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


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

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

                                   FORM 10-QSB

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

For the quarterly period ended June 30, 2003        Commission File No.  0-50186
                               -------------                             -------

                                       OR

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

                  For the transition period from       to

                           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]
          ---

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

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


================================================================================
<PAGE>
                           LEVCOR INTERNATIONAL, INC.
                               462 Seventh Avenue
                            New York, New York 10018

                                      INDEX

                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

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

         Condensed Consolidated Statements of Operations
         for the Three and Six Months Ended June 30, 2003 and 2002.............2

         Condensed Consolidated Statements of Comprehensive Income (Loss)
         for the Three and Six Months Ended June 30, 2003 and 2002.............3

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

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


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

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

PART II. OTHER INFORMATION

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

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

<PAGE>
                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                   LEVCOR INTERNATIONAL, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                   (UNAUDITED)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                      June 30, 2003
                                                                       ------------
<S>                                                                 <C>
ASSETS
Current Assets:
     Cash                                                              $         71
     Accounts receivable trade, net                                           2,590
     Inventories, net                                                         9,268
     Deferred income taxes                                                      634
     Other current assets                                                       294
                                                                       ------------
         Total current assets                                                12,857
                                                                       ------------

Property, Plant and Equipment, at cost                                        4,459
Less: Accumulated Depreciation and Amortization                              (1,989)
                                                                       ------------
Net property, plant and equipment                                             2,470
                                                                       ------------

Goodwill                                                                     10,619
Deferred income taxes                                                         5,200
Other assets                                                                  1,332
                                                                       ------------
         Total Assets                                                  $     32,478
                                                                       ============

LIABILITIES
Current Liabilities:
     Accounts payable                                                  $      3,645
     Due to factor                                                            1,380
     Revolving loan and current maturities of long-term debt                  2,510
     Loan payable stockholder                                                 1,312
     Other current liabilities                                                  922
                                                                       ------------
         Total Current Liabilities                                            9,769
                                                                       ------------
Long-term debt, less current maturities                                       4,660
Loan payable stockholder, less current maturities                               805
Other Liabilities                                                            11,060
                                                                       ------------
         Total Liabilities                                                   26,294
                                                                       ------------
Redeemable Preferred Stock, par value $0.01 per share
     8,000,000 shares authorized:
     Shares issued and outstanding:
         Series A - 4,555,007 at June 30, 2003                                4,555
Accumulated dividends on preferred stock                                         12
                                                                       ------------
                                                                              4,567
                                                                       ------------
STOCKHOLDERS' EQUITY
Common Stock, par value $0.01 per share
      15,000,000 shares authorized;
      5,132,752 shares issued and outstanding at June 30, 2003                   51
Paid in Capital                                                              33,223
Accumulated Deficit                                                         (28,037)
Accumulated Other Comprehensive Loss                                         (3,439)
Treasury stock, 57,600 shares, at cost                                          (77)
Unearned compensation                                                          (104)
                                                                       ------------
Total  Stockholders' Equity                                                   1,617
                                                                       ------------
Total Liabilities, Redeemable Preferred Stock
      and Stockholders' Equity                                         $     32,478
                                                                       ============
</TABLE>

     See Notes to Condensed Consolidated Financial Statements.

                                     Page 1
<PAGE>
                           LEVCOR INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                  (Amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                 Three Months Ended June 30,          Six Months Ended June 30,
                                                     2003             2002              2003             2002
                                                     ----             ----              ----             ----
<S>                                              <C>             <C>                 <C>            <C>
Net sales                                        $   6,106        $   6,344          $  13,337       $  11,602
Cost of sales                                        4,074            4,096              8,490           7,068
                                                 ---------        ---------          ---------       ---------
                                                     2,032            2,248              4,847           4,534
Selling, general and administrative expenses         2,076            1,634              4,298           3,336
                                                 ---------        ---------          ---------       ---------
Income (loss) before interest and income taxes         (44)             614                549           1,198
Interest expense, net                                  127              103                256             204
                                                 ---------        ---------          ---------       ---------
Income (loss) before income taxes                     (171)             511                293             994
Provision (benefit) for income taxes                   (64)             180                113             357
                                                 ---------        ---------          ---------       ---------
Net income (loss)                                     (107)             331                180             637
Less dividends on preferred stock                       69               69                137             136
                                                 ---------        ---------          ---------       ---------
Income (loss) applicable to common stock         $    (176)       $     262          $      43       $     501
                                                 =========        =========          =========       =========

