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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended June 30, 2001

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(D)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

Commission file number 0-9040

                               DRYCLEAN USA, Inc.
--------------------------------------------------------------------------------
                 (Name of small business issuer in its charter)
<S>                                                     <C>
                  Delaware                              11-2014231
-----------------------------------------        ----------------------------
     (State or other jurisdiction of                 (I.R.S. Employer
      incorporation or organization)                Identification No.)

        290 N.E. 68th Street, Miami, Florida               33138
-----------------------------------------        ----------------------------
      (Address of principal executive offices)           (Zip Code)

Issuer's telephone number, including area code: 305-754-4551

Securities registered under Section 12(b) of the Exchange Act:  Common Stock, $.025 par value

Securities registered under Section 12(g) of the Exchange Act: None

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B contained in this form,  and no disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

         The Company's revenues for its fiscal year ended June 30, 2001 were
$18,720,982.

         The aggregate market value as at September 14, 2001 of the Common Stock
of the issuer, its only class of voting stock, held by non-affiliates was
approximately $1,200,000, calculated on the basis of the mean between the high
and low sales prices of the Company's Common Stock on the American Stock
Exchange on that date. Such market value excludes shares owned by all executive
officers and directors (and their spouses); this should not be construed as
indicating that all such persons are affiliates.

         The number of shares outstanding of the issuer's Common Stock as at
September 17, 2001 was 7,027,500.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the issuer's Proxy Statement relating to its 2001 Annual
Meeting of Stockholders are incorporated by reference into Items 10, 11 and 12
in Part III of this Report.

Transitional Small Business Disclosure Format   Yes [  ]   No  [X]
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                           FORWARD LOOKING STATEMENTS

         CERTAIN STATEMENTS IN THIS REPORT UNDER THE CAPTIONS "ITEM 1.
BUSINESS," "ITEM 2. PROPERTIES" AND "ITEM 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION," ARE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). WHEN USED IN THIS REPORT, WORDS SUCH AS "MAY,"
"SHOULD," "SEEK," "BELIEVE," "EXPECT," ANTICIPATE," "ESTIMATE," "PROJECT,"
"INTEND," "STRATEGY" AND "PRO FORMA" AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS REGARDING EVENTS, CONDITIONS AND FINANCIAL
TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS, OPERATIONS, BUSINESS
STRATEGIES, OPERATING RESULTS AND FINANCIAL POSITION. FORWARD-LOOKING STATEMENTS
ARE SUBJECT TO A NUMBER OF KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES THAT MAY
CAUSE ACTUAL RESULTS, TRENDS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR
INDUSTRY TRENDS AND RESULTS, TO DIFFER MATERIALLY FROM THE FUTURE RESULTS,
TRENDS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS: GENERAL ECONOMIC
AND BUSINESS CONDITIONS, AS WELL AS INDUSTRY CONDITIONS AND TRENDS, INCLUDING
SUPPLY AND DEMAND; CHANGES IN BUSINESS STRATEGIES OR DEVELOPMENT PLANS; THE
AVAILABILITY, TERMS AND DEPLOYMENT OF DEBT AND EQUITY CAPITAL; TECHNOLOGY
CHANGES; COMPETITION AND OTHER FACTORS WHICH MAY AFFECT PRICES WHICH THE COMPANY
MAY CHARGE FOR ITS PRODUCTS AND ITS PROFIT MARGINS; THE AVAILABILITY AND COST OF
THE EQUIPMENT AND RAW MATERIALS PURCHASED BY THE COMPANY; RELATIVE VALUES OF THE
UNITED STATES CURRENCY TO CURRENCIES IN THE COUNTRIES IN WHICH THE COMPANY'S
CUSTOMERS, SUPPLIERS AND COMPETITORS ARE LOCATED; AVAILABILITY OF QUALIFIED
PERSONNEL; CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENT REGULATION,
PRINCIPALLY ENVIRONMENTAL REGULATIONS; AND THE COMPANY'S ABILITY TO SUCCESSFULLY
INTRODUCE, MARKET AND SELL AT ACCEPTABLE PROFIT MARGINS ITS NEW GREEN JET(TM)
DRY CLEANING MACHINES. THESE AND CERTAIN OTHER FACTORS ARE DISCUSSED IN THIS
REPORT AND FROM TIME TO TIME IN OTHER COMPANY REPORTS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION. THE COMPANY DOES NOT ASSUME AN OBLIGATION TO UPDATE THE
FACTORS DISCUSSED IN THIS REPORT OR SUCH OTHER REPORTS.

                                     PART I
                                     ------

ITEM 1.           BUSINESS.
                  ---------

GENERAL
-------

         The Company was incorporated under the laws of the State of Delaware on
June 30, 1963 under the name Metro-Tel Corp. The Company changed its name to
DRYCLEAN USA, Inc. on November 7, 1999 to reflect a change in the primary nature
of its consolidated operations which had occurred since November 1, 1998.

         On November 1, 1998, Steiner-Atlantic Corp. ("Steiner") was merged (the
"Merger") with and into, and therefore became, a wholly-owned subsidiary of
Metro-Tel Corp. ("Metro-Tel" and collectively with Steiner and Steiner's
wholly-owned subsidiaries, the "Company"). As a result of the Merger, the
Company added Steiner's operations as a supplier of dry cleaning, industrial
laundry equipment and steam boilers to Metro-Tel's operations as a manufacturer
and seller of telephone test and customer premise equipment.

         Steiner is a supplier of dry cleaning equipment, industrial laundry
equipment and steam boilers to customers, including customers of its DRYCLEAN
USA Franchise Company subsidiary, in the United States, the Caribbean and Latin
American markets. This aspect of Steiner's services includes: (1) designing and
planning "turn-key" laundry and/or dry cleaning systems to meet the layout,
volume and budget needs of a variety of institutional and retail customers, (2)
supplying replacement equipment and parts to its customers, (3) providing
warranty and preventative maintenance through factory-trained technicians and


                                       2
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service managers, (4) selling its own line of dry cleaning systems under its
Aero-Tech brand name; and (5) selling process steam systems and boilers.

         In March 1999, Steiner formed a new subsidiary, Steiner-Atlantic
Brokerage Corp. ("Steiner Brokerage"), to act as a business broker to assist
others seeking to buy or sell existing dry cleaning stores and coin laundry
businesses. Some of Steiner's existing customers have become Steiner Brokerage
clients, utilizing Steiner's staff and ability to assist them in the sale of
their businesses and associated real property.

         In July 1999, Steiner acquired certain assets of DRYCLEAN USA Franchise
Company, including, among other things, the worldwide rights to the name
DRYCLEAN USA along with existing franchise and license agreements. DRYCLEAN USA
is one of the largest franchise and license operations in the dry cleaning
industry, currently consisting of approximately 400 franchised and licensed
locations in the United States, the Caribbean and Latin America. Steiner expects
to aggressively increase the number of existing franchisees and licensees of
DRYCLEAN USA through proven sales and advertising methods with an expanded sales
staff. In addition, it has begun to advertise its franchise and license program
on an internet website. The website is also expected to provide interactive
information and solutions to clothing and textile problems in the home and
office.

         In February 2001, Steiner formed DRYCLEAN USA Development Corp. as a
new subsidiary to develop new turn-key dry cleaning establishments for resale to
third parties. During fiscal 2001, activities of this subsidiary were limited to
entering into leases in two commercial shopping centers in South Florida for
locations intended to be developed into dry cleaning establishments and sold to
third parties.

         The Company's Metro-Tel division is engaged in the manufacture and sale
of telephone test and customer premise equipment utilized by telephone and
telephone interconnect companies in the installation and maintenance of
telephone equipment. Through internal research and development and through
acquisition, Metro-Tel has added various product lines to its telephone test and
customer premise product lines. The Company has retained an investment banking
firm to consider alternatives for its telecommunications segment, which could
involve the sale of the segment.

STEINER'S OPERATIONS
--------------------

         History. Steiner was founded in 1960 by William K. Steiner, initially
operating as a distributor of dry cleaning systems and boilers, and as a
rebuilder of laundry, dry cleaning and boiler equipment. Steiner expanded in
1972, when it began distributing institutional laundry equipment to hotels,
motels and hospitals. In 1980, Steiner began importing dry cleaning systems from
an English manufacturer and, four years later, Steiner replaced this
manufacturer with a relationship with an Italian manufacturer of dry cleaning
systems. In 1990, Steiner established its own branded product line with the
introduction of an updated dry cleaning system under the Aero-Tech label.

         Product Lines. Steiner offers a broad line of laundry and dry cleaning
equipment and steam boilers, as well as a comprehensive parts and accessories
inventory. Steiner's laundry equipment features washers and dryers, including
coin-operated machines, boilers, water reuse and heat reclamation systems,
flatwork ironers and automatic folders. Steiner's dry cleaning equipment
includes dry cleaning machines, garment presses, finishing equipment, and
sorting and distributing conveyors. Substantially all of the Company's dry
cleaning equipment sold under the Aero-Tech label is currently manufactured
exclusively for Steiner in Italy.

         In fiscal 2000, Steiner's Aero-Tech division entered into a license
agreement with Green Earth Solutions to use the Green Earth cleaning system in
Steiner's Green Jet(TM) dry cleaning machines. This new machine not only cleans
garments efficiently, but it also eliminates the use of perchloroethylene (Perc)
in

                                       3
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the cleaning process, thereby eliminating the health and environmental concerns
that Perc poses to our customers and their landlords. It also alleviates
flammability, odor and cost issues inherent in alternative solvents and cleaning
processes. Patents have been applied for to protect this innovative approach to
garment cleaning. Production has started and first deliveries are expected to
start during the second quarter of fiscal 2002. The machine will be sold through
distributors and dealers throughout the United States, South America and Asia.

         Steiner's product lines are positioned and priced to appeal to
customers in each of the high-end, mid-range and value priced markets. Steiner's
product lines are offered under a wide range of price points to address the
needs of a diverse customer base. Suggested prices for most of Steiner's
products range from approximately $5,000 to $50,000. Steiner's product line
offers its customers a "one-stop shop" for laundry and dry cleaning systems,
boilers and accessories. By providing "one-stop" shopping, Steiner believes it
is better able to attract and support potential customers who can choose from
Steiner's broad product line.

         Steiner seeks to establish customer satisfaction by offering (1) an
on-site training and preventive maintenance program performed by factory trained
technicians and service managers; (2) design and layout assistance; (3)
maintenance of a comprehensive parts and accessories inventory and same day or
overnight availability; and (4) competitive pricing. Steiner provides a
toll-free support line to resolve customer service problems.

         In March 1999, Steiner formed Steiner Brokerage as a new subsidiary to
act as a business broker to assist others seeking to buy or sell existing dry
cleaning and laundry businesses. Some of Steiner's existing customers have
become Steiner Brokerage clients, utilizing Steiner's staff and ability to
assist them in the sale of their businesses and associated real property.

         In July 1999, Steiner acquired certain assets of DRYCLEAN USA Franchise
Company, including the worldwide rights to the name DRYCLEAN USA along with
existing franchisees and licensees and associated annual revenues. DRYCLEAN USA
is one of the largest franchise and license operations in the dry cleaning
industry, currently consisting of approximately 400 franchised and licensed
locations in the United States, the Caribbean and Latin America.

         In February 2001, Steiner formed DRYCLEAN USA Development Corp., a new
subsidiary to develop new turn-key dry cleaning establishments for resale to
third parties. DRYCLEAN USA Development Company did not contribute revenues in
fiscal 2001. During fiscal 2001, activities of this subsidiary were limited to
entering into leases in two commercial shopping centers in South Florida for
locations intended to be developed into dry cleaning establishments and sold to
third parties.

