----

**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      D.C. 20549**

**Form      10-Q**

| **[X]** | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934** |
|---------|------------------------------------------------------------------------------------------------------------------------------------------|

*For      the      quarterly period ended *
***July      1,      2006***

*or*

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

*for      the      transition period from *
* *
*      to*
* *
*.*

**STANLEY      FURNITURE COMPANY, INC.**

|                                                                         | **Delaware**                                        |   | **54-1272589** |   |
|------------------------------------------------------------------------------|-----------------------------------------------------|--------|----------------|--------|
| (State                or                other jurisdiction of incorporation) | (I.R.S.                Employer Identification No.) |

**1641      Fairystone Park Highway, Stanleytown, Virginia 24168**

**(276)      627-      2000**

**July**
**      12,      2006,**
**11,680,155      **

----

**ITEM        1.**
**CONSOLIDATED FINANCIAL        STATEMENTS**

**STANLEY        FURNITURE COMPANY, INC.**

|                                                                                                                                                                                          |   | **(unaudited)**  |        |                            |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|-------------|---------------------------------|--------|
|                                                                                                                                                                                          |   | **July 1,** |        | December                    31, |   |
|                                                                                                                                                                                          |   | **2006**         |        | 2005                            |   |
| **ASSETS**                                                                                                                                                                                    |   |             |        |                            |   |   |   |
| Current                    assets:                                                                                                                                                            |   |             |        |                            |   |   |   |
| Cash                                                                                                                                                                                          |   | **$**            | **10,627**  |                            | $      | 12,556 |   |
| Accounts                    receivable, less allowances of                    $1,972 and $1,566                                                                                               |   |             | **37,958**  |                            |   | 36,957 |   |
| Inventories:                                                                                                                                                                                  |   |             |        |                            |   |   |   |
|  Finished                    goods                                                                                                                                                       |   |             | **46,270**  |                            |   | 52,609 |   |
|  Work-in-process                                                                                                                                                                         |   |             | **5,736**   |                            |   | 7,609 |   |
|  Raw                    materials                                                                                                                                                        |   |             | **9,450**   |                            |   | 9,743 |   |
| Total                    inventories                                                                                                                                                          |   |             | **61,456**  |                            |   | 69,961 |   |
|                                                                                                                                                                                          |   |             |        |                            |   |   |   |
| Prepaid                    expenses and other current assets                                                                                                                             |   |             | **1,631**   |                            |   | 1,435 |   |
| Deferred                    income taxes                                                                                                                                                      |   |             | **2,503**   |                            |   | 2,462 |   |
| Total                    current assets                                                                                                                                                       |   |             | **114,175** |                            |   | 123,371 |   |
|                                                                                                                                                                                          |   |             |        |                            |   |   |   |
| Property,                    plant and equipment, net                                                                                                                                         |   |             | **48,617**  |                            |   | 50,744 |   |
| Goodwill                                                                                                                                                                                      |   |             | **9,072**   |                            |   | 9,072 |   |
| Other                    assets                                                                                                                                                               |   |             | **6,753**   |                            |   | 7,301 |   |
| Total                    assets                                                                                                                                                               |   | **$**            | **178,617** |                            | $      | 190,488 |   |
|                                                                                                                                                                                          |   |             |        |                            |   |   |   |
| **LIABILITIES**                                                                                                                                                                               |   |             |        |                            |   |   |   |
| Current                    liabilities:                                                                                                                                                       |   |             |        |                            |   |   |   |
| Current                    maturities of long-term                    debt                                                                                                                    |   | **$**            | **2,857**   |                            | $      | 2,857 |   |
| Accounts                    payable                                                                                                                                                           |   |             | **16,851**  |                            |   | 16,405 |   |
| Accrued                    salaries, wages and                    benefits                                                                                                                    |   |             | **7,950**   |                            |   | 11,144 |   |
| Other                    accrued expenses                                                                                                                                                     |   |             | **1,866**   |                            |   | 1,765 |   |
| Total                    current liabilities                                                                                                                                                  |   |             | **29,524**  |                            |   | 32,171 |   |
|                                                                                                                                                                                          |   |             |        |                            |   |   |   |
| Long-term                    debt, exclusive of current maturities                                                                                                                            |   |             | **7,143**   |                            |   | 8,571 |   |
| Deferred                    income taxes                                                                                                                                                      |   |             | **9,737**   |                            |   | 10,164 |   |
| Other                    long-term liabilities                                                                                                                                                |   |             | **6,743**   |                            |   | 6,833 |   |
| Total                    liabilities                                                                                                                                                          |   |             | **53,147**  |                            |   | 57,739 |   |
|                                                                                                                                                                                          |   |             |        |                            |   |   |   |
| **STOCKHOLDERS’                    EQUITY**                                                                                                                                             |   |             |        |                            |   |   |   |
| Common                    stock,                    $.02 par value, 25,000,000 shares authorized11,680,155                    and 12,252,000 shares issued                    and outstanding |   |             | **234**     |                            |   | 245 |   |
| Retained                    earnings                                                                                                                                                          |   |             | **125,414** |                            |   | 132,682 |   |
| Accumulated                    other comprehensive loss                                                                                                                                       |   |             | **(178**    | **)**                           |   | (178 | ) |
| Total                    stockholders’equity                                                                                                                                            |   |             | **125,470** |                            |   | 132,749 |   |
| Total                    liabilities and stockholders’                    equity                                                                                                        |   | **$**            | **178,617** |                            | $      | 190,488 |   |

