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

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

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

For the quarterly period ended September 30, 2004
                               ------------------

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

             For the transition period from            to

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


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


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


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


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

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

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

As of November 9, 2004, 5,329,564 shares of Common Stock, par value $0.01 per
share, were issued and outstanding.

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

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

                           LEVCOR INTERNATIONAL, INC.

                                         INDEX

                                                                            Page
                                                                            ----

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements (Unaudited)

          Condensed Consolidated Balance Sheet
          as of September 30, 2004.........................................   1

          Condensed Consolidated Statements of Income
          for the Three and Nine Months Ended September 30, 2004 and 2003..   2

          Condensed Consolidated Statements of Comprehensive Income
          for the Three and Nine Months Ended September 30, 2004 and 2003..   2

          Condensed Consolidated Statements of Cash Flows
          for the Nine Months Ended September 30, 2004 and 2003............   3

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


Item 2.   Management's Discussion and Analysis or Plan of Operation........  12

Item 3.   Controls and Procedures..........................................  21

PART II.  OTHER INFORMATION

Item 2    Unregistered Sales of Equity Securities and Use of Proceeds......  23

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

          Signatures.......................................................  24

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

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

ASSETS                                                        September 30, 2004
                                                              ------------------

Current Assets:
   Cash                                                          $        73
   Due from factor                                                       147
   Accounts receivable trade, net                                      4,320
   Inventories, net                                                    8,326
   Deferred income taxes                                                 817
   Other current assets                                                  320
                                                                 -----------
      Total current assets                                            14,003

Property, Plant and Equipment, at cost                                 4,633
Less: Accumulated Depreciation and Amortization                        2,306
                                                                 -----------
      Net property, plant and equipment                                2,327

Goodwill                                                               4,843
Deferred income taxes                                                  3,781
Other assets                                                           1,670
                                                                 -----------
      Total Assets                                               $    26,624
                                                                 ===========

LIABILITIES
Current Liabilities:
   Revolving loan and current maturities of long-term debt       $     5,396
   Accounts payable                                                    3,339
   Other current liabilities                                           1,456
                                                                 -----------
      Total current liabilities                                       10,191
Long-term debt, less current maturities                                4,479
Loan payable to stockholder                                              809
Pension liabilities                                                    5,646
Post retirement medical liabilities                                    2,222
Environmental liabilities                                              1,238
Other liabilities                                                        766
Mandatory Redeemable Preferred Stock, par value $0.01 per share
   8,000,000 shares authorized:  Shares issued and outstanding:
   Series A - 4,555,007                                                4,555
                                                                 -----------
      Total Liabilities                                               29,906
                                                                 -----------

STOCKHOLDERS' DEFICIT
Common Stock, par value $0.01 per share
    15,000,000 shares authorized;
    5,327,499 shares issued and outstanding                               54
Paid in Capital                                                       33,229
Accumulated Deficit                                                  (33,591)
Accumulated Other Comprehensive Loss                                  (2,890)
Unearned Compensation                                                    (84)
                                                                 -----------
Total Common Stockholders' Deficit                                    (3,282)
                                                                 -----------
Total Liabilities and Stockholders' Deficit                      $    26,624
                                                                 ===========

See Notes to Condensed Consolidated Financial Statements.

                                     Page 1
<PAGE>
<TABLE>
<CAPTION>

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

                                                                Three Months Ended             Nine Months Ended
                                                                   September 30,                  September 30,
                                                            ---------------------------    ---------------------------
                                                               2004            2003           2004            2003
                                                            -----------     -----------    -----------     -----------

<S>                                                         <C>             <C>            <C>             <C>
Net sales                                                   $    13,141     $    10,781    $    26,415     $    24,118
Cost of sales                                                     9,836           7,689         18,335          16,179
                                                            -----------     -----------    -----------     -----------
                                                                  3,305           3,092          8,080           7,939
Selling, general and administrative expenses                      2,214           2,124          6,447           6,422
Other income                                                       (102)             --           (102)             --
                                                            -----------     -----------    -----------     -----------
Income before interest, preferred dividends
   and income taxes                                               1,193             968          1,735           1,517
Interest expense, net                                               178             148            444             404
Dividends on mandatory redeemable preferred stock                    68              69            205              69
                                                            -----------     -----------    -----------     -----------
Income before income taxes                                          947             751          1,086           1,044
Provision for income taxes                                          378             306            483             419
                                                            -----------     -----------    -----------     -----------
Net income                                                          569             445            603             625
Less dividends on mandatory redeemable preferred stock               --              --             --             137
                                                            -----------     -----------    -----------     -----------
Income applicable to common stock                           $       569     $       445    $       603     $       488
                                                            ===========     ===========    ===========     ===========

Earnings per share:
      Basic                                                 $       .11     $       .08    $       .11     $       .09
                                                            ===========     ===========    ===========     ===========
      Diluted                                               $       .11     $       .08    $       .11     $       .09
                                                            ===========     ===========    ===========     ===========

Weighted average shares outstanding - basic                       5,323           5,136          5,283           5,080
Potential common stock                                               61             250             79             207
                                                            -----------     -----------    -----------     -----------
Weighted average shares outstanding - diluted                     5,384           5,386          5,362           5,287
                                                            ===========     ===========    ===========     ===========

See Notes to Condensed Consolidated Financial Statements.