Earnings (loss) per share:
     Basic                                       $    (.03)       $     .09          $     .01       $     .18
                                                 =========        =========          =========       =========
     Diluted                                     $    (.03)       $     .09          $     .01       $     .18
                                                 =========        =========          =========       =========
Weighted average shares outstanding - basic          5,132            2,787              5,052           2,787
Potential common stock                                 202               --                186              --
                                                 ---------        ---------          ---------       ---------
Weighted average shares outstanding - diluted        5,334            2,787              5,238           2,787
                                                 =========        =========          =========       =========
</TABLE>


See Notes to Condensed Consolidated Financial Statements.

                                     Page 2
<PAGE>
                           LEVCOR INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                             CONDENSED CONSOLIDATED
                    STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                     Three Months Ended June 30,       Six Months Ended June 30,
                                                          2003          2002               2003          2002
                                                          ----          ----               ----          ----
<S>                                                    <C>             <C>              <C>             <C>
Net income (loss) before dividends on preferred stock  $   (107)       $   331          $   180         $  637
Other comprehensive income:
     Foreign currency translation adjustment                 34             90               46            101
                                                       --------        -------          -------         ------
Comprehensive income (loss)                            $    (73)       $   421          $   226         $  738
                                                       ========        =======          =======         ======
</TABLE>

See Notes to Condensed Consolidated Financial Statements.

                                     Page 3
<PAGE>
                           LEVCOR INTERNATIONAL, INC.
                                AND SUBSIDIARIES
                             CONDENSED CONSOLIDATED
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                   Six Months Ended June 30,
                                                                   2003                2002
                                                                   ----                ----
<S>                                                           <C>                  <C>
Cash Flows From Operating Activities:
Net income                                                    $     180            $     637
Reconciliation of net income to net cash used in operations:
      Depreciation and amortization                                 223                  269
      Deferred tax provision                                         52                   (7)
      Stock based compensation                                       13                   --
      Changes in operating assets and liabilities:
        Accounts receivable                                          39                 (740)
        Inventories                                              (2,587)              (1,606)
        Other current assets                                          9                   --
        Other assets                                                (51)                  42
        Accounts payable                                          1,291                  450
        Other current liabilities                                (1,061)                  48
        Other liabilities                                          (365)                (207)
                                                              ---------            ---------
             Net cash used in operating activities               (2,257)              (1,117)
                                                              ---------            ---------

Cash Flows From Investing Activities:
Capital expenditures                                                (70)                 (52)
Cash acquired from acquisition                                        4                   --
Investment in other assets                                          (36)                (115)
                                                              ---------            ---------
             Net cash used in investing activities                 (102)                (167)
                                                              ---------            ---------

Cash Flows From Financing Activities:
Revolving loan and long-term debt, net                             (533)               1,071
Due to factor                                                     1,697                   --
Proceeds from stockholder loan                                    1,332                   --
Dividends on preferred stock                                       (137)                (136)
Deferred financing costs                                             --                  (30)
                                                              ---------            ---------
             Net cash provided by financing activities            2,359                  905
                                                              ---------            ---------
Effect of exchange rate changes on cash                              --                   --
                                                              ---------            ---------

Decrease in cash                                                     --                 (379)
Cash at beginning of period                                          71                  398
                                                              ---------            ---------
Cash at end of period                                         $      71            $      19
                                                              =========            =========

Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
   Interest                                                   $     239            $     361
                                                              =========            =========
   Income taxes                                               $     365            $     232
                                                              =========            =========
</TABLE>

See Notes to Condensed Consolidated Financial Statements

                                     Page 4
<PAGE>
                           LEVCOR INTERNATIONAL, INC.
                               NOTES TO CONDENSED
                        CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2003

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

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

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

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

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

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

Consolidation: The accompanying consolidated financial statements include the
accounts of the Company and all subsidiaries after elimination of intercompany
items and transactions.

