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 September 30, 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 November 8, 2006.

Transitional Small Business
Disclosure Format:  Yes  No

---

# PART I.   FINANCIAL
INFORMATION

# Item 1.   Financial
Statements

DRYCLEAN USA, Inc. and
SubsidiariesCondensed Consolidated Statements of Income

|                                                             
|-------------------------------------------------------------
|For the three months ended
September 30,                     
|2005
(Unaudited)                                             
|                                                             
|Net sales                                                    
|Development fees, franchise and license fees, commissions and
|other income                                                 
|                                                             
|Total revenues                                               
|                                                             
|Cost of sales                                                
|Selling, general and administrative expenses                 
|Research and development expenses                            
|                                                             
|                                                             
|                                                             
|Operating income                                             
|Interest income                                              
|                                                             
|Earnings before income taxes                                 
|Provision for income taxes                                   
|                                                             
|Net earnings                                                 
|                                                             
|                                                             
|Basic and diluted earnings per share (Note 2)                
|                                                             
|                                                             
|Weighted average number of shares:                           
|of common stock outstanding (Note 2)                         
|Basic                                                        
|Diluted                                                      
|                                                             

2

---

DRYCLEAN USA, Inc. and
SubsidiariesCondensed Consolidated Balance Sheets

# ASSETS

|                               
|-------------------------------
|June 30,
2006                  
|                               
|Current Assets                 
|Cash and cash equivalents      
|Accounts and trade notes       
|receivable, net                
|Inventories                    
|Deferred income taxes          
|Other current assets           
|                               
|Total current assets           
|                               
|Equipment and improvements, net
|                               
|Franchise, trademarks and other
|intangible assets, net         
|                               
|Deferred income taxes          
|                               
|                               
|                               
|                               

3

---

DRYCLEAN USA, Inc. and
Subsidiaries Condensed Consolidated Balance Sheets

# LIABILITIES AND
SHAREHOLDERS EQUITY

|                                               
|-----------------------------------------------
|June 30,
2006                                  
|                                               
|Current Liabilities                            
|Accounts payable and accrued expenses          
|Accrued employee expenses                      
|Unearned income                                
|Customer deposits                              
|Income taxes payable                           
|Dividends payable (Note 5)                     
|                                               
|                                               
|Total current liabilities                      
|                                               
|                                               
|Total liabilities                              
|                                               
|                                               
|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                               
|Additional paid-in capital                     
|Retained earnings                              
|Treasury stock, 31,050 shares at cost          
|                                               
|                                               
|Total shareholders' equity                     
|                                               
|                                               
|                                               
|                                               

4

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DRYCLEAN USA, Inc. and
Subsidiaries Condensed Consolidated Statements of Cash Flows

|                                                                 
|-----------------------------------------------------------------
|For the three months ended
September 30,                         
|2005
(Unaudited)                                                 
|                                                                 
|Operating activities:                                            
|Net earnings                                                     
|Adjustments to reconcile net earnings to net cash (used) provided
|by operating activities:                                         
|Depreciation and amortization                                    
|Bad debt expense                                                 
|(Increase) decrease in operating assets:                         
|Accounts, trade notes and lease receivables                      
|Inventories                                                      
|Other current assets                                             
|Increase (decrease) in operating liabilities:                    
|Accounts payable and accrued expenses                            
|Customer deposits and other                                      
|Income taxes payable                                             
|Unearned income                                                  
|Accrued employee expenses                                        
|                                                                 
|Net cash (used) provided by operating activities                 
|                                                                 
|                                                                 
|Investing activities:                                            
|Capital expenditures, net                                        
|Payments received on note receivable                             
|Patent and trademark expenditures                                
|                                                                 
|                                                                 
|Net cash (used) provided by investing activities                 
|                                                                 
|Net cash provided (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 disclosures of cash flow                            
|information                                                      
|Cash paid during the period for:                                 
|Income taxes                                                     
|Dividends declared but not yet paid                              

