redemption, to the extent
the Company may lawfully do so, in three equal annual installments 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. Under the terms of the
Company's Certificate of Incorporation, the mandatory redemption of the Series A
Preferred Stock can only be made to the extent that such redemptions can be made
without contravening or causing default under any contract, agreement or other
instrument by which the Company or its subsidiaries or any of their property is
bound. Under the terms of the CIT Facility, preferred stock redemption payments
are prohibited and preferred stock dividend payments are limited to $300,000 per
year. Because preferred stock redemption payments are prohibited under the CIT
Facility, the Company is precluded by its Certificate of Incorporation from
making any such payments so long as the CIT Facility is outstanding. In
addition, the amount redeemable within the next twelve months, including
accumulated dividends, will continue to be classified as a noncurrent liability

                                    Page 16
<PAGE>

so long as any portion of the CIT Facility has a maturity of more than one year.
The CIT Facility is currently scheduled to mature on January 1, 2009.

Dividends on the Series A Preferred Stock accrue at a rate of $0.06 per annum
per share when, as and if declared by the Company and are payable quarterly on
March 15, June 15, September 15 and December 15. Quarterly dividends which are
not paid in full in cash on any dividend payment date will accumulate without
interest until the first mandatory redemption date. In the event that the
Company does not redeem shares of Series A Preferred Stock, any unpaid
accumulated dividends will also begin to accrue dividends from that date forward
at the rate of 6% per year.

The availability of resources to make dividend payments to the holders of Series
A Preferred Stock in the future will depend on the Company's future earnings and
cash flow. Under Delaware law, preferred dividend payments are restricted to the
Company's accumulated or current earnings and profits. Losses in 2005 and
earlier years have depleted the Company's accumulated earnings and profits and,
as such, future preferred dividend payments will be limited to future earnings
and profits. Preferred dividends which cannot be paid under Delaware law will
continue to accrue and will be added to the Preferred Stock liability account.
As of March 31, 2007, unpaid preferred stock dividends totaled approximately
$354,000 and have been classified as a noncurrent liability on the Company's
balance sheet. The preferred stock is owned 98.3% by Mr. Robert A. Levinson, a
stockholder, officer and director of the Company. The mandatorily redeemable
preferred stock is redeemable at $1.00 per share plus accrued and unpaid
dividends.

NOTE 13:   COMMITMENT AND CONTINGENCIES
---------------------------------------

Environmental. The Company is subject to a number of federal, state and local
environmental laws and regulations, including those concerning the treatment,
storage and disposal of waste, the discharge of effluents into waterways, the
emissions of substances into the air and various health and safety matters. In
addition, CERCLA and comparable state statutes generally impose joint and
several liability on present and former owners and operators, transporters and
generators for remediation of contaminated properties regardless of fault. These
parties are typically identified as "potentially responsible parties" or "PRPs."
On or about June 1992 the Company received notices from the United States
Environmental Protection Agency ("EPA") that the Company, Belding Corticelli
Thread Co. ("BCTC") (a discontinued operation) and Carlyle Manufacturing
Company, Inc. ("CM") (a subsidiary) had been identified, along with 1,300 other
parties, as PRPs in connection with the alleged release of hazardous substances
from the Solvents Recovery Service of New England Superfund Site in Southington,
Connecticut (the "SRS site"). The Company settled its alleged liability in
connection with the SRS site by paying $1,626 in connection with a settlement
offered to de minimis parties at the SRS site in 1994. BCTC and CM, along with
other PRPs, committed to perform the Remedial Investigation and Feasibility
Study ("RIFS") and two Non-Time Critical Removal Actions ("NTCRA") at the SRS
site. The RIFS, and the first NTCRA (except for certain maintenance activities)
have been completed. BCTC and CM have been allocated approximately .04% and
1.34%, respectively, of costs incurred to date, based on their alleged volume of
waste shipped to the SRS site. In September of 2005, the EPA issued its Record
of Decision ("ROD") for the SRS site. In September 2006, the EPA sent special
notice letters to the PRPs to initiate consent decree negotiations concerning,
among other things, the scope of the work to be performed under the ROD and
reimbursement of all, or a significant portion, of EPA's past response costs and
future costs to be incurred in overseeing the remedial work. In December 2006,
CM and BCTC joined in the SRS PRP Group offer to the EPA to (i) construct and

                                    Page 17
<PAGE>

operate the remedial action contemplated by the ROD (subject to certain proposed
changes) and (ii) reimburse EPA for portions of its past and future site-related
costs. Assuming negotiations between EPA and the PRP Group are successful, it is
expected that payments by parties to the Consent Decree would begin in 2008.

In addition, the State of Connecticut and the Southington Water District have
sought reimbursement from the PRP Group for alleged Natural Resource Damages and
other claimed damages for supposed temporary loss of use of groundwater and
consequential loss of future use of groundwater due to contamination on and
emanating from the SRS site. In addition, the PRP Group has also received a
demand from the federal NRD trustees.

The issues referred to above do not include costs that the Company or its
subsidiaries may incur for consultants' or attorneys' fees or for administrative
expenses in connection with the participation of any of them as part of a PRP
group. The accrual the Company has established for these and other environmental
liabilities, in the amount of $1.3 million, represents the Company's best
current estimate of the costs of addressing all identified environmental
situations, based on the Company's review of currently available evidence, and
takes into consideration the Company's prior experience in remediation and that
of other companies, as well as public information released by the EPA and by the
PRP groups in which the Company or its subsidiaries are participating. Although
the reserve currently appears to be sufficient to cover these environmental
liabilities, there are uncertainties associated with environmental liabilities,
and no assurances can be given that the Company's estimate of any environmental
liability will not increase or decrease in the future. The uncertainties relate
to the difficulty of estimating the ultimate cost of any remediation that may be
undertaken, including any operating costs associated with remedial measures, the
duration of any remediation required, the amount of consultants' or attorneys'
fees that may be incurred, the administrative costs of participating in the PRP
groups, and any additional costs or requirements that may be imposed or sought
by federal, state or local agencies.