         Sales, Marketing and Customer Support. Steiner's laundry and dry
cleaning equipment products are marketed in the United States, the Caribbean and
Latin America. Steiner employs sales executives to market its products,
including its Aero-Tech products, in the United States and in international
markets. Steiner supports its products by representative advertising in trade
publications, participating in trade shows and engaging in regional promotions
and sales incentive programs. A substantial portion of Steiner's equipment sales
orders are obtained by telephone, e-mail and fax inquiries originated by the
customer or by Steiner and significant repeat sales are derived from existing
customers.

         Steiner trains its sales and service employees to provide service and
customer support. Steiner uses specialized classroom training, instructional
videos and vendor sponsored seminars to educate employees about product
information. In addition, Steiner's technical staff has prepared comprehensive
training manuals, written in English and Spanish, relating to specific training
procedures. Steiner's technical personnel are continuously updated and retrained
as new technology is developed. Steiner monitors service technicians' continued
educational experience and fulfillment of requirements in order to evaluate
their

                                       4
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competence. All of Steiner's service technicians receive service bulletins,
service technicians' tips and continued training seminars.

         Customers and Markets. Steiner's customer base consists of
approximately 500 customers in the United States, the Caribbean and Latin
America, including independent and franchise dry cleaning chains and
institutions, hotels, motels, hospitals, cruise lines, nursing homes, government
institutions and distributors. No customer accounted for more than 10% of
Steiner's revenues during the years ended June 30, 2001 or June 30, 2000.

         Sources of Supply. Steiner purchases laundry and dry cleaning systems,
boilers and other products from a number of manufacturers, none of which
accounted for more than 20% of Steiner's purchases for the years ended June 30,
2001 or June 30, 2000. Steiner has established long-standing relationships with
many of the leading laundry, dry cleaning and boiler manufacturers. Steiner's
management believes these supplier relationships provide Steiner with a
substantial competitive advantage, including exclusivity in certain products and
areas and favorable prices and terms. Therefore, the loss of a major vendor
relationship could adversely affect Steiner's business. Historically, Steiner
has not experienced difficulty in purchasing desired products from its suppliers
and believes it has good working relationships with its suppliers.

         Steiner has a formal contract with only one of its equipment
manufacturers and relies on its long-standing relationship with its other
suppliers. Steiner collaborates in the design, closely monitors the quality of
the manufactured product and believes its Aero-Tech systems exceed the
environmental regulations set by safety and environmental regulatory agencies.
Steiner must place its orders with its Italian manufacturer of its Aero-Tech
product line prior to the time Steiner has received all of its orders. However,
because of Steiner's close working relationship with the Italian manufacturer,
Steiner can usually adjust orders rapidly and efficiently to reflect a change in
customer demands.

         According to its arrangement with the Italian manufacturer, Steiner
purchases dry cleaning systems in Italian lira. Imports into the United States
are also affected by the cost of transportation, the imposition of import duties
and increased competition from greater production demands abroad. The United
States and Italy may, from time to time, impose new quotas, duties, tariffs or
other restrictions or adjust prevailing quotas, duties or tariff levels, which
could affect Steiner's margins on its Aero-Tech systems. United States customs
duties presently are approximately 1% of invoice cost on dry cleaning systems.
Steiner believes that if, for any reason its arrangement with its Italian
manufacturer were to cease or in the event the cost of its Aero-Tech systems
were to be adversely affected, it has the ability to have its Aero-Tech line
manufactured by other international suppliers.

         Competition. The laundry and dry cleaning equipment distribution
business is highly competitive and fragmented with over 100 full-line or
partial-line equipment distributors in the United States. Steiner's management
believes that no distributor supplies more than 6% of the market and that
substantially all such distributors are independently owned and, with the
exception of several regional distributors, operate primarily in local markets.
Competition is based on price, product quality, delivery and support services
provided by the distributor to the customer. In South Florida, Steiner's
principal domestic market, Steiner's primary competition is derived from two
full-line distributors which operate out of the Miami area. In the export
market, Steiner competes with several distributors and anticipates increased
competition as the export market grows. In its sale of its Aero-Tech line to its
distributors on a national level, Steiner competes with over a dozen
manufacturers of dry cleaning equipment whose products are distributed
nationally. Steiner competes by offering an extensive product selection,
value-added services, such as product inspection and quality assurance,
toll-free customer support line, reliability, warehouse location, price and,
with the Aero-Tech line, competitive special features and exclusivity.

                                       5
<PAGE>

         As a franchisor/licensor of retail dry cleaning stores, DRYCLEAN USA
competes with several other franchisors and turn-key suppliers of dry cleaning
stores primarily on the basis of trademark recognition and reputation. As a
broker in the purchase and sale of retail dry cleaning stores and coin laundry
business, Steiner Brokerage competes with business brokers generally, as well as
with other professionals with contacts in the retail dry cleaning and coin
laundry business. Competition in this latter area is primarily based on
reputation, advertising and, to a lesser degree, on the level of fees charged.

METRO-TEL'S OPERATIONS.
-----------------------

         History. Since its inception in 1963, Metro-Tel has been engaged in the
manufacture and sale of telephone test and customer premise equipment utilized
by telephone and telephone interconnect companies in the installation and
maintenance of telephone equipment. Through internal research and development
and through acquisition, Metro-Tel has added various product lines to its
telephone test and customer premise product lines. The Company has retained an
investment banking firm to consider alternatives for its telecommunications
segment, which could involve the sale of the segment.

         Product Lines. Metro-Tel is primarily engaged in the manufacture and
sale of telephone test equipment and customer premise equipment.

         TELEPHONE TEST EQUIPMENT. Most of Metro-Tel's sales are of telephone
test equipment and transmission test equipment. Metro-Tel's telephone test
equipment includes portable test sets designed for use in locating high
resistance faults resulting from moisture in exchange cables and by cable
splicers on exchange and toll cables for identification of cable wires and other
tone-testing purposes; linemen's rotary and/or touch-tone testing handsets and
portable line test sets for use by telephone installers, repairmen and central
office personnel; hand and pole exploring coils which are used in cable fault
finding; solid state conversion amplifier kits; Volt-Ohmmeter test sets; and
Cable Hound(R), a portable electronic unit that locates and determines the deptH
of underground cable and metal pipes primarily for the telephone, utility and
construction industries.

         Metro-Tel's transmission test equipment is used in telephone company
central office installations by operating companies, long distance telephone
resellers and large companies who own their own networks. Among these products
are digital and analog rack-mounted test systems, portable transmission test
sets, remote test systems and fiber optic test sets.

         CUSTOMER PREMISE EQUIPMENT. Metro-Tel also manufactures and markets a
line of telephone station and peripheral products. These products include a
series of specialty telephone products, including call diverters (call
forwarding devices used both by end-users and in telephone company central
offices), and specialty telephones.

         OTHER PRODUCTS AND SERVICES. Additionally, Metro-Tel sells spare parts
for its product lines and provides repair services for its products.

         Methods of Distribution. Metro-Tel presently sells its products through
its own regional sales managers and sales representatives who assist Metro-Tel's
national telephone equipment distributors. Sales managers are presently based in
Georgia and the state of Washington. In addition, Metro-Tel maintains an
in-house sales staff at its facilities in Milpitas, California.

         Principal Customers. Metro-Tel is not dependent upon any single
customer. However, North Supply Company, a national distributor of telephone
products, accounted for approximately 11% and 13% of Metro-Tel's net sales for
the years ended June 30, 2001 and June 30, 2000, respectively, but less than 10%
of the Company's consolidated revenues for those years. Metro-Tel believes that,
should it for any

                                       6
<PAGE>

reason lose either of these distributors, Metro-Tel could be adversely impacted
although these sales would normally be absorbed by other Metro-Tel distributors.
Ameritech, a Regional Bell Operating Company, accounted for 15.8% of Metro-Tel's
net sales for the year ended June 30, 2001 but less than 10% of the Company's
consolidated revenues for the year ended June 30, 2000.

         Sources of Supply. The basic materials used in the manufacture of
Metro-Tel's telephone test equipment and telephone station and peripheral
telephone equipment consist of electronic components. Metro-Tel utilizes many
suppliers and is not dependent on any supplier. Its raw materials generally are
readily available from numerous suppliers.

         Competition. Competition is high with respect to each of Metro-Tel's
product lines. However, as the products contained in such lines are varied and
similar products contain varying features, neither Metro-Tel nor any of its
competitors is a dominant factor in any product line market, except for
linemen's test sets for which Dracon, a division of Harris Corporation, is
dominant.

         The principal method of competition for each of Metro-Tel's products is
price and product features, with service and warranty having a relatively less
significant impact. Metro-Tel believes its product lines are competitively
priced. Many of Metro-Tel's competitors have greater financial resources and
have more extensive research and development and marketing staffs than
Metro-Tel.

         Research and Development. Metro-Tel is regularly engaged in the design
of new products and improvement of existing products for all of its
telecommunication equipment products lines. The amounts specifically allocated
to research and development expenses for the years ended June 30, 2001 and 2000
were $126,679 and $231,219, respectively. The reduction in Research and
Development was primarily due to reduced salary expense while Metro-Tel
continues its search for a new Director of Engineering.

PATENTS AND TRADEMARKS
----------------------

         The Company is the owner of United States service mark registrations
for the names Aero-Tech(R), Logitrol(R), Petro-Star(R), Aqua Star(R) and
Enviro-Star(R), which are used in connection with its laundry ANd dry cleaning
business lines, and of DRYCLEAN USA, which is licensed by it to retail dry
cleaning establishments. Patents have been applied for to protect the Company's
new Green Jet dry cleaning machines. The Company intends to use and protect
these or related service marks, as necessary. The Company believes its
trademarks and service marks have significant value and are an important factor
in the marketing of its products.

         The Company has obtained a number of trademarks which are used to
identify its telephone test and customer premise product lines. None of these
trademarks is considered to be material to the Company's telecommunication's
product lines. The Company also pays royalties to a third party under
arrangements permitting the Company to manufacture certain products.

COMPLIANCE WITH ENVIRONMENTAL AND OTHER GOVERNMENT LAWS AND REGULATIONS
-----------------------------------------------------------------------

         Over the past several decades in the United States, federal, state and
local governments have enacted environmental protection laws in response to
public concerns about the environment. A number of industries, including the dry
cleaning and laundry equipment industry, are subject to these evolving laws and
implementing regulations. As a supplier to the industry, the Company serves
customers who are primarily responsible for compliance with environmental
regulations. Among the federal laws that the Company believes are applicable to
the industry are the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), which provides for the investigation and
remediation of hazardous waste sites; The Resource Conservation and Recovery Act
of 1976, as amended ("RCRA"), which regulates

                                       7
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generation and transportation of hazardous waste as well as its treatment,
storage and disposal; and the Occupation Safety and Health Administration Act
("OSHA"), which regulates exposure to toxic substances and other health and
safety hazards in the workplace. Most states and a number of localities have
laws that regulate the environment which are at least as stringent as the
federal laws. In Florida, for example, in which a significant amount of the
Company's dry cleaning and laundry equipment sales are made, environmental
matters are regulated by the Florida Department of Environmental Protection
which generally follows the Environmental Protection Agency's ("EPA") policy in
the EPA's implementation of CERCLA and RCRA and closely adheres to OSHA's
standards.

         Certain of the Company's customer premise equipment products that
connect to public telephone networks need Federal Communications Commission (or,
in the case of foreign sales, the equivalent agency in the foreign country in
which they will be sold) approval prior to their sale.

         The Company does not believe that compliance with Federal, state and
local environmental and other laws and regulations which have been adopted have
had, or will have, a material effect on its capital expenditures, earnings or
competitive position.

EMPLOYEES
---------

         The Company currently employs 55 employees on a full-time basis, of
whom three are in executive management, 12 are engaged in sales and marketing,
20 are administrative and clerical, one is an engineer, 12 are engaged in
production and seven are in warehouse support. Of the Company's employees, [35]
are employed exclusively with respect to the Company's laundry and dry cleaning
equipment operations, 18 are employed exclusively with respect to the Company's
telecommunications equipment operations and two currently divide their time
between the two operations. None of the Company's employees are subject to a
collective bargaining agreement, nor has the Company experienced any work
stoppages. The Company believes that its relations with employees are
satisfactory.

