# UNITED STATES        SECURITIES AND EXCHANGE COMMISSION        Washington, D.C. 20549

# FORM        10-KSB

****            **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF        1934**

For the fiscal year ended June 30,        2007

            **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF        1934**

Commission file number        1-14757

|                                                         |                                                               |                                    |
|---------------------------------------------------------|---------------------------------------------------------------|------------------------------------|
|                                                    | 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 is not required to file reports pursuant to Section 13 or 15(d) of the        Exchange Act. 

        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              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. [        ]

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

        The        Company’s revenues from continuing operations for its fiscal year ended June 30, 2007        were $22,748,527.

        The        aggregate market value as at September 21, 2007 of the Common Stock of the issuer, its only        class of voting stock, held by non-affiliates was approximately $4,011,000 based on the        closing price of the Company’s Common Stock on the American Stock Exchange on that        date. Such market value excludes shares owned by all executive officers and directors (and        their spouses). This should not be construed as indicating that all such persons are        affiliates.

        The        number of shares outstanding of the issuer’s Common Stock as at September 21, 2007        was 7,034,307.

DOCUMENTS        INCORPORATED BY REFERENCE

Portions of the issuer’s Proxy        Statement relating to its 2007 Annual Meeting of Stockholders are incorporated by reference        into Items 10, 11, 12 and 14 in Part III of this Report.

Transitional Small Business        Disclosure Format     Yes     No        

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# TABLE OF        CONTENTS

|                   |                                                                                                                                               |          |
|-------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|----------|
| Item 1.           | Description of                Business                                                                                                        | 3   |
| Item 2.           | Description of                Properties                                                                                                      | 10  |
| Item 3.           | Legal                Proceedings                                                                                                              | 10  |
| Item 4.           | Submission of                Matters to a Vote of Security Holders                                                                            | 10  |
| Item 5.           | Market for the                Common Equity and Related Stockholder Matters                                                                   | 11  |
| Item 6.           | Management's                Discussion and Analysis or Plan of Operation                                                                      | 12  |
| Item 7.           | Financial                Statements                                                                                                           | 18  |
| Item 8.           | Changes In and                Disagreements With Accountants on Accounting and Financial                Disclosure                            | 38  |
| Item 8A.          | Controls and                Procedures                                                                                                        | 38  |
| Item 8B.          | Other                Information                                                                                                              | 38  |
| Item 9.           | Directors,                Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of                the Exchange Act | 38  |
| Item 10.          | Executive                Compensation                                                                                                         | 39  |
| Item 11.          | Security                Ownership of Certain Beneficial Owners and Management and Related Stockholder                Matters                  | 40  |
| Item 12.          | Certain                Relationships and Related Transactions                                                                                 | 40  |
| Item 13.          | Exhibits                                                                                                                                      | 41  |
| Item 14.          | Principal                Accountant Fees and Services                                                                                         | 43  |
| Signatures   |                                                                                                                                          | 44  |

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# FORWARD LOOKING        STATEMENTS

                *Certain statements in this Report are “forward-looking statements” within        the meaning of the Private Securities Litigation Reform Act of 1995. When used in this        Report, words such as “may,” “should,” “seek,”        “believe,” “expect,” anticipate,” “estimate,”        “project,” “intend,” “strategy” and similar expressions        are intended to identify forward-looking statements regarding events, conditions and        financial trends that may affect the Company’s future plans, operations, business        strategies, operating results and financial position. Forward-looking statements are        subject to a number of known and unknown risks and uncertainties that may cause actual        results, trends, performance or achievements of the Company, or industry trends and        results, to differ materially from the future results, trends, performance or achievements        expressed or implied by such forward-looking statements. These risks and uncertainties        include, among others: general economic and business conditions in the United States and        other countries in which the Company’s customers and suppliers are located; industry        conditions and trends; technology changes; competition and other factors which may affect        prices which the Company may charge for its products and its profit margins; the        availability and cost of the inventory 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        Green-Jet® dry-wetcleaning machine and Multi-Jet*® *dry cleaning machine; the        Company’s ability to implement changes in its business strategies and development        plans; and the availability, terms and deployment of debt and equity capital if needed for        expansion. These and certain other factors are discussed in this Report and from time to        time in other Company reports filed with the Securities and Exchange Commission. The        Company does not assume an obligation to update the factors discussed in this Report or        such other reports.*

# PART I

| **Item 1.** |   | **Description of                Business.** |
|-------------|--------|---------------------------------------------|

# General

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

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

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

|   | • |   |   distributing                commercial and industrial laundry and dry cleaning machines and steam boilers                manufactured by others; |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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|   | • |   |  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;                  |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   |  supplying                replacement equipment and parts to its customers; |
|--------|--------|--------|----------------------------------------------------------------------------------|

|   | • |   |  providing                warranty and preventive maintenance through factory-trained technicians; and |
|--------|--------|--------|-------------------------------------------------------------------------------------------------------------|

|   | • |   |  selling                process steam systems and boilers. |
|--------|--------|--------|-----------------------------------------------------------------|

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

        The        Company, through its DRYCLEAN USA LICENSE CORP. wholly-owned indirect subsidiary, owns the        worldwide rights to the name DRYCLEAN USA®, along with existing franchise and license        agreements. DRYCLEAN USA® is one of the largest franchise and license operations in the        dry cleaning industry, currently consisting of over 400 franchised and licensed locations        in the United States, the Caribbean and Latin America.

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

# Available        Information

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

# Product        Lines

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

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

        The        Company’s proprietary environmentally friendly Green-Jet® dry-wetcleaning machine        not only cleans garments efficiently, but also eliminates the use of perchloroethylene        (Perc) in the dry

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cleaning process, thereby        eliminating the health and environmental concerns that Perc poses to customers and their        landlords. It also alleviates flammability, odor and cost issues inherent in alternative        solvents and cleaning processes. In May 2005, patents were granted to the Company from the        United States to protect this innovative approach to garment cleaning. Patents from other        countries are still pending. In August 2003, the Company introduced its Multi-Jet® dry        cleaning machine which uses a number of environmentally safe solvents.

        The        products sold by the Company are positioned and priced to appeal to customers in each of        the high-end, mid-range and value priced markets. These products are offered under a wide        range of price points to address the needs of a diverse customer base. Suggested prices for        most of the Company’s products range from approximately $5,000 to $100,000. The        products supplied by the Company afford the Company’s customers a “one-stop        shop” for commercial and industrial laundry and dry cleaning machines, boilers and        accessories. By providing “one-stop” shopping, the Company believes it is        better able to attract and support potential customers who can choose from the        Company’s broad product line. Product and parts sales accounted for approximately 97%        and 96% of revenues in fiscal 2007 and 2006, respectively.

        The        Company seeks to establish customer satisfaction by offering:

|   | • |   |  an                on-site training and preventive maintenance program performed by factory trained                technicians; |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   |  design                and layout assistance; |
|--------|--------|--------|----------------------------------------------------|

|   | • |   |  maintenance of a                comprehensive parts and accessories inventory and same day or overnight                availability; |
|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | • |   |  competitive pricing;                and |
|--------|--------|--------|-----------------------------------------------|

|   | • |   |  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 2007 and 2006, the Company’s license and franchise        segment contributed approximately 1.2% and 1.7%, respectively, of the Company’s        revenues.

        Through        its Steiner Brokerage subsidiary, the Company acts as a business broker to assist others        seeking to buy or sell existing dry cleaning and laundry businesses. Some of the        Company’s existing customers have become Steiner Brokerage clients, utilizing the        Company’s staff and ability to assist them in the sale of their businesses and        associated real property. This business contributed less than 1% of the Company’s        revenues during each of fiscal 2007 and 2006.

        The        Company, through its DRYCLEAN USA Development subsidiary, develops new turn-key dry        cleaning establishments for resale to third parties. During fiscal 2007, DRYCLEAN USA        Development contributed less than 1% of the Company’s revenues. It did not contribute        any revenues in fiscal 2006.

# Sales, Marketing and        Customer Support

        The        laundry and dry cleaning equipment products marketed by the Company are sold by it to its        customers in the United States, the Caribbean and Latin America, as well as customers of        its

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

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

# Customers and        Markets

        The        Company’s customer base consists of approximately 750 customers in the United States,        the Caribbean and Latin America, including independent and franchise dry cleaning stores        and chains, hotels, motels, cruise lines, hospitals, nursing homes, government institutions        and distributors. One customer accounted for approximately 11% of the Company’s        revenues during the year ended June 30, 2007. Another customer accounted for approximately        17% of the Company’s revenues during the year ended June 30, 2006.

# Foreign        Sales

        For        the years ended June 30, 2007 and 2006, export revenues, principally to the Caribbean and        Latin America, aggregated approximately $3,684,000 and $2,739,000, respectively, of which        approximately $3,548,000 and $2,533,000, respectively, related to commercial and industrial        laundry and dry cleaning equipment.

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

# Sources of        Supply

        The        Company purchases laundry and dry cleaning machines, boilers and the other products from a        number of manufacturers. Two of its suppliers accounted for approximately 24% and 21% of        the Company’s purchases for the year ended June 30, 2007. One of these suppliers        accounted for approximately 23% of the Company’s purchases for the year ended June        30, 2006. The Company’s major suppliers are Pellerin Milnor Corporation, Chicago        Dryer Company, FMB Group and Unipress Corporation. Historically, the Company has not        experienced difficulty in purchasing products it distributes for others and believes it has        good working relationships with its suppliers.

        The        supplier of a significant portion of the Company’s laundry equipment and related        spare parts is located near New Orleans. While its plant was only slightly damaged by        Hurricane Katrina, its power and employee availability were disrupted, causing shipment        delays during fiscal 2006.

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        The        Company’s proprietary Green-Jet® dry-wetcleaning machines are currently        manufactured exclusively for the Company by one manufacturer in the United States.        Substantially all of the Company’s dry cleaning equipment sold under the        Aero-Tech® and Multi-Jet® labels is currently manufactured exclusively for the        Company by two manufacturers in Italy.

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

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

        The        Company’s current bank revolving credit facility includes a $250,000 foreign exchange        subfacility for the purpose of enabling the Company to mitigate its currency exposure in        connection with its import activities through spot foreign exchange and forward exchange        contracts. There were no open foreign exchange contracts at either June 30, 2007 or        2006.

        Imports        into the United States are also affected by the cost of transportation, the imposition of        import duties and increased competition from greater production demands abroad. The United        States, Italy and the European Union may, from time to time, impose quotas, duties, tariffs        or other restrictions or adjust prevailing quotas, duties or tariff levels, which could        affect the Company’s margins on its Aero-Tech® and Multi-Jet® machines. There        have been no custom duties on the Company’s imported dry cleaning machines in either        fiscal 2007 and 2006.

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# 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, substantially all distributors are        independently owned and, with the exception of several regional distributors, operate        primarily in local markets. Competition is based primarily on price, product quality,        delivery and support services provided to the customer. In Florida, the Company’s        principal domestic market, the Company’s primary competition is derived from a number        of full line distributors, which operate throughout Florida. In the export market, the        Company competes with several distributors and anticipates increased competition as the        export market grows. The Company’s proprietary dry cleaning equipment competes with        over a dozen manufacturers of dry cleaning equipment whose products are distributed        nationally. In all geographic areas, the Company competes by offering an extensive product        selection, value-added services, such as product inspection and quality assurance, a        toll-free customer support line, reliability, warehouse location, price, competitive        special features and, with respect to certain products, as to which the Company acts as        distributor, exclusivity.

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

# Research and        Development

        The        Company has designed and introduced its Green-Jet® dry-wetcleaning and Multi-Jet®        drycleaning machines and continues to improve these products. The amounts of research and        development expenses for the years ended June 30, 2007 and 2006 were $41,910 and $27,805,        respectively.

# Patents and        Trademarks

        The        Company is the owner of United States service mark registrations for the names        Aero-Tech®, Multi-Jet® and Green-Jet®, which are used in connection with its        laundry and dry cleaning equipment, and of DRYCLEAN USA®, 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        were granted in May 2005 for the protection of the Company’s new Green-Jet®        dry-wetcleaning machine in the United States which will expire in May 2021 and patents have        been applied for in certain foreign countries.

        On        January 3, 2005, the Company entered into a Patent License Agreement with Whirlpool        Corporation (“Whirlpool”) in which the Company granted Whirlpool an exclusive        license until December 31, 2008 and thereafter a non-exclusive license to make and sell        laundry appliances incorporating the Company’s patent applications and other        intellectual property related to fabric treatment technology for improving the drying and        refreshing of garments in home clothes dryers. In consideration for the grant of the        exclusive license through December 31, 2008, Whirlpool paid the Company $350,000, of which        $331,100 was for the exclusive license fee. In addition, Whirlpool is to pay the Company a        per unit royalty for dryers using the licensed technology that are sold during the three        year period following the first sale following commercial production of dryers using the        license technology. As of June 30, 2007 Whirlpool has not introduced any products        containing the Company’s technologies.