Legal Proceedings. The Company is a party to various other 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 18
<PAGE>

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

Forward-Looking Statements

Introduction

This 2007 Report on Form 10-Q contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include statements regarding the intent and belief
or current expectations of the Company and its management team. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward-looking
statements. Such risks and uncertainties include, among other things, the
Company's ability to continue to operate as a going concern, the Company's
lenders continuing to support the Company, the Company's ability to secure
additional financing to meet future capital needs, the timing and amount of
required defined benefit plan contributions, the Company's ability to generate
increased revenues from its operations, reliance on short term advances from a
significant stockholder, the Company's ability to generate free cash flow or
obtain additional financing in excess of its debt service and other current
obligations in order to support and grow its business, reliance on a limited
number of significant customers, future revenue opportunities, inventory risk,
growth of the Company's business in Europe and North America, the expansion and
future growth of the Company's customer base and strategic and distribution
relationships future capital, marketing and sales force needs, the Company's
ability to manage expenses and maintain margins, the possible acquisition of
complementary products and businesses, and other risks and uncertainties that
may be detailed herein, and from time-to-time, in the Company's other reports
filed with the Securities and Exchange Commission ("SEC"). The Company
undertakes no obligation to publicly update any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.

Overview

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

In 2003, the Company acquired by merger Carlyle Industries, Inc. ("Carlyle").
This acquisition formed the basis of the Company's craft business, which
constitutes all of its current operations.

Craft Business
--------------

Products and Customers

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

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

                                    Page 19
<PAGE>

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

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

All imported and domestically purchased products for sale in the North American
market are shipped to the Company's Lansing, Iowa facility for packaging and
distribution to customers. As thousands of button styles are received in bulk,
computerized card printing systems enable the Company's wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal") to economically imprint millions
of button cards with such necessary data as style number, price, number of
buttons, bar code, country of origin and care instructions. The Company also
blister-packages and shrink-wraps some products. Domestic shipments are made
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 Company's accounts include fabric and craft specialty chains, mass
merchandisers carrying buttons and crafts, distributors and many independent
stores. Mass merchandisers and specialty chain customers are characterized by
the need for sophisticated electronic support, rapid turn-around of merchandise
and direct-to-store service to customers with hundreds to thousands of locations
nationwide. The Craft business enjoys long-standing ties to all of its key
accounts and the average relationship with its ten largest customers extends
over 30 years. Due to the large account nature of its customer base, most
customer contact is coordinated by management and additional sales coverage is
provided by regional sales managers. Many smaller retailers are serviced by
independent representatives and representative organizations.

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

                                    Page 20
<PAGE>

markets beyond the traditional U.S. retail outlets by expansion into the major
European countries. The Company's largest three customers (Wal-Mart, a mass
merchandiser and Jo-Ann Stores and Hancock Fabrics ("Hancock"), each a specialty
chain,) represented approximately 46%, 27% and 5% respectively, during the first
quarter 2007, 52%, 21% and 7%, respectively, during the first quarter 2006.
These customers also represented approximately 77% and 63% of the Company's
outstanding accounts receivable as of March 31, 2007, and December 31, 2006,
respectively. A reduction in sales to any of these customers could adversely
impact the financial condition and results of operations of the Company.

On March 21, 2007, Hancock, the Company's third largest customer, announced it
will close approximately 134 of its 443 stores in 2007 as it reorganizes under
Chapter 11. On December 31, 2006, the Company recorded an allowance of $75,000
against the uncollected 2006 accounts receivable balance of Hancock as of the
date of the filing. In addition, as of March 31, 2007, the Company recorded an
additional allowance of $86,000 against 2007 pre-bankruptcy sales. The Company
believes that going forward, 2007 will result in lower sales to Hancock as
compared to 2006 due to the reduced store count.

The Company's largest customer, Wal-Mart has begun opening new stores with no
cut fabric and a reduced craft department. The Company anticipates a reduction
in sales to Wal-Mart in 2007 as a result of the new store lay-outs.

In direct response to these factors, the Company has taken steps to reduce its
operating costs during the first quarter of 2007.

Discontinued Textile Operations

In 1995, the Company acquired a woven fabric converting business and in 1999,
the Company purchased a knit fabric and processing business. These acquisitions
formed the basis of the Company's historic Textile business.

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

On November 9, 2005, the Company's Board of Directors approved management's plan
to exit the garment manufacturing business. On May 11, 2006, management
determined to exit its remaining Textile business completely. As a result,
Textile segment operations for the current and prior comparative periods have
been presented as discontinued operations.

During 2006, the Company disposed of substantially all remaining Textile
business inventory and had inventory of $15,000 with no liabilities at December
31, 2006. As of March 31, 2007 the Company had no Textile business assets and
liabilities remaining. The Company does not expect to incur any additional exit
costs.

The Textile business generated the following operating results which have been
classified as discontinued operations in the unaudited condensed consolidated
statements of income (dollars in thousands):

                                    Page 21
<PAGE>

                                                     Three Months Ended
                                                         March 31,
                                                 -------------------------
                                                    2007           2006
                                                 ----------     ----------
Sales                                            $       30     $    1,868
Cost of sales                                            16          1,696
                                                 ----------     ----------
Gross profit                                             14            172
Selling, general and administrative
    expense                                              --            157
Interest expense                                         --             92
                                                 ----------     ----------
Results of discontinued operations, net of tax   $       14     $      (77)
                                                 ==========     ==========



                                     Page 22
<PAGE>

Effective June 30, 2006, the short and long term debt of the Textile segment
became short and long term debt of the Company's continuing operations and as
such, interest expense related to this debt in future periods will be classified
as part of our continuing operations.