FOREIGN AND GOVERNMENT SALES
----------------------------

         Steiner's export sales of the Company's laundry and dry cleaning
business were approximately $4,166,033 and $3,387,147 during the years ended
June 30, 2001 and June 30, 2000, respectively. Such export sales were made
principally to Latin America and the Caribbean. See "--Steiner's
Operations-Customers and Markets".

         Metro-Tel's export sales of telephone test and customer premise
equipment were approximately $237,113 and $265,000 for the years ended June 30,
2001 and June 30, 2000, respectively. Such export sales were made principally to
Europe, Canada and South America. Some of Metro-Tel's export sales are made
through distributors and agents.

         All of the Company's export sales require the customer to make payment
in United States dollars. Accordingly, foreign sales may be affected by the
strength of the United States dollar relative to the currencies of the countries
in which their customers and competitors are located.

         Revenues from sales to the United States government (none of the
contracts relating thereto being subject to renegotiation of profits or
termination at the election of the government) are immaterial.

ITEM 2.           PROPERTIES.
                  -----------

         The Company's executive offices and the main distribution center for
its laundry and dry cleaning equipment products are housed in three leased
adjacent facilities totaling approximately 47,000 square feet

                                       8
<PAGE>

in Miami, Florida, and the manufacturing and distribution facility for its
telephone test and customer premise equipment operations is located in
approximately 21,500 square feet of leased space in Milpitas, California. The
Company believes its facilities are adequate for its present and anticipated
future needs. The following table sets forth certain information concerning the
leases at these facilities:

                                       Approximate
                   Facility              Sq. Ft.                      Expiration
                   --------              -------                      ----------
    Miami, Florida (1)                       27,000        October 2004
    Miami, Florida                            8,000        Month to Month
    Miami, Florida                           12,000        Month to Month
    Milpitas California                      21,500        March 2002

--------------

(1)      Leased from William K. Steiner, a director of the Company. The lease
         includes an option to renew the lease for a ten-year term at a rent to
         be agreed upon by the parties.

ITEM 3.       LEGAL PROCEEDINGS.
              ------------------

         Not applicable.

ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
              ---------------------------------------------------

         Not applicable.

                                       9
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                                     PART II
                                     -------

ITEM 5.           MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
                  ------------------------------------------------------------

         The Company's Common Stock has been traded on the American Stock
Exchange (the "Amex") under the symbol "DCU" since November 10, 1999 and on the
Chicago Stock Exchange from January 11, 1999 until November 9, 1999 under the
symbol "MTF" and thereafter under the symbol "DCU." From January 11, 1999 until
November 9, 1999, the Company's Common Stock was also quoted on the Nasdaq
Electronic Bulletin Board and prior thereto on The Nasdaq Stock Market Small Cap
Market, each under the symbol "MTRO." The following table sets forth, for the
Company's Common Stock, the high and low sales prices on the Amex since November
10, 1999, as reported by Amex, and high and low bid prices, as reported by
Nasdaq, for the period prior thereto. The Nasdaq quotations are without retail
markups, markdowns or commissions and may not represent actual transactions.

                                     HIGH               LOW
                                     ----               ---

         Fiscal 2000
         -----------
         First Quarter               $3.39             $1.75
         Second Quarter               2.88              1.00
         Third Quarter                5.88              1.25
         Fourth Quarter               3.88              1.31

         Fiscal 2001
         -----------
         First Quarter                2.63              1.50
         Second Quarter               1.63              1.00
         Third Quarter                1.56               .55
         Fourth Quarter                .90               .50

         As of September 17, 2001 there were approximately 881 holders of record
of the Company's Common Stock.

         No dividends have been paid on the Company's Common Stock during either
of the last two fiscal years. Steiner is a party to a Loan and Security
Agreement with a commercial bank, loans under which are guaranteed by Metro-Tel
and secured by substantially all of the assets of the Company. Among other
things, this agreement provides that the Company may not declare or pay
dividends if such payment would likely cause it to fail to maintain a specified
consolidated debt service ratio or a specified ratio of consolidated liabilities
to tangible net worth. The Company does not intend to pay cash dividends in the
foreseeable future.


                                       10
<PAGE>

ITEM 6.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
                  ---------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

         For the year ended June 30, 2001, cash decreased by $606,676 compared
to an increase of $17,820 for the year ended June 30, 2000.

         For fiscal 2001, operating activities provided cash of $4,209,
principally as a result of net income ($122,471), adjusted for non-cash expenses
for depreciation and amortization ($223,189), bad debts ($178,674), and
provision for impairment of inventory ($195,513). Also, cash was provided by a
decrease in other assets ($79,622) and increases in accounts payable and accrued
expenses ($173,196) and customer's deposits and other ($198,902). These were
partially offset by increases in accounts, notes and lease receivables
($129,225), inventories ($465,352), deferred income tax benefit ($33,474) and a
decrease in income taxes payable ($539,307). The above mentioned fluctuations in
operating assets and operating liabilities are primarily the result of ordinary
timing differences. Income taxes used $539,307 compared to having provided
$201,270 in the prior year primarily due to timing of estimated tax payments and
the decline in profits the company experienced during the fourth quarter of
fiscal 2001.

         Cash provided by operating activities in fiscal 2000 ($1,200,432) was
principally as a result of net income ($965,449), non-cash expenses for
depreciation and amortization ($139,033), bad debt expense ($20,614), deferred
income taxes ($17,376), a decrease in inventories ($139,668), and increases in
income taxes payable ($201,270) and customer deposits ($96,388), which were
partially offset by increases in accounts and lease receivables ($287,783) and
other assets ($126,285).

         Net cash used in investing activities in fiscal 2001 was $142,135,
principally to purchase equipment. Net cash used in investing activities in
fiscal 2000 was $767,612, principally due to the purchase of equipment
($137,612) and the acquisition of a franchise license for $550,000 and other
licenses for $80,000.

         In fiscal 2001, financing activities used cash of $468,750, principally
to make payments on the Company's term loan ($480,000), partially offset by
$11,250 obtained from the exercise of stock options. Net cash used in financing
activities in fiscal 2000 amounted to $415,000, resulting principally from
payments on the Company's term loan ($480,000), partially offset by proceeds
from the exercise of stock options ($65,000).

         The Company believes that its present cash ($375,912 at June 30, 2001),
cash it expects to generate from operations and borrowings available under its
$2,250,000 line of credit will be sufficient to meet its operational and capital
expenditure needs. The Company has no present borrowings outstanding under this
line of credit (which, as extended, matures on October 30, 2001, subject to
renewal at the discretion of the lender), although the Company did borrow under
this line of credit during fiscal 2001. The Company believes it will be able to
negotiate a new line prior to that time. As to the $1,160,000 principal amount
outstanding under its term loan at June 30, 2001, the Company is required to
make monthly payments of $40,000 until January 2002, when the remaining $960,000
will become due. The Company believes it will be able to refinance such debt
prior to that time. As of June 30, 2001, the Company was not in compliance with
the above mentioned credit facilities' financial covenants. The bank has granted
a waiver of the covenant violations.

                                       11
<PAGE>

RESULTS OF OPERATIONS
---------------------

         Total revenues for the fiscal year ended June 30, 2001 decreased by
$803,517 (4.1%) from fiscal 2000. Revenues of the laundry and dry cleaning
segment decreased by $132,264 (.9%), due primarily to an absence of management
fees ($118,392 of management fees was earned in fiscal 2000) and a $113,262
reduction in brokerage commissions, which offset a $88,294 increase in equipment
sales. Revenues from the Company's license and franchise segment, which was
acquired in July 1999, decreased by $87,290 (16.3%), primarily as the result of
the opening of a fewer number of licensed and franchised units. Sales of the
Company's telecommunications segment decreased by $583,963 (16.7%) in fiscal
2001 from fiscal 2000, as a result of an industry-wide slowdown which became
more acute during the company's fourth quarter. Although the telecommunications
segment implemented some selective price increases on January 1, 2001, its
effect on results of operations for the six month period was not material. The
Company has retained an investment banking firm to consider alternatives for its
telecommunications segment, which could involve the sale of the segment.

         Costs of goods sold, expressed as a percentage of sales, increased to
75.4% in fiscal 2001 from 71.6% in fiscal 2000. The increase was mostly due to
the reduced sales volume of the telecommunications operations, which affected
the segment's ability to absorb its fixed expenses, coupled with a $54,250
increase in freight charges in the laundry and dry cleaning segment which also
impacted margins. Additionally, during fiscal 2001, the Company recorded a
$195,513 provision for inventory obsolescence for certain specific inventory
items in the Company's telecommunication segment to reduce the items to
estimated realizable value, in light of the industry slowdown.

         Selling, general and administrative expenses increased by $285,566
(6.5%) in fiscal 2001 over fiscal 2000, primarily as a result of a $133,859
increase in bad debts, a $43115 increase in payroll expense, a $65,390 increase
in depreciation and amortization and an overall increase in general and
administrative expenses of $62,137 in the commercial and industrial laundry and
dry cleaning segment, and a $73,263 increase in selling expenses in the
telecommunications segment. The increase in bad debt expense was primarily
attributable to a $100,000 provision for doubtful accounts with an entity
controlled by one of the Company's principal shareholders and bankruptcy
proceedings filed by another customer of the laundry and dry cleaning segment.
These increases offset a $92,769 reduction in administrative expense in the
telecommunications segment. Selling and administrative expenses for the
franchise and brokerage operations remained relatively flat when compared to
last year.

         Research and development expenses, which primarily relate to the
telecommunications segment, decreased by $53,509 (23.1%) in fiscal 2001 from
fiscal 2000. The reduction was primarily due to a reduction in salary expense of
$106,273 while the segment is continuing its search for a new Director of
Engineering. This reduction offset start-up research and development expenses of
$50,743 in the dry cleaning and laundry segment associated with the new
environmentally safe dry cleaning machine.

         Interest income decreased by $5,368 (14.9%) as a result of fewer
outstanding customer leases of laundry and dry cleaning equipment and a
reduction in interest earned on daily bank balances due to the lower average
cash balances on hand during the year and lower prevailing interest rates on
invested cash. These decreases were partially offset with interest earned on
trade notes receivable during fiscal 2001.

         Interest expense decreased by $30,890 (18.8%) due to a reduction in
average amount outstanding of Company debt and reduced interest rates, partially
offset by periodic borrowings against the Company's line of credit.

                                       12
<PAGE>

         The provision for income taxes decreased by $488,000 (86.5%) due
primarily to the decrease in pre-tax profit in fiscal 2001 over fiscal 2000. The
effective tax rate applicable to the Company's pre-tax income was 38.3% in
fiscal 2001, compared to 36.9% in fiscal 2000.

INFLATION
---------

         Inflation has not had a significant effect on the Company's operations
during any of the reported periods.

NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------

         In June 2001, the Financial Accounting Standard Board issued FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.

         SFAS No. 142 requires, among other things, that companies no longer
amortize goodwill, but instead test goodwill for impairment at least annually.
In addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.

         The Company's previous business combinations were accounted for using
the purchase method. As of June 30, 2001, the net carrying amount of other
intangible assets is $551,718. Amortization expense during the years ended June
30, 2001 and 2000 was $83,596 and $74,327, respectively. There was no goodwill
at June 30, 2001. Currently, the Company is assessing but has not yet determined
how the adoption of SFAS 141 and SFAS 142 will impact its financial position and
results of operations.


