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 March 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 1-14757
| | ------------------------------

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 May 12, 2006.

Transitional
Small Business Disclosure Format: Yes
 No

---

# PART 1. FINANCIAL INFORMATION

# Item 1. Financial
Statements

DRYCLEAN USA, Inc
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

---

|                                              | For the nine months ended
March 31, | For the three months ended
March 31,
|--------------------------------------------- | ----------------------------------- | ------------------------------------
|
|
|Net sales                                     |                                     | $13,677,008                         
|Development fees, franchise and license fees, |                                    
|commissions and other                         |                                     | 712,731                             
|                                             
|Total revenues                                |                                     | 14,389,739                          
|Cost of goods sold                            |                                     | 10,300,119                          
|Selling, general and administrative expenses  |                                     | 3,130,320                           
|Research and development                      |                                     | 22,180                              
|                                             
|Total operating expenses                      |                                     | 13,452,619                          
|                                             
|Operating income                              |                                     | 937,120                             
|Interest income                               |                                     | 48,061                              
|                                             
|Earnings before taxes                         |                                     | 985,181                             
|Provision for income taxes                    |                                     | 374,368                             
|                                             
|Net earnings                                  |                                     | $     610,813                       
|                                             
|                                             
|Basic and diluted earnings per share          |                                     | $            .09                    
|                                             
|Weighted average number of shares             |                                    
|Basic                                         |                                     | 7,024,450                           
|Diluted                                       |                                     | 7,033,495                           
|                                             

See Notes to Condensed
Consolidated Financial Statements

2

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DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS

# ASSETS

---

|                                                       | March 31,
2006
(Unaudited) | June 30,
2005
|------------------------------------------------------ | -------------------------- | -------------
|Current Assets                                         |                            |              
|Cash and cash equivalents                              |                            | $2,186,103   
|Accounts and trade notes receivable, net               |                            | 1,789,697    
|Inventories                                            |                            | 3,429,841    
|Note receivable                                        |                            | -            
|Lease receivables                                      |                            | 1,131        
|Deferred income taxes                                  |                            | 103,031      
|Other assets, net                                      |                            | 117,024      
|                                                      
|Total current assets                                   |                            | 7,626,827    
|Equipment and improvements - net of                    |                           
|accumulated depreciation and amortization              |                            | 229,455      
|Franchise, trademarks and other intangible assets, net |                            | 325,116      
|Deferred tax asset                                     |                            | 10,248       
|                                                      
|                                                       |                            | $8,191,646   
|                                                      

See Notes to Condensed
Consolidated Financial Statements

3

---

DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS

# LIABILITIES AND
SHAREHOLDERS EQUITY

---

|                                                      | March 31,
2006
(Unaudited) | June 30,
2005
|----------------------------------------------------- | -------------------------- | -------------
|Current Liabilities                                   |                            |              
|Accounts payable and accrued expenses                 |                            | $    848,071 
|Income taxes payable                                  |                            | 55,940       
|Accrued employee expenses                             |                            | 177,453      
|Unearned income                                       |                            | 227,631      
|Customer deposits                                     |                            | 853,738      
|Dividends payable                                     |                            | 281,378      
|                                                     
|Total current liabilities                             |                            | 2,444,211    
|Total liabilities                                     |                            | 2,444,211    
|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; 7,055,500, shares issued and outstanding, |                           
|including shares held in treasury                     |                            | 176,388      
|Additional paid-in capital                            |                            | 2,075,870    
|Retained earnings                                     |                            | 3,498,197    
|Treasury stock, 31,050 shares at cost                 |                            | (3,020       
|                                                     
|Total shareholders' equity                            |                            | 5,747,435    
|                                                     
|                                                      |                            | $ 8,191,646  
|                                                     

See Notes to Condensed
Consolidated Financial Statements

4

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DRYCLEAN USA, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

---

|                                                         | Nine months ended
|-------------------------------------------------------- | -----------------
|
|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, trade notes and lease receivables              |                  
|Inventories                                              |                  
|Other current assets                                     |                  
|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 provided by investing activities                |                  
|                                                        
|Financing activities:                                    |                  
|Dividends paid                                           |                  
|Proceeds from exercise of stock options                  |                  
|                                                        
|Net cash used by financing activities                    |                  
|                                                        
|Net 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                               |                  
|Dividend declared but not paid                           |                  