----

**STANLEY      FURNITURE COMPANY, INC.**

|                                                                           |   | Three                Months |       | Six                Months |   |
|--------------------------------------------------------------------------------|--------|-----------------------------|------------|---------------------------|--------|
|                                                                           |   | Ended                  |       | Ended                |   |
|                                                                           |   | **July                1,**  |       | July                2,    |   | **July                1,** |   | July                2, |   |
|                                                                           |   | **2006**               |       |  2005           |   | **2006**  |   |  2005  |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |
| Net                sales                                                       |   | **$**                       | **77,476** |                      | $      | 83,635 |   | **$** | **161,000** |   | $ | 166,585 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Cost                of                sales                                    |   |                        | **59,858** |                      |   | 63,003 |   |   | **123,624** |   |   | 125,488 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Gross                profit                                                    |   |                        | **17,618** |                      |   | 20,632 |   |   | **37,376** |   |   | 41,097 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Selling,                general and administrative expenses                    |   |                        | **11,323** |                      |   | 11,239 |   |   | **22,451** |   |   | 22,290 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Operating                income                                                |   |                        | **6,295**  |                      |   | 9,393 |   |   | **14,925** |   |   | 18,807 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Other                income,                net                                |   |                        | **68**     |                      |   | 54 |   |   | **161** |   |   | 119 |   |
| Interest                income                                                 |   |                        | **146**    |                      |   | 102 |   |   | **256** |   |   | 154 |   |
| Interest                expense                                                |   |                        | **509**    |                      |   | 545 |   |   | **1,033** |   |   | 1,115 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Income                before income taxes                                      |   |                        | **6,000**  |                      |   | 9,004 |   |   | **14,309** |   |   | 17,965 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Income                taxes                                                    |   |                        | **2,063**  |                      |   | 3,177 |   |   | **4,980** |   |   | 6,378 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Net                income                                                      |   | **$**                       | **3,937**  |                      | $      | 5,827 |   | **$** | **9,329** |   | $ | 11,587 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Earnings                per                share:                              |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Basic                                                                          |   | **$**                       | **.33**    |                      | $      | .45 |   | **$** | **.77** |   | $ | .90 |   |
| Diluted                                                                        |   | **$**                       | **.32**    |                      | $      | .44 |   | **$** | **.75** |   | $ | .87 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Weighted                average shares outstanding:                            |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Basic                                                                          |   |                        | **11,973** |                      |   | 12,905 |   |   | **12,101** |   |   | 12,908 |   |
| Diluted                                                                        |   |                        | **12,264** |                      |   | 13,255 |   |   | **12,397** |   |   | 13,316 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |
| Cash                dividend                declared and paid per common share |   | **$**                       | **.08**    |                      | $      | .06 |   | **$** | **.16** |   | $ | .12 |   |
|                                                                           |   |                        |       |                      |   |   |   |   |   |   |   |   |   |

