**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:  **March
      31, 2007**




**U.S.
      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: **(760)
      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:
      [   ] Yes [X] No





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





State
      the
      number of shares outstanding of each of the issuer’s classes of common stock, as
      of the latest practicable date: 17,890,929 common shares as of April 30, 2007.





Transitional
      Small Business Disclosure Format (check one): [   ] Yes [X]
      No












**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
            10**PART
                II - OTHER INFORMATION**Item
                1:
            Legal
                Proceedings
            11Item
                2:
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            11Item
                3:
            Defaults
                Upon Senior Securities
            11Item
                4:
            Submission
                of Matters to a Vote of Security Holders
            11Item
                5:
            Other
                Information
            11Item
                6:
            Exhibits
            11







**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 March 31, 2007
            F-1(b)
            Unaudited
                Condensed Consolidated Statements of Operations for the three and
                six
                months ended March 31, 2007 and 2006
            F-2(c)
            Unaudited Condensed Consolidated Statements
              of Cash Flows for the six months ended March 31, 2007 and 2006
            F-3(d)
            Notes to Unaudited Condensed Consolidated
              Financial Statements
            F-4




*Page
            1*


**U.S.
      DRY CLEANING CORPORATION**


**CONDENSED
        CONSOLIDATED BALANCE SHEET**
 **MARCH
          31, 2007**
 **(UNAUDITED)**





**ASSETS**
 Current
                  AssetsCash
              
              $
              341,562Accounts
                  receivable, net
              
              
              475,204Deferred
                  equity raising costs
              
              
              357,830Deferred
                  acquistion costs
              
              
              232,097Prepaid
                  expenses and other current assets
              
              
              336,958Total
                  Current Assets
              
              
              1,743,651**Property
                  and Equipment, net**
              
              
              1,572,309**Other
                  Assets**Notes
                  receivable
              
              
              127,594Goodwill
              
              
              7,548,901Intangible
                  assets
              
              
              353,662Total
                  Other Assets
              
              
              8,030,157**Total
                  Assets**
              
              $
              11,346,117**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  Liabilities**Accounts
                  payable
              
              $
              1,068,355Accrued
                  liabilities
              
              
              1,603,322Liquidated
                  damages
              
              
              35,625Capital
                  lease obligation, current portion
              
              
              132,097Notes
                  payable, current portion
              
              
              322,778Convertible
                  notes payable, net of discount
              
              
              1,776,715Related
                  party notes payable, current portion
              
              
              250,753Total
                  Current Liabilities
              
              
              5,189,645**Long
                  Term Liabilities**Capital
                  lease obligation
              
              
              402,611Notes
                  payable
              
              
              346,304Related
                  party notes payable
              
              
              177,506Convertible
                  notes payable
              
              
              200,000Total
                  Long Term Liabilities
              
              
              1,126,421**Total
                  Liabilities**
              
              
              6,316,066**Stockholders'
                  Equity**Convertible
                  preferred stock; par value $0.001 per share;20,000,000
                  authorized shares;1,200,000
                  shares issued and outstanding; liquidation preference of $2.40
                  per
                  share
              
              
              1,200Common
                  stock; par value $0.001 per share;50,000,000
                  Series B authorized shares; none issued and outstanding
              
              
              -Common
                  stock; par value $0.001 per share;100,000,000
                  authorized shares; 17,890,929 shares issued and
                  outstanding
              
              
              17,891Additional
                  paid-in capital
              
              
              18,628,547Stockholder
                  receivable
              
              
              (250,000
              )Deferred
                  consulting fees
              
              
              (56,000
              )Accumulated
                  deficit
              
              
              (13,311,587
              )Total
                  Stockholders' Equity
              
              
              5,030,051**Total
                  Liabilities and Stockholders' Equity**
              
              $
              11,346,117







*Page F-1*
            *See
                accompanying notes to condensed
                consolidated financial
                statements.*







**U.S.
        DRY CLEANING CORPORATION**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF OPERATIONS**
 **FOR
            THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**


**THREE
                  MONTHS**
              
              **SIX
                  MONTHS****2007**
              
              **2006**
                **As
                  Restated**
              
              **2007**
              
              **2006**
                **As
                  Restated****Net
                  Sales**
              
              $
              2,025,918
              
              $
              1,496,466
              
              $
              3,627,328
              
              $
              2,937,207**Cost
                  of Sales**Supplies
              
              
              (97,848
              )
              
              (86,506
              )
              
              (165,279
              )
              
              (160,102
              )Direct
                  costs
              
              
              (916,249
              )
              
              (735,818
              )
              
              (1,697,361
              )
              
              (1,462,604
              )Total
                  cost of sales
              
              
              (1,014,097
              )
              
              (822,324
              )
              
              (1,862,640
              )
              
              (1,622,706
              )**Gross
                  Profit**
              
              
              1,011,821
              
              
              674,142
              
              
              1,764,688
              
              
              1,314,501**Operating
                  Expenses**Delivery
                  expenses
              
              
              167,984
              
              
              117,212
              
              
              332,345
              
              
              254,177Store
                  expenses
              
              
              503,476
              
              
              376,803
              
              
              902,753
              
              
              686,988Selling
                  expenses
              
              
              159,863
              
              
              175,695
              
              
              311,337
              
              
              311,072Administrative
                  expenses
              
              
              623,408
              
              
              430,772
              
              
              1,320,252
              
              
              757,812Professional
                  fees
              
              
              923,934
              
              
              221,952
              
              
              1,602,969
              
              
              821,302Depreciation
                  and amortization expense
              
              
              72,562
              
              
              67,473
              
              
              149,856
              
              
              127,464Total
                  Operating Expenses
              
              
              2,451,227
              
              
              1,389,907
              
              
              4,619,512
              
              
              2,958,815**Operating
                  Loss**
              
              
              (1,439,406
              )
              
              (715,765
              )
              
              (2,854,824
              )
              
              (1,644,314
              )**Other
                  Income (Expense)**
              
              
              (811,273
              )
              
              (445,681
              )
              
              (934,213
              )
              
              (980,809
              )**Net
                  Loss**
              
              $
              (2,250,679
              )
              $
              (1,161,446
              )
              $
              (3,789,037
              )
              $
              (2,625,123
              )**Basic
                  and diluted loss per common share**
              
              $
              (0.13
              )
              $
              (0.12
              )
              $
              (0.22
              )
              $
              (0.28
              )**Basic
                  and diluted weighted average number****of
                  common shares outstanding**
              
              
              17,084,019
              
              
              9,839,780
              
              
              17,179,220
              
              
              9,356,264


*Page F-2*
              *See
                  accompanying notes to condensed
                  consolidated financial
                  statements.*
 
  **U.S.
        DRY CLEANING CORPORATION**
 **CONDENSED
          CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **FOR
            THE SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**
 **2007**
              
              **2006****As
                  Restated****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  (loss)
              
              $
              (3,789,037
              )
              $
              (2,625,123
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  and amortization
              