Competition

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

Critical Accounting Policies and Estimates

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

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

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

                                    Page 23
<PAGE>

 Allowance for Doubtful Accounts

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

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

Inventories

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

Impairment of Long-Lived Assets

The Company evaluates goodwill and indefinite lived intangible assets on an
annual basis and whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable. Long-lived assets, including
property and equipment, long-term assets and amortizable intangible assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be fully recoverable. Conditions that would
necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. The Company assesses impairment in accordance with the requirements
of Statement of Financial Accounting Standards ("SFAS") No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. The Company assesses the
impairment of goodwill and intangible assets in accordance with the provisions
of SFAS No. 142, Goodwill and Other Intangible Assets. The Company determines
the recoverability of the assets by comparing the carrying amount of the assets
to net future cash flows that the assets are expected to generate. The
impairment recognized is the amount by which the carrying amount exceeds the
fair market value of the assets.

                                    Page 24
<PAGE>

Deferred Taxes

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

Pension Liabilities

The determination of pension obligations and the related pension expense or
credits to operations involves significant estimates. The most significant
estimates are the discount rate used to calculate the actuarial present value of
benefit obligations and the expected long-term rate of return on assets used in
calculating the pension charges or credits for the year. Under the Company's
defined benefit plan, the Company uses discount rates based on yields of highly
rated fixed income debt securities at the end of the year. At March 31, 2007,
the weighted average discount rate for the plan was 5.75%. The Company uses an
expected long-term rate of return on assets that is based on both past
performance of the plan's assets and estimated future performance of the assets.
At March 31, 2007, the expected long-term rate of return used was 8%. Due to the
nature of the plan's assets and the volatility of debt and equity markets,
results may vary significantly from year to year.

Based on current actuarial assumptions and estimates, the Company has an
aggregate $3.3 million pension obligation representing $2.0 million related to
the Company sponsored plan and $963,000 related to a terminated multi-employer
plan and a $277,000 deferred compensation liability payable to the former owner
of an acquired business.

The Company sponsored plan has significant contributions requirements. With
respect to the 2006 plan year, the Company has $990,482 due on September 15,
2007, based on current legislated discount rates and actuarial assumptions. In
addition, current actuarial assumptions project contributions with respect to
the 2007 Plan year totaling approximately $1.1 million of which $800,514 would
be payable in 2007. The financial statements have been prepared based on these
current actuarial assumptions. However, the Company has applied to the IRS for a
deferral of $720,000 related to the September 15, 2007 contribution requirement.
The Company has also applied to the IRS to permit a change in method of
accounting for Plan assets. If the IRS were to approve these requests, the
current year contribution requirement would total $402,000, inclusive of
$132,000 with respect to the 2007 Plan year.

Loss Contingencies

There are times when non-recurring events occur that require management to
consider whether an accrual for a loss contingency is appropriate. Accruals for
loss contingencies typically relate to certain legal proceedings, customer and
other claims and litigation. As required by SFAS No. 5, if the assessment of a
contingency indicates that it is probable that a material loss has been incurred

                                    Page 25
<PAGE>

and the amount of liability can be estimated, then the estimated liability would
be accrued in our financial statements. If the assessment indicates that a
potentially material loss contingency is not probable but is reasonably
possible, or is probable but cannot be estimated, then the nature of the
contingent liability, together with an estimate of the range of possible loss if
determinable and material, is disclosed. We analyze our legal proceedings,
warranty and other claims and litigation based on available information to
assess potential liability. We develop our views on estimated losses in
consultation with outside counsel handling our defense in these matters, which
involves an analysis of potential results assuming a combination of litigation
and settlement strategies. As a result of the significant judgment required in
assessing and estimating loss contingencies, actual losses realized in future
periods could differ significantly from our estimates. The adverse resolution of
any one or more of these matters over and above the amounts that have been
estimated and accrued in the unaudited condensed consolidated financial
statements could have a material adverse effect on our business, results of
operations and financial condition.

Revenue Recognition

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.

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

Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS No.
123(R)), "Share-Based Payment," to account for stock-based compensation. Among
other items, SFAS No. 123(R) eliminates the use of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and the
intrinsic value method of accounting and requires companies to recognize in
their financial statements the cost of services received in exchange for awards
of equity instruments based on the grant date fair value of those awards. The
Company elected to use the modified prospective method for adoption, which
requires compensation expense to be recorded for all unvested stock options and
other equity-based compensation beginning in the first quarter of adoption. For
all unvested options outstanding as of January 1, 2006, the previously measured
but unrecognized compensation expense, based on the fair value at the original
grant date, has been or will be recognized in the Company's financial statements
over the remaining vesting period. For equity-based compensation awards granted
or modified subsequent to January 1, 2006, compensation expense, based on the
fair value on the date of grant or modification has been or will be recognized
in the Company's consolidated financial statements over the vesting period. The
Company utilizes the Black-Scholes option pricing model to measure the fair
value of stock options. Prior to the adoption of SFAS No. 123(R), the Company
followed the intrinsic value method in accordance with APB Opinion No. 25 to
account for stock-based compensation.

                                    Page 26
<PAGE>

Results of Operations

Three Months Ended March 31, 2007 Compared with Three Months Ended March 31,
2006

Sales during the three months ended March 31, 2007 totaled $5.3 million as
compared to $5.8 million during the three months ended March 31, 2006. The
negative sales comparison was primarily the result of a lower number of new
product introductions in 2007 as compared to 2006.