                                       13
<PAGE>

ITEM 7.           FINANCIAL STATEMENTS.
                  ---------------------
<TABLE>
<CAPTION>
                                                                                DRYCLEAN USA, Inc. and Subsidiaries

                                                                         Index to Consolidated Financial Statements

<S>                                                                                                     <C>
Report of Independent Certified Public Accountants                                                      15

Consolidated Balance Sheets at June 30, 2001 and 2000                                                   16

Consolidated Statements of Income for the years ended
     June 30, 2001 and 2000                                                                             17

Consolidated Statements of Shareholders' Equity for the years ended
   June 30, 2001 and 2000                                                                               18

Consolidated Statements of Cash Flows for the years ended
   June 30, 2001 and 2000                                                                               19

Summary of Accounting Policies                                                                       20-22

Notes to Consolidated Financial Statements                                                           23-33


                                       14
<PAGE>

Report of Independent Certified Public Accountants

Board of Directors and Shareholders
DRYCLEAN USA, Inc.
Miami, Florida

We have audited the accompanying consolidated balance sheets of DRYCLEAN USA,
Inc. and subsidiaries as of June 30, 2001 and 2000, and the related consolidated
statements of income, shareholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
DRYCLEAN USA, Inc. and subsidiaries as of June 30, 2001 and 2000, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.

Miami, Florida                                               BDO Seidman, LLP
August 30, 2001



                                       15
<PAGE>

                                                                                           DRYCLEAN USA, Inc. and Subsidiaries

                                                                                                   Consolidated Balance Sheets

                                       40


JUNE 30,                                                                       2001               2000
---------------------------------------------------------------------------------------------------------------

ASSETS (Note 6)

CURRENT ASSETS

   Cash and cash equivalents                                                    $ 375,912         $ 982,588
   Accounts and notes receivable, net of allowance for doubtful
     Accounts of $51,800 and $36,000 at 2001 and 2000,
     Respectively                                                               2,122,493         2,065,761
   Lease receivables (Note 2)                                                      39,494           105,394
   Inventories (Note 3)                                                         4,373,519         4,103,680
   Refundable income taxes                                                        257,363                 -
   Deferred income tax asset (Note 5)                                              69,337            46,135
   Other current assets, net of allowance for doubtful accounts of
     $100,000 at 2001 (Note 7)                                                    190,548           270,170
---------------------------------------------------------------------------------------------------------------

Total current assets                                                            7,428,666         7,573,728

LEASE RECEIVABLES - due after one year (Note 2)                                     5,238            45,519

EQUIPMENT AND IMPROVEMENTS, net (Note 4)                                          329,511           340,342

FRANCHISE, TRADEMARKS AND OTHER INTANGIBLE ASSETS, net
   (Note 1)                                                                       551,718           621,941
DEFERRED INCOME TAX ASSET (Note 5)                                                 12,786             2,514
---------------------------------------------------------------------------------------------------------------

                                                                              $ 8,327,919       $ 8,584,044
---------------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable and accrued expenses                                      $ 1,474,733       $ 1,301,537
   Income taxes payable                                                                 -           281,944
   Customer deposits and other                                                    573,298           374,396
   Current portion of term loan (Note 6)                                        1,160,000           480,000
---------------------------------------------------------------------------------------------------------------

Total current liabilities                                                       3,208,031         2,437,877
TERM LOAN, less current portion (Note 6)                                                -         1,160,000
---------------------------------------------------------------------------------------------------------------

Total liabilities                                                               3,208,031         3,597,877
---------------------------------------------------------------------------------------------------------------

COMMITMENTS (Notes 7, 9 and 10)
---------------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY (Note 12)
  Common stock, $0.025 par value:
     Authorized shares - 15,000,000; 7,027,500 and 7,016,250
       shares issued and outstanding at 2001 and 2000,
       respectively, including shares held in treasury                            175,688           175,406
   Additional paid-in capital                                                   2,048,570         2,037,602
   Retained earnings                                                            2,895,630         2,773,159
   Treasury stock, 26,250 shares at cost                                                -                 -
---------------------------------------------------------------------------------------------------------------

Total shareholders' equity                                                      5,119,888         4,986,167
---------------------------------------------------------------------------------------------------------------

                                                                              $ 8,327,919       $ 8,584,044
---------------------------------------------------------------------------------------------------------------
          SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                    16
<PAGE>

                                                                                           DRYCLEAN USA, Inc. and Subsidiaries

                                                                                             Consolidated Statements of Income

YEAR ENDED JUNE 30,                                                           2001               2000
---------------------------------------------------------------------------------------------------------

REVENUES:

    Net sales                                                         $ 17,952,705       $ 18,447,560
    Management fees, franchise and license fees, commissions
       and other (Note 7)                                                  768,277          1,076,939
---------------------------------------------------------------------------------------------------------

Total                                                                   18,720,982         19,524,499
---------------------------------------------------------------------------------------------------------

COST OF SALES (Note 3)                                                  13,534,366         13,213,440
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 7, 9 and 10)         4,707,697          4,422,131
RESEARCH AND DEVELOPMENT EXPENSES                                          177,710            231,219
---------------------------------------------------------------------------------------------------------

Total                                                                   18,419,773         17,866,790
---------------------------------------------------------------------------------------------------------

OPERATING INCOME                                                           301,209          1,657,709
---------------------------------------------------------------------------------------------------------

OTHER INCOME (EXPENSE):
    Interest income                                                         30,626             35,994
    Interest expense                                                      (133,364 )         (164,254 )
---------------------------------------------------------------------------------------------------------

EARNINGS BEFORE INCOME TAXES                                               198,471          1,529,449
PROVISION FOR INCOME TAXES (Note 5)                                         76,000            564,000
---------------------------------------------------------------------------------------------------------

NET EARNINGS                                                             $ 122,471          $ 965,449
---------------------------------------------------------------------------------------------------------

EARNINGS PER SHARE (Note 11)
    Basic earnings per share                                                  $.02               $.14
    Diluted earnings per share                                                $.02               $.13
---------------------------------------------------------------------------------------------------------

Weighted average number of shares of
  Common stock outstanding:
       Basic                                                             7,001,250          6,952,083
       Diluted                                                           7,121,155          7,305,931
---------------------------------------------------------------------------------------------------------

          SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                    17
<PAGE>

                                                                                       DRYCLEAN USA, Inc. and Subsidiaries

                                                                           Consolidated Statements of Shareholders' Equity


                                          COMMON STOCK       ADDITIONAL      TREASURY STOCK
                                       --------------------    PAID-IN   -----------------------   RETAINED
                                         SHARES     AMOUNT     CAPITAL      SHARES       AMOUNT    EARNINGS         TOTAL
---------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 1999               6,951,250 $ 173,781 $ 1,974,227      26,250  $         - $ 1,807,710  $  3,955,718

YEAR ENDED JUNE 30, 2000:

   Stock options exercised               65,000      1,625      63,375           -            -           -        65,000

   Net income                                 -          -           -           -            -     965,449       965,449
---------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2000               7,016,250 $ 175,406 $ 2,037,602      26,250  $         - $ 2,773,159  $  4,986,167

YEAR ENDED JUNE 30, 2001:

   Stock options exercised               11,250        282      10,968           -            -           -        11,250

   Net income                                 -          -           -           -            -     122,471       122,471
---------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2001               7,027,500 $ 175,688 $ 2,048,570      26,250  $         - $ 2,895,630  $  5,119,888
---------------------------------------------------------------------------------------------------------------------------

          SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                    18
<PAGE>
                                                                                     DRYCLEAN USA, Inc. and Subsidiaries

                                                                                   Consolidated Statements of Cash Flows


YEAR ENDED JUNE 30,                                                                 2001                2000
--------------------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES:
   Net income                                                                  $ 122,471            $965,449
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization                                             223,189             139,033
       Bad debt expense                                                          178,674              20,614
       Deferred income taxes                                                     (33,474)             17,376
       Provision for inventory obsolescence                                      195,513                   -
       (Increase) decrease in operating assets:
         Accounts, notes and lease receivables                                  (129,225)           (287,783)
         Inventories                                                            (465,352)            139,668
         Refundable income taxes                                                (257,363)                  -
         Other current assets                                                     79,622            (126,285)
       Increase (decrease) in operating liabilities:
         Accounts payable and accrued expenses                                   173,196              34,702
         Income taxes payable                                                   (281,944 )           201,270
         Customer deposits and other                                             198,902              96,388
--------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                                          4,209           1,200,432
--------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
   Capital expenditures, net                                                    (128,762)           (137,612)
   Acquisition of franchise and license agreements                                     -            (630,000)
   Increase in patents                                                           (13,373)                  -
--------------------------------------------------------------------------------------------------------------

Net cash used in investing activities                                           (142,135)           (767,612)
--------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
   Payments on term loan                                                        (480,000)           (480,000)
   Proceeds from exercise of stock options                                        11,250              65,000
--------------------------------------------------------------------------------------------------------------

Net cash used in financing activities                                           (468,750)           (415,000)
--------------------------------------------------------------------------------------------------------------

Net (decrease) increase in cash and cash equivalents                            (606,676)             17,820
Cash and cash equivalents at beginning of year                                   982,588             964,768
--------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                                       $ 375,912            $982,588
--------------------------------------------------------------------------------------------------------------

Supplemental Information:
   Cash paid for:
     Interest                                                                  $ 133,364            $164,254
     Income taxes                                                              $ 673,120            $345,625
--------------------------------------------------------------------------------------------------------------

          SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                                    19
<PAGE>

                                                                                DRYCLEAN USA, Inc. and Subsidiaries

                                                                                     Summary of Accounting Policies


        NATURE OF BUSINESS          DRYCLEAN USA, Inc. and Subsidiaries (collectively, the "Company")
                                    are engaged in the sale of commercial and industrial laundry and dry cleaning
                                    equipment, boilers and replacement parts, the sale of individual and area
                                    franchises under the DRYCLEAN USA name, acting as a business broker in
                                    connection with the purchase and sale of retail dry cleaning stores and coin
                                    laundries and the manufacture and sale of telephone test equipment and customer
                                    premise equipment, as well as related accessories.

                                    The Company primarily sells to customers located in the United States, the
                                    Caribbean and Latin America.

        PRINCIPLES OF               The  accompanying  consolidated  financial  statements  include the  accounts of
        CONSOLIDATION               DRYCLEAN   USA,   Inc.   and   its   wholly-owned   subsidiaries.   Intercompany
                                    transactions and balances have been eliminated in consolidation.

        REVENUE RECOGNITION         Sales of products are generally recorded as they are shipped. Shipping and
                                    handling fee income of approximately, $145,000 and $125,000 as of June 30, 2001
                                    and 2000, respectively, are included as other revenues in the consolidated
                                    financial statements. Commissions and management fees are recorded when earned.
                                    Individual franchise arrangements include a license and provide for payment of
                                    initial fees, as well as continuing service fees. Initial franchise fees are
                                    generally recorded upon the opening of the franchised store. Continuing services
                                    fees are recorded when earned.

        INVENTORIES                 Inventories are valued at the lower of cost or market determined on
                                    the first-in first-out method.

        EQUIPMENT,                  Property and equipment are stated at cost. Depreciation and amortization are
        IMPROVEMENTS AND            calculated on accelerated and straight-line methods over lives of five to seven
        DEPRECIATION                years for furniture and equipment and the life of the lease for leasehold
                                    improvements for both financial reporting and income tax purposes, except that
                                    leasehold improvements are amortized over 31 years for income tax purposes.


        FRANCHISE LICENSE,          The franchise license,  trademark and other intangible assets are stated at cost
        TRADEMARK AND OTHER         less  accumulated  amortization.  These assets are amortized on a  straight-line
        INTANGIBLE ASSETS           basis over the  estimated  future  periods to be  benefited  (2-15  years).  The
                                    Company reviews the recoverability of intangible assets based primarily upon an
                                    analysis of undiscounted cash flows from the acquired assets. In the event the
                                    expected future net cash flows should become less than the carrying amount of
                                    the assets, an impairment loss will be recorded in the period such determination
                                    is made based on the fair value of the related assets.