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

                                                                Three Months Ended             Nine Months Ended
                                                                   September 30,                  September 30,
                                                            ---------------------------    ---------------------------
                                                               2004            2003           2004            2003
                                                            -----------     -----------    -----------     -----------

Net income                                                  $       569     $       445    $       603     $       625
Other comprehensive income (loss):
   Foreign currency translation adjustment                            3              (4)            (9)             42
                                                            -----------     -----------    -----------     -----------
Comprehensive income                                        $       572     $       441    $       594     $       667
                                                            ===========     ===========    ===========     ===========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                     Page 2
<PAGE>
<TABLE>
<CAPTION>

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

                                                                        Nine Months Ended
                                                                          September 30,
                                                                   ---------------------------
                                                                      2004            2003
                                                                   -----------     -----------

<S>                                                                <C>             <C>
Cash Flows From Operating Activities:
Net income                                                         $       603     $       625
Reconciliation of net income to net cash used in operations:
   Depreciation and amortization                                           338             344
   Deferred tax provision                                                  415             317
   Stock based compensation expense                                         27              21
   Gain on sale of investment                                             (102)             --
   Changes in operating assets and liabilities:
      Accounts receivable trade, net                                    (1,545)           (434)
      Inventories                                                       (1,758)           (627)
      Other current assets                                                 (89)             93
      Other assets                                                          13             (91)
      Accounts payable                                                   1,512            (459)
      Other current liabilities                                           (194)           (867)
      Pension liabilities                                                  (64)            (61)
      Post retirement medical liabilities                                 (164)            (81)
      Environmental liabilities                                             (1)             --
      Other liabilities                                                   (240)           (267)
                                                                   -----------     -----------
          Net cash used in operating activities                         (1,249)         (1,487)
                                                                   -----------     -----------

Cash Flows From Investing Activities:
Capital expenditures                                                       (93)           (108)
Cash acquired from acquisition                                              --               4
Investment in other assets                                                 (49)            (67)
Proceeds from sale of investment                                           102              --
                                                                   -----------     -----------
          Net cash used in investing activities                            (40)           (171)
                                                                   -----------     -----------

Cash Flows From Financing Activities:
Revolving loan and long-term debt, net                                   2,280            (208)
Due to/from factor                                                        (992)          1,144
Stockholder loans, net                                                      (5)            852
Dividends on preferred stock                                                --            (137)
Proceeds from exercise of stock options                                     35              --
                                                                   -----------     -----------
          Net cash provided by financing activities                      1,318           1,651
                                                                   -----------     -----------

Increase (decrease) in cash                                                 29              (7)
Cash at beginning of period                                                 44              71
                                                                   -----------     -----------
Cash at end of period                                              $        73     $        64
                                                                   ===========     ===========

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
   Interest                                                        $       449     $       358
                                                                   ===========     ===========
   Income taxes                                                    $        66     $       339
                                                                   ===========     ===========

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

See Notes to Condensed Consolidated Financial Statements

                                          Page 3
<PAGE>

                           LEVCOR INTERNATIONAL, INC.
                          NOTES TO UNAUDITED CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004


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

The Unaudited Condensed Consolidated Balance Sheet as of September 30, 2004 and
the Unaudited Condensed Consolidated Statements of Income and Cash Flows for the
three and nine months ended September 30, 2004 and 2003 include the accounts of
Levcor International, Inc. ("Levcor" or "the Company") and its subsidiaries.

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

Operating results for the three and nine-month periods ended September 30, 2004
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2004. For further information, refer to Management's
Discussion and Analysis or Plan of Operation, and the consolidated financial
statements and footnotes included in the Company's annual report on Form 10-KSB
for the year ended December 31, 2003.


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

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

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

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

                                     Page 4
<PAGE>

Revenue Recognition: Revenue is recognized upon shipment of merchandise in the
Craft segment and on receipt by customer in the Textile segment.

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

Goodwill: The Company reviews goodwill for impairment annually, or more
frequently if impairment indicators arise.

