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, 2007

OR

o     TRANSITION REPORT        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        For the transition period from to

Commission        file number 0-9040

        DRYCLEAN USA, Inc.        (Exact name of small business issuer as specified in its charter)

| DELAWARE                        | 11-2014231          |
|---------------------------------|---------------------|
| (State of other jurisdiction of | (I.R.S. Employer    |
| incorporation or organization)  | Identification No.) |

        290 N.E. 68 Street, Miami, Florida 33138        (Address of principal executive offices)

        (305) 754-4551        (Issuer’s telephone number)

        Not Applicable        (Former name)

        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

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

        State the number of shares outstanding of each of the issuer’s classes of common        equity as of the latest practicable date: Common Stock, $.025 par value per share –        7,034,307 shares outstanding as of November 9, 2006.

        Transitional Small Business Disclosure Format:     Yes                     No        x

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**PART I. FINANCIAL INFORMATION**

**Item 1.     Financial Statements**

        DRYCLEAN USA, Inc. and Subsidiaries

**Condensed Consolidated Statements of Income**

|                                                                                                                     | For the three months ended                     September 30,                                                                                                                   |
|--------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                     | **          200****7**                                                                                                                 |          2006 |
|                                                                                                                     | **                              (Unaudited)**                                                                                     |           (Unaudited) |
| Net sales                                                                                                                | **$         ****4,568,051      **                                                                        | $        5,789,740     |
| Development fees, franchise and license fees,

                         commissions and other income | **     1****68,593      **                                                                                                   | 122,458     |
| Total revenues                                                                                                           | **     ****4,736,644      **                                                                                                 | 5,912,198     |
|                                                                                                                     |                                                                                                                                                                                |   |
| Cost of sales                                                                                                            | **3,462,795      **                                                                                                                                   | 4,499,939     |
| Selling, general and administrative expenses                                                                             | **1,1****43,5****16      **                                                                                                                           | 1,138,629     |
| Research and development expenses                                                                                        | **2,640      **                                                                                                                                       | 10,525     |
|                                                                                                                     | **4,608,951      **                                                                                                                                   | 5,649,093     |
| Operating income                                                                                                         | **127,693      **                                                                                                                                     | 263,105     |
| Interest income                                                                                                          | **49,716      **                                                                                                                                      | 38,152     |
| Interest expense                                                                                                         | **(837)     **                                                                                                                                             | -     |
| Earnings before income taxes                                                                                             | **176,572      **                                                                                                                                     | 301,257     |
| Provision for income taxes                                                                                               | **63,528      **                                                                                                                                      | 114,478     |
| Net earnings                                                                                                             | **$****           ****1****13,044      **                                                           | $           186,779     |
|                                                                                                                     |                                                                                                                                                                                |   |
| Basic and diluted earnings per share                                                                                     | **$****                                      ****.0****2      ** | $                   .03     |
|                                                                                                                     |                                                                                                                                                                                |   |
| Weighted average number of shares:                    of common stock outstanding                                        |                                                                                                                                                                                |   |
| Basic                                                                                                                    | **7,****03****4****,307      **                                                                                                                       | 7,034,450     |
| Diluted                                                                                                                  | **7,****03****7,****585      **                                                                                                                       | 7,037,493     |

2

 

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        DRYCLEAN USA, Inc. and Subsidiaries

**Condensed Consolidated Balance Sheets**

**ASSETS**

|                                                                      | **      **

**     September 30,**

**     200****7** | June 30,                     2007                                                |
|---------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|
|                                                                      | **    (Unaudited)**                                                                                          |                                                                                  |
| Current Assets                                                            |                                                                                                                        |                                                                                  |
| Cash and cash equivalents                                                 | **$****     ****3,053,935    **                                                | $     4,296,415                          |
| Accounts and trade notes                    receivable, net               | **2,099,258    **                                                                                       | 1,454,987                                                         |
| Inventories

                    Refundable income taxes                  | **3,****572,547    **

**23,095    **                                               | 2,912,524    

                    64,131     |
| Deferred income taxes                                                     | **93,407    **                                                                                          | 99,140                                                            |
| Other current assets                                                      | **157,424    **                                                                                         | 98,353                                                            |
| Total current assets                                                      | **8,****999,666    **                                                                                   | 8,925,550                                                         |
|                                                                      |                                                                                                                        |                                                                                  |
| Equipment and improvements, net                                           | **2****52,065    **                                                                                     | 261,872                                                           |
| Franchise, trademarks and other                    intangible assets, net | **2****31,591    **                                                                                     | 246,812                                                           |
| Deferred income taxes                                                     | **11,331    **                                                                                          | 9,340                                                             |
|                                                                      |                                                                                                                        |                                                                                  |
|                                                                      | **$****     ****9,494,653    **                                                | $     9,443,574                          |
|                                                                      |                                                                                                                        |                                                                                  |