5

---

# 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, 2006. The June 30, 2006 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,
2006 and 2005 are computed as follows:

|                         | 
|------------------------ | 
|                        
|                         | 
|                         | 
|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 September 30, 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 September 30, 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 waiver 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
September 30, 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 September 30, 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 Statement of Financial Accounting Standards (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 quarter ended September 30, 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 quarter ended September 30, 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 three months ended September 30, 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        |  |  | Payment          | 
|Date               |  |  | Date             | 
|                   |  |  |                  | 
|September 26, 2006 |  |  | November 1, 2006 | 
|March 31, 2006     |  |  | May 1, 2006      | 
|September 23, 2005 |  |  | November 1, 2005 | 
|March 23, 2005     |  |  | May 2, 2005      | 
|September 27, 2004 |  |  | November 1, 2004 | 

7

---

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

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:

|                                                  
|--------------------------------------------------
|                                                  
|                                                  
|                                                  
|                                                  
|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                            
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|                                                  
|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 (the
Companys fiscal quarter ended March 31, 2006) for Small Business filers such as the
Company. SFAS 123(R) does not affect 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,
if any, FIN 48 will have on its financial statements.

In September 2006, the FASB issued
SFAS No. 157, Fair Value Measures (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 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
and September 30, 2005 consolidated financial statements have been reclassified to conform to the first quarter
of fiscal 2007 presentation.

9

---

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

# Overview

Revenue for the first quarter of
fiscal 2007 increased by $2,433,958 or 70.0% over the same period of fiscal 2006. While
these revenues were a record for any fiscal quarter, the disruption caused by Hurricane
Katrina to one of the Companys major suppliers during the first quarter of fiscal
2006 affected the comparability of revenues. The interruption in delivery of laundry
equipment severely affected sales during that and subsequent quarters in fiscal 2006.
Therefore, any comparison with the fiscal 2007 quarter will be skewed. However, despite
the reduction in sales in the first quarter of fiscal 2006, earnings can be looked at on a
comparable basis because commissions received last year by the Company from manufacturers
on sales made directly to the Companys customers offset the reduction in sales.
Therefore, a comparison of net earnings, which increased by $79,118 or 73.5%, is believed
more meaningful.

Cash on hand decreased by $271,996
during the quarter mostly due to a reduction in customer deposits caused by heavy
shipments from our backlog.

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

During the first quarter of fiscal
2007, cash decreased by $271,996 compared to an increase of $1,006,355 for the same period
of fiscal 2006. The following summarizes the Companys Consolidated Statement of Cash
Flows.

|                             |      | 
|---------------------------- | ---- | 
|2006                         | 2005
|                            
|Net cash (used) provided by: |      | 
|                             |      | 
|Operating activities         |      | 
|Investing activities         |      | 
|Financing activities         |      | 

For the three month period ended
September 30, 2006, operating activities used cash of $219,480 compared to cash of
$971,092 provided by operating activities during the same period of fiscal 2006. Although
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), it was offset by
$437,585 used as a result of changes in operating assets and liabilities during the three
month period ended September 30, 2006. The principal reasons for the decrease in cash used
as a result of changes in operating assets and liabilities was a decrease in customer
deposits ($425,815) due to heavy shipments in September 2006 from backlog, a decrease in
accrued employee expenses ($259,679), and an increase in inventories ($105,940), coupled
with increases in accounts, trade notes and lease receivables ($94,946) and other assets
($46,534) and decreases in income tax payable ($46,989) and unearned income ($20,693).
These uses were significantly offset by cash resulting from an increase in accounts
payable and accrued expenses whichprovided cash of

10

---

($563,011), principally caused by the
restocking of inventory for which payment was not due by quarter end.

The increase in cash provided by
operating activities for the three months ended September 30, 2005 derived principally
from a decrease in accounts, trade notes and lease receivables ($680,303) due principally
to the collection of outstanding receivables without commensurate sales to replenish
receivables as a result of Hurricane Katrina, an increase in customer deposits ($285,527)
resulting from increased backlog, and net earnings ($107,661). Non-cash expenses for
depreciation and amortization contributed cash of $30,381. Further cash was provided by a
decrease in inventories ($33,453) and an increase in income tax payable ($40,811). These
funds were offset by cash used as a result of an increase in other assets ($31,591) and
decreases in accounts payable and accrued expenses ($16,686), unearned income ($20,694)
and accrued employee expenses ($138,073).

Investing activities for the first
quarter of fiscal 2007 used cash of $52,516 for capital expenditures. Cash of $35,263 was
provided during the first quarter of fiscal 2006 mainly as a result of payments received
on a note from the sale of the Companys telecommunications segment ($39,285), which
was partially offset by expenditures for capital equipment ($2,714) and patent and
trademark work ($1,308).

