**UNITED
                STATES**
              **SECURITIES
                AND EXCHANGE COMMISSION**
              **Washington,
                DC 20549**
              
              **FORM
                10-QSB**
              
              **QUARTERLY
                REPORT**
              **Pursuant
                to Section 13 or 15(d) of the Securities Exchange Act of
                1934**




For
      the
      quarterly period ended:  **December
      31, 2005**




**US
      DRY CLEANING CORPORATION**


(Exact
      name of registrant as specified in its chapter)




**Delaware**
            **000-23305**
            **77-0357037**(State
                or other jurisdiction
              of
                incorporation)
            (Commission
              File
                Number)
            (IRS
                Employer
              Identification
                No.)




**125
                E. Tahquitz Canyon, Suite 203**
              **Palm
                Springs, CA 92262**(Address
                of principal executive offices) (Zip
                Code)




Registrant ’s
      telephone number, including area code: **(706)
      322-7447**




(Former
                name or former address, if changed since last
                report)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or
      for such shorter period that the issuer was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days: x Yes 
      oNo





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act):


oYes
x No





State
      the
      number of shares outstanding of each of the issuer’s classes of common stock, as
      of the latest practicable date: 16,390,274 common shares as of October 13,
      2006.





Transitional
      Small Business Disclosure Format (check one): oYes x No


**Table
          of Contents**




**TABLE
                OF CONTENTS**
            Page**PART
                I - FINANCIAL INFORMATION**Item
                1:
            Financial
                Statements (Unaudited)
            1Item
                2:
            Management’s
                Discussion and Analysis
            2Item
                3:
            Controls
                and Procedures
            8**PART
                II - OTHER INFORMATION**Item
                1:
            Legal
                Proceedings
            9Item
                2:
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            9Item
                3:
            Defaults
                Upon Senior Securities
            9Item
                4:
            Submission
                of Matters to a Vote of Security
                Holders
            9Item
                5:
            Other
                Information
            9Item
                6:
            Exhibits
            10








**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





Our
      unaudited condensed consolidated financial statements included in this Form
      10-QSB are as follows:





(a)
              Unaudited
                Condensed Consolidated Balance Sheet as of December 31,
                2005
              
              F-1(b)
              Unaudited
                  Condensed Consolidated Statement of Operations for thethree
                  month period ended December 31, 2005
              
              F-2(c)
              Unaudited
                  Condensed Consolidated Statement of Cash Flows for the three month
                  period
                  ended December 31, 2005
              
              F-3(d)
              Notes
                  to Unaudited Condensed Consolidated Financial Statements
              
              F-4








*Page1*
 **Table
          of Contents**


**US
                  DRY CLEANING CORPORATION****CONDENSED
                  CONSOLIDATED BALANCE SHEET****DECEMBER
                  31, 2005****(UNAUDITED)****ASSETS****Current
                  Assets**Cash
              
              $
              773,547Accounts
                  receivable, net
              
              
              643,192Deferred
                  financing costs, net
              
              
              374,200Prepaid
                  expenses and other current assets
              
              
              186,134Total
                  Current Assets
              
              
              1,977,073**Property
                  and Equipment, net**
              
              
              703,814**Other
                  Assets**Notes
                  receivable
              
              
              125,000Goodwill
              
              
              5,004,699Intangible
                  assets
              
              
              425,092Total
                  Other Assets
              
              
              5,554,791**Total
                  Assets**
              
              $
              8,235,678**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              809,342Accrued
                  expenses
              
              
              417,969Liquidated
                  damages
              
              
              213,750Capital
                  lease obligation
              
              
              87,665Notes
                  payable
              
              
              352,839Related
                  party notes payable
              
              
              154,894Convertible
                  notes payable, net of discount of $164,913
              
              
              3,248,087Related
                  party convertible notes payable
              
              
              420,000Deferred
                  tax liability
              
              
              34,000Total
                  Current Liabilities
              
              
              5,738,546**Long
                  Term Liabilities**Capital
                  lease obligation, net of current
              
              
              128,691Notes
                  payable, net of current
              
              
              232,369Related
                  party notes payable, net of current
              
              
              15,487Convertible
                  notes payable, net of current
              
              
              200,000Deferred
                  tax liability, net of current
              
              
              147,000Total
                  Long Term Liabilities
              
              
              723,547**Total
                  Liabilities**
              
              
              6,462,093**Stockholders'
                  Equity**Convertible
                  Preferred Stock; par value $0.001 per share;
              
              
              1,20020,000,000
                  authorized shares;1,200,000
                  shares issued and outstanding; liquidation preference of $2.40
                  per
                  shareCommon
                  stock; par value $0.001 per share;
              
              
              9,540100,000,000
                  authorized shares;9,539,780
                  shares issued and outstandingAdditional
                  paid-in capital
              
              
              4,017,954Accumulated
                  deficit
              
              
              (2,255,109
              )Total
                  Stockholders' Equity
              
              
              1,773,585**Total
                  Liabilities and Stockholders' Equity**
              
              $
              8,235,678




*See
            accompanying notes to financial statements.*
 *F-1*
 **Table
          of Contents**


**US
                    DRY CLEANING CORPORATION****CONDENSED
                    CONSOLIDATED STATEMENT OF OPERATIONS****FOR
                    THE THREE MONTHS ENDED DECEMBER 31, 2005****(UNAUDITED)****Net
                    Sales**
                
                $
                1,440,741**Cost
                    of Sales**
                
                
                (800,381
                )**Gross
                    Profit**
                
                
                640,360**Operating
                    Expenses**Delivery
                    expenses
                
                
                136,964Store
                    expenses
                
                
                310,185Selling
                    expenses
                
                
                135,377Administrative
                    expenses
                
                
                327,040Professional
                    fees
                
                
                599,353Depreciation
                    and amortization expense
                
                
                59,990Total
                    Operating Expenses
                
                
                1,568,909**Operating
                    Loss**
                
                
                (928,549
                )**Other
                    Income (Expense)**
                
                
                (373,883
                )**Net
                    (Loss)**
                
                $
                (1,302,432
                )**Basic
                    and diluted loss per common share**
                
                $
                (0.15
                )**Basic
                    and diluted weighted average number****of
                    common shares outstanding**
                
                
                8,896,302





*See
            accompanying notes to financial statements.*
 *F-2*
 **Table
          of Contents**




**US
                  DRY CLEANING CORPORATION****CONDENSED
                  CONSOLIDATED STATEMENT OF CASH FLOWS****FOR
                  THE THREE MONTHS ENDED DECEMBER 31, 2005****(UNAUDITED)****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  (loss)
              
              $
              (1,302,432
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              59,990Amortization
                  of deferred financing costs
              
              
              75,087Bad
                  debt expense
              
              
              6,000Common
                  stock compensation
              
              
              12,080Amortization
                  of debt discounts
              
              
              33,200Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (151,429
              )Prepaid
                  expenses and other current assets
              
              
              108,741Accounts
                  payable and accrued expenses
              
              
              347,622Liquidated
                  damages
              
              
              213,750Net
                  cash used in operating activities
              
              
              (597,391
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchases
                  of property and equipment
              
              
              (65,652
              )Net
                  cash used in investing activities
              
              
              (65,652
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from issuance of notes payable
              
              
              39,869Repayments
                  on notes payable
              
              
              (145,391
              )Repayments
                  on related party notes payable
              
              
              (12,347
              )Proceeds
                  from issuance of convertible notes payable
              
              
              858,000Proceeds
                  from issuance of related party convertible notes
                  payable
              
              
              220,000Deferred
                  financing costs
              
              
              (199,998
              )Repayments
                  on capital lease obligations
              
              
              (29,256
              )Net
                  cash provided by financing activities
              
              
              730,877Net
                  increase in cash
              
              
              67,834Cash
                  at beginning of period
              
              
              705,713Cash
                  at end of period
              
              $
              773,547**SUPPLEMENTAL
                  DISCLOSURE OF NON-CASH INVESTING AND FINANCING
                  ACTIVITIES**Debt
                  discount on convertible notes issued with common stock
              
              $
              198,113Reclassification
                  for change in par value of common and preferred stock
              
              $
              2,871,879
  *Page
              F-3*
 **Table
              of Contents**
  **US
        DRY CLEANING CORPORATION**


**NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED DECEMBER 31, 2005**
 **(UNAUDITED**)****


**1.
      ORGANIZATION AND NATURE OF OPERATIONS**





***Organization
      and Merger***





US
      Dry
      Cleaning Corporation (“USDC”) is a Delaware corporation that was formed on July
      19, 2005, and, on December 30, 2005, completed a “reverse merger” with a “shell
      company,” as that term is defined in Rule 12b-2 of the General Rules and
      Regulations promulgated by the Securities and Exchange Commission (“SEC”) under
      the Securities Exchange Act of 1934. On August 9, 2005, USDC purchased 100%
      of
      the outstanding common stock and membership units of Steam Press Holdings,
      Inc.
      (“Steam Press”), and Coachella Valley Retail, LLC (“CVR”), respectively, in
      stock-for-stock type exchanges. USDC, Steam Press, and CVR are hereinafter
      collectively referred to as the “Company.”