3

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        DRYCLEAN USA, Inc. and Subsidiaries

**Condensed Consolidated Balance Sheets**

**LIABILITIES AND        SHAREHOLDERS’ EQUITY**

|                                                                                                                                                                                    | **September 30,**

**200****7**                                                                                                          | June 30,                    2007                                             |  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------|--|
|                                                                                                                                                                                    | **(Unaudited)**                                                                                                                          |                                                                         |  |
| Current Liabilities                                                                                                                                                                     |                                                                                                                                     |                                                                         |
| Accounts payable and accrued expenses                                                                                                                                                   | **$     ****1,****277,112              ** | $     1,076,300       |
| Accrued employee expenses                                                                                                                                                               | **288,389              **                                          | 605,383                                        |
| Unearned income                                                                                                                                                                         | **103,469              **                                          | 124,162                                        |
| Customer deposits                                                                                                                                                                       | **1,440,533              **                                        | 1,365,623                                      |
| Dividends payable                                                                                                                                                                       | **28****1,****372              **                                  | -                                              |
|                                                                                                                                                                                    |                                                                                                                                     |                                                                         |
| Total current liabilities                                                                                                                                                               | **3,****3****90,875              **                                | 3,171,468                                      |
|                                                                                                                                                                                    |                                                                                                                                     |                                                                         |
| Total liabilities                                                                                                                                                                       | **3,****3****90,875              **                                | 3,171,468                                      |
|                                                                                                                                                                                    |                                                                                                                                     |                                                                         |
| Shareholders’ Equity                                                                                                                                                              |                                                                                                                                     |                                                                         |
| Preferred Stock, $1.00 par value: Authorized shares – 200,000; none                         issued and outstanding                                       | **-                                  **                            | -                                              |
| Common stock, $0.025 par value:                    Authorized shares – 15,000,000; 7,065,500, shares issued and outstanding,                    including shares held in treasury | **176,****638              **                                      |   176,638                                 |
| Additional paid-in capital                                                                                                                                                              | **2,0****95,069              **                                    | 2,095,069                                      |
| Retained earnings                                                                                                                                                                       | **3,835,384              **                                        | 4,003,712                                      |
| Treasury stock, 31,193 shares at cost                                                                                                                                                   | **(3,313****)             **                                            | (3,313)                                             |
|                                                                                                                                                                                    |                                                                                                                                     |                                                                         |
| Total shareholders’ equity                                                                                                                                                        | **6,****103,778              **                                    | 6,272,106                                      |
|                                                                                                                                                                                    |                                                                                                                                     |                                                                         |
|                                                                                                                                                                                    | **$****     ****9,494,653              ** | $    9,443,574                  |
|                                                                                                                                                                                    |                                                                                                                                     |                                                                         |

4

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        DRYCLEAN USA, Inc. and Subsidiaries

**Condensed Consolidated Statements of Cash Flows**

|                                                                                               | For the three months ended                    September 30,                                                  |
|----------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|
|                                                                                               | **200****7**                                                                                                 | 2006 |
|                                                                                               | **(Unaudited)**                                                                                              | (Unaudited) |
| Operating activities:                                                                              |                                                                                                         |   |
| Net earnings                                                                                       | **$****          ****1****13,044**                              | $          186,779 |
| Adjustments to reconcile net earnings to net cash used by operating                    activities: |                                                                                                         |   |
| Depreciation and amortization                                                                      | **3****4,565**                                                                                               | 30,209 |
| Bad debt expense

                    Provision for deferred income taxes                          | **333**

**3,742**                                                                                           | 1,117

                    - |
| (Increase) decrease in operating assets:                                                           |                                                                                                         |   |
| Accounts, trade notes and lease receivables                                                        | **               (644,604)**      | (94,946) |
| Inventories

                    Refundable income taxes                                           | **(660,023****)**