----

**STANLEY          FURNITURE COMPANY, INC.**

|                                                                                                                   |   | Six                    Months Ended       |         |
|------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------------|
|                                                                                                                   |   | **July                    1,**                 |         | July                    2, |   |
|                                                                                                                   |   | **                      2006**  |         |               2005  |   |
| **Cash                    flows from operating activities:**                                                           |   |                                           |         |   |   |   |   |
| Cash                    received                    from customers                                                     |   | **$**                                          | **159,732**  |   | $ | 163,434 |   |
| Cash                    paid to                    suppliers and employees                                             |   |                                           | **(135,731** | **)** |   | (138,696 | ) |
| Interest                    paid, net                                                                                  |   |                                           | **(1,393**   | **)** |   | (1,519 | ) |
| Income                    taxes                    paid, net                                                           |   |                                           | **(6,433**   | **)** |   | (6,350 | ) |
| Net                    cash provided by operating                    activities                                        |   |                                           | **16,175**   |   |   | 16,869 |   |
|                                                                                                                   |   |                                           |         |   |   |   |   |
| **Cash                    flows from investing activities:**                                                           |   |                                           |         |   |   |   |   |
| Capital                    expenditures                                                                                |   |                                           | **(749**     | **)** |   | (2,721 | ) |
| Purchase                    of                    other assets                                                         |   |                                           | **(17**      | **)** |   | (33 | ) |
| Net                    cash used by investing                    activities                                            |   |                                           | **(766**     | **)** |   | (2,754 | ) |
|                                                                                                                   |   |                                           |         |   |   |   |   |
| **Cash                    flows from financing activities:**                                                           |   |                                           |         |   |   |   |   |
| Repayment                    of                    senior notes                                                        |   |                                           | **(1,428**   | **)** |   | (2,828 | ) |
| Purchase                    and                    retirement of common stock                                          |   |                                           | **(16,175**  | **)** |   | (9,993 | ) |
| Proceeds                    from                    insurance policy loans                                             |   |                                           | **1,241**    |   |   | 1,110 |   |
| Dividends                    paid                                                                                      |   |                                           | **(1,944**   | **)** |   | (1,560 | ) |
| Proceeds                    from                    exercised stock options                                            |   |                                           | **713**      |   |   | 5,110 |   |
| Tax                    benefit                    from exercise of stock options                                       |   |                                           | **255**      |   |   |   |   |
| Net                    cash used by financing                    activities                                            |   |                                           | **(17,338**  | **)** |   | (8,161 | ) |
|                                                                                                                   |   |                                           |         |   |   |   |   |
| Net                    increase                    (decrease) in cash                                                  |   |                                           | **(1,929**   | **)** |   | 5,954 |   |
| Cash                    at                    beginning of period                                                      |   |                                           | **12,556**   |   |   | 7,632 |   |
| **Cash                    at end of                    period**                                                        |   | **$**                                          | **10,627**   |   | $ | 13,586 |   |
|                                                                                                                   |   |                                           |         |   |   |
|  **Reconciliation                  of net income to net cash provided by operating                  activities:** |   |                                           |         |   |   |
| Net                    income                                                                                          |   | **$**                                          | **9,329**    |   | $ | 11,587 |   |
| Depreciation                                                                                                           |   |                                           | **2,912**    |   |   | 2,815 |   |
| Deferred                    income taxes                                                                               |   |                                           | **(468**     | **)** |   | (514 | ) |
| Tax                    benefit from exercise of stock                    options                                       |   |                                           | **(255**     | **)** |   |   |   |
| Stock-based                    compensation                                                                            |   |                                           | **297**      |   |   |   |   |
| Loss                    on disposal of                    assets                                                       |   |                                           | **6**        |   |   |   |   |
| Changes                    in assets and                    liabilities:                                               |   |                                           |         |   |   |   |   |
| Accounts                    receivable                                                                                 |   |                                           | **(1,001**   | **)** |   | (3,096 | ) |
| Inventories                                                                                                            |   |                                           | **8,505**    |   |   | 1,375 |   |
| Prepaid                    expenses and other current                    assets                                        |   |                                           | **(298**     | **)** |   | (323 | ) |
| Accounts                    payable                                                                                    |   |                                           | **446**      |   |   | 3,493 |   |
| Accrued                    salaries, wages and                    benefits                                             |   |                                           | **(2,948**   | **)** |   | 544 |   |
| Other                    accrued expenses                                                                              |   |                                           | **356**      |   |   | 1,431 |   |
| Other                    assets                                                                                        |   |                                           | **(616**     | **)** |   | (367 | ) |
| Other                    long-term                    liabilities                                                 |   |                                           | **(90**      | **)** |   | (76 | ) |
| Net                    cash provided by operating                    activities                                        |   | **$**                                          | **16,175**   |   | $ | 16,869 |   |