See Notes to Condensed
Consolidated Financial Statements

5

---

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

|                         | For the nine months ended
March 31, | For the three months ended
March 31,
|------------------------ | ----------------------------------- | ------------------------------------
|
|Basic                    |                                     |                                     
|Net earnings             |                                     | $   610,813                         
|Weighted average shares  |                                    
|outstanding              |                                     | 7,024,450                           
|                        
|Basic earnings per share |                                     | $          .09                      
|                        
|Diluted                  |                                    
|Net earnings             |                                     | $   610,813                         
|Weighted average shares  |                                    
|outstanding              |                                     | 7,024,450                           
|Plus incremental shares  |                                    
|from assumed exercise of |                                    
|stock options            |                                     | 9,045                               
|                        
|Diluted weighted average |                                    
|common shares            |                                     | 7,033,495                           
|                        
|Diluted earnings per     |                                    
|share                    |                                     | $          .09                      
|                        

No shares subject to stock options
were excluded at March 31, 2006 or 2005.

6

---

Note (3)  Revolving Credit
Line:On October 30, 2005, the Company received an extension, until October 30, 2006,
of its existing $2,250,000 revolving line of credit facility. In addition, the related
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. On October 28, 2004, the Loan
Agreement was amended to eliminate the borrowing base restriction on borrowings under the
revolving credit facility, thereby enabling the Company to borrow up to the full
$2,250,000 amount available under the facility regardless of the Companys levels of
accounts receivable and inventories. The Companys obligations under the facility are
guaranteed by the Companys subsidiaries and collateralized by substantially all of
the Companys and its subsidiaries assets. No amounts were outstanding at March
31, 2006 and June 30, 2005.

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 March 31, 2006. The 1994 Non-Employee
Director Stock Option Plan terminated as to future grants on August 23, 2004, but options
to purchase 30,000 shares remain outstanding thereunder.

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

Under the modified prospective
approach, SFAS 123(R) applies to new grants and to grants that were outstanding on
December 31, 2005 to the extent not yet vested. Since no new options were granted during
the quarter ended March 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 quarter ended March 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
either the nine months ended March 31, 2006 or the nine months ended March 31, 2005. In
August 2004, a director exercised an option to purchase 10,000 shares of the
Companys common stock at an exercise price of $1.00 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.

|DeclarationDate    | PaymentDate      | RecordDate       | Per ShareAmount | TotalAmount
|------------------ | ---------------- | ---------------- | --------------- | -----------
|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 nine months ended
March 31, | For the three months ended
March 31,
|------------------------------------- | ----------------------------------- | ------------------------------------
|
|
|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                |                                     |                                     
|                                     

|                                      | March 31, 2006
(Unaudited) | June 30, 2005
|------------------------------------- | -------------------------- | -------------
|Identifiable assets:                  |                            |              
|Commercial and industrial laundry and |                           
|dry cleaning equipment                |                            | $7,631,305   
|License and franchise operations      |                            | 413,712      
|Corporate                             |                            | 146,629      
|                                     
|Total assets                          |                            | $8,191,646   
|                                     

During the nine months ended March
31, 2006, one customer accounted for 19.4% of the Companys revenues.

Note (7) 
Reclassification: Certain items in the financial statements presented have been
reclassified to conform to the 2006 presentation.

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) Share-based payment, (SFAS
123(R)). SFAS 123(R) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. This guidance became effective
for the Company with the quarter ended March 31, 2006. With limited exceptions, the amount
of compensation cost is now 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 to be recognized over the period that an employee
provides service in exchange for the award. SFAS 123(R) did not effect the Company for any
of the reported periods since no stock options were granted during the quarter ended March
31, 2006 and all outstanding options were fully vested at December 31, 2005.SFAS
123(R) may effect the Company in the future if it issues share-based compensation. SFAS
123(R) replaced SFAS 123, Accounting for Stock-Based Compensation and
supersedes Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to
Employees. Under Accounting Principles Board Opinion No. 25 (APB Opinion No.
25), because the exercise price of stock options granted by the Company equaled or
exceeded the market price of the underlying stock on the date of grant, no compensation
cost had been recognized.

In December 2004, the FASB issued
FASB Statement No.151, Inventory Costs, which clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Under this Statement, such items will be recognized as current-period charges.
In addition, the Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production facilities. This
Statement is effective for inventory costs incurred during fiscal years beginning after
June 15, 2005 and must be applied prospectively. Adoption of this statement is not
expected to impact the Companys financial position or results of operations because
the Company does not manufacture inventory.

