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

Although fiscal 2008 revenues were flat compared to fiscal 2007, the Company's net earnings decreased by 31.7% mostly due to costs associated with a restructuring of its sales and administrative staff and increased payroll expense. While this restructuring was costly, and resulted in increased selling costs, it enabled the Company to enter fiscal 2009 with a better positioned and efficient staff. Revenues, which, for the first nine months of fiscal 2008, were $2,361,232 behind revenues in the comparable fiscal 2007 nine month period, finished with a strong fourth quarter, as the Company shipped some of its accumulated backlog in the month of June 2008. A reduction in fiscal 2008 of 3.7% of domestic revenues was offset by an 18.0% increase of foreign revenues, principally sales of commercial laundry equipment, which continues to dominate the Company's sales mix. The Company's gross profit margin decreased by .5 percentage point to 22.8% of net sales in fiscal 2008 from 23.3% in fiscal 2007, mostly do to product mix changes and an increase in freight out expenses. Operating costs remained essentially flat except for the restructuring costs and increased payroll expense.

Both accounts receivable and inventories increased from a year ago, reducing the Company's year-end cash position. Heavy shipments in the month of June 2008 accounted for the accounts receivable increase. Inventories have been building to support pending shipments. However, the effects on cash of the increase in inventories have been offset by an increase in cash received from customer deposits in connection with current orders. The Company expects both accounts receivable and inventories to return to more traditional levels during fiscal 2009 as accounts receivable are paid and inventories are shipped, thereby increasing the Company's cash position.

On February 8, 2008, in light of the tightening of the economy, the Board of Directors determined it to be prudent to eliminate the dividend that the Company had been paying semi-annually.

Liquidity and Capital Resources

For the twelve month period ended June 30, 2008, cash decreased by $406,679 compared to an increase of $1,189,712 during fiscal 2007.

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

                                               Years Ended June 30,
              Net cash provided (used) by:      2008         2007
              Operating activities           $  (72,539 ) $ 1,847,801
              Investing activities              (52,258 )     (95,046 )
              Financing activities             (281,882 )    (563,043 )

For the twelve month period ended June 30, 2008, operating activities used cash of $72,539 compared to $1,847,801 of cash provided by operating activities during fiscal 2007.

The cash provided by 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 and trade notes 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 a decrease in unearned income of $82,775 associated with the amortization of the initial fee received from Whirlpool Corporation and a decrease in taxes payable of $70,391.

Investing activities in fiscal 2008 used cash of $52,258 mainly for capital expenditures of machinery and equipment and leasehold improvements. In fiscal 2007, investing activities used cash of $95,046, mostly for machinery and equipment ($93,846) and $1,200 for patent expenses.

Financing activities used cash of $281,882 and $563,043 for the years ended June 30, 2008 and 2007, respectively, mostly to pay cash dividends. On February 8, 2008, the Company announced that its Board of Directors determined to eliminate the semi-annual dividends in light of economic conditions.

On October 18, 2007, the Company received an extension until October 30, 2008 of its existing $2,250,000 revolving line of credit facility. 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,
                                                 2008                        2007
Net sales                                     $ 22,052,056                $ 22,091,863     -.2 %
Development fees, franchise and
license fees, commissions and
other                                              653,087                     656,664     -.5 %
Total revenues                                $ 22,705,143                $ 22,748,527     -.2 %

Revenues for the year ended June 30, 2008 remained essentially flat, having decreased by $43,384 (.2%) from fiscal 2007. The commercial laundry and dry cleaning segment experience a decrease in revenues $61,664 (.3%) as domestic weakness caused a 3.6% decrease in sales which was offset by a 17.3% increase in foreign sales. Revenues of the Company's license and franchise segment increased by $18,280 (6.9%), reflecting an increase in renewal fees. For the year ended June 30, 2008, sales of commercial laundry equipment increased by 2.0%, and sales of spare parts increased by 2.0%. These increases were offset by a 4.7% decrease in sales of dry cleaning equipment and a 1.6% decrease in boiler sales. Revenues of the Company's Business Brokerage and Development divisions, which are included in the commercial laundry and dry cleaning segment, each contributed less than 1% of the Company's revenues.