----

**STANLEY      FURNITURE COMPANY, INC.**

| 1. | **Preparation                of Interim Unaudited Consolidated Financial                Statements** |
|----|------------------------------------------------------------------------------------------------------|

| 2. | **Stock-based                Compensation**  |
|----|---------------------------------------------------|

|                                                                                           |         Three                  Months |   |                                  Six Months |
|------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------|
|                                                                                           |       Ended                                |   | Ended                                                                                                             |
|                                                                                           |                     July 2, 2005                               |   | July                  2,                  2005                                                                    |
| Net                  income as reported                                                        | $5,827                                                                        |   | $11,587                                                                                                                |
| Deduct:                  Total stock-based compensation expense                  determined    |                                                                          |   |                                                                                                                   |
| under                  fair value                  based method for all awards, net of related |                                                                          |   |                                                                                                                   |
| tax                  effects                                                                   | 187                                                                           |   | 476                                                                                                                    |
| Pro                  forma net income                                                          | $5,640                                                                        |   | $11,111                                                                                                                |
|                                                                                           |                                                                          |   |                                                                                                                   |
| Earnings                  per share:                                                           |                                                                          |   |                                                                                                                   |
| Basic                  - as                  reported                                          | $                  0.45                                                       |   | $                  0.90                                                                                                |
| Basic                  - pro                  forma                                            | $                  0.44                                                       |   | $                  0.86                                                                                                |
|                                                                                           |                                                                          |   |                                                                                                                   |
| Diluted                  - as                  reported                                        | $                  0.44                                                       |   | $                  0.87                                                                                                |
| Diluted                  - pro                  forma                                          | $                  0.43                                                       |   | $                  0.84                                                                                                |

----

| Expected                price volatility             | ** 36.1** | **%** |   |
|------------------------------------------------------|----------------|-------|--------|
| Risk-free              interest rate                 |  **4.7**  | **%** |   |
| Weighted              average expected life in years |  **5.2**  |       |   |
| Dividend              yield                          |  **1.2**  | **%** |   |

|                                          |   |                                           |    |                          |   | Weighted                                    |   |      |    |
|-----------------------------------------------|--------|------------------------------------------------|---------|-------------------------------|--------|---------------------------------------------|--------|-----------|---------|
|                                          |   |                                           |    |                          |   | Average                                     |   |      |    |
|                                          |   |                                           |    | Weighted                      |   | Remaining                                   |   | Aggregate |    |
|                                          |   | Number                of                       |    | Average                       |   | Contractual                                 |   | Intrinsic |    |
|                                          |   |                    Shares  |    | Exercise                price |   | Term                (in                yrs) |   | Value     |    |
|                                          |   |                                           |    |                          |   |                                        |   |      |    |
| Outstanding                at January 1, 2006 |   |                                           | 855     |                          | $      | 14.71                                       |   |      | 5.7     |   |   |   |   |
| Lapsed                                        |   |                                           | **(3**  | **)**                         | **$**  | **24.51**                                   |   |      |    |   |   |   |   |
| Exercised                                     |   |                                           | **(54** | **)**                         | **$**  | **13.21**                                   |   |      |    |   |   |   |   |
| Granted                                       |   |                                           | **25**  |                          | **$**  | **27.59**                                   |   |      |    |   |   |   |   |
|                                          |   |                                           |    |                          |   |                                        |   |      |    |   |   |   |   |
| Outstanding                at July 1, 2006    |   |                                           | **823** |                          | **$**  | **15.17**                                   |   |      | **5.9** |   | **$** | **7,248** |   |
|                                          |   |                                           |    |                          |   |                                        |   |      |    |   |   |   |   |
| Exercisable                at July 1, 2006    |   |                                           | **729** |                          | **$**  | **14.14**                                   |   |      | **5.5** |   | **$** | **7,161** |   |