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# Compliance with        Environmental and Other Government Laws and Regulations

        Over        the past several decades in the United States, federal, state and local governments have        enacted environmental protection laws in response to public concerns about the environment,        including with respect to perchloroethylene (Perc), the primary cleaning agent historically        used in the commercial and industrial dry cleaning process. A number of industries,        including the commercial and industrial dry cleaning and laundry equipment industries, are        subject to these evolving laws and implementing regulations. As a supplier to the industry,        the Company serves customers who are primarily responsible for compliance with        environmental regulations. Among the federal laws that the Company believes are applicable        to the industry are the Comprehensive Environmental Response, Compensation and Liability        Act of 1980 (“CERCLA”), which provides for the investigation and remediation of        hazardous waste sites; the Resource Conservation and Recovery Act of 1976, as amended        (“RCRA”), which regulates the generation and transportation of hazardous waste        as well as its treatment, storage and disposal; and the Occupational Safety and Health        Administration Act (“OSHA”), which regulates exposure to toxic substances and        other health and safety hazards in the workplace. Most states and a number of localities        have laws that regulate the environment which are at least as stringent as the federal        laws. In Florida, for example, in which a significant amount of the Company’s dry        cleaning and laundry equipment sales are made, environmental matters are regulated by the        Florida Department of Environmental Protection which generally follows the United States        government’s Environmental Protection Agency’s (“EPA”) policy in        the EPA’s implementation of CERCLA and RCRA and closely adheres to OSHA’s        standards.

        The        Company believes its Aero-Tech® and Multi-Jet® dry cleaning machines and its        Green-Jet® dry-wetcleaning machine exceed environmental regulation standards set by        safety and environmental regulatory agencies.

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

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

# Employees

        The        Company currently employs 34 employees on a full-time basis, of whom 4 serve in executive        management capacities, 13 are engaged in sales and marketing, 8 are administrative and        clerical personnel, and 9 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.

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| **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:

| Facility           | ApproximateSq. Ft. | Expiration                       |
|--------------------|--------------------|----------------------------------|
| Miami, Florida (1) | 27,000        | October 2008                (2)  |
| Miami, Florida     |   8,000  | March 2008                       |
| Miami, Florida     | 10,000        | December 2008                (3) |

_________________

| (1) |                      Leased from Sheila Steiner, who, together with her husband, William K. Steiner,                    Chairman of the Board of Directors and a director of the Company, are the                    trustees of a trust which is a principal shareholder of the Company. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) |   The                    Company has two three-year renewal options. |
|-----|---------------------------------------------------------------------------|

| (3) |   The                    Company has a 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.

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# 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                2007 |   |   |   |   |   |   |   |   |
| First Quarter              |   |   | $      | 2      | .39 | $ | 1 | .40 |
| Second Quarter             |   |   |   | 2      | .65 |   | 1 | .80 |
| Third Quarter              |   |   |   | 2      | .70 |   | 1 | .79 |
| Fourth Quarter             |   |   |   | 2      | .15 |   | 1 | .90 |
| Fiscal 2006                |   |   |
| First Quarter              |   |   | $      | 2      | .95 | $ | 2 | .45 |
| Second Quarter             |   |   |   | 2      | .80 |   | 2 | .12 |
| Third Quarter              |   |   |   | 2      | .60 |   | 1 | .95 |
| Fourth Quarter             |   |   |   | 2      | .23 |   | 1 | .79 |

        As        of September 21, 2007, there were approximately 480 holders of record of the        Company’s Common Stock.

        The        following table sets forth information concerning the cash dividends declared by the        Company’s Board of Directors during the periods covered by this Report:

| Declaration                    Date                                               | Record                    Date                                                  | Payment                    Date                                                 | Per Share                    Amount |
|-----------------------------------------------------------------------------------|---------------------------------------------------------------------------------|---------------------------------------------------------------------------------|-------------------------------------|
|         March                29, 2007     |         April                13, 2007   |         May                1, 2007      | $.04                                |
|         September                26, 2006 |         October                13, 2006 |         November                1, 2006 | $.04                                |
|         March                31, 2006     |         April                14, 2006   |         May                1, 2006      | $.04                                |
|         September                23, 2005 |         October                14, 2005 |         November                1, 2005 | $.04                                |

        The        Company is a party to a Loan and Security Agreement with a commercial bank, which, among        other things, provides that the Company may declare or pay dividends only to the extent        that the dividend payment would not reasonably likely result in a failure by the Company to        maintain specified consolidated debt service or short-term debt to equity        ratios.

        The        Company did not sell any equity securities during the year ended June 30, 2007 that were        not registered under the Securities Act of 1933, as amended. The Company did not repurchase        any securities during the fourth quarter of fiscal 2007.

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| **Item 6.** |   | **Management’s                Discussion and Analysis or Plan of Operation.** |
|-------------|--------|-------------------------------------------------------------------------------------|

# General

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

# Overview

        The        Company set record revenues and increased its earnings in fiscal 2007, increasing revenues        by 11.4% to $22,748,527 and net income by 9.6% to $880,990 over fiscal 2006. While the        quarters in fiscal 2006 were somewhat erratic due to the hurricanes of southern Florida        suffered in fiscal 2006, which affected quarterly comparative results, the yearly        comparisons more accurately represent the Company’s comparative        performance.

        The        improved performance was led by a 21.1% increase in sales of commercial laundry equipment,        a 33.8% increase in boiler sales and a 5.3% increase in parts sales, partially offset by a        decrease of 8.6% in sales of dry cleaning equipment. Approximately 40.1% of the overall        revenue improvement was produced by increased foreign sales due to improvements in the        economies of the foreign market served by the Company, which had been weak over the last        few years.

        The        increase in sales offset a 8/10 of 1 percentage point decline in gross profit percentage        caused by accepting larger orders which carry a smaller margin in order to remain        competitive. The Company believes that its future growth will be with respect to commercial        laundry equipment, which historically carries lower margins, and away from dry cleaning        equipment sales, which are expected to remain subdued in coming years.

        Operating        costs have remained under control, having risen by only 1.1 percentage point, mostly due to        higher payroll expenses. Due to the high cost of windstorm property insurance following the        hurricanes in Florida in fiscal 2006, the Company decided to self-insure against wind        damage, thereby keeping costs at reasonable levels during fiscal 2007. However, effective        August 15, 2007, the Company purchased windstorm property insurance on inventory and        personal property at reasonable rates.

        The        Company continues to strengthen its financial condition. Inventories have remained        relatively constant while cash on hand increased to over $4 million at the end of fiscal        2007. The excess cash is invested in money market and overnight “sweep”        accounts which, together with higher prevailing interest rates, resulted in an increase in        interest income.

        In        fiscal 2008, the Company will be subject to Sarbanes-Oxley section 404, which requires        adequate internal controls over financial reporting. Management believes it already has        adequate controls in place and should be able to meet these new regulations with a minimum        investment.

        At        the start of fiscal 2008, the Company reorganized a number of individual responsibilities        and hired a new operations manager. These changes will strengthen the Company’s        operations while allowing the Company to focus on continuing to improve its sales        performance.

12

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# Liquidity and Capital        Resources

        For        the twelve month period ended June 30, 2007, cash increased by $1,189,712 compared to an        increase of $1,524,587 during fiscal 2006.

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

|                                | Years Ended June 30, |        |
|-------------------------------------|----------------------|--------|
||
| Operating                activities |                 |   | $ | 1,847,801 |   | $ | 2,082,462 |   |
| Investing                activities |                 |   |   | (95,046 | ) |   | (4,582 | ) |
| Financing                activities |                 |   |   | (563,043 | ) |   | (553,293 | ) |

        For        the twelve month period ended June 30, 2007, operating activities provided cash of        $1,847,801 compared to $2,082,462 for the twelve month period ended June 30, 2006. The        decrease was mostly due to a reduction in changes in assets and liabilities of $409,708,        attributed mainly to a reduction of $501,329 in customer deposits, which in fiscal 2006        related to the receipt of certain large orders.

        Cash        generated from operating activities during fiscal 2007 was provided by net earnings of        $880,990 and non-cash expenses for depreciation and amortization of $120,479, bad debt        expense of $32,183, deferred taxes of $66,105 and inventory reserves of $57,428, coupled        with changes in assets and liabilities of $690,616. The cash generated by changes in assets        and liabilities was mostly due to decreases in accounts, trade notes and lease receivables        ($391,214) arising from large end of year shipments in fiscal 2006 which were paid for in        fiscal 2007, inventories ($21,213) and other assets ($154,722). Additional cash was        provided by increases in accounts payable and accrued expenses ($183,087), accrued employee        expenses ($14,250) and customer deposits ($143,427). Cash was reduced by unearned income of        $82,775 associated with the amortization of the initial fee received from Whirlpool in        January 2005 and a decrease in taxes payable of $70,391.

        For        the twelve month period of fiscal 2006, the Company generated cash through net earnings of        $803,981 and non-cash expenses for depreciation and amortization of $142,453, bad debt        expense of $36,731 and inventory reserves of $60,279. This cash was partially offset by a        reduction in deferred taxes of $61,306. Changes in assets and liabilities provided        additional cash of $1,100,324 principally due to a $644,756 increase in customer deposits,        coupled with a decrease in accounts, trade notes and lease receivables ($49,630) and        inventories ($98,582) and increases in accounts payable and accrued expenses ($213,708),        accrued employee expenses ($295,693) and income taxes payable ($74,884). This was partially        offset by an increase in other assets ($134,145) and a decrease in unearned income        ($82,775).

        Investing        activities for the twelve month period ended June 30, 2007, used cash of $95,046 mainly for        capital expenditures of machinery and equipment and leasehold improvements ($93,846).        During the same period of fiscal 2006 investing activities used cash of $4,582, as capital        expenditures of $71,131 were offset by payments received on a note from the sale of the        Company’s telecommunications segment ($67,857), which was fully paid in November        2005.

        Financing        activities used cash of $563,043 and $553,293 for the twelve month period ended June 30,        2007 and 2006, respectively, mostly to pay cash dividends. In fiscal 2006, cash of $9,063        was received from the exercise of a stock option to purchase 10,000 shares of the        Company’s common stock.

        On        September 25, 2007, the Board of Directors declared a $.04 per share semi-annual dividend        (or an aggregate of $281,372) payable on November 1, 2007 to stockholders of record on        October 12, 2007.

13

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        On        October 30, 2006, the Company received an extension until October 30, 2007 of its existing        $2,250,000 revolving line of credit facility. In addition, the Loan Agreement was amended        to eliminate the requirement that 51% of the stock of the Company be owned by the Steiner        family or any Steiner trust. The Company’s obligations under the facility continue to        be guaranteed by the Company’s subsidiaries and collateralized by substantially all        of the Company’s and its subsidiaries’ assets. The Company has had no        borrowings under this facility since May 2003. The Company intends to renew, and believes        the bank will agree to renew, this line for another year.

        The        Company believes that its present cash position, the cash it expects to generate from        operations and, should it need cash not presently anticipated, cash borrowings available        under its line of credit will be sufficient to meet its presently contemplated operational        needs.

# Off-Balance Sheet        Financing

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

# Results of        Operations

|                                                   | Year Ended June 30, |   |
|--------------------------------------------------------|---------------------|--------|
||
| Net                sales                               |                |   | $ | 22,091,863 |   | $ | 19,464,842 |   | +13.5% |   |   |
| Development fees, franchise                and license |                |   |   |   |  |
| fees, commissions and                other             |                |   |   | 656,664 |   |   | 950,048 |   |  -30.9% |  |   |
|                                                        |                     |
| Total revenues                                         |                |   | $ | 22,748,527 |   | $ | 20,414,890 |   | +11.4% |   |   |
|                                                        |                     |

        Revenues        for the year ended June 30, 2007 increased by $2,333,637 (11.4%) over fiscal 2006. The        commercial laundry and dry cleaning segment increased its revenues by 12.0% primarily due        to the addition of a new salesman and a $1,015,000 (40.1%) increase in foreign sales.        However, the Company’s license and franchise segment experienced a decrease of 22.2%        in revenues, primarily due to a reduction in royalties and new dry cleaning franchises. For        the year ended June 30, 2007, sales of commercial laundry equipment increased by 21.1%,        sales of boilers increased by 33.8%, and sales of spare parts increased by 5.3%. These        increases were partially offset by an 8.6% decrease in sales of dry cleaning equipment.        Revenues of the Brokerage and Development divisions, which are included in the commercial        laundry and dry cleaning segment, each contributed less the 1% of the Company’s        revenues.