There were no financing activities
during the first quarters of fiscal 2007 and 2006.

A table of Company declared 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 waiver 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 September 30, 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 our $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.

11

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# Results of Operations

|                                | Three Months Ended September 30, |      |  
|------------------------------- | -------------------------------- | ---- | -
|                                | 2006                             | 2005 |  
|                               
|Net sales                       |                                  |      | $
|Development fees, franchise and |                                  |     
|license fees, commissions and   |                                  |     
|other income                    |                                  |      |  
|                               
|Total revenues                  |                                  |      | $

Revenues for the three month period
ended September 30, 2006 increased by $2,433,958 (70.0%) from the same period of fiscal
2006 to a quarterly record of $5,912,198. The increase was mostly attributable to
increased revenue in the commercial laundry and dry cleaning segment, which increased by
$2,473,031 (73.0%), offset, in part by a $39,073 (43.0%) decrease in the license and
franchise segment. Net sales increased by $2,614,937 (82.3%), mostly due to the increases
in sales of commercial laundry equipment (195.0%), as well as increases in sales of dry
cleaning equipment (85.4%), boilers (90.9%) and spare parts (1.9%). As explained in
Overview, above, comparative sales information is skewed due to the effects of
Hurricane Katrina that disrupted shipments from one of our major laundry equipment
suppliers which is located near New Orleans in fiscal 2006 beginning in the first quarter.
Development fees, franchise and license fees, commissions and other income decreased by
$180,439 (59.6%) due to a reduction in license fees as fewer franchises were established
in the fiscal 2007 period than in the fiscal 2006 period, a reduction in commissions paid
to the Company by manufacturers which ship directly to the Companys customers and a
reduction in miscellaneous revenues.

|                                             | Three Months Ended September 30, |     
|-------------------------------------------- | -------------------------------- | ----
|                                             | 2006                             | 2005
|                                            
|As a percentage of net sales:                |                                  |     
|Cost of sales                                |                                  |     
|                                            
|As a percentage of revenues:                 |                                  |     
|Selling, general and administrative expenses |                                  |     
|Research and development                     |                                  |     
|Total expenses                               |                                  |     

Cost of goods sold, expressed as a
percentage of sales, increased to 77.7% from 74.3% for the three months ended September
30, 2006 compared to the same period of fiscal 2006. The increase was mostly due to larger
contract sales which carry a smaller margin.

Selling, general and administrative
expenses increased by $191,532 (20.2%), but as a percentage of revenues decreased to 19.3%
from 27.2% in the first quarter of fiscal 2007 from the same period in fiscal 2006, as the
larger volume of sales was better able to absorb these expenses. The largest dollar
increase was experienced in payroll expenses, which climbed by 31.1% to accommodate the
increased sales commissions resulting from the increased sales level. All other categories
of expenses were in line with fiscal 2006.

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.

12

---

The overall expenses of the Company,
as a percentage of revenues, increased slightly to 95.5% in the first quarter of fiscal
2007 from 95.1% for the same period of fiscal 2006. Smaller margins in cost of goods sold
were offset by the better absorbed selling and administrative expenses due to the
increased volume of sales.

Interest income increased by $33,878
(792.7%) for the first quarter of fiscal 2007 compared to the same period of fiscal 2006
due to interest received on higher bank balances and an increase in interest rate.

The effective tax rate used for both
quarters of fiscal 2007 and 2006 was 38%.

# 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 William K. Steiner, a principal shareholder, Chairman
of the Board of Directors and a director of the Company. The Company and Mr. Steiner
entered into a new lease for this facility on September 9, 2005 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 bears 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.

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 us 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) Share-Based
Payment (SFAS 123 (R));.  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

13

---

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 (the
Companys fiscal quarter ended March 31, 2006) for Small Business filers such as the
Company. SFAS 123(R) does not affect 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,
if any, FIN 48 will have on its financial statements.

In September 2006, the FASB issued
SFAS No. 157, Fair Value Measures (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 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 and suppliers are
located; industry conditions and trends; technology changes; competition and other factors
which may affect prices which the Company may charge

14

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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.

15

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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 10, 2006 |     | 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