|                                                                          |   | Three                Months |    | Six                Months                                      |   |
|-------------------------------------------------------------------------------|--------|-----------------------------|---------|----------------------------------------------------------------|--------|
|                                                                          |   | Ended                  |    | Ended                                                     |   |
|                                                                          |   | **July                1,**  |    | July                2,                                         |   | **July                1,** |   | July                2, |   |
|                                                                          |   | **2006**               |    |                       2005  |   | **                   2006**  |   |                      2005  |   |
| Proceeds                from                stock options exercised           |   | **$**                       | **261** |                                                           | $      | 1,796 |   | **$** | **713** |   | $ | 5,110 |   |
| Tax                benefits                related to stock options exercised |   | **$**                       | **94**  |                                                           | $      | 324 |   | **$** | **255** |   | $ | 1,240 |   |
| Intrinsic                value of stock options exercised                |   | **$**                       | **251** |                                                           | $      | 1,004 |   | **$** | **689** |   | $ | 3,357 |   |

----

**Property,      Plant and Equipment**

|                                                                 |   | **  July                1,**   |        | December                31,   |   |
|----------------------------------------------------------------------|--------|----------------------------------------------------|-------------|-----------------------------------------|--------|
|                                                                 |   |                                               | **2006**    |                                    |   | 2005 |   |
| Land                and                buildings                     |   | **$**                                              | **39,932**  |                                    | $      | 39,894 |   |
| Machinery                and                equipment                |   |                                               | **78,225**  |                                    |   | 77,693 |   |
| Office                furniture and equipment                        |   |                                               | **1,903**   |                                    |   | 1,916 |   |
| Property,                plant and equipment, at                cost |   |                                               | **120,060** |                                    |   | 119,503 |   |
| Less                accumulated depreciation                         |   |                                               | **71,443**  |                                    |   | 68,759 |   |
| Property,                plant and equipment,                net     |   | **$**                                              | **48,617**  |                                    | $      | 50,744 |   |

| 4. | **Debt** |
|----|----------|

|                                                                           |   | **   July                1,**  |       | December                31,  |   |
|--------------------------------------------------------------------------------|--------|----------------------------------------------------|------------|-----------------------------------|--------|
|                                                                           |   | **    2006**         |       | 2005                    |   |
| 7.43%                senior                notes due through November 18, 2007 |   | **$**                                              | **2,857**  |                              | $      | 2,857 |   |
| 6.94%                senior                notes due through May 3, 2011       |   |                                               | **7,143**  |                              |   | 8,571 |   |
| Total                                                                          |   |                                               | **10,000** |                              |   | 11,428 |   |
| Less                current                maturities                          |   |                                               | **2,857**  |                              |   | 2,857 |   |
| Long-term                debt, exclusive of current                maturities  |   | **$**                                              | **7,143**  |                              | $      | 8,571 |   |

**Employee      Benefits Plans**

|                                          |   | Three                Months |     | Six                Months |   |
|-----------------------------------------------|--------|-----------------------------|----------|---------------------------|--------|
|                                          |   | Ended                  |     | Ended                |   |
|                                          |   | **July                1,**  |     | July                2,    |   | **July                1,** |   | July                2, |   |
|                                          |   | **2006**               |     | 2005                 |   | **2006**  |   | 2005  |   |
| Interest                cost                  |   | **$**                       | **227**  |                      | $      | 242 |   | **$** | **464** |   | $ | 485 |   |
| Expected                return on plan assets |   |                        | **(247** | **)**                     |   | (257 | ) |   | **(491** | **)** |   | (513 | ) |
| Net                amortization and deferral  |   |                        | **120**  |                      |   | 111 |   |   | **250** |   |   | 222 |   |
| Net                cost                       |   |                        | **100**  |                      |   | 96 |   |   | **223** |   |   | 194 |   |
| Settlement                expense             |   |                        | **95**   |                      |   | 333 |   |   | **311** |   |   | 573 |   |
| Total                expense                  |   | **$**                       | **195**  |                      | $      | 429 |   | **$** | **534** |   | $ | 767 |   |

