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, 2002

[   ]   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]

     The Company's revenues from continuing operations for its fiscal year ended
June 30, 2002 were $14,288,504.

     The aggregate  market value as at September 23, 2002 of the Common Stock of
the  issuer,  its  only  class  of  voting  stock,  held by  non-affiliates  was
approximately  $1,025,000  calculated  on the basis of the mean between the high
and low  sales  prices  of the  Company's  Common  Stock on the  American  Stock
Exchange on that date.  Such market value excludes shares owned by all executive
officers  and  directors  (and their  spouses);  this should not be construed as
indicating that all such persons are affiliates.

     The  number  of  shares  outstanding  of the  issuer's  Common  Stock as at
September 17, 2002 was 6,996,450.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions  of the  issuer's  Proxy  Statement  relating  to its 2002  Annual
Meeting of Stockholders  are  incorporated by reference into Items 10, 11 and 12
in Part III of this Report.

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



<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 (the "Reform
Act").  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  are
located; industry conditions and trends, including supply and demand; changes in
business strategies or development plans; the availability, terms and deployment
of debt and equity capital;  technology  changes;  competition and other factors
which may affect  prices  which the Company may charge for its  products and its
profit  margins;  the  availability  and cost of the equipment  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.  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.  Until  November  1, 1999,  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 was the  manufacture  and sale of telephone  test and customer  premise
equipment  utilized by telephone  and  telephone  interconnect  companies in the
installation  and  maintenance  of  telephone  equipment  through its  Metro-Tel
telecommunications  segment (the  "Metro-Tel  Segment").  Since the merger,  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.  To reflect  the change in the  Company's  principal  business,  the
Company changed its name to DRYCLEAN USA, Inc. on November 7, 1999.

     Effective  July  31,  2002,  the  Company  sold  substantially  all  of the
operating  assets  (principally  inventory,  equipment  and  intangible  assets,
including  tradenames) of the Metro-Tel Segment to an unaffiliated  third party.
The Company retained all of the cash, accounts receivable and liabilities of the
Metro-Tel  Segment.  The sales price of $800,000,  of which $250,000 was paid in
cash  on  August  2,  2002  and  the  remaining  $550,000  is  evidenced  by the
purchaser's  promissory  note that bears interest at the  prevailing  prime rate
plus 1% per annum and is payable  in 42 equal  monthly  installments  commencing
October 1,  2002.  Transaction  costs to the  Company  aggregated  approximately
$40,000.  Payment and  performance of the  promissory  note is guaranteed by two
companies affiliated with the purchaser and the three principal  shareholders of
purchaser and the affiliated  companies,  and is collateralized by substantially
all of the operating assets of the purchaser and the affiliated  companies.  The
Company  has

                                       2
<PAGE>

agreed to  subordinate  payment of the promissory  note, the  obligations of the
affiliated  companies under their  guarantees and the collateral  granted by the
purchaser and the affiliated  companies to the  obligations of the purchaser and
the affiliated companies to two bank lenders,  subject to the Company's right to
receive installment  payments under the promissory note as long as the purchaser
and the  affiliated  companies  are not in default of their  obligations  to the
applicable  lender.  The Company agreed to a three-year  covenant not to compete
with the purchaser.  The Company had determined to sell the Metro-Tel Segment in
light  of the  segment's  telecommunications  business  being  unrelated  to the
Company's  core business,  the reduction in revenues and increasing  losses that
the Metro-Tel  Segment had been experiencing and to enable the Company to devote
its resources to its larger and profitable  core business  activities in the dry
cleaning  and  laundry  equipment  industry,  including  its  new  Green  Jet(R)
dry-wetcleaning(TM)  machine.  As a  result  of the  determination  to sell  the
Metro-Tel Segment,  the operations of the Metro-Tel Segment are reflected in the
financial statements included in this Report as a discontinued operation and are
not  discussed  in detail in this Report as the Company is no longer  engaged in
that business.

     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    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;

     o    supplying replacement equipment and parts to its customers;

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

     o    selling its own line of laundry and dry  cleaning  machines  under its
          Aero-Tech(R)and Green Jet(R)brand names; and

     o    selling process steam systems and boilers.

     In  March  1999,  the  Company  formed a new  subsidiary,  Steiner-Atlantic
Brokerage  Corp.  ("Steiner  Brokerage"),  to act as a business broker to assist
others  seeking to buy or sell  existing  dry  cleaning  stores and coin laundry
businesses.  Some  of 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.

     In July 1999, the Company acquired certain assets of DRYCLEAN USA Franchise
Company ("DRYCLEAN USA Franchise"), including, among other things, the worldwide
rights to the name  DRYCLEAN  USA,  along with  existing  franchise  and license
agreements.  DRYCLEAN USA is one of the largest franchise and license operations
in the dry cleaning  industry,  currently  consisting of over 400 franchised and
licensed  locations in the United States,  the Caribbean and Latin America.  The
Company intends to increase the number of existing  franchisees and licensees of
DRYCLEAN USA through proven sales and advertising methods.

     In February  2001,  the  Company  formed  DRYCLEAN  USA  Development  Corp.
("DRYCLEAN  USA  Development")  as a new  subsidiary to develop new turn-key dry
cleaning establishments for resale to third parties.

     Product Lines. The Company offers a broad line of commercial and industrial
laundry and dry cleaning equipment and steam boilers, as well as a comprehensive
parts and accessories inventory. The Company's commercial and industrial laundry
equipment  features  washers  and  dryers,   including  coin-

                                       3
<PAGE>

operated machines,  boilers, water reuse and heat reclamation systems,  flatwork
ironers and automatic  folders.  The Company's dry cleaning  equipment  includes
commercial dry cleaning machines sold primarily under the Aero-Tech(R) and Green
Jet(R) names,  garment  presses,  finishing  equipment,  and sorting and storage
conveyors.

     In  December  2001,  the Company  began  shipping  its new  environmentally
friendly  Green Jet(R)  dry-wetcleaning(TM)  machine.  This new machine not only
cleans garments efficiently, but it also eliminates the use of perchloroethylene
(Perc)  in  the  dry  cleaning  process,  thereby  eliminating  the  health  and
environmental concerns that Perc poses to our customers and their landlords.  It
also  alleviates  flammability,  odor and cost issues  inherent  in  alternative
solvents and cleaning  processes.  Patents have been applied for to protect this
innovative  approach to garment cleaning.  First deliveries of Green Jet(R) were
made to customers in the second quarter of fiscal 2002.

     The Company's  products are positioned and priced to appeal to customers in
each of the high-end, mid-range and value priced markets. the Company's 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 $50,000.  The Company's  products  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.

     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
2002, the Company's license and franchise segment contributed approximately 2.4%
of the Company's  revenues  from  continuing  operations  and 19.3% of operating
income from continuing operations.

     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 under 1% of revenue from continuing operations during fiscal 2002.

     The Company, through its DRYCLEAN USA Development subsidiary,  develops new
turn-key dry cleaning  establishments for resale to third parties.  DRYCLEAN USA
Development  did not  contribute  revenues  until fiscal  2002,  during which it
provided approximately 1% of revenues from continuing operations.


                                       4
<PAGE>

     Sales,  Marketing  and  Customer  Support.  The  Company's  laundry and dry
cleaning equipment products are marketed in the United States, the Caribbean and
Latin  America  to its  customers,  as well as  customers  of its  DRYCLEAN  USA
Franchise  subsidiary.  The  Company  employs  sales  executives  to market  its
products,  including its Aero-Tech(R)  and Green Jet(R) products,  in the United
States and in  international  markets.  The  Company  supports  its  products by
representative  advertising in trade publications,  participating in trade shows
and engaging in regional promotions and sales incentive programs.  A substantial
portion of the  Company's  equipment  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.

     Additionally,   the  Company's   Aero-Tech(R)  machines  are  sold  through
distributors  and dealers  throughout  the United States,  the Caribbean,  Latin
America  and  Europe.   The   Company  is  in  the  process  of   developing   a
distributorship relationship in North America and Europe for the distribution of
its Green  Jet(R)  dry-wetcleaning(TM)  machine.  To date,  it has entered  into
distributorship  arrangements for the Company's Green Jet(R) dry-wetcleaning(TM)
machines  with   approximately   ten  distributors  in  North  America  and  two
distributors in Europe.

     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  500  customers  in the United  States,  the  Caribbean  and Latin
America,  including  independent  and franchise dry cleaning  stores and chains,
hotels, motels, hospitals,  cruise lines, nursing homes, government institutions
and  distributors.  No  customer  accounted  for more than 10% of the  Company's
revenues during the years ended June 30, 2002 or June 30, 2001.