Overall expenses of the Company, including cost of sales expenses were 96.5% of total revenues in fiscal 2008, compared to 94.5% in fiscal 2007. Research and development expenses were minimal in each reported period as most of the Company's products are distributed for manufacturers that perform their own research and development, represents less than .1% of revenues; therefore, such expenses have been combined with selling, general and administrative expenses for purposes of this analysis.

                                                       Year Ended June 30,
                                                        2008         2007
       As a percentage of net sales:
       Cost of sales                                    77.2%        76.7%
       As a percentage of revenues:
       Selling, general and administrative expenses     21.5%        20.0%

       Total expenses                                   96.5%        94.5%

Cost of goods sold, expressed as a percentage of sales, increased to 77.2% in fiscal 2008 compared to 76.7% in fiscal 2007 principally due to a change in product mix and an increase in freight out expense. These increases were primarily offset by a reduction in installation costs.

Selling, general and administrative expenses increased by $342,162 (7.5%) in fiscal 2008 over fiscal 2007, and as a percentage of revenues to 21.5% in fiscal 2008 from 20.0% in fiscal 2007. The increases were primarily due to the restructuring of the Company's sales and administrative staff and increased payroll expense. Other items in this category of expenses had slight fluctuations in line with business conditions.

Interest income increased by $563 (.3%), with larger average outstanding bank balances during the year being partially offset by lower prevailing interest rates.

The Company's effective income tax rate decreased to 37.0% in fiscal 2008 from 37.6% in fiscal 2007 mostly due to an increase 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 intends to exercise its first renewal option to extend this lease until October 31, 2011.] 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 2008 and 2007, the Company paid a law firm, in which a director is of counsel, approximately $59,100 and $46,700, 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 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, 2008 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.

Income Taxes

The Company follows Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax base. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized.

Significant judgment is required in developing the Company's provision for income taxes, deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. Management evaluates its ability to realize its deferred tax assets on a quarterly basis and adjusts its valuation allowance when it believes that it is more likely that the asset will not be realized.

Effective July 1, 2007, the Company adopted the provisions of the Financial Accounting Standards Board ("FASB") Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income Taxes ( an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest

amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. The adoption of FIN48 did not result in any adjustment to the Company's provision for income taxes.

New Accounting Pronouncements

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. In February 2008, the FASB issued FASB Staff Positions (FSP) SFAS No. 157-1, "Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions," and FSP SFAS No. 157-2, "Effective Date of FASB Statement No. 157." FSP SFAS 157-1 removes leasing transactions from the scope of SFAS No. 157, while SFAS No. 157-2 defers the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. It does not defer recognition and disclosure requirements for financial assets and financial liabilities which is effective for fiscal years beginning after November 15, 2007, or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. 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 (the "SEC") 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. 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 Including an Amendment of FASB No. 115," which permits, at specified election dates, all entities to choose to measure eligible items at fair value. A business entity is to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected is to be recognized in earnings as incurred and not deferred. 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 did not elect early application of SFAS 157. The Company is evaluating the effect, if any, the adoption of SFAS 159 will have on the Company's financial statements.

In December 2007, the SEC published Staff Accounting Bulletin ("SAB") No. 110, which amends SAB No. 107, to allow for the continued use, under certain circumstances, of the "simplified" method in developing an estimate of the expected term of so-called "plain vanilla" stock options accounted for under SFAS 123(R) beyond December 31, 2007. Companies can use the simplified method if they conclude that their stock option exercise experience does not provide a reasonable basis upon which to estimate expected term. The Company has concluded that its stock option exercise experience provides a reasonable basis upon which to estimate expected term, and therefore, has refined its method to calculate estimates of the expected term of stock options.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141(R)"). SFAS 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company will assess the impact of SFAS 141(R) if and when a future acquisition occurs.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with accounting principles generally accepted in the United States of America for nongovernmental entities. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board's amendments to AU Section 411," "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." Any effect of applying the provisions of SFAS No. 162 is to be reported as a change in accounting principle in accordance with SFAS No. 154, "Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No.
3." The Company will adopt SFAS No. 162 once it is effective and is currently evaluating the effect that the adoption may have on the Company's consolidated financial statements.