Steam
      Press owns 100% of Enivel, Inc. (“Enivel”), which does business as Young Laundry
& Dry Cleaning (“Young”) in Honolulu, Hawaii. Young was founded in 1902 and
      operates 13 retail laundry and dry cleaning stores, in addition to providing
      hotel and other commercial laundry and dry cleaning services. CVR was founded
      in
      2004 and operates five retail laundry and dry cleaning stores under several
      names in the Palm Springs, California, area.





At
      July
      19, 2005, upon formation, USDC issued approximately 3,875,000 shares of common
      stock to certain entities and individuals as “founders” stock at par
      value.





***Basis
      of Presentation***





The
      accompanying unaudited interim condensed consolidated financial statements
      have
      been prepared by the Company, pursuant to the rules and regulations of the
      SEC.
      Certain information and footnote disclosures normally included in financial
      statements prepared in accordance with accounting principles generally accepted
      in the United States of America ("GAAP") have been omitted pursuant to such
      SEC
      rules and regulations; nevertheless, the Company believes that the disclosures
      are adequate to make the information presented not misleading. These financial
      statements and the notes hereto should be read in conjunction with the financial
      statements, accounting policies and notes thereto included in the Company's
      audited financial statements on Form 8-K for the fiscal year ended September
      30,
      2005, and the ten month period ended July 31, 2005 filed with the SEC. In the
      opinion of management, all adjustments necessary to present fairly, in
      accordance with GAAP, the Company's financial position as of December 31, 2005,
      and the results of operations and cash flows for the interim period presented
      have been made. Such adjustments consist only of normal recurring adjustments.
      The results of operations for the interim period presented are not necessarily
      indicative of the results for the full year.





***Liquidity
      and Going Concern Considerations***





The
      accompanying condensed consolidated financial statements have been prepared
      assuming the Company will continue as a going concern, which contemplates,
      among
      other things, the realization of assets and satisfaction of liabilities in
      the
      normal course of business. As of December 31, 2005 the Company had an
      accumulated deficit of approximately $2,255,000 and had recurring losses from
      operations and net cash used in operating activities of approximately $597,000
      for the three months ended December 31, 2005. The Company’s business plan calls
      for various business acquisitions which will require substantial capital. These
      factors, among others, raise substantial doubt about the Company's ability
      to
      continue as a going concern. The Company intends to fund operations through
      debt
      and equity financing transactions and facilitate such fund raising efforts
      by
      registering shares of its common stock with the SEC as a public company.
      However, such financing transactions may be insufficient to fund its planned
      acquisitions, capital expenditures, working capital and other cash requirements
      for the fiscal year ending September 30, 2006.


*Page
          F-4*
 **Table
          of Contents**


**US
        DRY CLEANING CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS  ENDED DECEMBER 31, 2005**
 **(UNAUDITED)**




**1.
      ORGANIZATION AND NATURE OF OPERATIONS** (continued)





***Liquidity
      and Going Concern Considerations*** *(continued)*





Therefore,
      the Company will be required to seek additional funds to finance its long-term
      operations. The successful outcome of future activities cannot be determined
      at
      this time and there is no assurance that, if achieved, the Company will have
      sufficient funds to execute its intended business plan or generate positive
      operating results. The consolidated financial statements do not include any
      adjustments related to recoverability and classification of assets carrying
      amounts or the amount and classification of liabilities that might result should
      the Company be unable to continue as a going concern.





**2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





***Principles
      of Consolidation***





The
      accompanying condensed consolidated financial statements include the accounts
      of
      USDC and its wholly-owned subsidiaries Steam Press and CVR. The accompanying
      condensed consolidated statements of operations and cash flows reflect the
      post-acquisition operations of Steam Press and CVR from October 1, 2005 through
      December 31, 2005. All
      significant intercompany balances and transactions have been eliminated in
      consolidation.





***Use
      of Estimates***





The
      preparation of financial statements in conformity with GAAP requires management
      to make estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosures of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Significant estimates made by management, include
      the realization of long-lived assets, valuation of goodwill, valuation
      allowances on deferred tax assets, and allowance for doubtful accounts. Actual
      results could differ from those estimates.





***Cash
      and Cash Equivalents***





The
      Company considers all highly liquid investments with a maturity of three months
      or less at the time of purchase to be cash equivalents.





***Concentrations
      of Credit Risk***





The
      Company currently maintains substantially all of its day-to-day operating cash
      with several major financial institutions. At times, cash balances may be in
      excess of amounts insured by the Federal Deposit Insurance Corporation.





The
      Company’s accounts receivable result primarily from laundry and dry cleaning
      services rendered to hotels and other commercial customers. The Company extends
      credit to its commercial customers based upon evaluation of each customer’s
      financial condition and credit history. The Company generally does not require
      collateral from hotel customers.





***Allowance
      for Doubtful Accounts***





The
      Company performs periodic reviews of collectibility and provides an allowance
      for doubtful accounts receivable as management deems necessary. Management
      considers historical and industry trends in establishing such allowance.
      Management considers the allowance for doubtful accounts as of December 31,
      2005
      of approximately $32,000 to be adequate to provide for losses, which could
      be
      sustained in the realization of these accounts. Although the Company expects
      to
      collect net amounts due, actual collections may differ from these estimated
      amounts.


*Page
          F-5*
 **Table
          of Contents**




**US
      DRY CLEANING CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED DECEMBER 31, 2005**


**(UNAUDITED)**




**2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Deferred
      Financing Costs***





Direct
      costs of securing debt financing are capitalized and amortized over the term
      of
      the related debt using the straight-line method. When a loan is paid in full,
      any unamortized financing costs are removed from the related accounts and
      charged to operations. During the three months ended December 31, 2005, the
      Company recorded approximately $200,000 of finance charges in relation to
      deferred financing costs.





***Property
      and Equipment***





Property
      and equipment are stated at cost. Major renewals and improvements are
      capitalized, while replacements, maintenance and repairs which do not
      significantly improve the useful life of the asset are expensed when incurred.
      Depreciation is provided over the estimated useful lives of the assets, which
      range from five to seven years, using accelerated methods. Amortization of
      equipment under capital leases is provided for using the straight-line method
      over the lease term or the estimated useful life of the underlying asset,
      whichever is shorter. Leasehold improvements are amortized using the
      straight-line method over the shorter of the estimated useful life of the
      improvements or the lease term.





***Goodwill
      and Other Intangible Assets***





Statement
      of Financial Accounting Standards (“SFAS”) No. 142, *"Goodwill
      and Other Intangible Assets,"* addresses how intangible assets that are acquired individually or with a group
      of other assets should be accounted for in the financial statements upon their
      acquisition and after they have been initially recognized in the financial
      statements. SFAS No. 142 requires that goodwill and intangible assets that
      have
      indefinite useful lives not be amortized but rather be tested at least annually
      for impairment, and intangible assets that have finite useful lives be amortized
      over their estimated useful lives. The Company’s identifiable intangible assets
      consist of customer relationships and the “Young Laundry & Dry Cleaning”
trademark in the respective amounts of approximately $101,000 and $321,000
      as of
      December 31, 2005. Customer relationship and the trademark are amortized using
      the straight-line method over the weighted average lives of four years and
      ten
      years, respectively. Management considers the straight-line method to be
      appropriate for customer relationships due to the longevity of the
      relationships.





***Long-Lived
      Assets***





The
      Company follows SFAS No. 144, *“Accounting
      for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
      Of”,* which
      addresses financial accounting and reporting for the impairment or disposal
      of
      long-lived assets. SFAS No. 144 requires that long-lived assets be reviewed
      for
      impairment whenever events or changes in circumstances indicate that their
      carrying amount may not be recoverable. If the cost basis of a long-lived asset
      is greater than the projected future undiscounted net cash flows from such
      asset, an impairment loss is recognized. Impairment losses are calculated as
      the
      difference between the cost basis of an asset and its estimated fair value.
      During the reporting period presented, management has determined that there
      were
      no new indicators requiring review for impairment. There can be no assurance,
      however, that market conditions will not change which could result in impairment
      of long-lived assets in the future.