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


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

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


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

The Company operates in two reportable segments: Textile and Craft. Accounting
policies of the two segments are substantially the same as those described in
the summary of significant accounting policies as presented in the financial
statements as of and for the year ended December 31, 2003, which were included
in the Company's most recent Form 10-KSB. All revenues generated in the segments
are external. The following table sets forth information regarding revenue and
operating income by reportable segment (dollars in thousands):

                           Three Months Ended            Nine Months Ended
                              September 30,                 September 30,
                       --------------------------    --------------------------
                          2004           2003           2004           2003
                       -----------    -----------    -----------    -----------

   Revenue:
      Textile          $     6,968    $     4,753    $     8,895    $     6,696
      Craft                  6,173          6,028         17,520         17,422
                       -----------    -----------    -----------    -----------
                       $    13,141    $    10,781    $    26,415         24,118
                       ===========    ===========    ===========    ===========

   Operating income:
      Textile          $       858    $       435    $       290    $      (183)
      Craft                    594            816          2,250          2,531
                       -----------    -----------    -----------    -----------
                       $     1,452    $     1,251    $     2,540    $     2,348
                       ===========    ===========    ===========    ===========

                                     Page 5
<PAGE>
<TABLE>
<CAPTION>
                                                   Three Months Ended              Nine Months Ended
                                                      September 30,                  September 30,
                                               ---------------------------    ---------------------------
                                                  2004            2003           2004            2003
                                               -----------     -----------    -----------     -----------

<S>                                            <C>             <C>            <C>             <C>
   Corporate general and
      administrative expense                   $       361     $       283    $       907     $       831
   Other income                                       (102)             --           (102)             --
   Interest expense, net                               178             148            444             404
   Dividends on mandatory
      redeemable preferred stock                        68              69            205              69
   Provision for income taxes                          378             306            483             419
                                               -----------     -----------    -----------     -----------
   Net income                                          569             445            603             625
   Less dividends on mandatory
      redeemable preferred stock                        --              --             --             137
                                               -----------     -----------    -----------     -----------
   Net income applicable to common stock       $       569     $       445    $       603     $       488
                                               ===========     ===========    ===========     ===========

   Depreciation and amortization:
      Textile                                  $        12     $         9    $        36     $        25
      Craft                                            100             103            286             289
      Corporate                                          4              10             16              30
                                               -----------     -----------    -----------     -----------
                                               $       116     $       122    $       338     $       344
                                               ===========     ===========    ===========     ===========

   Capital expenditures:
      Textile                                  $        --     $        27    $        21     $        62
      Craft                                             19              11             72              46
                                               -----------     -----------    -----------     -----------
                                               $        19     $        38    $        93     $       108
                                               ===========     ===========    ===========     ===========
</TABLE>

See Note 8 for a description of changes in presentation of dividends on
mandatory redeemable preferred stock in accordance with SFAS 150.


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

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

                                September 30, 2004       December 31, 2003
                                ------------------       -----------------

      Raw materials                 $     2,936             $     2,715
      Work in progress                       55                      69
      Finished goods                      5,335                   3,779
                                    -----------             -----------
                                    $     8,326             $     6,563
                                    ===========             ===========

At September 30, 2004 inventories were valued on an average cost method basis.
Inventories are stated at the lower of cost or market.


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

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

                                     Page 6
<PAGE>

The Company's credit facility with CIT (the "CIT Facility") provides for maximum
aggregate borrowings of up to $7.5 million in the form of revolving credit,
letters of credit and term loans. The CIT Facility is comprised of separate
financing agreements with the Company and its wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal"), which now includes the former
Westwater Industries, LLC ("Westwater") which was merged into Blumenthal as of
May 1, 2004.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.6 million of which was outstanding at
September 30, 2004, (ii) revolving credit advances to the Company in an amount
up to $500,000 and (iii) revolving credit advances to Blumenthal based upon
eligible accounts receivable and inventory, and a Letter of Credit facility with
a limit of $500,000. The Term Loan amortizes $12,000 per month followed by a
final installment payment of $1.4 million due on January 1, 2006. The revolving
credit advances are also due on January 1, 2006. All amounts outstanding under
the CIT Facility bear interest at the Chase Bank N.A. prime rate plus 0.5% with
a minimum rate of 5.0%.

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

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

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The
factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (4.75% at September 30, 2004). The Company pledged
its Textile segment's accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.

                                     Page 7
<PAGE>

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of December 31, 2005, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBO Rate
applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on
the note at September 30, 2004 was 2.68%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Robert A. Levinson has made long-term loans totaling $500,000 to the Company at
an interest rate of 6% per annum. Mr. Levinson has agreed not to require payment
of these loans and $309,000 of related accrued interest at September 30, 2004
prior to January 1, 2006.

