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,
2008




US DRY CLEANING
CORPORATION


(Exact
name of registrant as specified in its chapter)








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





4040 MacArthur Blvd Suite
      305
              Newport Beach, CA
      92660(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: [ X
] Yes [  ] No





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





State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 26,656,019 common shares as of April 28,
2008.





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

















TABLE OF
CONTENTS


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













PART I - FINANCIAL
INFORMATION





Item 1: Financial
Statements





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




(a)
            Unaudited
      Condensed Consolidated Balance Sheet as of  March 31,
      2008
            F-1(b)
            Unaudited
      Condensed Consolidated Statements of Operations for the three and six
      months ended March 31, 2008 and 2007
            F-2(c)
            Unaudited
      Condensed Consolidated Statements of Cash Flows for the six months ended
      March 31, 2008 and 2007
            F-3(d)
            Notes
      to Unaudited Condensed Consolidated Financial Statements
            F-4







Page 1








US DRY CLEANING
CORPORATION


CONDENSED CONSOLIDATED BALANCE
SHEET


MARCH 31, 2008


(UNAUDITED)





ASSETS


Current
      AssetsCash
            
            $
            477,534Accounts
      receivable, net
            
            
            462,027Deferred
      acquisition costs
            
            
            101,978Prepaid
      expenses and other current assets
            
            
            379,098Total
      Current Assets
            
            
            1,420,637Property and Equipment,
      net
            
            
            3,624,597Non-Current
      AssetsDeposits
            
            
            283,909Goodwill
            
            
            10,022,111Intangible
      assets, net
            
            
            1,004,359Total
      Non-Current Assets
            
            
            11,310,379Total
            
            $
            16,355,613LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      LiabilitiesAccounts
      payable
            
            $
            2,030,271Accrued
      liabilities
            
            
            1,420,843Capital
      lease obligations
            
            
            194,353Notes
      payable
            
            
            1,208,323Convertible
      notes payable
            
            
            475,000Total
      Current Liabilities
            
            
            5,328,790Long Term
      LiabilitiesCapital
      lease obligations, net of current portion
            
            
            213,613Notes
      payable, net of current portion
            
            
            1,116,732Convertible
      notes payable, net of current portion
            
            
            7,834,158Total
      Long Term Liabilities
            
            
            9,164,503Total
      Liabilities
            
            
            14,493,293Stockholders'
      EquityConvertible
      preferred stock; par value $0.001 per share;20,000,000
      authorized shares;1,200,000
      shares issued and  none outstanding; liquidation preference of
      $2.40 per share
            
            
            -Common
      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; 25,835,419 shares issued and
outstanding
            
            
            25,835Additional
      paid-in capital
            
            
            26,497,921Stockholder
      receivable
            
            
            (766,280
            )Accumulated
      deficit
            
            
            (23,895,156
            )Total
      Stockholders' Equity
            
            
            1,862,320Total Liabilities and
      Stockholders' Equity
            
            $
            16,355,613








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




US DRY CLEANING
CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)





THREE
    MONTHS
            
            
            SIX
    MONTHS2008
            
            
            2007
            
            
            2008
            
            
            2007Net
Sales
            
            $
            2,875,509
            
            
            $
            2,025,918
            
            
            $
            5,246,332
            
            
            $
            3,627,328Cost of
      Sales
            
            
            (1,328,963
            )
            
            
            (1,014,097
            )
            
            
            (2,509,710
            )
            
            
            (1,862,640
            )Gross
    Profit
            
            
            1,546,546
            
            
            
            1,011,821
            
            
            
            2,736,622
            
            
            
            1,764,688Operating
      ExpensesDelivery
      expenses
            
            
            195,158
            
            
            
            167,984
            
            
            
            395,460
            
            
            
            332,345Store
      expenses
            
            
            1,079,275
            
            
            
            503,476
            
            
            
            1,856,308
            
            
            
            902,753Selling
      expenses
            
            
            189,025
            
            
            
            159,863
            
            
            
            350,346
            
            
            
            311,337Administrative
      expenses
            
            
            2,352,931
            
            
            
            1,547,342
            
            
            
            3,863,157
            
            
            
            2,923,221Depreciation
      and amortization expense
            
            
            111,142
            
            
            
            72,562
            
            
            
            207,367
            
            
            
            149,856Other
            
            
            7,103
            
            
            
            -
            
            
            
            17,033
            
            
            
            -Total
      Operating Expenses
            
            
            3,934,634
            
            
            
            2,451,227
            
            
            
            6,689,671
            
            
            
            4,619,512Operating
      Loss
            
            
            (2,388,088
            )
            
            
            (1,439,406
            )
            
            
            (3,953,049
            )
            
            
            (2,854,824
            )Other Income
      (Expense)Gain
      on extinguishment of debt
            
            
            -
            
            
            
            -
            
            
            
            423,798
            
            
            
            -Interest
      expense
            
            
            (258,220
            )
            
            
            (518,901
            )
            
            
            (575,477
            )
            
            
            (611,143
            )Other
      expenses
            
            
            (32,743
            )
            
            
            (292,372
            )
            
            
            (434,056
            )
            
            
            (323,070
            )Total  Other
      Expenses
            
            
            (290,963
            )
            
            
            (811,273
            )
            
            
            (585,735
            )
            
            
            (934,213
            )Loss
      before provisions for income taxes
            
            
            (2,679,051
            )
            
            
            (2,250,679
            )
            
            
            (4,538,784
            )
            
            
            (3,789,037
            )Provision
      for income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net Loss
            
            $
            (2,679,051
            )
            
            $
            (2,250,679
            )
            
            $
            (4,538,784
            )
            
            $
            (3,789,037
            )Basic and diluted loss per
      common share
            
            $
            (0.15
            )
            
            $
            (0.13
            )
            
            $
            (0.23
            )
            