              
              149,856
              
              
              127,464Amortization
                  of deferred financing costs
              
              
              200,000
              
              
              150,174Amortization
                  of deferred consulting fees
              
              
              9,000
              
              
              -Bad
                  debt expense
              
              
              4,675
              
              
              6,000Common
                  stock issued for compensation and services
              
              
              416,070
              
              
              114,380Amortization
                  of debt discounts
              
              
              330,429
              
              
              530,303Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              123,164
              
              
              (197,598
              )Prepaid
                  expenses and other current assets
              
              
              30,916
              
              
              118,999Other
                  assets
              
              
              (51,686
              )
              
              -Accounts
                  payable and accrued expenses
              
              
              989,284
              
              
              485,435Liquidated
                  damages
              
              
              (71,250
              )
              
              178,125Net
                  cash used in operating activities
              
              
              (1,658,579
              )
              
              (1,111,841
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchases
                  of property and equipment
              
              
              (116,346
              )
              
              (320,126
              )Acquisition
                  projects in process
              
              
              (634,223
              )
              
              -Cash
                  of acquired companies
              
              
              1,767
              
              
              -Net
                  cash used in investing activities
              
              
              (748,802
              )
              
              (320,126
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from issuance of notes payable
              
              
              225,768
              
              
              39,869Proceeds
                  from issuance of convertible notes payable
              
              
              1,800,000
              
              
              3,365,500Proceeds
                  from issuance of related party convertible notes payable
              
              
              -
              
              
              220,000Repayments
                  on notes payable
              
              
              (172,634
              )
              
              (206,282
              )Repayments
                  on related party notes payable
              
              
              (74,380
              )
              
              (22,534
              )Repayments
                  on convertible notes payable
              
              
              -
              
              
              (30,000
              )Deferred
                  financing costs
              
              
              -
              
              
              (474,998
              )Repayments
                  on capital lease obligation
              
              
              (86,437
              )
              
              (59,967
              )Deferred
                  equity raising cost
              
              
              (357,830
              )
              
              -Net
                  cash provided by financing activities
              
              
              1,334,487
              
              
              2,831,588Net
                  increase (decrease) in cash
              
              
              (1,072,894
              )
              
              1,399,621Cash
                  at beginning of period
              
              
              1,414,456
              
              
              705,713Cash
                  at end of period
              
              $
              341,562
              
              $
              2,105,334Cash
                  paid during the period for:Interest
              
              $
              76,586
              
              $
              336,198Income
                  taxes
              
              $
              -
              
              $
              -**SUPPLEMENTAL
                  DISCLOSURE OF NON-CASH INVESTING AND FINANCING
                  ACTIVITIES**Debt
                  discount on convertible notes issued with common stock
              
              $
              1,478,714
              
              $
              1,164,917Reclassification
                  for change in par value of common and preferred stock
              
              $
              -
              
              $
              2,871,879Capital
                  lease additions
              
              $
              -
              
              $
              133,804Assumed
                  note payable with equipment purchase
              
              $
              -
              
              $
              85,000


*Page F-3*
                *See
                    accompanying notes to condensed
                    consolidated financial
                    statements.*
 
 **U.S.
            DRY CLEANING CORPORATION**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**


**1.ORGANIZATION, NATURE
      OF OPERATIONS AND BASIS OF PRESENTATION**





***The
      Company***





U.S.
      Dry
      Cleaning Corporation (“USDC” or the “Company”) was formed on July 19, 2005 and
      on December 30, 2005 completed a “reverse merger” with a public “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”). The
      Company is a retail service provider of laundry and dry cleaning stores and
      operations.




On
      August
      9, 2005, USDC purchased 100% of the outstanding common stock and membership
      of
      Steam Press Holdings, Inc. (“Steam Press”), and Coachella Valley Retail, LLC
      (“CVR”), respectively, in stock-for-stock type transactions. 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 thirteen 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.





On
      February 15, 2007, 100% of Cleaners Club, Inc.’s (“CCI”) outstanding common
      stock was acquired in a merger with USDC. The acquired shares were converted
      into 780,000 shares of $0.001 par value of USDC common stock. (See Note 8
      for further information).





***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 U.S. Securities and Exchange Commission
      (“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 10-KSB ,as amended, for the fiscal year
      ended September 30, 2006 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 March 31, 2007, and
      the results of operations and cash flows for the interim periods presented
      have
      been made. Such adjustments
      consist only of normal recurring adjustments. The results of operations for
      the
      interim periods presented are not necessarily
      indicative of the results for the full year.





***Going
      Concern***





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 ordinary course of business. The Company
      has
      recurring losses from operations; negative cash flow from operating activities
      of approximately $1.7 million for the six months ended March 31, 2007; and
      negative working capital of approximately $3.4 million and an accumulated
      deficit of approximately $13.3 million at March 31, 2007. The Company’s business
      plan calls for various business acquisitions, which will require substantial
      additional 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 .
      In
      conjunction with such efforts, on December 27, 2006, the Company filed a Form
      SB-2 to register an offering consisting of 3,000,000 units at $2.50 per unit.
      Each unit consists of one share of common stock and one redeemable warrant
      to
      purchase one share of common stock. 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, 2007. 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.




*Page F-4*
 
 **U.S.
              DRY CLEANING CORPORATION**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**


**1.     
      ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF PRESENTATION** (continued)




***Going
      Concern*** (continued)





The
      condensed consolidated financial statements do not include any adjustments
      related to recoverability and classification of asset 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, CVR and CCI. 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 periods. Significant estimates made by management include
      the realization of long-lived assets, the valuation allowance on deferred tax
      assets, and the allowance for doubtful accounts receivable. Actual results
      could
      differ from those estimates.





***Business
      Segments***





The
      Company currently operates in one segment, that being the laundry and dry
      cleaning business and is geographically
      concentrated in Hawaii and Southern California.





***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 business 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 is 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 this regulation,
      which went into effect January 1, 2003, any new dry cleaning business or
      facility that adds a machine must also 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 successfully
      integrating the new dry cleaning processes.




*Page F-5*
 
 **U.S.
              DRY CLEANING CORPORATION**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(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 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 complies in all material respects with all relevant rules
      and
      regulations pertaining to the use
      of
      chemical agents. In the opinion of management, the Company complies in all
      material respects with all known federal, state, and local legislation
      pertaining to the use of all chemical agents and will endeavour to ensure that
      the entire organization proactively remains in compliance with all such statutes
      and regulations in the future.





***Earnings
      (Loss) Per Shares***





Under
      Statement of Financial Accounting Standards ("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 common share
      is
      computed using the weighted average number of common shares and, if dilutive,
      potential common shares outstanding during the period. Potential common shares
      consist of the incremental common shares issuable upon the exercise of warrants
      (using the treasury stock method) and the conversion of the convertible
      preferred stock and convertible debt (using the if-converted method). For the
      six months ended March 31, 2007, 2,215,000 convertible securities and 432,432
      options and warrants to purchase common stock were excluded from the
      calculation of diluted loss per share because they were anti-dilutive





***Reclassification***





Certain
      reclassifications have been made to the March 31, 2006 condensed consolidated
      financial statements of the Company to conform to the March 31, 2007
      presentations.