        Overall        expenses of the Company, including costs of sales, were 94.5% of total revenues in fiscal        2007, compared to 94.4% in fiscal 2006. The slight increase reflects the Company’s        ability to maintain a control on costs.

|                                                                                      | Year Ended June 30, |        |
|-------------------------------------------------------------------------------------------|---------------------|--------|
||
| *As a                percentage of net sales:*                                            |                |   |   |   |   |
|      Cost of                sales                                |                | 76     | .7% | 75 | .9% |
| *As a percentage of                revenues:*                                             |                |   |   |  |   |
|      Selling,                general and administrative expenses |                | 19     | .8% | 21 | .8% |
|      Research and                development                     |                |        | .2% |  | .1% |
|      Total                expenses                               |                | 94     | .5% | 94 | .4% |
|                                                                                           |

14

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        Cost        of goods sold, expressed as a percentage of sales, increased to 76.7% in fiscal 2007        compared to 75.9% in fiscal 2006 mostly due to some larger contracts which carry smaller        margins in order to remain competitive and a change in product mix.

        Selling,        general and administrative expenses increased by $50,084 (1.1%), but improved as a        percentage of revenues to 19.8% in fiscal 2007 from 21.8% in fiscal 2006. The slight        increase in costs can be attributed to increased payroll and travel expenses, but were        offset by reductions in office expenses, professional fees and utility costs. The        improvement as a percentage of revenues resulted from spreading the costs over the        increased revenues.

        Research        and development expenses are a small part of the Company’s total operating expenses.        These expenses relate to the on-going research on the Company’s Green-Jet® and        Multi-Jet® technologies and the application of these technologies to smaller machines        for the dry cleaning and hotel industry.

        Interest        income increased by $87,350 (115.8%) as a result of interest earned on higher outstanding        bank balances and higher prevailing rates.

        The        Company’s effective income tax rate increased to 37.6% in fiscal 2007 from 34.5% in        fiscal 2006 mostly due to a decrease in deferred tax assets.

# 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 Sheila Steiner, who,        together with her husband, William K. Steiner, Chairman of the Board of Directors and a        director of the Company, are the trustees of a trust which is a principal shareholder of        the Company. The lease is for a three-year period beginning November 1, 2005 at an annual        rental of $94,500, with annual increases commencing November 1, 2006 of 3% over the rent in        the prior year. The Company is to bear the costs of real estate taxes, utilities,        maintenance, non-structural repairs and insurance. The lease contains two three-year        renewal options in favor of the Company. The Company believes that the terms of the lease        are comparable to terms that would be obtained from an unaffiliated third party for similar        property in a similar locale.

        In        fiscal 2007 and 2006, the Company paid a law firm, in which a director is of counsel,        $46,700 and $45,300, respectively, for legal services performed.

# Critical Accounting        Policies

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

                **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

15

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

                **Revenue Recognition and Accounts and Notes Receivable**

        Equipment        and replacement parts are generally shipped FOB from the Company’s warehouse or drop        shipped FOB factory at which time risk of loss and title passes to the purchaser and the        sale is recorded. Commissions and development fees are recorded when earned, generally when        the services are performed or the transaction is closed. Individual franchise arrangements        include a license and provide for payment of initial fees, as well as continuing royalties.        Initial franchise fees are generally recorded upon the opening of the franchised store,        which is evidenced by a certificate from the franchisee, indicating that the store has        opened, and collectibility is reasonably assured. Continuing royalties represent regular        contractual payments received for the use of the “Dryclean USA” marks, which        are recognized as revenue when earned, generally on a straight line basis.

        Accounts        and trade notes receivable are customer obligations due under normal trade terms. The        Company sells its products primarily to independent dry clean and laundry plants. The        Company performs continuing credit evaluations of its customers’ financial condition        and depending on the term of credit, the amount of the credit granted and        management’s past history with a customer, the Company may require the customer to        grant a security interest in the purchased equipment as collateral for the receivable.        Senior management reviews accounts and notes receivable on a regular basis to determine if        any such amounts will potentially be uncollectible. The Company includes any balances that        are determined to be uncollectible, along with a general reserve based on older aged        amounts, in its overall allowance for doubtful accounts. After all attempts to collect a        receivable have failed, the receivable is written off. Based on the information available        to management, it believes the Company’s allowance for doubtful accounts as of June        30, 2007 is adequate. However, actual write-offs might exceed the recorded        allowance.

                **Franchise License Trademark and Other Intangible Assets**

        The        franchise license, trademark, patents and trade name are stated at cost less accumulated        amortization. Those assets are amortized on a straight-line basis over the estimated future        periods to be benefited (10-15 years). The patents are amortized over the shorter of the        patents’ useful life or legal life from the date such patents are granted. The        Company reviews the recoverability of intangible assets based primarily upon an analysis of        undiscounted cash flows from the intangible assets. In the event the expected future net        cash flows should become less than the carrying amount of the assets, an impairment loss        will be recorded in the period such determination is made based on the fair value of the        related assets.

# New Accounting        Pronouncements

        In        March 2006, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF        Issue No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental        Authorities Should Be Presented in the Income Statement (that is, Gross versus Net        Presentation).” EITF 06-3 requires an entity to disclose its policy for presenting        taxes assessed on revenue-producing transaction between a seller and customer. Such taxes        may include sales, use, and some excise taxes, among others. EITF 06-3 is        effective

16

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for interim and annual periods        ending after December 15, 2006 with early application permitted.

For the periods presented in this        Report, the Company has presented such taxes net. The implementation of EITF 06-3 did not        have an effect on the Company’s financial statements.

        In        June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in        Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty        in income taxes recognized in financial statements and prescribes a two-step test for the        recognition and measurement of a tax position taken on a tax return.  FIN 48        provides guidance for determining whether tax benefits may be recognized with respect to        uncertain tax positions and, if recognized, the amount that may be recorded.  FIN 48        is effective for fiscal years beginning after December 15, 2006. The Company does not        believe FIN 48 will have a material effect on its consolidated financial        statements.

        In        September 2006, the FASB Issued SFAS No. 157, “Fair Value Measurement”        (“SFAS 157”) which defines fair value, establishes a framework for measuring        fair value in accordance with generally accepted accounting principles, and provides for        additional fair value disclosures. SFAS 157 is effective for fiscal years beginning after        November 15, 2007. The Company does not believe SFAS 157 will have a material effect on its        consolidated financial statements.

        In        September 2006, the Staff of the Securities and Exchange Commission issued Staff Accounting        Bulletin No. 108, “Considering the Effect of Prior Year Misstatements when        Quantifying Misstatements in Current Year Financial Statements” (“SAB        108”). SAB 108 requires the use of two approaches in quantitatively evaluating        the materiality of misstatements. If the misstatement as quantified under either approach        is material to the current year financial statements, the misstatement must be corrected.        If the effect of correcting a prior year misstatement in the current year income statement        is material, the prior year financial statements should be corrected. In the year of        adoption (fiscal years ending after November 15, 2006), the misstatements may be corrected        as an accounting change by adjusting opening retained earnings rather than being included        in the current year income statement. The Company does not expect SAB 108 to have an impact        on the Company’s consolidated financial statements.

        In        February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial        Assets and Financial Liabilities” which permits, at specified election dates, all        entities to choose to measure eligible items at fair value. SFAS 159 is effective as of the        beginning of an entity’s fiscal year beginning on or after November 15, 2007 with        early application permitted as of the beginning of a fiscal year beginning on or before        November 15, 2007 if an entity also elects to apply the provisions of SFAS 157.        Retrospective application is not permitted unless early adoption is adopted. The Company is        evaluating the effect, if any, the adoption of SFAS 159 will have on the        Company’s financial statements.

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| **Item 7.** |   | **Financial                Statements.** |
|-------------|--------|------------------------------------------|

DRYCLEAN USA, Inc. and        Subsidiaries

Index to Consolidated        Financial Statements

|                                                                                                           | Page     |
|-----------------------------------------------------------------------------------------------------------|----------|
| Reports of Independent Registered Public Accounting Firms                                                 | 19  |
| Consolidated Balance Sheets at June 30, 2007 and 2006                                                     | 21  |
| Consolidated Statements of Operations for the years ended June 30, 2007 and                2006           | 22  |
| Consolidated Statements of Shareholders' Equity for the years ended June 30, 2007                and 2006 | 23  |
| Consolidated Statements of Cash Flows for the years ended June 30, 2007 and                2006           | 24  |
| Summary of Accounting Policies                                                                            | 25  |
| Notes to Consolidated Financial Statements                                                                | 30  |

18

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# REPORT OF        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying        consolidated balance sheet of DRYCLEAN USA, Inc. and Subsidiaries (the        “Company”) as of June 30, 2007, and the related consolidated statements of        operations, shareholders’ equity, and cash flows for the year then ended. These        consolidated financial statements are the responsibility of the Company’s management.        Our responsibility is to express an opinion on these financial statements based on our        audit.

We conducted our audit in accordance        with the standards of the Public Company Accounting Oversight Board (United States). Those        standards require that we plan and perform the audit to obtain reasonable assurance about        whether the consolidated financial statements are free of material misstatement. The        Company was not required to have, nor were we engaged to perform, an audit of the        Company’s internal control over financial reporting. Our audit included consideration        of internal control over financial reporting as a basis for designing audit procedures that        are appropriate in the circumstances, but not for the purpose of expressing an opinion on        the effectiveness of the Company’s internal control over financial reporting.        Accordingly, we express no such opinion. An audit also includes examining, on a test basis,        evidence supporting the amounts and disclosures in the consolidated financial statements,        assessing the accounting principles used and significant estimates made by management, as        well as evaluating the overall financial statement presentation. We believe that our audit        provides a reasonable basis for our opinion.

In our opinion, the consolidated        financial statements referred to above present fairly, in all material respects, the        consolidated financial position of DRYCLEAN USA, Inc. and Subsidiaries as of June 30, 2007        and the consolidated results of their operations and their cash flows for the year then        ended in conformity with accounting principles generally accepted in the United States of        America.

/s/ Berkovits & Company,        LLP

Fort Lauderdale, Florida        August 28, 2007, except        for the second paragraph of        Note 12 as to which the date        is September 25, 2007

19

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Report of Independent        Registered Public Accounting Firm 

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

We have audited the accompanying        consolidated balance sheet of DRYCLEAN USA, Inc. and subsidiaries as of June 30, 2006, and        the related consolidated statement of operations, shareholders’ equity and cash flows        for the year then ended. These consolidated financial statement are the responsibility of        the Company’s management. Our responsibility is to express an opinion on these        financial statements based on our audits.

We conducted our audits in        accordance with the standards of the Public Company Accounting Oversight Board (United        States). Those standards require that we plan and perform the audit to obtain reasonable        assurance about whether the consolidated financial statements are free of material        misstatement. The Company was not required to have, nor were we engaged to perform, an        audit of the Company’s internal control over financial reporting. Our audits included        consideration of internal control over financial reporting as a basis for designing audit        procedures that are appropriate in the circumstances, but not for the purpose of expressing        an opinion on the effectiveness of the Company’s internal control over financial        reporting. Accordingly, we express no such opinion. An audit also includes examining, on a        test basis, evidence supporting the amounts and disclosures in the consolidated financial        statements, assessing the accounting principles used and significant estimates made by        management, as well as evaluating the overall financial statement presentation. We believe        that our 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, 2006        and the consolidated results of their operations and their cash flows for the year then        ended in conformity with accounting principles generally accepted in the United States of        America.

