UNITED STATES
                       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, 2005

[_]      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)

           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]

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

         The Company's  revenues from continuing  operations for its fiscal year
ended June 30, 2005 were $18,389,009.

         The aggregate market value as at September 23, 2005 of the Common Stock
of the  issuer,  its only  class of voting  stock,  held by  non-affiliates  was
approximately  $5,696,060  based on the closing  price 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 23, 2005 was 7,024,450.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the issuer's Proxy Statement  relating to its 2005 Annual Meeting of
Stockholders  are incorporated by reference into Items 10, 11, 12 and 14 in Part
III of this Report.

Transitional Small Business Disclosure Format   Yes [_]   No  [X]

<PAGE>

                           FORWARD LOOKING STATEMENTS

         Certain  statements  in this  Report are  "forward-looking  statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this Report, words such as "may," "should," "seek," "believe," "expect,"
anticipate," "estimate," "project," "intend," "strategy" and similar expressions
are intended to identify forward-looking statements regarding events, conditions
and  financial  trends that may affect the Company's  future plans,  operations,
business strategies,  operating 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  in the  United  States  and  other
countries in which the Company's  customers and suppliers are located;  industry
conditions and trends;  technology changes;  competition and other factors which
may affect  prices  which the Company may charge for its products and its profit
margins;  the availability  and cost of the equipment  purchased by the Company;
relative  values of the United States currency to currencies in the countries in
which the Company's  customers,  suppliers and competitors are located;  changes
in,  or  the  failure  to  comply  with,  government   regulation,   principally
environmental regulations;  and the Company's ability to successfully introduce,
market  and  sell  at   acceptable   profit   margins   its  new  Green   Jet(R)
dry-wetcleaning(TM)   machine  and  Multi-Jet(TM)  dry  cleaning  machine;   the
Company's  ability  to  implement   changes  in  its  business   strategies  and
development plans; and the availability, terms and deployment of debt and equity
capital if needed for  expansion.  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.       Description of Business.

General

         The Company was incorporated under the laws of the State of Delaware on
June 30, 1963 under the name  Metro-Tel  Corp.  and changed its name to DRYCLEAN
USA, Inc. on November 7, 1999.  Since  November 1, 1998,  when  Steiner-Atlantic
Corp. ("Steiner") was merged with and into, and therefore became, a wholly-owned
subsidiary  of the  Company,  the  Company's  principal  business  has been as a
supplier of commercial and industrial dry cleaning equipment,  laundry equipment
and steam boilers and related activities.

         Unless the context  otherwise  requires,  as used in this  Report,  the
"Company" includes DRYCLEAN USA, Inc. and its subsidiaries.

         The Company,  through Steiner,  supplies  commercial and industrial dry
cleaning  equipment,  laundry  equipment and steam boilers in the United States,
the Caribbean and Latin American markets.  This aspect of the Company's business
services includes:

         o        distributing   commercial  and  industrial   laundry  and  dry
                  cleaning machines and steam boilers manufactured by others;

         o        selling the Company's own proprietary lines of laundry and dry
                  cleaning  machines under its  Aero-Tech(R),  Multi-Jet(TM) and
                  Green Jet(R) brand names;

         o        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
<PAGE>

         o        supplying replacement equipment and parts to its customers;

         o        providing  warranty  and  preventative   maintenance   through
                  factory-trained technicians and service managers; and

         o        selling process steam systems and boilers.

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

         The  Company,  through  its  DRYCLEAN  USA LICENSE  CORP.  wholly-owned
subsidiary,  owns 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 over 400 franchised  and licensed  locations in the United States,
the Caribbean and Latin America.

         Through DRYCLEAN USA Development Corp. ("DRYCLEAN USA Development"),  a
wholly-owned  subsidiary,  the Company  also  develops new turn-key dry cleaning
establishments for resale to third parties.

Available Information

         The Company files Annual  Reports on Form 10-KSB and Quarterly  Reports
on Form  10-QSB,  files or  furnishes  Current  Reports  on Form  8-K,  files or
furnishes   amendments  to  those  reports,  and  files  proxy  and  information
statements  with the  Securities  and Exchange  Commission  (the  "SEC").  These
reports and statements may be read and copied at the SEC's Public Reference Room
at  100 F  Street,  N.E.,  Room  580,  Washington,  DC  20549.  You  may  obtain
information on the operation of the Public  Reference Room by calling the SEC at
1-800-SEC-0330.  These reports and statements,  as well as beneficial  ownership
reports filed by the Company's officers, directors and beneficial owners of more
than 10% of the Company's  common stock,  may be obtained without charge through
the  Company's  Internet site  http://www.drycleanusa.com  as soon as reasonably
practicable after such materials are filed with, or furnished to, the SEC.

Product Lines

         The Company sells a broad line of commercial and industrial laundry and
dry  cleaning  equipment  and steam  boilers,  as well as parts and  accessories
therefor.

         The  commercial  and industrial  laundry  equipment  distributed by the
Company features washers and dryers, including coin-operated machines,  boilers,
water reuse and heat reclamation  systems,  flatwork ironers,  automatic folders
and feeders.  The  Company's  dry cleaning  equipment  includes  commercial  dry
cleaning machines sold primarily under the Aero-Tech(R), Multi-Jet(TM) and Green
Jet(R)  names,  as well as garment  presses,  finishing  equipment,  sorting and
storage conveyors and accessories distributed for others.

         The  Company's  proprietary   environmentally   friendly  Green  Jet(R)
dry-wetcleaning(TM)  machine  not only  cleans  garments  efficiently,  but also
eliminates  the use of  perchloroethylene  (Perc) in the dry  cleaning  process,
thereby  eliminating  the health and  environmental  concerns that Perc poses to
customers and their landlords.  It also alleviates  flammability,  odor and cost
issues  inherent in  alternative  solvents and cleaning  processes.  In May 2005
patents  were  granted to the  Company  from the United  States to protect  this
innovative approach to garment cleaning.  Patents from other countries are still
pending.  In

                                       3
<PAGE>

August 2003, the Company introduced its Multi-Jet(TM) dry cleaning machine which
can use a number of  environmentally  safe  solvents  and will  replace  certain
existing products.

         The products sold by the Company are positioned and priced to appeal to
customers in each of the  high-end,  mid-range and value priced  markets.  These
products are offered  under a wide range of price points to address the needs of
a diverse  customer base.  Suggested  prices for most of the Company's  products
range from  approximately  $5,000 to  $100,000.  The  products  supplied  by the
Company  afford the Company's  customers a "one-stop  shop" for  commercial  and
industrial  laundry  and dry  cleaning  machines,  boilers and  accessories.  By
providing "one-stop" shopping, the Company believes it is better able to attract
and support potential  customers who can choose from the Company's broad product
line.  Product  sales  accounted  for  approximately  96% of revenues in each of
fiscal 2005 and 2004.

         The Company seeks to establish customer satisfaction by offering:

         o        an  on-site  training  and  preventive   maintenance   program
                  performed by factory trained technicians and service managers;

         o        design and layout assistance;

         o        maintenance of a comprehensive parts and accessories inventory
                  and same day or overnight availability;

         o        competitive pricing; and

         o        a toll-free support line to resolve customer service problems.

         In  addition,  the  Company,  under the name  DRYCLEAN  USA,  currently
franchises and licenses over 400 retail drycleaning stores in the United States,
the Caribbean and Latin America, making it one of the largest retail drycleaning
license and  franchise  operations in the dry cleaning  industry.  During fiscal
2005  and  2004,  the  Company's  license  and  franchise  segment   contributed
approximately 2.0% and 1.9%, respectively, of the Company's revenues.

         Through  its  Steiner  Brokerage  subsidiary,  the  Company  acts  as a
business  broker to assist  others  seeking to buy or sell existing dry cleaning
and laundry  businesses.  Some of the Company's  existing  customers have become
Steiner Brokerage  clients,  utilizing the Company's staff and ability to assist
them in the sale of their businesses and associated real property. This business
contributed less than 1% of the Company's  revenues during fiscal 2005 and 2004,
respectively.

         The Company, through its DRYCLEAN USA Development subsidiary,  develops
new turn-key dry cleaning  establishments  for resale to third  parties.  During
each of fiscal 2005 and 2004, DRYCLEAN USA Development  contributed less than 1%
of the Company's revenues, respectively.

Sales, Marketing and Customer Support

         The laundry and dry cleaning equipment products marketed by the Company
are sold by it to its  customers in the United  States,  the Caribbean and Latin
America,  as well as customers of its DRYCLEAN  USA  licensing  subsidiary.  The
Company  employs sales  executives  to market its  proprietary  and  distributed
products,  including its Aero-Tech(R),  Multi-Jet(TM) and Green Jet(R) products,
in the United States and in international  markets. The Company supports product
sales by advertising  in trade  publications,  participating  in trade shows and
engaging in regional  promotions  and sales  incentive  programs.  A substantial
portion of equipment  and parts sales orders are obtained by  telephone,  e-mail
and fax  inquiries  originated  by the  customer  or by  representatives  of the
Company, and significant repeat sales are derived from existing customers.

                                       4
<PAGE>

         Additionally,  the  Company's  Aero-Tech(R)  machines  are sold through
distributors and dealers  throughout the United States,  the Caribbean and Latin
America.  The Company  continues to develop  distributor  relationships in North
America for the distribution of its Green Jet(R) dry-wetcleaning(TM) machine and
its   Multi-Jet(TM)   drycleaning   machine.   To  date,  it  has  entered  into
distributorship  arrangements for its Green Jet(R) dry-wetcleaning(TM)  machines
with approximately 12 distributors in North America.

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

Customers and Markets

         The Company's  customer base consists of approximately 750 customers in
the United States,  the Caribbean and Latin America,  including  independent and
franchise  dry  cleaning  stores  and  chains,  hotels,  motels,  cruise  lines,
hospitals,  nursing homes,  government  institutions and  distributors.  In June
2004,  as  another  distributor  ceased  operations,  the  Company  obtained  an
expansion of the territory in which it acts as a distributor for certain laundry
products   manufactured  by  certain  manufacturers  from  southern  Florida  to
encompass most of Florida,  the Company's principal domestic market. No customer
accounted  for more than 10% of the  Company's  revenues  during the years ended
June 30, 2005 or June 30, 2004.

Foreign Sales

         Export sales of laundry and dry cleaning  equipment were  approximately
$2,833,000  and  $2,209,000  during the years  ended June 30,  2005 and June 30,
2004,  respectively,  and  were  made  principally  to  Latin  America  and  the
Caribbean. See "Customers and Markets".

         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, as well as the strength of
the economies of the countries in which the Company's customers are located.

Sources of Supply

         The Company  purchases laundry and dry cleaning  machines,  boilers and
the other products supplied by it from a number of manufacturers,  none of which
accounted for more than 20% of the Company's  purchases for the years ended June
30, 2005 or June 30, 2004.  The Company's  major  suppliers are Pellerin  Milnor
Corporation,  Chicago Dryer Company and Unipress Corporation.  Historically, the
Company has not experienced difficulty in purchasing products it distributes for
others and believes it has good working relationships with its suppliers.

         The  supplier  of  a  significant  portion  of  the  Company's  laundry
equipment  and spare  parts for their  laundry  equipment  is  located  near New
Orleans. This supplier has reported to us that its plant was slightly damaged by
Hurricane  Katrina with no water damage and limited  wind damage;  however,  its
power and  employee  availability  have been  disrupted.  The  Company  has some
inventory of this  equipment  and spare parts and has contacted  customers  with
pending orders,  who have expressed a willingness to cooperate with the Company.
The  Company  expects  some  disruption  in its  business  in the near  term but
believes that its full year results will not be materially effected thereby.

         The Company's proprietary Green Jet(R) dry-wetcleaning(TM) machines are
currently  manufactured  exclusively for the Company by one  manufacturer in the
United States.  Substantially  all of the

                                       5
<PAGE>

Company's dry cleaning  equipment sold under the Aero-Tech(R) and  Multi-Jet(TM)
labels  is   currently   manufactured   exclusively   for  the  Company  by  two
manufacturers in Italy.

         The  Company has  established  long-standing  relationships  with these
manufacturers.  The Company's management believes its supplier relationships for
the products it distributes for others and its proprietary  products provide the
Company with a substantial  competitive  advantage,  including  exclusivity  for
certain  products and certain areas and favorable  prices and terms.  Therefore,
the loss of certain of these vendor  relationships  could  adversely  affect the
Company's business.