***Restatement
      of Prior Quarters***





As
      more
      fully discussed in the Company’s amended Form 10-KSB for the year ended
      September 30, 2006 filed with the SEC during February 2007, the Company restated
      its results for the year ended September 30, 2006 and the related fiscal 2006
      quarters. The March 31, 2006 quarterly results of operations and cash flows
      have
      been restated accordingly (See Note 7).





***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.





***Deferred
      Equity Raising Costs***





Direct
      costs of securing equity financing are capitalized as assets until such time
      the
      funds from the related equity raising have been obtained, at which time such
      assets are reclassified as a reduction to additional paid in
      capital.




*Page F-6*
 
 **U.S.
              DRY CLEANING CORPORATION**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**





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





***Goodwill
      and Other Intangible Assets***





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 net amounts of approximately $72,000 and $282,000
      at
      March 31, 2007. Customer relationships and the trademark are amortized using
      the
      straight-line method over the weighted average life of four years and ten years,
      respectively. Management considers the straight-line method to be appropriate
      for customer lists due to the longevity of the customer
      relationships.





***Revenue
      Recognition***





The
      Company recognizes revenue on retail laundry and dry cleaning services when
      the
      services have been provided and the earnings process is complete. For “walk-in”
retail customers, when an order is complete and ready for customer pick-up,
      the
      sale and related account receivable are recorded. For commercial customers,
      the
      sale is not recorded until the Company delivers the cleaned garments. Generally,
      the Company delivers the cleaned garments the same day they are dropped off
      (same-day service).





***Advertising***





The
      Company expenses the cost of advertising when incurred. Advertising costs
      approximated $65,000 and $60,000 for the six months ended March 31, 2007 and
      2006, respectively. Advertising costs approximated $38,000 and $24,000 for
      the
      three months ended March 31, 2007 and 2006, respectively. These costs have
      been
      included in selling expenses in the accompanying condensed consolidated
      statement of operations.





***Discount
      on Convertible Notes***





Convertible
      instruments are evaluated to determine if they are within the scope of Emerging
      Issues Task Force ("EITF") Issue No. 00-19, *“Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled In,
      a
      Company’s Own Stock”* and SFAS
      No. 133. In the event that they are not, discounts on convertible notes are
      attributable to the relative fair value of the beneficial conversion feature
      that allows holders of the debenture to convert into shares of the Company's
      common stock at prices lower than the market value and the discount associated
      with the related equity instruments issued. These discounts are accounted for
      in
      accordance with EITF Issue No. 00-27, *"Application
      of EITF No. 98-5 To Certain Convertible Instruments"* and EITF
      Issue No. 98-5, *"Accounting
      For Convertible Securities with Beneficial Conversion Features or Contingently
      Adjustable Conversion Ratios."*





***Stock-Based
      Compensation***





Since
      the
      Company has no stock option plans or any potential employee stock-based employee
      instruments outstanding, the disclosure requirements of SFAS No. 123-R are
      not
      applicable to the accompanying financial statements.





For
      stock-based compensation issued to non-employees, the Company uses the fair
      value method of accounting under the provisions of SFAS No. 123-R and EITF
      Issue
      No. 96-18, “ *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services* .”


***Registration
        Rights Payment Arrangements***




The
      Company has entered into registration rights agreements related to various
      equity arrangements (See Note 6). The Company accounts for registration rights
      payment arrangements in accordance with Financial Accounting Standards
      Board Staff Position No. EITF 00-19-2, “ *Accounting
      for Registration Payment Arrangements,”* whereas
      any contingent obligation to make future payments or otherwise transfer
      consideration under a registration payment arrangements, whether issued as
      a
      separate agreement or included as a provision of a financial instrument or
      other
      agreement, should be separately recognized and measured in accordance with
      SFAS
      No. 5, “ *Accounting
      for Contingencies.”*




*Page F-7*
 
 **U.S.
              DRY CLEANING CORPORATION**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**


**3.NOTES
      PAYABLE**





On
      December 26, 2006, the Company accepted subscriptions from accredited investors
      for $2,250,000 in total purchase price of its Series A Convertible Debenture.
      The debentures were sold with a built-in thirty percent (30%) rate of return.
      For each $100,000 paid to the Company, a total of $130,000 is due to the holder.
      Additionally, upon issuance, the Company issued 16,666 shares of common stock
      to
      the note holder for each $100,000 subscription. The debentures mature in one
      year from the date issued with no interest. The principal amount of the
      debentures may be converted into common stock of the Company at a fixed
      conversion rate of $3.00 per share at the holder’s option at any time. The
      principal amount of the debentures is secured by all of the Company’s assets and
      those of its operating subsidiaries, including an assignment of its leasehold
      interests in its retail facilities. Pursuant to a registration rights agreement,
      the Company is obligated to register or to file a registration statement for
      all
      of the common stock that may be issued upon conversion of the debentures, within
      270 days from closing on a “best efforts” basis. Broker or underwriting fees or
      commissions to be paid in connection with the offer and sale will be a maximum
      of 10% of cash received. As of March 31, 2007 the Company has deposited
      $1,800,000 in cash proceeds; debt conversion of $200,000 and a stockholder
      note
      receivable of $250,000. Accordingly, 374,985 shares of common stock were issued
      during the six months ended March 31, 2007. The offer and sale of the debentures
      and common stock were exempt from registration pursuant to Section 4(2) of
      the
      Securities Act of 1933 and Regulation D, Rule 506, as promulgated by the
      Securities and Exchange Commission.





The
      Series A Convertible Debentures meet the definition of a conventional
      convertible debt instrument. Accordingly, the Company computed the relative
      fair
      values of the debt as if converted and the common stock, using a stock price
      of
      $1.85 (the estimated fair value of the common stock at the commitment date
      - See
      Note 8) pursuant to Accounting Principles Board Opinion No. 14 and related
      interpretations and recorded debt discounts associated with the common stock
      and
      a beneficial conversion feature totalling $803,714. Additionally, the built-in
      30% rate of return described above, totalling $675,000, was included in the
      face
      amount of the notes, but was also recorded as debt discount against the face
      amount of the notes. These discounts are being accreted to interest expense
      over
      the one year term of the notes. For the three months ended March 31, 2007,
      the
      Company accreted $292,092 of such debt discounts to interest expense. For the
      six months ended March 31, 2007, the Company accreted $330,429 of such debt
      discounts to interest expense.




During
      the quarter ended March 31, 2007, the Company assumed two promissory notes
      for
      $100,000 each and secured by equipment. The terms of the promissory notes are
      for 13 monthly interest payments of $850 starting on May 1, 2007 with principal
      amount due at maturity date.