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

Revenue Recognition:  Revenue is recognized upon shipment of merchandise.

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

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

New Accounting Pronouncements: In January 2003, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"), to
clarify when a company should consolidate in its financial statements the
assets, liabilities and activities of a variable interest entity. FIN 46
provides general guidance as to the definition of a variable interest entity and
requires a variable interest entity to be consolidated if a company absorbs the
majority of the variable interest entity's expected losses, or is entitled to
receive a majority of the variable interest entity's residual returns, or both.
FIN 46 is effective immediately for all new variable interest entities created
after January 31, 2003. For variable interest entities created before February
1, 2003, the consolidation provisions of FIN 46 must be applied for the first
interim or annual reporting period beginning after June 15, 2003. The disclosure
provisions of FIN 46 apply to financial statements issued after January 31,
2003, regardless of when the variable interest entity was established. The
adoption of FIN 46 did not have an impact on the Company's financial reporting
and disclosures, because the Company did not have any transactions with variable
interest entities.

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

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

On January 6, 2003, the Company completed its acquisition of Carlyle, which was
effected as a merger of Carlyle with and into the Company. In the merger, each
five shares of Carlyle common stock were converted into one share of Company
common stock, par value $0.01 per share ("Common Stock"), and each share of

                                     Page 6
<PAGE>
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"). 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.

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

The pro forma purchase price allocation presented below is preliminary and
subject to change based on the completion of various studies and appraisals. The
calculation of the purchase price and the preliminary allocation to assets and
liabilities are as follows (dollars in thousands):

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

         Fair value of Levcor assets deemed acquired:
                  Current assets                                                        $     1,972
                  Fixed assets                                                                   59
                  Deferred tax asset                                                          2,100
                  Other assets                                                                   85
                  Trademark                                                                     250
                  Goodwill                                                                    8,076
                                                                                        -----------
                  Total assets deemed acquired                                               12,542
                                                                                        -----------
                  Current liabilities                                                        (1,945)
                  Long term debt                                                             (3,785)
                                                                                        -----------
                  Total liabilities deemed assumed                                           (5,730)
                                                                                        -----------
                  Net assets deemed acquired                                            $     6,812
                                                                                        ===========
</TABLE>

Pro Forma Financial Information

The results of operations of Carlyle are included in the Company's consolidated
statement of operations as of the acquisition date of January 6, 2003. Because
there was no material business conducted by Carlyle in the two business days

                                     Page 7
<PAGE>
before the merger, the results of operations for the six months ended June 30,
2003 represent the results of operations of the combined entities for the full
six-month period.

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

                                     Page 8
<PAGE>
<TABLE>
<CAPTION>
                                                                            Three Months        Six Months
                                                                               Ended               Ended
                                                                             June 30, 2002     June 30, 2002
                                                                            --------------------------------
                                                                                  (dollars in thousands)

<S>                                                                             <C>              <C>
         Net revenues                                                           $  9,857         $  18,724
         Cost of sales                                                             6,746            12,555
                                                                                --------         ---------
         Gross profit                                                              3,111             6,169
         Selling, general and administrative expenses                              2,332             4,726
                                                                                --------         ---------
         Income before interest and income taxes                                     779             1,443
         Interest expense                                                            159               325
                                                                                --------         ---------
         Income before income taxes                                                  620             1,118
         Provision for income taxes                                                  223               402
                                                                                --------         ---------
         Income before preferred dividends                                           397               716
         Dividends on preferred stock                                                 69               136
                                                                                --------         ---------
         Net income                                                             $    328         $     580
                                                                                ========         =========

         Earnings per common share:

         Basic earnings per common share                                        $    .06         $     .11
                                                                                ========         =========
         Diluted earnings per common share                                      $    .06         $     .11
                                                                                ========         =========

         Weighted average number of common shares outstanding - basic              5,125             5,125
         Potential common stock                                                      485               305
                                                                                --------         ---------
         Weighted average number of common shares outstanding - diluted            5,610             5,430
                                                                                ========         =========
</TABLE>