         The Company has a formal contract with a few of its equipment suppliers
and manufacturers  and relies on its  long-standing  relationship with its other
suppliers and manufacturers.  The Company collaborates in the design and closely
monitors  the quality of its  manufactured  product.  The Company must place its
orders   with   its   United   States   manufacturer   of   the   Green   Jet(R)
dry-wetcleaning(TM)   machine  and  with  its  Italian   manufacturers   of  its
Aero-Tech(R)  and  Multi-Jet(TM)  dry  cleaning  machines  prior to the time the
Company has received all of its orders and, in certain instances,  places orders
for products it distributes in advance of its receipt of sales orders.  However,
because of the  Company's  close  working  relationship  with its  suppliers and
manufacturers,  the Company can usually adjust orders rapidly and efficiently to
reflect a change in  customer  demands.  The Company  believes  that if, for any
reason, its arrangements with the manufacturers of its proprietary products were
to  cease,  or in the  event  the cost of these  products  were to be  adversely
affected,  it  will  be  able  to have  these  products  manufactured  by  other
suppliers.

         Under  its  arrangement  with  one of its  Italian  manufacturers,  the
Company  purchases dry cleaning  machines in Euros.  The Company's  current bank
revolving credit facility  includes a $250,000 foreign exchange  subfacility for
the  purpose of  enabling  the  Company to  mitigate  its  currency  exposure in
connection with its import activities  through spot foreign exchange and forward
exchange contracts. There were no open foreign exchange contracts at either June
30, 2005 or 2004.

         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,  Italy and the European
Union  may,  from  time  to  time,  impose  quotas,  duties,  tariffs  or  other
restrictions or adjust prevailing quotas,  duties or tariff levels,  which could
affect the Company's  margins on its  Aero-Tech(R) and  Multi-Jet(TM)  machines.
Customs duties,  imposed by the United States, were less than 1% of invoice cost
for the Company's  imported dry cleaning machines during each of fiscal 2005 and
2004.

Competition

         The  commercial  and  industrial  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.  The
Company's  management  believes that no one distributor has a major share of the
market and that substantially all distributors are independently owned and, with
the  exception  of several  regional  distributors,  operate  primarily in local
markets.  Competition is based primarily on price, product quality, delivery and
support services provided to the customer.  In Florida,  the Company's principal
domestic market,  the Company's primary  competition is derived from a number of
full line distributors,  which operate throughout Florida. In the export market,
the  Company  competes  with  several  distributors  and  anticipates  increased
competition as the export market grows.  The Company's  proprietary dry cleaning
equipment  competes with over a dozen  manufacturers  of dry cleaning  equipment
whose products are distributed nationally.  In all geographic areas, the Company
competes by offering an extensive product selection,  value-added services, such
as product inspection and quality assurance,  a toll-free customer support line,
reliability,  warehouse location,  price, competitive special features and, with
respect  to  certain  products,  as to which the  Company  acts as  distributor,
exclusivity.

         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
businesses,  Steiner Brokerage competes with business brokers generally, as well
as with other

                                       6
<PAGE>

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.

Research and Development

         The  Company  has  designed  and   introduced   its  new  Green  Jet(R)
dry-wetcleaning(TM)  and  Multi-Jet(TM)  drycleaning  machines and  continues to
improve these products. The amounts of research and development expenses for the
years ended June 30, 2005 and 2004 were $44,825 and $41,184 respectively.

Patents and Trademarks

         The Company is the owner of United  States  service mark  registrations
for the names  Aero-Tech(R) and Green Jet(R),  which are used in connection with
its  laundry  and dry  cleaning  equipment,  and of  DRYCLEAN  USA(R),  which is
licensed by it to retail dry  cleaning  establishments.  The Company has applied
for registration of its Multi-Jet(TM)  tradename. 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.  Patents  were  granted in May 2005 for the
protection of the Company's new Green Jet(R) dry-wetcleaning(TM)  machine in the
United States which will expire in May 2021 and patents have been applied for in
certain foreign countries.

         On January 3, 2005, the Company entered into a Patent License Agreement
with Whirlpool Corporation  ("Whirlpool") in which the Company granted Whirlpool
an exclusive  license  until  December 31, 2008 and  thereafter a  non-exclusive
license to make and sell laundry  appliances  incorporating the Company's patent
applications  and  other  intellectual  property  related  to  fabric  treatment
technology  for improving the drying and  refreshing of garments in home clothes
dryers. In consideration for the grant of the exclusive license through December
31, 2008,  Whirlpool  paid the Company  $350,000,  of which $331,100 was for the
exclusive  license fee. In addition,  Whirlpool is to pay the Company a per unit
royalty for dryers using the licensed  technology that are sold during the three
year period following the first sale following  commercial  production of dryers
using the license technology.

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,   including   with   respect   to
perchloroethylene  (Perc),  the primary cleaning agent  historically used in the
commercial  and  industrial  dry  cleaning  process.  A  number  of  industries,
including  the  commercial  and  industrial  dry cleaning and laundry  equipment
industries, 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 the generation and  transportation of hazardous waste
as well as its treatment,  storage and disposal; and the Occupational 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.

         The Company believes its  Aero-Tech(R),  Multi-Jet(TM) and Green Jet(R)
dry cleaning machines exceed  environmental  regulation  standards set by safety
and environmental regulatory agencies.

                                       7
<PAGE>

         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.

         The Company is also  subject to Federal  Trade  Commission  (the "FTC")
regulations  and various state laws regulating the offer and sale of franchises.
The FTC and various  state laws  require the  Company  to,  among other  things,
furnish to  prospective  franchisees a franchise  offering  circular  containing
prescribed  information.  Certain states in the United States  require  separate
filings  in order to offer and sell  franchises  in those  states.  The  Company
believes that it is in compliance in all material respects with these laws.

Employees

         The Company  currently  employs 35 employees on a full-time  basis,  of
whom 4 serve in  executive  management  capacities,  11 are engaged in sales and
marketing,  13  are  administrative  and  clerical  personnel,  and 7  serve  as
warehouse support.  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.

Item 2.       Description of Properties.

         The Company's  executive offices and the main  distribution  center for
its  products  are  housed  in  three  leased   adjacent   facilities   totaling
approximately  45,000 square feet in Miami,  Florida.  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:

<TABLE>
<CAPTION>
                                                  Approximate
                       Facility                     Sq. Ft.                    Expiration
                       --------                     -------                    ----------
<S>                                                    <C>                  <C>
                  Miami, Florida (1)                   27,000               October 2008
                  Miami, Florida                        8,000               March 2006 (2)
                  Miami, Florida                       10,000               December 2005
</TABLE>
--------------
(1)      Leased from William K. Steiner, a director of the Company.  The Company
         and Mr.  Steiner  entered  into a new lease on  September 9, 2005 for a
         three-year  period  beginning  November 1, 2005. The new lease contains
         two three-year renewal options in favor of the Company.

(2)      The Company has a two-year renewal option.

Item 3.       Legal Proceedings.

         The Company is not a party to any material pending legal proceedings.

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

         Not applicable.

                                       8
<PAGE>

                                    PART II

Item 5.       Market for the Common Equity and Related Stockholder Matters.

         The  Company's  Common Stock is traded on the American  Stock  Exchange
(the "Amex") and on the Chicago Stock Exchange, each under the symbol "DCU." The
following  table sets forth,  for the Company's  Common Stock,  the high and low
sales prices on the Amex, as reported by Amex, for the periods reflected below.

                                            High              Low
                                            ----              ---
         Fiscal 2004
         First Quarter                 $      1.46     $       .60
         Second Quarter                       2.04            1.03
         Third Quarter                        2.10            1.50
         Fourth Quarter                       1.95            1.55

         Fiscal 2005
         First Quarter                 $      3.30     $      1.40
         Second Quarter                       2.54            1.80
         Third Quarter                        3.50            2.25
         Fourth Quarter                       3.19            2.23

         As of September 23, 2005, there were approximately 488 holders of
record of the Company's Common Stock.

         The Company paid a $.05 per share  annual  dividend on October 31, 2003
to  stockholders  of record on October 17, 2003; an annual  dividend of $.06 per
share on November 1, 2004 to  stockholders  of record on October 15, 2004; and a
$.035 per share semi-annual dividend on May 2, 2005 to stockholders of record on
April 15, 2005. On September 23, 2005 the Board of Directors declared a $.04 per
share semi-annual dividend payable on November 1, 2005 to stockholders of record
on October 14,  2005.  The Company is a party to a Loan and  Security  Agreement
with a commercial bank, which, among other things, provides that the Company may
declare or pay dividends only to the extent that the dividend  payment would not
reasonably  likely  result in a failure  by the  Company to  maintain  specified
consolidated debt service or short-term debt to equity ratios.

         The  Company did not sell any equity  securities  during the year ended
June 30, 2005 that were not  registered  under the  Securities  Act of 1933,  as
amended.

Item 6.       Management's Discussion and Analysis or Plan of Operation.

General

         The  following  discussion  should  be read  in  conjunction  with  the
Consolidated  Financial  Statements  and Notes thereto which appear in Item 7 of
this Report.

Overview

         In June 2004,  the Company  obtained an expansion of territory in which
it acts as a distributor for certain laundry  products to cover most of Florida.
The Company also added two experienced sales engineers and hired a new Executive
Vice President and Chief Operating  Officer to cover the expanded  territory and
to  expand  sales  of the  other  products  marketed  by  the  Company  in  that
geographical area.

                                       9
<PAGE>

         During the  twelve  month  period  ended  June 30,  2005,  in which the
Company has operated with the expanded territory,  sales increased by 25.3% over
last year. Gross margins,  however, were reduced by 2.6 percentage points due to
the larger  volume of sales and the  increased  size of each order,  which carry
smaller margins in order to remain competitive.  The increased sales volume more
than  offset the  decrease  in  margins.  Selling,  general  and  administrative
expenses  increased by 10.9% for the  twelve-month  period of fiscal 2005 mostly
due to the larger sales staff and increased volume of sales.

         The  supplier  of  a  significant  portion  of  the  Company's  laundry
equipment  and spare  parts for their  laundry  equipment  is  located  near New
Orleans. This supplier has reported to us that its plant was slightly damaged by
Hurricane  Katrina with no water damage and limited  wind damage;  however,  its
power and  employee  availability  have been  disrupted.  The  Company  has some
inventory of this  equipment  and spare parts and has contacted  customers  with
pending orders,  who have expressed a willingness to cooperate with the Company.
The  Company  expects  some  disruption  in its  business  in the near  term but
believes that its full year results will not be materially effected thereby.

         Inventory  levels at June 30, 2005  increased  by $118,214 or 4.0% from
June 30,  2004  and are  expected  to  increase  to a  higher  level in order to
maintain increased sales and the greater number of customers associated with the
expanded territory.

         Cash on hand has been  adequate  to fund the  expansion  although  cash
decreased  by $160,135 at June 30, 2005 from a year ago. The Company paid a $.06
per share annual  dividend (an  aggregate of $421,467)  paid on November 1, 2004
and the $.035 per share semi-annual  dividend (an aggregate of $245,857) paid on
May 2, 2005.

         In January 2005, the Company signed an exclusive license agreement with
Whirlpool  Corporation,  licensing the use of the Company's patent technology on
home appliances. Whirlpool paid to the Company $350,000, including $331,100 as a
one time up front fee for the exclusive license,  and is to pay royalties during
the three year period  following  the  introduction  of  Whirlpool  manufactured
products using the licensed technology. After this period, Whirlpool will retain
a  non-exclusive  license and the Company is free to license its  technology  to
other  manufacturers.  The $331,100 fee for the exclusive license was classified
as  unearned  income  and is being  amortized  over 48  months,  the life of the
contract.

Liquidity and Capital Resources

         For the twelve  month period  ended June 30,  2005,  cash  decreased by
$160,135  compared to an increase of $128,110  for the same period of 2004.  The
primary  reason for the decrease  was dividend  payments in November of 2004 and
May  2005  aggregating  $667,324.  This use of cash was  partially  offset  by a
$350,000 one-time payment received from Whirlpool in accordance with the license
agreement  and the  Company's  net earnings of $706,263.  The increase in fiscal
2004 was  primarily  attributable  to the  Company's  net  earnings  of $536,217
offset, in part, by a dividend payment of $350,722.