In December 2004, the FASB issued
SFAS No. 153, Exchanges of Nonmonetary Assets, which amends APB Opinion No.
29, Accounting for Nonmonetary Transactions. The amendments made by SFAS 153
are based on the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged. Further, the amendments eliminate the narrow
exception for nonmonetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange of a
productive asset for a similar productive asset or an equivalent interest in the same or
similar productive asset should be based on the recorded amount of the asset relinquished.
The provisions in SFAS 153 are effective for nonmonetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005. Adoption of this pronouncement will not
materially impact the Companys financial position or results of operations.

In May 2005, the FASB issued SFAS No.
154, Accounting Changes and Error Corrections  A Replacement of APB No. 20 and
FASB Statement No. 3. Among other changes, SFAS 154 requires that a voluntary change
in accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is impracticable to do so.
SFAS 154 also provides that (1) a change in method of depreciating or amortizing a
long-lived nonfinancial asset be accounted for as a change in estimate (prospectively)
that was effected by a change in accounting principle, and (2) correction of errors in
previously issued financial statements should be termed a restatement. The new
standard is effective for accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005. Early adoption of this standard is permitted for
accounting changes and correction of errors made in fiscal years beginning after June 1,
2005. Adoption of this pronouncement is not expected to materially impact the Company.

9

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

# Overview

Net sales increased by 3.1% for the
nine months and 28.3% for the three months ended March 31, 2006 over the prior fiscal
years comparable periods, reflecting an increase in laundry equipment sales and, in
addition, for the three month period, a catch-up in shipments due to shipment delays
encountered as a result of Hurricanes Katrina and Wilma. The Companys New Orleans
supplier continues to increase its production and it is now making shipments in a timely
manner. Both fiscal 2006 reported periods reflect higher commission income earned on
shipments made by a manufacturer directly to our customer. The dollar value of these
product shipments are not included in the Companys revenues. Primarily as a result
of the higher total revenues, net earnings increased by 14.7% and 44.4% for the nine and
three month periods, respectively, over the prior fiscal years comparable periods.

Inventories have stabilized over the
last nine months; however, they are higher than at fiscal year end in order to accommodate
increased shipments and backlog.

The Company continues to generate a
strong cash flow enabling the Board of Directors to declare a $.04 per share semi-annual
dividend (an aggregate of $281,378), payable on May 1, 2006 to shareholders of record on
April 14, 2006.

# Liquidity and Capital
Resources

Cash increased by $603,987 during the
first nine months of fiscal 2006 compared to an increase of $228,586 for the same period
of fiscal 2005. The following summarizes the Companys Condensed Consolidated
Statement of Cash Flows:

|                             | Nine Months Ended March 31,
|---------------------------- | ---------------------------
|
|Net cash (used) provided by: |                            
|Operating activities         | $ 869,337                  
|Investing activities         | 15,628                     
|Financing activities         | (280,978)                  

For the nine months ended March 31,
2006, operating activities provided cash of $869,337 compared to $609,432 for the nine
months ended March 31, 2005. The improvement of $259,905 over the same period of last year
was caused primarily by the improvement in net earnings of $78,165 (and an $8,477 increase
in non-cash expenses) coupled with changes in operating assets and liabilities that
produced an additional increase in cash of $141,005 in the nine months ended March 31,
2006 compared to a decrease in cash of $32,258 in the nine months ended March 31, 2005.
The principal reason for the increase in cash contributed by changes in operating assets
and operating liabilities in the fiscal 2006 nine month period was a decrease of $158,186
in accounts, trade notes and lease receivables (compared to an increase of $79,727 in the
prior years comparable period). The decrease occurred despite the improved sales
due, in large part, to the direct application of higher customer deposits that had
accumulated as a result of the delayed shipments caused by the hurricanes. Inventories
increased by $339,824 during the nine month period of fiscal 2006 compared to an increase
of $122,362 for the same period of 2005 to accommodate the higher sales and backlog. The
cumulative increase in accounts payable and accrued expenses and accrued employee expenses
was $50,580 compared to a decrease of $61,646 from the prior year.

10

---

Investing activities provided cash of
$15,628 for the nine month period of fiscal 2006, 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 $50,921 and patent and
trademark expenses of $1,308 partially offset the proceeds received from the note
receivable. During the comparable period of fiscal 2005, investing activities provided
cash of $30,621, mostly due to proceeds from the note ($117,857) offset by capital
expenditures for equipment of $55,281 and patents and trademark expenses of $31,955.