/s/ Morrison, Brown, Argiz &        Farra, LLP

Miami, Florida        September 8, 2006, except        for the first paragraph of        Note 12 as to which the date        is September 26, 2006

20

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DRYCLEAN USA, Inc. and        Subsidiaries

Consolidated Balance        Sheets

|                                                                                                                   |
|-------------------------------------------------------------------------------------------------------------------|
||
||
| **Current assets**                                                                                                |   |   |   |  |   |   |  |   |
|    Cash and                cash equivalents                                                        |   |   | $ | 4,296,415 |   | $ | 3,106,703 |   |
|    Accounts                and trade notes receivable, net of allowance for                        |   |   |   |   |   |   |   |   |
|        doubtful                accounts of $125,000 and $130,000, respectively |   |   |   | 1,454,987 |   |   | 1,878,384 |   |
|    Inventories,                net                                                                 |   |   |   | 2,912,524 |   |   | 2,991,165 |   |
|    Deferred                income taxes                                                            |   |   |   | 99,140 |   |   | 141,210 |   |
|     Refundable income                taxes                                                    |   |   |   | 64,131 |   |   | - |   |
|    Other                current assets                                                             |   |   |   | 98,353 |   |   | 253,075 |   |
|                                                                                                                   |
| Total current assets                                                                                              |   |   |   | 8,925,550 |   |   | 8,370,537 |   |
| **Equipment and improvements, net**                                                                               |   |   |   | 261,872 |   |   | 225,643 |   |
| **Franchise license, trademarks and other intangible assets, net**                                                |   |   |   | 246,812 |   |   | 308,474 |   |
| **Deferred income taxes**                                                                                         |   |   |   | 9,340 |   |   | 33,375 |   |
|                                                                                                                   |
| Total assets                                                                                                      |   |   | $ | 9,443,574 |   | $ | 8,938,029 |   |
|                                                                                                                   |
| **Liabilities and Shareholders' Equity**                                                                          |   |   |
| **Current liabilities**                                                                                           |   |   |
|    Accounts                payable and accrued expenses                                            |   |   | $ | 1,076,300 |   | $ | 893,213 |   |
|    Accrued                employee expenses                                                        |   |   |   | 605,383 |   |   | 591,133 |   |
|     Income taxes                payable                                                       |   |   |   | - |   |   | 70,391 |   |
|    Unearned                income                                                                  |   |   |   | 124,162 |   |   | 206,937 |   |
|    Customer                deposits                                                                |   |   |   | 1,365,623 |   |   | 1,222,196 |   |
|                                                                                                                   |
| Total current                liabilities                                                                          |   |   |   | 3,171,468 |   |   | 2,983,870 |   |
|                                                                                                                   |
| Total                liabilities                                                                                  |   |   |   | 3,171,468 |   |   | 2,983,870 |   |
|                                                                                                                   |
| **Commitments and contingencies**                                                                                 |   |   |
|                                                                                                                   |
| **Shareholders' equity**                                                                                          |   |   |
| Preferred Stock, $1.00 par                value:                                                                  |   |   |
|    Authorized                shares - 200,000; none                                                |   |   |
|      issued and                outstanding                                               |   |   |   | - |   |   | - |   |
| Common stock, $0.025 par                value:                                                                    |   |   |
|    Authorized                shares - 15,000,000; 7,065,500,                                       |   |   |
|      shares issued,                including shares held in treasury                     |   |   |   | 176,638 |   |   | 176,638 |   |
|    Additional                paid-in capital                                                       |   |   |   | 2,095,069 |   |   | 2,095,069 |   |
|    Retained                earnings                                                                |   |   |   | 4,003,712 |   |   | 3,685,472 |   |
|    Treasury                stock, 31,193 and 31,050 shares,                                        |   |   |
|      respectively,                at cost                                                |   |   |   | (3,313 | ) |   | (3,020 | ) |
|                                                                                                                   |
| Total shareholders'                equity                                                                         |   |   |   | 6,272,106 |   |   | 5,954,159 |   |
|                                                                                                                   |
| Total liabilities and                shareholders' equity                                                         |   |   | $ | 9,443,574 |   | $ | 8,938,029 |   |
|                                                                                                                   |

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

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DRYCLEAN USA, Inc. and        Subsidiaries

Consolidated        Statements of Operations

| *Years ended June 30,*                                                                                 | 2007   | 2006   |
|--------------------------------------------------------------------------------------------------------|--------|--------|
| **Revenues:**                                                                                          |   |   |   |  |   |   |  |   |
|      Net                sales                                                 |   |   | $ | 22,091,863 |   | $ | 19,464,842 |   |
|      Development                fees, franchise and license fees, commissions |   |   |
|         and                other                               |   |   |   | 656,664 |   |   | 950,048 |   |
|                                                                                                        |
| Total                                                                                                  |   |   |   | 22,748,527 |   |   | 20,414,890 |   |
|                                                                                                        |
| **Cost of                sales**                                                                       |   |   |   | 16,952,633 |   |   | 14,778,382 |   |
| **Selling, general and                administrative expenses**                                        |   |   |   | 4,506,053 |   |   | 4,455,969 |   |
| **Research and development                expenses**                                                   |   |   |   | 41,910 |   |   | 27,805 |   |
|                                                                                                        |
| Total                                                                                                  |   |   |   | 21,500,596 |   |   | 19,262,156 |   |
|                                                                                                        |
| **Operating                income**                                                                    |   |   |   | 1,247,931 |   |   | 1,152,734 |   |
|                                                                                                        |
| **Other                income:**                                                                       |   |   |
|      Interest                income                                           |   |   |   | 162,793 |   |   | 75,443 |   |
|                                                                                                        |
| Earnings before income                taxes                                                            |   |   |   | 1,410,724 |   |   | 1,228,177 |   |
| Provision for income                taxes                                                              |   |   |   | 529,734 |   |   | 424,196 |   |
|                                                                                                        |
| Net earnings                                                                                           |   |   | $ | 880,990 |   | $ | 803,981 |   |
|                                                                                                        |
| Net earnings per                share                                                                  |   |   |
|      Basic                                                                    |   |   | $ | .13 |   | $ | .11 |   |
|      Diluted                                                                  |   |   | $ | .13 |   | $ | .11 |   |
|                                                                                                        |
| Weighted average number of                shares of                                                    |   |   |
| common stock                outstanding:                                                               |   |   |
|      Basic                                                                    |   |   |   | 7,034,390 |   |   | 7,026,950 |   |
|      Diluted                                                                  |   |   |   | 7,037,846 |   |   | 7,031,710 |   |
|                                                                                                        |

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

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DRYCLEAN USA, Inc. and        Subsidiaries

Consolidated        Statements of Shareholders' Equity

|                                                                    | *Common Stock* | *Additional**Paid-in* | *Treasury Stock* | *Retained* |   |
|-------------------------------------------------------------------------|----------------|-----------------------|------------------|------------|--------|
||
| Balance at June 30, 2005                                                |           |                  |             | 7,055,500  |   | $ | 176,388 |   | $ | 2,081,763 |   |   | 31,050 |   | $ | (3,020 | ) | $ | 3,443,847 |   | $ | 5,698,978 |   |
|    Stock options exercised                               |           |                  |             | 10,000     |   |   | 250 |   |   | 8,813 |   |   | - |   |   | - |   |   | - |   |   | 9,063 |   |
|    Tax                benefit from stock option exercise |           |                  |             | -          |   |   | - |   |   | 4,493 |   |   | - |   |   | - |   |   | - |   |   | 4,493 |   |
|    Dividends                paid                         |           |                  |             | -          |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (562,356 | ) |   | (562,356 | ) |
|    Net                earnings                           |           |                  |             | -          |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 803,981 |   |   | 803,981 |   |
|                                                                         |
| Balance at June 30,                2006                                 |           |                  |             | 7,065,500  |   |   | 176,638 |   |   | 2,095,069 |   |   | 31,050 |   |   | (3,020 | ) |   | 3,685,472 |   |   | 5,954,159 |   |
|    Purchase of treasury stock                            |           |                  |             | -          |   |   | - |   |   | - |   |   | 143 |   |   | (293 | ) |   | - |   |   | (293 | ) |
|    Dividends                paid                         |           |                  |             | -          |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (562,750 | ) |   | (562,750 | ) |
|    Net                earnings                           |           |                  |             | -          |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 880,990 |   |   | 880,990 |   |
|                                                                         |
| Balance at June 30,                2007                                 |           |                  |             | 7,065,500  |   | $ | 176,638 |   | $ | 2,095,069 |   |   | 31,193 |   | $ | (3,313 | ) | $ | 4,003,712 |   | $ | 6,272,106 |   |
|                                                                         |

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

23

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DRYCLEAN USA, Inc. and        Subsidiaries

Consolidated        Statements of Cash Flows

| Years ended June 30,                                                                                 | 2007   | 2006   |
|------------------------------------------------------------------------------------------------------|--------|--------|
| **Operating                activities:**                                                             |   |   |   |  |   |   |  |   |
|    Net                income                                                          |   |   | $ | 880,990 |   | $ | 803,981 |   |
|    Adjustments to reconcile                net income to net cash                     |   |   |
|    provided                by operating activities:                                   |   |   |
|      Depreciation                and amortization                           |   |   |   | 120,479 |   |   | 142,453 |   |
|      Bad debt                expense                                        |   |   |   | 32,183 |   |   | 36,731 |   |
|      Inventory                reserve                                       |   |   |   | 57,428 |   |   | 60,279 |   |
|      Provision                (benefit) for deferred income taxes           |   |   |   | 66,105 |   |   | (61,306 | ) |
|      (Increase)                decrease in operating assets:                |   |   |
|        Accounts,                trade notes and lease receivables |   |   |   | 391,214 |   |   | 49,630 |   |
|        Inventories                                                |   |   |   | 21,213 |   |   | 38,573 |   |
|        Refundable                income taxes                     |   |   |   | (64,131 | ) |   | - |   |
|        Other                current assets                        |   |   |   | 154,722 |   |   | (134,145 | ) |
|      Increase                (decrease) in operating liabilities:           |   |   |
|        Accounts                payable and accrued expenses       |   |   |   | 183,087 |   |   | 213,708 |   |
|        Accrued                employee expenses                   |   |   |   | 14,250 |   |   | 295,693 |   |
|        Unearned                income                             |   |   |   | (82,775 | ) |   | (82,775 | ) |
|        Customer                deposits                           |   |   |   | 143,427 |   |   | 644,756 |   |
|        Income                taxes payable                        |   |   |   | (70,391 | ) |   | 74,884 |   |
|                                                                                                      |
| Net cash provided by                operating activities                                             |   |   |   | 1,847,801 |   |   | 2,082,462 |   |
|                                                                                                      |
| **Investing                activities:**                                                             |   |   |
|    Payments                received on note receivable                                |   |   |   | - |   |   | 67,857 |   |
|    Capital                expenditures                                                |   |   |   | (93,846 | ) |   | (71,131 | ) |
|    Patent                expenditures                                                 |   |   |   | (1,200 | ) |   | (1,308 | ) |
|                                                                                                      |
| Net cash used by investing                activities                                                 |   |   |   | (95,046 | ) |   | (4,582 | ) |
|                                                                                                      |
| **Financing                activities:**                                                             |   |   |
|    Proceeds                from exercise of stock options                             |   |   |   | - |   |   | 9,063 |   |
|    Dividends                paid                                                      |   |   |   | (562,750 | ) |   | (562,356 | ) |
|    Purchase                of treasury stock                                          |   |   |   | (293 | ) |   | - |   |
|                                                                                                      |
| Net cash used in financing                activities                                                 |   |   |   | (563,043 | ) |   | (553,293 | ) |
|                                                                                                      |
| Net increase in cash and                cash equivalents                                             |   |   |   | 1,189,712 |   |   | 1,524,587 |   |
| Cash and cash equivalents at                beginning of year                                        |   |   |   | 3,106,703 |   |   | 1,582,116 |   |
|                                                                                                      |
| Cash and cash equivalents at                end of year                                              |   |   | $ | 4,296,415 |   | $ | 3,106,703 |   |
|                                                                                                      |
| Supplemental                Information:                                                             |   |   |
|    Cash paid                for:                                                      |   |   |
|    Income                taxes                                                        |   |   | $ | 598,151 |   | $ | 385,444 |   |
|                                                                                                      |

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

24

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

| **1.** |   | **Summary of                Significant                Accounting Policies** |
|--------|--------|------------------------------------------------------------------------------|