         The following table summarizes the Company's  Consolidated Statement of
Cash Flows:

<TABLE>
<CAPTION>
                                                                              Years Ended June 30,
                                                                        2005                        2004
        ---------------------------------------------------- --------------------------- ----------------------------
        Net cash provided (used) by:
        ---------------------------------------------------- --------------------------- ----------------------------
<S>                                                                    <C>                         <C>
             Operating activities                                      $460,462                    $391,611
             Investing activities                                        36,727                      69,221
             Financing activities                                      (657,324)                   (332,722)
</TABLE>

         Cash  provided by operating  activities  increased by $68,851 in fiscal
2005 compared to cash provided by operating activities in fiscal 2004. Continued
surveillance of our accounts  receivable kept

                                       10
<PAGE>

bad  debts in line  when  compared  to fiscal  2004.  Accounts,  notes and lease
receivables and inventories increased by $369,333 and $118,214, respectively, in
fiscal 2005 mostly  attributable  to the expanded  territory  and the  increased
number of customers.  There were also increases in these  components at year end
in fiscal 2004 due to the start up and support of the expanded  territory  which
began in June 2004.  Accounts payable and accrued  expenses  decreased in fiscal
2005 by $231,875 as the Company took advantage of any discounts available.  This
compared to an increase of $34,918 in fiscal 2004 due to the increased inventory
purchased in June to support the expanded  territory.  The Whirlpool  payment of
$331,100  received in January 2005 for a four-year  exclusive  license to employ
the Company's  technology in Whirlpool  products was treated as unearned  income
and is being amortized over 48 months.  Accrued employee  expenses  decreased by
$23,113 due to a reduction in employee bonus expense.

         Investing  activities  provided cash of $36,727 in fiscal 2005 compared
to $69,221  provided in fiscal  2004.  Fiscal 2005  contained  an extra  monthly
payment   on  the   outstanding   note   associated   with   the   sale  of  the
telecommunications  segment  compared to fiscal 2004. All monthly  payments were
current at fiscal 2005 year end. The Company increased its capital  expenditures
in fiscal 2005 for renovating and  restructuring  its main offices and acquiring
updated  software  licenses  for  its  business  programs.  Patent  expenditures
remained substantially the same for both fiscal years.

         Financing  activities used cash of $657,324 in fiscal 2005,  mostly due
to increased  dividend  payments  compared to fiscal 2004 ($667,324  compared to
$350,722).  Expenditures for both years were partially offset by the exercise of
stock  options to purchase  10,000  shares in fiscal  2005 and 18,000  shares in
fiscal 2004 at $1.00 per share.

         On September 27, 2004, the Company's Board of Directors declared a $.06
per share annual  dividend (or an aggregate of $421,467)  payable on November 1,
2004 to  shareholders  of record on October 15,  2004.  On March 23,  2005,  the
Company's Board of Directors declared a $.035 per share semi-annual dividend (or
an aggregate of $245,857)  payable on May 2, 2005 to  shareholders  of record on
April 15, 2005. On September 23, 2005 the Board of Directors declared a $.04 per
share semi-annual  dividend (or an aggregate of $280,978) payable on November 1,
2005 to stockholders of record on October 14, 2005.

         On October 28, 2004,  the Company  received an extension  until October
30,  2005 of its  existing  $2,250,000  revolving  line of credit  facility.  In
addition,  the Loan  Agreement  was  amended to  eliminate  the  borrowing  base
restriction on borrowings under the revolving credit facility,  thereby enabling
the  Company to borrow up to the full  $2,250,000  amount  available  under that
facility   regardless  of  the  Company's  levels  of  accounts  receivable  and
inventories.  The  Company's  obligations  under  the  facility  continue  to be
guaranteed by the Company's subsidiaries and collateralized by substantially all
of the Company's and its subsidiaries'  assets.  The Company believes it will be
able to renew this facility with the same lender on similar terms.

         The  Company  believes  that its  present  cash  position,  the cash it
expects to generate from operations and cash borrowings available under its line
of credit will be  sufficient  to meet its  presently  contemplated  operational
needs.

Off-Balance Sheet Financing

         The Company has no off-balance sheet financing  arrangements within the
meaning of item 303(c) of Regulation S-B.


                                       11
<PAGE>

Results of Operations

<TABLE>
<CAPTION>
                                                                      Year Ended June 30,
                                                                    2005                2004
         ---------------------------------------------------- ------------------ ------------------- -----------
<S>                                                               <C>                <C>                     <C>
                 Net sales                                        $17,564,559        $14,020,703            +25.3%
                 Development fees, franchise and license
                  fees, commissions and other                         824,450            651,562            +26.5%
         ---------------------------------------------------- ------------------ ------------------- -----------

                 Total revenues                                   $18,389,009        $14,672,265            +25.3%
         ---------------------------------------------------- ------------------ ------------------- -----------
</TABLE>

         Revenues  for the year  ended June 30,  2005  increased  by  $3,716,744
(25.3%) over fiscal  2004.  Increases in sales were  experienced  in  commercial
laundry and dry cleaning machines,  mostly  attributable to the expansion of the
territory  since June 2004 and the  increased  number of sales staff.  Increased
revenues of 8.9% were also reported by the Company's development business, which
develops turn-key cleaning establishments for resale to third parties;  however,
the broker  business  experienced  a reduction of 31.3% in revenues.  Both these
subsidiaries  account  for less than 1% of the  Company's  revenues.  For fiscal
2005,  sales of parts  increased by 11.1%,  laundry  equipment  sales  increased
75.8%,  boiler sales increased 26.9% and dry cleaning  equipment sales increased
3.3%.

         Franchise and license fees increased by $89,656  (32.5%) in fiscal 2005
compared to fiscal 2004, attributable to an improved domestic economy.

         Overall expenses of the Company,  including costs of sales,  were 93.9%
of total  revenues  in  fiscal  2005,  compared  to 94.3% in  fiscal  2004.  The
decrease, as a percentage of revenues,  reflects relatively stable overall costs
spread over increased revenues.

<TABLE>
<CAPTION>
                                                                                     Year Ended June 30,
         ---------------------------------------------------------------- ----------------------------------------
                                                                                 2005                 2004
         ---------------------------------------------------------------- -------------------- -------------------
         As a percentage of net sales:
<S>                                                                               <C>                 <C>
              Cost of sales                                                       74.9%               72.3%

         As a percentage of revenues:
              Selling, general and administrative expenses                        22.1%               25.0%
              Research and development                                              .2%                 .3%
              Total expenses                                                      93.9%               94.3%
         ---------------------------------------------------------------- -------------------- -------------------
</TABLE>

         Cost of goods sold,  expressed as a percentage  of sales,  increased to
74.9% in fiscal 2005 compared to 72.3% in fiscal 2004. The increased  costs were
due to the larger  volume of sales and the increased  size of each order,  which
carry smaller margins in order to remain competitive.

         Selling,  general and  administrative  expenses  increased  by $399,499
(10.9%),  but improved as a percentage  of revenues to 22.1% in fiscal 2005 from
25.0% in fiscal 2004. Most of the increase was due to a 9.8% increase in payroll
expenses  associated  with  the  increased  sales  staff.  Increases  were  also
experienced  in  insurance  (13.2%),  professional  fees  (40.3%)  and  supplies
(26.2%),  but were offset by  decreases  in  commissions  (20.5%) and  telephone
expenses  (15.2%).  Most other expenses in this category showed slight increases
in line with inflation and to support the increased volume of sales.

         Research and development  expenses remained  essentially flat and are a
small part of the Company's total operating  expenses.  These expenses relate to
ongoing research on the Company's Green-Jet(R)  technologies and the application
of these technologies to smaller dry-cleaning machines.

         Interest  income  decreased by $13,118  (55.1%),  primarily  due to the
lower outstanding  principal balance of the note received by the Company as part
of the  consideration  for the sale of its  telecommunications  segment  in July
2002, offset by the rise in interest rates.

                                       12
<PAGE>

         The  Company's  effective  income  tax  rate of 37.7%  in  fiscal  2005
approximated its effective income tax rate of 37.2% in fiscal 2004.

Inflation

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

Transactions with Related Parties

         The Company  leases  27,000  square feet of warehouse  and office space
from  William K.  Steiner,  a  principal  shareholder,  Chairman of the Board of
Directors  and a director of the Company.  The Company and Mr.  Steiner  entered
into a new lease on September 9, 2005 for a three-year period beginning November
1, 2005 at an  annual  rental  of  $94,500,  with  annual  increases  commencing
November 1, 2006 of 3% over the rent in the prior  year.  The Company is to bear
real estate taxes, utilities, maintenance, non-structural repairs and insurance.
The new lease contains two three-year  renewal  options in favor of the Company.
The Company  believes  that the terms of the lease are  comparable to terms that
would be obtained  from an  unaffiliated  third party for similar  property in a
similar locale.

         In addition, in fiscal 2005, the Company paid two law firms, in which a
director is of counsel, an aggregate of $81,500 for legal services performed.

Critical Accounting Policies

         Securities and Exchange  Commission  Financial Reporting Release No. 60
encourages all companies to include a discussion of critical accounting policies
or methods used in the preparation of financial statements.  Management believes
the following critical accounting policies affect the significant  judgments and
estimates used in the preparation of the Company's financial statements:

         Revenue Recognition and Accounts and Notes Receivable

         Equipment  and  replacement  parts are  generally  shipped FOB from the
Company's  warehouse  or drop shipped FOB factory at which time risk of loss and
title  passes  to the  purchaser  and the  sale  is  recorded.  Commissions  and
development  fees are  recorded  when  earned,  generally  when the services are
performed  or the  transaction  is  closed.  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,  which is evidenced by a certificate from the franchisee,
indicating that the store has opened, and collectibility is reasonably  assured.
Continuing services fees represent regular contractual payments received for the
use of the "Dryclean  USA" marks,  which are  recognized as revenue when earned,
generally on a straight line basis.

         Accounts and trade notes receivable are customer  obligations due under
normal trade terms.  The Company  sells its  products  primarily to  independent
dryclean and laundry  stores.  The  Company's  note  receivable  represents  the
amounts  due from  the  sale of the  telecommunications  business.  The  Company
performs continuing credit evaluations of its customers' financial condition and
depending  on the  term  of  credit,  the  amount  of  the  credit  granted  and
management's past history with a customer, the Company may require the debtor to
pledge  the  purchased  equipment  as  collateral  for  the  receivable.  Senior
management reviews accounts and notes receivable on a regular basis to determine
if any such amounts will potentially be uncollectible.  The Company includes any
balances that are determined to be  uncollectible,  along with a general reserve
based on older aged amounts,  in its overall  allowance  for doubtful  accounts.
After all  attempts to collect a  receivable  have  failed,  the  receivable  is
written off. The Company's  non-trade note receivable is  collateralized  by the
assets  sold and is subject to  personal  guarantees  by the  principals  of the
debtor.  All  payments  on that  note  are  current.  Based  on the  information
available  to  management,  it believes  the  Company's  allowance  for doubtful
accounts as of June 30,  2005 is  adequate.  However,  actual  write-offs  might
exceed the recorded allowance.

                                       13
<PAGE>

         Franchise License Trademark and Other Intangible Assets

         The franchise license, trademark,  patents and trade name are stated at
cost  less   accumulated   amortization.   Those  assets  are   amortized  on  a
straight-line  basis over the estimated  future  periods to be benefited  (10-15
years).  The patents are amortized over the shorter of the patents'  useful life
or legal life from the date such  patents are granted.  The Company  reviews the
recoverability  of  intangible  assets  based  primarily  upon  an  analysis  of
undiscounted  cash flows from the intangible  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.

         Use of Estimates

         The  preparation of financial  statements  requires  management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,   and  related  disclosure  of  contingent  assets  and
liabilities.   On  an  ongoing  basis,  management  evaluates  these  estimates,
including  those related to allowances  for doubtful  accounts  receivable,  the
carrying  value of  inventories  and  long-lived  assets,  the timing of revenue
recognition  for initial  license  and  franchise  fees from sales of  franchise
arrangements and continuing license and franchise service fees, as well as sales
returns.  Management  bases these  estimates  on  historical  experience  and on
various  other  assumptions  that  are  believed  to  be  reasonable  under  the
circumstances,  the results of which form the basis for making  judgments  about
the  recognition  of revenues and expenses and the carrying  value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.

New Accounting Pronouncements

         In December 2004,  the Financial  Accounting  Standards  Board ("FASB")
issued  Statement of Financial  Accounting  Standards  ("SFAS") No. 123 (Revised
2004) (SFAS 123(R)) "Share-based payment". SFAS 123(R) will require compensation
costs  related to  share-based  payment  transactions  to be  recognized  in the
financial statements.  With limited exceptions,  the amount of compensation cost
will be measured based on the  grant-date  fair value of the equity or liability
instruments  issued.  In addition,  liability  awards will be  re-measured  each
reporting  period.  Compensation cost will be recognized over the period that an
employee  provides service in exchange for the award.  SFAS 123(R) replaces FASB
123, Accounting for Stock-Based  Compensation and supersedes APB Opinion No. 25,
Accounting  for Stock Issued to Employees.  This guidance is effective as of the
first interim or annual  reporting  period beginning after December 15, 2005 for
Small  Business  filers  such as the  Company.  SFAS  123(R) does not affect the
Company at the present time but may effect the Company if it issues  share-based
compensation in the future.