                                                         20
<PAGE>
                                                                                DRYCLEAN USA, Inc. and Subsidiaries

                                                                                     Summary of Accounting Policies


        ASSET IMPAIRMENTS          The Company periodically reviews the carrying value of certain of its assets in
                                   relation to historical results, current business conditions and trends to
                                   identify potential situations in which the carrying value of assets may not be
                                   recoverable. If such reviews indicate that the carrying value of such assets may
                                   not be recoverable, the Company would estimate the undiscounted sum of the
                                   expected future cash flows of such assets or analyze the fair value of the
                                   asset, to determine if permanent impairment exists. If a permanent impairment
                                   exists, the Company would determine the fair value by using quoted market
                                   prices, if available, for such assets, or if quoted market prices are not
                                   available, the Company would discount the expected future cash flows of such
                                   assets.

        INCOME TAXES                For the purpose of the provision for income taxes, the Company has adopted the
                                    provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
                                    Accounting for Income Taxes, for all periods presented. Under the asset and
                                    liability method of SFAS No. 109, deferred taxes are recognized for differences
                                    between consolidated financial statement and income tax bases of assets and
                                    liabilities.

        STATEMENT OF CASH FLOWS     For purposes of this statement, cash equivalents include all highly liquid
                                    investments with original maturities of three months or less.

        ESTIMATES                   The preparation of consolidated financial statements in conformity with
                                    generally accepted accounting principles requires management to make estimates
                                    and assumptions that affect the reported amounts of assets and liabilities and
                                    disclosure of contingent assets and liabilities at the date of the consolidated
                                    financial statements and the reported amounts of revenues and expenses during
                                    the reporting period. Actual results could differ from those estimates.

        EARNINGS PER SHARE          Basic earnings per share are computed on the basis of the weighted average
                                    number of common shares outstanding during each year. Diluted earnings per share
                                    are computed on the basis of the weighted average number of common shares and
                                    dilutive securities outstanding during each year. Securities having an
                                    antidilutive effect on earnings per share are excluded from the calculation of
                                    diluted earnings per share.

        ADVERTISING COSTS           The Company expenses the costs of advertising as of the first date the
                                    advertisements take place. The Company expensed approximately $343,000 and
                                    $200,000 of advertising costs for the years ended June 30, 2001 and 2000,
                                    respectively.

        FAIR VALUE OF               The Company's financial instruments consist principally of cash, accounts
        FINANCIAL INSTRUMENTS       receivable, leases receivables, notes receivable, accounts payable and accrued
                                    expenses  and debt.  Due to their  relatively  short-term  nature  and  variable
                                    rates,  the carrying  amounts of such financial  instruments as reflected in the
                                    accompanying consolidated balance sheets

                                                         21
<PAGE>

                                                                                DRYCLEAN USA, Inc. and Subsidiaries

                                                                                     Summary of Accounting Policies

                                   approximate their estimated fair value. Their estimated fair value is not
                                   necessarily indicative of the amounts the Company could realize in a current
                                   market exchange or of future earnings or cash flows.


        SEGMENTS                   The Company applies the provisions of Statement of Financial Accounting
                                   Standards No. 131 ("SFAS 131"), Segments of an Enterprise and Related
                                   Information, in determining its segments and reporting. Information regarding
                                   the Company's segments is reported in Note 13.

        NEW ACCOUNTING             In June 2001, the Financial Accounting Standard Board issued FASB Statements No.
        PRONOUNCEMENTS             141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
                                   Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
                                   of accounting and prohibits the use of the pooling-of-interests method of
                                   accounting for business combinations initiated after June 30, 2001. SFAS 141
                                   also requires that the Company recognize acquired intangible assets apart from
                                   goodwill if the acquired intangible assets meet certain criteria. SFAS 141
                                   applies to all business combinations initiated after June 30, 2001 and for
                                   purchase business combinations completed on or after July 1, 2001. It also
                                   requires, upon adoption of SFAS 142, that the Company reclassify the carrying
                                   amounts of intangible assets and goodwill based on the criteria in SFAS 141.
                                   SFAS No. 142 requires, among other things, that companies no longer amortize
                                   goodwill, but instead test goodwill for impairment at least annually. In
                                   addition, SFAS 142 requires that the Company identify reporting units for the
                                   purposes of assessing potential future impairments of goodwill, reassess the
                                   useful lives of other existing recognized intangible assets, and cease
                                   amortization of intangible assets with an indefinite useful life. An intangible
                                   asset with an indefinite useful life should be tested for impairment in
                                   accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
                                   fiscal years beginning after December 15, 2001 to all goodwill and other
                                   intangible assets recognized at that date, regardless of when those assets were
                                   initially recognized. SFAS 142 requires the Company to complete a transitional
                                   goodwill impairment test six months from the date of adoption. The Company is
                                   also required to reassess the useful lives of other intangible assets within the
                                   first interim quarter after adoption of SFAS 142.

                                   The Company's previous business combinations were accounted for using the
                                   purchase method. As of June 30, 2001, the net carrying amount of other
                                   intangible assets is $551,718. Amortization expense during the years ended June
                                   30, 2001 and 2000 was $83,596 and $74,327, respectively. There was no goodwill
                                   at June 30, 2001. Currently, the Company is assessing but has not yet determined
                                   how the adoption of SFAS 141 and SFAS 142 will impact its financial position and
                                   results of operations.


                                                         22
<PAGE>
                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements

                                       40

1.      ACQUISITION AND             On July 9, 1999, the Company acquired DRYCLEAN USA Franchise Company and the
        INTANGIBLE ASSETS           worldwide rights to the name DRYCLEAN USA along with existing franchise and
                                    license agreements for $550,000 cash. In connection with this acquisition, the
                                    Company acquired $50,000 of current assets, $10,000 of fixtures and equipment,
                                    $610,000 of franchise license, trademark and other intangibles, and assumed
                                    $80,000 of current liabilities. The pro forma effect of the transaction was
                                    insignificant to the consolidated statement of income for 2000.

                                   Franchise, trademark and other intangible assets consist of the following:

                                 ---------------------------------------------------------------------------------
                                                                          ESTIMATED
                                                                       USEFUL LIVES       JUNE 30,    June 30,
                                                                         (IN YEARS)           2001        2000
                                 ---------------------------------------------------------------------------------

                                 Franchise license agreements                    10       $529,500    $529,500
                                 Product license agreement                        5         80,000      80,000
                                 Trademark, patent and trade name                15         77,141      63,768
                                 Covenant not to compete                          2         23,000      23,000
                                 ---------------------------------------------------------------------------------
                                                                                           709,641     696,268
                                 Less accumulated amortization                             157,923      74,327
                                 ---------------------------------------------------------------------------------
                                                                                          $551,718    $621,941
                                 ---------------------------------------------------------------------------------


2.       LEASE RECEIVABLES          Lease receivables result from customer leases of equipment under arrangements
                                    which qualify as sales-type leases. At June 30, 2001, annual future lease
                                    payments, net of deferred interest ($4,141 at June 30, 2001), due under these
                                    leases are as follows:

                                  YEARS ENDING JUNE 30,

                                  --------------------------------------------------------------------------------
                                  2002                                                        $         39,494
                                  2003                                                                   3,814
                                  2004                                                                   1,424
                                  --------------------------------------------------------------------------------
                                                                                              $         44,732
                                  --------------------------------------------------------------------------------

                                                         23
<PAGE>

                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements


3.      INVENTORIES                The components of inventories are summarized as follows:

                                  JUNE 30,                                            2001                 2000
                                  --------------------------------------------------------------------------------

                                   Raw materials                         $         602,615    $         709,606
                                   Work-in-process                                 298,331              311,384
                                   Finished goods                                3,472,573            3,082,690
                                  --------------------------------------------------------------------------------

                                                                         $       4,373,519    $       4,103,680
                                  --------------------------------------------------------------------------------


                                    Included in cost of sales for the year ended June 30, 2001, is a provision for
                                    inventory obsolescence in the amount of $195,513.

4.      EQUIPMENT AND               Major classes of equipment and improvements consist of the following:
        IMPROVEMENTS

                                  JUNE 30,                                                  2001              2000
                                  ----------------------------------------------------------------------------------

                                  Furniture and equipment                         $      690,625    $      696,728
                                  Leasehold improvements                                 331,279           298,764
                                  ----------------------------------------------------------------------------------

                                  Total                                                1,021,904           995,492

                                  Less accumulated depreciation and
                                      amortization                                       692,393           655,150
                                  ----------------------------------------------------------------------------------

                                                                                  $      329,511    $      340,342
                                  ----------------------------------------------------------------------------------


                                    Depreciation and amortization amounted to $139,593 and $64,706 for the years
                                    ended June 30, 2001 and 2000, respectively.

                                                         24
<PAGE>


                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements


5.      INCOME TAXES               The following are the components of income tax expense:


                                  YEAR ENDED JUNE 30,                                         2001            2000
                                  -----------------------------------------------------------------------------------
                                  Current
                                      Federal                                        $      93,519   $     466,729
                                      State                                                 15,955          79,895
                                  -----------------------------------------------------------------------------------
                                                                                           109,474         546,624
                                  -----------------------------------------------------------------------------------
                                  Deferred
                                      Federal                                              (28,581 )        15,803
                                      State                                                 (4,893 )         1,573
                                  -----------------------------------------------------------------------------------
                                                                                           (33,474 )        17,376
                                  -----------------------------------------------------------------------------------
                                  Total                                              $      76,000   $     564,000
                                  -----------------------------------------------------------------------------------

                                    The reconciliation of income tax expense computed at the Federal statutory tax
                                    rate of 34% to the provision for income taxes is as follows:


                                  YEAR ENDED JUNE 30,                                         2001             2000
                                  -----------------------------------------------------------------------------------
                                  Tax at the statutory rate                          $      67,480    $     520,013

                                  State income taxes,
                                       net of federal benefit                                7,302           53,769

                                  Other                                                      1,218           (9,782 )
                                  -----------------------------------------------------------------------------------
                                  Total                                              $      76,000    $     564,000
                                  -----------------------------------------------------------------------------------

                                    Deferred income taxes reflect the net tax effect of temporary differences
                                    between the bases of assets and liabilities for financial reporting purposes and
                                    the bases used for income tax purposes. Significant components of the Company's
                                    current and noncurrent deferred tax assets and liabilities are as follows:

                                                         25
<PAGE>
                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements



                                  YEAR ENDED JUNE 30,                                      2001             2000
                                  ---------------------------------------------------------------------------------
                                  Current deferred tax asset (liability):
                                  Allowance for doubtful accounts                 $      19,492    $      13,680
                                      Inventory capitalization                           34,433           18,414
                                      Compensation                                       20,933           21,845
                                      Other                                              (5,521 )         (7,804 )
                                  ---------------------------------------------------------------------------------
                                                                                         69,337           46,135
                                  ---------------------------------------------------------------------------------

                                  Noncurrent deferred tax asset (liability):
                                      Depreciation                                      (14,531 )         (9,452 )
                                      Amortization                                       27,317           11,966
                                  ---------------------------------------------------------------------------------
                                                                                         12,786            2,514
                                  ---------------------------------------------------------------------------------

                                  Total net deferred tax asset                    $      82,123    $      48,649
                                  ---------------------------------------------------------------------------------


6.      CREDIT AGREEMENT            The Company is a party to a loan agreement facility consisting of a line of
                                    credit of $2,250,000 and a term loan of $2,400,000. Borrowings under the
                                    agreement are guaranteed by the Company, bear interest at the Adjusted LIBOR
                                    Market Index Rate (6.63% at June 30, 2001) and are collateralized by
                                    substantially all of the Company's assets. The line of credit matures October
                                    2001. The term loan is due January 2002. At June 30, 2001 and 2000, there were
                                    no outstanding borrowings under the line of credit and, therefore, the Company
                                    could borrow $2,250,000. At June 30, 2001 and 2000, the Company owed $1,160,000
                                    and $1,640,000, respectively, under the term loan. The term loan requires
                                    monthly payments of $40,000 plus interest, with a $960,000 balloon payment in
                                    January 2002. The agreement requires maintenance of certain financial ratios and
                                    contains other restrictive covenants. The Company was not in compliance with
                                    these ratios and covenants at June 30, 2001. The Company has obtained a waiver
                                    of the covenant violations.