            $
            (0.22
            )Basic and diluted weighted
      average numberof common shares
      outstanding
            
            
            18,168,336
            
            
            
            17,084,019
            
            
            
            19,616,683
            
            
            
            17,179,220







See accompanying notes to condensed
consolidated financial statements.
 Page F-2




US DRY CLEANING
CORPORATION


CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS


FOR THE SIX MONTHS ENDED MARCH 31,
2008 AND 2007


(UNAUDITED)





2008
            
            
            
            2007CASH FLOWS FROM OPERATING
      ACTIVITIES:Net
      loss
            
            $
            (4,538,784
            )
            
            $
            (3,789,037
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
            
            
            205,981
            
            
            
            149,856Amortization
      of deferred financing costs and consulting fees
            
            
            16,250
            
            
            
            209,000Bad
      debt expense
            
            
            39,755
            
            
            
            4,675Equity
      instruments issued for compensation and services
            
            
            19,224
            
            
            
            416,070Gain
      on debt extinguishment
            
            
            (423,798
            )
            
            
            -Amortization
      of debt discounts
            
            
            541,062
            
            
            
            330,429Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (21,986
            )
            
            
            123,164Prepaid
      expenses and other current assets
            
            
            (204,887
            )
            
            
            30,916Other
      assets
            
            
            -
            
            
            
            (51,686
            )Deposits
            
            
            (135,952
            )
            
            
            -Accounts
      payable and accrued expenses
            
            
            619,228
            
            
            
            989,284Liquidated
      damages
            
            
            -
            
            
            
            (71,250
            )Net
      cash used in operating activities
            
            
            (3,883,907
            )
            
            
            (1,658,579
            )CASH FLOWS FROM INVESTING
      ACTIVITIES:Acquisition
      of property and equipment
            
            
            (981,565
            )
            
            
            (116,346
            )Deferred
      acquisition costs
            
            
            458,468
            
            
            
            (634,223
            )Acquired
      goodwill and intangibles
            
            
            (2,060,663
            )
            
            
            -Cash
      of acquired companies
            
            
            -
            
            
            
            1,767Net
      cash used in investing activities
            
            
            (2,588,760
            )
            
            
            (748,802
            )CASH FLOWS FROM FINANCING
      ACTIVITIES:Proceeds
      from issuance of notes payable
            
            
            800,000
            
            
            
            225,768Proceeds
      from issuance of convertible notes payable
            
            
            5,457,600
            
            
            
            1,800,000Repayments
      on notes payable
            
            
            (183,907
            )
            
            
            (247,014
            )Repayments
      on convertible notes payable
            
            
            (100,000
            )
            
            
            -Deferred
      financing costs
            
            
            (590,860
            )
            
            
            -Repayments
      on capital lease obligation
            
            
            (125,647
            )
            
            
            (86,437
            )Proceeds
      from issuance of common stock
            
            
            570,650
            
            
            
            -Repayment
      on line of credit
            
            
            (500,000
            )
            
            
            -Deferred
      equity raising cost
            
            
            -
            
            
            
            (357,830
            )Net
      cash provided by financing activities
            
            
            5,327,836
            
            
            
            1,334,487Net
      decrease in cash
            
            
            (1,139,830
            )
            
            
            (1,072,894
            )Cash
      at beginning of year
            
            
            1,617,364
            
            
            
            1,414,456Cash
      at end of year
            
            $
            477,534
            
            
            $
            341,562Cash
      paid during the year for:Interest
            
            $
            67,680
            
            
            
            $
            76,586SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
      AND FINANCING ACTIVITIESDebt
      discount on convertible notes issued with common stock
            
            $
            -
            
            
            
            $
            1,478,714Capital  lease
      additions
            
            $
            44,040
            
            
            
            $
            -Assumed
      note payable in conjunction business acquisition
            
            $
            2,447,000
            
            
            
            
            -Shares
      issued in conjunction with business acquisition
            
            $
            1,657,000
            
            
            
            
            -Conversion
      of note payable to convertible note
            
            $
            200,000
            
            
            
            
            -Conversion
      of debt to common stock
            
            $
            356,000
            
            
            
            
            -Debt
      discount on convertible notes issued with warrants
            
            $
            791,974
            
            
            
            
            -






See accompanying notes to condensed
consolidated financial statements.
 Page F-3




US DRY CLEANING CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)




1.   
ORGANIZATION, NATURE OF OPERATIONS AND BASIS OF
PRESENTATION





The
Company





US Dry
Cleaning Corporation (“USDC”, “we”, or “us”) is a retail service provider of
laundry and dry cleaning services consisting of fifty-sixretail locations (“stores”) and three processing plants.  The
Company’s operations are located in Honolulu, Hawaii, Southern California,
Central California, and the mid-east coast.





During
the quarter ended March 31, 2008, the Company completed the business
acquisitions of Team Enterprises, Inc. and affiliates (“Team”) and Zoots
Corporation (“Zoots”) (see Note 7).




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 condensed consolidated 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 consolidated financial statements on Form 10-KSB, as amended, for the
fiscal year ended September 30, 2007 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, 2008, 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 $3,884,000 for the
six months ended March 31, 2008; negative working capital of approximately
$3,908,000 and an accumulated deficit of approximately $23,895,000 at March 31,
2008. 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 financing
transactions.  In connection with such efforts, the Company completed
a $4,193,000 debt financing during the quarter ended December 31, 2007 and
additional debt and equity financings of $7,848,000 during the quarter ended
March 31, 2008 (see Note 3).  However, such financing transactions may
be insufficient to fund planned acquisitions, capital expenditures, working
capital and other cash requirements for the next year. Therefore, the Company
will be required to seek additional funds to finance its long-term operations.
The successful outcome of future activities cannot be determined at this time
and there is no assurance that, if achieved, the Company will have sufficient
funds to execute its intended business plan or generate positive operating
results.





The
accompanying 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.