Gross profit during the three months ended March 31, 2007 totaled $1.8 million
as compared to $2.2 million during the same period last year. The lower gross
profit was the result of lower sales as described above. The gross profit
percent was 33.8% during the first quarter of 2007 as compared to 38.4% during
the first quarter of 2006. The lower gross profit percent in 2007 was the result
of reduced leverage on fixed costs of sales during the first quarter of 2007.

Selling, general and administrative expenses totaled $1.4 million during the
three months ended March 31, 2007 as compared to $1.6 million during the three
months ended March 31, 2006. Selling, general and administrative expenses in the
first quarter of 2007 included $112,000 of severance cost and $86,000 of Hancock
bad debt provision offset by lower compensation costs totaling $132,000, lower
general expenses in the amount of $186,000 and lower pension expense of $66,000.

Income from continuing operations before interest and income tax during the
three months ended March 31, 2007 totaled $380,000 as compared to $646,000
during the same period last year. The reduction in income before interest and
income tax was the result of lower gross profit offset somewhat by lower
selling, general and administrative expenses as described above.

Interest expense during the three months ended March 31, 2007 totaled $204,000
as compared to $231,000 during the same period last year. $92,000 of the 2006
interest expense was included in the results of discontinued operations. The
average outstanding debt during the first quarter of 2007 was $9.8 million as
compared to $11.2 million during the first quarter of 2006. The weighted average
interest rate during the first quarter of 2007 was 7.57% as compared to 6.79%
during the first quarter of 2006.

Dividends on manditorily redeemable preferred stock totaled $68,000 during the
first quarters of 2007 and 2006.

Because of the Company's net operating loss carryforward and the full valuation
allowance against its deferred tax asset, the Company was not required to record
a provision for income taxes related to its 2006 or 2007 pretax income and will
not be required to do so in the future except in instances where minimum taxes
are payable. During 2006, an income tax benefit of $23,000 was recorded as a
result of a refund of state income taxes during the period.

The results of discontinued operations were income of $14,000 during the first
quarter of 2007 as compared to a loss of $77,000 during the first quarter of
2006.

                                    Page 27
<PAGE>

Liquidity and Capital Resources

Going Concern. The accompanying unaudited condensed consolidated financial
statements have been prepared on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. The Company's ability to continue as a going concern
is dependent upon its ability to execute management's plans to be profitable,
generate positive cash flow from operations, obtain financing to meet the
Company sponsored defined benefit pension funding obligations currently
estimated to be $1.8 million in 2007 and to continue to have access to existing
financing to meet obligations and repay liabilities when they come due,
including amounts payable with respect to claimed environmental liabilities in
connection with the Solvents Recovery Service of New England Superfund Site in
the event the parent corporation is determined to be responsible for these
claimed liabilities and the redemption of preferred stock due in 2007 and
thereafter. Although management continues to pursue these plans and believes it
will be successful, there is no assurance that the Company will be successful in
generating such profitable operations or maintaining such access to existing
financing or obtaining financing for such pension and environmental obligations
on terms acceptable to the Company. The outcome of these matters cannot be
predicted with any certainty at this time. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management plans to
satisfy the Company's capital needs through cash generated from operations,
advances under its facilities with CIT and stockholder loans. These unaudited
condensed consolidated financial statements do not include any adjustments to
the amounts and classification of assets and liabilities that may be necessary
should the Company be unable to continue as a going concern.

These circumstances caused our independent registered public accounting firm to
include an explanatory paragraph in their reports dated March 16, 2007 and March
15, 2006 regarding their concerns about our ability to continue as a going
concern. Substantial doubt about our ability to continue as a going concern may
create negative reactions to the price of the common shares of our stock and we
may have a more difficult time obtaining financing.

The Company's principal sources of cash flow are from internally generated
funds, borrowings under revolving credit facilities and advances from Robert A.
Levinson, a principal stockholder, officer and director of the Company. The
Company believes these sources of cash will be sufficient to meet its liquidity
needs for at least the next 12 months.

Losses sustained in prior years may have materially adversely affected the
Company's long-term liquidity. While the Company has taken recent steps to
improve its long term liquidity outlook, the Company still has limited
availability under its existing credit facilities, and there can be no assurance
the Company will not require additional financing to support its operations, or
that it can obtain additional financing on favorable terms, or that the Company
will be able to obtain any needed additional financing, in which case the
Company's operations would be materially adversely affected and it could be
forced to cease operations. Robert A. Levinson, the Company's Chairman and
principal stockholder, has agreed to continue to personally support the
Company's cash requirements through January 2, 2009 by providing short-term
loans to the Company up to a maximum of $3.0 million. As of March 31, 2007,
there was $2.25 million of borrowing available from Mr. Levinson under this
agreement. If we (1) do not substantially achieve our overall projected revenue
levels for 2007, (2) fail to operate within our projected expense levels as
reflected in our business operating plans, or (3) do not receive the ongoing
support of our lenders, then we will be unable to meet our cash and operating
requirements for the next

                                    Page 28
<PAGE>

twelve months, which would in turn require us to seek additional financing to
fund operations and/or implement additional expense reductions. The Company has
implemented several actions to reduce losses and improve cash flow, including
exiting the textile business, reduction of headcount, elimination of
non-profitable product lines, termination of the post retirement medical plan
and reductions in other general and administrative costs. However, there can be
no assurance that Mr. Levinson will continue to personally support the Company's
cash requirements, that such support from Mr. Levinson, together with the
support of the Company's commercial lenders, will be sufficient to address the
Company's liquidity needs and cash requirements or that the actions taken by
management will be sufficient to allow the Company to generate net income from
continuing operations.