**41,036**                                                                                | (105,940)

                     -  |
| Other current assets                                                                               | **(****59****,071****)**                                                                                     | (46,534) |
| Increase (decrease) in operating liabilities:                                                      |                                                                                                         |   |
| Accounts payable and accrued expenses                                                              | **200,812**                                                                                                  | 563,011 |
| Customer deposits and other                                                                        | **74,910**                                                                                                   |                                    (425,815) |
| Income taxes payable                                                                               | **-**                                                                                                        | (46,989) |
| Unearned income                                                                                    | **(20,69****3****)**                                                                                         | (20,693) |
| Accrued employee expenses                                                                          | **(316,994****)**                                                                                            |  (259,679) |
| Net cash used by operating activities                                                              | **(1,232,943****)**                                                                                          |                                             (219,480) |
| Investing activities:                                                                              |                                                                                                         |   |
| Capital expenditures, net                                                                          | **(****9,537****)**                                                                                          | (52,516) |
| Net cash provided (used) by financing activities                                                   | **-**                                                                                                        |  - |
| Net decrease in cash and cash equivalents                                                          | **(1,242,480)**                                                                                              |  (271,996) |
| Cash and cash equivalents at beginning of period                                                   | **4,296,415**                                                                                                | 3,106,703 |
|                                                                                               |                                                                                                         |   |
| Cash and cash equivalents at end of period                                                         | **$****                             3,053,935**                 | $      2,834,707 |
|                                                                                               |                                                                                                         |   |
| Supplemental disclosures of cash flow                    information                               |                                                                                                         |   |
| Cash paid during the period for:                                                                   |                                                                                                         |   |
| Income taxes                                                                                       | **$****                                125,000** | $        161,467 |
| Dividends declared but not yet paid                                                                | **$****                                281,372** | $        281,378 |

5

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**DRYCLEAN USA, Inc. and Subsidiaries**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**Note (1) – General:** The accompanying unaudited condensed consolidated        financial statements have been prepared in accordance with accounting principles generally        accepted in the United States of America for interim financial statements and the        instructions to Form 10-QSB related to interim period financial statements. Accordingly,        these condensed consolidated financial statements do not include certain information and        footnotes required by accounting principles generally accepted in the United States for        complete financial statements. However, the accompanying unaudited condensed consolidated        financial statements contain all adjustments (consisting only of normal recurring accruals)        which, in the opinion of management, are necessary in order to make the financial        statements not misleading. The results of operations for interim periods are not        necessarily indicative of the results to be expected for the full year. For further        information, refer to the Company’s financial statements and footnotes thereto        included in the Company’s Annual Report on Form 10-KSB for the year ended June 30,        2007. The June 30, 2007 balance sheet information contained herein was derived from        the audited consolidated financial statements included in the Company’s Annual Report        on Form 10-KSB as of that date.

**Note (2) – Earnings Per Share:** Basic and diluted earnings per share for the        three months ended September 30, 2007 and 2006 are computed as follows:

|                                                                              |         For the three months ended                          September 30,        |
|-----------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                              |        2007                                                                                                              | 2006 |
| Basic                                                                             |                                                                                                                                                   |   |
| Net earnings                                                                      | $                             113,044                                                      | $                           186,779        |
| Weighted average shares

                         outstanding | 7,034,307                                                                                                                          | 7,034,450        |
| Basic earnings per share                                                          | $                                     .02          | $                                   .03        |
| Diluted                                                                           |                                                                                                                                                   |   |
| Net earnings                                                                      | $113,044                                                                                                                      | $186,779        |
| Weighted average shares outstanding                                               | 7,034,307                                                                                                                     | 7,034,450        |
| Plus incremental shares from assumed exercise of stock options                    | 3,278                                                                                                                         | 3,043        |
| Diluted weighted average common shares                                            | 7,037,585                                                                                                                     | 7,037,493        |
| Diluted earnings per share                                                        | $                                    .02      | $                                    .03        |

        At September 30, 2007 and 2006, there were outstanding options to purchase 10,000 shares of        the Company’s common stock which were excluded in the computation of earnings per        share because the exercise price of the options was at least the average market price of        the Company’s common stock for the period.

6

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**Note (3) – Revolving Credit Line:** On October 22, 2007, the Company received an        extension until October 30, 2008 of its existing $2,250,000 revolving line of credit        facility. The Company’s obligations under the facility are guaranteed by the        Company’s subsidiaries and collateralized by substantially all of the Company’s        and its subsidiaries’ assets. No amounts were outstanding under this facility at        September 30, 2007 or June 30, 2007.

**Note (4)****-****Stock-Based Compensation Plans****:** The Company’s        2000 Stock Option Plan and 1994 Non-Employee Director Stock Option Plan are the        Company’s only stock-based compensation plans. The 2000 Stock Option Plan authorizes        the grant (until May 2, 2010) of options to purchase up to 500,000 shares of the        Company’s common stock to employees, directors and consultants, of which no options        were outstanding on September 30, 2007. The 1994 Non-Employee Director Stock Option Plan        terminated as to future grants on August 23, 2004, but options to purchase 20,000 shares        remain outstanding thereunder.