Page F-4




US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)





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 Holdings, Inc. (“Steam
Press”), Coachella Valley Retail, LLC (“CVR”), Cleaners Club, Inc. (“CCI”), USDC
Fresno, Inc. (“Fresno”), and USDC Portsmouth, Inc.
(“Portsmouth”).  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, the allowance for
doubtful accounts receivable, and the purchase price allocations for business
acquisitions. 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, Virginia, and
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. 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


US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(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 endeavor to ensure that the entire organization proactively
remains in compliance with all such statutes and regulations in the
future.





Other
Concentrations





The
financial instrument that potentially exposes the Company to a concentration of
credit risk principally consists of cash. The Company deposits its cash with
high credit financial institutions in the United States of America. At March 31,
2008, the Company’s cash balances were  in excess of the Federal
Deposit Insurance Corporation limit by approximately $754,000.





The
Company’s credit risk with respect to the accounts receivable is limited due to
the credit worthiness of customers and the fact that most of accounts receivable
consists of large commercial customers. The Company also performs periodic
reviews of collectibility and provides an allowance for doubtful accounts
receivable when necessary.  Management considers the allowance for
doubtful accounts receivable at March 31, 2008 of approximately $39,000 to be
adequate.




Loss Per
Share





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). At March 31, 2008, 7,487,953 convertible securities and
4,471,626 options and warrants to purchase common stock were excluded from
the calculation of diluted loss per share because they were anti-dilutive. At
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, 2007 condensed consolidated
financial statements to conform to the March 31, 2008
presentations.





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.








Page F-6




US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)





2.    SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Significant Recent Accounting
Pronouncements




In June
2006, the Financial Accounting Standards Board(“FASB”) issued FASB
Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income
Taxes, an interpretation of FASB Statement No. 109.” This interpretation
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, ”Accounting for Income Taxes.”
FIN No. 48 prescribes a more-likely-than-not recognition threshold and a
measurement attribute for the financial statement recognition and measurement of
tax positions taken (or expected to be taken) in an income tax return. It also
provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. The requirement to
assess the need for a valuation allowance on net deferred tax assets is not
affected by FIN No. 48. This pronouncement was effective October 1, 2007 for the
Company and the adoption of FIN 48 did not have a significant impact on the
Company’s consolidated financial statements.





In September 2007, the FASB issued SFAS
No.157, “Fair Value
Measurements,” which defines fair value, establishes a framework for
measuring fair value in GAAP, and expands disclosures about fair value
measurements. SFAS No. 157 simplifies and codifies related guidance within GAAP,
but does not require any new fair value measurements. The guidance in SFAS No.
157 applies to derivatives and other financial instruments measured at estimated
fair value under SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” and related pronouncements. SFAS No.
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within those fiscal years.
Management does not expect the adoption of SFAS No. 157 to have a significant
effect on the Company’s financial position or results of operation.




On
February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement No.
115.” This standard permits an entity to measure many financial
instruments and certain other items at estimated fair value. Most of the
provisions of SFAS No. 159 are elective; however, the amendment to SFAS No. 115
(“Accounting for Certain
Investments in Debt and Equity Securities”) applies to all entities that
own trading and available-for-sale securities. The fair value option created by
SFAS No. 159 permits an entity to measure eligible items at fair value as of
specified election dates. Among others, eligible items exclude (1) financial
instruments classified (partially or in total) as permanent or temporary
stockholders’ equity (such as a convertible debt security with a non-contingent
beneficial conversion feature) and (2) investments in subsidiaries and interests
in variable interest entities that must be consolidated. A for-profit business
entity will be required to report unrealized gains and losses on items for which
the fair value option has been elected in its statements of operations at each
subsequent reporting date. The fair value option (a) may generally be applied
instrument by instrument, (b) is irrevocable unless a new election date occurs,
and (c) must be applied to the entire instrument and not to only a portion of
the instrument. SFAS No. 159 is effective as of the beginning of the first
fiscal year that begins after November 15, 2007. Early adoption is permitted as
of the beginning of the previous fiscal year provided that the entity (i) makes
that choice in the first 120 days of that year, (ii) has not yet issued
financial statements for any interim period of such year, and (iii) elects to
apply the provisions of SFAS No. 157 (“Fair Value Measurements”).
The adoption of SFAS No. 159 is not expected to have a significant impact on
future financial statements.





On
December 4, 2007, the FASB issued SFAS No. 141 (R), “Business Combinations.” SFAS
No. 141(R) will significantly change the accounting for business combinations
such that an acquiring entity will be required to recognize all the assets
acquired and liabilities assumed in a transaction at the acquisition-date fair
value with limited exceptions. SFAS No. 141(R) will change the accounting
treatment for certain specific items, including:




·
              Acquisition
      costs will be generally expensed as
incurred;
 ·
              Noncontrolling
      interests (formerly known as “minority interests” – see SFAS No. 160
      discussion below) will be valued at fair value at the acquisition
      date;
 ·
              Acquired
      contingent liabilities will be recorded at fair value at the acquisition
      date and subsequently measured at either the higher of such amount or the
      amount determined under existing guidance for non-acquired
      contingencies;
 ·
              In-process
      research and development will be recorded at fair value as an
      indefinite-lived intangible asset at the acquisition
  date;
 ·
              Restructuring
      costs associated with a business combination will be generally expensed
      subsequent to the acquisition date;
and
 ·
              Changes
      in deferred tax asset valuation allowances and income tax uncertainties
      after the acquisition date generally will affect income tax
      expense.







