SECURITIES AND EXCHANGE
COMMISSION

Washington, D. C. 20549

FORM 10-QSB

| |  | QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For
the quarterly period ended December 31, 2006
| |  | ---------------------------------------------------------------------------------------------------------------------------------

| | OR
| | --

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

| | Commission file 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
incorporation or organization) | (I.R.S. Employer
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   No .

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

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  7,034,450
shares outstanding as of February 9, 2007.

Transitional
Small Business Disclosure Format:  Yes
 No

---

# PART 1.   FINANCIAL
INFORMATION

# Item 1.   Financial
Statements

DRYCLEAN USA, Inc. 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

|                                        
|----------------------------------------
|                                        
|                                        
|                                        
|                                        
|Sales                                   
|Development, franchise and license fees,
|commissions and other income            
|                                        
|Total revenues                          
|                                        
|Cost of goods sold                      
|Selling, general and                    
|administrative expenses                 
|Research and development                
|                                        
|Total operating expenses                
|                                        
|                                        
|Operating income                        
|Interest income                         
|                                        
|                                        
|Earnings before taxes                   
|Provision for income taxes              
|                                        
|                                        
|Net earnings                            
|                                        
|                                        
|Basic and diluted earnings per share    
|                                        
|                                        
|Weighted average number of shares       
|Basic                                   
|Diluted                                 
|                                        

See Notes to Condensed
Consolidated Financial Statements

2

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DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

|                                                      
|------------------------------------------------------
|                                                      
|                                                      
|Current Assets                                        
|Cash and cash equivalents                             
|Accounts receivable, net                              
|Inventories                                           
|Deferred income taxes                                 
|Other assets, net                                     
|                                                      
|Total current assets                                  
|                                                      
|Equipment and improvements - net of                   
|accumulated depreciation and amortization             
|Franchise, trademarks and other intangible assets, net
|Deferred tax asset                                    
|                                                      
|                                                      
|                                                      
|                                                      

See Notes to Condensed
Consolidated Financial Statements

3

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DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND
SHAREHOLDERSEQUITY

|                                                     
|-----------------------------------------------------
|                                                     
|                                                     
|Current Liabilities                                  
|Accounts payable and accrued expenses                
|Income taxes payable                                 
|Accrued employee expenses                            
|Unearned income                                      
|Customer deposits                                    
|                                                     
|Total current liabilities                            
|                                                     
|Total liabilities                                    
|                                                     
|Shareholders' Equity                                 
|Preferred Stock, $1.00 par value:                    
|Authorized shares - 200,000; none issued             
|and outstanding                                      
|Common stock, $.025 par value; Authorized shares -   
|15,000,000; 7,065,500, shares issued and outstanding,
|including shares held in treasury                    
|Additional paid-in capital                           
|Retained earnings                                    
|Treasury stock, 31,050 shares at cost                
|                                                     
|Total shareholders' equity                           
|                                                     
|                                                     
|                                                     

See Notes to Condensed
Consolidated Financial Statements

4

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DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                        
|--------------------------------------------------------
|                                                        
|                                                        
|                                                        
|Operating activities:                                   
|Net earnings                                            
|Adjustments to reconcile net earnings to net cash (used)
|provided by operating activities:                       
|Bad debt expense                                        
|Depreciation and amortization                           
|(Increase) decrease in operating assets:                
|Accounts receivable                                     
|Inventories                                             
|Other current assets                                    
|Deferred income taxes                                   
|Increase (decrease) in operating liabilities:           
|Accounts payable and accrued expenses                   
|Accrued employee expenses                               
|Unearned income                                         
|Customer deposits                                       
|Income taxes payable                                    
|                                                        
|                                                        
|Net cash provided by operating activities               
|                                                        
|                                                        
|Investing activities:                                   
|Proceeds from note receivable                           
|Capital expenditures                                    
|Patent and trademark expenditures                       
|                                                        
|Net cash (used) provided by investing activities        
|                                                        
|                                                        
|Financing activities:                                   
|Dividends paid                                          
|                                                        
|                                                        
|Net cash used by financing activities                   
|                                                        
|Net (decrease) increase in cash and cash equivalents    
|Cash and cash equivalents at beginning of period        
|                                                        
|Cash and cash equivalents at end of period              
|                                                        
|                                                        
|Supplemental information:                               
|Cash paid for income taxes                              

See Notes to Condensed
Consolidated Financial Statements

5

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# DRYCLEAN USA, Inc.