        Effective January 1, 2006, the Company adopted SFAS No. 123 (revised), “Share-Based        Payment” (“SFAS 123(R)”), utilizing the modified prospective approach.        Prior to the adoption of SFAS 123(R), the Company accounted for stock option grants under        the recognition and measurement principles of APB Opinion No. 25, “Accounting for        Stock Issued to Employees,” and related interpretations, and, accordingly, recognized        no compensation expense for stock option grants in net income.

        Under the modified prospective approach, SFAS 123(R) applies to new grants and to grants        that were outstanding on December 31, 2005 to the extent not yet vested. Since no new        options were granted during the quarters ended September 30, 2007 and 2006 and all        outstanding options were fully vested at December 31, 2005, no compensation cost for        share-based payments was recognized under SFAS 123(R) during the quarters ended September        30, 2007 and 2006. Prior periods are not required to be restated to reflect the impact of        adopting the new standard.

**Note (5) - Cash Dividends****:** The following table sets forth information        concerning the cash dividends declared by the Company’s Board of Directors during the        periods covered by this Report:

| Declaration

Date  | Payment

Date    | Record

Date     | Per Share

Amount | Total

Amount |
|--------------------|------------------|------------------|-------------------|---------------|
| September 25, 2007 | November 1, 2007 | October 12, 2007 | $.04              | $281,372      |
| March 29, 2007     | May 1, 2007      | April 13, 2007   | $.04              | $281,372      |
| September 26, 2006 | November 1, 2006 | October 13, 2006 | $.04              | $281,378      |
| March 31, 2006     | May 1, 2006      | April 14, 2006   | $.04              | $281,378      |
| September 23, 2005 | November 1, 2005 | October 14, 2005 | $.04              | $280,978      |

7

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**Note (6) Segment Information**: The Company’s reportable segments are strategic        businesses that offer different products and services. They are managed separately because        each business requires different marketing strategies. The Company primarily evaluates the        operating performance of its segments based on the categories noted in the table below. The        Company has no sales between segments.

        Financial information for the Company’s business segments is as follows:

|                                                         | For the three months ended                    September 30,                                                      |
|--------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|
|                                                         | **200****7**                                                                                                     | 2006 |
|                                                         | **(Unaudited)**                                                                                                  | **(**Unaudited) |
| Revenues:                                                    |                                                                                                             |   |
| Commercial and industrial laundry and dry cleaning equipment | **$****     ****4,659,934       **                   | $         5,860,490 |
| License and franchise operations                             | **76,710       **                                                             | 51,708 |
| Total revenues                                               | **$****     ****4,736,644       **                   | $         5,912,198 |
|                                                         |                                                                                                             |   |
| Operating income (loss):                                     |                                                                                                             |   |
| Commercial and industrial laundry and dry cleaning equipment | **$****        ****162,987       **        | $ 307,644 |
| License and franchise operations                             | **53,302       **                                                             | 35,638 |
| Corporate                                                    | **(****88,596****)      **                                                         | (80,177) |
| Total operating income                                       | **$        ****127,693       **            | $            263,105 |
|                                                         |                                                                                                             |   |
|                                                         | **September 30,****200****7**                                                                                    | June 30,                    2007 |
|                                                         | **(Unaudited)**                                                                                                  |   |
| Identifiable assets:                                         |                                                                                                             |   |
| Commercial and industrial laundry and dry cleaning equipment | **$****     ****9,157,600          ** | $        8,712,151 |
| License and franchise operations                             | **202,820          **                                          | 554,518 |
| Corporate                                                    | **134,233          **                                          | 176,905 |
| Total assets                                                 | **$****     ****9,494,653          ** | $        9,443,574 |

****

8

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**New Accounting        Pronouncements**

        In March 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on        EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental        Authorities Should Be Presented in the Income Statement (that is, Gross versus Net        Presentation).” EITF 06-3 requires an entity to disclose its policy for presenting        taxes assessed on revenue-producing transaction between a seller and customer. Such taxes        may include sales, use, and some excise taxes, among others. EITF 06-3 is effective for        interim and annual periods ending after December 15, 2006 with early application permitted.        For the periods presented in this Report, the Company has presented such taxes net. The        implementation of EITF 06-3 did not have an effect on the Company’s consolidated        financial statements.

        In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB        Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN        48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in        financial statements and prescribes a two-step test for the recognition and measurement        of a tax position taken on a tax return.  FIN 48 provides guidance for        determining whether tax benefits may be recognized with respect to uncertain tax positions        and, if recognized, the amount that may be recorded.  FIN 48 is effective for fiscal        years beginning after December 15, 2006. FIN 48 did not have a material effect on the        Company’s consolidated financial statements.