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

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

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

| **Revenue                Recognition** |   | Sales of                products are generally shipped FOB origin and revenue is recorded as they are                shipped. Shipping, delivery and handling fee income of approximately $974,000 and                $581,000 for the years ended June 30, 2007 and 2006, respectively, are included in                revenues in the consolidated financial statements. Shipping, delivery and handling                costs are included in cost of sales. Commissions and development fees are recorded                when earned. Individual franchise arrangements include a license and provide for                the payment of initial fees for the granting of the franchise. Royalty fees are                generated for the use of the name DRYCLEAN USA®. Initial franchise fees are                generally recorded upon the opening of the franchise store. Continuing royalty fees                are recorded when earned. Royalty fees recognized in fiscal 2007 and 2006 were                approximately $197,000 and $241,000, respectively. |
|----------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Customer                deposits represent primarily amounts received from customers for future delivery of                equipment or services. In January 2005, the Company signed an exclusive license                agreement with Whirlpool Corporation, licensing the use of the Company’s                patent technology on home appliances. Whirlpool Corporation paid to the Company                $350,000, including $331,100 as a one time up front fee for the exclusive license,                and is to pay royalties during the three year period following the introduction of                Whirlpool Corporation manufactured products using the licensed technology. After                this period, Whirlpool Corporation will retain a non-exclusive license and the                Company is free to license its technology to other manufacturers. Unearned income                represents the $331,100 fee for the exclusive license which is being amortized over                48 months, the life of the contract. At June 30, 2007, $124,162 remained to be                amortized. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Accounts and                Trade                Notes Receivable** |   | Accounts and                trade notes receivable are customer obligations due under normal trade terms. The                Company sells its products primarily to independent dry cleaning and laundry                plants. The Company performs continuing credit evaluations of its customers’                financial condition and, depending on the terms of credit, the amount of the credit                granted and management’s history with a customer, the Company may require the                customer to grant a security interest in the purchased equipment as |
|-----------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

25

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

|   | collateral for                the receivable. Senior management reviews accounts and notes receivable on a                regular basis to determine if any amounts will potentially be uncollectible. The                Company includes any balances that are determined to be uncollectible, along with a                general reserve, in its overall allowance for doubtful accounts. After all attempts                to collect a receivable have failed, the receivable is written off. Based on the                information available, management believes the Company’s allowance for                doubtful accounts as of June 30, 2007 and 2006 is adequate. However, actual                write-offs might exceed the recorded allowance. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| **Equipment,                Improvements and                Depreciation** |   | Property and                equipment are stated at cost. Depreciation and amortization are calculated on                accelerated and straight-line methods over lives of five to seven years for                furniture and equipment and the lesser of ten years or the life of the lease for                leasehold improvements for both financial reporting and income tax purposes, except                that leasehold improvements are amortized over 31 years for income tax purposes.                Repairs and maintenance costs are expensed as incurred. |
|----------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Franchise                License,                Trademark and Other                Intangible Assets** |  | Franchise                license, trademark, and other intangible assets are stated at cost lessaccumulated                amortization. These assets are amortized on a straight-line basis over the                estimated future periods to be benefited (10-15 years). Patents are amortized over                the shorter of the patent’s useful life or legal life from the date such                patent is granted. The Company reviews the recoverability of intangible assets                based primarily upon an analysis of undiscounted cash flows expected to be                generated from the acquired assets. In the event the expected future net cash flows                should become less than the carrying amount of the assets, an impairment loss will                be recorded in the period such determination is made, based on the fair value of                the related assets. |
|-----------------------------------------------------------------------------------------------------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

26

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

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

| **Cash                Equivalents** |   | Cash                equivalents include all highly liquid investments with original maturities of three                months or less. |
|-------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------|

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

| **Stock                 Based                Compensation** |   | The                Company’s 2000 Stock Option Plan and 1994 Non-Employee Director Stock Option                Plan are the Company’s only stock-based compensation plans. The 2000 Stock                Option Plan authorizes the grant (until May 2, 2010) of options to purchase up to                500,000 shares of the Company’s common stock to employees, directors and                consultants. No options were outstanding under the 2000 Stock Option Plan on June                30, 2007 and 2006. The 1994 Non-Employee Director Stock Option Plan terminated as                to future grants on August 23, 2004, but options to purchase 20,000 shares remain                outstanding thereunder. |
|------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Effective                January 1, 2006, the Company adopted SFAS No. 123 (revised), “Share-Based                Payment” (“SFAS 123(R)”), utilizing the modified prospective                approach. Prior to the adoption of SFAS 123(R), the Company accounted for stock                option grants under the recognition and measurement principles of APB Opinion No.                25, “Accounting for Stock Issued to Employees,” and related                interpretations, and, accordingly, recognized no compensation expense for stock                option grants in net income. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Under the                modified prospective approach, SFAS 123(R) applies to new grants and to grants that                were outstanding on December 31, 2005 to the extent not yet vested. Since no new                options were granted during the years ended June 30, 2006 and 2007 and all                outstanding options were fully vested at December 31, 2005, no compensation cost                for share-based payments was recognized under SFAS 123(R) during the years ended                June 30, 2007 and 2006. Prior periods are not required to be restated to reflect                the impact of adopting the new standard. No compensation cost would have been                recognized under the provisions of SFAS 123(R) had SFAS 123(R) been in effect as to                the Company during any of the periods reported in this Report. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **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. |
|---------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

27

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

| **Advertising                 Costs** |   | The Company                expenses the cost of advertising as of the first date an advertisement is run. The                Company expensed approximately $130,000 and $132,000 of advertising costs for the                years ended June 30, 2007 and 2006, respectively. |
|--------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

| **New                 Accounting                Pronouncements** |   | In March 2006,                the Emerging Issues Task Force (“EITF”) reached a consensus on EITF                Issue No. 06-3, “How Taxes Collected from Customers and Remitted to                Governmental Authorities Should Be Presented in the Income Statement (that is,                Gross versus Net Presentation).” EITF 06-3 requires an entity to disclose its                policy for presenting taxes assessed on revenue-producing transaction between a                seller and customer. Such taxes may include sales, use, and some excise taxes,                among others. EITF 06-3 is effective for interim and annual periods ending after                December 15, 2006 with early application permitted. For the periods presented in                this Report, the Company has presented such taxes net. The implementation of EITF                06-3 did not have an effect on the Company’s financial statements. |
|-----------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In June 2006,                the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in                Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for                uncertainty in income taxes recognized in financial statements and prescribes a                two-step test for the recognition and measurement of a tax position taken on a                tax return.  FIN 48 provides guidance for determining whether tax benefits may                be recognized with respect to uncertain tax positions and, if recognized, the                amount that may be recorded.  FIN 48 is effective for fiscal years beginning                after December 15, 2006. The Company does not believe FIN 48 will have a material                effect on its consolidated financial statements. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In September                2006, the FASB Issued SFAS No. 157, “Fair Value Measurement”                (“SFAS 157”) which defines fair value, establishes a framework for                measuring fair value in accordance with generally accepted accounting principles,                and provides for additional fair value disclosures. SFAS 157 is effective for                fiscal years beginning after November 15, 2007. The Company does not believe SFAS                157 will have a material effect on its consolidated financial statements. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

28

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

|   | In September                2006, the Staff of the Securities and Exchange Commission issued Staff Accounting                Bulletin No. 108, “Considering the Effect of Prior Year Misstatements when                Quantifying Misstatements in Current Year Financial Statements” (“SAB                108”). SAB 108 requires the use of two approaches in quantitatively                evaluating the materiality of misstatements. If the misstatement as quantified                under either approach is material to the current year financial statements, the                misstatement must be corrected. If the effect of correcting a prior year                misstatement in the current year income statement is material, the prior year                financial statements should be corrected. In the year of adoption (fiscal years                ending after November 15, 2006), the misstatements may be corrected as an                accounting change by adjusting opening retained earnings rather than being included                in the current year income statement. The Company does not expect SAB 108 to have                an impact on the Company’s consolidated financial statements. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In February                2007, the FASB issued SFAS 159, “The Fair Value Option for Financial                Assets and Financial Liabilities” which permits, at specified election dates,                all entities to choose to measure eligible items at fair value. SFAS 159 is                effective as of the beginning of an entity’s fiscal year beginning on or                after November 15, 2007 with early application permitted as of the beginning of a                fiscal year beginning on or before November 15, 2007 if an entity also elects to                apply the provisions of SFAS 157. Retrospective application is not permitted unless                early adoption is adopted. The Company is evaluating the effect, if any, the                adoption of SFAS 159 will have on the Company’s financial                statements. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **Reclassification** |   |  Certain                items in the 2006 consolidated financial statements have been reclassified to                conform to the 2007 presentation. |
|----------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

29

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

| **2.    Inventories** |   | Inventories are                comprised of: |
|-------------------------------------------|--------|----------------------------------------------|

| *June 30,*   | 2007   | 2006   |
|--------------|--------|--------|
| Equipment    |   |   | $ | 1,983,876 |   | $ | 2,082,243 |   |
| Parts        |   |   |   | 971,499 |   |   | 1,009,201 |   |
|              |
|         |   |   |   | 2,955,375 |   |   | 3,091,444 |   |
| Less reserve |   |   |   | (42,851 | ) |   | (100,279 | ) |
|              |
|         |   |   | $ | 2,912,524 |   | $ | 2,991,165 |   |
|              |

|   | The Company has                provided reserves of $42,851 and $100,279 for the years ended June 30, 2007 and                2006, respectively, against slow moving inventory. For the year ended June 30,                2007, the Company wrote-off $57,428 in slow moving inventory. There was no                write-off in fiscal 2006. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| *June 30,*                                       | 2007   | 2006   |
|--------------------------------------------------|--------|--------|
| Furniture and                equipment           |   |   | $ | 808,407 |   | $ | 770,430 |   |
| Leasehold                improvements            |   |   |   | 429,158 |   |   | 377,665 |   |
|                                                  |
|                                             |   |   |   | 1,237,565 |   |   | 1,148,095 |   |
| Less accumulated                depreciation and |   |   |
|     amortization             |   |   |   | (975,693 | ) |   | (922,452 | ) |
|                                                  |
|                                             |   |   | $ | 261,872 |   | $ | 225,643 |   |
|                                                  |

|   | Depreciation                and amortization of equipment and improvements amounted to $52,346 and $75,840 for                the years ended June 30, 2007 and 2006, respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **4.                    Intangible Assets** |   | Franchise                license, trademarks and other intangible assets consist of the following: |
|-----------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|

|                                         | *Estimated                    Useful Lives                    (in years)* | June 30,                    2007 | June 30,                    2006 |
|----------------------------------------------|---------------------------------------------------------------------------|----------------------------------|----------------------------------|
| Franchise                license agreements  |                                                                      |                             | 10                               |   |   | $ | 529,500 |   | $ | 529,500 |   |
| Trademarks, patents                and       |                                                                      |                             |
|   Tradenames                       |                                                                      |                             | 10-15                            |   |   |   | 217,354 |   |   | 211,779 |   |
|                                              |
|                                         |                                                                      |                             |                             |   |   |   | 746,854 |   |   | 741,279 |   |
| Less accumulated                amortization |                                                                      |                             |                             |   |   |   | (500,042) |  |   | (432,805) |  |
|                                              |
|                                         |                                                                      |                             |                             |   |   | $ | 246,812 |   | $ | 308,474 |   |
|                                              |

|   | Amortization                expense amounted to $68,132 in fiscal 2007 and $66,613 in fiscal 2006. |
|--------|----------------------------------------------------------------------------------------------------|

30

----

| **5.                    Income Taxes** |   | The following                are the components of income taxes (benefit): |
|------------------------------------------------------------|--------|----------------------------------------------------------------------------|

| *Years ended June 30,*          | 2007   | 2006   |
|---------------------------------|--------|--------|
| Current                         |   |   |   |  |   |   |  |   |
|     Federal |   |   | $ | 395,865 |   | $ | 414,174 |   |
|     State   |   |   |   | 67,764 |   |   | 71,328 |   |
|                                 |
|        |   |   |   | 463,629 |   |   | 485,502 |   |
|                                 |
| Deferred                        |   |   |
|     Federal |   |   |   | 56,443 |   |   | (52,346 | ) |
|     State   |   |   |   | 9,662 |   |   | (8,960 | ) |
|                                 |
|                            |   |   |   | 66,105 |   |   | (61,306 | ) |
|                                 |
|                            |   |   | $ | 529,734 |   | $ | 424,196 |   |
|                                 |

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

| *Years ended June 30,*                                                    | 2007   | 2006   |
|---------------------------------------------------------------------------|--------|--------|
| Tax at the                statutory rate                                  |   |   | $ | 479,646 |   | $ | 417,582 |   |
| State income                taxes,                                        |   |   |
|       net of                federal benefit |   |   |   | 51,102 |   |   | 41,163 |   |
| Other                                                                     |   |   |   | (1,014 | ) |   | (34,549 | ) |
|                                                                           |
|                                                                      |   |   | $ | 529,734 |   | $ | 424,196 |   |
|                                                                           |

|   | 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: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *Years ended June 30,*                                                 | 2007   | 2006   |
|------------------------------------------------------------------------|--------|--------|
| Current deferred                tax asset:                             |   |   |   |  |   |   |  |   |
|     Allowance for                doubtful accounts |   |   | $ | 47,038 |   | $ | 48,919 |   |
|     Inventory                capitalization        |   |   |   | 49,591 |   |   | 66,462 |   |
|     Other                                          |   |   |   | 2,511 |   |   | 25,829 |   |
|                                                                        |
|                                               |   |   |   | 99,140 |   |   | 141,210 |   |
|                                                                        |
|                                                                   |   |   |
| Noncurrent deferred tax                asset (liability):              |   |   |
|     Equipment and                improvements      |   |   |   | (44,337 | ) |   | (18,619 | ) |
|     Franchise, trademarks                and other |   |   |
|     intangible                assets               |   |   |   | 53,677 |   |   | 51,994 |   |
|                                                                        |
|                                               |   |   |   | 9,340 |   |   | 33,375 |   |
|                                                                        |
| Total net deferred income                tax asset                     |   |   | $ | 108,480 |   | $ | 174,585 |   |
|                                                                        |