# 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
consolidated financial statements and footnotes thereto included in the Companys
Annual Report on Form 10-KSB for the year ended June 30, 2006. The June 30, 2006
consolidated 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 and six months ended December 31, 2006
and 2005 are computed as follows:

|                         | For the six months ended
December 31, | For the three months ended
December 31,
|------------------------ | ------------------------------------- | ---------------------------------------
|                        
|                         | 2006                                  | 2005                                   
|                        
|Basic                    |                                       |                                        
|Net earnings             |                                       |                                        
|Weighted average shares  |                                       |                                        
|Outstanding              |                                       |                                        
|                        
|Basic earnings per share |                                       |                                        
|                        
|Diluted                  |                                       |                                        
|Net earnings             |                                       |                                        
|Weighted average shares  |                                       |                                        
|outstanding              |                                       |                                        
|Plus incremental shares  |                                       |                                        
|from assumed exercise of |                                       |                                        
|stock options            |                                       |                                        
|                        
|Diluted weighted average |                                       |                                        
|common shares            |                                       |                                        
|                        
|Diluted earnings per     |                                       |                                        
|share                    |                                       |                                        
|                        

At December 31, 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. No options were excluded at December 31, 2005.

6

---

Note (3)  Revolving Credit
Line: On October 30, 2006, the Company received an extension until October 30, 2007 of
its existing $2,250,000 revolving line of credit facility. In addition, the related Loan
Agreement was amended to waive the requirement that the Company maintain windstorm
insurance coverage, thereby enabling the Company to self insure against wind damage. On
October 30, 2005, the Company received a similar one year extension and the Loan Agreement
was amended to eliminate the requirement that 51% of the stock of the Company be owned by
the Steiner family or any Steiner trust. 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 at December 31, 2006 and June 30, 2006.

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 December 31, 2006. 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, Accounting Principles Board, 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 after December 15, 2005 and to grants that
were outstanding on December 31, 2005 to the extent not yet vested. Since no new options
were granted during the six months ended December 31, 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 six months ended December 31, 2006. Prior periods
are not required to be restated to reflect the impact of adopting the new standard. No
compensation cost would have been recognized under the provisions of SFAS 123(R) had SFAS
123(R) been in effect as to the Company during any of the periods reported in this Report.

There were no options granted during
the six months ended December 31, 2006. In April 2006, a director exercised an option to
purchase 10,000 shares of the Companys common stock at an exercise price of $.90625
per share.

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 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     | 
|March 23, 2005     |  | May 2, 2005      |  | April 15, 2005   |  | $   .035         |  | $245,857     | 
|September 27, 2004 |  | November 1, 2004 |  | October 15, 2004 |  | $    .06         |  | $421,467     | 

Beginning
with the dividend declared on March 23, 2005, the Company changed from an annual to a
semi-annual dividend schedule.

7

---

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 six months ended
December 31, | For the three months ended
December 31,
|------------------------------------- | ------------------------------------- | ---------------------------------------
|                                      | 2006                                  | 2005                                   
|                                      | (Unaudited)                           | (Unaudited)                            
|                                     
|Revenues:                             |                                       |                                        
|Commercial and industrial laundry and |                                       |                                        
|dry cleaning equipment                |                                       |                                        
|License and franchise operations      |                                       |                                        
|                                     
|Total revenues                        |                                       |                                        
|                                     
|                                      |                                       |                                        
|Operating income (loss)               |                                       |                                        
|Commercial and industrial laundry and |                                       |                                        
|dry cleaning equipment                |                                       |                                        
|License and franchise operations      |                                       |                                        
|Corporate                             |                                       |                                        
|                                     
|Total operating income                |                                       |                                        
|                                     

|                                                             | December 31, 2006
(Unaudited) | June 30, 2006
|------------------------------------------------------------ | ----------------------------- | -------------
|                                                            
|Identifiable assets:                                         |                               |              
|Commercial and industrial laundry and dry cleaning equipment |                               |              
|License and franchise operations                             |                               |              
|Corporate                                                    |                               |              
|                                                            
|Total assets                                                 |                               |              
|                                                            