Mr. Levinson has agreed to personally support the Company's cash requirements to
enable it to fulfill its obligations through January 1, 2006, to the extent
necessary, up to a maximum amount of $3.0 million. The Company believes its
reliance on such commitment is reasonable and that Mr. Levinson has sufficient
liquidity and net worth to honor such commitment. The Company believes that Mr.
Levinson's written commitment provides the Company with the legal right to
request and receive such advances. In the event that Mr. Levinson did not honor
such commitment, the Company would have the right to sue Mr. Levinson for breach
of his agreement. Mr. Levinson reaffirmed this undertaking in writing on March
12, 2004. In connection with this agreement, Mr. Levinson advanced $2,036,000 to
the Company at an interest rate of 6% per annum during the second and third
quarters of 2004. All such advances and related accrued interest have been
repaid by the Company to Mr. Levinson as of September 30, 2004.

During the period ended September 30, 2004, the Company was in compliance with
all debt covenants.


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

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

The benefits under this plan are determined based on formulas, which reflect the
employees' years of service and compensation during their employment period. The
projected unit credit method is used to determine pension cost. Funding
requirements for the plan are based on the unit credit method. The Company's
policy is to fund pension cost as required by ERISA. For 2004, there are no
minimum funding requirements for the plan.

                                     Page 8
<PAGE>

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

A summary of net periodic benefit costs of the Company's defined benefit plan
and post retirement medical benefit plan for the three and nine months ended
September 30, 2004 and 2003, respectively, are as follows (dollars in
thousands):


<TABLE>
<CAPTION>
                                                   Three Months Ended              Nine Months Ended
                                                      September 30,                  September 30,
                                               ---------------------------    ---------------------------
      Pension Benefits                            2004            2003           2004            2003
      ----------------                         -----------     -----------    -----------     -----------

<S>                                            <C>             <C>            <C>             <C>
      Service                                  $        --     $        --    $        --     $        --
      Interest cost                                    323             339            969           1,017
      Expected return on plan assets                  (341)           (352)        (1,023)         (1,056)
      Amortization of prior service cost                --              --             --              --
      Recognized net actuarial loss                     38              18            114              54
                                               -----------     -----------    -----------     -----------
      Net periodic benefit cost                $        20     $         5    $        60     $        15
                                               ===========     ===========    ===========     ===========


                                                   Three Months Ended              Nine Months Ended
                                                      September 30,                  September 30,
                                               ---------------------------    ---------------------------
      Other Benefits                              2004            2003           2004            2003
      --------------                           -----------     -----------    -----------     -----------

      Service                                  $        --     $        --    $        --     $        --
      Interest cost                                     17              31             51              93
      Expected return on plan assets                    --              --             --              --
      Amortization of prior service cost                (4)             (4)           (12)            (12)
      Recognized net actuarial loss (gain)             (20)            (10)           (60)            (30)
                                               -----------     -----------    -----------     -----------
      Net periodic benefit cost (gain)         $        (7)    $        17    $       (21)    $        51
                                               ===========     ===========    ===========     ===========
</TABLE>

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


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

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

                                     Page 9
<PAGE>

Effective July 1, 2003, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities" ("SFAS 150").
Accordingly, the redeemable preferred stock has been classified as a liability
in the balance sheet at redemption value as of September 30, 2004. The
Statements of Income for the three and nine months ended September 30, 2004
includes $68,000 and $205,000 respectively of preferred stock dividends paid
during 2004 which have been included in the determination of operating income.
For periods prior to July 1, 2003, such redeemable preferred stock dividend
payments are reported as an adjustment to net income to arrive at net income
available to common stock. In accordance with SFAS 150, dividend payments made
in the first and second quarters of 2003 are not permitted to be reclassified to
the current accounting treatment and as a result they continue to be presented
on a separate line.


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

Between January 1, 2004 and September 30, 2004, the Company issued an aggregate
of 9,484 shares of common stock to Directors and recorded such issuance as stock
based compensation expense.

During the nine months ended September 30, 2004, in connection with a stock
option exercise by Robert A. Levinson, a stockholder, officer and director of
the Company, the Company issued 170,000 shares of common stock and accepted
45,274 shares of common stock previously held by the optionee as payment of the
option exercise price. The common shares tendered were recorded as treasury
stock. All 102,874 shares of treasury stock were retired as of March 31, 2004.
The Company issued 20,000 stock options to employees at an exercise price of
$1.83 per share during the nine months ended September 30, 2004. The Company
also issued 36,000 shares of common stock in connection with the exercise of
employee stock options during the nine months ended September 30, 2004.

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

                                    Page 10
<PAGE>
<TABLE>
<CAPTION>
                                                Three Months Ended              Nine Months Ended
                                                   September 30,                  September 30,
                                            ---------------------------    ---------------------------
                                               2004            2003           2004            2003
                                            -----------     -----------    -----------     -----------

<S>                                         <C>             <C>            <C>             <C>
      Income applicable to common stock
         As Reported                        $       569     $       445    $       603     $       488
         Pro Forma                          $       553     $       445    $       556     $       488
      Basic EPS:
         As Reported                        $       .11     $       .08    $       .11     $       .09
         Pro Forma                          $       .10     $       .08    $       .11     $       .09
      Diluted EPS:
         As Reported                        $       .11     $       .08    $       .11     $       .09
         Pro Forma                          $       .10     $       .08    $       .10     $       .09
</TABLE>

The fair value of the option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions, risk-free interest rate of 3.93 percent, expected dividend yields
of zero percent; expected life of 10 years; expected volatility of 45 percent.