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

Failing to substantially achieve our projected cash flow levels for 2007 may
also result in a default under our credit agreement with our lenders. If a
default were to occur and is not timely cured by us or waived by our lenders, or
if this were to happen and our debt could not be refinanced or restructured, our
lenders could pursue remedies, including: (1) penalty rates of interest; (2)
demand for immediate repayment of the debt; and/or (3) the foreclosure on any of
our assets securing the debt. If this were to happen and we were liquidated or
reorganized after payment to our creditors, there would likely be insufficient
assets remaining for any distribution to our stockholders.

At March 31, 2007, the Company's principal sources of liquidity included cash of
$81,000 and trade accounts receivable of $3.1 million. There was approximately
$384,000 of unused borrowing capacity available under the Company's credit
facility with CIT as of March 31, 2007. The Company also had an additional $2.25
million of borrowing available from Mr. Levinson who has agreed to fund up to $3
million of temporary advances to the Company.

The following discussion regarding the Company's cash flows for the three months
ended March 31, 2007, and 2006 is inclusive of both continuing and discontinued
operating activities.








                                    Page 29
<PAGE>

Cash Flow Summary:
(in thousands)                                       Three Months Ended
                                                         March 31,
                                                 -------------------------
                                                    2007           2006
                                                 ----------     ----------
         Net cash provided by (used in):
            Operating activities                 $      320     $     (889)
            Investing activities                        (11)           (13)
            Financing activities                       (297)           931
                                                 ----------     ----------
            Net increase in cash                 $       12     $       29
                                                 ==========     ==========


Net cash flow provided by operating activities totaled $320,000 during the three
months ended March 31, 2007, as compared to net cash flow used in operating
activities during 2006 totaling $889,000, resulting in an improvement in cash
flow provided by operating activities of $1.2 million in 2007 as compared to
2006.

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

In 2006, the components of net cash used by operating activities were $606,000
of net income adjusted for non-cash items, consisting primarily of depreciation
and amortization, non-cash stock-based compensation and accrued interest on
stockholder loan, less approximately $1.5 million of cash used in operating
assets and liabilities.

Major components of the changes in operating assets and liabilities in 2007 as
compared to 2006 were inventories, accounts payable, accounts receivable and
other current liabilities.

Changes in inventories provided $178,000 in cash flow in 2007 as compared to
$748,000 in 2006. During the first quarter of 2006, the Company liquidated
$978,000 of inventory related to its discontinued textile business.

Changes in accounts payable provided $368,000 of cash flow in 2007 as compared
to utilizing $524,000 of cash flow in the first quarter of 2006. The reduction
in accounts payable in 2006 was the result of the payment of 2005 accounts
payable balances related to the discontinued Textile segment.

Changes in accounts receivable used $178,000 of cash flow in 2007 as compared to
using $1.3 million of cash flow in 2006. The primary reason for the change was
decreased sales in the first quarter 2007 as compared to 2006 resulting in lower
accounts receivables on March 31, 2007 as compared to March 31, 2006.

Net cash used in investing activities totaled $11,000 during the quarter ended
March 31, 2007, as compared to $13,000 during the same period in 2006.

                                     Page 30
<PAGE>

Net cash used in financing activities totaled $297,000 during the quarter ended
March 31, 2007 as compared to $931,000 of cash provided by financing activities
during the quarter ended March 31, 2006. In 2007, cash flow from operating
activities was positive and was sufficient to fund investing activities and
reduce borrowings. In 2006, cash flow from operating activities was negative and
as a result cash of $931,000 was provided by financing activities in order to
fund cash used in operations and cash used in investing activities.

During the quarter ended March 31, 2007, the Company repaid Mr. Levinson
$750,000 against his stockholder loans. There were no additional borrowings from
Mr. Levinson during the first quarter of 2007 or 2006. The outstanding
stockholder borrowings are the result of funding of operating activities of the
discontinued Textile segment in earlier years.

Total borrowings during 2007 and 2006 under the CIT revolving credit facility
were $5.1 million and $5.9 million respectively; total repayments during the
periods under this facility were $4.6 million and $4.5 million, respectively.
Repayments under the Company's term loan totaled $36,000 during 2007 and 2006.
Net amounts repaid to factor totaled $429,000 in 2006.

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

At March 31, 2007, the Company's credit facility with CIT (the "CIT Facility")
provided for maximum aggregate borrowings of up to $7.5 million in the form of
revolving credit, letters of credit and term loans. The CIT Facility is
comprised of separate financing agreements with the Company and its wholly-owned
subsidiary, Blumenthal Lansing Company, LLC ("Blumenthal"). There was
approximately $384,000 of unused availability under the Company's credit
facility with CIT as of March 31, 2007.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.3 million of which was outstanding at
March 31, 2007, (ii) revolving credit advances to the Company, $1.3 million of
which was outstanding at March 31, 2007 and (iii) revolving credit advances to
Blumenthal based upon eligible accounts receivable and inventory, $3.6 million
of which was outstanding at March 31, 2007, and a Letter of Credit facility with
a limit of $500,000, of which there was none outstanding at March 31, 2007. The
Term Loan is amortized at $12,000 per month followed by a final installment
payment of $1.0 million due on January 1, 2009. The revolving credit advances
are also due on January 1, 2009. CIT may terminate the Credit facility upon 60
days written notice. At March 31, 2007, all amounts outstanding under the CIT
Facility in excess of $2.5 million bear interest at 8.75% (the Chase Bank N.A.
prime rate plus 0.5%) with a minimum rate of 5.0%. The first $2.5 million of
advances from CIT bears interest at the prime rate (8.25%).

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. In addition, Mr. Robert A. Levinson, a stockholder, officer
and director of the Company, provided certain collateral against advances
provided under the CIT Facility in the approximate amount of $2.5 million.