     Sources of Supply. The Company purchases laundry and dry cleaning machines,
boilers  and  other  products  from a  number  of  manufacturers,  none of which
accounted for more than 20% of the Company's  purchases for the years ended June
30, 2002 or June 30,  2001.  The 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  Company's  remaining  dry  cleaning
equipment  sold  under  the   Aero-Tech(R)   label  is  currently   manufactured
exclusively  for the  Company by one  manufacturer  in Italy.  The  Company  has
established long-standing relationships with these manufacturers.  The Company's
management  believes  these  supplier  relationships  provide the Company with a
substantial competitive advantage, including exclusivity in certain products and
areas and favorable prices and terms. Therefore, the loss of one of these vendor
relationships could adversely affect the Company's business.  Historically,  the
Company has not experienced  difficulty in purchasing  desired products from its
suppliers and believes it has good working relationships with its suppliers.

     The Company has a formal contract with a few of its equipment manufacturers
and  relies on its  long-standing  relationship  with its other  suppliers.  The
Company  collaborates  in  the  design,  closely  monitors  the  quality  of the
manufactured  product and believes its  Aero-Tech(R)  and Green Jet(R)  machines
exceed the environmental  regulations set by safety and environmental regulatory
agencies.  The Company must place its orders with its United States manufacturer
of  the  Green   Jet(R)   dry-wetcleaning(TM)   machine  and  with  its  Italian
manufacturer of the remainder of its Aero-Tech(R) dry cleaning machines prior to
the time the Company has  received  all of its orders.  However,  because of the
Company's close working  relationship  with its  manufacturers,  the Company can
usually  adjust orders  rapidly and  efficiently to reflect a change in



                                       5
<PAGE>

customer  demands.  The Company believes that if, for any reason its arrangement
with  these  manufacturers  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 the Italian manufacturer,  the Company purchases
dry cleaning machines in Euros. The Company's new 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.

     Imports  into  the  United   States  are  also  affected  by  the  cost  of
transportation,  the imposition of import duties and increased  competition from
greater production demands abroad. The United States and Italy may, from time to
time,  impose  new  quotas,  duties,  tariffs  or other  restrictions  or adjust
prevailing  quotas,  duties or tariff  levels,  which could affect the Company's
margins on its Aero-Tech(R) machines. United States customs duties presently are
less than 1% of invoice cost for the Company's dry cleaning machines.

     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 on price,  product quality,  delivery and support
services  provided by the  distributor to the customer.  In South  Florida,  the
Company's  principal  domestic  market,  the Company's  primary  competition  is
derived from two full-line  distributors which operate out of the Miami area. In
the  export  market,   the  Company  competes  with  several   distributors  and
anticipates  increased  competition  as the export market  grows.  On a national
level,  the Company  competes  with over a dozen  manufacturers  of dry cleaning
equipment whose products are  distributed  nationally.  The Company  competes by
offering an extensive product selection,  value-added services,  such as product
inspection and quality assurance,  toll-free customer support line, reliability,
warehouse  location,  price,  competitive  special features and, with respect to
certain products,  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  business,  Steiner  Brokerage  competes  with  business
brokers  generally,  as well as with other  professionals  with  contacts in the
retail dry cleaning and coin laundry  business.  Competition in this latter area
is primarily based on reputation,  advertising  and, to a lesser degree,  on the
level of fees charged.

RESEARCH AND DEVELOPMENT
------------------------

     The Company has designed its new Green Jet(R)  dry-wetcleaning(TM)  machine
and  continues  to improve  this  product  line.  The  amounts of  research  and
development expenses for the years ended June 30, 2002 and 2001 were $31,499 and
$50,743.

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

     The Company is the owner of United States  service mark  registrations  for
the names  Aero-Tech(R),  Logitrol(R),  Petro-Star(R),  Enviro-Star(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 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  have been  applied  for to protect the  Company's  new Green
Jet(R) dry-wetcleaning(TM) machine.



                                       6
<PAGE>

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

     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  franchises.  The Company is currently  registered  in
four of those  states.  The Company  believes  that it is in  compliance  in all
material respects with these laws.

EMPLOYEES
---------

     The Company  currently  employs 34 employees on a full-time  basis, of whom
three  serve in  executive  management  capacities,  11 are engaged in sales and
marketing,  12 are  administrative and clerical  personnel,  four are engaged in
production and four 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.

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

     Export  sales of the  Company's  laundry  and dry  cleaning  business  were
approximately $2,081,287 and $4,166,033 during the years ended June 30, 2002 and
June 30, 2001, 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.



                                       7
<PAGE>

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:

                                         Approximate
               Facility                     Sq. Ft.               Expiration
               --------                     -------               ----------
         Miami, Florida (1)                  27,000            October 2004
         Miami, Florida                       8,000            March 2004 (2)
         Miami, Florida                      10,000            December 2002(3)
--------------

(1)  Leased  from  William K.  Steiner,  a director  of the  Company.  The lease
     includes  an option to renew the lease for a ten-year  term at a rent to be
     agreed upon by the parties.
(2)  In addition, the Company has two separate two-year renewal options.
(3)  In addition, the Company has one three-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 2001
         -----------
         First Quarter                      $2.63                 $1.50
         Second Quarter                      1.63                  1.00
         Third Quarter                       1.56                   .55
         Fourth Quarter                       .90                   .50

         Fiscal 2002
         -----------

         First Quarter                      $ .85                 $ .50
         Second Quarter                       .60                   .42
         Third Quarter                        .99                   .50
         Fourth Quarter                       .89                   .55

     As of September 23, 2002 there were  approximately 600 holders of record of
the Company's Common Stock.

     No dividends have been paid on the Company's  Common Stock during either of
the  last two  fiscal  years.  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 does not intend to pay cash  dividends  in the  foreseeable
future.

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.

     Effective  July  31,  2002,  the  Company  sold  substantially  all  of the
operating  assets  (principally  inventory,  equipment  and  intangible  assets,
including  tradenames)  of  its  Metro-Tel   telecommunications  segment  to  an
unaffiliated  third  party.  The  Company  retained  all of the  cash,  accounts
receivable  and  liabilities  of the segment.  The sales price was $800,000,  of
which $250,000 was paid in cash on August 2, 2002 and the remaining  $550,000 is
evidenced  by  the  purchaser's  promissory  note  that  bears  interest  at the
prevailing  prime  rate  plus 1% per annum and is  payable  in 42 equal  monthly
installments  commencing  October  1,  2002.  Transaction  costs of the  Company
aggregated approximately $40,000. Payment and performance of the promissory note
is  guaranteed  by two  companies  affiliated  with the  purchaser and the three
principal  shareholders  of  purchaser  and  the  affiliated  companies,  and is
collateralized by substantially all of the operating assets of the purchaser and
the affiliated  companies.  The Company has agreed to subordinate payment of the
promissory  note,  the  obligations  of the  affiliated



                                       9
<PAGE>

companies under their guarantees and the collateral granted by the purchaser and
the affiliated  companies to the obligations of the purchaser and the affiliated
companies  to two bank  lenders,  subject  to the  Company's  right  to  receive
installment  payments under the promissory note as long as the purchaser and the
affiliated  companies are not in default of their  obligations to the applicable
lender.  The Company  agreed to a  three-year  covenant  not to compete with the
purchaser.

     During  fiscal  2002  and  2001 the  Metro-Tel  telecommunications  segment
experienced losses, before tax benefits, of $332,779 and $311,442, respectively,
on sales of $1,647,587 and $2,916,697, respectively. The Company's determination
to sell the  Metro-Tel  telecommunications  segment  was based on the  segment's
business  being  unrelated to the  Company's  core  business,  the  reduction in
revenues and  increasing  losses that the segment had been  experiencing  and to
enable the Company to devote its  resources  to its larger and  profitable  core
business  activities in the  commercial  and industrial dry cleaning and laundry
equipment industry, including its new Green Jet(R) dry-wetcleaning(TM) machine.

     The results of operations of the Metro-Tel  telecommunications  segment are
not  discussed in detail here as they have been  classified  in both fiscal 2002
and 2001 to reflect the segment as a discontinued operation in the statements of
operations and cash flows and the Metro-Tel  segment's assets have been included
as separate line items on the Company's fiscal 2002 and 2001 balance sheets.


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

     For the year ended June 30, 2002, cash increased by $888,445  compared to a
decrease of $606,676 for the year ended June 30, 2001.

     Cash  provided  by  operating  activities  in fiscal  2002 was  $1,251,708.
Continuing  operations  provided  $1,202,701 of the net cash. In generating cash
from operations, the Company's net income from continuing operations of $479,978
was  supplemented  by  $113,102  of  non-cash   expenses  for  depreciation  and
amortization  and  partially  offset by deferred  taxes of $167,097.  Changes in
operating  assets  and  liabilities  contributed  $786,144  to net cash due to a
decrease  of  $498,989  in  accounts,  notes  and  lease  receivables  resulting
primarily  from  decreased  sales  and  an  improvement  in  the  collection  of
receivables  and a $261,660  increase in accounts and accrued  expenses  payable
resulting  primarily  from  accrued  expenses  of  the  discontinued   Metro-Tel
telecommunications segment. Discontinued operations provided cash of $89,007.