7.      RELATED PARTY TRANSACTIONS  During the year ended June 30, 2000, the Company charged management fees of
                                    $118,391 to an entity controlled by one of the principal shareholders of the
                                    Company. At June 30, 2000, $86,391 was due from that company and is included in
                                    other current assets in the accompanying balance sheets. Advances to or from
                                    that affiliate are non-interest bearing and are due on demand. During the year
                                    ended June 30, 2001, no management fees were charged and the Company recorded a
                                    $100,000 provision for doubtful accounts on amounts due from the related party
                                    entity. At June 30, 2001, $14,495, net of allowance for doubtful accounts was
                                    due to the Company.

                                                         26
<PAGE>

                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements


                                    The Company leases warehouse and office space from a principal shareholder of
                                    the Company under an operating lease which expires in October 2004. Annual
                                    rental commitments under this lease approximate $83,200. The lease is renewable
                                    for a ten-year term, at an amount to be agreed upon by the parties.

8.      CONCENTRATIONS OF CREDIT    The Company  places its excess cash in overnight  deposits with a large national
        RISK                        bank.  Concentration of credit risk with respect to trade and lease  receivables
                                    is  limited  due to a large  customer  base.  Trade  and lease  receivables  are
                                    generally collateralized with equipment sold.

                                    The Company is exposed to foreign currency risk in Italy. To mitigate such risk,
                                    the Company enters into foreign exchange forward contracts to hedge transactions
                                    related to firm commitments to purchase equipment denominated in Italian Lira.
                                    At June 30, 2001, the Company is committed to purchase, for aggregate
                                    consideration of $423,000, 900 million Italian Lira, for delivery in July
                                    through August 15, 2001. The market value of these contracts at June 30, 2001 is
                                    approximately $395,000.

9.      COMMITMENTS                Rent
                                   ----

                                    In addition to the warehouse and office space leased from a principal
                                    shareholder, (see Note 7), the Company leases additional office and warehouse
                                    space under an operating lease expiring in March 2002 and two leases on a
                                    monthly basis. As of June 30, 2001, the Company is also obligated under two
                                    leases for future dry cleaning stores that aggregate $76,000 in annual base rent
                                    per year for the next five years. The Company anticipates assigning such leases
                                    to dry cleaning franchisees or other customers when the leased facilities are
                                    available for occupancy.

                                    Minimum future rental commitment for leases in effect at June 30, 2001
                                    approximates the following:

                                  YEARS ENDING JUNE 30,
                                  --------------------------------------------------------------------------------
                                  2002                                                        $        295,000
                                  2003                                                                 159,000
                                  2004                                                                 159,000
                                  2005                                                                 104,000
                                  2006                                                                  76,000
                                  --------------------------------------------------------------------------------
                                  Total                                                       $        793,000
                                  --------------------------------------------------------------------------------
                                    Rent expense aggregated $324,293 and $309,794 for the years ended June 2001 and
                                    2000, respectively.

                                                         27
<PAGE>

                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements


                                   License Agreements
                                   ------------------

                                    The Company is a party to a license agreement under which it is obligated to pay
                                    10% of annual sales of certain products. The agreement may be canceled by the
                                    Company annually upon sixty days notice. In February 2000, the Company acquired,
                                    for $80,000, all the manufacturing rights under another license agreement under
                                    which it was previously obligated to pay the greater of 10% of sales of certain
                                    products or $75,000 per year. The Company recorded the license as an intangible
                                    asset in the accompanying consolidated balance sheets. During the years ended
                                    June 30, 2001 and 2000, royalty expense aggregated $8,129 and $40,677,
                                    respectively.

10.     DEFERRED                    The Company has a participatory deferred compensation plan wherein it matches
        COMPENSATION                employee contributions up to, at the Company's option, for all employees
        PLAN                        determined annually, 1% or 2% of an eligible employee's yearly compensation.
                                    Employees are eligible to participate in the plan after three months of service.
                                    The Company contributed $26,170 and $23,926 in fiscal 2001 and 2000,
                                    respectively. The plan is tax exempt under Section 401(k) of the Internal
                                    Revenue Code.

                                    The Company also maintains a profit-sharing plan which covers substantially all
                                    employees. Annual contributions are determined at the discretion of the Board of
                                    Directors. There were no contributions for fiscal years 2001 and 2000.

11.     EARNINGS PER SHARE          The following reconciles the components of the earnings per share computation:

                                 YEAR ENDED JUNE 30,                                                      2001
                                 ---------------------------------------------------------------------------------
                                                                             INCOME         SHARES   PER SHARE
                                                                        (NUMERATOR)  (DENOMINATOR)      AMOUNT
                                 ---------------------------------------------------------------------------------

                                 NET EARNINGS                              $122,471      7,001,250       $0.02

                                 EFFECT OF DILUTIVE SECURITIES:
                                     STOCK OPTIONS                                -        119,905           -
                                 ---------------------------------------------------------------------------------

                                 NET EARNINGS PLUS ASSUMED DILUTION        $122,471      7,121,155       $0.02
                                 ---------------------------------------------------------------------------------

                                                         28
<PAGE>
                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements


                                 YEAR ENDED JUNE 30,                                                      2000
                                 ---------------------------------------------------------------------------------

                                                                             INCOME         SHARES   PER SHARE
                                                                        (NUMERATOR)  (DENOMINATOR)      AMOUNT
                                 ---------------------------------------------------------------------------------

                                 Net earnings                              $965,449      6,952,083       $0.14

                                 Effect of dilutive securities:
                                     Stock options                                -        353,848        (.01 )
                                 ---------------------------------------------------------------------------------
                                 Net earnings plus assumed dilution        $965,449      7,305,931       $0.13
                                 ---------------------------------------------------------------------------------

                                   There were 60,000 stock options outstanding at June 30, 2001 that were excluded
                                   in the computation of earnings per share for 2001 because the exercise prices of
                                   the options were more than the average market price of the common shares for
                                   that year.

12.     STOCK OPTIONS              The Company has stock option plans that authorize the grant of options to
                                   purchase 850,000 shares (until September, 2001) and 100,000 shares (until
                                   August, 2004), respectively, of the Company's common stock to employees and
                                   directors of the Company and options to purchase 500,000 shares of the Company's
                                   common stock to employees, directors and consultants. The Company applies APB
                                   Opinion 25, Accounting for Stock Issued to Employees, and related
                                   interpretations in accounting for stock options to employees and directors.
                                   Under APB Opinion 25, because the exercise price of the Company's stock options
                                   equals or exceeds the market price of the underlying stock on the date of grant,
                                   no compensation cost has been recognized. No options have been granted to
                                   consultants.

                                   Pursuant to the plans, the Company may grant incentive stock options and
                                   nonqualified stock options. All options under the director plan are nonqualified
                                   stock options. Options may have a maximum term of 10 years, are not transferable
                                   and must be granted at an exercise price of at least 100% of the market value of
                                   the common stock on the date of grant. Incentive stock options granted to an
                                   individual owning more than 10% of the total combined voting power of all
                                   classes of stock issued by the Company must have an exercise price of at least
                                   110% of the fair market value of the shares issuable on the date of the grant
                                   and may not have a term of more than five years. Incentive stock options granted
                                   under the plans are subject to the limitation that the aggregate fair market
                                   value (determined as of the date of grant) of those options which may first
                                   become exercisable in any calendar year cannot exceed $100,000. Generally,
                                   options terminate three months following termination of service (except
                                   generally one year in the case of termination of service by reason of death or
                                   disability).

                                                         29
<PAGE>
                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements


                                    Generally, options granted to date have been exercisable as to one-fourth of the
                                    shares covered thereby on the first anniversary of grant and one-fourth on the
                                    next three anniversaries of grant. However, options granted under the directors
                                    plan become immediately exercisable upon certain events which are deemed to be a
                                    "change in control" of the Company. Options granted under the employee plan
                                    terminate upon a merger in which the Company is not the surviving corporation, a
                                    capital reorganization in which more than 50% of the Company's common stock is
                                    exchanged, or the liquidation or dissolution of the Company, unless other
                                    provision is made by the board of directors.

                                    In fiscal 2000, the Company granted 10,000 options to an employee, exercisable
                                    at a price of $2.00 per share. There were no stock options granted in fiscal
                                    2001.

                                    SFAS No. 123, Accounting for Stock-Based Compensation, requires the Company to
                                    provide pro forma information regarding net income and net income per share as
                                    if compensation cost for the Company's stock options had been determined in
                                    accordance with the fair value based method prescribed in SFAS No. 123. The
                                    Company estimates the fair value of each stock option at the grant date by using
                                    the Black-Scholes option-pricing model with the following weighted-average
                                    assumptions used for grants in fiscal year 2000: no dividend yield percent;
                                    expected volatility of 46.1%; risk-free interest rates of approximately 6.36%,
                                    and expected lives of 5 years. No options were granted in fiscal year 2001.
                                    Based on these assumptions, under the accounting provisions of SFAS No. 123, the
                                    Company's net income and net income per common share would have been as follows:

                                 YEAR ENDED JUNE 30,                                          2001        2000
                                 ---------------------------------------------------------------------------------
                                 Net income                             As reported       $122,471    $965,449
                                                                          Pro forma       $122,471    $957,649
                                 ---------------------------------------------------------------------------------
                                 Net income per common share:
                                     Basic                              As reported           $.02        $.14
                                                                          Pro forma           $.02        $.14
                                 ---------------------------------------------------------------------------------
                                     Diluted                            As reported           $.02        $.13
                                                                          Pro forma           $.02        $.13
                                 ---------------------------------------------------------------------------------

                                                         30
<PAGE>

                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements

                                    A summary of options under the Company's stock option plans and non-plan options
                                    as of June 30, 2001, and changes during the year then ended is presented below:

                                                                                                       WEIGHTED
                                                                                                        AVERAGE
                                                                                                       EXERCISE
                                                                                        SHARES            PRICE
                                  -------------------------------------------------------------------------------
                                  Outstanding at beginning of year                     610,000            $1.09
                                  Granted                                                    -                -
                                  Exercised                                            (11,250 )           1.00
                                  Expired                                               (4,000 )           1.00
                                  -------------------------------------------------------------------------------
                                  Outstanding at end of year                           594,750             1.09
                                  -------------------------------------------------------------------------------
                                  Options exercisable at year-end                      319,875            $1.08
                                  -------------------------------------------------------------------------------

                                    A summary of the status of the Company's stock option plan and non-plan options
                                    as of June 30, 2000, and changes during the year then ended is presented below:

                                                                                                       WEIGHTED
                                                                                                        AVERAGE
                                                                                                       EXERCISE
                                                                                        SHARES            PRICE
                                  -------------------------------------------------------------------------------
                                  Outstanding at beginning of year                     720,000            $1.10
                                  Granted                                               10,000             2.00
                                  Exercised                                            (65,000 )           1.00
                                  Expired                                              (55,000 )           1.42
                                  -------------------------------------------------------------------------------
                                  Outstanding at end of year                           610,000             1.09
                                  -------------------------------------------------------------------------------
                                  Options exercisable at year-end                      172,500            $1.01
                                  -------------------------------------------------------------------------------
                                  Weighted-average fair value per share
                                  of  options granted during the year                    $1.18
                                  -------------------------------------------------------------------------------

                                                         31
<PAGE>
                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements

                                    The following table summarizes information about stock option plan and non-plan
                                    options outstanding at June 30, 2001:


                                                                   WEIGHTED
                                                      NUMBER        AVERAGE      WEIGHTED       NUMBER     WEIGHTED
                                       RANGE OF  OUTSTANDING      REMAINING       AVERAGE   EXERCISABLE     AVERAGE
                                       EXERCISE           AT    CONTRACTUAL      EXERCISE           AT     EXERCISE
                                         PRICES      6/30/01           LIFE         PRICE      6/30/01        PRICE
                                  ------------------------------------------------------------------------------------
                                     $ 0.81-2.00     594,750           2.30         $1.09      319,875        $1.08
                                  ------------------------------------------------------------------------------------


13.     SEGMENT INFORMATION         The Company's reportable segments are strategic businesses that offer different
                                    products and services. They are managed separately because each business
                                    requires different technology and marketing strategies. Steiner-Atlantic Corp.,
                                    Steiner-Atlantic Brokerage Company, Inc. and DRYCLEAN USA Development Corp.,
                                    comprise the commercial and industrial laundry and dry cleaning equipment
                                    segment. Steiner-Atlantic Corp. is a supplier of dry cleaning equipment,
                                    industrial laundry equipment and steam boilers to customers in the United
                                    States, the Caribbean and Latin American markets. Steiner-Atlantic Brokerage
                                    Company, Inc. acts as a business broker to assist others seeking to buy or sell
                                    existing dry cleaning and laundry businesses. DRYCLEAN USA Development Corp. was
                                    formed in fiscal 2001 to develop turn-key dry cleaning establishments for resale
                                    to third parties. Metro-Tel Corp. comprises the manufacture and sale of
                                    telephone test equipment segment. This segment is engaged in the manufacture and
                                    sale of telephone test and customer premise equipment utilized by telephone and
                                    telephone interconnect companies in the installation and maintenance of
                                    telephone equipment. DRYCLEAN USA License Corp. comprises the license and
                                    franchise operations segment. The Company primarily evaluates the operating
                                    performance of its segments based on the categories noted in the table below.
                                    The Company has no sales between segments.