                                    Page 31
<PAGE>

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

On July 26, 2006, the CIT Facility was amended to increase the advance
percentage against the value of Eligible Inventory (as defined in the agreement)
to 40% (from 20%) of Eligible Inventory with respect to the revolving credit
portion of the CIT Facility. Total borrowing availability under the entire CIT
Facility remains at $7.5 million. In addition, the guaranty of the CIT Facility
by Robert A. Levinson, the Company's Chief Executive Officer and principal
shareholder, was removed and the applicable interest rate was changed to the
Chase Rate on the first $2.5 million of average net balances owed, and the Chase
Rate plus .50% per annum on average net balances owed in excess of $2.5 million,
but in either case not less than 5% per annum.

The Company also has a factoring agreement with CIT which matures on January 1,
2009. As of March 31, 2007 there was no balance due to or from CIT under the
factoring agreement.

The promissory note payable to JPMorgan Chase Bank, N.A. in the amount of $3.0
million is dated May 2, 2002 and has a maturity date of January 1, 2009, as
amended. The note bears interest at a fixed rate per annum equal to the Adjusted
LIBOR applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest
rate on the note at March 31, 2007 was 6.1875%. In addition, Robert A. Levinson,
a stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Mr. Robert A. Levinson, a stockholder, has agreed to personally support the
Company's cash requirements to enable it to fulfill its obligations through
January 2, 2009, to the extent necessary, up to a maximum amount of $3.0
million. The Company believes its reliance on such commitment is reasonable and
that Mr. Levinson has sufficient liquidity and net worth to honor such
commitment. The Company believes that Mr. Levinson's written commitment provides
the Company with the legal right to request and receive such advances. In the
event that Mr. Levinson did not honor such commitment, the Company would have
the right to sue Mr. Levinson for breach of his agreement. On March 20, 2007,
Mr. Levinson reaffirmed this undertaking in writing in a commitment letter dated
March 13, 2007.

The Company had outstanding loans payable to Mr. Levinson totaling $750,000 and
$1,500,000 as of March 31, 2007 and December 31, 2006, respectively. In
addition, Mr. Levinson has pledged collateral in support of certain Company
obligations. Accrued interest on Mr. Levinson's loans has been classified as
noncurrent liabilities on the Company's balance sheet and totaled $598,000 and
$587,000, respectively, at March 31, 2007 and December 31, 2006. He has also

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<PAGE>

agreed not to demand any repayment of principal or interest currently owed until
January 1, 2009.

As of March 31, 2007, the Company was in compliance with all debt covenants as
defined in the respective agreements.

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

                      2008          $    144
                      2009             4,869
                                    --------
                                    $  5,013
                                    ========

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. Under the terms of the
Company's Certificate of Incorporation, the mandatory redemption of the Series A
Preferred Stock can only be made to the extent that such redemptions can be made
without contravening or causing a default under any contract, agreement or other
instrument by which the Company or its subsidiaries or any of their property is
bound. Under the terms of the CIT Facility, preferred stock redemption payments
are prohibited and preferred stock dividend payments are limited to $300,000 per
year. Because preferred stock redemption payments are prohibited under the CIT
Facility, the Company is precluded by its Certificate of Incorporation from
making any such payments so long as the CIT Facility is outstanding. In
addition, the amount redeemable within the next twelve months, including
accumulated dividends, will continue to be classified as a noncurrent liability
so long as any portion of the CIT Facility has a maturity of more than one year.
The CIT Facility is currently scheduled to mature on January 1, 2009.

Dividends on the Series A Preferred Stock accrue at a rate of $0.06 per annum
per share when, as and if declared by the Company and are payable quarterly on
March 15, June 15, September 15 and December 15. Quarterly dividends which are
not paid in full in cash on any dividend payment date will accumulate without
interest until the first mandatorily redemption date. In the event that the
Company does not redeem shares of Series A Preferred Stock as scheduled, any
unpaid accumulated dividends will also begin to accrue dividends from that date
forward at the rate of 6% per year.

The availability of resources to make dividend payments to the holders of Series
A Preferred Stock in the future will depend on the Company's future earnings and
cash flow. Under Delaware law, preferred dividend payments are restricted to the
Company's accumulated or current earnings and profits. Losses in 2005 and
earlier years have depleted the Company's accumulated earnings and profits and,
as such, future preferred dividend payments will be limited to future earnings
and profits. Preferred dividends which cannot be paid under Delaware law will
continue to accrue and will be added to the Preferred Stock liability account.
As of March 31, 2007, unpaid preferred stock dividends totaled approximately
$354,000 and have been classified as a noncurrent liability on the Company's
balance sheet. The preferred stock is owned 98.3% by Mr. Robert A. Levinson, a
stockholder, officer and director of the Company. The mandatorily redeemable
preferred stock is redeemable at $1.00 per share plus accrued and unpaid
dividends.

                                    Page 33
<PAGE>

Please refer to the summary of the Company's Contractual Obligations and
Commitments in the Company's December 2006 Form 10-K.

Off Balance Sheet Arrangements

The Company has no off balance sheet arrangements.

Seasonality and New Product Lines

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

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.

                                    Page 34
<PAGE>

Impact of Inflation

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

Recently Issued Accounting Pronouncements

In October 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Staff Position ("FSP") No. Financial Accounting Standard ("FAS") 123(R)-5,
Amendment of FSP FAS 123(R)-1, ("FSP FAS123(R)-5") to address whether a change
to an equity instrument in connection with an equity restructuring should be
considered a modification for the purpose of applying FSP No. FAS 123(R)-1,
Classification and Measurement of Freestanding Financial Instruments Originally
Issued in Exchange for Employee Services under FAS Statement No 123(R) ("FSP
FAS123(R)-1"). FSP FAS 123(R)-1 states that financial instruments issued to
employees in exchange for past or future services are subject to the provisions
of FAS 123(R) unless the terms of the award are modified when the holder is no
longer an employee. In FSP FAS 123(R)-5, the FASB staff concluded that changes
to the terms of an award that are made solely due to an equity restructuring are
not considered modifications as described in FSP FAS 123(R)-1 unless the fair
value of the award increases, anti-dilution provisions are added, or holders of
the same class of equity instruments are treated unequally. FSP FAS 123(R)-5 is
effective for the first reporting period beginning after October 10, 2006. The
adoption of FSP FAS 123(R)-5 did not have a material impact on the Company's
unaudited condensed consolidated financial statements.