NOTE 10:  RELATED PARTY TRANSACTIONS
------------------------------------

Robert A. Levinson has provided long-term loans of $809,000 including accrued
interest of $309,000 to the Company. He has also made short term advances of
$2,036,000 during the second and third quarters of 2004 all of which had been
repaid as of September 30, 2004, and he has pledged collateral in support of
certain Company obligations. See Note 6 for a description of these transactions.
During the first quarter of 2004, Mr. Levinson exercised stock options and
tendered previously held shares in payment of the option price. See Note 9 for a
description of this transaction.

In addition to being a director of the Company, Edward H. Cohen serves as
counsel to Katten Muchin Zavis Rosenman, New York, New York, legal counsel to
the Company. During the nine months ended September 30, 2004, fees for services
provided to the Company by Katten Muchin Zavis Rosenman totaled approximately
$98,000. Mr. Cohen does not share in the fees that the Company pays to such law
firm and his compensation is not based on such fees.


NOTE 11:  SUBSEQUENT EVENT
--------------------------

During the fourth quarter of 2004, the Company entered into a lease cancellation
agreement with the landlord of its New York City office space. In connection
with this agreement, the Company will record a charge of approximately $75,000
in the fourth quarter of 2004. The Company estimates that its new office space
will lower its annual occupancy cost by approximately $125,000 per year.

                                    Page 11
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Critical Accounting Policies and Estimates

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

Receivables

The Textile segment factors substantially all of its accounts receivable,
therefore, the accounts receivable amount shown on the Consolidated Balance
Sheet is primarily related to the Company's Craft segment.

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

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

Inventories

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

                                    Page 12
<PAGE>

Intangible Assets

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

Pension Liabilities

The Company used an estimated rate of return of 8.00% and a discount rate of
6.25% in computing its defined benefit plan pension liability.

Revenue Recognition

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

In the Textile segment, shipments are made F.O.B. destination and revenue is
recognized when goods are received by the customer.

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

Shipping and Handling Costs

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

Results of Operations

Three Months Ended September 30, 2004 Compared to Three Months Ended September
30, 2003

Net sales for the three months ended September 30, 2004 totaled $13.1 million as
compared to $10.8 million during the three months ended September 30, 2003 for
an increase of $2.3 million.

Net sales in the Textile segment totaled $7.0 million during the third quarter
of 2004 as compared to $4.8 million during the third quarter of 2003, for an
increase of $2.2 million. The increase in Textile segment sales during the three
months ended September 30, 2004 as compared to 2003 was the result of additional
contract garment manufacturing programs in 2004 as compared to 2003. The women's
wear segment of the contract garment manufacturing business in which the Textile
division competes is very seasonal and, based on our current customer base,

                                    Page 13
<PAGE>

sales are heavily weighted primarily to the third quarter and to a lesser extent
the fourth quarter. The Company continues to work to secure additional contract
garment manufacturing business in order to increase volume, leverage fixed costs
and to balance out seasonal activity.

Net sales in the Craft segment totaled $6.2 million during the three months
ended September 30, 2004 as compared to $6.0 million during the three months
ended September 30, 2003. The small increase in Craft segment sales was the
result of higher seasonal orders during the three months ended September 30,
2004 as compared to the three months ended September 30, 2003.

Gross margin during the three months ended September 30, 2004 totaled $3.3
million as compared to $3.1 million during the three months ended September 30,
2003. The increase in gross margin was primarily the result of the increase in
sales as described above. The gross margin percent decreased from 28.7% to 25.2%
during the three months ended September 30, 2003 and 2004 respectively,
primarily as a result of higher variable cost of goods sold.

Gross margin in the Textile segment totaled $1.4 million during the third
quarter of 2004 versus $1.0 million during the three months ended September 30,
2003. The increase in Textile segment gross margin during the third quarter of
2004 as compared to the third quarter of 2003 was primarily the result of the
higher level of sales in the segment during the quarter. The gross margin
percent in the Textile segment declined from 21.7% to 19.9% during the three
months ended September 30, 2003 as compared 2004 as a result of the Company's
transition from fabric converting to contract garment manufacturing.

Gross margin in the Craft segment totaled $1.9 million during the three months
ended September 30, 2004 as compared to $2.1 million during the third quarter of
2003. The gross margin percent declined from 34.2% to 31.1% during the three
months ended September 30, 2003 and 2004 respectively. The decrease in Craft
segment gross margin dollars and percent was the result of higher variable cost
of goods sold during the quarter. Contributing to the increase in cost of goods
sold during the third quarter of 2004 were increases in product development
expenses and freight and shipping costs.