***Business
      Combinations***





SFAS
      No.
      141, "Business Combinations," eliminated the pooling of interest method of
      accounting for business combinations and requires that all business
      combinations be accounted for using the purchase method.


*Page
          F-6*
 **Table
          of Contents**


**US
      DRY CLEANING CORPORATION**


**NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED DECEMBER 31, 2005**
 **(UNAUDITED)**


**2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Revenue
      Recognition***





The
      Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
      No.
      104 “Revenue Recognition”, (“SAB 104”). SAB 104 requires that four basic
      criteria be met before revenue can be recognized: (1) pervasive evidence that
      an
      arrangement exists; (2) delivery has occurred; (3) the selling price is fixed
      and determinable; and (4) collectability is reasonably assured. The Company
      recognizes revenue on retail laundry and dry cleaning services when the services
      are deemed to have been provided.  For “walk-in and pickup-and-delivery”
type retail customers the order is deemed to have been completed when the
      work-order ticket is created and the sale and related account receivable are
      recorded. For commercial customers, the sale is not recorded until the Company
      delivers the cleaned garments back to the commercial customer. Generally, the
      Company delivers the cleaned garments back to commercial customers the same
      day
      they are dropped off (same-day service).  Sales are reflected in the
      accompanying financial statements net of  “Returns and Allowances” which
      are reflected as a reduction of sales .





***Advertising***





The
      Company expenses the cost of advertising when incurred. Advertising costs
      approximated $36,000 for the three months ended December 31, 2005.





***Fair
      Value of Financial Instruments***





SFAS
      No.
      107, " *Disclosures
      about Fair Value of Financial Instruments,* "
      requires the disclosure of the fair value, if reasonably obtainable, of the
      Company’s financial instruments. Management believes that the carrying amounts
      of the Company’s significant financial instruments including cash, trade
      accounts receivable, notes receivable, accounts payable and accrued liabilities,
      and convertible notes payable approximate their fair value as of December 31,
      2005 based on either market rates or their relatively short term nature.
      Management believes that the carrying amounts of the Company’s notes payable
      approximate their fair value as of December 31, 2005, as the related interest
      rates are comparable to the current prevailing market interest rates for such
      convertible notes payable.





In
      the
      opinion of management, the fair value of payables to related parties cannot
      be
      estimated without incurring excessive costs; for that reason, the Company has
      not provided such disclosure. Other information about related party liabilities
      (such as the carrying amount, the interest rate, and the maturity date) is
      provided elsewhere in these notes to the condensed consolidated financial
      statements.





***Risks
      and Uncertainties***





The
      Company operates in an industry that is subject to intense competition. The
      Company faces risks and uncertainties relating to its ability to successfully
      implement its growth strategy. Among other things, these risks include the
      ability to develop and sustain revenue growth; managing the expansion of its
      operations; competition; attracting and retaining qualified personnel;
      maintaining and developing new strategic relationships; and the ability to
      anticipate and adapt to the changing markets and any changes in government
      or
      environmental regulations. Therefore, the Company may be subject to the risks
      of
      delays and potential business failure.





The
      dry
      cleaning industry has been a target for environmental regulation during the
      past
      two decades due to the use of certain solvents in the cleaning process. For
      example, in 2002, air quality officials in Southern California approved a
      gradual phase out of Perchloroethylene (“Perc”), the most common dry cleaning
      solvent, by 2020. Under the new rule, which went into effect January 1, 2003,
      any new dry cleaning business or facility that adds a machine must add a
      non-Perc machine. While existing dry cleaners can continue to operate one Perc
      machine until 2020, by November 2007 all dry cleaners using Perc must utilize
      state-of-the-art pollution controls to reduce Perc emissions. The Company
      believes that it is ahead of the curve with respect to successfully adopting
      and
      integration of the new dry cleaning processes.


*Page
          F-7*
 **Table
          of Contents**




**US
        DRY CLEANING CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED DECEMBER 31, 2005**
 **(UNAUDITED)**


**2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Risks
      and Uncertainties*** *(continued)*





Management
      feels that domestic media have generally sensationalized the perceived hazards
      of Perc to operators, clients and the environment in general. Perc is a
      volatile, yet non-flammable, substance that requires precautions and proper
      handling. However, it has proven safe, effective and completely manageable
      for
      years and the Company anticipates that its centralized operations and
      improvements in all facets of the business will further improve the safety
      for
      employees, clients and the environment. The Company will continue to utilize
      perchloroethylene, or “Perc” where permitted on a limited interim basis to
      assure an orderly transition. To the extent that additional investment for
      environmental compliance may be necessary, the Company does not anticipate
      any
      significant financial impact. The Company believes that it fully complies with
      all relevant rules and regulations pertaining to the use of chemical agents.




***Earnings
      per Share***





Under
      SFAS No. 128, " *Earnings
      per Share* ,"
      basic
      loss per common share is computed by dividing the loss applicable to common
      stockholders by the weighted-average number of common shares assumed to be
      outstanding during the period of computation. Diluted loss per share is computed
      similarly to basic loss per share except that the denominator is increased
      to
      include the number of additional common shares that would have been outstanding
      (using the treasury stock method) if the potential common shares had been issued
      and if the additional common shares were issued and were dilutive. At December
      31, 2005, there were 6,350,490 potentially dilutive common shares related to
      the
      conversion of senior debt and debenture debt.





***Income
      Taxes***





Income
      taxes are accounted for using the asset and liability method. Deferred tax
      assets and liabilities are recognized for the future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their respective tax bases and operating
      loss and tax credit carry forwards. Deferred tax assets and liabilities are
      measured using enacted tax rates expected to apply to taxable income in the
      years in which those temporary differences are expected to be recovered or
      settled. The effect on deferred tax assets and liabilities of a change in tax
      rates is recognized in the period that includes the enactment date.





***Stock-Based
      Compensation***





The
      Company accounts for stock-based compensation issued to employees using the
      intrinsic value based method as prescribed by Accounting Principles Board
      (“APB”) Opinion No. 25, *"Accounting
      for Stock issued to Employees".* Under
      the intrinsic value based method, compensation expense is the excess, if any,
      of
      the fair value of the stock at the grant date or other measurement date over
      the
      amount an employee must pay to acquire the stock. Compensation expense, if
      any,
      is recognized over the applicable service period, which is usually the vesting
      period.





SFAS
      No.
      123, *"Accounting
      for Stock-Based Compensation"* ,
      if
      fully adopted, changes the method of accounting for employee stock-based
      compensation to the fair value based method. For stock options and warrants,
      fair value is determined using an option pricing model that takes into account
      the stock price at the grant date, the exercise price, the expected life of
      the
      option or warrant, stock volatility and the annual rate of quarterly dividends.
      Compensation expense, if any, is recognized over the applicable service period,
      which is usually the vesting period.





The
      adoption of the accounting methodology of SFAS No. 123 is optional and the
      Company has elected to account for stock-based compensation issued to employees
      using APB No. 25; however, pro forma disclosures, as if the Company adopted
      the
      cost recognition requirement under SFAS No. 123, are required to be presented.
      For stock-based compensation issued to non-employees, the Company uses the
      fair
      value method of accounting under the provisions of SFAS No. 123.


*Page
          F-8*
 **Table
          of Contents**




**US
        DRY CLEANING CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED DECEMBER 31, 2005**
 **(UNAUDITED)**


**2.
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





***Stock-Based
      Compensation*** (continued)





During
      the three months ended December 31, 2005, the Company issued 100,000 shares
      of
      common stock to an employee (see Note 5). The intrinsic value of such
      compensation totaled $12,080 and was expensed in the three months ended December
      31, 2005. The fair value of such compensation was equal to the intrinsic value
      on the dates of issuance. As a result, had the Company applied the fair value
      measurement and recognition provisions of SFAS No. 123, the compensation expense
      recorded would not be different than the intrinsic value recorded. Additionally,
      there was no other employee stock based compensation issued prior to or during
      the three months ended December 31, 2005. Accordingly, the pro forma disclosure
      required by SFAS No. 148 is not applicable for the interim period
      presented.