        In September 2006, the FASB issued Statement of Financial Accounting Standards        (“SFAS”) No. 157, “Fair Value Measurement” (“SFAS 157”)        which defines fair value, establishes a framework for measuring fair value in accordance        with generally accepted accounting principles, and provides for additional fair value        disclosures. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The        Company does not believe SFAS 157 will have a material effect on its consolidated financial        statements.

        In September 2006, the Staff of the Securities and Exchange Commission issued Staff        Accounting Bulletin No. 108, “Considering the Effect of Prior Year Misstatements when        Quantifying Misstatements in Current Year Financial Statements” (“SAB        108”). SAB 108 requires the use of two approaches in quantitatively evaluating        the materiality of misstatements. If the misstatement as quantified under either approach        is material to the current year financial statements, the misstatement must be corrected.        If the effect of correcting a prior year misstatement in the current year income statement        is material, the prior year financial statements should be corrected. In the year of        adoption (fiscal years ending after November 15, 2006), the misstatements may be corrected        as an accounting change by adjusting opening retained earnings rather than being included        in the current year income statement. The Company does not expect SAB 108 to have an impact        on the Company’s consolidated financial statements.

        In February 2007, the FASB issued        SFAS No. 159, “The Fair Value Option for Financial Assets        and Financial Liabilities” which permits, at specified election dates, all entities        to choose to measure eligible items at fair value. SFAS 159 is effective as of the        beginning of an entity’s fiscal year beginning on or after November 15, 2007 with        early application permitted as of the beginning of a fiscal year beginning on or before        November 15, 2007 if an entity also elects to apply the provisions of SFAS 159. The Company        did not elect early application of SFAS No. 159. Retrospective application is not permitted        unless early adoption is adopted. The Company is evaluating the effect, if any, the        adoption of SFAS 159 will have on the Company’s consolidated financial        statements.

9

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**Item 2.     Management’s Discussion and Analysis or Plan        of Operation**.

**Overview**

        Revenues for the first quarter of fiscal 2008 decreased by $1,175,554 or 19.9% over the        same period of fiscal 2007. The level of sales of commercial laundry equipment has varied        in recent years based on the timing of shipments under larger orders. While these larger        orders generate lower gross profit margins, they tend to increase revenues and operating        income. During the quarter ended September 2007, the Company had fewer large sales than it        did in the quarter ended September 2006, which adversely effected revenues and operating        income compared to the quarter ended September 30, 2006. The comparative reductions were        also attributable to heavy shipments in September 2006 from backlog. In addition,        drycleaning equipment shipments continue to decrease as drycleaning establishments        consolidated and fashion continues to change to a more casual mode. The slowing economy and        longer delivery dates on laundry equipment may affect sales for the balance of fiscal        2008.

        Cash on hand decreased during the quarter by $1,242,480, mostly due to an increased level        of inventory needed to support future orders and an increase in accounts receivable as a        result of heavy shipments during September 2007. Cash on hand at September 30, 2007 and        availability under the Company’s revolving credit facility are more than adequate to        service the Company’s needs for the year.

        On September 25, 2007, the Board of Directors declared a $.04 per share semi-annual        dividend (an aggregate of $281,372) payable on November 1, 2007 to shareholders of record        on October 12, 2007.

**Liquidity and Capital        Resources**

        During the first quarter of fiscal 2008, cash decreased by $1,242,480 compared to a        decrease of $271,996 during the same period of fiscal 2007. The following summarizes the        Company’s Consolidated Statement of Cash Flows.

 

|                 | Three Months Ended September 30,                                                                             |
|----------------------|--------------------------------------------------------------------------------------------------------------|
|                 | 2007                                                                                                         | 2006 |
| Net cash used by:    |                                                                                                         |   |
| Operating activities | $          (1,232,943)       | $          (219,480)        |
| Investing activities | (9,537)                                                                        | (52,516)        |

         

        For the three month period ended September 30, 2007, operating activities used cash of        $1,232,943 compared to cash of $219,480 used by operating activities during the same period        of fiscal 2007. Cash was provided by the Company’s net earnings ($113,044) and        non-operating expenses for depreciation and amortization ($34,565). However, this cash was        offset by cash used as a result of changes in assets and liabilities of $1,384,627 during        the three month period ended September 30, 2007, principally to support an increase in        accounts and trade notes receivable ($664,604) due to heavy shipments in September 2007        which had not yet been paid for and an increase in inventories ($660,023) to support future        shipments. Cash was additionally used for an increase in other assets ($59,071) and        decreases in unearned income ($20,693) and

10

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        accrued employee expenses ($316,994). These additional cash uses was substantially offset        by increases in accounts payable and accrued expenses ($200,812) and customer deposits        ($74,910) and a decrease in refundable income taxes ($41,036).