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

         In  December  2004,  the  FASB  issued  SFAS  No.  153,  "Exchanges  of
Nonmonetary   Assets,"  which  amends  APB  Opinion  No.  29,   "Accounting  for
Nonmonetary  Transactions."  The  amendments  made by SFAS 153 are  based on the
principle that  exchanges of nonmonetary  assets should be measured based on the
fair value of the assets exchanged. Further, the amendments eliminate the narrow
exception for nonmonetary  exchanges of similar productive assets and replace it
with a broader  exception for exchanges of  nonmonetary  assets that do not have
"commercial substance." Previously,  Opinion 29 required that the accounting for
an  exchange  of a  productive  asset  for  a  similar  productive  asset  or an
equivalent  interest in

                                       14
<PAGE>

the same or similar  productive  asset should be based on the recorded amount of
the asset relinquished. The provisions in SFAS 153 are effective for nonmonetary
asset  exchanges  occurring  in fiscal  periods  beginning  after June 15, 2005.
Adoption  of  this  pronouncement  will  not  materially  impact  the  Company's
financial position or results of operations.

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


                                       15
<PAGE>

Item 7.       Financial Statements.

<TABLE>
<CAPTION>
                                             DRYCLEAN USA, Inc. and Subsidiaries

                                      Index to Consolidated Financial Statements


                                                                                                    Page

<S>                                                                                                  <C>
Reports of Independent Registered Public Accounting Firms                                            17-18

Consolidated Balance Sheets at June 30, 2005 and 2004                                                   19

Consolidated Statements of Operations for the years ended
   June 30, 2005 and 2004                                                                               20

Consolidated Statements of Shareholders' Equity for the years ended
   June 30, 2005 and 2004                                                                               21

Consolidated Statements of Cash Flows for the years ended
   June 30, 2005 and 2004                                                                               22

Summary of Accounting Policies                                                                          23

Notes to Consolidated Financial Statements                                                              28
</TABLE>


                                       16
<PAGE>


Report of Independent Registered Public Accounting Firm


Board of Directors and Shareholders
DRYCLEAN USA, Inc. and Subsidiaries:

We have audited the  accompanying  consolidated  balance  sheet of DRYCLEAN USA,
Inc.  and  subsidiaries  as of  June  30,  2005,  and the  related  consolidated
statements of operations,  shareholders' equity and cash flows for the year then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). 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. The Company
was not  required  to have,  nor were we  engaged  to  perform,  an audit of the
Company's  internal  control  over  financial  reporting.   Our  audit  included
consideration  of  internal  control  over  financial  reporting  as a basis for
designing audit  procedures that are appropriate in the  circumstances,  but not
for the purpose of expressing an opinion on the  effectiveness  of the Company's
internal  control  over  financial  reporting.  Accordingly,  we express no such
opinion. An audit also includes examining,  on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements,  assessing
the accounting principles used and significant estimates made by management,  as
well as evaluating the overall financial statement presentation. We believe that
our audit provides 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, 2005 and the  consolidated
results  of their  operations  and their  cash  flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.


                                        MORRISON, BROWN, ARGIZ & FARRA LLP


Miami, Florida
September 2, 2005, except for the
second paragraph of Note 6 and
the second paragraph of Note 11 as to
which the date is September 23, 2005


                                       17
<PAGE>

Report of Independent Registered Public Accounting Firm


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


We have audited the  accompanying  consolidated  balance  sheet of DRYCLEAN USA,
Inc.  and  subsidiaries  as of  June  30,  2004,  and the  related  consolidated
statements of operations,  shareholders' equity and cash flows for the year 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 audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). 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 audit provides 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, 2004, and the  consolidated
results  of their  operations  and their  cash  flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

Miami, Florida                                           BDO Seidman,  LLP
September 1, 2004,  except for
Note 11 as to which the date is
September 27, 2004



                                       18
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries

                                                     Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,                                                                              2005            2004
----------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>          <C>
Assets (Note 5)

Current assets
   Cash and cash equivalents                                                        $ 1,582,116     $ 1,742,251
   Accounts and trade notes receivable, net of allowance for
       doubtful accounts of $130,000                                                  1,949,750       1,600,087
   Lease receivables (Note 2)                                                            14,995          35,172
   Inventories                                                                        3,090,017       2,971,803
   Deferred income taxes (Note 4)                                                       103,031          97,618
   Note receivable-current (Note 13)                                                     67,857         157,143
   Other current assets                                                                 118,930         112,375
---------------------------------------------------------------------------------------------------------------

Total current assets                                                                  6,926,696       6,716,449

Lease receivables - due after one year (Note 2)                                               -          10,000

Note receivable, less current portion (Note 13)                                               -          67,857


Equipment and improvements, net (Note 3)                                                230,352         217,200

Franchise license, trademarks and other intangible assets, net
   (Note 1)                                                                             373,779         385,756

Deferred income taxes (Note 4)                                                           10,248          26,859
---------------------------------------------------------------------------------------------------------------
                                                                                    $ 7,541,075     $ 7,424,121
---------------------------------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities
   Accounts payable and accrued expenses                                            $   679,505     $   911,380
   Accrued employee expenses                                                            295,440         318,553
   Unearned income                                                                      289,712               -
   Customer deposits                                                                    577,440         550,042
---------------------------------------------------------------------------------------------------------------

Total current liabilities                                                             1,842,097       1,779,975
---------------------------------------------------------------------------------------------------------------
Total liabilities                                                                     1,842,097       1,779,975
---------------------------------------------------------------------------------------------------------------

Commitments and contingencies (Notes 6, 8 and 9)
---------------------------------------------------------------------------------------------------------------

Shareholders' equity (Notes 11 and 12)
Preferred Stock, $1.00 par value:
   Authorized shares - 200,000; none
     issued and outstanding                                                                   -               -
Common stock, $0.025 par value:
   Authorized shares - 15,000,000; 7,055,500 and 7,045,500,
     shares issued and outstanding at 2005 and 2004,
     respectively, including  shares held in treasury                                   176,388         176,138
   Additional paid-in capital                                                         2,075,870       2,066,120
   Retained earnings                                                                  3,449,740       3,404,908
   Treasury stock, 31,050  shares at cost                                                (3,020)         (3,020)
---------------------------------------------------------------------------------------------------------------

Total shareholders' equity                                                            5,698,978       5,644,146
---------------------------------------------------------------------------------------------------------------
                                                                                    $ 7,541,075     $ 7,424,121
---------------------------------------------------------------------------------------------------------------
See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.
</TABLE>


                                       19
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries

                                           Consolidated Statements of Operations

<TABLE>
<CAPTION>
Years ended June 30,                                                           2005              2004
-----------------------------------------------------------------------------------------------------
<S>                                                                     <C>                 <C>
Revenues:
     Net sales                                                             $17,564,559    $14,020,703
     Development fees, franchise and license fees, commissions
        and other                                                              824,450        651,562
-----------------------------------------------------------------------------------------------------

Total                                                                       18,389,009     14,672,265
-----------------------------------------------------------------------------------------------------

Cost of sales                                                               13,157,427     10,137,623
Selling, general and administrative expenses                                 4,063,140      3,663,641
Research and development expenses                                               44,825         41,184
-----------------------------------------------------------------------------------------------------

Total                                                                       17,265,392     13,842,448
-----------------------------------------------------------------------------------------------------

Operating income                                                             1,123,617        829,817
-----------------------------------------------------------------------------------------------------

Other income:
     Interest income                                                            10,692         23,810
-----------------------------------------------------------------------------------------------------

Earnings before income taxes                                                 1,134,309        853,627
Provision for income taxes (Note 4)                                            428,046        317,410
-----------------------------------------------------------------------------------------------------

Net earnings                                                               $   706,263    $   536,217
-----------------------------------------------------------------------------------------------------

Net earnings per share (Note 10):
     Basic                                                                 $       .10    $       .08
     Diluted                                                               $       .10    $       .08
-----------------------------------------------------------------------------------------------------

Weighted average number of shares of common stock outstanding:
     Basic                                                                   7,023,146      7,009,188
     Diluted                                                                 7,037,921      7,032,060
-----------------------------------------------------------------------------------------------------
</TABLE>
See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.


                                       20
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                 Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
                                           Common Stock            Additional      Treasury Stock
                                      ---------------------------    Paid-in     ---------------------   Retained
                                         Shares        Amount        Capital      Shares      Cost       Earnings         Total

<S>                                   <C>            <C>           <C>            <C>       <C>         <C>           <C>
Balance at June 30, 2003              7,027,500      $ 175,688     $ 2,048,570    31,050    $ (3,020)   $ 3,219,413   $ 5,440,651

   Stock options exercised               18,000            450          17,550         -          -               -        18,000
   Dividends paid ($.05 per share)                                                                         (350,722)     (350,722)
   Net earnings                               -              -               -         -          -         536,217       536,217
------------------------------------- ------------- ------------- -------------- ---------- ---------- -------------- --------------
Balance at June 30, 2004              7,045,500        176,138       2,066,120    31,050     (3,020)      3,404,908     5,644,146

   Stock options exercised               10,000            250           9,750         -          -               -        10,000
   Tax benefit from stock option
       exercise                               -              -               -         -          -           5,893         5,893
   Dividends paid ($.06 per share)            -              -               -         -          -        (421,467)     (421,467)
   Dividends paid ($.035 per share)           -              -               -         -          -        (245,857)     (245,857)
   Net earnings                               -              -               -         -          -         706,263       706,263
------------------------------------- ------------- ------------- -------------- ---------- ---------- -------------- --------------
Balance at June 30, 2005              7,055,500      $ 176,388     $ 2,075,870    31,050    $ (3,020)   $ 3,449,740   $ 5,698,978
------------------------------------- ------------- ------------- -------------- ---------- ---------- -------------- --------------
</TABLE>
See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.


                                       21
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries

                                           Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
Years ended June 30,                                                                2005             2004
---------------------------------------------------------------------------------------------------------------

<S>                                                                                <C>             <C>
Operating activities:
   Net income                                                                      $ 706,263       $ 536,217
   Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation and amortization                                                   119,242         114,946
     Bad debt expense                                                                 49,846          42,782
     Provision for deferred income taxes                                              11,198          22,589
     Tax benefit for stock option exercise                                             5,893               -
     (Increase) decrease in operating assets:
       Accounts, trade notes and lease receivables                                  (369,333)       (251,761)
       Inventories                                                                  (118,214)       (394,865)
       Other current assets                                                           (6,555)         56,719
     Increase (decrease) in operating liabilities:
       Accounts payable and accrued expenses                                        (231,875)         34,918
       Accrued employee expenses                                                     (23,113)         15,230
       Unearned income                                                               289,712               -
       Customer deposits                                                              27,398         214,836
---------------------------------------------------------------------------------------------------------------

Net cash provided by operating activities                                            460,462         391,611
---------------------------------------------------------------------------------------------------------------

Investing activities:
   Payments received on note receivable                                              157,143         144,048
   Capital expenditures                                                              (88,461)        (40,905)
   Patent expenditures                                                               (31,955)        (33,922)
---------------------------------------------------------------------------------------------------------------

Net cash provided by investing activities                                             36,727          69,221
---------------------------------------------------------------------------------------------------------------

Financing activities:
   Proceeds from exercise of stock options                                            10,000          18,000
   Dividends paid                                                                   (667,324)       (350,722)
---------------------------------------------------------------------------------------------------------------
Net cash used in financing activities                                               (657,324)       (332,722)
---------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents                                (160,135)        128,110
Cash and cash equivalents at beginning of year                                     1,742,251       1,614,141
---------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                                         $ 1,582,116     $ 1,742,251
---------------------------------------------------------------------------------------------------------------

Supplemental Information:
   Cash paid for:
   Income taxes                                                                    $ 438,000       $ 406,000
---------------------------------------------------------------------------------------------------------------
</TABLE>
See  accompanying  summary  of  accounting  policies  and notes to  consolidated
financial statements.


                                       22
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                         Summary of Accounting Policies

Nature of Business                  DRYCLEAN   USA,   Inc.   and    subsidiaries
                                    (collectively,     the    "Company")    sell
                                    commercial  and  industrial  laundry and dry
                                    cleaning equipment,  boilers and replacement
                                    parts;  sell  individual and area franchises
                                    under the  DRYCLEAN  USA name;  and act as a
                                    business   broker  in  connection  with  the
                                    purchase  and sale of  retail  dry  cleaning
                                    stores  and  coin  laundries.