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

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

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

                                              Textile       Craft         Total
                                             --------     ---------     --------
         Balance as of January 1, 2003       $     --     $   2,543     $  2,543
         Goodwill acquired                      8,076            --        8,076
                                             --------     ---------     --------
         Balance as of June 30, 2003         $  8,076     $   2,543     $ 10,619
                                             ========     =========     ========

                                     Page 9
<PAGE>

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

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

                                                       Three Months Ended                  Six Months Ended
                                                            June 30,                           June 30,
                                                      2003            2002                 2003         2002
                                                      ----            ----                -----         ----
<S>                                                <C>            <C>                 <C>            <C>
       Revenue:
         Textile                                   $     471      $      --           $   1,943      $      --
         Craft                                         5,635          6,344              11,394         11,602
                                                   ---------      ---------           ---------      ---------
                                                   $   6,106      $   6,344           $  13,337      $  11,602
                                                   =========      =========           =========      =========
       Operating income (loss):
         Textile                                   $    (354)     $      --                (618)     $      --
         Craft                                           568            810               1,715          1,712
                                                   ---------      ---------           ---------      ---------
                                                   $     214      $     810           $   1,097      $   1,712
                                                   =========      =========           =========      =========

       Corporate general and
         administrative expense                    $     258      $     196           $     548      $     514
                                                   =========      =========           =========      =========
       Interest expense                            $     127      $     103           $     256      $     204
                                                   =========      =========           =========      =========
       Provision (benefit) for income taxes        $     (64)     $     180           $     113      $     357
                                                   =========      =========           =========      =========
       Net income (loss)                           $    (107)     $     331           $     180      $     637
                                                   =========      =========           =========       ========
       Depreciation and amortization:
         Textile                                   $       9      $      --           $      16      $      --
         Craft                                           103            137                 207            269
                                                   ---------      ---------           ---------      ---------
                                                   $     112      $     137           $     223      $     269
                                                   =========      =========           =========      =========

       Capital expenditures:
         Textile                                   $      --      $      --           $      35      $      --
         Craft                                             9             22                  35             52
         Corporate                                        --             --                  --             --
                                                   ---------      ---------           ---------      ---------
                                                   $       9      $      22           $      70      $      52
                                                   =========      =========           =========      =========
</TABLE>

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

Earnings per share have been computed on the basis of weighted average common
shares outstanding after providing for quarterly preferred dividend
requirements. Diluted earnings per share includes the effect of stock options.
For the three and six months ended June 30, 2003, there were 201,721 and
185,757, respectively, of stock options outstanding included in the fully
diluted earnings per share calculations. There were no dilutive options
outstanding during the three or six months ended June 30, 2002.

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

                                    Page 10

<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30, 2003:                             Loss          Shares        Per Share
                                                            ---------      ----------     ---------
<S>                                                         <C>             <C>             <C>
     Basic loss attributable to common stockholders         $    (176)      5,132,752     $    (.03)
     Effect of dilutive options                                    --         201,721            --
                                                            ---------      ----------     ---------
     Diluted loss attributable to common stockholders       $    (176)      5,334,473     $    (.03)
                                                            =========      ==========     =========


Six months ended June 30, 2003:                              Income           Shares      Per Share
                                                            ---------      ----------     ---------
     Basic income available to common stockholders          $      43       5,052,032     $     .01
     Effect of dilutive options                                    --         185,757            --
                                                            ---------      ----------     ---------
     Diluted income available to common stockholders        $      43       5,237,789     $     .01
                                                            =========      ==========     =========
</TABLE>

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

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

                                June 30, 2003              December 31, 2002
                                -------------              -----------------
     Raw materials                $  3,342                     $  2,622
     Work in Progress                   98                           22
     Finished goods                  5,828                        2,606
                                  --------                     --------
                                  $  9,268                     $  5,250
                                  ========                     ========

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

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

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

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

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.8 million of which was outstanding at
June 30, 2003, (ii) revolving credit advances to the Company in an amount up to
$500,000 and (iii) revolving credit advances to Blumenthal and Westwater based
upon eligible accounts receivable and inventory, and a Letter of Credit facility
with a limit of $500,000. The Term Loan amortizes $12,000 per month followed by
a final installment payment of $1.6 million due on August 31, 2004. The
revolving credit advances are also due on August 31, 2004. All amounts
outstanding under the CIT Facility bear interest at the Chase Bank N.A. prime
rate plus 0.5% with a minimum rate of 5.0%.