     For  fiscal  2001,  operating  activities  used  cash  of  $34,285.   While
continuing  operations  provided  $648,935 of cash, which was produced by income
from continuing  operations of $314,668  supplemented  by non-cash  expenses for
depreciation and amortization  ($189,067) and bad debts  ($178,674),  changes in
operating assets and liabilities  used $635,299 of cash to support  increases in
inventories ($418,487),  refundable income taxes ($257,363) and accounts,  notes
and  lease  receivables  ($129,225),  and a  decrease  in income  taxes  payable
($281,944).  These uses of cash were  partially  offset by increases in accounts
payable and accrued expenses  ($173,196) and customer deposits  ($198,902).  The
use of $539,307  for income taxes  compared to  providing  $201,270 in the prior
year was  primarily  due to timing of estimated  tax payments and the decline in
profits  the  Company  experienced  during  the fourth  quarter of fiscal  2001.
Discontinued operations used cash of $47,921.

     Net cash used by investing activities in fiscal 2002 was $243, as equipment
purchases  used  $97,969 of cash and patent  expenditures  used cash of $16,769.
These were  substantially  offset by $114,495  provided by the  collection  of a
related party receivable.  Net cash of $103,641 used by investing  activities in
fiscal 2001 consisted of equipment  purchases of $90,268 and patent expenditures
of $13,373.



                                       10
<PAGE>

     Financing  activities in fiscal 2002 used cash of $363,020 to make payments
on the Company's  term loan  ($360,000) and the purchase of Company common stock
($3,020).  Net cash of $468,750 was used in financing  activities in fiscal 2001
to make  payments on the Company's  term loan  ($480,000),  partially  offset by
$11,250 obtained from the proceeds of stock options exercised.

     The  Company  has no capital  commitments  for  capital  expenditures,  but
expects to purchase equipment at levels consistent with past levels.

     In December 2001, the Company entered into a bank loan agreement to replace
its existing bank credit facility.  The new facility  consists 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.
Revolving  credit  borrowings are limited by a borrowing base of 60% of eligible
accounts receivable and 60% of certain, and 50% of other,  eligible inventories.
As of June 30, 2002, the borrowing base was  approximately  $1,750,000,  against
which no  amounts  were  drawn.  Borrowings  under  the term loan  facility  and
revolving credit facility bear interest at 2.65% and 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 outstanding principal balance of the term loan at
June 30,  2002  was  $800,000.  The  term  loan is  repayable  in equal  monthly
installments  of  $26,667  through  December  31,  2004.  The line of  credit is
scheduled to mature on October 30, 2002.  The Company  believes it can negotiate
an extension of this, or a new, line of credit  facility by October 30, 2002. In
connection with the Company's sale of its Metro-Tel  telecommunications segment,
the bank lender  consented to sale of the segment and amended the loan covenants
for the  year  ended  June 30,  2002 to  exclude  the  effects  of  discontinued
operations from the debt service  coverage ratio that the Company is required to
maintain.  The loan agreement requires the Company to maintain certain financial
ratios and contains  other  covenants  which place  limitations on the extent to
which  the  Company  and  its   subsidiaries   may  make   dividends  and  other
distributions, incur additional indebtedness,  guarantee indebtedness of others,
grant liens, sell assets and make investments. At June 30, 2002, the Company was
in compliance with the ratios and covenants contained in the loan agreement. See
Note  5 of  the  Notes  to  Consolidated  Financial  Statements  for  additional
information concerning this credit facility.

     The Company  believes that its present cash position and cash it expects to
generate from operations will be sufficient to meet its operational needs.


CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
--------------------------------------------------

     The  following  sets forth a schedule of  payments  required as of June 30,
2002 under the Company's contractual obligations described below:

<TABLE>
<CAPTION>
                                                                                Due by Period
                                                     --------------------------------------------------------------
                                                     Less
                                                     Than                                                 After
Contractual Obligations             Total            1 Year            1-3 years        4-5 years         5 years
-----------------------             -----            ------            ---------        ---------         -------

<S>                                 <C>              <C>                <C>             <C>               <C>
Term Loan                           $800,000         $320,000           $480,000                -               -
Operating leases                    $615,000         $199,000           $345,000          $71,000               -
                                    --------         --------           --------          -------         --------
Total contractual cash
     Obligations                  $1,415,000         $519,000           $825,000          $71,000               -
                                   =========          =======           ========          ========        =========

</TABLE>
     Included  in the above are two leases for future dry  cleaning  stores that
the Company anticipates  assigning to dry cleaning franchises or other customers
when the leased  facilities are available for occupancy.  The maximum  potential
payment  commitment  under  these two leases is $71,000 in annual  base rent per
year for five years  beginning upon  completion of site  building.  Although the
actual



                                       11
<PAGE>

completion date is presently  uncertain,  it is probable that completion of each
location will be in fiscal 2003.

OFF-BALANCE SHEET FINANCING
---------------------------

     Except for the  operating  leases,  the  Company has no  off-balance  sheet
financing arrangements.  The Company's bank revolving credit facility includes a
$250,000 foreign exchange subfacility for the purpose of enabling the Company to
mitigate its Euro currency  exposure in connection with its import activities of
equipment  manufactured  in Italy  through  spot  foreign  exchange  and forward
exchange contracts.

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

     Revenues from continuing operations for the fiscal year ended June 30, 2002
decreased  by  $1,515,781  (9.5%) from fiscal  2001,  primarily as a result of a
decrease of $1,407,097  (9.1%) in the laundry and dry cleaning  segment.  Export
sales  decreased  by  $2,084,746  (50.0%) due to the  downturn  in the  economy,
primarily  in Caribbean  and Latin  America  markets.  The decrease was due to a
reduction in sales of most categories of equipment  attributable to the downturn
in the economy,  especially in the hospitality industry in which the Company has
significant  customers.  These reductions were offset,  in part, by sales of the
Company's  new,  environmentally  friendly,  Green  Jet(R)   dry-wetcleaning(TM)
machine,  introduced in December 2001 and revenues of its development  division,
which  contributed  $145,000 in its first year of operations.  Revenues from the
Company's  license and franchise segment decreased by $108,397 (24.1%) primarily
due to the slower  economy in the United  States and Latin  America  causing the
Company to open fewer licensed and franchised units.

     Cost of goods sold,  expressed  as a percentage  of net sales  decreased to
72.5% in fiscal 2002 from 75.1% in fiscal 2001.  The  improvement  was primarily
attributable  to the  increased  sales of the Green  Jet(R)  dry-wetcleaning(TM)
machine,  which has higher  margins than the  Company's  historical  dry and wet
cleaning machines.

     Selling, general and administrative expenses decreased by $70,171 (1.8%) in
fiscal 2002 from fiscal 2001 as a result of a decreases in bad debts  ($169,248)
primarily from the collection of $100,000 previously reserved, telephone expense
($31,051)  and  other  general  and  administrative  expense  categories.  These
decreases  were partially  offset by increases in  advertising  ($50,597) due to
initial  advertising  associated  with  the  introduction  of the  Green  Jet(R)
dry-wetcleaning(TM)  machine and the Company hosting its biennial trade show and
insurance ($26,751) expenses.

     Research and  development  expense  decreased by $19,244  (37.9%) in fiscal
2002  from  fiscal  2001 as  development  costs of the  Company's  Green  Jet(R)
dry-wetcleaning(TM)  machine  were  reduced  with the bringing to market of this
product.

     Interest income  decreased by $19,777 (64.6%) as a result of a reduction in
interest  earned on daily bank  balances due to lower  average cash  balances on
hand during the year and lower interest rates.

     Interest  expense  decreased  by  $79,409  (59.5%)  due to a  reduction  in
outstanding debt and lower prevailing  interest rates on the Company's  variable
rate  debt,  partially  offset by  periodic  borrowings  against  the  Company's
revolving credit facility.

     The provision for income tax on continuing  operations increased by $99,834
(51.1%) due  primarily to the increase in earnings from  continuing  operations.
The  effective  tax  rate  applicable  to  the  Company's  pre-tax  income  from
continuing  operations was 38.0% compared to 38.2% in fiscal 2001. See Note 4 to
the Consolidated  Financial  Statements for further  information  concerning the
provision for income taxes



                                       12
<PAGE>

     The loss from  discontinued  operations in fiscal 2002 of $204,999,  net of
tax benefit,  and the estimated loss on the disposal of discontinued  operations
of $554,996,  net of tax  benefit,  relate to the  Metro-Tel  telecommunications
segment  sold  effective  July 31,  2002,  including a  provision  to reduce the
carrying  value of the assets sold to their net estimated  realizable  value and
transaction and other costs associated with the  discontinuance of the business.
See "General," above.

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,  under a lease which  expires in October  2004.
Annual rental under this lease is  approximately  $83,200.  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.

CRITICAL ACCOUNTING POLICIES
----------------------------

     Financial Reporting Release No. 60, which was recently released by the U.S.
Securities  and  Exchange  Commission,  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

     Sales of products are generally  recorded as they are shipped.  Commissions
and management fees are recorded when earned.  Individual franchise arrangements
include a license and provide for payment of initial fees, as well as continuing
service fees.  Initial franchise fees are generally recorded upon the opening of
the franchised store. Continuing services fees are recorded when earned.