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

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

Revenue Recognition                 Sales of products are generally  shipped FOB
                                    origin and  revenue is  recorded as they are
                                    shipped.  Shipping,  delivering and handling
                                    fee  income of  approximately  $303,000  and
                                    $245,000  for the years  ended June 30, 2005
                                    and 2004, respectively,  are included as net
                                    sales   in   the   consolidated    financial
                                    statements.    Shipping,    delivering   and
                                    handling  costs  are  included  in  cost  of
                                    sales.  Commissions and development fees are
                                    recorded when earned.  Individual  franchise
                                    arrangements  include a license  and provide
                                    for the  payment  of  initial  fees  for the
                                    granting of the franchise.  Royalty fees are
                                    generated  for the use of the name  DRYCLEAN
                                    USA(R). Initial franchise fees are generally
                                    recorded  upon the opening of the  franchise
                                    store.  Continuing royalty fees are recorded
                                    when  earned.  Royalty  fees  recognized  in
                                    fiscal  2005  and  2004  were  $223,350  and
                                    $207,402,  respectively.

                                    Customer   deposits   represent    primarily
                                    amounts  received from  customers for future
                                    delivery  of  equipment   or  services.   In
                                    January   2005,   the   Company   signed  an
                                    exclusive  license  agreement with Whirlpool
                                    Corporation,   licensing   the  use  of  the
                                    Company's   patent    technology   on   home
                                    appliances.  Whirlpool  Corporation  paid to
                                    the Company $350,000,  including $331,100 as
                                    a one  time up front  fee for the  exclusive
                                    license,  and is to pay royalties during the
                                    three year period following the introduction
                                    of   Whirlpool   Corporation    manufactured
                                    products  using  the  licensed   technology.
                                    After  this  period,  Whirlpool  Corporation
                                    will retain a non-exclusive  license and the
                                    Company is free to license its technology to
                                    other    manufacturers.    Unearned   income
                                    represents   the   $331,100   fee   for  the
                                    exclusive  license which is being  amortized
                                    over 48 months, the life of the contract. At
                                    June  30,  2005,  $289,712  remained  to  be
                                    amortized.

Accounts and Trade Notes
Receivable                          Accounts  and  trade  notes  receivable  are
                                    customer  obligations due under normal trade
                                    terms.   The  Company   sells  its  products
                                    primarily  to  independent  drycleaning  and
                                    laundry    stores.    The   non-trade   note
                                    receivable  represents  the amounts due from
                                    the sale of the  telecommunications  segment
                                    as further discussed in Note 13. The Company
                                    performs  continuing  credit  evaluations of
                                    its  customers'   financial  condition  and,
                                    depending on the terms of credit, the amount
                                    of  the  credit  granted  and   management's
                                    history  with a  customer,  the  Company may
                                    require the customer to pledge the purchased
                                    equipment as collateral for the  receivable.
                                    Senior management reviews accounts and notes
                                    receivable  on

                                       23
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                         Summary of Accounting Policies


                                    a  regular  basis to  determine  if any such
                                    amounts will  potentially be  uncollectible.
                                    The Company  includes any balances  that are
                                    determined to be uncollectible, along with a
                                    general  reserve,  in its overall  allowance
                                    for doubtful accounts. After all attempts to
                                    collect  a  receivable   have  failed,   the
                                    receivable  is written  off.  The  Company's
                                    non-trade note receivable is  collateralized
                                    by  the  assets  sold  and is  supported  by
                                    personal guarantees by the principals of the
                                    debtor.   All  payments  on  such  note  are
                                    current. Based on the information available,
                                    management  believes the Company's allowance
                                    for  doubtful  accounts  as of June 30, 2005
                                    and  2004  is  adequate.   However,   actual
                                    write-offs   might   exceed   the   recorded
                                    allowance.

Inventories                         Inventories consist principally of equipment
                                    and spare parts.  Equipment is valued at the
                                    lower of cost,  determined  on the  specific
                                    identification   method,  or  market.  Spare
                                    parts are  valued  at the  lower of  average
                                    cost or market.

Equipment,                          Property  and equipment  are stated at cost.
Improvements and                    Depreciation and amortization are calculated
Depreciation                        on  accelerated  and  straight-line  methods
                                    over  lives  of  five  to  seven  years  for
                                    furniture  and  equipment  and the lesser of
                                    ten  years  or 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.
                                    Repairs and  maintenance  costs are expensed
                                    as incurred.

Asset  Impairments                  The Company  accounts for long-lived  assets
                                    in  accordance  with the  provisions  of the
                                    Financial    Accounting    Standards   Board
                                    ("FASB")  Statement of Financial  Accounting
                                    Standard  ("SFAS") No. 144,  "Accounting for
                                    the  Impairment  or Disposal  of  Long-Lived
                                    Assets."   This   statement   requires  that
                                    long-lived  assets and certain  identifiable
                                    intangibles   be  reviewed  for   impairment
                                    whenever events or changes in  circumstances
                                    indicate  that  the  carrying  amount  of an
                                    asset may not be recoverable. Recoverability
                                    of assets to be held and used is measured by
                                    a comparison  of the  carrying  amount of an
                                    asset to future net cash flows  expected  to
                                    be  generated  by the asset.  If such assets
                                    are   considered   to   be   impaired,   the
                                    impairment  to be  recognized is measured by
                                    the amount by which the  carrying  amount of
                                    the  assets  exceeds  the fair  value of the
                                    assets.   Assets  to  be   disposed  of  are
                                    reported at the lower of the carrying amount
                                    or fair value less estimated  costs to sell.
                                    The  Company has  determined  that no assets
                                    had been  impaired  as of June 30,  2005 and
                                    2004.

Income Taxes                        The Company utilizes the asset and liability
                                    method wherein deferred taxes are recognized
                                    for   differences    between    consolidated
                                    financial  statement and income tax bases of
                                    assets and liabilities.

Cash Equivalents                    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  accounting
                                    principles  generally accepted in the United
                                    States of  America  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

                                       24
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                         Summary of Accounting Policies


                                    the   reported   amounts  of  revenues   and
                                    expenses during the reporting period. Actual
                                    results  could differ from those  estimates.

Stock  Based   Compensation         SFAS No. 123,  "Accounting  for  Stock-Based
                                    Compensation,"  as amended by SFAS No.  148,
                                    "Accounting for  Stock-Based  Compensation -
                                    Transition  and Disclosure - An Amendment of
                                    FASB   Statement  No.  123."   requires  the
                                    Company  to  provide  pro forma  information
                                    regarding  net earnings and net earnings 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.   No
                                    options were granted in fiscal years 2005 or
                                    2004. Based on these assumptions,  under the
                                    accounting  provisions  of SFAS No. 123, the
                                    Company's  net earnings and net earnings per
                                    common share would have been as follows:

<TABLE>
<CAPTION>
                                Year ended June 30,                                         2005           2004
                                ------------------------------------------------------- ------------- ---------------
<S>                                                                                      <C>           <C>
                                Net earnings, as reported                                $ 706,263     $ 536,217
                                Less: Total stock-based employee compensation
                                      expense determined under fair value based
                                      method for all awards                                     -         (4,500)
                                ------------------------------------------------------- ------------- ---------------
                                Pro forma earnings from continuing operations            $ 706,263     $ 531,717
                                ------------------------------------------------------- ------------- ---------------

                                Earnings per common share:

                                Basic - As reported                                      $     .10     $      .08
                                       Pro forma                                               .10            .08
                                Diluted - As Reported                                          .10            .08
                                         Pro forma                                             .10            .08
                                ------------------------------------------------------- ------------- ---------------
</TABLE>

                                    All stock  options  were fully  vested as of
                                    June 30, 2004.  Thus, there was no pro forma
                                    compensation expense for 2005.

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  anti-dilutive  effect on earnings
                                    per    share   are    excluded    from   the
                                    calculations.

Advertising Costs                   The Company expenses the cost of advertising
                                    as of the first  date the  advertisement  is
                                    run.  The  Company  expensed   approximately
                                    $145,000 and $157,000 of  advertising  costs
                                    for the years  ended June 30, 2005 and 2004,
                                    respectively.

Fair Value of Financial             The Company's financial  instruments consist
Instruments                         principally  of cash and  cash  equivalents,
                                    accounts and trade notes  receivable,  lease
                                    receivables,   notes  receivable,   accounts
                                    payable and accrued  expenses.  Due to their
                                    relatively  short-term  nature  or  variable
                                    rates,   the   carrying   amounts   of  such
                                    financial  instruments,  as reflected in the
                                    accompanying  consolidated  balance  sheets,
                                    approximate   their  estimated  fair  value.
                                    Their    estimated   fair   value   is   not
                                    necessarily  indicative  of the  amounts the
                                    Company  could  realize in a

                                       25
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                         Summary of Accounting Policies

                                    current   market   exchange   or  of  future
                                    earnings or cash flows.

Customer Deposits                   Customer deposits represent advances paid by
                                    certain  customers  when placing  orders for
                                    equipment  with the Company.  These deposits
                                    are generally non-refundable.

Franchise License,                  Franchise  license,   trademark,  and  other
Trademark and Other                 intangible  assets  are  stated at cost less
Intangible Assets                   accumulated  amortization.  These assets are
                                    amortized on a straight-line  basis over the
                                    estimated  future  periods  to be  benefited
                                    (10-15  years).  Patents are amortized  over
                                    the shorter of the  patent's  useful life or
                                    legal  life  from the date  such  patent  is
                                    granted.    The    Company    reviews    the
                                    recoverability  of  intangible  assets based
                                    primarily  upon an analysis of  undiscounted
                                    cash flows expected to be generated 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.

Reclassifications                   Certain   prior  year   amounts   have  been
                                    reclassified  to conform to the current year
                                    presentation.

New Accounting                      In December  2004,  the FASB issued SFAS No.
Pronouncements                      123    (Revised    2004)    (SFAS    123(R))
                                    "Share-based  payment".   SFAS  123(R)  will
                                    require   compensation   costs   related  to
                                    share-based   payment   transactions  to  be
                                    recognized in the financial statements. With
                                    limited    exceptions,    the    amount   of
                                    compensation  cost will be measured based on
                                    the  grant-date  fair value of the equity or
                                    liability  instruments  issued. In addition,
                                    liability  awards will be  re-measured  each
                                    reporting period.  Compensation cost will be
                                    recognized  over the period that an employee
                                    provides  service in exchange for the award.
                                    SFAS 123(R)  replaces  FASB 123,  Accounting
                                    for Stock-Based  Compensation and supersedes
                                    APB  Opinion  No. 25,  Accounting  for Stock
                                    Issued  to   Employees.   This  guidance  is
                                    effective as of the first  interim or annual
                                    reporting  period  beginning  after December
                                    15, 2005 for Small  Business  filers such as
                                    the Company. SFAS 123(R) does not affect the
                                    Company at the  present  time but may affect
                                    share-based  compensation in the future.

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

                                    In  December  2004,  the  FASB  issued  FASB
                                    Statement No. 153, "Exchanges of Nonmonetary
                                    Assets,"  which  amends APB  Opinion No. 29,
                                    "Accounting for  Nonmonetary  Transactions."
                                    The  amendments  made by  Statement  153 are
                                    based on the  principle  that  exchanges  of
                                    nonmonetary  assets should be measured based
                                    on the fair value of the  assets  exchanged.
                                    Further, the amendments eliminate the narrow
                                    exception  for   nonmonetary

                                       26
<PAGE>

                                    exchanges of similar  productive  assets and
                                    replace  it  with a  broader  exception  for
                                    exchanges of nonmonetary  assets that do not
                                    have  "commercial   substance."  Previously,
                                    Opinion 29 required that the  accounting for
                                    an  exchange  of a  productive  asset  for a
                                    similar  productive  asset or an  equivalent
                                    interest  in the same or similar  productive
                                    asset should be based on the recorded amount
                                    of the asset relinquished. The provisions in
                                    Statement 153 are effective for  nonmonetary
                                    asset exchanges  occurring in fiscal periods
                                    beginning  after June 15, 2005.  Adoption of
                                    this   pronouncement   will  not  materially
                                    impact the Company's  financial  position or
                                    results of operations.