**4.OTHER
      RELATED PARTY
      TRANSACTIONS**





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





**5.EQUITY
      TRANSACTIONS**





***Common
      Stock***





During
      the three months ended December 31, 2006, the Company issued 125,000 shares
      of
      its restricted common stock to the Company’s Chief Financial Officer as a bonus
      for past services valued at $231,250 based on the estimated fair market
      value of the Company’s common stock of $1.85 per share.  Expenses related
      to this transaction have been included in administrative expenses in the
      accompanying condensed consolidated statement of operations.




During
      the three months ended December 31, 2006, the Company issued 80,000 shares
      of
      restricted common stock to directors for past services valued at $148,000 based
      on the estimated fair market value of the Company’s common stock of $1.85 per
      share.  Expenses related to this transaction have been included in
      administrative expenses in the accompanying condensed consolidated statement
      of
      operations.




*Page F-8*
 
 **U.S.
              DRY CLEANING CORPORATION**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**




**5.EQUITY
      TRANSACTIONS** (continued)





***Common
      Stock*** (continued)





During
      the three months ended December 31, 2006, the Company, pursuant to a consultant
      agreement, issued 150,000 shares of its restricted common stock in exchange
      for
      certain consulting services provided to the Company, which was valued at $37,500
      based on the value of the services provided. Expenses related to this
      transaction have been included in professional fees in the accompanying
      condensed consolidated statement of operations.





During
      the six months ended March 31, 2007, the Company, pursuant to the terms of
      the
      Series A Convertible Debentures as disclosed in Note 3 above, issued 374,985
      shares of restricted common stock valued at $803,714 using Black-Scholes pricing
      model.





During
      the three months ended March 31, 2007, the Company issued 780,000 shares of
      restricted common stock with an estimated fair market value of $1.85 per share
      pursuant to an agreement of merger as disclosed in Note 8.





***Options
      and warrants***





In
      fiscal
      2005, the Company issued 1,500,000 warrants to purchase its common stock to
      each
      of the two founding shareholders. Such warrants are exercisable at $.01 per
      share should the Company achieve certain annualized revenues in any one month
      as
      follows: i) if the revenue growth exceeds $60 million, 60% of the potential
      warrants vest, ii) if the revenue growth exceeds $80 million, 80% of the
      potential warrants vest and iii) if revenue growth exceeds $100 million, all
      of
      the potential warrants vest. The warrants expired and have been cancelled on
      December 31, 2006.





During
      the quarter ended December 31, 2006, the Company issued 500,000 warrants to
      an
      investment banking firm for services directly related to an equity fund raising
      transaction. Such warrants have an exercise price of $0.25, are exercisable
      for
      five (5) years from the effective date, and contain net issuance, anti-dilution
      provisions for split adjustments and “piggyback” registration rights. The
      Company did not record any expense related to the fair value of the warrants
      since the issuance was payment for equity fund raising services.





During
      the quarter ended March 31, 2007, the Company issued 100,000 warrants to a
      consultant for professional services at an exercise price of $3.50.  The
      fair value of the transaction using Black-Scholes pricing model of $65,000
      was
      recorded as deferred consulting fees and presented as an offset to additional
      paid-in capital. Such amount is being amortized to expense over the two year
      term of the consulting agreement.





During
      the quarter ended March 31, 2007, the Company issued 50,000 warrants to a
      consultant for professional services in conjunction with the recent acquisition
      at an exercise price of $3.50. The Company included the fair value of the
      warrants using Black-Scholes pricing model in the amount of $32,250 as part
      of the purchase price consideration for Cleaners Club acquisition (See Note
      8).





During
      the quarter ended March 31, 2007, the Company granted 400,000 options (outside
      of a stock option plan) to seller of CCI in accordance with the related
      employment agreement with the Company at exercise prices ranging from $3.50
      to
      $10.00 per share.  The Company included the fair value of the options using
      Black-Scholes pricing model in the amount of $171,000 as part of the
      purchase price consideration for Cleaners Club acquisition (See Note
      8).




For
      transactions noted above where fair market value
      of common stock, options and warrants was calculated using Black-Scholes pricing
      model, the following assumptions were used: risk free interest rate of 4.5%,
      estimated volatility of 55%, expected life of 5 years unless otherwise stated,
      and no expected dividend yield.





**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.





*Page F-9*
 
 **U.S.
            DRY CLEANING CORPORATION**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**




**6.COMMITMENTS
      AND
      CONTINGENCIES** (continued)





***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 is declared effective or the Companies stock
      begins trading. As of March 31, 2007, the Company had not filed a registration
      statement registering these shares and has accrued liquidated damages of $35,625
      at March 31, 2007. During six months ended March 31, 2007, the Company paid
      $71,250 as a penalty and was recorded as other expenses.





The
      Company is required to use its “best efforts” to file, on or before two hundred
      seventy days (270) following the closing of the initial sale of the Series
      A
      Convertible Debentures (see Note 3), a registration statement under the
      Securities Act covering the registration of the sale of the Registrable
      Securities by the holders. The holders are required to cooperate fully with
      the
      Company in preparation of the registration statement and provide all necessary
      information regarding the holders, the underwriters, the manner of distribution
      and other material information reasonably requested by the Company.





***Employment
      Agreements***





Effective
      on December 12, 2006, in connection with his appointment as the Company’s new
      Chief Executive Officer, the Company entered into an employment agreement with
      Robert Y. Lee for a three-year term. The employment agreement provides for
      a
      base salary at the rate of $20,000 per month, which increases to $25,000 upon
      the Company achieving certain milestones in revenue and income. Mr. Lee is
      also
      entitled to a bonus, which will be represented by a promissory note issued
      by
      the Company bearing interest at eight percent per annum and in the principal
      amount of $200,000, of which $50,000 is payable at the earlier of the expiration
      of his employment
      term and the closing by the Company of a debt or equity financing of at least
      $1,500,000, and the balance of which payable upon the earlier of the expiration
      of his employment term and the closing by the Company of stock offering with
      proceeds of at least $3,000,000. In addition, upon the achievement of certain
      milestones by the Company, Mr. Lee will be entitled to additional bonuses
      ranging from $250,000 to $500,000. Furthermore, the Company agreed to issue
      to
      Mr. Lee fully vested options to purchase an aggregate of 800,000 shares of
      the
      Company’s common stock, at exercise prices ranging from $3.50 to $10.00 per
      share, which options will be evidenced by a stock option agreement approved
      by
      the Board of Directors. The Company also agreed to pay an expense allowance
      for
      an automobile in an amount of $2,000 per month. The agreement also provides
      for
      non-competition covenant by Mr. Lee in favor of the Company and confidentiality
      provisions.