     FRANCHISE LICENSE TRADEMARK AND OTHER INTANGIBLE ASSETS

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

     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



                                       13
<PAGE>

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

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

     The Company's  previous business  combinations were accounted for using the
purchase  method.  As of June 30, 2002,  the net carrying  amount of  intangible
assets is $455,104.  Amortization  expense  during the years ended June 30, 2002
and 2001 was $57,379 and  $68,388,  respectively.  There was no goodwill at June
30, 2002.  The Company does not believe the adoption of SFAS 141 and SFAS 142 on
July 1, 2002 will have a significant impact on its financial position or results
of operations.

     In August 2001,  the FASB issued SFAS 144,  Accounting  for  Impairment  or
Disposal of Long-Lived Assets. This statement supersedes FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and the accounting and reporting  provisions of APB opinion No.
30,  "Reporting  the  Effects  of  Disposal  of a  Segment  of a  Business,  and
Extraordinary,  Unusual and Infrequently Occurring Events and Transactions," for
the disposal of a segment of a business (as previously defined in that Opinion).
This Statement also amends ARB No. 51,  "Consolidated  Financial  Statements" to
eliminate the exception to  consolidation  for a subsidiary for which control is
likely to be  temporary.  The  provisions  of this  Statement  are effective for
financial  statements issued for fiscal years beginning after December 15, 2001,
and  interim  periods  within  those  fiscal  years,   with  early   application
encouraged.  The  provisions  of  this  Statement  generally  are to be  applied
prospectively. The Company does not believe the adoption of SFAS 144 will have a
significant impact on its financial position or results of operations.



                                       14
<PAGE>

     In June 2002, the FASB issued SFAS 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities."  SFAS 146  requires  companies  to recognize
costs associated with exit or disposal  activities when they are incurred rather
than at the date of a commitment  to an exit or disposal  plan.  This  statement
supercedes the guidance provided by Emerging Issues Task Force 94-3,  "Liability
Recognition  for  Certain  Costs  Incurred  in a  Restructuring)."  SFAS  146 is
required to be adopted for exit or disposal activities  initiated after December
31,  2002.  The Company  does not  believe the  adoption of SFAS 146 will have a
significant impact on its financial position or results of operations.

ITEM 7.     FINANCIAL STATEMENTS.
            ---------------------

                                             DRYCLEAN USA, Inc. and Subsidiaries

                                      Index to Consolidated Financial Statements



Report of Independent Certified Public Accountants                        16

Consolidated Balance Sheets at June 30, 2002 and 2001                     17

Consolidated Statements of Operations for the years ended
   June 30, 2002 and 2001                                                 18

Consolidated Statements of Shareholders' Equity for the years ended
   June 30, 2002 and 2001                                                 19

Consolidated Statements of Cash Flows for the years ended
   June 30, 2002 and 2001                                                 20

Summary of Accounting Policies                                            21

Notes to Consolidated Financial Statements                                25









                                       15
<PAGE>

Report of Independent Certified Public Accountants


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


We have audited the  accompanying  consolidated  balance sheets of DRYCLEAN USA,
Inc. and subsidiaries as of June 30, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
DRYCLEAN  USA,  Inc.  and  subsidiaries  as of June 30,  2002 and 2001,  and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting  principles generally accepted in the United
States of America.




Miami,  Florida                                                BDO Seidman, LLP
August 23, 2002, except for Note 5(b)
which is as of September 23, 2002


                                       16
<PAGE>


                                             DRYCLEAN USA, Inc. and Subsidiaries

                                                     Consolidated Balance Sheets


<TABLE>
<CAPTION>
June 30,                                                                    2002              2001
-----------------------------------------------------------------------------------------------------------

ASSETS (Note 5)

CURRENT ASSETS
<S>                                                                 <C>                 <C>
   Cash and cash equivalents                                        $        1,264,357  $       375,912
   Accounts and notes receivable, net of allowance for doubtful
     accounts of $130,000 and $51,800 at 2002 and 2001,
     respectively                                                            1,542,691        2,122,493
   Lease receivables (Note 2)                                                   37,290           39,494
   Inventories                                                               2,918,472        2,918,161
   Refundable income taxes                                                     225,167          257,363
   Deferred income taxes (Note 4)                                              240,351           69,337
   Current assets of discontinued operations (Note 12)                         745,000        1,455,358
   Other current assets, net of allowance for doubtful
     accounts of $100,000 at 2001 (Note 6)                                     185,631          190,548
-----------------------------------------------------------------------------------------------------------

Total current assets                                                         7,158,959        7,428,666

LEASE RECEIVABLES - due after one year (Note 2)                                    681            5,238

EQUIPMENT AND IMPROVEMENTS, net (Note 3)                                       274,124          231,878

FRANCHISE, TRADEMARKS AND OTHER INTANGIBLE ASSETS, net
   (Note 1)                                                                    455,104          495,714

DEFERRED INCOME TAXES (Note 4)                                                   8,869           12,786

NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS (NOTE 12)                         15,000          153,637
-----------------------------------------------------------------------------------------------------------

                                                                    $        7,912,737  $     8,327,919
-----------------------------------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable and accrued expenses                            $        1,736,393  $     1,474,733
   Customer deposits and other                                                 539,486          573,298
   Current portion of term loan (Note 5)                                       320,000        1,160,000
-----------------------------------------------------------------------------------------------------------
Total current liabilities                                                    2,595,879        3,208,031
TERM LOAN, less current portion (Note 5)                                       480,000                -
-----------------------------------------------------------------------------------------------------------
Total liabilities                                                            3,075,879        3,208,031
-----------------------------------------------------------------------------------------------------------

COMMITMENTS (Notes 6, 8 and 9)
-----------------------------------------------------------------------------------------------------------

SHAREHOLDERS' EQUITY (Note 11) Common stock, $0.025 par value:
     Authorized shares - 15,000,000; 7,027,500
       shares issued and outstanding,  including shares held in
       treasury                                                                175,688          175,688
   Additional paid-in capital                                                2,048,570        2,048,570
   Retained earnings                                                         2,615,620        2,895,630
   Treasury stock, 31,050 and 26,250 shares at cost                             (3,020)               -
-----------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                   4,836,858        5,119,888
-----------------------------------------------------------------------------------------------------------
                                                                    $        7,912,737  $     8,327,919
-----------------------------------------------------------------------------------------------------------
</TABLE>

    See accompanying summary of significant accounting policies and notes to
                       consolidated financial statements.



                                       17
<PAGE>


                                             DRYCLEAN USA, Inc. and Subsidiaries

                                           Consolidated Statements of Operations

<TABLE>
<CAPTION>


Year ended June 30,                                                              2002            2001
---------------------------------------------------------------------------------------------------------

<S>                                                                     <C>             <C>
REVENUES:
    Net sales                                                           $  13,330,158   $  15,036,008
    Development fees, franchise and license fees, commissions
       and other                                                              958,346         768,277
---------------------------------------------------------------------------------------------------------

Total                                                                      14,288,504      15,804,285
---------------------------------------------------------------------------------------------------------

COST OF SALES                                                               9,667,630      11,299,508
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 8 and 9)                3,771,210       3,841,381
RESEARCH AND DEVELOPMENT EXPENSES                                              31,499          50,743
---------------------------------------------------------------------------------------------------------

Total                                                                      13,470,339      15,191,632
---------------------------------------------------------------------------------------------------------

OPERATING INCOME                                                              818,165         612,653
---------------------------------------------------------------------------------------------------------

OTHER INCOME (EXPENSE):
    Interest income                                                            10,847          30,624
    Interest expense                                                          (53,955)       (133,364)
--------------------------------------------------------------------------------------------------------

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                       775,057        509,913
PROVISION FOR INCOME TAXES (Note 4)                                           295,079        195,245
--------------------------------------------------------------------------------------------------------

EARNINGS FROM CONTINUING OPERATIONS                                           479,978        314,668

Loss from  discontinued  operations,  net of  income  tax  benefit  of
    $127,787  and $119,245 (Note 12)                                         (204,992)      (192,197)
Estimated loss on disposal of discontinued  operations,  net of income
    tax benefit of $347,358 (Note 12)                                        (554,996)             -
--------------------------------------------------------------------------------------------------------
Loss from discontinued operations                                            (759,988)      (192,197)
--------------------------------------------------------------------------------------------------------

NET (LOSS) EARNINGS                                                     $    (280,010)       122,471
                                                                                     $
--------------------------------------------------------------------------------------------------------

Earnings per share from continuing operations, basic                    $         .07  $         .04
Loss per share from discontinued operations, net of taxes, basic                 (.11)          (.02)
--------------------------------------------------------------------------------------------------------
Net (loss) earnings per share, basic (Note 10)                          $        (.04)           .02
                                                                                     $
--------------------------------------------------------------------------------------------------------

Earnings per share from continuing operations, diluted                  $         .07  $         .04
Loss per share from discontinued operations, net of taxes, diluted               (.11)          (.02)
--------------------------------------------------------------------------------------------------------
Net (loss) earnings per share, diluted (Note 10)                        $        (.04) $         .02
--------------------------------------------------------------------------------------------------------

Weighted average number of shares of
   common stock outstanding:
       Basic                                                                6,996,813      7,001,250
       Diluted                                                              6,997,342      7,121,155
--------------------------------------------------------------------------------------------------------

</TABLE>

              See accompanying summary of accounting policies and
                         notes to financial statements.