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


                                       27
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements



1. Intangible  Assets             Franchise   license,   trademark  and  other
                                  intangible assets consist of the following:

<TABLE>
<CAPTION>
                                -------------------------------------------------------------------------------------
                                                                         Estimated
                                                                        Useful Lives      June 30,       June 30,
                                                                         (in years)         2005           2004
                                -------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>          <C>
                                Franchise license agreements                 10           $ 529,500    $  529,500
                                Trademarks, patents and
                                  tradenames                               10-15            210,417       139,864
                                -------------------------------------------------------------------------------------
                                                                                            739,917       669,364
                                Less accumulated amortization                              (366,138)     (283,608)
                                -------------------------------------------------------------------------------------
                                                                                          $ 373,779    $  385,756
                                -------------------------------------------------------------------------------------
</TABLE>

                                    Amortization  expense amounted to $64,444 in
                                    fiscal 2005 and $57,472 in fiscal 2004.

2. Lease Receivables                Lease   receivables   result  from  customer
                                    leases of equipment under arrangements which
                                    qualify as  sales-type  leases.  At June 30,
                                    2005 and 2004, future lease payments, net of
                                    deferred interest ($312 and $891 at June 30,
                                    2005  and  2004,  respectively),  due  under
                                    these   leases   amounted   to  $14,995  and
                                    $45,172, respectively.

3. Equipment and Improvements       Major classes of equipment and  improvements
                                    consist of the following:

<TABLE>
<CAPTION>
                                 June 30,                                               2005             2004
                                 ------------------------------------------------------------------------------------
<S>                                                                                <C>              <C>
                                 Furniture and equipment                           $    745,810     $    695,836
                                 Leasehold improvements                                 353,804          330,914
                                 ------------------------------------------------------------------------------------
                                                                                      1,099,614        1,026,750
                                 Less accumulated depreciation and
                                     amortization                                      (869,262)        (809,550)
                                 ------------------------------------------------------------------------------------
                                                                                   $    230,352     $    217,200
                                 ------------------------------------------------------------------------------------
</TABLE>
                                    Depreciation  and  amortization of equipment
                                    and  improvements  amounted  to $54,798  and
                                    $57,474  for the years  ended June 30,  2005
                                    and 2004, respectively.


                                       28
<PAGE>
                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements


4. Income Taxes                  The   following   are   the components of
                                 income taxes (benefit):

<TABLE>
<CAPTION>
                                 Years ended June 30,                                  2005              2004
                                 ------------------------------------------------------------------------------------
<S>                                                                                  <C>               <C>
                                 Current
                                     Federal                                         $ 353,100         $ 252,183
                                     State                                              63,748            42,638
                                 ------------------------------------------------------------------------------------
                                                                                       416,848           294,821
                                 ------------------------------------------------------------------------------------

                                 Deferred
                                     Federal                                             9,561            19,309
                                     State                                               1,637             3,280
                                 ------------------------------------------------------------------------------------
                                                                                        11,198            22,589
                                 ------------------------------------------------------------------------------------
                                                                                     $ 428,046          $ 317,410
                                 ------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
                                 Years ended June 30,                                  2005              2004
                                 ------------------------------------------------------------------------------------
<S>                                                                                  <C>               <C>
                                 Tax at the statutory rate                           $ 385,665         $ 290,233
                                 State income taxes,
                                       net of federal benefit                           41,176            31,086
                                 Other                                                   1,205            (3,909)
                                 ------------------------------------------------------------------------------------
                                                                                     $ 428,046         $ 317,410
                                 ------------------------------------------------------------------------------------
</TABLE>

                                    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:

<TABLE>
<CAPTION>
                                 Years ended June 30,                                  2005              2004
                                 ------------------------------------------------------------------------------------
<S>                                                                                   <C>               <C>
                                 Current deferred tax asset (liability):
                                     Allowance for doubtful accounts                  $ 48,919          $ 48,919
                                     Inventory capitalization                           49,739            63,742
                                     Other                                               4,373           (15,043)
                                 ------------------------------------------------------------------------------------
                                                                                       103,031            97,618
                                 ------------------------------------------------------------------------------------

                                 Noncurrent deferred tax asset (liability):
                                     Equipment and improvements                        (31,300)          (12,825)
                                     Franchise, trademarks and other
                                     intangible assets                                  41,548            39,684
                                 ------------------------------------------------------------------------------------
                                                                                        10,248            26,859
                                 ------------------------------------------------------------------------------------
                                 Total net deferred income tax asset                 $ 113,279         $ 124,477
                                 ------------------------------------------------------------------------------------
</TABLE>


                                       29
<PAGE>
                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements


5.  Credit  Agreement               In December 2001, the Company entered into a
    and Term Loan                   bank   loan   agreement   for   a   facility
                                    consisting  of a term loan of $960,000 and a
                                    revolving  credit  facility  of  $2,250,000,
                                    including  a  $1,000,000  letter  of  credit
                                    subfacility  and $250,000  foreign  exchange
                                    subfacility.   In  May  2003,   the  Company
                                    pre-paid the outstanding balance of the term
                                    loan.  Prior to October 28, 2004,  revolving
                                    credit   borrowings   were   limited   by  a
                                    borrowing  base of 60% of eligible  accounts
                                    receivable  and 60% of  certain,  and 50% of
                                    other, eligible inventories.  On October 28,
                                    2004,  the Loan  Agreement  was  amended  to
                                    eliminate  the  borrowing  base  restriction
                                    under the revolving credit facility, thereby
                                    enabling  the  Company  to  borrow up to the
                                    full $2,250,000  amount  available under the
                                    facility  regardless of the Company's levels
                                    of  accounts   receivable  and  inventories.
                                    Borrowings   under  the   revolving   credit
                                    facility  bear  interest  at 2.50% per annum
                                    above the Adjusted  LIBOR Market Index Rate,
                                    are  guaranteed  by  all  of  the  Company's
                                    subsidiaries  and  are   collateralized   by
                                    substantially  all of the  Company's and its
                                    subsidiaries'  assets.  The revolving credit
                                    facility  matures  October 30, 2005. At June
                                    30, 2005 and 2004, there were no outstanding
                                    borrowings,  letters  of credit  or  foreign
                                    exchange  contracts  outstanding  under  the
                                    line of credit.  The loan agreement requires
                                    maintenance of certain debt service coverage
                                    and  leverage   ratios  and  contains  other
                                    restrictive covenants, including limitations
                                    on the extent to which the  Company  and its
                                    subsidiaries     may    incur     additional
                                    indebtedness,   pay   dividends,   guarantee
                                    indebtedness  of others,  grant liens,  sell
                                    assets  and  make  investments.

6.  Related Party                   The  Company  leases  warehouse  and  office
    Transactions                    space from a  principal  shareholder  of the
                                    Company  under an  operating  lease.  Annual
                                    rental  expense under this lease was $83,200
                                    in each of fiscal 2005 and 2004.

                                    The Company and the shareholder entered into
                                    a new  lease  on  September  9,  2005  for a
                                    three-year period beginning November 1, 2005
                                    at an annual rental of $94,500,  with annual
                                    increases  commencing November 1, 2006 of 3%
                                    over the rent in the prior year. The Company
                                    is to bear  real  estate  taxes,  utilities,
                                    maintenance,   non-structural   repairs  and
                                    insurance.   The  new  lease   contains  two
                                    three-year  renewal  options in favor of the
                                    Company. The Company believes that the terms
                                    of the lease are  comparable  to terms  that
                                    would be obtained from an unaffiliated third
                                    party  for  similar  property  in a  similar
                                    locale.

                                    In  addition,  in fiscal  2005,  the Company
                                    paid two law firms,  in which a director  is
                                    of  counsel,  an  aggregate  of $81,500  for
                                    legal  services  performed.  In fiscal 2004,
                                    the  Company  paid  one of these  law  firms
                                    $43,500 for legal services performed.

7. Concentrations of                The  Company   places  its  excess  cash  in
   Credit Risk                      overnight  deposits  with a  large  national
                                    bank.  Concentration  of  credit  risk  with
                                    respect  to trade and lease  receivables  is
                                    limited due to a large customer base.  Based
                                    on the Company's  credit  evaluation,  trade
                                    receivables  may  be  collateralized  by the
                                    equipment    sold.   The   Company's   lease
                                    receivable   is    collateralized   by   the
                                    equipment  under lease.  The note receivable
                                    is  collateralized  by the  assets  sold and
                                    supported  by  personal  guarantees  by  the
                                    principals of the debtor.

                                       30
<PAGE>
                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements


8.  Commitments                     In  addition  to the  warehouse  and  office
                                    space  leased from a  principal  shareholder
                                    (see  Note  6),  the   Company   leases  two
                                    additional  office and warehouse spaces from
                                    unrelated   third  parties  under  operating
                                    leases  expiring in December  2005 and March
                                    2006.  As of June 30,  2005,  the Company is
                                    also  obligated  under two leases for future
                                    dry cleaning  stores that aggregate  $81,000
                                    to $89,000 in annual  base rent per year for
                                    the next five years. The Company anticipates
                                    assigning   these  leases  to  dry  cleaning
                                    franchisees  or  other  customers  when  the
                                    leased    facilities   are   available   for
                                    occupancy.

                                    Minimum future rental commitments for leases
                                    in effect at June 30, 2005  approximates the
                                    following:

<TABLE>
<CAPTION>
                                 Years ending June 30,
                                 ------------------------------------------------------------------------------------
                                 <S>                                                                     <C>
                                 2006                                                                    $ 211,000
                                 2007                                                                      179,000
                                 2008                                                                      184,000
                                 2009                                                                      120,000
                                 2010                                                                       89,000
                                 Thereafter                                                                 12,000
                                 ------------------------------------------------------------------------------------
                                    Total                                                                $ 795,000
                                 ------------------------------------------------------------------------------------
</TABLE>

                                    Rent   expense   aggregated   $158,044   and
                                    $157,387  for the years  ended June 2005 and
                                    2004, respectively.

                                    As of June  30,  2005,  the  Company  had no
                                    outstanding letters of credit.

                                    The  Company,   through  its  manufacturers,
                                    provides parts warranties for products sold.
                                    These warranties are the  responsibility  of
                                    the manufacturer.  As such, warranty related
                                    expenses    are    insignificant    to   the
                                    consolidated financial statements.

9. Deferred                         The  Company  has a  participatory  deferred
   Compensation Plan                compensation   plan   wherein   it   matches
                                    employee   contributions  up  to  1%  of  an
                                    eligible  employee's  yearly   compensation.
                                    Employees are eligible to participate in the
                                    plan  after  three  months of  service.  The
                                    Company contributed approximately $7,000 and
                                    $9,000 to the Plan  during  fiscal  2005 and
                                    fiscal 2004,  respectively.  The plan is tax
                                    deferred   under   Section   401(k)  of  the
                                    Internal Revenue Code.


                                       31
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements


10. Earnings Per Share              The following  reconciles  the components of
                                    the earnings per share computation:

<TABLE>
<CAPTION>
                                 Year ended June 30, 2005
                                 ------------------------------------------------------------------------------------
                                                                            Income          Shares        Per Share
                                                                          (Numerator)   (Denominator)      Amount
                                 ------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>                 <C>
                                 Net earnings                              $ 706,263      7,023,146           $ .10

                                 Effect of dilutive securities:
                                    Stock options                                  -         14,775              -
                                 ------------------------------------------------------------------------------------

                                 Earnings plus assumed dilution            $ 706,263      7,037,921           $ .10
                                 ------------------------------------------------------------------------------------
                                 Year ended June 30, 2004

                                                                            Income          Shares       Per Share
                                                                          (Numerator)   (Denominator)      Amount
                                 ------------------------------------------------------------------------------------

                                 Net earnings                              $ 536,217      7,009,188            $ .08

                                 Effect of dilutive securities:
                                    Stock options                                 -          22,872              -
                                 ------------------------------------------------------------------------------------

                                 Earnings plus assumed dilution            $ 536,217      7,032,060            $ .08
                                 ------------------------------------------------------------------------------------
</TABLE>

                                    There  were  outstanding  stock  options  to
                                    purchase  20,000  shares  of  the  Company's
                                    common  stock at June  30,  2004  that  were
                                    excluded in the  computation of earnings per
                                    share for such  year  because  the  exercise
                                    prices  of the  options  were at  least  the
                                    average market price of the Company's common
                                    stock  for  that  year.   No  options   were
                                    excluded in fiscal 2005.

11.   Dividends                     The  Company  paid a $.05 per  share  annual
                                    dividend on October 31, 2003 to shareholders
                                    of record on October  17,  2003;  a $.06 per
                                    share annual dividend on November 1, 2004 to
                                    shareholders  of record on October  15, 2004
                                    declared on September 27, 2004,  and a $.035
                                    per  share  semi-annual  dividend  on May 2,
                                    2005 to  shareholders of record on April 15,
                                    2005.

                                    On September 23, 2005 the Board of Directors
                                    declared   a  $.04  per  share   semi-annual
                                    dividend  payable  on  November  1,  2005 to
                                    stockholders of record on October 14, 2005.