Effective
      on December 21, 2006, the Company entered into an employment agreement with
      Riaz
      Chauthani as Director of Real Estate and Business Development for a three-year
      term. The employment agreement provides for a base salary at the rate of
      $150,000 per year. The Company also agreed to pay an expense allowance for
      an
      automobile in an amount of $1,000 per month and benefits and other compensation
      such as health, disability, dental, life and other insurance plans that the
      Company may have in effect from time to time. In addition, the Company shall
      provide Mr. Chauthani with one or more key man life insurance policies up to
      the
      maximum amount of $3,000,000. Furthermore, the Company agreed to issue to Mr.
      Chauthani fully vested options to purchase an aggregate of 400,000 shares of
      the
      Company’s common stock, at exercise prices ranging from $3.50 to $10.00 per
      share valued at $171,000 based on the estimated fair market value of the
      Company’s common stock of $1.85 per share and was included as part of the
      purchase price consideration in the acquisition of Cleaners Club, Inc (See
      Note
      8). Additionally, the Company is obligated to pay Mr. Chauthani all accrued
      but
      unpaid base salary as of the effective date of termination together with the
      base salary payable through the end of the term upon termination without
      cause.




*Page F-10*
 
 **U.S.
              DRY CLEANING CORPORATION**
 **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**




**6.COMMITMENTS
      AND
      CONTINGENCIES** (continued)





***Filing
      of Form SB-2***





On
      December 27, 2006, the Company filed a Form SB-2. The offering consists of
      up to
      3,000,000 units. Each unit consists of one share of common stock and one
      redeemable warrant to purchase one share of common stock.





The
      warrants included in the units will be exercisable to purchase one share of
      common stock immediately after the effectiveness of registration statement.
      Each
      warrant entitles its holder to purchase one share of common stock at an exercise
      price equal to $3.50. The warrants expire on the fifth anniversary of the
      effective date. The Company will have the right to redeem some or all of the
      warrants issued in this offering at a redemption price of $0.05 per warrant
      at
      any time after the date on which the closing price of the Company’s common stock
      has exceeded $5.00 for 20 consecutive trading days.





**7.RESTATEMENT
      OF PRIOR YEAR
      INTERIM PERIODS**





The
      accompanying 2006 condensed consolidated statements of operations and cash
      flows
      were restated to reflect an increase to debt discount related to the recording
      of convertible debt issued with common stock, as well as the related
      amortization of such discount. See the Company’s Form 10-KSB/A for the year
      ended September 30, 2006 for additional information. The effect of the
      restatement for the three and six months ended March 31, 2006 was an increase
      to
      interest expense of approximately $66,000 and $514,000 , respectively, and
      an
      increase to basic and diluted loss per common share of $0.01 and $0.00
      respectively. The effect of the restatement is as follows:




As
                  Reported
              
              As
                  Restated3
                  Months
              
              6
                  Months
              
              3
                  Months
              
              6
                  MonthsNet
                  Loss
              
              $
              (809,055
              )
              $
              (2,111,446
              )
              $
              (1,161,446
              )
              $
              (2,625,123
              )Basic
                  and diluted loss per common share
              
              $
              (0.08
              )
              $
              (0.23
              )
              $
              (0.12
              )
              $
              (0.28
              )





**8.ACQUISITION
      OF CLEANERS
      CLUB, INC.**





On
      February 15, 2007, the Company completed the acquisition of all of the
      outstanding stock of Cleaners Club, Inc. ("CCI”) in a purchase business
      combination. The total purchase price of $2,028,000 is comprised of 780,000
      shares of the Company’s restricted common stock valued at $1,443,000, fully
      vested stock options valued at approximately $203,000, cash totaling $100,000
      and direct acquisition expenses totaling approximately $282,000. The principal
      reason that the Company agreed to pay a purchase price for CCI in excess of
      its
      recorded net assets was to acquire an established revenue stream.





In
      order
      to measure and allocate the purchase price of the CCI business combination,
      the
      Company engaged a third-party valuation firm to estimate the fair value of
      CCI’s
      net assets. At the time of this filing the valuation had not been completed.
      It
      is anticipated that the valuation will not be materially different from the
      purchase price allocation summarized as follows:




*Page F-11*
 
 **U.S.
                DRY CLEANING CORPORATION**
 **NOTES
                TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
                THE THREE AND SIX MONTHS ENDED MARCH 31, 2007 AND 2006**
 **(UNAUDITED)**
  **8.ACQUISITION
                OF CLEANERS
                CLUB, INC.** (continued)


Cash
                  and other current assets
              
              $
              24,000Property
                  and equipment
              
              
              427,000Deposits
              
              
              40,000Goodwill
              
              
              2,544,000Liabilities
                  assumed
              
              
              (1,007,000
              )Total
              
              $
              2,028,000




Deferred
      tax liabilities related to the estimated tax effect of non-deductible
      amortization of identifiable intangible assets is not significant. Goodwill
      resulting from the acquisition is not deductible for income tax
      purposes.





Certain
      pro forma financial information of the Company is presented below, based on
      the
      assumption that the acquisition occurred at the beginning of the earliest period
      presented.


Consolidated
                  Pro Forma Financial InformationThree
                  Months Ended
              
              Six
                  Months EndedMarch
                  31, 2007
              
              March
                  31, 2006
              
              March
                  31, 2007
              
              March
                  31, 2006Net
                  Sales
              
              $
              2,439,960
              
              $
              1,882,708
              
              $
              4,779,765
              
              $
              4,204,533Net
                  Loss
              
              $
              (2,364,024
              )
              $
              (840,592
              )
              $
              (4,084,158
              )
              $
              (2,586,949
              )Basic
                  and diluted loss per common share
              
              $
              (0.09
              )
              $
              (0.14
              )
              $
              (0.24
              )
              $
              (0.28
              )







*Page F-12*
 **Item
                2:Management’s
                Discussion and Analysis**





**Forward-Looking
      Statements**




*Certain
      statements made herein and in other public filings and releases by the Company
      contain “forward-looking” information (as defined in the Private Securities
      Litigation Reform Act of 1995) that involve risk and uncertainty. These
      forward-looking statements may include, but are not limited to, future capital
      expenditures, acquisitions (including the amount and nature thereof), future
      sales, earnings, margins, costs, number and costs of store openings, demand
      for
      clothing, market trends in the retail clothing business, inflation and various
      economic and business trends. Forward-looking statements may be made by
      management orally or in writing, including, but not limited to, Management's
      Discussion and Analysis or Plan of Operation section and other sections of
      our
      filings with the SEC under the Exchange Act and the Securities
      Act.*





*Actual
      results and trends in the future may differ materially depending on a variety
      of
      factors including, but not limited to, domestic economic activity and inflation,
      our successful execution of internal operating plans and new store and new
      market expansion plans, performance issues with key suppliers, severe weather,
      and legal proceedings. Future results will also be dependent upon our ability
      to
      continue to identify and complete successful expansions and penetrations into
      existing and new markets and our ability to integrate such expansions with
      our
      existing operations.*





**Description
      of Business**





***The
      Company***





U.S.
      Dry
      Cleaning Corporation (“USDC”) was formed on July 19, 2005 and on
      December 30, 2005 completed a “reverse merger” with a public “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”). On
      August 9, 2005, USDC purchased 100% of the outstanding common stock and
      membership of Steam Press Holdings, Inc. (“Steam Press”), and Coachella Valley
      Retail, LLC (“CVR”), respectively, in stock--for-stock type transactions. 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 thirteen 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.