Page F-7




US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)





2.    SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)





Significant Recent Accounting
Pronouncements (continued)





SFAS No.
141(R) also includes a substantial number of new disclosure requirements and
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. Earlier adoption is prohibited. The adoption of SFAS
No. 141(R) is not expected to have a significant impact on future financial
statements Also, on December 4, 2007, the FASB issued FASB Statement No. 160,
“Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No.
51."  SFAS No. 160 establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. Specifically, this statement requires the
recognition of a noncontrolling interest (minority interest) as equity in the
consolidated financial statements and separate from the parent's equity. The
amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the income statement. SFAS
No. 160 clarifies that changes in a parent's ownership interest in a subsidiary
that do not result in deconsolidation are equity transactions if the parent
retains its controlling financial interest. In addition, this statement requires
that a parent recognize a gain or loss in net income when a subsidiary is
deconsolidated. Such gain or loss will be measured using the fair value of the
noncontrolling equity investment on the deconsolidation date. This statement
also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest. SFAS No. 160 is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Like SFAS No. 141(R) discussed above, earlier adoption is
prohibited. The Company is evaluating what effect such statement will have on
its future financial statements.





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





3.   NOTES
PAYABLE





During
the six months ended March 31, 2008, the Company completed the closing of a
private placement of 10% senior secured convertible notes (the “Notes”) to
accredited investors, receiving net cash of approximately
$2,740,000.  Each Note was issued at a price equal to 90% of its
principal amount.  The Notes mature two years after the date of their
issuance and bear interest at 10% per annum, payable quarterly in arrears in
cash.  Investors may convert their Notes into shares of the
Company’s common stock at any time and from time to time on or before the
maturity date, at a conversion price of $2.50 per share, subject to adjustment
under customary circumstances. The Notes will automatically convert into shares
of the Company’s common stock at the conversion price, if the closing bid
price for the common stock has traded at more than $5.00 per share for a period
of 20 consecutive trading days, provided that, throughout this period, the
common stock has been trading on a national securities exchange or NASDAQ and
such conversion shares have been fully registered for resale and are not subject
to any lock-up provisions.  At March 31, 2008, the balance outstanding
on the notes was approximately $4,327,000, net of discount, and was included in
convertible notes payable in the accompanying condensed consolidated balance
sheet.





During
fiscal year 2007, the Company accepted subscriptions from accredited investors
for $2,250,000 of its Series A Convertible Debentures. 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 was a maximum of 10% of cash received. The
Company recorded $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, 2008, approximately
$50,000 of Series A Convertible Debt holder converted their debt to common stock
and approximately $1,660,000 of Series A Convertible Debt holders converted
their debt to the newly issued above Notes.  The debt to debt
conversion resulted in debt extinguishment accounting under Accounting
Principles Board ("APB") No. 26, “Early Extinguishment of
Debt,” and Emerging Issues Task Force ("EITF") Issue No. 96-19,
“Debtor’s Accounting for a
modification or Exchange of Debt Instruments,” and accordingly, the
Company recorded a gain on extinguishment of approximately $424,000 in the
accompanying condensed consolidated statement of operations for the six months
ended March 31, 2008. At March 31, 2008, balance outstanding on the Series A
Convertible Debentures was $475,000 and the obligation was in default. Such
amount was included in the convertible notes payable in the accompanying
condensed consolidated balance sheet.








Page F-8




US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)





3.   NOTES PAYABLE
(continued)





On
February 12, 2008, the Company issued a conventional convertible debt instrument
in connection with the Team acquisition for $1,728,360 which is secured by
certain assets of the company and includes first year interest of $144,000. The
debt instrument matures two years after the date of issuance and bears interest
at 12% per annum, payable in arrears in cash at maturity date.  The
holder may convert the debt instrument into shares of the
Company’s common stock at any time and from time to time on or before the
maturity date, at a conversion price of $0.75 per share, subject to adjustment
under customary circumstances. The debt instrument will automatically
convert into shares of the Company’s common stock at the conversion price,
if the closing bid price for the common stock has traded at more than $5.00 per
share for a period of 20 consecutive trading days, provided that, throughout
this period, the common stock has been trading on a national securities exchange
or NASDAQ and such conversion shares have been fully registered for resale and
are not subject to any lock-up provisions.  In connection with this
agreement, the Company signed a warrant agreement as disclosed in the options
and warrants section below. At March 31, 2008, the balance outstanding was
approximately $865,000, net of discount, and was included in convertible notes
payable in the accompanying condensed consolidated balance sheet.





On
February 14, 2008, the Company issued a conventional convertible debt instrument
in connection with the Team acquisition (see Note 7), for $1,635,540 which is
secured by certain assets of the Company. The debt instrument matures two years
after the date of issuance and bears interest at 10% per annum, payable in
arrears in cash at maturity date.  The holder may convert the
debt instrument into shares of the Company’s common stock at any time and
from time to time on or before the maturity date, at a conversion price of $2.50
per share, subject to adjustment under customary circumstances. The debt
instrument will automatically convert into shares of the
Company’s common stock at the conversion price, if the closing bid price
for the common stock has traded at more than $5.00 per share for a period of 20
consecutive trading days, provided that, throughout this period, the common
stock has been trading on a national securities exchange or NASDAQ and such
conversion shares have been fully registered for resale and are not subject to
any lock-up provisions. At March 31, 2008, the balance outstanding was
approximately $1,479,000, net of discounts, and was included in convertible
notes payable in the accompanying condensed consolidated balance
sheet.




During
February 2008, the Company entered into an eighteen month lease agreement with
an unrelated party in the amount of $800,000 that bears interest at 14% per
annum. The first monthly payment of approximately $25,000 is due on March 12,
2009 and a final payment of $781,894 is due at the end of the lease
term.  The obligation of the Company under this lease agreement is
secured by certain equipment of the Company.