The
      Company follows SFAS No. 123 (as interpreted by Emerging Issues Task Force
      ("EITF") No.  96-18, "Accounting for Equity Instruments That Are Issued To
      Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
      Services") to account for transactions involving services
      provided by third parties where the Company issues equity instruments as part
      of
      the total consideration. Pursuant to paragraph 8 of SFAS No. 123, the Company
      accounts for such transactions using the fair value of the consideration
      received (i.e. the value of the goods or services) or the fair value of the
      equity instruments issued, whichever is more reliably measurable. The Company
      applies EITF No.  96-18, in transactions, when the value of the goods
      and/or services are not readily determinable and (1) the fair value of the
      equity instruments is more reliably measurable and (2) the counterparty receives
      equity instruments in full or partial settlement of the transactions, using
      the
      following methodology:





(a)  
      For transactions where goods have already been delivered or services rendered,
      the equity instruments are issued on or about the date the performance is
      complete (and valued on the date of issuance).


(b)  
      For transactions where the instruments are issued on a fully vested,
      non-forfeitable basis, the equity instruments are valued on or about the date
      of
      the contract.


(c) 
       For any transactions not meeting the criteria in (a) or (b) above, the
      Company re-measures the consideration at each reporting date based on its then
      current stock value.





***Significant
      Recent Accounting Pronouncements***





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      123-R which revised SFAS No. 123 and superseded APB Opinion No. 25. This
      Statement eliminates the alternative to use APB Opinion No. 25’s intrinsic value
      method of accounting that was provided in Statement 123 as originally issued.
      Under APB Opinion No. 25, issuing stock options to employees generally
      resulted in recognition of no compensation cost. SFAS No. 123 requires entities
      to recognize the cost of employee services received in exchange for awards
      of
      equity instruments based on the grant-date fair value of those awards (with
      limited exceptions). The adoption of this pronouncement will require the Company
      to record compensation expense for (a) all share based compensation arrangements
      granted after October 1, 2006 and for any such arrangements that are modified,
      cancelled, or repurchased after that date, and (b) the portion of previous
      share
      based awards for which the requisite service has not been rendered as of that
      date, based on the grant date estimated fair value of those awards.





Other
      recent accounting pronouncements issued by the FASB (including its Emerging
      Issues Task Force), the AICPA, and the SEC did not or are not believed by
      management to have a material impact on the Company's present or future
      consolidated financial statements.


*Page
          F-9*
 **Table
          of Contents**




**US
        DRY CLEANING CORPORATION**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE MONTHS ENDED DECEMBER 31, 2005**
 **(UNAUDITED)**


**3.
      NOTES PAYABLE**





***Related
      Party Notes Payable***





During
      October 2005, the Company received $220,000 from one of the Company’s director
      as final issuance of the Company’s senior secured convertible promissory note
      subscription that closed November 1, 2005, bearing annual interest at 10%,
      payable quarterly, due in August 2006 and September 2006, convertible into
      Company common stock at a fixed conversion price of $1.00 per share,
      collateralized by substantially all assets of the Company.





***Other
      Notes Payable***





During
      October 2005, the Company received $228,000 as final issuance of the Company’s
      senior secured convertible promissory note subscription that closed November
      1,
      2005, bearing annual interest at 10%, payable quarterly, due in August 2006
      and
      September 2006, convertible into Company common stock at a fixed conversion
      price of $1.00 per share, collateralized by substantially all assets of the
      Company.





During
      November 2005, the Company entered into a five year note with a financial
      institution for approximately $40,000; with payments of approximately $800
      per
      month.





During
      December 2005, the Company received $630,000 in senior secured convertible
      debentures, issued to investors, bearing annual interest at 10%, payable
      quarterly and convertible into Company common stock at a fixed conversion price
      of $5.00 per share.




In
      connection with the notes discussed above, the Company incurred approximately
      $200,000 of debt issuance costs which were capitalized and are included in
      deferred financing costs in the accompanying condensed consolidated balance
      sheet. Such costs are being amortized to interest expense over the terms of
      the
      related notes using the interest method. Amortization related to these and
      previous deferred financing costs for the three months ended December 31, 2005
      approximated $75,000.





**4.
      RELATED PARTY TRANSACTIONS**





The
      Company rents office space located at 125 E. Tahquitz Canyon Road in Palm
      Springs, CA on a month to month basis from Transactional Marketing Partners,
      a
      company owned by director Earl Greenberg. The monthly rent is $2,200 per month
      all inclusive.





During
      the quarter ended December 31, 2005, through the July 2005 Consulting Agreement
      between The Watley Group, LLC (“Watley”) and the Company, Watley received fees
      from the Company of approximately $224,000.





Pursuant
      to his agreement with Watley, during the quarter ended December 31, 2005, the
      Company’s Chairman, Mr. Lee, received approximately $50,000 of fees from Watley
      in connection with certain fund-raising activities of Watley and Mr. Lee on
      the
      Company’s behalf.




Other
      related party transactions are discussed elsewhere in these notes to condensed
      consolidated financial statements.


*Page
          F-10*
 **Table
          of Contents**


**US
      DRY CLEANING CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS  ENDED DECEMBER 31, 2005**


**(UNAUDITED)**


**5.
      EQUITY TRANSACTIONS**





***Voting
      Preferred Stock***





The
      Company has authorized 20,000,000 shares of par value $0.001 convertible
      preferred stock and issued 1,200,000 shares to the former stockholder and
      certain creditors of Steam Press and Enivel. The rights and privileges
      associated with the Company’s preferred stock provide for no dividends, a
      liquidation preference of $2.40 per share, voting rights equal to those of
      common stockholders, and conversion into Company common stock on a one-for-one
      basis any time at the sole discretion of the stockholder. The outstanding
      preferred stock will automatically convert to common stock on the completion
      of
      a reverse merger with a publicly traded company and either (a) the listing
      of
      the post-merger entity’s common stock on any stock exchange or (b) its inclusion
      on a national quotation system, such as the OTCBB or the Pink Sheets. The
      Company is obligated to register 693,750 shares of preferred stock (or related
      post-conversion common stock) such that it is freely tradable no later than
      December 31, 2005 or pay a penalty of approximately $12,000 per month until
      such
      time as the registration statement is declared effective. As of December 31,
      2005, the Company had not filed any registration statement. The Company has
      also
      agreed to indemnify the stockholders holding 600,000 of the aforementioned
      693,700 preferred shares in the event they incur income tax liabilities in
      excess of $250,000 as a result of their pre-acquisition exchange of debt for
      equity in Steam Press.





The
      convertible preferred stock meets the definition of a conventional convertible
      debt instrument. The
      Company has accounted for the convertible preferred stock and the registration
      rights agreement in accordance with View C of EITF No.  05-04
“ The
      Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument
      Subject to EITF No. 00-19.” In accordance with View C, the Company believes the
      preferred stock and the registration rights agreement are separate freestanding
      agreements that should be accounted for separately because the two agreements
      relate to different risks - the convertible preferred stock agreement relates
      to
      the share price and the liquidated damages penalty relates to the filing of
      a
      registration statement and having it declared effective. Consequently, the
      Company believes it is appropriate to account for the two agreements separately.
      The separate registration rights agreement was evaluated under EITF No. 00-19
      and SFAS No. 133. The registration rights agreement is not indexed to the
      Company’s stock because (a) it is not based on an observable market or index and
      (b) when the contingent event occurs it can be settled in cash. However, the
      liquidated damages included in the registration rights agreement are not
      explicitly limited. As a result, the separate registration rights agreement
      is
      required to be accounted for as a derivative liability in accordance with SFAS
      No. 133.





The
      Company estimated the fair value of the separate registration rights agreement
      derivative liability to be the estimated liquidated damages the Company will
      have to pay in cash. Pursuant
      to paragraph 5 of the EITF No. 05-04 Abstract, task force members expressed
      a
      preference for evaluating a liquidated damages provision based on the probable
      amount that the issuer would pay rather than the maximum amount. The Company
      followed this approach and estimated the cash settlement of the liquidated
      damages to be approximately $214,000 at December 31, 2005, which is included
      in
      current liabilities in the accompanying condensed consolidated balance
      sheet.





***Common
      Stock***





The
      Company has authorized 100,000,000 shares of par value $0.001 common stock
      effective with the reverse merger.





During
      November 2005, the Company issued 1,750,000 shares of its restricted common
      stock to the holders of the Company’s Senior Secured Convertible Promissory
      Notes as part of the units purchased with a value of $198,113. The value was
      determined through the calculation of the relative fair value under the
      guidelines of APB Opinion No. 14. Such amount is being amortized to interest
      expense over the maturity period in accordance with EITF No. 00-27. The
      transaction described in this paragraph constituted an exempt offering under
      Section 3(a) (9) of the Securities Act.