For the nine month period ended March
31, 2006, financing activities used cash of $280,978 to pay a $.04 per share semi-annual
cash dividend on November 1, 2005. For the first nine months of fiscal 2005 financing
activities used cash of $411,467 to pay a $.06 per share annual dividend ($421,467) on
November 1, 2004, partially offset by $10,000 received from the exercise of a stock option
to purchase 10,000 shares of the Companys common stock at the exercise price of
$1.00 per share by a director of the Company.

On October 30, 2005, the Company
received an extension until October 30, 2006 of its existing $2,250,000 revolving line of
credit facility. In addition, 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.
On October 28, 2004, the Loan Agreement, was amended, to eliminate the borrowing base
restriction on borrowings under the revolving credit facility, thereby enabling the
Company to borrow up to the full $2,250,000 amount available under that facility
regardless of the Companys levels of accounts receivable and inventories. 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.

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

|                      | Nine months ended
March 31, |  | Three months ended
March 31, |           
|--------------------- | --------------------------- |  | ---------------------------- | ----------
|
|Net sales             |                             |  | $                            | 13,677,008
|Development fees,     |                             | 
|franchise and license |                             | 
|fees, commissions     |                             | 
|and other             |                             |  |                              | 712,731   
|                     
|Total revenues        |                             |  | $                            | 14,389,739

Revenues for the nine and three month
periods ended March 31, 2006 increased by $473,604 (3.4%) and $1,238,748 (27.8%),
respectively, over the same periods of fiscal 2005.

11

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For the nine and three month periods
of fiscal 2006, revenues of the commercial laundry and dry cleaning equipment segment
increased by $527,825 (3.9%) and $1,273,546 (29.1%), respectively, from the comparable
periods of fiscal 2005. For the nine month period ended March 31, 2006, sales increases
were experienced in laundry equipment (12.1%) and spare parts (5.9%), which were largely
offset by sales decreases in dry cleaning equipment (18.6%) and steam boilers (33.3%). For
the three month period ended March 31, 2006, sales increases were experienced in laundry
equipment (65.0%), spare parts (3.2%) and steam boilers (1.3%), partially offset by a
decrease in sales of dry cleaning equipment (27.5%).

The increase in net sales for the
nine month period was due primarily to increased laundry equipment sales. For the three
months ended March 31, 2006, in addition to an increase in sales, primarily of laundry
equipment, sales were aided by the making of shipments previously delayed as a result of
delivery delays from one of the Companys manufacturers caused by Hurricane Katrina
and shipment delays at the Companys facilities caused by a power outage due to
Hurricane Wilma.As of the end of the third quarter shipments have become current.
The decrease in sales of dry cleaning equipment was due to a softness in the market.

Development fees, franchise and
license fees, commissions and other income increased by $64,850 (10.0%) and $22,780
(13.9%) for the nine and three month periods, respectively, of fiscal 2006 compared to the
same periods of fiscal 2005. The increase for both fiscal 2006 periods was mostly
attributable to increased commissions earned for shipments sent directly by a manufacturer
to customers in the Companys selling area. These increases were offset by a decrease
in revenues from the license and franchise segment resulting from lower royalties and
fewer new franchise openings.

|                            | Nine months ended
March 31, | Three months ended
March 31,
|--------------------------- | --------------------------- | ----------------------------
|
|As a percentage of sales:   |                             |                             
|Cost of goods sold          | 75.3%                       | 75.1%                       
|As a percentage of revenue:
|Selling, general and        | 21.8%                       | 21.9%                       
|administrative expenses    
|Research and development    | .2%                         | .2%                         
|Total expenses              | 93.5%                       | 93.7%                       

Costs of goods sold, expressed as a
percentage of sales, increased to 75.3% from 75.1% and to 77.7% from 73.8% for the nine
and three month periods, respectively, of fiscal 2006 from the same periods of fiscal
2005, mostly due to larger contract sales which carry a smaller margin and product mix.

Selling, general and administrative
expenses increased by $86,195 (2.8%) and $47,991 (4.8%) for the nine and three month
periods, respectively, of fiscal 2006 from the same periods in fiscal 2005, primarily as a
result of increased payroll due to increased staff and salaries. As a percentage of sales,
this category of expenses decreased to 21.8% from 21.9% and 18.6% from 22.6% for the nine
and three month periods, respectively, mostly due to sales volume increasing at a faster
rate than expenses in this category.

Research and development expenses are
a small part of the Companys total operating expenses. These expenses relate to the
on-going research on the Companys Green-Jet® technologies and the application of
these technologies to smaller machines for the dry cleaning and hotel industry.