8

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# New Accounting
Pronouncements

In December 2004, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 123 (Revised 2004) (SFAS 123(R)) Share-Based
Payment. SFAS 123(R) replaces FASB 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS 123(R) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited exceptions, the
amount of compensation cost is measured based on the grant-date fair value of the equity
or liability instruments issued. In addition, liability awards are to be re-measured each
reporting period. Compensation cost is recognized over the period that an employee
provides service in exchange for the award. This guidance became effective as of the first
interim or annual reporting period beginning after December 15, 2005 for Small
Business filers such as the Company. SFAS 123(R) has not affected the Company at the
present time but may affect the Company if it issues share-based compensation in the
future.

In June 2006, the 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 and the Company is evaluating the effect FIN 48
will have on its consolidated financial statements.

In September 2006, the FASB issued
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 and interim periods.
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.

# Reclassification

Certain items in the June 30, 2006
consolidated financial statements have been reclassified to conform to the three and six
month periods of the fiscal 2007 presentation.

9



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# Item 2:   
Managements Discussion and Analysis or Plan of Operations

# Overview

Revenues for the six and three month
periods ended December 31, 2006, increased by 42.3% and 22.5%, respectively, over the same
periods of fiscal 2006. Both periods have set new records for the Company. Although fiscal
2006 was affected by Hurricanes Katrina and Wilma, a substantial portion of the scheduled shipments were
shipped by December 31, 2005, making the six month comparison more meaningful than
comparisons for the second quarter.

While net earnings for the six month
period improved, earnings decreased for the second quarter, mostly due to lower margins on
larger contracts and higher commission and payroll expenses. The Company is working to
improve its margins on future contracts and still be competitive and improve its market
share.

Cash on hand continues to be
substantial, enabling the Company to increase its interest income. The Company recently
invested some of its extra cash into a money market account to generate a high rate of
return.

Incoming business remains at a
positive pace. To support this activity, we have substantially increased inventories.

On September 26, 2006, the Board of
Directors declared a $.04 per share semi-annual dividend (an aggregate of $281,378)
payable on November 1, 2006 to shareholders of record on October 13, 2006.

# Liquidity and Capital
Resources

Cash decreased by $32,190 during the
first six months of fiscal 2007 compared to an increase of $966,900 for the same period of
fiscal 2006. The following summarizes the Companys Consolidated Statement of Cash
Flows:

|                             | Six Months Ended December 31,
|---------------------------- | -----------------------------
|                             | 2006                         
|                            
|Net cash (used) provided by: |                              
|Operating activities         |                              
|Investing activities         |                              
|Financing activities         |                              

For the six months ended December 31,
2006, operating activities provided cash of $329,157, compared to $1,185,442 provided by
operating activities for the first six months of fiscal 2006. The comparative reduction
was mainly due to a substantial increase in customer deposits in fiscal 2006 ($730,811)
due to receipt of certain large orders, compared to a smaller increase ($97,552) in
customer deposits in fiscal 2007. The increase for both years reflects continued positive
business activity. Cash generated from operating activities during the first six months of
2007 was provided by the Companys net earnings of $429,958 and non-cash expenses for
depreciation and amortization of $59,942 and bad debts of $10,538. This cash was offset by
a net of $171,281 used as a result of changes in operating assets and liabilities. Cash
used for operating assets and liabilities resulted mainly from increases in inventories
($589,094) and accounts receivable ($309,775) and lower accrued employee expenses
($117,108), partially offset by cash generated from an increase in accounts payable and
accrued expenses ($717,061) and a decrease in other current assets ($97,273). The increase
in inventories was to support increased orders and the increase in accounts payable
related primarily to inventories purchased but not yet paid for.

10



---

During the first six months of fiscal
2006, the Company generated cash through net earnings of $381,206 and non-cash expenses
for depreciation and amortization of $70,375, together with changes in operating assets
and liabilities of $733,861. The increase in assets and liabilities was mostly due to an
increase in customer deposits ($730,811), an increase in income taxes payable ($208,468)
and an increase in accounts payable and accrued expenses ($343,523). These increases were
offset by changes in accounts receivable ($216,669), inventories ($213,969) and other
current assets ($79,348).