On March
12, 2008, the Company issued a conventional convertible debt instrument in
connection with the Zoots acquisition (see Note 7), for $1,725,000 which is
secured by certain assets of the Company. The debt instrument matures eighteen
months after the date of issuance and bears interest at 12% per annum with
interest only payments of $17,250.  The holder may convert the debt
instrument into shares of the Company’s common stock at any time and from
time to time on or before the maturity date, at a conversion price of $0.75 per
share, subject to adjustment under customary circumstances. The debt
instrument will automatically convert into shares of the
Company’s common stock at the conversion price, if the closing bid price
for the common stock has traded at more than $5.00 per share for a period of 20
consecutive trading days, provided that, throughout this period, the common
stock has been trading on a national securities exchange or NASDAQ and such
conversion shares have been fully registered for resale and are not subject to
any lock-up provisions.  In connection with this agreement, the
Company signed a warrant agreement as disclosed in the options and warrants
section below. At March 31, 2008, the balance outstanding was approximately
$1,163,000, net of discount, and was included in convertible note payable in the
accompanying condensed consolidated balance sheet.





On March
24, 2008, the Company entered into a debt agreement in connection with the
acquisition of Zoots Corporation (see Note 7) for $975,000 at interest rate
of 10% per annum, which matures on September 24, 2008 and secured by certain
assets of the Company. The interest payment shall be payable in arrears at the
end of each two-month period from the date of the note.









Various other debt obligation totaling
approximately $550,000 which consisted of approximately $213,000 to related
parties was outstanding at March 31, 2008 was included in notes payable in the
accompanying condensed consolidated balance sheet.





4.  RELATED PARTY
MATTERS





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 former director Earl Greenburg. The rent is $2,200
per month all inclusive.







Page F-9




US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)





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.





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 in connection with the acquisition of
Cleaners Club Inc.





During
the quarter ended December 31, 2007, the Company issued 242,308 shares of its
restricted common stock for conversion of $315,000 in Series A convertible
debentures.





During
the three months ended March 31, 2008, the Company, pursuant to a warrant
agreement, issued 434,210 shares of its restricted common stock upon exercise of
cashless warrants.





During
the three months ended March 31, 2008, the Company issued 500,000 shares of its
restricted common stock and is currently being held in escrow as collateral to
certain note payable (see Note 3).





In
connection with the acquisition of Team as discussed in Note 7, the Company
issued 2,044,667 shares of its restricted common stock in exchange for certain
assets and liabilities of Team valued at $0.86 per share (stock
price at closing date) less 
an 8% marketability discount having total net value of approximately
$1,613,000.





During
the three months ended March 31, 2008, the Company issued 792,376 shares of its
restricted common stock at prices ranging from $0.60 and $0.75 per share to
various investors for cash proceeds totaling $570,650.





During
the three months ended March 31, 2008, the Company issued 71,429 shares of its
restricted common stock as part a $50,000 conversion of the Series A Convertible
Note at a modified conversion rate of $0.70 per share. The initial conversion
price was $3.00 per share as discussed in Note 3 above. The change in terms
was considered to be not significant.





During
the three months ended March 31, 2008, the Company issued 24,331 shares of its
restricted common stock in exchange for certain professional services provided
to the Company which was valued at $19,224 based on the value of
the services provided. Expenses related to this transaction have been
included in professional services in the accompanying condensed consolidated
statement of operations.





The
transactions described in this paragraph constituted an exempt offering under
Section 4(2) of the Securities Act.






Page F-10





US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)





5.  EQUITY TRANSACTIONS
(continued)




Options and
Warrants





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.




For the
transaction 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.
  During
the quarter ended December 31, 2007, there was no significant activity in
options and warrants.





During
the quarter ended March 31, 2008, the Company issued 1,545,000 warrants to
investors of conventional convertible debt instruments as discussed in Note 3 in
accordance with warrant agreements at an exercise price of $0.75. The Company
included the fair value of the warrants using Black-Scholes pricing model as
part of the debt discount netted against the face value of the debt
instrument.  The following assumptions were used to calculate the fair
value of the warrants:   risk free interest rate 1.82%, estimated
volatility of 55%, expected life of 5 years.





During
the quarter ended March 31, 2008, there were no options
granted.




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.





Leases





The Company leases corporate office
space in Newport Beach, California for approximately $4,500 per month expiring
in November 2009. Additionally, the Company assumed various operating leases as
a result of the acquisitions of Team and Zoots (see Note 7).







Page F-11




US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)







7.   
ACQUISITIONS





Team Enterprises, Inc. and
Affiliates





On
February 14, 2008, the Company completed the acquisition of certain assets
and liabilities of Team in a purchase business combination by issuing 2,044,667
shares of its restricted common stock, paying cash of $1,572,000, issuing senior
debt of $1,472,000, and the assumption of $44,000 in
liabilities.  Team consisted of four corporations made up of nineteen
retail store locations.  All such entities were under common control
and ownership prior to the purchase.The
Company also assumed various operating leases with minimum payments as follows
for the fiscal years ending September 30.




2008
      (6 months)
              
              $
              258,0002009
              
              
              445,0002010
              
              
              318,0002011
              
              
              204,0002012
              
              
              133,000Thereafter
              
              
              82,000$
              1,440,000





In order
to measure and allocate the purchase price of the Team business acquisition, the
Company engaged a third-party valuation firm to estimate the fair value of the
assets acquired and liabilities assumed. The purchase price and purchase price
allocation are summarized as follows:




Cash
            
            $
            1,572,000Restricted
      common stock issued ($0.86 per share less 8% marketability
      discount)
            
            
            1,613,00010%
      Senior Convertible Debt
            
            
            1,472,000Acquisition
      costs incurred by the Company
            
            
            605,000Liabilities
      assumed by the Company
            
            
            44,000Total
      purchase consideration
            
            
            5,306,000Allocated
      to:Property
      and equipment
            
            
            700,000Prepaid
      expenses and deposits
            
            
            101,000Noncompete
      agreement
            
            
            470,000Trademark
      portfolio
            
            
            60,000Liabilities
      assumed
            
            
            (44,000
            )Excess
      of purchase price over allocation to identifiable assets and liabilities
      (goodwill)
            
            $
            4,019,000




The
principal reason that the Company agreed to pay a purchase price for Team in
excess of its recorded net assets was to acquire an established revenue stream.