31

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| **6.** | **Credit                Agreement and                Term Loan** | The Company is                a party to a bank loan agreement which provides the Company with a revolving credit                facility of $2,250,000, including a $1,000,000 letter of credit subfacility and                $250,000 foreign exchange subfacility. On October 30, 2006, the Loan Agreement was                amended to eliminate the requirement that the Company maintain windstorm insurance                coverage, thereby enabling the Company to self insure against windstorm damages. On                October 30, 2005, the Loan Agreement was amended to eliminate the requirement that                51% of the common stock of the Company be owned by the Steiner family or any                Steiner Trust. Borrowings under the revolving credit facility bear interest at                2.50% per annum above the Adjusted LIBOR Market Index Rate, are guaranteed by all                of the Company’s subsidiaries and are collateralized by substantially all of                the Company’s and its subsidiaries’ assets. The revolving credit                facility matures October 30, 2007. At June 30, 2007 and 2006, there were no                outstanding borrowings, letters of credit or foreign exchange contracts outstanding                under the line of credit. The loan agreement requires maintenance of certain debt                service coverage and leverage ratios and contains other restrictive covenants,                including limitations on the extent to which the Company and its subsidiaries may                incur additional indebtedness, pay dividends, guarantee indebtedness of others,                grant liens, sell assets and make investments. The Company was in compliance with                these covenants at June 30, 2007 and 2006. |
|--------|------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **7.** | **Related                Party Transactions** | The Company                leases warehouse and office space under an operating lease from Sheila Steiner,                who, together with her husband, William K. Steiner, Chairman of the Board of                Directors and a director of the Company, are trustees of a trust which is a                principal shareholder of the Company. Annual rental expense under this lease was                $96,400 in fiscal 2007 and $90,700 in fiscal 2006. |
|--------|-----------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | The Company                paid a law firm, in which a director is of counsel, $46,700 and $45,300 in fiscal                2007 and 2006, respectively, for legal services performed. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **8.** | **Concentrations of                Credit Risk** | The Company                places its excess cash in overnight deposits with a large national bank and a large                broker firm. At times, such deposits have exceeded insured limits. Concentration of                credit risk with respect to trade and lease receivables is limited due to a large                customer base. Based on the Company’s credit evaluation, trade receivables                may be collateralized by the equipment sold. |
|--------|--------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

32

----

| **9.** | **Commitments** | In addition to                the warehouse and office space leased from the wife of an officer and director who,                together, are trustees of a trust which is a principal shareholder (see Note 7),                the Company leases two additional office and warehouse facilities from unrelated                third parties under operating leases expiring in March and December 2008,                respectively. As of June 30, 2007, the Company is also obligated under a lease for                a future dry cleaning store, for a sum of $33,600 in annual base rent per year for                the next five years. The Company anticipates assigning the lease to a dry cleaning                franchisee or another customer when the leased facility is available for                occupancy. |
|--------|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Minimum future                rental commitments for leases in effect at June 30, 2007 approximates the                following: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------|

| *Years ending                June 30,* |
|----------------------------------------|
|                                        |
| 2008                                   |   |   | $ | 181,700 |   |
| 2009                                   |   |   |   | 86,500 |   |
| 2010                                   |   |   |   | 33,600 |   |
| 2011                                   |   |   |   | 33,600 |   |
| 2012                                   |   |   |   | 33,600 |   |
| Thereafter                             |   |   |   | 16,800 |   |
|                                        |
| Total                                  |   |   | $ | 385,800 |   |
|                                        |

|   | Rent expense                aggregated $179,503 and $169,278 for the years ended June 30, 2007 and 2006,                respectively. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | As of June 30,                2007, the Company had no outstanding letters of credit. |
|--------|---------------------------------------------------------------------------------------|

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

| **10.** | **Deferred                Compensation Plan** | The Company has                a participatory deferred compensation plan wherein it matches employee                contributions up to 2% of an eligible employee’s yearly compensation.                Employees are eligible to participate in the plan after one year of service. The                Company contributed approximately $12,600 and $9,700 to the Plan during fiscal 2007                and fiscal 2006, respectively. The plan is tax deferred under Section 401(k) of the                Internal Revenue Code. |
|---------|-----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

33

----

| **11.** | **Earnings Per                Share** |   | The following                reconciles the components of the earnings per share computation: |
|---------|---------------------------------------|--------|-----------------------------------------------------------------------------------------------|

| ***Year                ended June 30, 2007***  |
|------------------------------------------------|
|                                                |
|                                                | ***Income                (Numerator)*** | ***Shares                (Denominator)*** | ***Per Share                Amount*** |
|                                                |
| Net                earnings                    |   |   | $ | 880,990 |   |   | 7,034,390 |   | $ | .13 |   |
|                                                |   |   |
| Effect of dilutive                securities:  |   |   |
|    Stock                options |   |   |   | - |   |   | 3,456 |   |   | - |   |
|                                                |
|                                           |   |   | $ | 880,990 |   |   | 7,037,846 |   | $ | .13 |   |
|                                                |
|                                                |   |   |
| *Year ended June 30,                2006*      |   |   |
|                                                |
| Net earnings                                   |   |   | $ | 803,981 |   |   | 7,026,950 |   | $ | .11 |   |
|                                                |   |   |
| Effect of dilutive                securities:  |   |   |
|    Stock                options |   |   |   | - |   |   | 4,760 |   |   | - |   |
|                                                |
|                                           |   |   | $ | 803,981 |   |   | 7,031,710 |   | $ | .11 |   |
|                                                |

|   | There were no                options excluded in the computations of earnings per share in fiscal 2007 and                2006. |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

| **12.** | **Dividends** | The Company                paid semi-annual dividends of $.04 per share during each of fiscal 2007 and                2006. |
|---------|---------------|-----------------------------------------------------------------------------------------------------------------------------|

|   | On September                25, 2007, the Board of Directors declared a $.04 per share semi-annual dividend (or                an aggregate of $281,372) payable on November 1, 2007 to shareholders of record on                October 12, 2007. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **13.** | **Stock                Options** | The                Company’s 2000 Stock Option Plan authorizes the grant (until May 2, 2010) of                options to purchase up to 500,000 shares of the Company’s common stock to                employees, directors and consultants. The Company also has a 1994 Non-Employee                Director Stock Option Plan which terminated as to future grants on August 23, 2004,                but under which options to purchase 20,000 shares remain outstanding. |
|---------|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Pursuant to the                Company’s 2000 Stock Option Plan, the Company may grant incentive stock                options and nonqualified stock options. Options under the 2000 Stock Option Plan                must be granted at an exercise price of at least 100% of the market value of the                Company’s common stock on the date of grant, may have a maximum term of 10                years and are not transferable. However, incentive stock options granted to an                individual owning more than 10% of the total combined voting power of all classes                of stock issued by the Company must have an exercise price of at least 110% of the                fair market value of the Company’s common stock on the date of the grant and                may not have a term of more than five years. Incentive stock options granted under                the 2000 Stock Option Plan are subject to the limitation that the aggregate fair                market value (determined as of the date of grant) of those options which may first                become exercisable in any calendar year cannot exceed $100,000. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

34

----

|   | Generally,                options granted to date had become exercisable, on a cumulative basis, as to                one-fourth of the shares covered thereby on each of the first four anniversaries of                grant. Generally, options terminate three months following termination of service                (except generally one year in the case of termination of service by reason of death                or disability). Options granted under the plan also terminate upon a merger in                which the Company is not the surviving corporation or in which shareholders before                the merger cease to own at least 50% of the combined voting power in the elections                of directors of the surviving corporation, the sale of substantially all of the                Company’s assets or the liquidation or dissolution of the Company, unless                another provision is made by the board of directors. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | In April 2006,                a director exercised options under the 1994 Non-Employee Director Stock Option Plan                to purchase 10,000 shares of the Company’s common stock at an exercise price                of $.91 per share. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A summary of                options under the Company’s stock option plans as of June 30, 2007, and                changes during the year then ended is presented below: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ***Year                Ended June 30, 2007***                 | *Shares* | **Weighted                Average                Exercise                Price** |
|---------------------------------------------------------------|----------|----------------------------------------------------------------------------------|
|                                                               |
|                                                               |     |                                                                             |   |  |   |   |  |   |
| Outstanding at beginning of                year               |     |                                                                             |   | 20,000 |   | $ | 1.45 |   |
| Granted                                                       |     |                                                                             |   | - |   |   | - |   |
| Exercised                                                     |     |                                                                             |   | - |   |   | - |   |
| Expired                                                       |     |                                                                             |   | - |   |   | - |   |
|                                                               |
| Outstanding at end of                year                     |     |                                                                             |   | 20,000 |   | $ | 1.45 |   |
| Options exercisable at                year-end                |     |                                                                             |   | 20,000 |   | $ | 1.45 |   |
| Options available for future                grant at year-end |     |                                                                             |   | 500,000 |   |   |   |   |
|                                                               |

35

----

| ***Year                Ended June 30, 2006***   | *Shares* | **Weighted                Average                Exercise                Price** |
|-------------------------------------------------|----------|----------------------------------------------------------------------------------|
|                                                 |
|                                                 |     |                                                                             |   |  |   |   |  |   |
| Outstanding at beginning of                year |     |                                                                             |   | 30,000 |   | $ | 1.27 |   |
| Granted                                         |     |                                                                             |   | - |   |   | - |   |
| Exercised                                       |     |                                                                             |   | (10,000 | ) |   | .91 |   |
| Expired                                         |     |                                                                             |   | - |   |   | - |   |
|                                                 |
|                                                 |     |                                                                             |
| Outstanding at end of                year       |     |                                                                             |   | 20,000 |   | $ | 1.45 |   |
|                                                 |
|                                                 |     |                                                                             |
| Options exercisable at                year-end  |     |                                                                             |   | 20,000 |   | $ | 1.45 |   |
|                                                 |

|   | The following                table summarizes information about outstanding stock options at June 30,                2007: |
|--------|----------------------------------------------------------------------------------------------------------------------------|

| *Exercise                Prices* | *Number                Outstanding                at 6/30/07* | *Remaining                Contractual                Life* | *Exercise                Prices* | *Number                Exercisable                at 6/30/07* | *Exercise                Price* |
|----------------------------------|---------------------------------------------------------------|------------------------------------------------------------|----------------------------------|---------------------------------------------------------------|---------------------------------|
|                                  |
|                             |                                                               |                                                            |                             |                                                               |                            |   |  |   |   |  |   |   |  |   |   |  |   |
| $                                | .91                                                           |                                                       |                             | 10,000                                                        |                            |   | 1.3 years |   | $ | .91 |   |   | 10,000 |   | $ | .91 |   |
| $                                | 2.00                                                          |                                                       |                             | 10,000                                                        |                            |   | 1.9 years |   | $ | 2.00 |   |   | 10,000 |   | $ | 2.00 |   |
|                                  |

| **14.** | **Segment                Information** |   | The                Company’s reportable segments are strategic businesses that offer different                products and services. They are managed separately because each business requires                different technology and marketing strategies. |
|---------|----------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Steiner-Atlantic Corp.,                Steiner-Atlantic Brokerage Corp. and DRYCLEAN USA Development Corp., wholly-owned                subsidiaries of the Company, comprise the commercial and industrial laundry and dry                cleaning equipment segment. Steiner-Atlantic Corp. sells commercial and industrial                laundry and dry cleaning equipment and steam boilers to customers in the United                States, the Caribbean and Latin American markets. Steiner-Atlantic Brokerage Corp.                acts as a business broker to assist others seeking to buy or sell existing dry                cleaning and coin laundry businesses. DRYCLEAN USA Development Corp. develops                turn-key dry cleaning establishments for resale to third parties. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | DRYCLEAN USA                License Corp. comprises the license and franchise operations segment. |
|--------|---------------------------------------------------------------------------------------------------|

|   | The Company                primarily evaluates the operating performance of its segments based on the                categories noted in the table below. The Company has no sales between                segments. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