        For the three month period ended September 30, 2006, cash was provided by the        Company’s net earnings ($186,779) and non-operating expenses for depreciation and        amortization ($30,209) and bad debts ($1,117). These were offset by $437,585 used as a        result of changes in operating assets and liabilities. The principal reasons for the        decrease in cash used as a result of changes in operating assets and liabilities were        decreases in customer deposits ($425,815) due to heavy shipments in September 2006 from        backlog, accrued employee expenses ($259,679), income tax payable ($46,989) and unearned        income ($20,693), coupled with uses of cash to support increases in inventories ($105,940),        accounts, trade notes and lease receivables ($94,946) and other assets ($46,534). These        uses were significantly offset by cash resulting from an increase in accounts payable and        accrued expenses which provided cash of ($563,011), principally caused by the restocking of        inventory for which payment was not due by quarter end.

        Investing activities for the first quarter of fiscal 2008 used cash of $9,537 compared to        $52,516 used in the same period of fiscal 2006, mostly for capital expenditures.

        There were no financing activities during the first quarters of fiscal 2008 and 2007.

        A table of Company declared dividends is listed in Note 5 of the “Notes to Condensed        Consolidated Financial Statements”.

        On October 22, 2007, the Company received an extension until October 30, 2008 of its        existing $2,250,000 revolving line of credit facility. The Company’s obligations        under the facility continue to be guaranteed by the Company’s subsidiaries and        collateralized by substantially all of the Company’s and its subsidiaries’        assets. No amounts were outstanding under this facility at September 30, 2007 or June 30,        2007.

        The Company believes that its present cash position and cash it expects to generate from        operations, as well as, if needed, cash borrowings available under its $2,250,000 revolving        line of credit facility, will be sufficient to meet its operational needs.

**Off-Balance Sheet        Financing**

        The Company has no off-balance sheet financing arrangements within the meaning of item        303(c) of Regulation S-B.

**Results of        Operations**

|                                                                                                             |             Three Months                    Ended September 30, |
|------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------|
|                                                                                                             | 2007                                                                                                                   | 2006 |   |
| Net sales                                                                                                        | $     4,568,051                                                                               | $     5,789,740 | -21.1% |
| Development fees, franchise and                    license fees, commissions and                    other income | 168,593                                                                                                                | 122,458 | 37.7% |
| Total revenues                                                                                                   | $     4,736,644                                                                               | $     5,912,198 | -19.9% |

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        Revenues for the three month period ended September 30, 2007 decreased by $1,175,554        (19.9%) from the same period of fiscal 2007. The decrease was attributable to a $1,200,556        (20.5%) decrease in revenue of the commercial laundry and dry cleaning segment, with        commercial laundry equipment sales decreasing by 27.9%, dry cleaning equipment sales        decreasing by 39.7% and boiler sales decreasing by (10.1%). These decreases were offset, in        part, by an increase in spare parts sales (1.9%). The comparative reduction was also        attributable to relatively heavy shipments in September 2006 from backlog. Development        fees, franchise and license fees, commissions and other income increased by $46,135        (37.3%), principally due to increased renewal license fees and development fees.

|                                         | Three Months Ended September 30,                                                                            |
|----------------------------------------------|-------------------------------------------------------------------------------------------------------------|
|                                         | 2007                                                                                                        | 2006 |
| *As a percentage of**net**sales:*            |                                                                                                        |   |
| Cost of sales                                | 75.8%                  | 77.7%                 |
| *As a percentage of revenues:*               |                                                                                                        |   |
| Selling, general and administrative expenses | 24.1%                  | 19.3%                 |
| Research and development                     | 0.1%                   | 1.2%                 |
|                                         |                                                                                                        |   |
| Total cost of sales and operating expenses   | 97.3%                  | 95.5%                 |

        Costs of goods sold, expressed as a percentage of sales, decreased to 75.8% from 77.7% for        the three month period ended September 30, 2007 compared to the same period of fiscal 2007.        The improved margins were due to the absence of large contract shipments which improved the        product mix.

        Selling general and administrative expenses increased by $4,887 (.04%), but as a percentage        of revenues increased to 24.1% in the first quarter of fiscal 2008 from 19.3% in the first        quarter of fiscal 2007. While expenses in these categories were basically flat in the        comparable quarters, the increase as a percentage of revenues in the fiscal 2008 period was        due to the decreased level of sales which affected the absorption of fixed and        semi-variable expenses in these categories.