During
      November 2005, the Company issued 100,000 shares of its restricted common stock
      to an employee as compensation valued at $12,080. The transaction described
      in
      this paragraph constituted an exempt offering under Section 4(2) of the
      Securities Act.


*Page
          F-11*
 **Table
          of Contents**


**US
      DRY CLEANING CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED DECEMBER 31, 2005**


**(UNAUDITED)**


**6.
      COMMITMENTS AND CONTINGENCIES**





***Legal
      Matters***




From
      time
      to time, the Company may be involved in various claims, lawsuits, and disputes
      with third parties, actions involving allegations of discrimination or breach
      of
      contract incidental to the ordinary operations of the business. The Company
      is
      not currently involved in any litigation which management believes could have
      a
      material adverse effect on the Company's financial position or results of
      operations.





***Employment
      Contracts***





During
      July 2005, the Company entered into a two-year employment contract with its
      President and CEO obligating the Company to pay six months’ salary and any
      accrued bonuses upon any termination without cause.





During
      October 2005, the Company entered into a two-year employment contract with
      its
      CFO obligating the Company to pay six months’ salary upon any termination
      without cause.








***Consulting
      Agreements***





The
      Watley Group, LLC (“Watley”), an entity managed by one of the Company’s
      stockholders, is entitled to a consulting fee equal to 10% of the first
      $10,000,000 of bridge capital in the form of senior secured convertible notes
      or
      equity financing which it raises for Company financing and 7.5% of any amount
      aggregate gross proceeds of such financing in excess of $10,000,000. Watley
      is
      also entitled to 5% of the first $10,000,000 of any debt, subordinated debt,
      mezzanine debt and other debt of leasing facility and 2.5% of any amount of
      borrowing or lease transactions in excess of $10,000,000. In addition, Watley
      is
      entitled to 6% of the first $5,000,000 of the value of any enterprise that
      it
      helps the Company acquire or merge into and 3% of any amount of enterprise
      value
      in excess of $5,000,000. The agreement expires in July 2007.





***Stock
      Registration Rights***





The
      Company was obligated to register 693,750 shares of preferred stock (or related
      post-conversion common stock) such that it is freely tradable no later than
      December 31, 2005 or pay a penalty of approximately $12,000 per month until
      such
      time as the registration statement has been declared effective. As of December
      31, 2005, the Company had not filed any registration statement. The Company
      has
      also agreed to indemnify the stockholders holding 600,000 of the aforementioned
      693,750 preferred shared in the event they incur income tax liabilities in
      excess of $250,000 as a result of their pre-acquisition exchange of debt for
      equity.





**7.
      SUBSEQUENT EVENTS**





During
      the quarter ending March 31 2006, the Company received $2,507,500 in senior
      secured convertible debentures issued to investors bearing annual interest
      at
      10%, payable quarterly and convertible into Company common stock at a fixed
      conversion price of $5.00 per share. On April 4, 2006 the Company’s Board of
      Directors amended the conversion price of $5.00 per share to $2.50 per share
      if
      converted on or before May 15, 2006; $3.33 per share if converted after May
      15,
      2006 but on or before June 30, 2006; $5.00 per share if converted after June
      30,
      2006 for the inducement to convert debenture debt to equity.





In
      accordance with EITF No. 96-19, “Debtor’s Accounting for a Modification or
      Exchange of Debt Instruments” (“EITF No. 96-19”), EITF No. 05-7 “Accounting for
      Modifications to Conversion Options Embedded in Debt Instruments and Related
      Issues”, and EITF No. 06-6 “Application of EITF No. 05-7, “Accounting for
      Modifications to Conversion Options Embedded in Debt Instruments and Related
      Issues”, the Company evaluated the fair value of the conversion option
      immediately before and after the modification of the conversion price and
      determined that the change in fair value was not deemed to be substantially
      different, as defined by EITF No. 96-19, as amended and, therefore, the
      modification was not accounted for as a debt extinguishment. Additionally,
      since
      such change in fair value was deemed to be insignificant, no additional discount
      to accrete to interest expense was recorded in accordance with EITF No. 06-6.


*Page
          F-12*
 **Table
          of Contents**


**US
      DRY CLEANING CORPORATION**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE MONTHS ENDED DECEMBER 31, 2005**


**(UNAUDITED)**




**7.
      SUBSEQUENT EVENTS** (continued)





During
      the quarter ending March 31 2006, the Company entered into several four year
      capital leases for equipment for approximately $102,000; with payments of
      approximately $2,900 per month. In addition, the Company entered into a four
      year capital lease for computer hardware and software for approximately $32,000;
      with payments of approximately $800 per month.





During
      January 2006, the Company issued 300,000 shares of its restricted common stock
      to the Company’s CFO as required by his employment contract with a value of
      $36,240. The transaction described in this paragraph constituted an exempt
      offering under Section 4(2) of the Securities Act.





During
      May 2006, the Company received $2,180,500 in senior secured convertible
      debentures, issued to investors along with $80,000 in existing notes payable
      converting to senior secured convertible debentures. The debentures bear annual
      interest at 10%, payable quarterly and convertible into Company common stock
      at
      a fixed conversion price of $5.00 per share. On April 4, 2006 the Company’s
      Board of Directors amended the conversion price of $5.00 per share to $2.50
      per
      share if converted on or before May 15, 2006; $3.33 per share if converted
      after
      May 15, 2006 but on or before June 30, 2006; $5.00 per share if converted after
      June 30, 2006 for the inducement to convert senior notes to equity.  The
      company evaluated the fair value of the conversion option immediately before
      and
      after the modification of the conversion price and determined such change in
      fair value to be insignificant.





During
      May 2006, the Company issued 3,722,492 shares of its restricted common stock
      for
      conversion of $3,500,000 in senior notes payable plus $38,282 in accrued
      interest. The transaction described in this paragraph constituted an exempt
      offering under Section 3(a)(9) of the Securities Act.





During
      May 2006, the Company issued 2,092,698 shares of its restricted common stock
      for
      conversion of $5,053,000 in senior debentures plus $71,498 in accrued interest.
      The transaction described in this paragraph constituted an exempt offering
      under
      Section 3(a)(9) of the Securities Act.





During
      May 2006, the Company issued 525,300 shares of its restricted common stock
      to
      the holders of the Company’s Senior Secured Convertible Debentures as part of
      the units purchased with a value of $250,143 which was recorded as a discount
      against the face amount of the notes and is being accreted to interest expense
      over the terms of the notes. The value was determined through the calculation
      of
      the relative fair value under the guidelines of APB No. 14. The transaction
      described in this paragraph constituted an exempt offering under Section 3(a)(9)
      of the Securities Act.





During
      March 2006, the Company assumed a two year secured promissory note for $85,000
      bearing annual interest at 9%. The assumption of the promissory note was for
      partial payment for the CVR equipment purchase valued at approximately $187,000
      with the balance paid in cash.




During
      August 2006, the Company entered into a one year exclusive investment banking
      services agreement with Marino Capital Partners for approximately $45,000 in
      a
      cash upfront commitment fee; 13% cash success and non-accountable expense fee;
      warrants equal to 10% of gross investment raised and up to 500,000 in
      performance warrants.


*Page
          F-13*
 **Table
          of Contents**


**Item
      2. Management’s Discussion and Analysis**





**Forward-Looking
      Statements**




Historical
      results and trends should not be taken as indicative of future operations.
      Management’s statements contained in this report that are not historical facts
      are forward-looking statements within the meaning of Section 27A of the
      Securities Act of 1933, as amended, and Section 21E of the Securities and
      Exchange Act of 1934 (the “Exchange Act”), as amended. Actual results may differ
      materially from those included in the forward-looking statements. The Company
      intends such forward-looking statements to be covered by the safe-harbor
      provisions for forward-looking statements contained in the Private Securities
      Litigation Reform Act of 1995, and is including this statement for purposes
      of
      complying with those safe-harbor provisions. Forward-looking statements, which
      are based on certain assumptions and describe future plans, strategies and
      expectations of the Company, are generally identifiable by use of the
      words “believe,” “expect,” “continue,” “should,” “could,” “may,” “plan,”
“will,” “intend,” “anticipate,” “estimate,” “project,” “prospects,” or similar
      expressions. The Company’s ability to predict results or the actual effect of
      future plans or strategies is inherently uncertain. Factors which could have
      a
      material adverse affect on the operations and future prospects of the Company
      on
      a consolidated basis include, but are not limited to: changes in economic
      conditions, legislative/regulatory changes, availability of capital, our high
      level of indebtedness, our ability to improve the operating performance of
      our
      existing stores in accordance to our long term strategy, interest rates,
      competition, our ability to hire and retain store management and other store
      personnel, and generally accepted accounting principles. These risks and
      uncertainties should be considered in evaluating forward-looking statements
      and
      undue reliance should not be placed on such statements. Further information
      concerning the Company and its business, including additional factors that
      could
      materially affect the Company’s financial results, is included herein and in the
      Company’s other filings with the SEC.