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

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Company, provided certain collateral against advances provided under the CIT
Facility.

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

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

The promissory note payable to JPMorgan in the amount of $3.0 million is dated
May 2, 2002 and has a maturity date of May 2, 2005, as amended. The note bears
interest at a fixed rate per annum equal to the Adjusted LIBO Rate applicable to
such note plus 0.75% (a "Eurodollar Loan"). The interest rate on the note at
June 30, 2003 was 2.03125%. In addition, Robert A. Levinson, a stockholder,
officer and director of the Company, has provided certain additional collateral
guaranteeing the note. The proceeds of the note were used to pay off the
outstanding balance of approximately $1.4 million of a term note with CIT and
pay down the Company's advance position of $1.16 million with CIT. The remainder
was used for working capital requirements.

Robert A. Levinson has made long-term loans totaling $500,000 to the Company.
Mr. Levinson has agreed not to require payment of these loans and $305,000 of
related accrued interest at June 30, 2003 prior to January 2, 2005.

Robert A. Levinson has also agreed to continue to personally support the
Company's cash requirements as necessary, up to a maximum amount of $3.0
million, to enable the Company to meet its current obligations through January
2, 2005 and to fund future operations. In connection with this agreement, Mr.
Levinson advanced $1.3 million to the Company during the three months ended June
30, 2003. The Company expects to repay Mr. Levinson this advance by December 31,
2003.

                                    Page 12
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The total amount outstanding and payable to Mr. Levinson, including accrued
interest, was $2.1 million as of June 30, 2003. The loans and advances from Mr.
Levinson all accrue interest at 6% per annum.

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

NOTE 9:  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.

NOTE 10:  RELATED PARTY TRANSACTION
-----------------------------------

Robert A. Levinson has provided long-term loans of $500,000 to the Company,
pledged collateral in support of certain Company obligations and in the second
quarter of 2003 made cash advances to the Company totaling $1.3 million. See
Note 8 for a description of these transactions.

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 six months ended June 30, 2003, fees for services
provided to the Company by Katten Muchin Zavis Rosenman totaled $395,697 of
which $357,000 was related to the merger transaction and had been accrued and
expensed as of December 31, 2002. Mr. Cohen does not share in the fees that the
Company pays to such law firm and his compensation is not based on such fees.

                                    Page 13
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

Critical Accounting Policies and Estimates

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

Receivables

Under a factoring agreement, the CIT Group, Inc. ("CIT") purchases the Textile
segment's trade accounts receivable without recourse and assumes substantially
all credit risk with respect to such accounts. The agreement allows the Company
to obtain advances, computed on a borrowing base formula, from CIT that bear
interest at 0.5% above the bank's prime rate (4.50% at June 30, 2003). 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 amounts due to
the Company from CIT earn no interest. The Company has pledged its Textile
segment's accounts receivable and property and equipment as collateral under the
factoring agreement.

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

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

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

Inventories

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

                                    Page 14
<PAGE>
demand for the Company's products could result in an increase in the amount of
excess inventory quantities on hand; however, the Company manages inventory and
monitors product purchasing to minimize this risk.

Revenue Recognition

The Company recognizes revenue when goods are shipped to customers. Shipment is
made by UPS or common carrier. Deliveries generally take place within three days
of shipment. Standard terms for shipments are F.O.B. shipping point, at which
time the Company has completed all performance obligations to consummate the
sale. In some circumstances, shipments are made F.O.B. destination, in which
case the Company insures the sales value of most shipments. Revenue is reported
net of a reserve for sales returns and allowances. Sales returns and allowances
are estimated based upon specific agreements and historical patterns with major
accounts and are accrued in the period in which a customer becomes entitled to
an allowance or return of product.

Pension Liabilities

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

Shipping and Handling Costs

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

Results of Operations

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

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

Net sales for the three months ended June 30, 2003 totaled $6.1 million,
comprised of net sales in the Craft segment of $5.6 million and net sales in the
Textile segment of $.5 million. Net sales for the three months ended June 30,
2002 totaled $6.3 million, all of which were in the Craft segment. The decline
in Craft segment sales during the second quarter of 2003 compared to 2002 was
the result of lower customer reorders across several product lines in 2003 and a
decrease in certain inventory close-out sales.