                                       18
<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, 2000               7,016,250 $ 175,406 $ 2,037,602    26,250   $       -   $ 2,773,159   $  4,986,167

Year ended June 30, 2001:

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

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

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

Year ended June 30, 2002:

   Treasury stock repurchases                 -          -           -     4,800      (3,020)           -          (3,020)

   Net loss                                   -          -           -       -             -      (280,010)      (280,010)
---------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2002               7,027,500 $ 175,688 $ 2,048,570    31,050   $  (3,020)  $ 2,615,620   $  4,836,858

---------------------------------------------------------------------------------------------------------------------------
</TABLE>



              See accompanying summary of accounting policies and
                         notes to financial statements.


                                       19
<PAGE>


                                             DRYCLEAN USA, Inc. and Subsidiaries

                                           Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>


Year ended June 30,                                                                 2002                2001
--------------------------------------------------------------------------------------------------------------

<S>                                                                        <C>                 <C>
OPERATING ACTIVITIES:
   Net income from continuing operations                                   $     479,978      $     314,668
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization                                             113,102            189,067
       Bad debt (recovery) expense                                                (9,425)           178,674
       Change in deferred income taxes                                          (167,098)           (33,474)
       (Increase) decrease in operating assets:
         Accounts, notes and lease receivables                                   498,989           (129,225)
         Inventories                                                                (311)          (418,487)
         Refundable income taxes                                                  32,196           (257,363)
         Other current assets                                                    (12,578)            79,622
       Increase (decrease) in operating liabilities:
         Accounts payable and accrued expenses                                   261,660            173,196
         Income taxes payable                                                          -           (281,944)
         Customer deposits and other                                             (33,812)           198,902
-------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations                                     1,162,701             13,636
-------------------------------------------------------------------------------------------------------------

Net loss from discontinued operations                                           (759,988)          (192,197)
   Adjustments:                                                                                           -
       Estimated loss on disposal of assets                                      902,354
       Provision for inventory obsolescences                                                        195,513
       Increase in operating assets                                              (53,359)           (51,237)
-------------------------------------------------------------------------------------------------------------

Net cash provided (used) by discontinued operations                               89,007            (47,921)
-------------------------------------------------------------------------------------------------------------

Cash provided (used) by operating activities                                   1,251,708            (34,285)
-------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
   Capital expenditures, net                                                     (97,969)           (90,268)
   Collection of related party receivable                                        114,495                  -
   Patent expenditures                                                           (16,769)           (13,373)
-------------------------------------------------------------------------------------------------------------

Net cash used in investing activities                                               (243)          (103,641)
-------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
   Payments on term loan                                                        (360,000)          (480,000)
   Acquisition of treasury stock                                                  (3,020)                 -
   Proceeds from exercise of stock options                                             -             11,250
-------------------------------------------------------------------------------------------------------------

Net cash used in financing activities                                           (363,020)          (468,750)
-------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                             888,445           (606,676)
Cash and cash equivalents at beginning of year                                   375,912            982,588
-------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                                   $   1,264,357      $     375,912
-------------------------------------------------------------------------------------------------------------

Supplemental Information:
   Cash paid for:
     Interest                                                              $      53,955      $     133,364
     Income taxes                                                                171,000            673,120
-------------------------------------------------------------------------------------------------------------
</TABLE>


          See accompanying summary of accounting policies and notes to
                       consolidated financial statements.



                                       20
<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       The  accompanying  consolidated financial statements include
CONSOLIDATION       the  accounts of DRYCLEAN   USA,   Inc.   and   its  wholly-
                    owned subsidiaries.  Intercompany  transactions and balances
                    have been eliminated in consolidation.

REVENUERECOGNITION  Sales  of  products  are  generally  recorded  as  they  are
                    shipped.  Shipping,  delivering  and  handling fee income of
                    approximately $121,000 and $145,000 for the years ended June
                    30,  2002 and  2001,  respectively,  are  included  as other
                    revenues in the consolidated financial statements. Shipping,
                    delivering and handling costs are included in cost of sales.
                    Commissions  and  management  fees are recorded when earned.
                    Individual  franchise  arrangements  include a  license  and
                    provide  for  the  payment  of  initial  fees,  as  well  as
                    continuing   service  fees.   Initial   franchise  fees  are
                    generally recorded upon the opening of the franchised store.
                    Continuing services fees are recorded when earned.

INVENTORIES         Inventories  consist  principally of finished goods and  are
                    valued  at the  lower of cost or  market  determined  on the
                    first-in first-out method.

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




                                       21
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                                  Summary of Accounting Policies


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

INCOME TAXES        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.

STATEMENT OF        For  purposes of this statement,  cash  equivalents  include
CASH FLOWS          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 the reported  amounts of revenues
                    and expenses  during the reporting  period.  Actual  results
                    could differ from those estimates.

EARNINGS PER SHARE  Basic earnings  per  share  are computed on the basis of the
                    weighted average number of common shares  outstanding during
                    each year.  Diluted  earnings  per share are computed on the
                    basis of the weighted  average  number of common  shares and
                    dilutive securities outstanding during each year. Securities
                    having an  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  of  the  advertisement.  The  Company  expensed
                    approximately $218,000 and $167,000 of advertising costs for
                    the years ended June 30, 2002 and 2001, respectively.




                                       22
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                                  Summary of Accounting Policies


FAIR VALUE OF       The Company's  financial instruments consist principally  of
FINANCIAL           cash  and  cash  equivalents,  accounts  receivable,  lease
INSTRUMENTS         receivables, notes receivable, accounts payable and accrued
                    expenses and debt. 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 current  market
                    exchange or of future earnings or cash flows.

FRANCHISE LICENSE,  Franchise license, trademark, patents, and other  intangible
TRADEMARK  AND      assets are stated  at  cost  less accumulated  amortization.
OTHER  INTANGIBLE   These  assets are  amortized on a straight-line  basis  over
ASSETS              the estimated  future  periods to be benefited (2-15 years).
                    The Company reviews the  recoverability of intangible assets
                    based primarily upon an analysis of undiscounted  cash flows
                    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.

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

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



                                       23
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                                  Summary of Accounting Policies

                    The Company's previous business  combinations were accounted
                    for using the purchase method.  As of June 30, 2002, the net
                    carrying   amount  of   intangible   assets   is   $455,104.
                    Amortization  expense  during the years  ended June 30, 2002
                    and 2001 was $57,379 and $68,388, respectively. There was no
                    goodwill at June 30, 2002.  The Company does not believe the
                    adoption  of SFAS 141 and SFAS 142 on July 1, 2002 will have
                    a significant impact on its financial position or results of
                    operations.

                    In August  2001,  the FASB issued SFAS 144,  Accounting  for
                    Impairment or Disposal of Long-Lived Assets.  This statement
                    supersedes  FASB  Statement  No.  121,  Accounting  for  the
                    Impairment of Long-Lived Assets and for Long-Lived Assets to
                    Be Disposed Of, and the accounting and reporting  provisions
                    of APB opinion No. 30,  Reporting the Effects of Disposal of
                    a Segment of a  Business,  and  Extraordinary,  Unusual  and
                    Infrequently  Occurring  Events  and  Transactions,  for the
                    disposal of a segment of a business (as  previously  defined
                    in that  Opinion).  This  Statement  also amends ARB No. 51,
                    Consolidated Financial Statements to eliminate the exception
                    to  consolidation  for a  subsidiary  for which  control  is
                    likely to be temporary. The provisions of this Statement are
                    effective for financial  statements  issued for fiscal years
                    beginning  after  December  15,  2001,  and interim  periods
                    within   those   fiscal   years,   with  early   application
                    encouraged.  Generally, the provisions of this statement are
                    to be applied  prospectively.  The Company  does not believe
                    the adoption of SFAS 144 will have a  significant  impact on
                    its financial position or results of operations.

                    In June 2002, the FASB issued SFAS 146, Accounting for Costs
                    Associated  with  Exit  or  Disposal  Activities.  SFAS  146
                    requires  companies to recognize costs  associated with exit
                    or disposal activities when they are incurred rather than at
                    the date of a commitment to an exit or disposal  plan.  This
                    statement  supercedes  the  guidance  provided  by  Emerging
                    Issues Task Force 94-3,  Liability  Recognition  for Certain
                    Costs Incurred in a Restructuring).  SFAS 146 is required to
                    be adopted for exit or disposal  activities  initiated after
                    December 31, 2002. The Company does not believe the adoption
                    of SFAS 146 will have a significant  impact on its financial
                    position or results of operations.