**Description
      of Business**





***The
      Company***





USDC
      is a
      specialized consumer Services Company focused on the dry cleaning industry.
      Our
      business plan includes aggressive growth through accretive acquisitions. In
      August 2005, we acquired two operators and continue to focus on
      acquisitions.





We
      estimate the domestic market dry cleaning revenues at approximately $10 billion
      annually. The exact size is unknown as it is an unregulated industry dominated
      by private, geographically diverse operators.





We
      believe that the dry cleaning industry is naturally entering a consolidation
      phase as older proprietors and recent inheritors seek to convert their
      longstanding businesses to liquid assets. The dry cleaning industry is very
      fragmented with 85% of the 27,000 independent dry cleaning operations being
      family owned and operated without the benefit of professional management or
      access to efficient capital here are, however, several regional dry cleaning
      chains which have multiple locations.





As
      a
      growing operator we seek to create value through economies of scale, best
      practices, access to capital markets, and the introduction of management
      experience not typically seen in the industry. One can look to video stores,
      coffee houses, grocery stores, fast food, hotel chains, department stores,
      and
      automobile dealerships to see the benefit of other consolidation with
      centralized professional management and a cohesive national vision.





With
      the
      acquisition of Young Laundry and Dry Cleaning in Honolulu, Hawaii, USDC can
      track its history back to the beginning of the industry in 1902. As the
      longevity of that franchise suggests, the dry cleaning industry is extremely
      durable and has survived a variety of economic downturns, fads, changes in
      fashion, wars, depression, and natural disasters.





We
      intend
      to continue to acquire high quality operations within strategic geographical
      regions in order to maximize the efficiencies of the “hub-and-spoke” concept.
      One of the significant factors for the creation of post-acquisition value and
      successful assimilation will be the use of a “hub-and-spoke” method of
      operation. By operating between one to three local brands from each factory
      facility, thereby comprising a “district”; we can efficiently integrate new
      smaller operations that are added through acquisition or organic growth. As
      an
      example, our Hawaiian facility is a 20,000 square foot factory that has been
      operating two separate brands successfully for over ten years with a
      hub-and-spoke model. USDC plans additional acquisitions in Hawaii which would
      incorporate production for the acquired retail stores into the existing central
      production facility.


*Page
          2*
 **Table
          of Contents**





Our
      belief is that the current absence of competition for acquisitions will allow
      us
      to acquire many larger dominant operators; thereby giving the Company a
      foundation on which to continue its projected growth. If consolidation of the
      industry progresses, USDC itself may become an acquisition candidate should
      a
      better capitalized consolidator enter the marketplace. Often, the greatest
      value
      achieved in any consolidation occurs during the earliest phases.





Over
      the
      last twelve months we have successfully raised approximately $8.5 million in
      equity transactions, demonstrating our ability to acquire financing to support
      our acquisition plans.







**Dry
      Cleaning Industry Overview**





The
      dry
      cleaning industry has continued to evolve with the development of numerous
      chemicals and solvents that enhance the effectiveness of the dry cleaning
      process. The industry now encompasses approximately 27,000 U.S. based providers
      generating reported revenues in excess of approximately $10 billion per year.





As
      the
      majority of the industry is private, there is limited information available
      for
      comparative purposes. Nevertheless, there are a few fundamental points typical
      to the average operator:





·
            Eighty-five
                percent of the 27,000 dry cleaners in the United States are small
                owner
                operated shops.


·
            According
                to Dun & Bradstreet data, the average dry cleaner employs five people
                with annual sales of $200,000.


·
            Dry
                cleaning occupations consist of skilled dry cleaners, spotters, pressers,
                and counter attendants with most dry cleaning establishments requiring
                workers to perform at least two of these jobs out of necessity. Classic
                family-owned-and-operated cleaners typically have two or three full-time
                employees (including the owner) and some additional part-time employees.
                A
                typical operation might consist of a single small store front operation,
                with customer pickup and delivery in the front and cleaning and finishing
                in the back.


·
            Successful
                operations have EBITDA margins between 15% - 30% of total sales with
                net
                income equalling 5% to 10% of sales. It is the duplication of efforts,
                lack of economies of scale, purchasing power, and business savvy
                which
                have limited individual provider results creating an ideal opportunity
                for
                wide-scale consolidation. The industry is mature in its current
                state.


·
            The
                most common and most profitable form of dry-cleaning business are
                the “hub
                and spoke” companies that perform all of the processing in large
                centralized production facilities. These firms often include additional
                pick-up and drop-off points that provide the main plant with goods
                to dry
                clean. USDC employs this structure.





***History
      & Highlights***





According
      to Integra Information, average annual revenues for the dry cleaning industry
      have historically increased by roughly the rate of inflation. This is expected
      to continue going forward (based on SIC code 7216). In recent years, the dry
      cleaning industry has been pressured by a number of recurring issues. These
      increase the pressure on older proprietors and recent inheritors seeking to
      convert these longstanding businesses to liquid assets. The issues
      include:





·
            Intensified
                competition


·
            Higher
                minimum wages


·
            Changes
                by the Federal Trade Commission's changes in care labeling rules
                due to
                fashion’s fabric trends


·
            Recent
                costly environmental regulations


·
            Non-renewal
                of leases by building owners where cleaners
                operate


·
            Increasing
                public concern that cleaning solvents may cause
                cancer





We
      believe that we are better equipped to address these challenges because of
      centralized production facilities, economies of scale, and access to leveraged
      capital requirements.


*Page
          3*
 **Table
          of Contents**





***Competition***





The
      dry
      cleaning industry is an extremely profitable business for those with a market
      leading position. A handful of markets are dominated by large, well-capitalized
      operators who have implemented a model similar to USDC’s operations (i.e.:
      serving multiple locations with centralized, large capacity production
      facilities). Smaller players are finding it more difficult to retain market
      share in this area due to higher overall operating costs and constraints.





The
      Company believes that its innovative strategy of centralized operations,
      consolidation, and public corporate structure is unique in the dry cleaning
      industry and has no competitive peer.





**Results
      of Operations for the Three Months Ended December 31, 2005**





***Revenues***





Total
      revenues were approximately $1,441,000 for the three months ended December
      31,
      2005. The majority of revenues are generated through laundry and dry cleaning
      services. Revenues are also generated from household services and industrial
      uniforms.





***Cost
      of Sales***





Total
      cost of sales was approximately $800,000,
      or 56% of
      revenue, for the three months ended December 31, 2005. Cost of sales includes
      the cost of labor, rent, utilities, uniforms, packaging, supplies and repairs
      and maintenance on equipment.





***Gross
      Profit***





Gross
      profit for the three months ended December 31, 2005 was $641,000 or 44% of
      revenues.





***Operating
      Expenses***




Operating
      Expenses for the three months ended December 31, 2005 were approximately
      $1,569,000. Approximately $583,000 of these expenses is attributable to
      delivery, store and sales expenses and approximately $327,000 to administrative
      expenses. Approximately $600,000 of these expenses is attributed to professional
      services and approximately $60,000 in depreciation and amortization. Our
      operations in Hawaii and California have not been sufficient to cover our
      operating costs and have resulted in operating losses.





***Other
      Income and Expense***





For
      the
      three months ending December 31, 2005, there was other income (expense) of
      approximately ($374,000). This consists mainly of interest expense in the amount
      of approximately $496,000 which was offset by $122,000 in proceeds from the
      fire
      insurance claim at CVR.





***Operating
      Results***





Our
      operating loss for the three months ended December 31, 2005 was approximately
      $929,000. This reflects the operating costs of the business and corporate
      overhead relating to Company expenses, capital raising and administrative
      expenses. These include legal, audit, consulting and administrative expenses
      directly related towards capital raising and becoming a public company of
      approximately $1.1 million dollars.