Gross margin during the second quarter of 2003 totaled $2.0 million as compared
to $2.2 million in the second quarter of 2002. The gross margin percent during
the second quarter of 2003 was 33.3% as compared to 35.4% during the second
quarter of 2002. The decline in gross margin dollars was attributable to lower
incremental sales. The decline in gross margin percent was the result of a
change in sales mix.

                                     Page 15
<PAGE>
Selling, general and administrative expenses in the second quarter of 2003
totaled $2.1 million as compared to $1.6 million in the second quarter of 2002.
The increase in selling, general and administrative expenses was the result of
incremental expenses contributed by the new Textile segment.

Loss before interest and income taxes for the three months ended June 30, 2003
totaled $44,000 as compared to income of $614,000 during the same period last
year. The decrease from 2002 to 2003 was primarily attributable to the lower
gross margin and incremental general and administrative expense incurred by the
Textile segment which was acquired in January 2003.

Net interest expense during the second quarter of 2003 totaled $127,000 as
compared to net interest expense of $103,000 during the second quarter of 2002.
The increase in interest expense as compared to the same period last year was
the result of higher average debt outstanding during the second quarter of 2003
primarily as a result of the Company's deemed assumption of Levcor's debt in the
merger.

The provision for income taxes during the second quarter of 2003 was a benefit
of $64,000 as compared to a tax provision of $180,000 during the second quarter
of 2002. The combined effective income tax (benefit) rates were 37.4% in the
second quarter of 2003 as compared to 35.2% in the second quarter of 2002. The
increase in the effective rate was the result of an increase in the average
combined state income tax rates in the second quarter of 2003 as compared to the
second quarter of 2002. Because of the Company's net operating loss
carryforward, the Federal income tax provision at 34% reduces the deferred tax
asset and, beginning in 2003, does not require a cash payment.

Series A Preferred Stock dividend accruals during the second quarters of 2003
and 2002 totaled $69,000 in each such quarter.

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

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Net sales for the six months ended June 30, 2003 totaled $13.3 million,
comprised of $11.4 million in Craft segment sales and $1.9 million in Textile
segment sales. Net sales for the six months ended June 30, 2002 totaled $11.6
million, all of which were Craft segment sales. The decline in Craft segment
sales in the first half of 2003 as compared to 2002 was primarily the result of
lower customer reorders in several product categories. Net sales in the Textile
segment declined in the second quarter as compared to the first quarter of 2003
by approximately $1 million as the Company transitioned to a new product line of
finished garments for a major customer, which will begin producing revenue in
the third quarter.

Gross margin during the first six months of 2003 totaled $4.8 million as
compared to $4.5 million during the first six months of 2002. The gross margin
percent during the first half of 2003 was 36.3% as compared to 39.1% during the
first half of 2002. The gross margin dollar increase in 2003 as compared to 2002

                                     Page 16
<PAGE>
was the result of higher sales volume. The decline in gross margin percent was
the result of lower margins on Textile segment sales.

Selling, general and administrative expenses totaled $4.3 million during the six
months ended June 30, 2003 as compared to $3.3 million during the comparable
period last year. The increase in selling, general and administrative expense in
2003 was primarily the result of additional costs associated with the Textile
segment acquired in January 2003.

Income before interest and income taxes for the six months ended June 30, 2003
totaled $549,000 as compared to $1.2 million for the same period in 2002. The
decrease in income before interest and income taxes in 2003 as compared to 2002
was primarily the result of higher selling, general and administrative expenses.

Net interest expense during the six months ended June 30, 2003 totaled $256,000
as compared to $204,000 during the six months ended June 30, 2002. The increase
in interest expense was the result of higher average debt outstanding during the
first half of 2003 primarily as a result of the Company's deemed assumption of
Levcor's debt in the merger.