                                    For the years ended June 30, 2001 and 2000, export sales, principally to the
                                    Caribbean and Latin America, aggregated approximately $4,403,146 and $3,652,147,
                                    respectively.

                                    No single customer accounted for more than 10% of the Company's revenues.


                                                         32
<PAGE>

                                                                              DRYCLEAN USA, Inc. and Subsidiaries

                                                                       Notes to Consolidated Financial Statements


                                    Financial information for the Company's business segments is as follows:

                               YEAR ENDED JUNE 30,                                           2001            2000
                               ------------------------------------------------------------------------------------
                               Revenues:
                                  Commercial and industrial laundry and dry
                                    cleaning equipment                                $15,355,235     $15,487,499
                                  Manufacture and sale of telephone test                2,916,697       3,500,660
                                  equipment
                                  License and franchise operations                        449,050         536,340
                               ------------------------------------------------------------------------------------
                               Total revenues                                         $18,720,982     $19,524,499
                               ------------------------------------------------------------------------------------
                               Operating income (loss):
                                  Commercial and industrial laundry
                                    and dry cleaning equipment                           $520,412      $1,272,313
                                 Manufacture and sale of telephone test                  (487,040 )        21,414
                                 equipment
                                 License and franchise operations                         267,837         363,982
                               ------------------------------------------------------------------------------------
                               Total operating income                                    $301,209      $1,657,709
                               ------------------------------------------------------------------------------------

                               Identifiable assets:
                                  Commercial and industrial laundry
                                    and dry cleaning equipment                         $5,076,391      $5,043,287
                                  Manufacture and sale of telephone test                2,452,098       2,559,252
                                  equipment
                                  License and franchise operations                        799,430         981,505
                               -----------------------------------------------------------------------------------
                               Total assets                                            $8,327,919      $8,584,044
                               -----------------------------------------------------------------------------------

</TABLE>
                                                         33
<PAGE>


ITEM 8.            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                   ACCOUNTING AND FINANCIAL DISCLOSURE.
                   ------------------------------------

          Not applicable.

                                    PART III

ITEM 9.            DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                   COMPLIANCE WITH SECTION 16(A)OF THE EXCHANGE ACT.
                   -------------------------------------------------

         The following information is presented with respect to the background
of each of the directors and executive officers of the Company:

         Michael S. Steiner, 45, has been President and Chief Executive Officer
of the Company since the effectiveness of the Merger on November 1, 1998 and of
Steiner since 1988. Mr. Steiner has been a director of the Company since the
effectiveness of the Merger on November 1, 1998.

         William K. Steiner, 71, has been Chairman of the Board of Steiner since
he founded Steiner in 1960. Mr. Steiner has been a director of the Company since
the effectiveness of the Merger on November 1, 1998.

         Venerando J. Indelicato, 68, was President of the Company from December
1967 until the effectiveness of the Merger on November 1, 1998 and has been
Treasurer and Chief Financial Officer of the Company since December 1969.

         Lloyd Frank, 76, has been a member of the law firm of Jenkens &
Gilchrist Parker Chapin LLP and its predecessor since 1977. Mr. Frank has been a
director of the Company since 1977. The Company retained Jenkens & Gilchrist
Parker Chapin LLP during the Company's last fiscal year and is retaining that
firm during the Company's current fiscal year. Mr. Frank is also a director of
Park Electrochemical Corp. and Volt Information Sciences. Inc.

         David Blyer, 41, has served as a director of the Company since the
effectiveness of the Merger on November 1, 1998. Mr. Blyer has been Chief
Executive Officer and President of Vento Software, since he co-founded that
company in 1994. Vento Software develops software for specialized business
application. Before founding Vento Software, Mr. Blyer served as Senior Account
Manager of the South Florida and Caribbean regions for Tandem Computers.

         Alan M. Grunspan, 41, has served as a director of the Company since May
1999. Mr. Grunspan has been a member of the law firm of Kaufman Dickstein &
Grunspan P. A. since 1991. The Company has retained Kaufman Miller Dickstein &
Grunspan P. A. during the Company's last fiscal year and is retaining that firm
during the Company's current fiscal year.

         Stuart Wagner, 69, has served as a director of the Company since the
effectiveness of the Merger on November 1, 1998 and has been retained as a
consultant for Diversitech Corp. since 1997. From 1975 to 1997, Mr. Wagner
served as President of Wagner Products Corp., a manufacturer and distributor of
products in the HVAC industry, a company which he founded.

         Mr. Michael S. Steiner is the son of Mr. William K. Steiner. There are
no other family relationships among any of the directors and executive officers
of the Company. All directors serve until the next annual meeting of
stockholders and until the election and qualification of their respective
successors. All officers serve at the pleasure of the Board of Directors.

         The following information is presented with respect to the background
of each person who is not an executive officer but who is expected to continue
to make a significant contribution to the Company:

                                       34
<PAGE>

         Osvaldo Rubio, 38, has served as Vice President and Director of Sales
for the Export Department of Steiner since joining Steiner in May 1993.

         Ronald London, 68, has served as Vice President and primarily oversees
sales of the retail Dry Cleaning Equipment Department of Steiner since joining
Steiner in September 1992.

         Jon D. Robinette, 43, has, since July 1999, served as Vice President
and General Manager of the Company's telecommunications operations, responsible
for managing and coordinating operations in the Company's Milpitas, California
facility. Prior thereto, Mr. Robinette served as Operations Manager for the
Company's telecommunications operations from October 1984.

ITEM 10.         EXECUTIVE COMPENSATION.
                 -----------------------

         The information called for by this Item will be contained in the
Company's definitive Proxy Statement with respect to the Company's 2001 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.

ITEM 11.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
                 ---------------------------------------------------------------

         The information called for by this Item will be contained in the
Company's definitive Proxy Statement with respect to the Company's 2001 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.

ITEM 12.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
                 -----------------------------------------------

         The information called for by this Item will be contained in the
Company's definitive Proxy Statement with respect to the Company's 2001 Annual
Meeting of Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, and is incorporated herein by reference to such
information.

ITEM 13.         EXHIBITS AND REPORTS ON FORM 8-K.
                 ---------------------------------

                  (a)      Exhibits

2(a)              Agreement of Merger dated as of July 1, 1998 among the
                  Company, Metro-Tel Acquisition Corp., Steiner-Atlantic Corp.,
                  William K. Steiner and Michael S. Steiner. (Exhibit A of the
                  definitive Proxy Statement of the Company filed with the
                  Commission on October 5, 1998, File No. 0-9040.)

3(a)(1)           Certificate of Incorporation of the Company, as filed with the
                  Secretary of State of the State of Delaware on June 30, 1963.
                  (Exhibit 4.1(a) to the Company's Current Report on Form 8-K
                  dated (date of earliest event reported) October 29, 1998.)

3(a)(2)           Certificate of Amendment to the Certificate of Incorporation
                  of the Company, as filed with the Secretary of State of the
                  State of Delaware on March 27, 1968. (Exhibit 4.1(b) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

3(a)(3)           Certificate of Amendment to the Certificate of Incorporation
                  of the Company, as filed with the Secretary of State of the
                  State of Delaware on November 4, 1983. (Exhibit 4.1(c) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

                                       35
<PAGE>

3(a)(4)           Certificate of Amendment to the Certificate of Incorporation
                  of the Company, as filed with the Secretary of State of the
                  State of Delaware on November 5, 1986. (Exhibit 4.1(d) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

3(a)(5)           Certificate of Change of Location of Registered Office and of
                  Agent, as filed with the Secretary of State of the State of
                  Delaware on December 31, 1986. (Exhibit 4.1(e) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

3(a)(6)           Certificate of Ownership and Merger of Design Development
                  Incorporated into the Company, as filed with the Secretary of
                  State of the State of Delaware on June 30, 1998. (Exhibit
                  4.1(f) to the Company's Current Report on Form 8-K dated (date
                  of earliest event reported) October 29, 1998.)

3(a)(7)           Certificate of Amendment to the Company's Certificate of
                  Incorporation as filed with the Secretary of State of the
                  State of Delaware on October 30, 1998. (Exhibit 4.1(g) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

3(a)(8)           Certificate of Amendment to the Company's Certificate of
                  Incorporation, as filed with the Secretary of State of the
                  State of Delaware on November 5, 1999. (Exhibit 4.1 to the
                  Company's Quarterly Report on Form 10-QSB for the quarter
                  ended September 30, 1999, File No. 0-9040.)

3(b)              By-Laws of the Company, as amended. (Exhibit 4.2 to the
                  Company's Quarterly Report on Form 10-QSB for the quarter
                  ended September 30, 1999, File No. 0-9040.)

4(a)(1)           Loan and Security Agreement dated November 2, 1998 between
                  Steiner-Atlantic Corp. and First Union National Bank. (Exhibit
                  4.2(a) to the Company's Current Report on Form 8-K dated (date
                  of earliest event reported) October 29, 1998.)

4(a)(2)           Guaranty and Security Agreement dated November 2, 1998 by the
                  Company in favor of First Union National Bank. (Exhibit 4.2(b)
                  to the Company's Current Report on Form 8-K dated (date of
                  earliest event reported) October 29, 1998.)

10(a)(1)(i)       Lease dated April 1, 1991 between the Company and CB
                  Institutional Fund VII with respect to the Company's
                  facilities at 240 South Milpitas Boulevard, Milpitas,
                  California. (Exhibit 10(a)(2) to the Company's Annual Report
                  on Form 10-K for the year ended June 30, 1991, File No.
                  0-9040.)

10(a)(1)(ii)      Second Amendment to Lease dated November 1, 1998 between the
                  Company and The Realty Associates Fund III, L. P.
                  (successor-in-interest to CB Institutional Fund VII) with
                  respect to the Company's facilities at 240 South Milpitas
                  Boulevard, Milpitas, California. (Exhibit 10(a)(1)(ii) to the
                  Company's Transition Report on Form 10-KSB for the transition
                  period from January 1, 1998 to June 30, 1998, File No.
                  0-9040.)