On
      February 15, 2007, 100% of Cleaners Club, Inc.’s (“CCI”) authorized, issued and
      outstanding common stock was acquired in a merger with USDC. The acquired shares
      were converted into 780,000 shares of $0.001 par value common stock of USDC
      immediately prior to the merger. The Company’s management has estimated the fair
      value of the 780,000 common shares given at $1.85 per share (the estimated
      fair
      value of the Company’s common stock) for a stock purchase price consideration of
      $1,443,000.  Additionally, the Company issued fully vested stock
      options valued at approximately $203,000, cash of $100,000 and incurred
      approximately $282,000 in acquisition related costs for a total purchase price
      consideration of approximately $2,028,000. (See Note 8 for further
      information).





***Competition***





The
      Company operates in an industry that is subject to intense competition. A
      handful of markets are dominated by large, well-capitalized operators who have
      implemented a model similar to USDC’s vision: serving multiple locations with
      centralized, large capacity production facilities. Smaller players are finding
      it more difficult to retain market share due to higher overall operating costs
      and constraints. The Company believes that its strategy of centralized
      operations, consolidation, and public corporate structure is unique in the
      dry
      cleaning industry. However, there can be no assurance that other enterprises
      may
      not seek to acquire a significant number of dry cleaning operations in markets
      in which the Company currently operates or will prospectively operate




*Page 2*
 ***Other
                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 business 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 is 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 this regulation,
      which went into effect January 1, 2003, any new dry cleaning business or
      facility that adds a machine must also 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 successfully
      integrating the new dry cleaning processes.





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 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 complies in all material respects with all relevant rules
      and
      regulations pertaining to the use
      of
      chemical agents. In the opinion of management, the Company complies in all
      material respects with all known federal, state, and local legislation
      pertaining to the use of all chemical agents and will endeavor to ensure that
      the entire organization proactively remains in compliance with all such statutes
      and regulations in the future.





***Major
      Customers***





At
      March
      31, 2007 and 2006, one customer accounted for approximately 14% and 17% of
      gross
      accounts receivable, respectively. For the three months ended March 31, 2007
      and
      2006, one customer accounted for approximately 13% and 15% of net sales,
      respectively.





**Results
      of Operations for the Three Months Ended March 31, 2007 and
      2006**





***Revenues***





Net
      sales
      are approximately $2 million for the three months ended March 31, 2007 an
      increase of approximately $0.5 million compared to the three months ended March
      31, 2006 of approximately $1.5 million. This reflects a 35% increase in
      revenues. The increase consisted of approximately $0.1 million from existing
      operations and $0.4 million from our recent acquisition.





***Cost
      of Sales***





Our
      cost
      of sales is approximately $1 million for the three months ended March 31, 2007
      an increase of approximately $0.2 million compared to the three months ended
      March 31, 2006 of approximately $0.8 million. Cost
      of
      sales as a percentage to revenues is 50% and 55% for the three months ended
      March 31, 2007 and 2006, respectively .
      Our
      cost of sales consists of supplies, labor and facilities to process laundry
      and
      dry cleaning products.





***Gross
      Profit***





Gross
      profit increased approximately $0.3 million to approximately $1 million for
      the
      three months ended March 31, 2007 compared to the three months ended March
      31,
      2006 of approximately $0.7 million. Gross profit as a percentage of revenue
      increased 5% or 50% and 45% for the three months ended March 31, 2007 and 2006,
      respectively.


*Page 3*


***Operating
      Expenses***





Operating
      expenses for the three months ended March 31, 2007 are approximately $2.5
      million, an increase of approximately $1.1 million compared to the three months
      ended March 31, 2006 of approximately $1.4 million.





Our
      delivery, store and selling expenses for the three months ended March 31, 2007
      were approximately $0.8 million compared to the three months ended March 31,
      2006 of approximately $0.7 million. These expenses are primarily related to
      store rents and delivery costs.




Our
      administrative expenses for the three months ended March 31, 2007 were
      approximately $0.6 million, an increase of approximately $0.2 million compared
      to the three months ended March 31, 2006 of approximately $0.4 million. These
      expenses are primarily related to management and professional fees. Our
      management costs are directly related to supporting a public company; legal
      fees
      related to our recent acquisition; and the preparation of our Form SB-2 to
      raise
      approximately $7.5 million.





***Net
      Results of Operations***





Our
      operating loss is approximately $1.4 million for the three months ended March
      31, 2007 and approximately $0.7 million for the three months ended March 31,
      2006.





***Other
      income (expense)***





Interest
      expense for the three months ended March 31, 2007 was approximately $0.8 million
      compared to approximately $0.4 million for the three months ended March 31,
      2006. This is related to the amortization of debt discounts against convertible
      notes payable issued in December 2006 of approximately $0.3 million and
      financing fees of approximately $0.3 million.





***Net
      Results***





We
      are
      reporting a net loss of approximately $2.2 million or $0.13 per common share
      for
      the three months ended March 31, 2007 compared to a net loss of approximately
      $1.2 million or $0.12 per common share for the three months ended March 31,
      2006. This
      includes legal, audit, consulting and administrative expenses directly related
      towards capitalization of the Company.





**Results
      of Operations for the Six Months Ended March 31, 2007 and
      2006**





***Revenues***





Net
      sales
      were approximately $3.6 million for the six months ended March 31, 2007 an
      increase of approximately $0.7 million compared to the six months ended March
      31, 2006 of approximately $2.9 million. This reflects a 23% increase in
      revenues. The
      increase consisted of approximately $0.3 million from existing operations and
      approximately $0.4 million from our recent acquisition.





***Cost
      of Sales***





Our
      cost
      of sales is approximately $1.9 million for the six months ended March 31, 2007
      an increase of approximately $0.3 million compared to the six months ended
      March
      31, 2006 of approximately $1.6 million. Cost
      of
      sales as a percentage to revenues is 51% and 55% for the six months ended March
      31, 2007 and 2006, respectively .
      Our
      cost of sales consists of supplies, labor and facilities to process laundry
      and
      dry cleaning products.





***Gross
      Profit***





Gross
      profit increased approximately $0.5 million to approximately $1.8 million for
      the six months ended March 31, 2007 compared to the six months ended March
      31,
      2006 of approximately $1.3 million. Gross profit as a percentage of revenue
      increased 4% or 49% and 45% for the six months ended March 31, 2007 and 2006,
      respectively.


*Page 4*


***Operating
      Expenses***





Operating
      expenses for the six months ended March 31, 2007 are approximately $46 million,
      an increase of approximately $1.7 million compared to the six months ended
      March
      31, 2006 of approximately $2.9 million.





Our
      delivery, store and selling expenses for the six months ended March 31, 2007
      were approximately $1.5 million compared to the six months ended March 31,
      2006
      of approximately $1.3 million. These expenses are primarily related to store
      rents and delivery costs.