The provision for income taxes during the six months ended June 30, 2003 totaled
$113,000 as compared to $357,000 during the first half of 2002. The combined
effective income tax rate was 38.6% during the six months ended June 30, 2003 as
compared to 35.9% during the comparable period in 2002 . The increase in the
effective rate was the result of an increase in the average combined state
income tax rates in 2003 as compared to 2002. Because of the Company's net
operating loss carryforward, the Federal income tax provision at 34% reduces the
deferred tax asset and, beginning in 2003, does not require a cash payment.

Series A Preferred Stock dividends during the six months ended June 30, 2003 and
2002 totaled $137,000 and $136,000 respectively.

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

Liquidity and Capital Resources

In early 2003, the Company's Textile segment began operating as a garment
contractor for a major account. The nature of this type of business is such that
a significant working capital investment is required in the early phases of the
business cycle in the form of inventory. The Company's credit facility with CIT
does not provide funding for inventory located outside of the United States,
where the production takes place, but does provide funding once the goods are
received in the United States. As a result, Robert A. Levinson, a stockholder,
officer and director of the Company, has made advances to the Company during the
second quarter of 2003 totaling $1.3 million to fund these operations. The
Company expects to repay these advances to Mr. Levinson once the working capital
(inventory and accounts receivable) becomes eligible to borrow against under the
Company's credit facility. The Company expects to repay these advances before
December 31, 2003.

At June 30, 2003 the Company's principal sources of liquidity included cash of
$71,000 and trade accounts receivable of $2.6 million.

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 stockholder, officer and director.

                                     Page 17
<PAGE>
Net cash flow used by operating activities totaled $2.3 million during the first
half of 2003 as compared to $1.1 million during the same period last year. The
increase in cash flow used by operating activities was the result of a
significant increase in inventory levels associated with the Textile segment.

Net cash flow used in investing activities totaled $102,000 during the first
half of 2003 as compared to $167,000 during the first half of 2002. The decrease
in net cash flows used in investing activity was primarily the result of a
decrease in investment in other assets.

Net cash provided by financing activities totaled $2.4 million during the first
half of 2003 as compared to $905,000 during the first half of 2002. Net
repayments under the Company's credit facilities during the six months ended
June 30, 2003 totaled $533,000 as compared to borrowings of $1.1 million during
the same period last year. The decrease in borrowings under the Company's credit
facilities was due to the increases in net advances from Robert A. Levinson.
Cash used for preferred stock dividend payments during the six months ended June
30, 2003 totaled $137,000 as compared to $136,000 during the six months ended
June 30, 2002. Deferred financing costs totaling $30,000 were capitalized in
connection with the CIT Facility (as defined herein) during the six months ended
June 30, 2002. There were no such costs in 2003.

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

On May 2, 2002, the Company borrowed $3.0 million from JPMorgan Chase Bank
("JPMorgan") pursuant to a promissory note due May 2, 2005 as amended. The note
bears interest at a fixed rate per annum equal to the Adjusted LIBO Rate
applicable to such note plus 0.75% (a "Eurodollar Loan"). The interest on the
note at June 30, 2003 was 2.03125%. In addition, Robert A. Levinson a
stockholder, officer and director of the Company has provided certain additional
collateral guaranteeing the note. The proceeds of the note were used to payoff
the outstanding balance of approximately $1.4 million of a term note with CIT
and pay down the Company's advance position of $1.16 million with CIT. The
remainder was used for working capital requirements.

If necessary, Mr. Levinson has agreed to personally support the Company's cash
requirements to enable it to fulfill its obligations through January 2, 2005, to
the extent necessary, up to a maximum amount of $3.0 million. The Company
believes its reliance on such commitment is reasonable and that Mr. Levinson has
sufficient liquidity and net worth to honor such commitment. The Company
believes that Mr. Levinson's written commitment provides the Company with the
legal right to request and receive such advances. In the event that Mr. Levinson
did not honor such commitment, the Company would have the right to sue Mr.
Levinson for breach of his agreement.

                                     Page 18
<PAGE>
As of June 30, 2003, Mr. Levinson made long-term loans and advances totaling
$2.1 million to the Company. The long-term loans, which total $500,000,
together with accrued interest of $305,000, have been classified as a long-term
obligation because Mr. Levinson has promised not to demand payment until at
least January 2, 2005. The Company believes its reliance on such written
undertaking is reasonable. In the event that Mr. Levinson did demand repayment
prior to January 2, 2005, the Company believes that such demand would be
unenforceable and that the Company would have the right to sue Mr. Levinson for
breach of his agreement. Mr. Levinson reaffirmed this undertaking in writing on
March 4, 2003.