Investing activities for the first
six months of fiscal 2007 used cash of $79,969 for capital expenditures of machinery and
equipment and leasehold improvements. For the first six months of fiscal 2006 investing
activities provided cash of $62,436, mainly as a result of payments received on a note
from the sale of the Companys telecommunications segment ($67,857), which note was
fully paid in November 2005. Capital expenditures of $4,113 and patent and trademark
expenses of $1,308 partially offset the proceeds received from the note receivable.

Financing activities used cash of
$281,378 and $280,978 for the six month periods ended December 31, 2006 and 2005,
respectively, to pay cash dividends. A table of declared and paid dividends is listed in
Note 5 of the Notes to Condensed Consolidated Financial Statements.

On October 30, 2006, the Company
received an extension until October 30, 2007 of its existing $2,250,000 revolving line of
credit facility. In addition, the related Loan Agreement was amended to waive the
requirement that the Company maintain windstorm insurance coverage, thereby enabling the
Company to self insure against wind damage. On October 30, 2005, the Company received a
similar one year extension and the Loan Agreement was amended to eliminate the requirement
that 51% of the stock of the Company be owned by the Steiner family or any Steiner trust.
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 at December 31, 2006 and
June 30, 2006.

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 line of credit, 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

|                      | Six months ended
December 31, |      | Three months ended
December 31, |           
|--------------------- | ----------------------------- | ---- | ------------------------------- | ----------
|                     
|                      | 2006                          | 2005 |                                 | 2006      
|                     
|Net sales             |                               |      | $                               | 11,957,217
|Development fees,     |                               |     
|franchise and license |                               |     
|fees, commissions and |                               |     
|other income          |                               |      |                                 | 297,783   
|                     
|Total revenues        |                               |      | $                               | 12,255,000

Revenues for the six and three month periods
ended December 31, 2006 increased by $3,643,804 (42.3%) and $1,165,906 (22.5%),
respectively, over the same periods of fiscal 2006.

11



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For the first half of fiscal 2007,
sales increased by $3,872,383 (47.9%) over the same period of fiscal 2006. Increases were
across all product lines, as commercial laundry equipment increased by 80.3%, dry cleaning
equipment by 19.3%, boilers by 43.1% and spare parts by 4.5%. For the three month period
ended December 31, 2006, sales increased by $1,214,046 (24.5%). Increases were achieved in
sales of commercial laundry equipment (36.4%), boilers (9.8%) and spare parts (7.0%).
These increases were partially offset by a decrease in sales of dry cleaning equipment
(28.4%). The increase in both periods can be attributed to better pricing to attract
larger contracts and improve volume and market share. As noted in the Overview
above, comparative sales information for the quarterly periods considered alone can be
misleading due to the effects of the hurricanes; however, sales comparisons for the six
month period in the aggregate is more meaningful.

Development fees, franchise and
license fees, commissions and other income decreased by $228,579 (43.4%) and $48,140
(21.5%) for the first six and three month periods, respectively, of fiscal 2007, from the
same periods of fiscal 2006. The comparative decreases for the six month period were
principally due to commissions paid to the Company in fiscal 2006 by manufacturers which
shipped equipment during that period directly to our customers, and for the three month
period of fiscal 2006 was due to higher brokerage fees than fiscal 2007.

|                           | Six months ended
December 31, | Three months ended
December 31,
|-------------------------- | ----------------------------- | -------------------------------
|                           | 2006                          | 2005                           
|                          
|As a percentage of sales   |                               |                                
|Cost of goods sold         |                               |                                
|                           |                               |                                
|As a percentage of revenue |                               |                                
|Selling, general and       |                               |                                
|administrative expenses    |                               |                                
|Research and development   |                               |                                
|Total expenses             |                               |                                

Costs of goods sold, expressed as a
percentage of sales, increased to 77.8% from 73.4% and to 77.8% from 73.1% for the six and
three month periods, respectively, of fiscal 2007 from the same periods of fiscal 2006.
The increases for both periods were due to larger contract sales which carry a smaller
margin but increase overall profitability.