12.   Stock Options                 The   Company's   2000  Stock   Option  Plan
                                    authorizes  the grant (until May 2, 2010) of
                                    options to purchase up to 500,000  shares of
                                    the  Company's  common  stock to  employees,
                                    directors and consultants.  The Company also
                                    has  a  1994  Non-Employee   Director  Stock
                                    Option  Plan which  terminated  as to future
                                    grants on August 23,  2004,  but under which
                                    options to  purchase  30,000  shares  remain
                                    outstanding.

                                    The  Company  applies  APB  Opinion  No. 25,
                                    "Accounting  for Stock Issued to Employees,"
                                    and related  interpretations  in  accounting
                                    for   stock   options   to   employees   and
                                    directors. Under APB Opinion No. 25, because
                                    the  exercise  price  of the  stock  options
                                    equaled or exceeded  the market price of

                                       32
<PAGE>
                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements


                                    the  underlying  stock on the date of grant,
                                    no compensation cost has been recognized. No
                                    options have been granted to consultants.

                                    SFAS  123(R),  "Share-Based  Payment,"  will
                                    require  compensation costs related to share
                                    based payment  transactions to be recognized
                                    directly  in  the   Company's   consolidated
                                    financial  statements  beginning  January 1,
                                    2006.

                                    Pursuant to the Company's  2000 Stock Option
                                    Plan, the Company may grant  incentive stock
                                    options and nonqualified stock options.  All
                                    options  outstanding under the director plan
                                    are  nonqualified  stock  options.   Options
                                    under the 2000 Stock  Option Plan 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  Company's  common stock
                                    on the  date of  grant.  However,  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 2000 Stock  Option  Plan 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  granted  to  date  have
                                    become  exercisable,  on a cumulative basis,
                                    as  to  one-fourth  of  the  shares  covered
                                    thereby   on   each   of  the   first   four
                                    anniversaries of grant.  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).  There  were no stock
                                    options  granted  in  fiscal  2005 and 2004.
                                    Options   granted   under  the  plans   also
                                    terminate upon a merger in which the Company
                                    is not the surviving corporation or in which
                                    shareholders  before the merger cease to own
                                    at least 50% of the combined voting power in
                                    the  elections of directors of the surviving
                                    corporation,  the sale of substantially  all
                                    of the Company's  assets or the  liquidation
                                    or dissolution of the Company,  unless other
                                    provision is made by the board of directors.

                                    Options under the 1994 Non-Employee Director
                                    Stock  Option  Plan have a term of 10 years,
                                    are not  transferable and are exercisable at
                                    a price equal to 100% of the market value of
                                    the  Company's  common  stock on the date of
                                    grant.   Options   under   this   plan   are
                                    exercisable  as to  one-fourth of the shares
                                    covered  thereby  on each of the first  four
                                    anniversaries of grant.  Vesting accelerates
                                    upon a change of control of the  Company (as
                                    defined  in  the  Plan).  Options  terminate
                                    three  months   following   termination   of
                                    service  (except  one  year  in the  case of
                                    termination of service by reason of death or
                                    disability).

                                    A summary  of  options  under the  Company's
                                    stock option plans as of June 30, 2005,  and
                                    changes   during  the  year  then  ended  is
                                    presented below:

                                       33
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                                                      Weighted
                                                                                                       Average
                                                                                                      Exercise
                                                                                            Shares      Price
                                  -------------------------------------------------------------------------------
<S>                                                                                          <C>         <C>
                                  Outstanding at beginning of year                           50,000      $1.36
                                  Granted                                                         -       -
                                  Exercised                                                 (10,000)      1.00
                                  Expired                                                   (10,000)      2.00
                                  -------------------------------------------------------------------------------
                                  Outstanding at end of year                                 30,000      $1.27
                                  Options exercisable at year-end                            30,000      $1.27
                                  Options available for future grant at year-end            500,000
                                  -------------------------------------------------------------------------------
</TABLE>

                                    A summary  of  options  under the  Company's
                                    stock option plans as of June 30, 2004,  and
                                    changes   during  the  year  then  ended  is
                                    presented below:

<TABLE>
<CAPTION>
                                                                                                      Weighted
                                                                                                       Average
                                                                                                      Exercise
                                                                                            Shares      Price
                                  -------------------------------------------------------------------------------
<S>                                                                                        <C>           <C>
                                  Outstanding at beginning of year                         439,000       $1.02
                                  Granted                                                        -        -
                                  Exercised                                                (18,000)       1.00
                                  Expired                                                 (371,000)       1.00
                                  -------------------------------------------------------------------------------

                                  Outstanding at end of year                                50,000       $1.36
                                  -------------------------------------------------------------------------------

                                  Options exercisable at year-end                           50,000       $1.36
                                  -------------------------------------------------------------------------------
</TABLE>

                                    The following table  summarizes  information
                                    about  outstanding stock options at June 30,
                                    2005:

<TABLE>
<CAPTION>
                                                                Weighted
                                                                 Average      Weighted                Weighted
                                     Range of        Number     Remaining      Average      Number     Average
                                     Exercise     Outstanding  Contractual    Exercise    Exercisable Exercise
                                      Prices       at 6/30/05      Life         Price     at 6/30/05    Price
                                  -------------------------------------------------------------------------------
<S>                                   <C>             <C>       <C>             <C>          <C>        <C>
                                      $   .91         20,000    3.3 years       $   .91      20,000     $   .91
                                      $  2.00         10,000    4.9 years       $  2.00      10,000     $  2.00
                                  -------------------------------------------------------------------------------
</TABLE>

13.   Note Receivable               On  July  31,   2002,   the   Company   sold
                                    substantially  all of the  operating  assets
                                    (principally   inventory,    equipment   and
                                    intangible assets) of its Metro-Tel segment,
                                    which was  engaged  in the  manufacture  and
                                    sale  of  telephone  test   equipment.   The
                                    purchase   price  was  $800,000   which  was
                                    payable  $250,000  in  cash  and a  $550,000
                                    promissory note, bearing interest at prime +
                                    1%,  (7.25%  and 5.25% at June 30,  2005 and
                                    2004, respectively) and payable monthly over
                                    42 months  commencing  October 1, 2002.  The
                                    promissory  note is  guaranteed  by  certain
                                    companies  affiliated with the purchaser and
                                    the    purchaser's   and   the   affiliates'
                                    principal shareholders and is collateralized
                                    by the operating assets of the purchaser and
                                    the  affiliated  companies.  The Company has
                                    agreed  to   subordinate   payment   of  the
                                    promissory   note,    obligations   of   the
                                    affiliated  companies of the purchaser under
                                    their guarantees and the collateral  granted
                                    by  the   purchaser   and   the   affiliated


                                       34
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements


                                    companies   to   the   obligations   of  the
                                    purchaser  and the  affiliated  companies to
                                    two  bank  lenders.  The  purchaser  prepaid
                                    $50,000 of the note in 2003.  As of June 30,
                                    2005,  there was $67,857  outstanding  under
                                    this note.  The  remaining  principal is due
                                    during fiscal 2006.

14.   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 Corp. and DRYCLEAN USA Development
                                    Corp.,   wholly-owned  subsidiaries  of  the
                                    Company,   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  Corp. acts as a
                                    business  broker to assist others seeking to
                                    buy or sell  existing  dry cleaning and coin
                                    laundry businesses. DRYCLEAN USA Development
                                    Corp.   develops   turn-key   dry   cleaning
                                    establishments  for resale to third parties.

                                    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.

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

<TABLE>
<CAPTION>
                                Year ended June 30,                                        2005           2004
                                -------------------------------------------------------------------------------------
<S>                                                                                     <C>            <C>
                                Revenues:
                                   Commercial and industrial laundry and dry
                                     cleaning equipment                                 $ 18,023,119   $ 14,396,031
                                   License and franchise operations                          365,890        276,234
                                -------------------------------------------------------------------------------------
                                Total revenues                                          $ 18,389,009   $ 14,672,265
                                -------------------------------------------------------------------------------------

                                Operating income (loss):
                                   Commercial and industrial laundry
                                     and dry cleaning equipment                          $ 1,178,238      $ 904,640
                                  License and franchise operations                           252,765        170,207
                                  Corporate                                                 (307,386)      (245,030)
                                -------------------------------------------------------------------------------------
                                Total operating income                                   $ 1,123,617      $ 829,817
                                -------------------------------------------------------------------------------------

                                Identifiable assets:
                                   Commercial and industrial laundry
                                     and dry cleaning equipment                          $ 6,525,375    $ 6,325,915
                                   License and franchise operations                          781,416        655,744
                                   Corporate                                                 234,284        442,462
                                -------------------------------------------------------------------------------------
                                Total assets                                             $ 7,541,075    $ 7,424,121
                                -------------------------------------------------------------------------------------
</TABLE>

                                       35
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

                                    For the years  ended June 30, 2005 and 2004,
                                    export   revenues,    principally   to   the
                                    Caribbean  and  Latin  America,   aggregated
                                    approximately   $2,973,000  and  $2,340,000,
                                    respectively,    of   which    approximately
                                    $2,833,000  and  $2,209,000,   respectively,
                                    related  to the  commercial  and  industrial
                                    laundry and dry cleaning  equipment segment.
                                    All  such  sales  are  denominated  in  U.S.
                                    Dollars and, accordingly, the Company is not
                                    exposed   to  risks  of   foreign   currency
                                    fluctuations as a result of such sales.

                                    No single  customer  accounted for more than
                                    10% of the Company's revenues in fiscal 2005
                                    or 2004.

                                       36
<PAGE>

                       DRYCLEAN USA, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements

Item 8.       Changes In and Disagreements With Accountants on
              Accounting and Financial Disclosure.

              Not applicable.

Item 8A.      Controls and Procedures.

         As of the end of the period  covered by this report,  management of the
Company, with the participation of the Company's principal executive officer and
the Company's  principal  financial officer,  evaluated the effectiveness of the
Company's  "disclosure  controls and  procedures,"  as defined in Rule 13a-15(e)
under the  Securities  Exchange  Act of 1934.  Based on that  evaluation,  these
officers  concluded  that,  as of the date of their  evaluation,  the  Company's
disclosure   controls  and  procedures  were  effective  to  provide  reasonable
assurance that  information  required to be disclosed in the Company's  periodic
filings  under  the  Securities   Exchange  Act  of  1934  is  accumulated   and
communicated to the Company's  management,  including  those officers,  to allow
timely decisions regarding required disclosure.

         During the period covered by this Report,  there were no changes in the
Company's  internal  control  over  financial  reporting  that  have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

Item 8B.      Other Information.

         None.

                                    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, 49, has been President, Chief Executive Officer and
a director of the Company since November 1998 and of Steiner since 1988.

         Alan I.  Greenstein,  49, has been  Executive  Vice President and Chief
Operating  Officer of the Company since May 2004. From October 1995 until it was
sold in  2000,  he was  President  and  principal  stockholder  of  Professional
Cleaners,  Inc., an operator of a south Florida chain of drycleaning and laundry
stores.  From February 2001 to September 2004, Mr. Greenstein was Vice President
and a principal  shareholder of South Florida  Transport,  Inc., a south Florida
thrifty Car rental  franchise.  In October 2004, South Florida  Transport,  Inc.
filed for  Chapter 11  Bankruptcy,  which  subsequently  converted  to Chapter 7
liquidation.  Mr. Greenstein  believes the heavy losses from the hurricanes that
hit  Florida in the summer of 2004 were the cause for South  Florida  Transport,
Inc.'s financial problems.  Since he joined the Company, Mr. Greenstein has been
a full time employee of the Company.

         William  K.  Steiner,  75,  has been a director  of the  Company  since
November 1998 and Chairman of the Board of Steiner  since he founded  Steiner in
1960.

         Venerando J. Indelicato, 72, was President of the Company from December
1967 until November 1998 and has been Treasurer and Chief  Financial  Officer of
the Company since December 1969.

         Lloyd  Frank,  80, has been a director of the Company  since 1977.  Mr.
Frank has been of counsel to the law firm of  Troutman  Sanders  LLP since April
2005.  Prior  thereto,  Mr.  Frank  was a member  of the law firm of  Jenkens  &
Gilchrist  Parker Chapin LLP and its predecessor from 1977 until the end of 2003
and of counsel to that firm from  January  2004 until  March  2005.  The Company
retained

                                       37
<PAGE>

Troutman  Sanders  LLP and  Jenkens &  Gilchrist  Parker  Chapin  LLP during the
Company's  last fiscal  year and is  retaining  Troutman  Sanders LLP during the
Company's   current   fiscal  year.  Mr.  Frank  is  also  a  director  of  Park
Electrochemical Corp. and Volt Information Sciences, Inc.