Page F-12




US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)




7.    ACQUISITIONS
(Continued)





Zoots
Corporation





On March
24, 2008, the Company completed the acquisition of certain assets of Zoots
Corporation (“Zoots”) in a purchase business combination with the payment of
cash of $765,000 and the issuance of a short-term note payable for
$975,000.  The assets acquired consist of eleven  retail
store locations and a centralized processing plant.  As discussed
above in Note 3, in order to finance the acquisition,  the Company
issued a secured convertible note in the initial principal amount of $1,725,000
to Setal 2, LLC, which is secured by a first priority lien over all of Zoots
assets acquired. The Company also assumed various non-cancellable operating
leases with minimum payments as follows for the fiscal years ending September
30.




2008
                
                $
                389,0002009
                
                
                778,0002010
                
                
                528,0002011
                
                
                330,0002012
                
                
                195,000Thereafter
                
                
                150,000$
                2,370,000


The
purchase price and purchase price allocation are preliminary pending completion
of a third party valuation report and can be summarized as follows:




Cash
              
              $
              765,000Security
      deposits and other
              
              
              163,000Acquisition
      costs incurred by the Company
              
              
              88,000Short-term
      note payable
              
              
              975,000Total
      purchase consideration
              
              
              1,991,000Allocated
      to:Property
      and equipment
              
              
              1,186,000Security
      deposits and other
              
              
              163,000Excess
      of purchase price over allocation to identifiable assets and liabilities
      (goodwill)
              
              $
              642,000


The
principal reason that the Company agreed to pay a purchase price for Zoots in
excess of its recorded net assets was to acquire an established revenue stream.
Such excess is expected to be allocated entirely to goodwill in the final
purchase price allocation.








Page F-13




US DRY CLEANING CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)




7.    ACQUISITIONS
(Continued)








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





Consolidated
      Pro Forma Financial Information
              (unaudited)
              (in thousands)Three
      Months Ended
            
            
            Six
      Months EndedMarch
      31, 2008
            
            
            March
      31, 2007
            
            
            March
      31, 2008
            
            
            March
      31, 2007Net
      Sales
            
            $
            5,059
            
            
            $
            6,134
            
            
            $
            10,434
            
            
            $
            10,375Net
      Loss
            
            $
            (3,312
            )
            
            $
            (2,523
            )
            
            $
            (5,929
            )
            
            $
            (4,964
            )Basic
      and diluted loss per common share
            
            $
            (0.16
            )
            
            $
            (0.13
            )
            
            $
            (0.27
            )
            
            $
            (0.26
            )






Page F-14




US DRY CLEANING
CORPORATION


NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS


FOR THE THREE AND SIX MONTHS ENDED
MARCH 31, 2008 AND 2007


(UNAUDITED)





8.  SUBSEQUENT
EVENTS





Effective April 28, 2008, in connection with her appointment as
the Company’s new Chief Operating Officer, the Company entered into an
employment agreement with Deborah Rechnitz for a twenty-month
term.  The employment agreement provides for a base annual salary of
$240,000.  Furthermore, Ms. Rechnitz currently has option agreements
covering 150,000 shares. The Company agreed to issue Ms Rechnitz fully vested
options to purchase 250,000 shares of the Company’s common stock, which options
will be evidenced by a stock option agreement approved by the Board of
Directors. The first 100,000 options shall be exercisable at $2.00 per share.
The next 100,000 shall be exercisable at $3.00 per share. The final 50,000 shall
be exercisable at $4.00 per share. The options shall lapse five years after
their granting.






Page F-15





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





US Dry
Cleaning Corporation (“USDC”) was formed in July 2005 and completed a “reverse
merger” with a public shell company in December 2005. In August 2005, USDC
purchased Steam Press Holdings, Inc. (“Steam Press”), and Coachella Valley
Retail, LLC (“CVR”), respectively, in stock-for-stock type transactions. The
Company subsequently completed acquisitions of Cleaners Club, Inc. (“CCI”) in
February 2007, Team Enterprises, Inc. and Affiliates (“USDC Fresno”) in February
2008, and certain assets of Zoots Corporation (“USDC Portsmouth”) in March 2008.
USDC, Steam Press, CVR, CCI, USDC Fresno, and USDC Portsmouth are hereinafter
collectively referred to as the “Company.”





Steam
Press 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 two retail
laundry and dry cleaning stores under several names in the Palm Springs,
California area.  CCI owns and operates eleven retail stores and
a centralized processing plant in the Riverside, California area. USDC Fresno
owns and operates nineteen retail stores in the Fresno, California area and
USDC Portsmouth owns and operates eleven retail stores and a centralized
processing plant in the Portsmouth, Virginia area.




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 will 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 has successfully integrated 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, 2008 and 2007, one customer accounted for approximately 12% and 15% of gross
accounts receivable, respectively. For the three months ended March 31, 2007,
one customer accounted for approximately 11% of net sales. For the three months
ended March 31, 2008 no customer accounted for more than 10% of net
sales.





Business
Acquisitions





On
February 15, 2007, 100% of CCI’s 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.





On
February 14, 2008, the Company completed the acquisition of certain assets
and liabilities of Team in a purchase business combination by issuing 2,044,667
shares of its restricted common stock, paying cash of $1,572,000, issuing senior
debt of $1,472,000, and the assumption of $44,000 in
liabilities.  Team consists of four corporations made up of nineteen
retail store locations.  All such entities were under common control
and ownership prior to the purchase.





On March
24, 2008, the Company completed the acquisition of certain assets of Zoots
in a purchase business combination with the payment of cash of $765,000 and the
issuance of a short-term note payable for $975,000.  The assets
acquired consist of eleven retail store locations and a centralized processing
plant.  As discussed above in Note 3, in order to finance the
acquisition,  the Company issued a secured convertible note in the
initial principal amount of $1,725,000 to Setal 2, LLC, which is secured by a
first priority lien over all of Zoots assets acquired.