36

----

|   | Financial                information for the Company’s business segments is as follows: |
|--------|-----------------------------------------------------------------------------------------------|

| ***Year                ended June 30,***                                   | ***2007*** | ***2006*** |
|----------------------------------------------------------------------------|------------|------------|
|                                                                            |
| Revenues:                                                                  |       |       |   |  |   |   |  |   |
|    Commercial                and industrial laundry and dry |       |       |
|      cleaning                equipment            |       |       | $ | 22,484,383 |   | $ | 20,075,224 |   |
|    License                and franchise operations          |       |       |   | 264,144 |   |   | 339,666 |   |
|                                                                            |
| Total revenues                                                             |       |       | $ | 22,748,527 |   | $ | 20,414,890 |   |
|                                                                            |
| Operating income                (loss):                                    |       |       |
|    Commercial                and industrial laundry         |       |       |
|      and dry                cleaning equipment    |       |       | $ | 1,353,391 |   | $ | 1,176,438 |   |
|   License and                franchise operations                |       |       |   | 185,022 |   |   | 252,548 |   |
|   Corporate                                                      |       |       |   | (290,482 | ) |   | (276,252 | ) |
|                                                                            |
| Total operating                income                                      |       |       | $ | 1,247,931 |   | $ | 1,152,734 |   |
|                                                                            |
| Identifiable                assets:                                        |       |       |
|    Commercial                and industrial laundry         |       |       |
|      and dry                cleaning equipment    |       |       | $ | 8,712,151 |   | $ | 8,052,901 |   |
|    License                and franchise operations          |       |       |   | 554,518 |   |   | 668,828 |   |
|    Corporate                                                |       |       |   | 176,905 |   |   | 216,300 |   |
|                                                                            |
| Total assets                                                               |       |       | $ | 9,443,574 |   | $ | 8,938,029 |   |
|                                                                            |

|   | For the years                ended June 30, 2007 and 2006, export revenues, principally to the Caribbean and                Latin America, aggregated approximately $3,684,000 and $2,739,000, respectively, of                which approximately $3,548,000 and $2,533,000, respectively, related to the                commercial and industrial laundry and dry cleaning equipment segment. All such                sales are denominated in U.S. Dollars and, accordingly, the Company is not exposed                to risks of foreign currency fluctuations as a result of such sales. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | One customer                accounted for approximately 11% of the Company’s revenues in fiscal 2007.                Another customer accounted for approximately 17% of the Company’s revenue in                fiscal 2006. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

37

----

| **Item 8.** |   | **Changes In                and Disagreements With Accountants onAccounting and Financial Disclosure.** |
|-------------|--------|---------------------------------------------------------------------------------------------------------|

        Not        applicable.

| **Item 8A.** |   | **Controls                and Procedures.** |
|--------------|--------|---------------------------------------------|

        As        of the end of the period covered by this report, management of the Company, with the        participation of the Company’s principal executive officer and the Company’s        principal financial officer, evaluated the effectiveness of the Company’s        “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the        Securities Exchange Act of 1934. Based on that evaluation, these officers concluded that,        as of the date of their evaluation, the Company’s disclosure controls and procedures        were effective to provide reasonable assurance that information required to be disclosed in        the Company’s periodic filings under the Securities Exchange Act of 1934 is        accumulated and communicated to the Company’s management, including those officers,        to allow timely decisions regarding required disclosure. It should be noted that a control        system, no matter how well designed and operated, can provide only reasonable, not        absolute, assurance that it will detect or uncover failures within the Company to disclose        material information otherwise required to be set forth in the Company’s periodic        reports.

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

| **Item 8B.** |   | **Other                Information.** |
|--------------|--------|---------------------------------------|

        None.

**PART        III**

| **Item 9.** |   | **Directors,                Executive Officers, Promoters and Control Persons;Compliance with Section 16(a) of the Exchange Act.** |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------|

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

        Michael        S. Steiner, 51, has been President, Chief Executive Officer and a director of the Company        since November 1998 and of Steiner since 1988.

        William        K. Steiner, 77, has been a director of the Company since November 1998 and Chairman of the        Board of Steiner since he founded Steiner in 1960.

        Venerando        J. Indelicato, 74, was President of the Company from December 1967 until November 1998 and        has been Treasurer and Chief Financial Officer of the Company since December        1969.

        Alan        I. Greenstein, 51, has been Executive Vice President and Chief Operating Officer of Steiner        since May 2004. From October 1995 until it was sold in 2000, he was President and principal        stockholder of Professional Cleaners, Inc., an operator of a south Florida chain of dry        cleaning and laundry stores. From February 2001 to September 2004, Mr. Greenstein was Vice        President and a principal shareholder of South Florida Transport, Inc., a south Florida        Thrifty Car rental franchise. In October 2004, South Florida Transport, Inc. filed a        Chapter 11 bankruptcy proceeding, which subsequently converted to Chapter 7 liquidation.        Mr. Greenstein believes the heavy losses from the hurricanes that hit Florida in        the

38

----

summer of 2004 were the cause for        South Florida Transport, Inc.'s financial problems. Since he joined Steiner, Mr. Greenstein        has been a full time employee of Steiner.

        Lloyd        Frank, 82, has been a director of the Company since 1977. Mr. Frank has been of counsel to        the law firm of Troutman Sanders LLP since April 2005. Prior thereto, Mr. Frank was a        member of the law firm of Jenkens & Gilchrist Parker Chapin LLP and its predecessor        from 1977 until the end of 2003 and of counsel to that firm from January 2004 until March        2005. The Company retained Troutman Sanders 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, 47, has served as a director of the Company since November 1998. Mr. Blyer has been        Co-Chairman of Profiles in Concrete, Inc., a manufacturer and installer of architectural        cast stone for residential and commercial construction markets, since January 2005. From        July 2002 until January 2005, Mr. Blyer was an independent consultant. Mr. Blyer was Chief        Executive Officer and President of Vento Software, Inc., a developer of software for        specialized business applications, from 1994, when he co-founded that company, until        November 1999, when the company was acquired by SPSS Inc, a computer software company that        develops and distributes technology for the analysis of data in decision making. From        November 1999 until December 2000, Mr. Blyer served as Vice President of Vento Software,        Inc., and, from January 2001 until July 2002, served as President of the Enabling        Technology Division of SPSS Inc.

        Alan        M. Grunspan, 47, has served as a director of the Company since May 1999. Since 2004, Mr.        Grunspan has been a member of the law firm of Carlton Fields, PA. Prior thereto, Mr.        Grunspan was a member of the law firm of Kaufman Dickstein & Grunspan P. A. from 1991        until 2004.

        Stuart        Wagner, 75, has served as a director of the Company since November 1998. Mr. Wagner has        been retired since 1999. From 1975 to 1997, Mr. Wagner served as President of Wagner        Products Corp., a manufacturer and distributor of products in the HVAC industry, a company        which he founded, and served as a consultant to Diversified Corp., which acquired Wagner        Products Corp., from 1997 until 1999 .

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

        The        balance of the information called for by this Item will be contained in the Company’s        definitive Proxy Statement with respect to the Company’s 2007 Annual Meeting of        Stockholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of        1934, and is incorporated herein by reference to such information.

| **Item 10.** |   | **Executive                Compensation.** |
|--------------|--------|--------------------------------------------|

        The        information called for by this Item will be contained in the Company’s definitive        Proxy Statement with respect to the Company’s 2007 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.

39

----

| **Item 11.** |   | **Security                Ownership of Certain Beneficial Owners and Managementand Related Stockholder Matters.** |
|--------------|--------|-------------------------------------------------------------------------------------------------------------------|

        The        following table sets forth certain information, as at June 30, 2007, with respect to the        Company’s equity compensation plans:

| Plan Category                                                                        |        | Number of securities to                    be issued upon exercise                    of outstanding options,                    warrants and rights |        | Weighted-average                    exercise price of                    outstanding options,                    warrants and rights |           | Number of securities                    remaining available for                    future issuance                    under equity compensation                    plans |        |
|--------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                      |   |                                                                                                                                                 |   |                                                                                                                                 |      |                                                                                                                                                                     |   |   |   |   |   |
| Equity compensation plans                approved                by security holders |   |                                                                                                                                                 |   | 20,000                                                                                                                               |  (a) |                                                                                                                                                                     | $1.45  |   |   | 500,000 |  (b) |
|                                                                                      |   |                                                                                                                                                 |
| Equity compensation plans                not                                         |   |                                                                                                                                                 |   |                                                                                                                                 |      |                                                                                                                                                                     |   |   |   |   |   |
| approved by security                holders                                          |   |                                                                                                                                                 |   | 0                                                                                                                                    |      |                                                                                                                                                                     | -      |   |   | 0 |   |
|                                                                                      |        |                                                                                                                                                      |        |                                                                                                                                      |           |                                                                                                                                                                          |
|   Total                                                                    |   |                                                                                                                                                 |   | 20,000                                                                                                                               |      |                                                                                                                                                                          | $1.45  |   |   | 500,000 |   |
|                                                                                      |        |                                                                                                                                                      |        |                                                                                                                                      |           |                                                                                                                                                                          |

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

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

        The        balance of the information called for by this Item will be contained in the Company’s        definitive Proxy Statement with respect to the Company’s 2007 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 2007 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.

40

----

| **Item 13.** |   | **Exhibits.** |
|--------------|--------|---------------|

| 3(a)(1) |   | Certificate of                Incorporation of the Company, as filed with the Secretary of State of the State of                Delaware on June 30, 1963. (Exhibit 4.1(a) to the Company’s Current Report on                Form 8-K dated (date of earliest event reported) October 29, 1998, File No.                000-9040.) |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(2) |   | Certificate of                Amendment to the Certificate of Incorporation of the Company, as filed with the                Secretary of State of the State of Delaware on March 27, 1968. (Exhibit 4.1(b) to                the Company’s Current Report on Form 8-K dated (date of earliest event                reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(3) |   | Certificate of                Amendment to the Certificate of Incorporation of the Company, as filed with the                Secretary of State of the State of Delaware on November 4, 1983. (Exhibit 4.1(c) to                the Company’s Current Report on Form 8-K dated (date of earliest event                reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(4) |   | Certificate of                Amendment to the Certificate of Incorporation of the Company, as filed with the                Secretary of State of the State of Delaware on November 5, 1986. (Exhibit 4.1(d) to                the Company’s Current Report on Form 8-K dated (date of earliest event                reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(5) |   | Certificate of                Change of Location of Registered Office and of Agent, as filed with the Secretary                of State of the State of Delaware on December 31, 1986. (Exhibit 4.1(e) to the                Company’s Current Report on Form 8-K dated (date of earliest event reported)                October 29, 1998, File No. 000-9040.) |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(6) |   | Certificate of                Ownership and Merger of Design Development Incorporated into the Company, as filed                with the Secretary of State of the State of Delaware on June 30, 1998. (Exhibit                4.1(f) to the Company’s Current Report on Form 8-K dated (date of earliest                event reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(7) |   | Certificate of                Amendment to the Company’s Certificate of Incorporation, as filed with the                Secretary of State of the State of Delaware on October 30, 1998. (Exhibit 4.1(g) to                the Company’s Current Report on Form 8-K dated (date of earliest event                reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(8) |   | Certificate of                Amendment to the Company’s Certificate of Incorporation, as filed with the                Secretary of State of the State of Delaware on November 5, 1999. (Exhibit 4.1 to                the Company’s Quarterly Report on Form 10-QSB for the quarter ended September                30, 1999, File No. 001-14757.) |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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. 000-9040.) |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(A) |   | Loan and                Security Agreement, dated as of December 19, 2001, from the Company in favor of                Wachovia Bank, National Association, formerly named First Union National Bank                (“Wachovia”). (Exhibit 4.1(a) to the Company’s Quarterly Report                on Form 10-QSB for the quarter ended December 31, 2001, File No. 001-14757). |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(B) |   | Letter                agreement dated September 23, 2002 between the Company and Wachovia (Exhibit                4(a)(1)(B) to the Company’s Annual Report on Form 10-KSB for the year ended                June 30, 2002, File No. 001-14757). |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