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

The CIT Facility provides for (i) a term loan to the Company (the "Term Loan")
in the initial amount of $2.0 million, $1.8 million of which was outstanding at
June 30, 2003, (ii) revolving credit advances to the Company in an amount up to
$500,000 and (iii) revolving credit advances to Blumenthal and Westwater based
upon eligible accounts receivable and inventory, and a Letter of Credit facility
with a limit of $500,000. The Term Loan amortizes $12,000 per month followed by
a final installment payment of $1.6 million due on August 31, 2004. The
revolving credit advances are also due on August 31, 2004. All amounts
outstanding under the CIT Facility bear interest at the Chase Bank N.A. prime
rate plus 0.5% with a minimum rate of 5.0%.

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

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

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

In connection with the merger, the Company issued 4,555,007 shares of its Series
A preferred stock for 4,555,007 shares of Carlyle's Series B preferred stock.
The Series A preferred stock is subject to mandatory redemption, to the extent
the Company may lawfully do so, in three equal annual installments on June 15,
2007, June 15, 2008 and June 15, 2009, in each case, from funds legally

                                     Page 19
<PAGE>
available therefor, at a price per share of Series A preferred stock equal to $1
per share, together with an amount representing accrued and unpaid dividends,
whether or not declared, to the date of redemption. Dividends on the Series A
preferred stock accrue at a rate of $0.06 per annum per share when, as and if
declared by the Company and are payable quarterly on March 15, June 15,
September 15 and December 15. Quarterly dividends which are not paid in full in
cash on any dividend payment date will accumulate without interest. Under the
terms of the CIT Facilities, preferred stock redemption payments are prohibited
and preferred stock dividend payments are limited to $300,000 per year.

Seasonality and New Programs

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

The Company's Craft business is largely based on reorders from its retail
customers and, as a result, the business is influenced by the buying habits of
consumers. Home sewing and craft activities take place on a year-round basis;
however, they are generally indoor activities and as a result they experience an
increased participation level during the fall, winter and early spring months.
Anticipating this pattern, the Company's retail customers place somewhat larger
reorders during the July through March period.

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

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" ("FIN 46"), to clarify when a company should
consolidate in its financial statements the assets, liabilities and activities
of a variable interest entity. FIN 46 provides general guidance as to the
definition of a variable interest entity and requires a variable interest entity
to be consolidated if a company absorbs the majority of the variable interest
entity's expected losses, or is entitled to receive a majority of the variable
interest entity's residual returns, or both. FIN 46 is effective

                                     Page 20
<PAGE>
immediately for all new variable interest entities created after January 31,
2003. For variable interest entities created before February 1, 2003, the
consolidation provisions of FIN 46 must be applied for the first interim or
annual reporting period beginning after June 15, 2003. The disclosure provisions
of FIN 46 apply to financial statements issued after January 31, 2003,
regardless of when the variable interest entity was established. The adoption of
FIN 46 did not have an impact on the Company's financial reporting and
disclosures, because the Company did not have any transactions with variable
interest entities.

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

Impact of Inflation

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

                                     Page 21
<PAGE>
Forward-Looking Statements

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

ITEM 3.  CONTROLS AND PROCEDURES

As of June 30, 2003 (the end of the period covered by this report), the
Company's management carried out an evaluation, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Company's disclosure controls and procedures. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company (including
the Company's consolidated subsidiaries) required to be included in periodic
reports filed under the Securities Exchange Act of 1934.

In designing and evaluating the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934),
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurances of achieving the
desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. We believe that our disclosure
controls and procedures provide such reasonable assurance.

                                     Page 22
<PAGE>
                           PART II. OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

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

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

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

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

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

(b)      Reports on Form 8-K

None.

                                     Page 23
<PAGE>
                                   SIGNATURES

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


                           LEVCOR INTERNATIONAL, INC.



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


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

                                     Page 24
<PAGE>
                                  Exhibit Index

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

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

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

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

                                     Page 25