Selling, general and administrative expenses totaled $2.2 million during the
three months ended September 30, 2004 as compared to $2.1 million during the
third quarter of 2003.

Other income of $102,000 resulted from the sale of an investment in the third
quarter of 2004. There was no such sale in the third quarter of 2003.

Income before interest, preferred dividends and income taxes for the three
months ended September 30, 2004 totaled $1.2 million as compared to $968,000
during the three months ended September 30, 2003. The increase in income before
interest, preferred dividends and income taxes from 2003 to 2004 was due to the
improvement in gross margin, as discussed above.

Net interest expense during the three months ended September 30, 2004 totaled
$178,000 as compared to net interest expense of $148,000 during the three months
ended September 30, 2003. The increase in interest expense as compared to the

                                    Page 14
<PAGE>

same period last year was primarily the result of higher average debt levels in
the third quarter of 2004 as compared to 2003.

Dividends on mandatory redeemable preferred stock totaled $68,000 during the
three months ended September 30, 2004 as compared to $69,000 in 2003.

The provision for income taxes during the three months ended September 30, 2004
was $378,000 as compared to $306,000 during the three months ended September 30,
2003. The increase in the provision for income taxes is the result of the higher
level of income before income taxes in the third quarter of 2004 as compared to
the third quarter of 2003. Because of the Company's net operating loss
carryforward, the Federal income tax provision at 34% reduces the deferred tax
asset and does not require a cash payment.

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

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30,
2003

Net sales for the nine months ended September 30, 2004 totaled $26.4 million as
compared to $24.1 million during the nine months ended September 30, 2003 for an
increase of $2.3 million.

Net sales in the Textile segment totaled $8.9 million during the nine months
ended September 30, 2004 as compared to $6.7 million during the third quarter of
2003, for an increase of $2.2 million. The increase in Textile segment sales
during the nine month period ended September 30, 2004 was the result of
additional contract garment manufacturing programs in 2004 as compared to 2003.
The women's wear segment of the contract garment manufacturing business in which
the Textile division competes is very seasonal and, based upon our current
customer base, sales are heavily weighted primarily to the third quarter and to
a lesser extent the fourth quarter. The Company continues to work to secure
additional contract garment manufacturing business in order to increase volume,
leverage fixed costs and to balance out seasonal activity.

Net sales in the Craft segment totaled $17.5 million during the first nine
months of 2004 as compared to $17.4 million during the nine months ended
September 30, 2003. The small increase in Craft segment sales was the result of
higher seasonal orders in 2004 as compared to 2003.

Gross margin during the nine months ended September 30, 2004 was $8.1 million as
compared to $7.9 million during the nine months ended September 30, 2003. The
increase in gross margin dollars was the result of increased sales as described
above. The gross margin percent during the nine months ended September 30, 2004
totaled 30.6% as compared to 32.9% during the nine-month period in 2003. The
lower gross margin percent was the result of higher variable cost of goods sold.

                                    Page 15
<PAGE>

Gross margin in the Textile segment totaled $1.8 million during the nine months
ended September 30, 2004 versus $1.5 million during the 2003 year to date
period. The increase in Textile segment gross margin during the third quarter of
2004 was the result of the higher level of sales in the segment during the
quarter. The gross margin percent during the nine months ended September 30,
2004 totaled 20.0% as compared to 22.4% during the nine-month period in 2003.
The decrease in gross margin percent was the result of the Company's transition
from fabric converting to contract manufacturing.

Gross margin in the Craft segment totaled $6.3 million during the nine months
ended September 30, 2004 as compared to $6.4 million during 2003. The gross
margin percent during the nine months ended September 30, 2004 totaled 36.0% as
compared to 37.0% during 2003. The decrease in Craft segment gross margin and
gross margin percent was the result of higher variable cost of goods sold.
Contributing to the increase in cost of goods sold during 2004 as compared to
2003 were increases in product development expenses and freight and shipping
costs.

Selling, general and administrative expenses totaled $6.4 million during the
nine months ended September 30, 2004 and 2003.

Other income of $102,000 in the nine months ended September 30, 2004 was the
result of a sale of an investment. There was no such sale in 2003.

Income before interest, preferred dividends and income taxes during the nine
months ended September 30, 2004 totaled $1.7 million as compared to $1.5 million
during the nine months ended September 30, 2003. The increase in income before
interest, preferred dividends and income taxes in 2004 compared to 2003 was due
to the improvement in gross profit and the gain on sale of investment.

Net interest expense during 2004 totaled $444,000 as compared to net interest
expense of $404,000 during 2003. The increase in interest expense as compared to
the same period last year was primarily the result of higher average debt levels
in 2004 as compared to 2003.

Dividends on mandatory redeemable preferred stock totaled $205,000 during the
nine months ended September 30, 2004 as compared to $206,000 in 2003.