Our
      administrative expenses for the six months ended March 31, 2007 were
      approximately $1.3 million, an increase of approximately $0.5 million compared
      to the six months ended March 31, 2006 of approximately $0.8 million. These
      expenses are primarily related to management and professional fees. Our
      management costs are directly related to supporting a public company; legal
      fees
      related to our recent acquisition; and the preparation of our Form SB-2 to
      raise
      approximately $7.5 million.





***Net
      Results of Operations***




Our
      operating loss is approximately $3.8 million for the six months ended March
      31,
      2007 and approximately $2.6 million for the six months ended March 31, 2006.





***Other
      income (expense)***





Interest
      expense for the six months ended March 31, 2007 was approximately $0.9 million
      compared to approximately $1 million for the six months ended March 31, 2006.
      This is related to a decrease in amortization of debt discounts against
      convertible notes payable issued during the six months ended March 31, 2007
      of
      approximately $0.3 million; and during the six months ended March 31, 2006
      of
      approximately $0.7 million; and offset by financing fees of approximately $0.3
      million.





***Net
      Results***





We
      are
      reporting a net loss of approximately $3.8 million or $0.22 per common share
      for
      the six months ended March 31, 2007 compared to a net loss of approximately
      $2.6
      million or $0.28 per common share for the six months ended March 31, 2006. This
      includes legal, audit, consulting and administrative expenses directly related
      towards capitalization of the Company.





**Liquidity
      and Capital Resources**





Total
      assets increased by approximately $0.8 million from $10.2 million as of March
      31, 2006 to $11 million as of March 31, 2007. The increase is primarily due
      to
      an increase in goodwill of approximately $2.5 million related to our recent
      acquisition; property and equipment of approximately $0.5 million; offset by
      a
      decrease in cash of approximately $1.7 million; and other assets of
      approximately $0.5 million.





Total
      liabilities decreased by approximately $2.9 million from approximately $9.2
      million as of March 31, 2006 to approximately $6.3 million as of March 31,
      2007.
      This is primarily due to a decrease in notes payable of approximately $4
      million; offset by an increase in trade accounts payable and accrued liability
      obligations of approximately $0.9 million.





Our
      operating activities used approximately $1.7 million in cash during the six
      months ended March
      31 ,
      2007.
      Our net loss of approximately $3.8 million was the primary component of our
      negative operating cash flow. This net loss was offset by a number of non-cash
      items totalling approximately $1.1 million. These include depreciation,
      amortization, bad debt expense and the issuance of stock for compensation and
      services and debt discount amortization in addition to the growth in payables
      and receivables of approximately $1 million. Operating activities used
      approximately $1.1 million in cash during the six months ended March 31, 2006.
      Our net loss of approximately $2.1 million was the primary component of our
      negative operating cash flow. This net loss was offset by a number of non-cash
      items totalling approximately $0.4 million; and other current assets of
      approximately $0.8 million; offset by the growth in receivables of approximately
      $0.2 million.


*Page 5*


Cash
      used
      in investing activities during the six months ended March
      31, 2007
      consisted of approximately $0.9 million used for the purchase of property and
      equipment; acquisition projects in process and the cash of acquired company
      as
      compared to approximately $0.3 million for the six months ended March 31, 2006
      for the purchase of property and equipment.





Cash
      flows from financing activities were approximately $1.4 million for the six
      months ended March
      31 ,
      2007
      which primarily consisted of approximately $1.8 million in net proceeds from
      the
      issuance of convertible debentures; offset by repayments on notes payable,
      capital leases and prepaid financing costs of approximately $0.6
      million.





We
      have a
      working capital deficit of approximately $3.4 million as of March
      31 ,
      2007.
      To meet our current working capital requirements, we raised approximately $2
      million in private funds through convertible debt in December 2006. We are
      also
      in the process of issuing a public offering for approximately $7.5 million. However,
      there can be no assurances that any debt and/or equity financing transactions
      now under consideration will be successful at acceptable terms.




***Going
      Concern Considerations***


The
        condensed consolidated financial statements included elsewhere herein 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 ordinary course of business. For the six months ended
        March
        31, 2007, we had a net loss of approximately $3.8 million and negative cash
        flow
        from operating activities of approximately $1.7 million. At March 31, 2007,
        the
        Company had an accumulated deficit of approximately $13.3 million, working
        capital deficit of approximately $3.4 million and has suffered significant
        net
        losses since inception.




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.





Since
      inception, the Company has yet to generate any profits from operations.
      Accordingly, the Company has met its capital requirements primarily through
      the
      private sale of its convertible secured promissory notes payable and secured
      convertible debentures. The Company has raised approximately $12.5 million
      in
      net cash proceeds through such private sales. In May 2006, the majority of
      the
      holders of approximately $7.9 million senior-secured convertible notes payable
      elected to convert into the Company’s common stock. It is anticipated that the
      holders of the recently raised $2 million will also convert their convertible
      debentures to equity upon maturity.





The
      Company’s capital requirements depend on numerous factors, including the rate of
      market acceptance of the Company’s services, the Company’s ability to service
      its customers, the Company’s ability to maintain and expand its customer base,
      the level of resources required to expand the Company’s marketing and sales
      organization, and other factors. We are currently revising our business plan
      for
      funding our long-term operations to include potential acquisitions which would
      allow us to maximize our current processing facility capacities, thereby
      increasing our potential profitability. The Company intends to fund operations
      through debt and/or 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 not be sufficient
      to
      fund its planned acquisitions, capital expenditures, working capital, and other
      cash requirements for the fiscal year ending September 30, 2007.


*Page 6*




As
      more
      fully explained elsewhere herein, the Company’s management presently believes
      that cash generated from operations (if any), combined with the Company’s
      current cash positions and debt and/or equity financing proposals now under
      consideration will be sufficient to meet the Company’s anticipated liquidity
      requirements through September 2007. However, there can be no assurances that
      any debt and/or equity financing transactions now under consideration will
      be
      successful at acceptable terms.





**Off
      Balance Sheet Arrangements**





We
      are
      not a party to any off-balance sheet arrangements, do not engage in trading
      activities involving non-exchange traded contracts, and are not a party to
      any
      transaction with persons or entities that derive benefits, except as disclosed
      herein, from their non-independent relationships with us.





**Inflation**





We
      believe that inflation generally causes an increase in sales prices with an
      offsetting unfavorable effect on the cost of products and services sold and
      other operating expenses. Accordingly, with the possible exception of the impact
      on interest rates, we believe that inflation will have no significant effect
      on
      our results of operations or financial condition.




**Critical
      Accounting Policies**





To
      prepare the financial statements in conformity with accounting principles
      generally accepted in the United States of America, management is required
      to
      make significant estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. In particular, we provide for estimates
      regarding the collectability of accounts receivable, the recoverability of
      long-lived assets, as well as our deferred tax asset valuation allowance. On
      an
      ongoing basis, we evaluate our estimates based on historical experience and
      various other assumptions that we believe to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying values of assets and liabilities. Future financial results could
      differ materially from current financial results.