***Net
      Loss***


****


We
      are
      reporting a net loss for the three months ended December 31, 2005 was
      approximately $1,302,000, or $0.15 per common share for the three months ended
      December 31, 2005. These
      include legal, audit, consulting and administrative expenses directly related
      towards capital raising and becoming a public company of approximately $1.1
      million dollars.


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**Liquidity
      and Capital Resources**





Total
      assets were approximately $8,236,000 at December 31, 2005. Current assets were
      approximately $1,977,000 and property and equipment were approximately $704,000.
      The Company has $125,000 in notes receivable and approximately $5,430,000 in
      goodwill and intangible assets.





Total
      liabilities were approximately $6,462,000 at December 31, 2005. Current
      liabilities were approximately $5,738,000. Most of the remainder of liabilities
      are non-current notes payable and capital leases of approximately
      $724,000.





Our
      operating activities used approximately $597,000 in cash in the quarter ended
      December 31, 2005. Our net loss of approximately $1,302,000 was the primary
      component of our negative operating cash flow. This net loss was offset by
      a
      number of non cash items totalling approximately $186,000. These include
      depreciation, amortization, bad debt expense and the issuance of stock for
      compensation. Growth in payables, liquidated damages and prepaid expenses and
      other assets of approximately $670,000 was offset by growth in receivables
      of
      approximately $151,000.





Cash
      used
      in investing activities during the three months ended December 31, 2005
      consisted of approximately $66,000 used for the acquisition of property and
      equipment.





Cash
      flows from financing activities were approximately $731,000 during the three
      months ended December 31, 2005 which consisted of approximately $1,118,000
      in
      net proceeds from the issuance of notes payable and convertible notes payable
      including related parties, and offset by approximately $387,000 in note and
      capital lease obligation payments and deferred financing costs.





The
      Company had a working capital deficit of approximately $3,761,000 as of December
      31, 2005. The Company is seeking to increase working capital and fund operations
      through private debt and equity transactions. Management is currently in
      negotiations with certain strategic investors who have expressed an interest
      in
      making investments in the Company.







**Liquidity
      and Going Concern Considerations**







The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern, which contemplates, among other
      things, the realization of assets and satisfaction of liabilities in the normal
      course of business. For the three months ended December 31, 2005, we had a
      net
      loss of approximately $1,302,000 and had negative cash flow from operating
      activities of approximately $597,000. These factors, among others, raise doubt
      about the Company's ability to continue as a going concern.





We
      intend
      to fund operations through debt and equity financing transactions. We have
      raised approximately $8.5 million dollars as of May 2006. It is our intention
      to
      register with the SEC for future public offerings. Our past fund raising
      successes are not a guarantee of future outcomes and there is no assurance
      that
      if achieved, the Company will have sufficient funds to execute its intended
      business plan or generate positive operating results.





The
      consolidated financial statements do not include any adjustments related to
      recoverability and classification of assets carrying amounts or the amount
      and
      classification of liabilities that might result should the Company be unable
      to
      continue as a going concern. There can be no assurance that revenue growth
      under
      the revised forecast will generate margins that provide an adequate return
      on
      our invested assets, if at all, or that we will have sufficient resources to
      provide the services required to support any such growth.





In
      order
      for us to fund our operations and continue this growth plan, substantial
      additional funding will be required from external sources. Management intends
      to
      fund operations through a combination of equity, lines of credit and debt. Management
      is currently in negotiations with certain investors who have expressed interest
      in making investments in the Company. These discussions are ongoing, and there
      can be no assurance of the outcome of these negotiations.


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**Off
      Balance Sheet Arrangements**





As
      of
      December 31, 2005, there were no off balance sheet arrangements.





**Inflation**





We
      do not
      believe that inflation has had a material effect on our business, financial
      condition or results of operations. If our costs were to become subject to
      significant inflationary pressures, we may not be able to fully offset such
      higher costs through price increases. Our inability or failure to do so could
      adversely affect our business, financial condition and results of
      operations.





**Critical
      Accounting Policies**





In
      December 2001, the SEC requested that all registrants list their three to five
      most “critical accounting polices” in the Management’s Discussion and Analysis.
      The SEC indicated that a “critical accounting policy” is one which is both
      important to the portrayal of the Company’s financial condition and results, and
      requires management’s most difficult, subjective or complex judgments, often as
      a result of the need to make estimates about the effect of matters that are
      inherently uncertain. We believe that the following accounting policies fit
      this
      definition:





***Long-Lived
      Assets***





In
      July
      2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
      144, *"Accounting
      for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
      Of.”* SFAS
      No.
      144 addresses financial accounting and reporting for the impairment or disposal
      of long-lived assets. SFAS No. 144 requires that long-lived assets be reviewed
      for impairment whenever events or changes in circumstances indicate that their
      carrying amount may not be recoverable. If the cost basis of a long-lived asset
      is greater than the projected future undiscounted net cash flows from such
      asset, an impairment loss is recognized. Impairment losses are calculated as
      the
      difference between the cost basis of an asset and its estimated fair value.
      SFAS
      No. 144 also requires companies to separately report discontinued operations,
      and extends that reporting to a component of an entity that either has been
      disposed of (by sale, abandonment or in a distribution to owners) or is
      classified as held for sale. Assets to be disposed of are reported at the lower
      of the carrying amount or the estimated fair value less costs to
      sell.





As
      of
      December 31, 2005, management has determined that no such impairment exists
      and
      therefore, no adjustments have been made to the carrying values of long-lived
      assets. There can be no assurance, however, that market conditions will not
      change or demand for the Company's services and products will continue which
      could result in impairment of long-lived assets in the future.





***Goodwill
      and Intangible Assets***





Statement
      of Financial Accounting standard (“SFAS”) No. 142, *"Goodwill
      and Other Intangible Assets",* which
      is
      effective for fiscal years beginning after December 15, 2001, addresses how
      intangible assets that are acquired individually or with a group of other assets
      should be accounted for upon their acquisition and after they have been
      initially recognized in the financial statements. SFAS No. 142 requires that
      goodwill and identifiable intangible assets that have indefinite lives not
      be
      amortized but rather be tested at least annually for impairment, and intangible
      assets that have finite useful lives be amortized over their estimated useful
      lives.





SFAS
      No.
      142 provides specific guidance for testing goodwill and intangible assets that
      will not be amortized for impairment. In addition, SFAS No. 142 expands the
      disclosure requirements about intangible assets in the years subsequent to
      their
      acquisition. Impairment losses for goodwill and indefinite-life intangible
      assets that arise due to the initial application of SFAS No. 142 are to be
      reported as a change in accounting principle.


*Page
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          of Contents**


***Revenue
      Recognition***





The
      Company's revenues are recorded in accordance with the SEC’s" Staff Accounting
      Bulletin No. 104, "Revenue Recognition." The Company recognizes product revenue
      when persuasive evidence of an arrangement exists, delivery has occurred, the
      fee is fixed or determinable, and collectibility is reasonably assured. In
      instances where final acceptance of the product is specified by the customer
      or
      is uncertain, revenue is deferred until all acceptance criteria have been
      met.





The
      Company recognizes revenue on retail laundry and dry cleaning services when
      the
      services have been provided and the earnings process is complete. Therefore,
      when an order is complete and ready for the customer to pick-up, the sale and
      related account receivable are recorded. The Company recognizes revenue on
      its
      commercial hotel laundry and dry cleaning services in the same manner.
      Generally, the Company cleans garments the same day they are dropped off. With
      respect to retail operations, the customer’s garments serve as collateral for
      the related receivable. The commercial related receivables generally have no
      collateral since the Company returns hotel guest’s garments to the hotel and
      then bills the hotel under the terms of their respective contracts.





***Recently
      Issued Accounting Pronouncements***





In
      November 2004, the FASB issued SFAS No. 151, “ *Inventory
      Costs - an Amendment of ARB No. 43, Chapter 4* ,”
which
      clarifies the accounting for abnormal amounts of idle facility expense, freight,
      handling costs, and wasted material. In Chapter 4 of ARB 43, paragraph five
      previously stated that “...under some circumstances, items such as idle facility
      expense, excessive spoilage, double freight, and re-handling costs may be so
      abnormal as to require treatment as current period charges...” SFAS No. 151
      requires that such items be recognized as current-period charges, regardless
      of
      whether they meet the criterion of “so abnormal” (an undefined term). This
      pronouncement also requires that allocation of fixed production overhead to
      the
      costs of conversion be based on the normal capacity of the production
      facilities. SFAS No. 151 is effective for inventory costs incurred in years
      beginning after June 15, 2005.