The provision for income taxes during 2004 was $483,000 as compared to $419,000
during 2003. The increase in the provision for income taxes is the result of the
higher level of income before income taxes in 2004 as compared to 2003. Because
of the Company's net operating loss carry-forward, the Federal income tax
provision at 34% reduces the deferred tax asset and does not require a cash
payment.

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

                                    Page 16
<PAGE>

Liquidity and Capital Resources

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

At September 30, 2004 the Company's principal sources of liquidity included cash
of $73,000, trade accounts receivable of $4.3 million and due from Factor of
$147,000.

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

Cash Flow Summary:
(in thousands)
                                               Nine Months ended
                                                  September 30,
                                           --------------------------
                                              2004            2003
                                           ---------       ----------

      Net cash provided by (used in):
         Operating activities              $  (1,249)      $   (1,487)
         Investing activities                    (40)            (171)
         Financing activities                  1,318            1,651
                                           ---------       ----------
      Net change in cash                   $      29       $       (7)
                                           =========       ==========

Net cash flow used in operating activities totaled $1.2 million during the nine
months ended September 30, 2004, as compared to $1.5 million cash used in
operating activities during the nine months ended September 30, 2003. The
decrease in cash flow used by operating activities totaling $238,000 was
primarily the result of a decrease in net income totaling $22,000 and a lower
level of non-cash working capital as of September 30, 2004 as compared to
September 30, 2003.

Net cash flow used in investing activities totaled $40,000 during the nine
months ended September 30, 2004, as compared to $171,000 during the nine months
ended September 30, 2003.

Net cash provided by financing activities totaled $1.3 million during the nine
months ended September 30, 2004, as compared to $1.7 million of net cash
provided by financing activities during the nine months ended September 30,
2003. The reduction in cash provided by financing activities was the result of
reduced cash needs due to the improvement in net cash used in operating
activities and net cash used in investing activities as discussed above.

Net borrowings under the Company's credit facilities during the nine months
ended September 30, 2004 totaled $2.3 million as compared to repayments of
$208,000 during the same period last year. Net amount repaid to factor during
the nine months ended September 30, 2004 totaled $992,000 as compared to $1.1
million borrowed in 2003. Net reduction in stockholder loan totaled $5,000 as
compared to borrowings of $852,000 in 2003.

                                    Page 17
<PAGE>

Cash used for preferred stock dividend payments during the nine months ended
September 30, 2004 totaled none as compared to $137,000 during the nine months
ended September 30, 2003. The reduction in cash flows used in preferred stock
dividend payments was due to the effect of the adoption of SFAS 150 in the third
quarter of 2003 which required that preferred stock dividend payments be
included in the determination of net income.

Cash provided by the exercise of stock options totaled $35,000 during the nine
months ended September 30, 2004 as compared to none in the nine months ended
September 30, 2003. Common stock was issued in connection with the exercise of
stock options and the payment of director fees to those directors who have opted
to receive shares of Company stock in lieu of cash in payment of their fees.

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

The Company's credit facility with CIT (the "CIT Facility") provides for maximum
aggregate borrowings of up to $7.5 million in the form of revolving credit,
letters of credit and term loans. The CIT Facility is comprised of separate
financing agreements with the Company and its wholly-owned subsidiary,
Blumenthal Lansing Company, LLC ("Blumenthal"), which now includes the former
Westwater Industries, LLC ("Westwater") which was merged into Blumenthal as of
May 1, 2004.

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.6 million of which was outstanding at
September 30, 2004, (ii) revolving credit advances to the Company in an amount
up to $500,000 and (iii) revolving credit advances to Blumenthal based upon
eligible accounts receivable and inventory, and a Letter of Credit facility with
a limit of $500,000. The Term Loan amortizes $12,000 per month followed by a
final installment payment of $1.4 million due on January 1, 2006. The revolving
credit advances are also due on January 1, 2006. All amounts outstanding under
the CIT Facility bear interest at the Chase Bank N.A. prime rate plus 0.5% with
a minimum rate of 5.0%.

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

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

Pursuant to a factoring agreement between CIT and the Company, CIT purchases the
Textile segment's eligible trade accounts receivable without recourse and
assumes substantially all credit risk with respect to such accounts. The amounts
due to the Company from CIT under the factoring agreement earn no interest. The

                                     Page 18
<PAGE>

factoring agreement allows the Company to obtain advances that bear interest at
0.5% above CIT's prime rate (4.75% at September 30, 2004). The Company pledged
its Textile segment's accounts receivable and property and equipment as
collateral under the factoring agreement. There is no set limit on borrowings.
The amount available for borrowing is based on a formula consisting of 90% of
eligible accounts receivable increased by side collateral and reduced by both
the current loan balance and outstanding letters of credit.