         David Blyer, 45, has served as a director of the Company since November
1998. Mr. Blyer was Chief Executive  Officer and President of Vento Software,  a
developer of software for specialized business applications,  from 1994, when he
co-founded that company, until mid-2002.  Since that time, Mr. Blyer has been an
independent consultant.

         Alan M. Grunspan, 45, has served as a director of the Company since May
1999.  Since  2004,  Mr.  Grunspan  has been a member of the law firm of Carlton
Fields, PA. Prior thereto,  Mr. Grunspan was a member of the law firm of Kaufman
Dickstein & Grunspan P. A. from 1991 until 2004.

         Stuart  Wagner,  73,  has  served as a director  of the  Company  since
November  1998.  Mr. Wagner has been retired since 1999.  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,  and
served as a consultant to  Diversified  Corp.,  which acquired  Wagner  Products
Corp., from 1997 until 1999 .

         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:

         Ronald London, 72, has served as Vice President, and primarily oversees
sales of the retail Dry Cleaning  Equipment  Department of Steiner since joining
Steiner in September 1992.

         The  balance  of the  information  called  for by  this  Item  will  be
contained  in the  Company's  definitive  Proxy  Statement  with  respect to the
Company's 2005 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 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 2005 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
              and Related Stockholder Matters.

         The  following  table sets forth  certain  information,  as at June 30,
2005, with respect to the Company's equity compensation plans:

                                       38
<PAGE>

<TABLE>
<CAPTION>
                                      Number of securities to       Weighted-average            Number of securities
                                      be issued upon exercise      exercise price of         remaining available for
                                      of outstanding options,     outstanding options,            future issuance
           Plan Category                warrants and rights       warrants and rights     under equity compensation plans
           -------------                -------------------       -------------------     -------------------------------
<S>                                      <C>                       <C>                       <C>
Equity compensation plans approved
by security holders...........                      30,000 (a)           $1.27                      500,000 (b)

Equity compensation plans not
approved by security holders..                           0                  --                            0
                                     --------------------------- ----------------------- -----------------------------
  Total.......................                      30,000               $1.27                      500,000
                                     =========================== ======================= =============================
</TABLE>

(a)      All options were granted under the Company's 1994 Non-Employee Director
         Stock Option Plan (the "1994  Plan") under which no future  options may
         be granted.

(b)      Represents  shares  available for future grant under the Company's 2000
         Stock Option Plan (the "2000 Plan"), which permits the grant of options
         to employees and directors of, and  consultants  to, the Company.  Upon
         the  expiration,  cancellation  or termination of unexercised  options,
         shares  subject to options  under the 2000 Plan will again be available
         for the grant of options under the 2000 Plan.

         The  balance  of the  information  called  for by  this  Item  will  be
contained  in the  Company's  definitive  Proxy  Statement  with  respect to the
Company's 2005 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 2005 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.      Exhibit.

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, File
                  No. 0-9040.)

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, File No. 0-9040.)

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, File No. 0-9040.)

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.

                                       39
<PAGE>

                  (Exhibit  4.1(d) to the Company's  Current  Report on Form 8-K
                  dated (date of earliest event reported) October 29, 1998, File
                  No. 0-9040.)

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, File No. 0-9040.)

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,  File  No.
                  0-9040.)

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, File No. 0-9040.)

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)(A)        Loan and  Security  Agreement,  dated as of December 19, 2001,
                  from  the  Company  in favor of  First  Union  National  Bank.
                  (Exhibit  4.1(a)  to the  Company's  Quarterly  Report on Form
                  10-QSB for the  quarter  ended  December  31,  2001,  File No.
                  0-9040).

4(a)(1)(B)        Letter  agreement dated September 23, 2002 between the Company
                  and First  Union  National  Bank  (Exhibit  4(a)(1)(B)  to the
                  Company's Annual Report on Form 10-KSB for the year ended June
                  30, 2002, File No. 0-0904.).

4(a)(1)(C)        Letter  agreement  dated  October 11, 2002 between the Company
                  and Wachovia  (Exhibit 4.01 to the Company's  Quarterly Report
                  on Form 10-QSB for the quarter ended  September 30, 2002, File
                  No. 0-9040).

4(a)(1)(D)        Letter  agreement  dated  October 22, 2003 between the Company
                  and First Union  National  Bank (Exhibit 4.01 to the Company's
                  Quarterly   Report  on  Form  10-QSB  for  the  quarter  ended
                  September 30, 2003. file No. 0-9040.)

4(a)(2)           Revolving Credit Note, dated as of December 19, 2001, from the
                  Company in favor of First Union National Bank. (Exhibit 4.1(c)
                  to the  Company's  Quarterly  Report  on Form  10-QSB  for the
                  quarter ended December 31, 2001, File No. 0-9040).

4(a)(3)           Guaranty  and  Security  Agreement,  dated as of December  19,
                  2001, from Steiner-Atlantic Corp.,  Steiner-Atlantic Brokerage
                  Company,  DRYCLEAN  USA  Development  Corp.  and  DRYCLEAN USA
                  License Corp.,  subsidiaries of the Company, in favor of First
                  Union  National  Bank.   (Exhibit   4.1(d)  to  the  Company's
                  Quarterly Report on Form 10-QSB for the quarter ended December
                  31, 2001, File No. 0-9040).

10(a)(1)(A)       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

                                       40
<PAGE>

                  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(a)(1)(B)      Commercial  lease dated  September 9, 2005 between Steiner and
                  William  K.  Steiner  with  respect  to  Steiner's  facilities
                  located  at 290 NE 68  Street,  296 NE 67 Street and 277 NE 67
                  Street, Miami, Florida.

10(b)(1)+         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(b)(2)+         The  Company's  2000 Stock Option Plan.  (Exhibit  99.1 to the
                  Company's   Registration  Statement  on  Form  S-8,  File  No.
                  333-37582.)

14                Code of Ethics  for  Principal  Executive  Officer  and Senior
                  Financial Officers. (Exhibit 14 to the Company's Annual Report
                  on Form  10-KSB  for the year ended  June 20,  2004,  File No.
                  0-9040.)

21                Subsidiaries  of the  Company.  (Exhibit  21 to the  Company's
                  Annual Report on Form 10-KSB for the year ended June 30, 2001,
                  File No. 0-9040.)

*23(a)            Consent of Morrison Brown, Argiz & Farra, LLP

*23(b)            Consent of BDO Seidman,  LLP,  Independent  Registered  Public
                  Accounting Firm.

*31(a)            Certification  of  principal  executive  officer  pursuant  to
                  Section  302 of the  Sarbanes-Oxley  Act of  2002  promulgated
                  under the Securities Exchange Act of 1934.

*31(b)            Certification  of  principal  financial  officer  pursuant  to
                  Section  302 of the  Sarbanes-Oxley  Act of  2002  promulgated
                  under the Securities Exchange Act of 1934.

*32(a)            Certification  of  Principal  Executive  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

*32(b)            Certification  of  Principal  Financial  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

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

*        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.

Item 14.      Principal Accountant Fees and Services.

         The  information  called  for by this  Item  will be  contained  in the
Company's  definitive  Proxy Statement with respect to the Company's 2005 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.


                                       41
<PAGE>

                                   SIGNATURES

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

                                 DRYCLEAN USA, Inc.

Dated: September 23, 2005
                                 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.

<TABLE>
<CAPTION>
Signature                                    Capacity                                    Date
---------                                    --------                                    ----
<S>                                          <C>                                         <C>
/s/ Michael S. Steiner                       President, Chief Executive Officer          September 23, 2005
-----------------------------------------
Michael S. Steiner                           (Principal Executive Officer) and
                                             Director

/s/ Venerando J. Indelicato                  Chief Financial Officer                     September 23, 2005
-----------------------------------------
Venerando J. Indelicato                      (Principal Financial and Accounting
                                             Officer) and Director

/s/ David Blyer                              Director                                    September 23, 2005
-----------------------------------------
David Blyer

/s/ Lloyd Frank                              Director                                    September 23, 2005
-----------------------------------------
Lloyd Frank

/s/ Alan M. Grunspan                         Director                                    September 23, 2005
-----------------------------------------
Alan M. Grunspan

/s/ William K. Steiner                       Director                                    September 23, 2005
-----------------------------------------
William K. Steiner

/s/ Stuart Wagner                            Director                                    September 23, 2005
-----------------------------------------
Stuart Wagner
</TABLE>


                                       42
<PAGE>

                                                                              46
NEWYORK01 1071119v9 357034-000106
                                                             EXHIBIT INDEX

Exhibit No.                Description


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, File
                  No. 0-9040.)

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, File No. 0-9040.)

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, File No. 0-9040.)

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, File No. 0-9040.)

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, File No. 0-9040.)

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,  File  No.
                  0-9040.)

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, File No. 0-9040.)

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)(A)        Loan and  Security  Agreement,  dated as of December 19, 2001,
                  from  the  Company  in favor of  First  Union  National  Bank.
                  (Exhibit  4.1(a)  to the  Company's  Quarterly  Report on Form
                  10-QSB for the  quarter  ended  December  31,  2001,  File No.
                  0-9040).

4(a)(1)(B)        Letter  agreement dated September 23, 2002 between the Company
                  and First  Union  National  Bank  (Exhibit  4(a)(1)(B)  to the
                  Company's Annual Report on Form 10-KSB for the year ended June
                  30, 2002, File No. 0-0904.).

                                       43
<PAGE>

4(a)(1)(C)        Letter  agreement  dated  October 11, 2002 between the Company
                  and Wachovia  (Exhibit 4.01 to the Company's  Quarterly Report
                  on Form 10-QSB for the quarter ended  September 30, 2002, File
                  No. 0-9040).

4(a)(1)(D)        Letter  agreement  dated  October 22, 2003 between the Company
                  and First Union  National  Bank (Exhibit 4.01 to the Company's
                  Quarterly   Report  on  Form  10-QSB  for  the  quarter  ended
                  September 30, 2003. file No. 0-9040.)

4(a)(2)           Revolving Credit Note, dated as of December 19, 2001, from the
                  Company in favor of First Union National Bank. (Exhibit 4.1(c)
                  to the  Company's  Quarterly  Report  on Form  10-QSB  for the
                  quarter ended December 31, 2001, File No. 0-9040).

4(a)(3)           Guaranty  and  Security  Agreement,  dated as of December  19,
                  2001, from Steiner-Atlantic Corp.,  Steiner-Atlantic Brokerage
                  Company,  DRYCLEAN  USA  Development  Corp.  and  DRYCLEAN USA
                  License Corp.,  subsidiaries of the Company, in favor of First
                  Union  National  Bank.   (Exhibit   4.1(d)  to  the  Company's
                  Quarterly Report on Form 10-QSB for the quarter ended December
                  31, 2001, File No. 0-9040).

10(a)(1)(A)       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(a)(1)(B)      Commercial  lease dated  September 9, 2005 between Steiner and
                  William  K.  Steiner  with  respect  to  Steiner's  facilities
                  located  at 290 NE 68  Street,  296 NE 67 Street and 277 NE 67
                  Street, Miami, Florida.

10(b)(1)+         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(b)(2)+         The  Company's  2000 Stock Option Plan.  (Exhibit  99.1 to the
                  Company's   Registration  Statement  on  Form  S-8,  File  No.
                  333-37582.)

14                Code of Ethics  for  Principal  Executive  Officer  and Senior
                  Financial Officers. (Exhibit 14 to the Company's Annual Report
                  on Form  10-KSB  for the year ended  June 20,  2004,  File No.
                  0-9040.)

21                Subsidiaries  of the  Company.  (Exhibit  21 to the  Company's
                  Annual Report on Form 10-KSB for the year ended June 30, 2001,
                  File No. 0-9040.)

*23(a)            Consent of Morrison Brown, Argiz & Farra, LLP

*23(b)            Consent of BDO Seidman,  LLP,  Independent  Registered  Public
                  Accounting Firm.

*31(a)            Certification  of  principal  executive  officer  pursuant  to
                  Section  302 of the  Sarbanes-Oxley  Act of  2002  promulgated
                  under the Securities Exchange Act of 1934.

*31(b)            Certification  of  principal  financial  officer  pursuant  to
                  Section  302 of the  Sarbanes-Oxley  Act of  2002  promulgated
                  under the Securities Exchange Act of 1934.

*32(a)            Certification  of  Principal  Executive  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

*32(b)            Certification  of  Principal  Financial  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

                                       44
<PAGE>

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

 *        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.


                                       45