10(a)(2)          Lease dated October 6, 1995 between Steiner and William, K.
                  Steiner with respect to Steiner's facilities located 290 N.E.
                  68th Street, 297 N.E. 67 St. and 277 N.E. 67 St. Miami,
                  Florida. (Exhibit 10(a)(2) to the Company's Transition Report
                  on Form 10-KSB for the transition period from January 1, 1998
                  to June 30, 1998, File No. 0-9040.)

                                       36
<PAGE>

10(b)(1)(i)+      Employment Agreement dated July 1, 1981 between the Company
                  and Venerando J. Indelicato. (Exhibit 10(b)(1)(i) to the
                  Company's Annual Report on Form 10-KSB for the year ended June
                  30,1995, File No. 0-9040.)

10(b)(1)(ii)+     Amendment No. 1 dated July 1, 1983 to the Employment Agreement
                  dated July 1, 1981 between the Company and Venerando J.
                  Indelicato. (Exhibit 10(b)(l)(ii) to the Company's Annual
                  Report on Form 10-KSB for the year ended June 30, 1995, File
                  No. 0-9040.)

10(b)(1)(iii)+    Amendment No. 2 dated October 30, 1998 to the Employment
                  Agreement dated July 1, 1981 between the Company and Venerando
                  J. Indelicato. (Exhibit 10(b)(1)(iii) to the Company's
                  Transition Report on Form 10-KSB for the transition period
                  from January 1, 1998 to June 30, 1998, File No. 0-9040.)

10(c)(l)+         The Company's 1991 Stock Option Plan, as amended. (Exhibit
                  99.3 to the Company's Current Report on Form 8-K dated (date
                  of earliest event reported) October 29, 1998, File No.
                  0-9040.)

10(c)(2)+         The Company's 1994 Non-Employee Director Stock Option Plan.
                  (Exhibit A to the Company's Proxy Statement dated October 14,
                  1994 used in connection with the Company's 1994 Annual Meeting
                  of Stockholders, File No. 0-9040.)

10(c)(3)+         The Company's 2000 Stock Option Plan. (Exhibit 99.1 to the
                  Company's Registration Statement on Form S-8, File No.
                  333-37582.)

10(c)(4)+         Form of Stock Option Agreement dated June 25, 1991 entered
                  into between the Company and each of Sheppard Beidler (option
                  has since expired), Lloyd Frank (option has since expired) and
                  Michael Michaelson (option has since been exercised), together
                  with a schedule identifying the details in which the actual
                  agreements differ from the exhibit filed herewith. (Exhibit
                  10(c)(4) to the Company's Annual Report on Form 10-K for the
                  year ended June 30, 1991, File No. 0-9040.)

10(c)(5)+         Form of Stock Option Agreement dated May 4, 1993 entered into
                  between the Company and each of Sheppard Beidler (option has
                  since expired), Lloyd Frank and Michael Michaelson (option has
                  since been exercised), together with a schedule identifying
                  the details in which the actual agreements differ from the
                  exhibit filed herewith. (Exhibit 10(c)(4) to the Company's
                  Annual Report on Form 10-KSB for the year ended June 30, 1993,
                  File No. 0-9040.)

*21               Subsidiaries of the Company.

*23               Consent of BDO Seidman, LLP.
 -----------------------
 *        Filed with this Report. All other exhibits are incorporated herein by
          reference to the filing indicated in the parenthetical reference
          following the exhibit description.

 +        Management contract or compensatory plan or arrangement.

                  (b)      Reports on Form 8-K

         No Reports on Form 8-K were filed during the last quarter of the period
covered by this Report.


                                       37
<PAGE>
<TABLE>
<CAPTION>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                       DRYCLEAN USA, Inc.

Dated: September 27,200l

                                       By: /s/Michael S. Steiner
                                           ---------------------------------------------
                                           Michael S. Steiner
                                           President and Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


Signature                                    Capacity                                    Date
---------                                    --------                                    ----
<S>                                                                                                <C> <C>
/s/ Michael S. Steiner                       President,                                  September 27, 2001
-------------------------------------------  Chief Executive Officer
Michael S. Steiner                           (Principal Executive Officer) and
                                             Director


/s/ William K. Steiner                       Director                                    September 27, 2001
-------------------------------------------
William K.  Steiner


/s/ Venerando J. Indelicato                  Chief Financial Officer                     September 27, 2001
-------------------------------------------  (Principal Financial and Accounting
Venerando J.  Indelicato                     Officer) and Director


/s/ Lloyd Frank                              Director                                    September 27, 2001
-------------------------------------------
Lloyd Frank

                                             Director
-------------------------------------------
Alan M. Grunspan

                                             Director
-------------------------------------------
Stuart Wagner

                                             Director
-------------------------------------------
David Blyer
</TABLE>

                                       38
<PAGE>



2(a)              Agreement of Merger dated as of July 1, 1998 among the
                  Company, Metro-Tel Acquisition Corp., Steiner-Atlantic Corp.,
                  William K. Steiner and Michael S. Steiner. (Exhibit A of the
                  definitive Proxy Statement of the Company filed with the
                  Commission on October 5, 1998, File No. 0-9040.)

3(a)(1)           Certificate of Incorporation of the Company, as filed with the
                  Secretary of State of the State of Delaware on June 30, 1963.
                  (Exhibit 4.1(a) to the Company's Current Report on Form 8-K
                  dated (date of earliest event reported) October 29, 1998.)

3(a)(2)           Certificate of Amendment to the Certificate of Incorporation
                  of the Company, as filed with the Secretary of State of the
                  State of Delaware on March 27, 1968. (Exhibit 4.1(b) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

3(a)(3)           Certificate of Amendment to the Certificate of Incorporation
                  of the Company, as filed with the Secretary of State of the
                  State of Delaware on November 4, 1983. (Exhibit 4.1(c) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

3(a)(4)           Certificate of Amendment to the Certificate of Incorporation
                  of the Company, as filed with the Secretary of State of the
                  State of Delaware on November 5, 1986. (Exhibit 4.1(d) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

3(a)(5)           Certificate of Change of Location of Registered Office and of
                  Agent, as filed with the Secretary of State of the State of
                  Delaware on December 31, 1986. (Exhibit 4.1(e) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

3(a)(6)           Certificate of Ownership and Merger of Design Development
                  Incorporated into the Company, as filed with the Secretary of
                  State of the State of Delaware on June 30, 1998. (Exhibit
                  4.1(f) to the Company's Current Report on Form 8-K dated (date
                  of earliest event reported) October 29, 1998.)

3(a)(7)           Certificate of Amendment to the Company's Certificate of
                  Incorporation as filed with the Secretary of State of the
                  State of Delaware on October 30, 1998. (Exhibit 4.1(g) to the
                  Company's Current Report on Form 8-K dated (date of earliest
                  event reported) October 29, 1998.)

3(a)(8)           Certificate of Amendment to the Company's Certificate of
                  Incorporation, as filed with the Secretary of State of the
                  State of Delaware on November 5, 1999. (Exhibit 4.1 to the
                  Company's Quarterly Report on Form 10-QSB for the quarter
                  ended September 30, 1999, File No. 0-9040.)

3(b)              By-Laws of the Company, as amended. (Exhibit 4.2 to the
                  Company's Quarterly Report on Form 10-QSB for the quarter
                  ended September 30, 1999, File No. 0-9040.)

4(a)(1)           Loan and Security Agreement dated November 2, 1998 between
                  Steiner-Atlantic Corp. and First Union National Bank. (Exhibit
                  4.2(a) to the Company's Current Report on Form 8-K dated (date
                  of earliest event reported) October 29, 1998.)

                                       39
<PAGE>

4(a)(2)           Guaranty and Security Agreement dated November 2, 1998 by the
                  Company in favor of First Union National Bank. (Exhibit 4.2(b)
                  to the Company's Current Report on Form 8-K dated (date of
                  earliest event reported) October 29, 1998.)

10(a)(1)(i)       Lease dated April 1, 1991 between the Company and CB
                  Institutional Fund VII with respect to the Company's
                  facilities at 240 South Milpitas Boulevard, Milpitas,
                  California. (Exhibit 10(a)(2) to the Company's Annual Report
                  on Form 10-K for the year ended June 30, 1991, File No.
                  0-9040.)

10(a)(1)(ii)      Second Amendment to Lease dated November 1, 1998 between the
                  Company and The Realty Associates Fund III, L. P.
                  (successor-in-interest to CB Institutional Fund VII) with
                  respect to the Company's facilities at 240 South Milpitas
                  Boulevard, Milpitas, California. (Exhibit 10(a)(1)(ii) to the
                  Company's Transition Report on Form 10-KSB for the transition
                  period from January 1, 1998 to June 30, 1998, File No.
                  0-9040.)

10(a)(2)          Lease dated October 6, 1995 between Steiner and William, K.
                  Steiner with respect to Steiner's facilities located 290 N.E.
                  68th Street, 297 N.E. 67 St. and 277 N.E. 67 St. Miami,
                  Florida. (Exhibit 10(a)(2) to the Company's Transition Report
                  on Form 10-KSB for the transition period from January 1, 1998
                  to June 30, 1998, File No. 0-9040.)


10(b)(1)(i)+      Employment Agreement dated July 1, 1981 between the Company
                  and Venerando J. Indelicato. (Exhibit 10(b)(1)(i) to the
                  Company's Annual Report on Form 10-KSB for the year ended June
                  30,1995, File No. 0-9040.)

10(b)(1)(ii)+     Amendment No. 1 dated July 1, 1983 to the Employment Agreement
                  dated July 1, 1981 between the Company and Venerando J.
                  Indelicato. (Exhibit 10(b)(l)(ii) to the Company's Annual
                  Report on Form 10-KSB for the year ended June 30, 1995, File
                  No. 0-9040.)

10(b)(1)(iii)+    Amendment No. 2 dated October 30, 1998 to the Employment
                  Agreement dated July 1, 1981 between the Company and Venerando
                  J. Indelicato. (Exhibit 10(b)(1)(iii) to the Company's
                  Transition Report on Form 10-KSB for the transition period
                  from January 1, 1998 to June 30, 1998, File No. 0-9040.)

10(c)(l)+         The Company's 1991 Stock Option Plan, as amended. (Exhibit
                  99.3 to the Company's Current Report on Form 8-K dated (date
                  of earliest event reported) October 29, 1998, File No.
                  0-9040.)

10(c)(2)+         The Company's 1994 Non-Employee Director Stock Option Plan.
                  (Exhibit A to the Company's Proxy Statement dated October 14,
                  1994 used in connection with the Company's 1994 Annual Meeting
                  of Stockholders, File No. 0-9040.)

10(c)(3)+         The Company's 2000 Stock Option Plan. (Exhibit 99.1 to the
                  Company's Registration Statement on Form S-8, File No.
                  333-37582.)

10(c)(4)+         Form of Stock Option Agreement dated June 25, 1991 entered
                  into between the Company and each of Sheppard Beidler (option
                  has since expired), Lloyd Frank (option has since expired) and
                  Michael Michaelson (option has since been exercised), together
                  with a schedule identifying the details in which the actual
                  agreements differ from the exhibit filed herewith. (Exhibit
                  10(c)(4) to the Company's Annual Report on Form 10-K for the
                  year ended June 30, 1991, File No. 0-9040.)

                                       40
<PAGE>

10(c)(5)+         Form of Stock Option Agreement dated May 4, 1993 entered into
                  between the Company and each of Sheppard Beidler (option has
                  since expired), Lloyd Frank and Michael Michaelson (option has
                  since been exercised), together with a schedule identifying
                  the details in which the actual agreements differ from the
                  exhibit filed herewith. (Exhibit 10(c)(4) to the Company's
                  Annual Report on Form 10-KSB for the year ended June 30, 1993,
                  File No. 0-9040.)

*21               Subsidiaries of the Company.

*23               Consent of BDO Seidman, LLP.
 -----------------------
 *        Filed with this Report. All other exhibits are incorporated herein by
          reference to the filing indicated in the parenthetical reference
          following the exhibit description.

 +        Management contract or compensatory plan or arrangement.


                                       41