In
      December 2004, the FASB issued SFAS No. 123-R, “ *Share-Based
      Payment* ,”
which
      requires that the compensation costs relating to share-based payment
      transactions (including the cost of all employee stock options) be recognized
      in
      the financial statements. That cost will be measured based on the estimated
      fair
      value of the equity or liability instruments issued. SFAS No. 123-R covers
      a
      wide range of share-based compensation arrangements including share options,
      restricted share plans, performance-based awards, share appreciation rights,
      and
      employee share purchase plans. SFAS No. 123-R replaces SFAS No. 123, and
      supersedes Accounting
      Principles Board or “APB”
Opinion No. 25. Small Business Issuers are required to apply SFAS No. 123-R
      in
      the first interim reporting period that begins after December 15, 2005. Thus,
      our consolidated financial statements will reflect an expense for (a) all
      share-based compensation arrangements granted after February 28, 2006 and for
      any such arrangements that are modified, cancelled, or repurchased after that
      date, and (b) the portion of previous share-based awards for which the requisite
      service has not been rendered as of that date, based on the grant-date estimated
      fair value.





In
      December 2004, the FASB issued SFAS No. 152, “ *Accounting
      for Real Estate Time-Sharing Transactions - an amendment of FASB Statements
      No.
      66 and 67* .”
The
      American Institute of Certified Public Accountants or the “AICPA” concurrently
      issued Statement of Position or “SOP” 04-2 entitled “ *Accounting
      for Real Estate Time-Sharing Transactions* .”
SFAS
      No. 152 amends SFAS No. 66 to reference the accounting and reporting guidance
      in
      SOP 04-2.





As
      amended, SFAS No. 67 states that its guidance for (a) incidental operations
      and
      (b) costs incurred to sell real estate projects does not apply to real estate
      time-sharing transactions; these matters will now be governed by SOP 04-2.
      SFAS
      No. 152 and SOP 04-2 are effective for years beginning after June 15,
      2005.





In
      December 2004, the FASB issued SFAS No. 153, “ *Exchange
      of Nonmonetary Assets, and Amendment of APB No. 29, “Accounting for Nonmonetary
      Transactions* .”
The
      amendments made by SFAS No. 153 are based on the principle that exchanges of
      nonmonetary assets should be measured using the estimated fair value of the
      assets exchanged. SFAS No. 153 eliminates the narrow exception for nonmonetary
      exchanges of similar productive assets, and replaces it with a broader exception
      for exchanges of nonmonetary assets that do not have commercial substance.
      A
      nonmonetary exchange has “commercial substance” if the future cash flows of the
      entity are expected to change significantly as a result of the transaction.
      This
      pronouncement is effective for nonmonetary exchanges in fiscal periods beginning
      after June 15, 2005.


*Page
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In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,”
which replaces APB Opinion No. 20 and FASB Statement No. 3. This pronouncement
      applies to all voluntary changes in accounting principle, and revises the
      requirements for accounting for and reporting a change in accounting principle.
      SFAS No. 154 requires retrospective application to prior periods’ financial
      statements of a voluntary change in accounting principle, unless it is
      impracticable to do so. This pronouncement also requires that a change in the
      method of depreciation, amortization, or depletion for long-lived, non-financial
      assets be accounted for as a change in accounting estimate that is affected
      by a
      change in accounting principle. SFAS No. 154 retains many provisions of APB
      Opinion 20 without change, including those related to reporting a change in
      accounting estimate, a change in the reporting entity, and correction of an
      error. The pronouncement also carries forward the provisions of SFAS No. 3
      which
      govern reporting accounting changes in interim financial statements. SFAS No.
      154 is effective for accounting changes and corrections of errors made in fiscal
      years beginning after December 15, 2005. The Statement does not change the
      transition provisions of any existing accounting pronouncements, including
      those
      that are in a transition phase as of the effective date of SFAS No. 154.





Other
        recent accounting pronouncements issued by the FASB (including its Emerging
        Issues Task Force), the AICPA, and the SEC did not or are not believed by
        management to have a material impact on our present or future consolidated
        financial statements.


**Item
      3.   Controls and Procedures**




We
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of December 31, 2005. This evaluation was carried
      out under the supervision and with the participation of the Company’s
      management, including the Company’s Chief Executive Officer and Chief Financial
      Officer. Based upon that evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that, as of December 31, 2005, our disclosure
      controls and procedures are not effective.





The
      Company plans on fixing the material weaknesses by implementation of new
      financial reporting systems used throughout its operations; implementation
      of
      uniform internal controls; and the addition of management personnel to monitor
      daily organizational activities which will ensure that information is being
      gathered, reviewed and disclosed at all levels of the Company and reported
      timely in various reports filed or submitted under the Exchange Act
      Rules.





Disclosure
      controls and procedures are designed to ensure that information required to
      be
      disclosed in our reports filed or submitted under the Exchange Act are recorded,
      processed, summarized and reported, within the time periods specified in the
      SEC’s rules and forms. Disclosure controls and procedures include, without
      limitation, controls and procedures designed to ensure that information required
      to be disclosed in our reports filed under the Exchange Act is accumulated
      and
      communicated to management, including our Chief Executive Officer and Chief
      Financial Officer, to allow timely decisions regarding required
      disclosure.





***Limitations
      and the Effectiveness of Internal Controls***





Our
      management does not expect that our disclosure controls and procedures or our
      internal controls over financial reporting will necessarily prevent all fraud
      and material error. An internal control system, no matter how well conceived
      and
      operated, can provide only reasonable, not absolute, assurance that the
      objectives of the control system are met. Further, the design of a control
      system must reflect the fact that there are resource constraints, and the
      benefits of controls must be considered relative to their costs. Because of
      the
      inherent limitations in all control systems, no evaluation of controls can
      provide absolute assurance that all control issues and instances of fraud,
      if
      any, within the Company have been detected. These inherent limitations include
      the realities that judgments in decision-making can be faulty, and that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the internal control. The design
      of
      any system of controls also is based in part upon certain assumptions about
      the
      likelihood of future events, and there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions.
      Over time, control may become inadequate because of changes in conditions,
      or
      the degree of compliance with the policies or procedures may
      deteriorate.


*Page
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          of Contents**


**PART
      II - OTHER INFORMATION**





**Item
      1.   Legal
      Proceedings**





From
      time
      to time, the Company may be involved in various claims, lawsuits, disputes
      with
      third parties, actions involving allegations of discrimination or breach of
      contract incidental to the ordinary operations of the business. The Company
      is
      not currently involved in any litigation which management believes could have
      a
      material adverse effect on the Company's financial position or results of
      operations.





**Item
      2.     Unregistered Sales of
      Equity Securities and Use of Proceeds**





During
      November 2005, the Company issued 1,750,000 shares of its restricted common
      stock to the holders of the Company’s Senior Secured Convertible Promissory
      Notes as part of the units purchased with a value of $198,113. The value was
      determined through the calculation of the relative fair value under the
      guidelines of APB No.  14.




During
      November 2005, the Company issued 100,000 shares of its restricted common stock
      as payment for consulting services valued at $12,080. The transaction described
      in this paragraph constituted an exempt offering under Section 4(2) of the
      Securities Act.





**Item
      3.     Defaults upon Senior
      Securities**





None








**Item
      4.     Submission of Matters to a
      Vote of Security Holders**





None








**Item
      5.     Other
      Information**





None




*Page
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          of Contents**





**Item
      6.      Exhibits**





***Exhibit
      No.***  ***Description***




Exhibit
      31.1*  Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of
      2002.




Exhibit
      31.2*  Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
      of
      2002.




Exhibit
      32.1*  Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act
      of
      2002.




Exhibit
      32.2*  Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
      of
      2002.




_______________




*  Filed
      herewith




*Page
          10*
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          of Contents**





**SIGNATURES**





In
      accordance with the requirements of the Securities and Exchange Act of 1934,
      the
      Registrant has duly caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.





**US
              DRY
              CLEANING CORPORATION**Date: October
              25, 2006
            By:
            /s/ Haddon
              LibbyHaddon
              LibbyChief
              Financial Officer








*Page
          11*
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          of Contents**





**EXHIBIT
      INDEX**





Exhibit
                  31.1
              Certification
                  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act.Exhibit
                  31.2
              Certification
                  of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act.Exhibit
                  32.1
              Certification
                  of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                  Act.Exhibit
                  32.2
              Certification
                  of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                  Act.





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          12*