41

----

| 4(a)(1)(C) |   | Letter                agreement dated October 11, 2002 between the Company and Wachovia (Exhibit 4.01 to                the Company’s Quarterly Report on Form 10-QSB for the quarter ended September                30, 2002, File No. 001-14757). |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(D) |   | Letter                agreement dated October 22, 2003 between the Company and Wachovia (Exhibit 4.01 to                the Company’s Quarterly Report on Form 10-QSB for the quarter ended September                30, 2003. File No. 001-14757.) |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(E) |   | Letter                agreement, dated October 28, 2004, between the Company and Wachovia, extending the                Company’s revolving credit facility. (Exhibit 4.01 to the Company’s                Current Report on Form 8-K dated (date of earliest event reported) October 28,                2004, File No. 001-14757.) |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(F) |   | Letter                agreement, dated October 28, 2004, between the Company and Wachovia, eliminating                the borrowing base restriction on borrowings under the Company’s revolving                credit facility. (Exhibit 4.02 to the Company’s Current Report on Form 8-K                dated (date of earliest event reported) October 28, 2004, File No.                001-14757.) |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(G) |   | Letter, dated                as of October 30, 2005, from Wachovia. (Exhibit 4.01 to the Company’s Current                Report on Form 8-K dated (date of earliest event reported) October 31, 2005, File                No. 001-14757.) |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(H) |   | Letter, dated                as of October 30, 2005, from Wachovia. (Exhibit 4.02 to the Company’s Current                Report on Form 8-K dated (date of earliest event reported) October 31, 2005, File                No. 001-14757.) |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(2) |   | Revolving                Credit Note, dated as of December 19, 2001, from the Company in favor of Wachovia.                (Exhibit 4.1(c) to the Company’s Quarterly Report on Form 10-QSB for the                quarter ended December 31, 2001, File No. 001-14757). |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(3) |   | Guaranty and                Security Agreement, dated as of December 19, 2001, from Steiner-Atlantic Corp.,                Steiner-Atlantic Brokerage Company, DRYCLEAN USA Development Corp. and DRYCLEAN USA                License Corp., subsidiaries of the Company, in favor of Wachovia. (Exhibit 4.1(d)                to the Company’s Quarterly Report on Form 10-QSB for the quarter ended                December 31, 2001, File No. 001-14757). |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(a) |   | Commercial                lease dated September 9, 2005 between Steiner and William K. Steiner with respect                to Steiner’s facilities located at 290 NE 68 Street, 296 NE 67 Street and 277                NE 67 Street, Miami, Florida. (Exhibit 10(a)(1)(B) to the Company’s Annual                Report on Form 10-KSB for the year ended June 30, 2005, File No. 001-14757.) |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(b)(1)+ |   | The Company's                1994 Non-Employee Director Stock Option Plan. (Exhibit A to the Company's Proxy                Statement dated October 14, 1994 used in connection with the Company's 1994 Annual                Meeting of Stockholders, File No. 000-9040.) |
|-----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| 14 |   | Code of Ethics                for Principal Executive Officer and Senior Financial Officers. (Exhibit 14 to the                Company's Annual Report on Form 10-KSB for the year ended June 20, 2004, File No.                001-14757) |
|----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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. 001-14757.) |
|----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

42

----

| *23(a) |   | Consent of Berkovits & Company, LLP. |
|--------|--------|------------------------------------------|

| *23(b) |   | Consent of Morrison, Brown, Argiz & Farra, LLP. |
|--------|--------|-----------------------------------------------------|

| *31(a) |   | Certification of Principal Executive Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002 promulgated under the Securities Exchange Act of                1934. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *31(b) |   | Certification of Principal Financial Officer pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002 promulgated under the Securities Exchange Act of                1934. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

_________________

| * |   | Filed with this                Report. All other exhibits are incorporated herein by reference to the filing                indicated in the parenthetical reference following the exhibit description. |
|---|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| + |   | Management                contract or compensatory plan or arrangement. |
|---|--------|-------------------------------------------------------------------------|

| **Item 14.** |   | **Principal                Accountant Fees and Services****.** |
|--------------|--------|----------------------------------------------------------------|

        The        information called for by this Item will be contained in the Company’s definitive        Proxy Statement with respect to the Company’s 2007 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.

43

----

# SIGNATURES

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

|                                          |        |
|------------------------------------------|--------|
|                                     |   |   | DRYCLEAN USA,                Inc. |   |   |
|                                          |   |   |
| Dated: September 26,                2007 |   |   |
|                                     |   |   | By: /s/ Michael S.                Steiner |   |   |
|                                     |   |   | Michael S.                Steiner |   |   |
|                                     |   |   | President and Chief                Executive Officer |   |   |

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

| Signature                                  | Capacity | Date                                               |
|--------------------------------------------|----------|----------------------------------------------------|
|                                            |     |                                               |   |   |   |
| /s/ Michael S.                Steiner      |     | President, Chief Executive                Officer  |   | September 26,                2007 |   |
| Michael S.                Steiner          |     | (Principal Executive                Officer) and   |   |   |   |
|                                       |     | Director                                           |   |   |   |
|                                            |     |
| /s/ Venerando J.                Indelicato |     | Chief Financial                Officer             |   | September 26,                2007 |   |
| Venerando J.                Indelicato     |     | (Principal Financial and                Accounting |   |   |   |
|                                       |     | Officer) and                Director               |   |   |   |
|                                            |     |
| /s/ David                Blyer             |     | Director                                           |   | September 26,                2007 |   |
| David Blyer                                |     |                                               |   |   |   |
|                                            |     |
| /s/ Lloyd                Frank             |     | Director                                           |   | September 26,                2007 |   |
| Lloyd Frank                                |     |                                               |   |   |   |
|                                            |     |
| /s/ Alan M.                Grunspan        |     | Director                                           |   | September 26,                2007 |   |
| Alan M. Grunspan                           |     |                                               |   |   |   |
|                                            |     |
| /s/ William K.                Steiner      |     | Director                                           |   | September 26,                2007 |   |
| William K.                Steiner          |     |                                               |   |   |   |
|                                            |     |
| /s/ Stuart                Wagner           |     | Director                                           |   | September 26,                2007 |   |
| Stuart Wagner                              |     |                                               |   |   |   |

44

----

EXHIBIT        INDEX

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

| 3(a)(1) |   | Certificate of                Incorporation of the Company, as filed with the Secretary of State of the State of                Delaware on June 30, 1963. (Exhibit 4.1(a) to the Company’s Current Report on                Form 8-K dated (date of earliest event reported) October 29, 1998, File No.                000-9040.) |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(2) |   | Certificate of                Amendment to the Certificate of Incorporation of the Company, as filed with the                Secretary of State of the State of Delaware on March 27, 1968. (Exhibit 4.1(b) to                the Company’s Current Report on Form 8-K dated (date of earliest event                reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(3) |   | Certificate of                Amendment to the Certificate of Incorporation of the Company, as filed with the                Secretary of State of the State of Delaware on November 4, 1983. (Exhibit 4.1(c) to                the Company’s Current Report on Form 8-K dated (date of earliest event                reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(4) |   | Certificate of                Amendment to the Certificate of Incorporation of the Company, as filed with the                Secretary of State of the State of Delaware on November 5, 1986. (Exhibit 4.1(d) to                the Company’s Current Report on Form 8-K dated (date of earliest event                reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(5) |   | Certificate of                Change of Location of Registered Office and of Agent, as filed with the Secretary                of State of the State of Delaware on December 31, 1986. (Exhibit 4.1(e) to the                Company’s Current Report on Form 8-K dated (date of earliest event reported)                October 29, 1998, File No. 000-9040.) |
|---------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(6) |   | Certificate of                Ownership and Merger of Design Development Incorporated into the Company, as filed                with the Secretary of State of the State of Delaware on June 30, 1998. (Exhibit                4.1(f) to the Company’s Current Report on Form 8-K dated (date of earliest                event reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(7) |   | Certificate of                Amendment to the Company’s Certificate of Incorporation, as filed with the                Secretary of State of the State of Delaware on October 30, 1998. (Exhibit 4.1(g) to                the Company’s Current Report on Form 8-K dated (date of earliest event                reported) October 29, 1998, File No. 000-9040.) |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3(a)(8) |   | Certificate of                Amendment to the Company’s Certificate of Incorporation, as filed with the                Secretary of State of the State of Delaware on November 5, 1999. (Exhibit 4.1 to                the Company’s Quarterly Report on Form 10-QSB for the quarter ended September                30, 1999, File No. 001-14757.) |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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. 000-9040.) |
|------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(A) |   | Loan and                Security Agreement, dated as of December 19, 2001, from the Company in favor of                Wachovia Bank, National Association, formerly named First Union National Bank                (“Wachovia”). (Exhibit 4.1(a) to the Company’s Quarterly Report                on Form 10-QSB for the quarter ended December 31, 2001, File No. 001-14757). |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(B) |   | Letter                agreement dated September 23, 2002 between the Company and Wachovia (Exhibit                4(a)(1)(B) to the Company’s Annual Report on Form 10-KSB for the year ended                June 30, 2002, File No. 001-14757). |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

45

----

| 4(a)(1)(C) |   | Letter                agreement dated October 11, 2002 between the Company and Wachovia (Exhibit 4.01 to                the Company’s Quarterly Report on Form 10-QSB for the quarter ended September                30, 2002, File No. 001-14757). |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(D) |   | Letter                agreement dated October 22, 2003 between the Company and Wachovia (Exhibit 4.01 to                the Company’s Quarterly Report on Form 10-QSB for the quarter ended September                30, 2003. File No. 001-14757.) |
|------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(E) |   | Letter                agreement, dated October 28, 2004, between the Company and Wachovia, extending the                Company’s revolving credit facility. (Exhibit 4.01 to the Company’s                Current Report on Form 8-K dated (date of earliest event reported) October 28,                2004, File No. 001-14757.) |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(F) |   | Letter                agreement, dated October 28, 2004, between the Company and Wachovia, eliminating                the borrowing base restriction on borrowings under the Company’s revolving                credit facility. (Exhibit 4.02 to the Company’s Current Report on Form 8-K                dated (date of earliest event reported) October 28, 2004, File No.                001-14757.) |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(G) |   | Letter, dated                as of October 30, 2005, from Wachovia. (Exhibit 4.01 to the Company’s Current                Report on Form 8-K dated (date of earliest event reported) October 31, 2005, File                No. 001-14757.) |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(1)(H) |   | Letter, dated                as of October 30, 2005, from Wachovia. (Exhibit 4.02 to the Company’s Current                Report on Form 8-K dated (date of earliest event reported) October 31, 2005, File                No. 001-14757.) |
|------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(2) |   | Revolving                Credit Note, dated as of December 19, 2001, from the Company in favor of Wachovia.                (Exhibit 4.1(c) to the Company’s Quarterly Report on Form 10-QSB for the                quarter ended December 31, 2001, File No. 001-14757). |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4(a)(3) |   | Guaranty and                Security Agreement, dated as of December 19, 2001, from Steiner-Atlantic Corp.,                Steiner-Atlantic Brokerage Company, DRYCLEAN USA Development Corp. and DRYCLEAN USA                License Corp., subsidiaries of the Company, in favor of Wachovia. (Exhibit 4.1(d)                to the Company’s Quarterly Report on Form 10-QSB for the quarter ended                December 31, 2001, File No. 001-14757). |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(a) |   | Commercial                lease dated September 9, 2005 between Steiner and William K. Steiner with respect                to Steiner’s facilities located at 290 NE 68 Street, 296 NE 67 Street and 277                NE 67 Street, Miami, Florida. (Exhibit 10(a)(1)(B) to the Company’s Annual                Report on Form 10-KSB for the year ended June 30, 2005, File No. 001-14757.) |
|-------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10(b)(1)+ |   | The Company's                1994 Non-Employee Director Stock Option Plan. (Exhibit A to the Company's Proxy                Statement dated October 14, 1994 used in connection with the Company's 1994 Annual                Meeting of Stockholders, File No. 000-9040.) |
|-----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

| 14 |   | Code of Ethics                for Principal Executive Officer and Senior Financial Officers. (Exhibit 14 to the                Company's Annual Report on Form 10-KSB for the year ended June 20, 2004, File No.                001-14757) |
|----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 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. 001-14757.) |
|----|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *23(a) |   | Consent of                Berkovits & Company, LLP. |
|--------|--------|---------------------------------------------------------|

46

----

| *23(b) |   | Consent of                Morrison, Brown, Argiz & Farra, LLP. |
|--------|--------|--------------------------------------------------------------------|

| *31(a) |   | Certification                of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of                2002 promulgated under the Securities Exchange Act of 1934. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *31(b) |   | Certification                of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of                2002 promulgated under the Securities Exchange Act of 1934. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

_________________

| * |   | Filed with this                Report. All other exhibits are incorporated herein by reference to the filing                indicated in the parenthetical reference following the exhibit description. |
|---|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| + |   | Management                contract or compensatory plan or arrangement. |
|---|--------|-------------------------------------------------------------------------|

47