                                       24
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements


1.  INTANGIBLE      Franchise, trademark and other intangible assets consist of
    ASSETS          the following:

<TABLE>
                    ------------------------------------------------------------------------------
                                                        Estimated
                                                     Useful Lives       JUNE 30,      June 30,
                                                       (in years)           2002          2001
                    ------------------------------------------------------------------------------

<S>                                                            <C>   <C>           <C>
                    Franchise license agreements               10    $   529,500   $   529,500

                    Trademark, patent and trade name        10-15         93,910        77,141
                    Covenant not to compete                     2              -        23,000
                    ------------------------------------------------------------------------------
                                                                         623,410       629,641
                    Less accumulated amortization                        168,306       133,927
                    ------------------------------------------------------------------------------
                                                                     $   455,104   $   495,714
                    ------------------------------------------------------------------------------
</TABLE>

2.  LEASE           Lease receivables result  from customer leases  of equipment
    RECEIVABLES     under  arrangements which qualify as sales-type  leases.  At
                    June 30, 2002, annual future lease payments, net of deferred
                    interest  ($4,685 at June 30, 2002),  due under these leases
                    are as follows:

                    Years ending June 30,
                    ------------------------------------------------------------

                    2003                                      $         37,290
                    2004                                                   681
                    ------------------------------------------------------------
                                                              $         37,971
                    ------------------------------------------------------------

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

                    June 30,                               2002           2001
                    ------------------------------------------------------------

                    Furniture and equipment         $   646,501    $   554,080
                    Leasehold improvements              330,877        322,514
                    ------------------------------------------------------------

                    Less accumulated depreciation       977,378        876,594
                        and amortization                703,254        644,716
                    ------------------------------------------------------------

                                                    $   274,124    $   231,878
                    ------------------------------------------------------------

                    Depreciation  and  amortization   amounted  to  $55,723  and
                    $90,268  for  the  years  ended  June  30,  2002  and  2001,
                    respectively.



                                       25
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements

4.  INCOME TAXES   Income  taxes   (benefits)   included  in  the  consolidated
                   statements of operations is as follows:


                   Year ended June 30,                   2002              2001
                   -------------------------------------------------------------
                   Continuing operations            $   295,079    $    195,245
                   Discontinued operations             (127,787)       (119,245)

                   Loss on sale of discontinued
                        operations                     (347,358)              -
                   -------------------------------------------------------------

                                                    $  (180,066)   $     76,000
                   -------------------------------------------------------------

                   The  following  are  the  components  of  income  taxes
                   (benefits):

                   Year ended June 30,                   2002               2001
                   -------------------------------------------------------------

                   Current

                       Federal                      $    (11,721)  $     93,519
                       State                              (1,247)        15,955
                   -------------------------------------------------------------

                                                         (12,968)       109,474
                   -------------------------------------------------------------

                   Deferred
                       Federal                          (150,979)       (28,581)
                       State                             (16,119)        (4,893)
                   -------------------------------------------------------------

                                                        (167,098)       (33,474)
                   -------------------------------------------------------------

                                                    $   (180,066)  $     76,000
                   -------------------------------------------------------------

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

                   Year ended June 30,                    2002              2001
                   -------------------------------------------------------------

                   Tax at the statutory rate        $  (166,317)   $     67,480

                   State income taxes,
                      net of federal benefit            (11,462)          7,302

                   Other                                 (2,287)          1,218
                   -------------------------------------------------------------
                                                    $  (180,066)   $     76,000
                   -------------------------------------------------------------


                                       26
<PAGE>
                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements

                    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:


                    Year ended June 30,                    2002             2001
                    ------------------------------------------------------------

                    Current deferred tax asset
                      (liability):
                        Allowance for doubtful
                         accounts                   $      48,919   $    19,492
                        Inventory capitalization           65,318        34,433
                        Compensation                            -        20,933
                        Loss on sale of assets            133,929             -
                        Other                              (7,815)       (5,521)
                    ------------------------------------------------------------

                                                          240,351         69,337
                    ------------------------------------------------------------

                    Noncurrent deferred tax asset
                      (liability):
                        Depreciation                      (18,680)      (14,531)
                        Amortization                       27,549        27,317
                    ------------------------------------------------------------

                                                            8,869        12,786
                    ------------------------------------------------------------

                    Total net deferred income taxes $     249,220    $   82,123
                    ------------------------------------------------------------

5.  CREDIT          (a) In December 2001,  the Company  entered into a bank loan
    AGREEMENT       agreement to facility of $2,250,000, including a replace its
    AND TERM LOAN   then  existing  bank  credit  facility.   The  new  facility
                    consists of a $1,000,000  letter of credit  subfacility  and
                    term  loan  of  $960,000  and a  revolving  credit  $250,000
                    foreign exchange  subfacility.  Revolving credit  borrowings
                    are limited by a borrowing base of 60% of eligible  accounts
                    receivable  and 60% of certain,  and 50% of other,  eligible
                    inventories.  Borrowings  under the term loan  facility  and
                    revolving  credit  facility bear interest at 2.65% and 2.50%
                    per annum,  respectively,  above the  Adjusted  LIBOR Market
                    Index Rate (4.49% at June 30, 2002),  are  guaranteed by all
                    of the  Company's  subsidiaries  and are  collateralized  by
                    substantially  all of the  Company's  and its  subsidiaries'
                    assets.   The  term  loan  is  repayable  in  equal  monthly
                    installments of $26,667  through  December 31, 2004. At June
                    30, 2002 and 2001, the Company owed $800,000 and $1,160,000,
                    respectively,  under the term  loan.  The  revolving  credit
                    facility  matures October 30, 2002. At June 30, 2002,  there
                    were no outstanding borrowings under the line of credit. The
                    loan  agreement  requires  maintenance  of certain  earnings
                    based  and  other   financial   ratios  and  contains  other
                    restrictive  covenants.  The loan  agreement  also  contains
                    limitations  on the  extent  to which  the  Company  and its
                    subsidiaries  may incur additional  indebtedness,  guarantee
                    indebtedness  of others,  grant liens,  sell assets and make
                    investments.


                    (b) In connection with the Company's  discontinuance  of its
                    telephone test equipment  segment on September 23, 2002, the
                    Bank amended the loan  covenants for the year ended June 30,
                    2002 to exclude the effects of



                                       27
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements

                    discontinued   operations   from  the  required  ratios  and
                    covenants.  The Company was in compliance with these amended
                    ratios and covenants at June 30, 2002.

                    The  following  table   summarizes  the  maturities  of  the
                    Company's long-term debt as of June 30, 2002:


<PAGE>


                    Years ending June 30,
                    ------------------------------------------------------------

                    2003                                            $    320,000
                    2004                                                 320,000
                    2005                                                 160,000
                    ------------------------------------------------------------
                    Total                                           $    800,000
                    ------------------------------------------------------------

6.  RELATED PARTY   During the year ended June 30, 2001, the Company  recorded a
    TRANSACTIONS    $100,000 provision for doubtful accounts on amounts due from
                    an entity controlled by one of the principal shareholders of
                    the  Company.  At June 30, 2001,  $114,495,  net of $100,000
                    allowance for doubtful accounts, was due the Company. During
                    the  year  ended  June  30,  2002,  the  full  $114,495  was
                    collected.

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

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


                    The Company is exposed to foreign  currency  risk in Europe.
                    To mitigate  such risk,  the Company may enter into  foreign
                    exchange  forward  contracts  to reduce  its risk to foreign
                    exchange  losses  associated  with  commitments  to purchase
                    equipment   denominated  in  Euros.  The  Company  does  not
                    designate  such  contracts  as hedges and  accordingly,  all
                    changes in fair value associated with its forward  contracts
                    are  recorded  in  cost  of  sales,   in  the   accompanying
                    statements of operations.  At June 30, 2002, the Company had
                    no outstanding commitments to purchase foreign currency.




                                       28
<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  under  operating
                    leases  expiring in December 2002 and March 2004. As of June
                    30, 2002, the Company is also obligated under two leases for
                    future dry cleaning stores that aggregate  $71,000 in annual
                    base  rent per year for the next  five  years.  The  Company
                    anticipates   assigning   such   leases   to  dry   cleaning
                    franchisees or other  customers  when the leased  facilities
                    are available for occupancy.

                    Minimum  future  rental  commitment  for leases in effect at
                    June 30, 2002 approximates the following:

                    Years ending June 30,
                    ------------------------------------------------------------

                    2003                                          $    199,000
                    2004                                               175,000
                    2005                                                99,000
                    2006                                                71,000
                    2007                                                71,000
                    ------------------------------------------------------------

                    Rent expense aggregated  $151,196 and $146,891 for the years
                    ended June 2002 and 2001, respectively.

9.  DEFERRED        The Company has a participatory  deferred  compensation plan
    COMPENSATION    wherein it matches plan after three  months of service.  The
    PLAN            employee  contributions  up to 1% of an eligible  employee's
                    yearly compensation. Company contributed $10,077 and $11,855
                    in Employees are eligible to  participate in the fiscal 2002
                    and  2001,  respectively.  The  plan is tax  deferred  under
                    Section 401(k) of the Internal Revenue Code.