Page 3




Results of Operations for the Three
Months Ended March 31, 2008 and 2007





Revenues





Net
sales are approximately $2,876,000 for the three months ended March 31, 2008
compared to the three months ended March 31, 2007 of approximately $2,026,000.
This reflects an increase of approximately $850,000 or 42% increase in
revenues. The increase consisted of approximately $180,000 from existing
operations and $670,000 from our recent acquisitions.





Cost of
Sales





Our
cost of sales is approximately $1,329,000 for the three months ended March 31,
2008 compared to the three months ended March 31, 2007 of approximately
$1,014,000, an increase of approximately $315,000. Cost of sales as a percentage
to revenues is 46% and 50% for the three months ended March 31, 2008 and 2007,
respectively. Our cost of sales consists of supplies, labor and facilities to
process laundry and dry cleaning products.  The increase in cost of sales
was a result from our recent acquisitions.





Gross
Profit





Gross
profit increased approximately $535,000 to approximately $1,547,000 for the
three months ended March 31, 2008 compared to the three months ended March 31,
2007 of approximately $1,012,000. Gross profit as a percentage of revenue
increased by 4% from 50% for the three months ended March
31, 2007,  to 54% for the three months ended March 31,
2008.




Operating
Expenses





Operating
expenses for the three months ended March 31, 2008 are approximately $3,935,000
compared to the three months ended March 31, 2007 of approximately $2,451,000,
an increase of approximately $1,484,000.





Our
delivery, store and selling expenses for the three months ended March 31, 2008
were approximately $1,463,000 compared to the three months ended March 31, 2007
of approximately $831,000. These expenses are primarily related to store rents
and delivery costs.  The increase of $632,000 is primarily attributable to
additional stores acquired.




Our
administrative expenses for the three months ended March 31, 2008 were
approximately $2,353,000 compared to the three months ended March 31, 2007 of
approximately $1,547,000, an increase of approximately $806,000. These expenses
are primarily related to management, legal and professional fees related to our
recent acquisition.





Net Results of
Operations





Our
operating loss was approximately $2,388,000 for the three months ended
March 31, 2008 and approximately $1,439,000 for the three months ended March 31,
2007.





Other Expenses





Interest
expense for the three months ended March 31, 2008 was approximately $258,000
compared to approximately $518,000 for the three months ended March 31, 2007, a
decrease of approximately $260,000. This is
related to the amortization of debt discounts against convertible notes payable
issued in December 2006 in which no such expenses were incurred during the six
months ended March 31, 2008.





Net
Results





We
are reporting a net loss of approximately $2,679,000 or $0.15 per common share
for the three months ended March 31, 2008 compared to a net loss of
approximately $2,251,000 or $0.13 per common share for the three months ended
March 31, 2007. 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, 2008 and 2007





Revenues





Net
sales were approximately $5,246,000 for the six months ended March 31, 2008
compared to the six months ended March 31, 2007 of approximately $3,627,000, an
increase of approximately $1,619,000. This reflects a 44% increase in revenues.
The increase consisted of approximately $1,529,000 from existing operations and
approximately $2,098,000 from our recent acquisitions.




Cost of
Sales





Our
cost of sales is approximately $2,510,000 for the six months ended March 31,
2008 an increase of approximately $647,000 compared to the six months ended
March 31, 2007 of approximately $1,863,000. Cost of sales as a percentage to
revenues is 47% and 51% for the six months ended March 31, 2008 and 2007,
respectively. Our cost of sales consists of supplies, labor and facilities to
process laundry and dry cleaning products.  The increase in cost of sales
was a result from our recent acquisition.





Page 4




Gross
Profit
 
 Gross
profit increased approximately $972,000 to approximately $2,737,000 for the six
months ended March 31, 2008 compared to the six months ended March 31, 2007 of
approximately $1,765,000. Gross profit as a percentage of revenue increased 3%
or 52% and 49% for the six months ended March 31, 2008 and 2007,
respectively.




Operating
Expenses





Operating
expenses for the six months ended March 31, 2008 are approximately $6,690,000
compared to the six months ended March 31, 2007 of approximately $4,620,000, an
increase of approximately $2,070,000.





Our
delivery, store and selling expenses for the six months ended March 31, 2008
were approximately $2,602,000 compared to the six months ended March 31, 2007 of
approximately $1,546,000. These expenses are primarily related to store rents
and delivery costs.  The increase of $1,056,000 is primarily attributable
to additional stores acquired.




Our
administrative expenses for the six months ended March 31, 2008 were
approximately $3,863,000 compared to the six months ended March 31, 2007 of
approximately $2,923,000, an increase of approximately $940,000. These expenses
are primarily related to management and professional fees. Our management costs
are directly related to supporting a public company and legal fees related to
our recent acquisition.





Net Results of
Operations




Our
operating loss is approximately $3,953,000 for the six months ended March 31,
2008 and approximately $2,855,000 for the six months ended March 31,
2007.





Other Expenses





Interest
expense for the six months ended March 31, 2008 was approximately $575,000
compared to approximately $611,000 for the six months ended March 31,
2007.  This is related to the amortization of debt discounts against
convertible notes payable issued in December 2006 in which no such expenses were
incurred during the six months ended March 31, 2008.





Net
Results





We are
reporting a net loss of approximately $4,539,000 or $0.23 per common share for
the six months ended March 31, 2008 compared to a net loss of approximately
$3,789,000 or $0.22 per common share for the six months ended March 31, 2007.
This includes legal, audit, consulting and administrative expenses directly
related to our recent acquisition.





Page 5





Liquidity and Capital
Resources





Total
assets increased by approximately $5,009,000 from $11,346,000 as of March 31,
2007 to $16,355,000 as of March 31, 2008. The increase is primarily due to an
increase in goodwill of approximately $2,473,000 related to our recent
acquisition; property and equipment of approximately $2,053,000; and intangible
assets of $650,000.