Selling, general and administrative
expenses increased by $246,562 (11.9%) and $55,030 (4.9%) for the six and three month
periods, respectively, of fiscal 2007 from the same periods in fiscal 2006, primarily as a
result of increased payroll and commission expense associated with increased sales.
However, as a percentage of revenues these same costs decreased to 18.9% from 24.1% and
18.6% from 21.7%, mostly due to the higher volume of sales which was better able to absorb
these expenses.

Research and development expenses are
a small part of the Companys total operating expenses and relate to on-going
research on the Companys dry cleaning machines.

The overall expenses of the Company,
expressed as a percentage of revenues, increased to 95.0% from 93.1% and 94.5% from 91.8%
for the six and three month periods, respectively, of fiscal 2007 from the same periods of
fiscal 2006. These changes are mostly attributable to the lower gross profit margins for
both periods, partially offset by the better absorbed selling and administrative expenses
due to the increased volume of sales.

Interest income increased by $59,514
(282.5%) and $25,636 (152.7%) for the six and three month periods of fiscal 2007,
respectively, compared to the same periods of fiscal 2006 as a result of higher
outstanding bank balances and increased prevailing interest rates.

12



---

The effective income tax rate was
approximately 38% for all periods of fiscal 2007 and 2006.

# 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, the wife of William K. Steiner, a
principal shareholder, Chairman of the Board of Directors and a director of the Company.
Mr. Steiner transferred the facility to his wife in October 2006. The lease
provides for a three-year term that commenced on 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 bears real estate taxes, utilities, maintenance, non-structural
repairs and insurance. The 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.

# Critical Accounting
Policies

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 are described in detail in the Companys
Annual Report on Form 10-KSB for the fiscal year ended June 30, 2006. In many cases, the
accounting treatment of a particular transaction is specifically dictated by accounting
principles generally accepted in the United States of America, with no need for
managements judgment in their application. In other cases, preparation of the
Companys unaudited condensed consolidated financial statements for interim periods
requires the Company to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during the
reported period. There can be no assurance that the actual results will not differ from
those estimates.

# New Accounting
Pronouncements:

In December 2004, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 123 (Revised 2004) (SFAS 123(R)) Share-Based
Payment. SFAS 123(R) replaces FASB 123, Accounting for Stock-Based
Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS 123(R) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited exceptions, the
amount of compensation cost is measured based on the grant-date fair value of the equity
or liability instruments issued. In addition, liability awards are to be re-measured each
reporting period. Compensation cost is recognized over the period that an employee
provides service in exchange for the award. This guidance became effective as of the first
interim or annual reporting period beginning after December 15, 2005 for Small
Business filers such as the Company. SFAS 123(R) has not affected the Company at the
present time but may affect the Company if it issues share-based compensation in the
future.

In June 2006, the 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 of that may be recorded.  FIN 48 is effective for
fiscal years beginning after December 15, 2006 and the Company is evaluating the effect
FIN 48 will have on its consolidated financial statements.

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In September 2006, the FASB issued
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 and interim periods.
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.

# 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 are located; industry conditions and trends, including supply and
demand; changes in business strategies or development plans; the availability, terms and
deployment of debt and equity capital; 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. 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 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,

14



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not absolute, assurance that it will
detect or uncover failures within the Company to disclose material information otherwise
required to be set forth in 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.

15



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# PART II.   OTHER
INFORMATION

# Item 4.   Submission
of Matters to a Vote of Securityholders.

At the Companys 2006 Annual
Meeting of Stockholders held on November 10, 2006, the Companys stockholders
reelected the Companys then existing Board of Directors by the following votes:

|                        | Votes |         
|----------------------- | ----- | --------
|                        | For   | Withheld
|Michael S. Steiner      |       |         
|William K. Steiner      |       |         
|Venerando J. Indelicato |       |         
|David Blyer             |       |         
|Lloyd Frank             |       |         
|Alan Grunspan           |       |         
|Stuart Wagner           |       |         

# 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:  February 9, 2007 | DRYCLEAN USA, Inc.                   
|                       
|                       
|                       
|                        | By: /s/ Venerando J. Indelicato      
|                        | Venerando J. Indelicato,             
|                        | Treasurer and Chief Financial Officer

16

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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