        Research and development expenses are a small part of the Company’s total operating        expenses and relate to upgrading existing product lines.

        The overall cost of sales and operating expenses of the Company, expressed as a percentage        of revenues, increased to 97.3% in the first quarter of fiscal 2008 from 95.5% in the same        period of fiscal 2007. Improved gross profit margins were offset by selling and        administrative expenses which were spread over reduced revenues.

        Interest income increased by $11,564 (30.3%) in the first quarter of fiscal 2008 over the        same period of fiscal 2007 due to interest received on higher average bank balances and an        increase in interest rates.

        The Company’s effective tax rate decreased to 36.0% from 38.0% due to changes in        deferred tax assets and other deductions which, coupled with the lower earnings before        income taxes, reduced the provision for income taxes by $50,950 (44.5%) in the first        quarter of fiscal 2008 from the first quarter of fiscal 2007.

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**Inflation**

        Inflation has not had a significant effect on the Company’s operations during any of        the reported periods.

**Transactions****with****Related Parties**

        The Company leases 27,000 square feet of warehouse and office space from Sheila Steiner,        who together with her husband, William K. Steiner, Chairman of the Board of Directors and a        director of the Company, are the trustees of a trust which is a principal shareholder of        the Company. The lease is for a three year period beginning November 1, 2005 at an annual        rental of $94,500 with annual increases commencing November 1, 2006 of 3% over the rent in        the prior year. The Company is to bear the costs of real estate taxes, utilities,        maintenance, non-structural repairs and insurance. The new lease contains two three-year        renewal options in favor of the Company. The Company believes that the terms of the lease        are comparable to terms that would be obtained from an unaffiliated third party for similar        property in a similar locale.

****CriticalAccountingPolicies****

        The accounting policies that the Company has identified as critical to its business        operations and to an understanding of the Company’s results of operations remain        unchanged from those described in the Management’s Discussion an Analysis or Plan of        Operation section of the Company’s Annual Report on Form 10-KSB for the fiscal year        ended June 30, 2007. The Company makes estimates and assumptions that effect the reported        amount of assets and liabilities, contingent assets and liabilities, and the reported        amounts of revenues and expenses during the reported period. Therefore, there can be no        assurance that the actual results will not differ from those estimates.

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**New Accounting        Pronouncements**

        In March 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on        EITF Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental        Authorities Should Be Presented in the Income Statement (that is, Gross versus Net        Presentation).” EITF 06-3 requires an entity to disclose its policy for presenting        taxes assessed on revenue-producing transaction between a seller and customer. Such taxes        may include sales, use, and some excise taxes, among others. EITF 06-3 is effective for        interim and annual periods ending after December 15, 2006 with early application permitted.        For the periods presented in this Report, the Company has presented such taxes net. The        implementation of EITF 06-3 did not have an effect on the Company’s consolidated        financial statements.

        In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB        Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN        48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in        financial statements and prescribes a two-step test for the recognition and measurement        of a tax position taken on a tax return.  FIN 48 provides guidance for        determining whether tax benefits may be recognized with respect to uncertain tax positions        and, if recognized, the amount that may be recorded.  FIN 48 is effective for fiscal        years beginning after December 15, 2006. FIN 48 did not have a material effect on the        Company’s consolidated financial statements.

        In September 2006, the FASB issued Statement of Financial Accounting Standards        (“SFAS”) No. 157, “Fair Value Measurement” (“SFAS 157”)        which defines fair value, establishes a framework for measuring fair value in accordance        with generally accepted accounting principles, and provides for additional fair value        disclosures. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The        Company does not believe SFAS 157 will have a material effect on its consolidated financial        statements.

        In September 2006, the Staff of the Securities and Exchange Commission issued Staff        Accounting Bulletin No. 108, “Considering the Effect of Prior Year Misstatements when        Quantifying Misstatements in Current Year Financial Statements” (“SAB        108”). SAB 108 requires the use of two approaches in quantitatively evaluating        the materiality of misstatements. If the misstatement as quantified under either approach        is material to the current year financial statements, the misstatement must be corrected.        If the effect of correcting a prior year misstatement in the current year income statement        is material, the prior year financial statements should be corrected. In the year of        adoption (fiscal years ending after November 15, 2006), the misstatements may be corrected        as an accounting change by adjusting opening retained earnings rather than being included        in the current year income statement. The Company does not expect SAB 108 to have an impact        on the Company’s consolidated financial statements.