***Long-Lived
      Assets***





We
      assess
      the impairment of long-lived assets, including goodwill, annually or whenever
      events or changes in circumstances indicate the carrying amount of an asset
      may
      not be recoverable. Recoverability of assets to be held for use is based on
      expectations of future undiscounted cash flows from the related operations,
      and
      when circumstances dictate, we adjust the asset to the extent that the carrying
      value exceeds the estimated fair value of the asset. Our judgments related
      to
      the expected useful lives of long-lived assets and our ability to realize
      undiscounted cash flows in excess of the carrying amounts of such assets are
      affected by factors such as the ongoing maintenance and improvements of the
      assets, changes in economic conditions, and changes in operating performance.
      As
      we assess the ongoing expected cash flows and carrying amounts of our long-lived
      assets, these factors could cause us to realize a material impairment charge,
      which would result in decreased net income (or increased net loss) and reduce
      the carrying value of these assets.







***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 7*


***Revenue
      Recognition***





We
      recognize 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) persuasive evidence that an
      arrangement exists; (2) delivery has occurred; (3) the selling price is fixed
      or
      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 to the commercial customer. Generally, the Company delivers
      the
      cleaned garments to commercial customers the same day they are dropped off
      (same-day service).





***Returns
      and Allowances***





We
      experience claims for items damaged during processing, adjustments in resolution
      of customer disputes, and promotional discounts, all of which are recorded
      as
      incurred. Such charges average about one percent of gross revenue. Sales are
      reported in the accompanying financial statements net of “Returns and
      Allowances”, which are reflected as a reduction of gross sales.





***Accounts
      Receivable***





We
      perform ongoing credit evaluations of our customers and adjust credit limits
      based on payment history and the customers’ current buying habits. We monitor
      collections and payments from our customers and maintain a provision for
      estimated credit losses based on specific customer collection issues that have
      been identified.





***Deferred
      Tax Assets***





Deferred
      tax assets are recorded net of a valuation allowance. The valuation allowance
      reduces the carrying amount of deferred tax assets to an amount the Company’s
      management believes is more likely than not realizable. In making the
      determination, projections of taxable income (if any), past operating results,
      and tax planning strategies are considered.





***Purchase
      Price Allocations for Acquisitions***





The
      allocation of the purchase price for acquisitions requires extensive use of
      accounting estimates and judgments to allocate the purchase price to the
      identifiable tangible and intangible assets acquired and liabilities assumed
      based upon their respective estimated fair values. We reached our conclusions
      regarding the estimated fair values assigned to such assets based upon the
      following factors:





***Customer
      Relationship Assets***





The
      Company has contractual relationships with several hotels to service the laundry
      needs of their guests. These contracts constitute roughly one-half of the total
      business. Our valuation is based on a discounted cash flow (“DCF”) analysis of
      the cash flows attributable to the contracts that were in force. Revenue from
      these contracts were projected out for eighteen months and incorporating
      straight-line attrition during that period. We applied the industry operating
      margin to projected revenues and tax-affected the requisite return to arrive
      at
      a debt-free net cash flow attributable to the customer relationship contracts.
      The cash flows were then discounted to present to arrive at a total present
      value with a useful life based on the average contract term.





Non-contractual
      customer relationships were valued pursuant to the guidance of EITF bulletin
      02-17. Annual attrition in the Company’s base is generally low. Accordingly, our
      valuation is based on a ten year forecast horizon of revenues from these
      relationships. All operating expenses have been allocated based on revenue
      and
      operating income and tax-affected to arrive at debt-free net cash flow
      attributable to these relationships. The cash flows were then discounted to
      present to arrive at a present value with a useful life of ten years based
      on
      the reciprocal of the attrition rate.


*Page 8*


***Trade
      Name/Trademarks***





Our
      valuation of the Trade Name/Trademarks is based on a derivative of the DCF
      method that estimated the present value of a hypothetical royalty stream. The
      royalty rate was derived by examining the royalties paid for dry cleaning
      franchises as well as the industry operating margin of sales. The royalty rate
      was applied to the appropriate revenue base to arrive at the periodic royalty
      due. The royalty was then reduced for the cost of administering and enforcing
      agreement and then reduced by income taxes to arrive at after-tax net royalties.
      The after-tax net royalties were discounted to present cost of equity, thereby
      yielding a value on Trade Name/Trademarks with a useful life of ten
      years.





We
      believe the estimated fair values assigned to the assets acquired and
      liabilities assumed are based on reasonable assumptions. As part of that
      analysis, we also must determine whether an acquired entity is considered to
      be
      a “business” or a “set of net assets” because only if a business is acquired can
      any of the purchase prices be allocated to goodwill. We determined that the
      Steam Press and CVR acquisitions were acquisitions of businesses. See Note
      6 to
      the Company’s consolidated financial statements included elsewhere herein for
      additional information.




*Page 9*


**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 March 31, 2007. 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 March 31, 2007, our disclosure controls and
      procedures are not effective.





The
      Company plans on remediating the material weaknesses by implementation of new
      financial reporting systems throughout its operations; adoption 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.





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
      on the Effectiveness of Internal Controls**





Our
      management does not expect that our disclosure controls and procedures or our
      internal control 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 internal control 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, internal control may become inadequate because of changes
      in conditions, or the degree of compliance with the policies or procedures
      may
      deteriorate.


*Page 10*





**PART
      II - OTHER INFORMATION**





**Item
      1:Legal
      Proceedings**





From
      time
      to time, the Company may be involved in various claims, lawsuits, or disputes
      with third-parties incidental to the normal operations of the business. The
      Company is not currently involved in any such litigation. Furthermore, the
      Company is not aware of any proceeding that a governmental authority is
      contemplating.





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





During
      the three months ended March 31, 2007 the Company, pursuant to the terms of
      the
      Series A Convertible Debentures as disclosed in Note 3 above, issued 141,661
      shares of restricted common stock (see Note 3) with and estimated fair market
      value of $303,626.  The transaction described in this paragraph constituted
      an exempt offering under Section 4(2) of (the "Securities Act").





During
      the three months ended March 31, 2007 the Company pursuant to an agreement
      of
      merger as disclosed in Note 8 above, issued 780,000 shares of restricted common
      stock with and estimated fair market value of $1.85 per share (see Note
      8).  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





**Item
      6:Exhibits**




***Exhibit
                No.***
            ***Description***Exhibit
                10.1
            Secured
                Promissory Note between Riaz Chauthani, an individual and U.S. Dry
                Cleaning Corporation dated February 20, 2007.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.






*Page 11*




**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.








**U.S. DRY CLEANING
              CORPORATION**Date: May 15, 2007
            By: /S/
                ROBERT Y. LEERobert
                Y. Lee
              Chief
                Executive OfficerBy: /S/
              HADDON LIBBYHaddon
                Libby
              Chief
                Financial Officer









**EXHIBIT
      INDEX**




Exhibit
                10.1
            Secured
                Promissory Note between Riaz Chauthani, an individual and U.S. Dry
                Cleaning Corporation dated February 20, 2007.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.