                                       29
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements


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

<TABLE>
<CAPTION>
                   YEAR ENDED JUNE 30,                                                       2002
                   ---------------------------------------------------------------------------------

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

<S>                                                           <C>          <C>           <C>
                   EARNINGS FROM CONTINUING OPERATIONS   $    479,978   $  6,996,813     $    .07

                   EFFECT OF DILUTIVE SECURITIES:
                       STOCK OPTIONS                                -            529            -
                   ---------------------------------------------------------------------------------

                   NET EARNINGS PLUS ASSUMED DILUTION    $    479,978   $  6,997,342     $    .07
                   ---------------------------------------------------------------------------------

                   Year ended June 30,                                                       2001
                   ----------------------------------------------------------------------------------

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


                   Earnings from continuing operations   $    314,668   $  7,001,250     $    .04

                   Effect of dilutive securities:
                       Stock options                                -        119,905            -
                   ----------------------------------------------------------------------------------

                   Net earnings plus assumed dilution    $    314,668   $  7,121,155     $    .04
                   ----------------------------------------------------------------------------------
</TABLE>

                    There were 497,750 and 60,000 stock options  outstanding  at
                    June 30, 2002 and 2001, respectively,  that were excluded in
                    the computation of earnings per share for such years because
                    the exercise prices of the options were at least the average
                    market price of the Company's common stock for that year.

11. STOCK OPTIONS   The Company has stock option plans that  authorize the grant
                    of options to purchase up to 500,000 shares (until May 2010)
                    of the Company's  common stock to employees and  consultants
                    and options to purchase  100,000  shares (until August 2004)
                    of the Company's common stock to directors of the Company.

                    The Company  applies APB  Opinion 25,  Accounting  for Stock
                    Issued  to  Employees,   and  related   interpretations   in
                    accounting  for stock  options to employees  and  directors.
                    Under APB Opinion  25,  because  the  exercise  price of the
                    stock  options  equals or exceeds  the  market  price of the
                    underlying stock on the date of grant, no compensation  cost
                    has  been  recognized.  No  options  have  been  granted  to
                    consultants.

                    Pursuant to the plans, the Company may grant incentive stock
                    options and  nonqualified  stock options.  All options under
                    the director plan are  nonqualified  stock options.  Options
                    may have a maximum  term of 10 years,  are not  transferable
                    and must be granted at an exercise price of at least 100% of
                    the market  value of the common  stock on the date of grant.



                                       30
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements

                    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  employee  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  terminate  three months  following  termination  of
                    service   (except   generally   one  year  in  the  case  of
                    termination of service by reason of death or disability).

                    The  Company  also  has  options  outstanding  under a stock
                    option  plan that  expired as to the grant of new options in
                    September 2001.

                    Generally, options granted to date have been exercisable, on
                    a cumulative  basis,  as to one-fourth of the shares covered
                    thereby on the first  anniversary of grant and one-fourth on
                    the next three  anniversaries of grant.  However,  In fiscal
                    2002,  the Company  granted 25,000 options to two employees,
                    exercisable  upon grant  through 2007 at a price of $.56 per
                    share.  There were no stock options  granted in fiscal 2001.
                    Options  granted under the plans  terminate upon a merger in
                    which the Company is not the  surviving  corporation,  or in
                    certain events in which shareholders  before the transaction
                    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.

                    SFAS  No.  123,  Accounting  for  Stock-Based  Compensation,
                    requires  the  Company  to  provide  pro  forma  information
                    regarding  net (loss) income and net (loss) income per share
                    as if compensation  cost for the Company's stock options had
                    been  determined  in  accordance  with the fair value  based
                    method prescribed in SFAS No. 123. The Company estimates the
                    fair value of each  stock  option at the grant date by using
                    the  Black-Scholes  option-pricing  model with the following
                    weighted-average  assumptions used for grants in fiscal year
                    2002: no dividend yield percent; expected volatility of 95%;
                    risk-free interest rates of approximately 4.2%, and expected
                    lives of 5 years.  No options  were  granted in fiscal  year
                    2001.  Based  on these  assumptions,  under  the  accounting
                    provisions of SFAS No. 123, the Company's net income and net
                    income per common share would have been as follows:



                                       31
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
                    Year ended June 30,                                          2002         2001
                    ---------------------------------------------------------------------------------

<S>                                                                       <C>            <C>
                    Earnings from continuing operations
                                                           As reported    $   479,978    $ 314,668
                                                             Pro-forma    $   454,351    $ 293,643
                    ---------------------------------------------------------------------------------

                    Net (loss) income                      As reported    $  (280,010)   $  122,471
                                                             Pro forma    $  (305,637)   $  101,466
                    ---------------------------------------------------------------------------------

                    Earnings per common share from
                    continuing operations

                        Basic                              As reported    $       .07    $     .04
                                                             Pro-forma    $       .06    $     .04
                        Diluted                            As reported    $       .07    $     .04
                                                             Pro-forma    $       .06    $     .04
                    ---------------------------------------------------------------------------------

                    Net (loss) income per common share:
                        Basic                              As reported    $      (.04)   $     .02
                                                             Pro forma    $      (.04)   $     .01
                        Diluted                            As reported    $      (.04)   $     .02
                                                             Pro-forma    $      (.04)   $     .01
                    ---------------------------------------------------------------------------------

</TABLE>
                    A summary of options under the Company's  stock option plans
                    as of June 30, 2002,  and changes during the year then ended
                    is presented below:

<TABLE>
<CAPTION>
                                                                                          WEIGHTED
                                                                                          AVERAGE
                                                                                          EXERCISE
                                                                           SHARES           PRICE
                    --------------------------------------------------------------------------------

                    Outstanding at beginning of year                      594,750       $    1.09
                    Granted                                                25,000             .56
                    Expired                                               (97,000 )          1.22
                    --------------------------------------------------------------------------------

<S>                                                                       <C>           <C>
                    Outstanding at end of year                            522,750       $    1.04
                    --------------------------------------------------------------------------------

                    Options exercisable at year-end                       400,812       $    1.03
                    --------------------------------------------------------------------------------

                    Weighted average fair value options granted
                    during the year                                     $     .45
                    --------------------------------------------------------------------------------
</TABLE>




                                       32
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements


                    A summary of the status of the Company's  stock option plans
                    as of June 30, 2001,  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                     610,000      $      1.09
                    Granted                                                    -                -
                    Exercised                                            (11,250 )           1.00
                    Expired                                               (4,000 )           1.00
                    -------------------------------------------------------------------------------

                    Outstanding at end of year                           594,750      $      1.09
                    -------------------------------------------------------------------------------

                    Options exercisable at year-end                      319,875      $      1.08
                    -------------------------------------------------------------------------------
</TABLE>

<PAGE>


                    The  following  table  summarizes  information  about  stock
                    option plan and  non-plan  options  outstanding  at June 30,
                    2002:

<TABLE>
<CAPTION>
                                                     Weighted
                                        Number        Average      Weighted        Number    Weighted
                        Range of   Outstanding      Remaining      Average    Exercisable    Average
                        Exercise            at    Contractual      Exercise            at    Exercise
                          Prices       6/30/02           Life        Price        6/30/02      Price
                    -----------------------------------------------------------------------------------

<S>                   <C>                             <C>          <C>              <C>      <C>
                      $ .56-1.00 $     487,750      2.2 YEARS    $     .97        377,062  $     .97
                      $     2.00 $      35,000      2.1 YEARS    $    2.00         23,750  $    2.00
                    -----------------------------------------------------------------------------------
</TABLE>

12. DISCONTINUED    In  May  2002,   the  Company   initiated  a  plan  to  sell
    OPERATIONS      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 sale,  to an  unaffiliated  purchaser,  closed  July 31,
                    2002.  The  purchase  price was  $800,000  less  $40,000  in
                    estimated transactions costs, consisting of $250,000 in cash
                    and a $550,000  promissory note, bearing interest at prime +
                    1%, 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 companies to the
                    obligation of the purchaser and the affiliated  companies to
                    two bank lenders.

                    The Company  retained all of the accounts  receivable,  cash
                    and  liabilities  existing at the time of closing and agreed
                    to a three-year covenant not to compete with the purchaser.

                    In connection  with the sale, the Company  accrued,  at June
                    30,  2002,



                                       33
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements

                    employee  severance cost,  estimated loss from  discontinued
                    operations  for  July  2002,  and  lease  termination  costs
                    aggregating $184,000.  Additionally,  the Company recorded a
                    provision of $718,000 to reduce the carrying value of assets
                    sold to their net  realizable  value at June 30,  2002.  The
                    loss  on the  sale  of the  discontinued  operation,  net of
                    income tax benefit, was $555,000.