        In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for        Financial Assets and Financial Liabilities” which permits, at specified election        dates, all entities to choose to measure eligible items at fair value. SFAS 159 is        effective as of the beginning of an entity’s fiscal year beginning on or after        November 15, 2007 with early application permitted as of the beginning of a fiscal year        beginning on or before November 15, 2007 if an entity also elects to apply the provisions        of SFAS 159. The Company did not elect early application of SFAS No. 159. Retrospective        application is not permitted unless early adoption is adopted. The Company is evaluating        the effect, if any, the adoption of SFAS 159 will have on the Company’s        consolidated financial statements.

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**Forward Looking        Statements**

        Certain statements in this Report are “forward looking statements” within the        meaning of the Private Securities Litigation Reform Act of 1995. When used in this Report,        words such as “may,” “should,” “seek,”        “believe,” “expect,” anticipate,” “estimate,”        “project,” “intend,” “strategy” and similar expressions        are intended to identify forward looking statements regarding events, conditions and        financial trends that may affect the Company’s future plans, operations, business        strategies, operating results and financial position. Forward-looking statements are        subject to a number of known and unknown risks and uncertainties that may cause actual        results, trends, performance or achievements of the Company, or industry trends and        results, to differ materially from the future results, trends, performance or achievements        expressed or implied by such forward-looking statements. Such risks and uncertainties        include, among others: general economic and business conditions in the United States and        other countries in which the Company’s customers and suppliers are located; industry        conditions and trends; technology changes; competition and other factors which may affect        prices which the Company may charge for its products and its profit margins; the        availability and cost of the equipment purchased by the Company; relative values of the        United States currency to currencies in the countries in which the Company’s        customers, suppliers and competitors are located; changes in, or the failure to comply        with, government regulation, principally environmental regulations; and the Company’s        ability to successfully introduce, market and sell at acceptable profit margins its new        Green Jet® dry-wetcleaning machine and Multi-Jet® dry cleaning machine; the        Company’s ability to implement changes in its business strategies and development        plans; and the availability, terms and deployment of debt and equity capital if needed for        expansion. These and certain other factors are discussed in this Report and from time to        time in other Company reports filed with the Securities and Exchange Commission. The        Company does not assume an obligation to update the factors discussed in this Report or        such other reports.

**Item        3.     Controls and Procedures**

        As of the end of the period covered by this report, management of the Company, with the        participation of the Company’s President and principal executive officer and the        Company’s Treasurer and principal financial officer, evaluated the effectiveness of        the Company’s “disclosure controls and procedures,” as defined in Rule        13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, these        officers concluded that, as of the date of their evaluation, the Company’s disclosure        controls and procedures were effective to provide reasonable assurance that information        required to be disclosed in the Company’s periodic filings under the Securities        Exchange Act of 1934 is accumulated and communicated to the Company’s management,        including those officers, to allow timely decisions regarding required disclosure. It        should be noted that a control system, no matter how well designed and operated, can        provide only reasonable, not absolute, assurance that it will detect or uncover failures        within the Company to disclose material information otherwise required to be set forth the        Company’s periodic reports.

        During the period covered by this Report, there were no changes in the Company’s        internal control over financial reporting that have materially affected, or are reasonably        likely to materially affect, the Company’s internal control over financial        reporting.

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**PART II. OTHER INFORMATION**

**Item 6.          Exhibits**

        (a)                     Exhibits:

        31.01          Certification of principal        executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 promulgated        under the Securities Exchange Act of 1934.

        31.02          Certification of principal        financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 promulgated        under the Securities Exchange Act of 1934.

        32.01          Certification of Principal        Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

        32.02          Certification of Principal        Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

        SIGNATURES

        In accordance with the requirements of the Exchange Act, the registrant caused this report        to be signed on its behalf by the undersigned, thereunto duly authorized.

         

| Date: November 12, 2007 |  

                    DRYCLEAN USA, INC.

                     

                    By:  /s/ Venerando J.                    Indelicato               

                                    Venerando                    J. Indelicato,                                    Treasurer                    and Chief Financial Officer |
|-------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

 

         

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**Exhibit Index**

        31.01                 Certification of principal executive officer pursuant        to Section 302 of the Sarbanes-Oxley Act of 2002 promulgated under the Securities Exchange        Act of 1934.

        31.02                 Certification of principal financial officer pursuant        to Section 302 of the Sarbanes-Oxley Act of 2002 promulgated under the Securities Exchange        Act of 1934.

        32.01                 Certification of Principal Executive Officer pursuant        to Section 906 of the Sarbanes-Oxley Act of 2002.

        32.02                 Certification of Principal Financial Officer pursuant        to Section 906 of the Sarbanes-Oxley Act of 2002.

17