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of December 31, 2005, as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBO Rate
applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest rate on
the note at September 30, 2004 was 2.68%. In addition, Robert A. Levinson, a
stockholder, officer and director of the Company, has provided certain
additional collateral guaranteeing the note.

Robert A. Levinson has made long-term loans totaling $500,000 to the Company at
an interest rate of 6% per annum. Mr. Levinson has agreed not to require payment
of these loans and $309,000 of related accrued interest at September 30, 2004
prior to January 1, 2006.

Mr. Levinson has agreed to personally support the Company's cash requirements to
enable it to fulfill its obligations through January 1, 2006, to the extent
necessary, up to a maximum amount of $3.0 million. The Company believes its
reliance on such commitment is reasonable and that Mr. Levinson has sufficient
liquidity and net worth to honor such commitment. The Company believes that Mr.
Levinson's written commitment provides the Company with the legal right to
request and receive such advances. In the event that Mr. Levinson did not honor
such commitment, the Company would have the right to sue Mr. Levinson for breach
of his agreement. Mr. Levinson reaffirmed this undertaking in writing on March
12, 2004. In connection with this agreement, Mr. Levinson advanced $2,036,000 to
the Company at an interest rate of 6% per annum during the second and third
quarters of 2004. All such advances and related accrued interest have been
repaid by the Company to Mr. Levinson as of September 30, 2004.

During the period ended September 30, 2004, the Company was in compliance with
all debt covenants.

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

                                     Page 19
<PAGE>

Summary of Contractual Obligations
----------------------------------

A summary of the Company's September 30, 2004 contractual obligations and
commitments is as follows:

<TABLE>
<CAPTION>
                                                       Less than                                    More than
                                          Total         1 year        1-3 years      4-5 years       5 years
                                       -----------    -----------    -----------    -----------    -----------

<S>                                          <C>            <C>
CIT asset based loan                         5,396          5,396             --             --             --
Term loans                                   4,479             --          4,479             --             --
Long term loan - stockholder                   809             --            809             --             --
Pension liabilities                          5,646            103            187            153          5,203
Post retirement medical liabilities          2,222            150            165            181          1,726
Environmental liabilities                    1,238             --            200            200            838
Other liabilities                              523             27            108             72            316
Preferred stock                              4,555             --          1,518          3,037             --
Operating lease obligations                    528            176            352             --             --
                                       -----------    -----------    -----------    -----------    -----------
                                       $    25,396    $     5,852    $     7,818    $     3,643    $     8,083
                                       ===========    ===========    ===========    ===========    ===========
</TABLE>


Seasonality and New Programs

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

The Company's Craft business is largely based on its ability to fulfill reorders
of existing programs and to place new programs 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 programs and the discontinuance
of existing programs. A successful new program requires the retail customer to
add the program and experience an acceptable level of sell-through. The Company
develops and introduces new program ideas on a regular basis. However, there is
no assurance that its retail customers will buy the new programs and if they do,
there is no assurance the consumer will purchase the new product at an
acceptable level.

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

                                    Page 20
<PAGE>

demand could have a material adverse effect on the Company's results of
operations and financial condition.


Impact of Inflation

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


Forward-Looking Statements

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


ITEM 3.   CONTROLS AND PROCEDURES

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

In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out
an evaluation, with the participation of the Chief Executive Officer and Chief
Financial Officer of the Company, of the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by this
report. Based on that evaluation, the Company's Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and

                                    Page 21
<PAGE>

procedures were effective, as of the end of the period covered by this report,
to provide reasonable assurance that information required to be disclosed in the
Company's reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.

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

No change occurred in the Company's internal controls concerning financial
reporting during the third quarter of the fiscal year ended December 31, 2004
that has materially affected, or is reasonably likely to materially affect, the
Company's internal controls over financial reporting.

                                    Page 22
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period covered by this report, the Company issued shares of its
common stock, par value $0.01 per share, to two of its non-employee directors in
lieu of cash for quarterly director fees. The issue price was the average
trading price on the last day of the quarter. On July 9, 2004, an aggregate of
3,958 shares were issued to the directors at a price of $2.40 per share. These
shares were exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), pursuant to Section 4(2) of the
Securities Act.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

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

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

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

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

                                    Page 23
<PAGE>

                                   SIGNATURES
                                   ----------

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


                                      LEVCOR INTERNATIONAL, INC.



Date: November 9, 2004                /s/ ROBERT A. LEVINSON
      ----------------                ------------------------------------------
                                      Robert A. Levinson
                                      Chairman of the Board, President and Chief
                                      Executive Officer



Date: November 9, 2004                /s/ EDWARD F. COOKE
      ----------------                ------------------------------------------
                                      Edward F. Cooke
                                      Chief Financial Officer, Vice President,
                                      Secretary and Treasurer

                                    Page 24
<PAGE>

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

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

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

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

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

                                    Page 25