12

---

The overall expenses of the Company,
expressed as a percentage of revenues, remained essentially flat for all periods as
increased cost of goods sold and payroll expenses were offset by the increased revenues.

Interest income increased by $39,310
and $24,682 for the nine and three month periods of fiscal 2006, respectively, over the
same periods of fiscal 2005 as a result of interest earned on bank balances.

The effective income tax rate used in
both periods of fiscal 2006 was 38% compared to 40% used in both periods of fiscal 2005.
The reduction in the effective rate was made to better conform to the year end tax rate
experienced over the last several years.

# 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 stockholder, Chairman
of the Board of Directors and a director of the Company, under a lease which expires in
October 2008. Annual rental under this lease is approximately $94,500 with annual
increases commencing November 1, 2006 of 3% over the rent in the prior year. The Company
is also to bear 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.

In addition, for the nine months
ended March 31, 2006, the Company paid a law firm of which a director is of counsel
$38,697 for legal services performed. For the nine months ended March 31, 2005, the
Company paid the law firm of which the director was of counsel $65,524.

# 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, 2005. 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 2004) Share-based payment,
(SFAS 123(R)). SFAS 123(R) requires compensation costs related to share-based
payment transactions to be recognized in the financial statements. This guidance became
effective for the Company with the quarter ended March 31, 2006. With limited exceptions,
the amount of compensation cost is now measured based on

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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 to be recognized over the period
that an employee provides service in exchange for the award. SFAS 123(R) did not effect
the Company for any of the reported periods since no stock options were granted during the
quarter ended March 31, 2006 and all outstanding options were fully vested at December 31,
2005.SFAS 123(R) may effect the Company in the future if it issues share-based
compensation. SFAS 123(R) replaced SFAS 123, Accounting for Stock-Based
Compensation and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Under Accounting Principles Board
Opinion No. 25 (APB Opinion No. 25), because the exercise price of stock
options granted by the Company equaled or exceeded the market price of the underlying
stock on the date of grant, no compensation cost had been recognized.

In December 2004, the SFAS issued
FASB Statement No.151, Inventory Costs, which clarifies the accounting for
abnormal amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Under this statement, such items will be recognized as current-period charges.
In addition, the statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production facilities. This
statement is effective for inventory costs incurred during fiscal years beginning after
June 15, 2005 and must be applied prospectively. Adoption of this statement is not
expected to impact the Companys financial position or results of operations because
the Company does not manufacture inventory.

In December 2004, the FASB issued
SFAS No. 153, Exchanges of Nonmonetary Assets, which amends APB Opinion No.
29, Accounting for Nonmonetary Transactions. The amendments made by SFAS 153
are based on the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged. Further, the amendments eliminate the narrow
exception for nonmonetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange of a
productive asset for a similar productive asset or an equivalent interest in the same or
similar productive asset should be based on the recorded amount of the asset relinquished.
The provisions in SFAS 153 are effective for nonmonetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005. Adoption of this pronouncement will not
materially impact the Companys financial position or results of operations.

In May 2005, the FASB issued SFAS No.
154, Accounting Changes and Error Corrections  A Replacement of APB No. 20 and
SFAS Statement No. 3. Among other changes, SFAS 154 requires that a voluntary change
in accounting principle be applied retrospectively with all prior period financial
statements presented on the new accounting principle, unless it is impracticable to do so.
SFAS 154 also provides that (1) a change in method of depreciating or amortizing a
long-lived nonfinancial asset be accounted for as a change in estimate (prospectively)
that was effected by a change in accounting principle, and (2) correction of errors in
previously issued financial statements should be termed a restatement. The new
standard is effective for accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005. Early adoption of this standard is permitted for
accounting changes and correction of errors made in fiscal years beginning after June 1,
2005. Adoption of this pronouncement is not expected to materially impact the Company.

# 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

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results and financial position.  Forward-looking statements are subject
to a number of known andunknown 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, 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.

# 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.
|----- | -------------------------------------------------------------------------------------------------------

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# 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: May 12, 2006 |     | DRYCLEAN USA, Inc.                                            
|------------------ | --- | --------------------------------------------------------------
|                   | By: | /s/ Venerando J. Indelicato                                   
|                   |     | Venerando J. Indelicato,
Treasurer and Chief Financial Officer

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# Exhibit Index

|31.01 | Certification
of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
promulgated under the Securities Exchange Act of 1934.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.02 | Certification
of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
promulgated under the Securities Exchange Act of 1934.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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