On February 15, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). Under this standard,
the Company may elect to report financial instruments and certain other items at
fair value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS 159 provides an opportunity to
mitigate volatility in reported earnings that is caused by measuring hedged
assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex provisions
of SFAS 133 hedge accounting are not met. SFAS 159 is effective for years
beginning after November 15, 2007. Early adoption within 120 days of the
beginning of the Company's 2007 fiscal year is permissible, provided the Company
has not yet issued interim financial statements. The Company is currently
evaluating the impact SFAS 159 will have on its consolidated results of
operations, financial position and cash flows.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                    Page 35
<PAGE>

Interest Rate Risk

Our short term and long-term third party debt bears interest at floating rates,
and accordingly we are sensitive to changes in prevailing interest rates. At
March 31, 2007, our indebtedness with CIT was at 8.75% interest rate (based on
the Chase Bank N.A. prime rate plus .5%). Effective July 26, 2006, the
applicable rate is the Chase Bank, N.A. prime rate on the first $2.5 million of
outstanding borrowing plus .05% on outstanding borrowing in excess of $2.5
million but in either case not less than 5% per annum. Our indebtedness with JP
Morgan Chase was at a 6.36% interest rate (based on adjusted LIBOR plus .75%) at
Match 31, 2007. Our shareholder loan interest is not variable and bore a 6%
interest rate. A 1% increase or decrease in market interest rates that affect
our borrowing arrangements would have a material impact on earnings and cash
flow of approximately $92,000 during the next fiscal year.

Foreign Currency Exchange Rates

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

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

Customer Concentration

Our sales are concentrated with major retail chains and as such, approximately
70-80% of our sales in 2007 are expected to be from our top three accounts;
these accounts represented 77% of our trade accounts receivable at March 31,
2007. The loss of any one of our major accounts would have a material adverse
impact on our financial condition and results of operations.

ITEM 4.    CONTROLS AND PROCEDURES

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

                                    Page 36
<PAGE>

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

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

No change occurred in the Company's internal controls concerning financial
reporting during the first quarter of the fiscal year ended December 31, 2007
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

Environmental. The Company is subject to a number of federal, state and local
environmental laws and regulations, including those concerning the treatment,
storage and disposal of waste, the discharge of effluents into waterways, the
emissions of substances into the air and various health and safety matters. In
addition, CERCLA and comparable state statutes generally impose joint and
several liability on present and former owners and operators, transporters and
generators for remediation of contaminated properties regardless of fault. These
parties are typically identified as "potentially responsible parties" or "PRPs."
On or about June 1992 the Company received notices from the United States
Environmental Protection Agency ("EPA") that the Company, Belding Corticelli
Thread Co. ("BCTC") (a discontinued operation) and Carlyle Manufacturing
Company, Inc. ("CM") (a subsidiary) had been identified, along with 1,300 other
parties, as PRPs in connection with the alleged release of hazardous substances
from the Solvents Recovery Service of New England Superfund Site in Southington,
Connecticut (the "SRS site"). The Company settled its alleged liability in
connection with the SRS site by paying $1,626 in connection with a settlement
offered to de minimis parties at the SRS site in 1994. BCTC and CM, along with
other PRPs, committed to perform the Remedial Investigation and Feasibility
Study ("RIFS") and two Non-Time Critical Removal Actions ("NTCRA") at the SRS
site. The RIFS, and the first NTCRA (except for certain maintenance activities)
have been completed. BCTC and CM have been allocated approximately .04% and
1.34%, respectively, of costs incurred to date, based on their alleged volume of
waste shipped to the SRS site. In September of 2005, the EPA issued its Record
of Decision ("ROD") for the SRS site. In September 2006, the EPA sent special

                                    Page 37
<PAGE>

notice letters to the PRPs to initiate consent decree negotiations concerning,
among other things, the scope of the work to be performed under the ROD and
reimbursement of all, or a significant portion, of EPA's past response costs and
future costs to be incurred in overseeing the remedial work. In December 2006,
CM and BCTC joined in the SRS PRP Group offer to the EPA to (i) construct and
operate the remedial action contemplated by the ROD (subject to certain proposed
changes) and (ii) reimburse EPA for portions of its past and future site-related
costs. Assuming negotiations between EPA and the PRP Group are successful, it is
expected that payments by parties to the Consent Decree would begin in 2008.

In addition, the State of Connecticut and the Southington Water District have
sought reimbursement from the PRP Group for alleged Natural Resource Damages and
other claimed damages for supposed temporary loss of use of groundwater and
consequential loss of future use of groundwater due to contamination on and
emanating from the SRS site. In addition, the PRP Group has also received a
demand from the federal NRD trustees.