                    Net  assets  and  operating  results  for  the  discontinued
                    operations are as follows:

<TABLE>
<CAPTION>
                    June 30,                                                 2002           2001
                    -------------------------------------------------------------------------------
<S>                                                                  <C>               <C>
                    Inventory                                        $    745,000      $   1,455,358
                    Property and equipment, net                            10,000             97,633
                    Intangible asset, net                                   5,000             56,004
                    --------------------------------------------------------------------------------
                    Net assets of discontinued operations            $    760,000      $  1,608,995
                    --------------------------------------------------------------------------------

                    June 30,                                                 2002             2001
                    ---------------------------------------------------------------------------------
                    Revenues                                         $  1,647,587      $   2,916,697
                    Expenses                                           (1,980,366)        (3,228,139)
                    Income tax benefit                                    127,787            119,245
                    --------------------------------------------------------------------------------
                    Loss from discontinued operations                $   (204,992)     $    (192,197)
                    --------------------------------------------------------------------------------
</TABLE>

13. SEGMENT         The Company's  reportable segments are strategic  businesses
    INFORMATION     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,  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.  was
                    formed in  fiscal  2001 to  develop  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.


                                       34
<PAGE>

                                             DRYCLEAN USA, Inc. and Subsidiaries


                                      Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                    Financial information for the Company's business segments is
                    as follows:

                    Year ended June 30,                                           2002            2001
                    ------------------------------------------------------------------------------------

                    Revenues:
                        <S>                                            <C>                      <C>
                       Commercial and industrial laundry and dry
                         cleaning equipment                            $    13,947,851  $   15,355,235
                       License and franchise operations                        340,653         449,050
                    ------------------------------------------------------------------------------------

                    Total revenues                                     $    14,288,504  $   15,804,285
                    ------------------------------------------------------------------------------------

                    Operating income (loss):
                       Commercial and industrial laundry
                         and dry cleaning equipment                    $       869,397  $      520,414
                      License and franchise operations                         157,668         267,837
                      Corporate                                               (208,900 )      (175,598 )
                    ------------------------------------------------------------------------------------

                    Total operating income                             $       818,165  $      612,653
                    ------------------------------------------------------------------------------------

                    Identifiable assets:
                       Commercial and industrial laundry
                         and dry cleaning equipment                    $     5,585,225  $    5,076,391
                       License and franchise operations                        789,179         799,430
                       Corporate                                               778,333         843,103
                       Assets of discontinued operations                       760,000       1,608,995
                    ------------------------------------------------------------------------------------

                    Total assets                                       $     7,912,737  $    8,327,919
                    -----------------------------------------------------------------------------------
</TABLE>

                    For the years  ended June 30, 2002 and 2001,  export  sales,
                    principally to the Caribbean and Latin  America,  aggregated
                    approximately $2,081,000 and $4,166,000, respectively.

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



                                       35
<PAGE>


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

     Not applicable.

                                    PART III

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

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

     Michael S. Steiner,  46, has been President and Chief Executive  Officer of
the  Company  since the  effectiveness  of the Merger on November 1, 1998 and of
Steiner  since 1988.  Mr.  Steiner has been a director of the Company  since the
effectiveness of the Merger on November 1, 1998.

     William K. Steiner,  72, has been Chairman of the Board of Steiner since he
founded  Steiner in 1960.  Mr.  Steiner has been a director of the Company since
the effectiveness of the Merger on November 1, 1998.

     Venerando J.  Indelicato,  69, was  President of the Company from  December
1967  until the  effectiveness  of the Merger on  November  1, 1998 and has been
Treasurer and Chief Financial Officer of the Company since December 1969.

     Lloyd  Frank,  77, has been a member of the law firm of Jenkens & Gilchrist
Parker Chapin LLP and its predecessor  since 1977. Mr. Frank has been a director
of the Company  since  1977.  The Company  retained  Jenkens & Gilchrist  Parker
Chapin LLP during the  Company's  last  fiscal year and is  retaining  that firm
during the Company's  current  fiscal year. Mr. Frank is also a director of Park
Electrochemical Corp. and Volt Information Sciences, Inc.

     David  Blyer,  42,  has  served  as a  director  of the  Company  since the
effectiveness  of the Merger on November 1, 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,  42, has served as a director of the  Company  since May
1999.  Mr.  Grunspan  has been a member of the law firm of Kaufman  Dickstein  &
Grunspan P. A. since 1991. The Company has retained Kaufman Dickstein & Grunspan
P. A. during the  Company's  last fiscal year and is retaining  that firm during
the Company's current fiscal year.

     Stuart  Wagner,  70 has  served  as a  director  of the  Company  since the
effectiveness  of the  Merger on  November  1, 1998 and has been  retained  as a
consultant  for  Diversitech  Corp.  since 1997.  From 1975 to 1997,  Mr. Wagner
served as President of Wagner Products Corp., a manufacturer  and distributor of
products in the HVAC industry, a company which he founded.

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



                                       36
<PAGE>

     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:

     Osvaldo  Rubio,  39, has served as Vice President and Director of Sales for
the Export Department of Steiner since joining Steiner in May 1993.

     Ronald  London,  69, has served as Vice  President and  primarily  oversees
sales of the retail Dry Cleaning  Equipment  Department of Steiner since joining
Steiner in September 1992.

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 2002 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 information  called for by this Item will be contained in the Company's
definitive  Proxy Statement with respect to the Company's 2002 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 2002 Annual Meeting of
Stockholders  to be filed  pursuant  to  Regulation  14A  under  the  Securities
Exchange  Act  of  1934,  and  is  incorporated  herein  by  reference  to  such
information.

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

             (a) Exhibits

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

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

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

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



                                       37
<PAGE>

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

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

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

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

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

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

4(a)(1)(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.

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

4(a)(3)        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)(4)        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)       Lease  dated  October 6, 1995  between  Steiner and  William,  K.
               Steiner  with respect to  Steiner's  facilities  located 290 N.E.
               68th Street, 297 N.E. 67 St. and 277 N.E. 67 St. Miami,  Florida.
               (Exhibit  10(a)(2)  to the  Company's  Transition  Report on Form
               10-KSB for the transition period from January 1, 1998 to June 30,
               1998, File No. 0-9040.)

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



                                       38
<PAGE>

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

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

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

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

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

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

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

*23            Consent of BDO Seidman, LLP.

*99(a)         Certification  of  Principal  Executive  Officer  pursuant  to 18
               U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.

*99(b)         Certification  of  Principal  Financial  Officer  pursuant  to 18
               U.S.C.  Section 1350,  as adopted  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.

             (b) Reports on Form 8-K

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


ITEM 14. CONTROLS AND PROCEDURES.
         ------------------------

         Not applicable.




                                       39
<PAGE>

                                   SIGNATURES

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

                                     DRYCLEAN USA, Inc.

Dated: September 30, 2002
                                     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,                                  September 30, 2002
-------------------------------------------  Chief Executive Officer
Michael S. Steiner                           (Principal Executive Officer) and
                                             Director


/s/ William K. Steiner                       Director                                    September 30, 2002
-------------------------------------------
William K. Steiner

/s/ Venerando J. Indelicato                  Chief Financial Officer                     September 30, 2002
-------------------------------------------  (Principal Financial and Accounting
Venerando J. Indelicato                      Officer) and Director


/s/ Lloyd Frank                              Director                                    September 30, 2002
-------------------------------------------
Lloyd Frank

/s/ Alan M. Grunspan                         Director                                    September 30, 2002
-------------------------------------------
Alan M. Grunspan

/s/ Stuart Wagner                            Director                                    September 30, 2002
-------------------------------------------
Stuart Wagner

/s/ David Blyer                              Director                                    September 30, 2002
-------------------------------------------
David Blyer

</TABLE>


                                       40
<PAGE>



     I, Michael S. Steiner, certify that:

     1. I have reviewed this annual report on Form 10-KSB of DRYCLEAN USA, Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;


September 30, 2002


/s/ Michael S. Steiner
---------------------------------------------------
Michael S. Steiner
President and Principal Executive Officer





                                       41
<PAGE>



     I, Venerando J. Indelicato, certify that:

     1. I have reviewed this annual report on Form 10-KSB of DRYCLEAN USA, Inc.;

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;



September 30, 2002


/s/ Venerando J. Indelicato
---------------------------------------------------
Venerando J. Indelicato
Treasurer and Principal Financial Officer




                                       42
<PAGE>


                                  EXHIBIT INDEX

Exhibit No.       Description
-----------       -----------

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

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

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

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

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

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

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

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

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

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

4(a)(1)(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).



                                       43
<PAGE>

*4(a)(1)(B)    Letter agreement dated September 23, 2002 between the Company and
               First Union National Bank.

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

4(a)(3)        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)(4)        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)       Lease  dated  October 6, 1995  between  Steiner and  William,  K.
               Steiner  with respect to  Steiner's  facilities  located 290 N.E.
               68th Street, 297 N.E. 67 St. and 277 N.E. 67 St. Miami,  Florida.
               (Exhibit  10(a)(2)  to the  Company's  Transition  Report on Form
               10-KSB for the transition period from January 1, 1998 to June 30,
               1998, File No. 0-9040.)

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

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

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

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

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

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

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

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

*23            Consent of BDO Seidman, LLP.



                                       45
<PAGE>

*99(a)         Certification  of  Principal  Executive  Officer  pursuant  to 18
               U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
               Sarbanes-Oxley Act of 2002.

*99(b)         Certification  of  Principal  Financial  Officer  pursuant  to 18
               U.S.C.  Section 1350,  as adopted  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.



                                       46