Total
liabilities increased by approximately $8,177,000 from approximately $6,316,000
as of March 31, 2007 to approximately $14,493,000 as of March 31, 2008. This is
primarily due to an increase in convertible notes payable of approximately
$6,342,000; increase in accounts payable of approximately $962,000.




Our
operating activities used approximately $3,884,000 in cash during the six months
ended March 31, 2008. Our net loss of approximately $4,539,000 was the primary
component of our negative operating cash flow. This net loss was offset by a
number of non-cash items totaling approximately $398,000. 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 of approximately $619,000. Operating activities used
approximately $1,659,000 in cash during the six months ended March 31, 2007. Our
net loss of approximately $3,789,000 was the primary component of our negative
operating cash flow. This net loss was offset by a number of non-cash items
totaling approximately $1,110,000. These include depreciation, amortization, bad
debt expense, issuance of stock for compensation and services and debt discount
amortization in addition to the growth in accounts payable and other expenses of
approximately $949,000.




Cash used
in investing activities during the six months ended March 31, 2008 consisted of
approximately $2,589,000 used primarily for the recent acquisitions totaling
approximately $3,042,000, offset by a decrease in deferred acquisition cost of
$458,000 as compared to approximately $748,000 for the six months ended March
31, 2007 primarily for the deferred acquisition cost for the projects in
process.





Cash
flows from financing activities were approximately $5,328,000 for the six months
ended March 31, 2008 which primarily consisted of approximately $5,458,000 in
net proceeds from the issuance of convertible debentures; $571,000 in proceeds
from issuance of common stock; and issuance of notes payable of approximately
$800,000; offset by repayments on notes payable, capital leases and prepaid
financing costs of approximately $1,500,000.  Cash flows from financing
activities were approximately $1,334,000 for the six months ended March 31, 2007
which primarily consisted of approximately $1,800,000 proceeds from issuance of
convertible notes payable offset by $605,000 of repayments on notes payable and
deferred equity raising cost.





We have a
working capital deficit of approximately $3,908,000 as of March 31, 2008. To
meet our current working capital requirements, the Company completed a
$4,193,000 debt financing during the quarter ended December 31, 2007 and
additional debt and equity financings of $7,848,000, during the quarter ended
March 31, 2008. However, such financing transactions may be insufficient to fund
planned acquisitions, capital expenditures, working capital and other cash
requirements.




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. The Company has recurring losses
from operations; negative cash flow from operating activities of approximately
$3,884,000 for the six months ended March 31, 2008; and negative working capital
of approximately $3,908,000 and an accumulated deficit of approximately
$23,895,000 at March 31, 2008. 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 financing transactions. In connection with such efforts, the Company
completed a $4,193,000 debt financing during the quarter ended December 31, 2007
and additional debt financings of $7,848,000 during the quarter ended March
31, 2008.  However, such financing transactions may be insufficient to
fund planned acquisitions, capital expenditures, working capital and other cash
requirements for the next year. Therefore, the Company will be required to seek
additional funds to finance its long-term operations. The successful outcome of
future activities cannot be determined at this time and there is no assurance
that, if achieved, the Company will have sufficient funds to execute its
intended business plan or generate positive operating results.





The
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. The Company intends to fund operations through
debt and/or equity financing transactions. However, such financing transactions
may not be sufficient to fund its planned acquisitions, capital expenditures,
working capital, and other cash requirements for the next twelve
months.





Page 6





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).





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:




Page 8




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, 2008. 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, 2008, our disclosure controls and
procedures are not effective.





The
ineffective disclosure controls and procedures are material weakness. The
Company intends to address these matters by establishing effective controls over
the period-end closing and financial reporting processes. This will require the
addition of personnel and the creation of closing protocols for the Company and
its subsidiaries as well as the consolidation o all subsidiaries.





We plan
on remediating the material weaknesses by implementation of new financial
reporting systems throughout our 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 our company and reported timely in
various reports filed or submitted under the Exchange Act.





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 9





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 quarter ended December 31, 2007, the Company issued 242,308 shares of its
restricted common stock for conversion of $315,000 in Series A convertible
debentures.
 
 During
the three months ended March 31, 2008, the Company, pursuant to a warrant
agreement, issued 434,210 shares of its restricted common stock upon exercise of
cashless warrants.
  In
connection with the acquisition of Team as discussed in Note 7, the Company
issued 2,044,667 shares of its restricted common stock in exchange for certain
assets and liabilities of Team valued at $0.86 per share (stock
price at closing date) less 
an 8% marketability discount having total net value of approximately
$1,613,000.
 
 During
the three months ended March 31, 2008, the Company issued 792,376 shares of its
restricted common stock at prices ranging from $0.60 and $0.75 per share to
various investors for cash proceeds totaling $570,650.
 
 During
the three months ended March 31, 2008, the Company issued 71,429 shares of its
restricted common stock as part a $50,000 conversion of the Series A Convertible
Note at a modified conversion rate of $0.70 per share. The initial conversion
price was $3.00 per share as discussed in Note 3 above. The change in terms
was considered to be not significant.
 
 During
the three months ended March 31, 2008, the Company issued 24,331 shares of its
restricted common stock in exchange for certain professional services provided
to the Company which was valued at $19,224 based on the value of
the services provided. Expenses related to this transaction have been
included in professional services in the accompanying condensed consolidated
statement of operations.




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.
            DescriptionExhibit
      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 10




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
      CORPORATIONDate:
      May 20, 2008
            By:
      /S/ ROBERT Y.
      LEERobert
      Y. Lee
              Chief
      Executive OfficerBy:
      /S/ F. KIM
      COXF.
      Kim Cox
              Chief
      Financial Officer












EXHIBIT INDEX




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.