The issues referred to above do not include costs that the Company or its
subsidiaries may incur for consultants' or attorneys' fees or for administrative
expenses in connection with the participation of any of them as part of a PRP
group. The accrual the Company has established for these and other environmental
liabilities, in the amount of $1.3 million, represents the Company's best
current estimate of the costs of addressing all identified environmental
situations, based on the Company's review of currently available evidence, and
takes into consideration the Company's prior experience in remediation and that
of other companies, as well as public information released by the EPA and by the
PRP groups in which the Company or its subsidiaries are participating. Although
the reserve currently appears to be sufficient to cover these environmental
liabilities, there are uncertainties associated with environmental liabilities,
and no assurances can be given that the Company's estimate of any environmental
liability will not increase or decrease in the future. The uncertainties relate
to the difficulty of estimating the ultimate cost of any remediation that may be
undertaken, including any operating costs associated with remedial measures, the
duration of any remediation required, the amount of consultants' or attorneys'
fees that may be incurred, the administrative costs of participating in the PRP
groups, and any additional costs or requirements that may be imposed or sought
by federal, state or local agencies.

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

ITEM 1A.   RISK FACTORS

There have been no material changes to our Risk Factors from those presented in
our 2006 Form 10-K, except for certain updating changes to the Risk Factors
"Going Concern," "Pension Funding" and "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," as
presented below.

                                    Page 38
<PAGE>

Going Concern

The accompanying unaudited condensed consolidated financial statements have been
prepared on a going concern basis which contemplates the realization of assets
and the satisfaction of liabilities and commitments in the normal course of
business. The Company's ability to continue as a going concern is dependent upon
its ability to execute management's plans to be profitable, generate positive
cash flow from operations, obtain financing to meet the Company sponsored
defined benefit pension funding obligations currently estimated to be $1.8
million in 2007 and to continue to have access to existing financing to meet
obligations and repay liabilities when they come due, including amounts payable
with respect to claimed environmental liabilities in connection with the
Solvents Recovery Service of New England Superfund Site in the event the parent
corporation is determined to be responsible for these claimed liabilities and
the redemption of preferred stock due in 2007 and thereafter. Although
management continues to pursue these plans and believes it will be successful,
there is no assurance that the Company will be successful in generating such
profitable operations or maintaining such access to existing financing or
obtaining financing for such pension and environmental obligations on terms
acceptable to the Company. The outcome of these matters cannot be predicted with
any certainty at this time. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management plans to satisfy
the Company's capital needs through cash generated from operations, advances
under its facilities with CIT and stockholder loans. These unaudited condensed
consolidated financial statements do not include any adjustments to the amounts
and classification of assets and liabilities that may be necessary should the
Company be unable to continue as a going concern.

These circumstances caused our independent registered public accounting firm to
include an explanatory paragraph in their reports dated March 16, 2007 and March
15, 2006 regarding their concerns about our ability to continue as a going
concern. Substantial doubt about our ability to continue as a going concern may
create negative reaction to the price of the common shares of our stock and we
may have a more difficult time obtaining financing.


Pension Funding

The Company's projected benefit obligation with its Company sponsored defined
benefit plan at December 31, 2006 was $20.5 million. The fair market value of
Plan assets was $18.1 million at March 31, 2007. The current actuarial estimate
is that contributions totaling $1.8 million will be required in 2007. The
Company is investigating available alternatives to making such contributions.
The Company has filed a deferral application with the IRS seeking to defer
$720,000 of the September 15, 2007 payment to later years. There can be no
assurance that the Company will not be required to make this contribution, in
which case the Company will be required to obtain additional financing to allow
it to make these contributions. There can be no assurance the Company will be
able to obtain such additional financing.

                                    Page 39
<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 Company's largest three customers (Wal-Mart, a mass merchandiser and Jo-Ann
Stores and Hancock Fabrics, each a specialty chain) represented approximately
46%, 27% and 5%, respectively, during the three months ended March 31, 2007 and
52%, 21% and 7%, respectively, during the three months ended March 31, 2006.
These customers also represented approximately 77% and 63% of the total
outstanding accounts receivable as of March 31, 2007 and December 31, 2006,
respectively. A reduction in sales to any of these customers could adversely
impact the financial condition and results of operations of the Company.

On March 21, 2007, Hancock Fabrics, the Company's third largest customer in
2006, announced it will close approximately 134 of its 443 stores in 2007 as it
reorganizes under Chapter 11. On December 31, 2006 the Company recorded an
allowance of $75,000 against the uncollected 2006 accounts receivable balance of
Hancock Fabrics. In addition, as of March 31, 2007, the Company recorded an
additional allowance of $86,000 against 2007 pre-bankruptcy sales. The Company
believes that going forward, 2007 will result in lower sales to Hancock Fabrics
as compared to 2006 due to the reduced store count.

The Company's largest customer, Wal-Mart has begun opening new stores with no
cut fabric and a reduced craft department. The Company anticipates a reduction
in sales to Wal-Mart in 2007 as a result of the new store lay-outs.

In direct response to these factors, the Company has taken steps to reduce its
operating costs during the first quarter of 2007.


A decision by any of our major customers, whether motivated by competitive
conditions, financial difficulties or otherwise, to decrease significantly the
amount of merchandise purchased from us, or to change their manner of doing
business with us, could substantially reduce our revenues and have a material
adverse effect on our financial condition and results of operations. There can
be no assurance that the Company's largest customers will continue to place
orders with the Company or that orders by such customers will continue at their
previous levels.


                                    Page 40
<PAGE>

ITEM 6.  EXHIBITS

(a)      Exhibits


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

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

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

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

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



                                    Page 41
<PAGE>

                                   SIGNATURES

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


                           LEVCOR INTERNATIONAL, INC.



Date: May 14, 2007                    /s/ ROBERT A. LEVINSON
      ----------------                ------------------------------------------
                                      Robert A. Levinson
                                      Chairman of the Board, President and Chief
                                      Executive Officer


Date: May 14, 2007                    /s/ EDWARD F. COOKE
      ----------------                ------------------------------------------
                                      Edward F. Cooke
                                      Chief Financial Officer, Vice President,
                                      Secretary and Treasurer



                                    Page 42
<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 43