----

|                                                                   |   | Three                Months                                     |    | Six                Months                |   |
|------------------------------------------------------------------------|--------|-----------------------------------------------------------------|---------|------------------------------------------|--------|
|                                                                   |   | Ended                                                      |    | Ended                               |   |
|                                                                   |   | **                      July 1,** |    | July                2,                   |   | **July                1,** |   | July                2, |   |
|                                                                   |   | **2006**                                                   |    |      2005  |   | **    2006**  |   |      2005  |   |
| Service                cost                                            |   | **$**                                                           | **24**  |                                     | $      | 22 |   | **$** | **48** |   | $ | 44 |   |
| Interest                cost                                           |   |                                                            | **43**  |                                     |   | 46 |   |   | **87** |   |   | 92 |   |
| Amortization                of transitions obligation                  |   |                                                            | **32**  |                                     |   | 33 |   |   | **65** |   |   | 66 |   |
| Amortization                of net actuarial loss                 |   |                                                            | **10**  |                                     |   | 17 |   |   | **21** |   |   | 34 |   |
| Net                periodic postretirement benefit                cost |   | **$**                                                           | **109** |                                     | $      | 118 |   | **$** | **221** |   | $ | 236 |   |

| 6. | **Stockholders’                Equity** |
|----|-----------------------------------------------|

|                                                                                                             |   | Three                Months                               |       | Six                Months    |   |
|------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|------------|------------------------------|--------|
|                                                                                                             |   | Ended                                                |       | Ended                   |   |
|                                                                                                             |   | **                     July 1,** |       |  July                2, |   | **                   July 1,** |   | July                2, |   |
|                                                                                                             |   |                                                      | **2006**   |                         |   | 2005 |   |   | **2006** |   |   | 2005 |   |
| Weighted                average shares outstandingfor                basic calculation                           |   |                                                      | **11,973** |                         |   | 12,905 |   |   | **12,101** |   |   | 12,908 |   |
| Add:                Effect                of dilutive stock options                                              |   |                                                      | **291**    |                         |   | 350 |   |   | **296** |   |   | 408 |   |
| Weighted                average shares outstandingAdjusted                for diluted                calculation |   |                                                      | **12,264** |                         |   | 13,255 |   |   | **12,397** |   |   | 13,316 |   |

|                                                        |   |   |         |   |   |                           |   |   |             |   |   | Accumulated         |   |
|-------------------------------------------------------------|--------|--------|--------------|--------|--------|--------------------------------|--------|--------|------------------|--------|--------|---------------------|--------|
|                                                        |   |   |         |   |   | Capital in                |   |   |             |   |   | Other          |   |
|                                                        |   |   | Common  |   |   | Excess                of  |   |   | Retained    |   |   | Comprehensive  |   |
|                                                        |   |   | Stock   |   |   | Par                Value  |   |   | Earnings    |   |   | Loss           |   |
| Balance,                December 31, 2005                   |   | $      | 245          |   |   |                           |   | $      | 132,682          |   | $      | (178                | )      |
|                                                        |   |   |         |   |   |                           |   |   |             |   |   |                |   |
| **Net                income**                               |   |   |         |   |   |                           |   |   | **9,329**        |   |   |                     |   |
| **Exercise                of stock options**                |   |   | **1**        |   | **$**  | **712**                        |   |   |             |   |   |                |   |
| **Tax                benefit on exercise of stock options** |   |   |         |   |   | **255**                        |   |   |             |   |   |                |   |
| **Stock                repurchases**                        |   |   | **(12**      | **)**  |   | **(1,510**                     | **)**  |   | **(14,653**      | **)**  |   |                |   |
| **Stock                awards**                             |   |   |         |   |   | **246**                        |   |   |             |   |   |                |   |
| **Stock-based                compensation**                 |   |   |         |   |   | **297**                        |   |   |             |   |   |                |   |
| **Cash              dividends paid, $.16 per share**        |   |   |         |   |   |                           |   |   | **(1,944 ** | **)**  |   |                |   |
| **Balance,                July 1, 2006**                    |   | **$**  | **234**      |   |   |                           |   | **$**  | **125,414**      |   | **$**  | **(178**            | **)**  |

----

**Management’s Discussion and Analysis of Financial Condition      and Results of Operations**

**Results      of      Operations**

|                                                        |   | Three                Months |      | Six                Months |   |
|-------------------------------------------------------------|--------|-----------------------------|-----------|---------------------------|--------|
|                                                        |   | Ended                  |      | Ended                |   |
|                                                        |   | **July                1,**  |      | July                2,    |   | **July                1,** |   | July                2, |   |
|                                                        |   | **2006**          |      | 2005                 |   | **2006**  |   | 2005  |   |
| Net                sales                                    |   |                        | **100.0** | **%**                     |   | 100.0 | % |   | **100.0** | **%** |   | 100.0 | % |
| Cost                of                sales                 |   |                        | **77.3**  |                      |   | 75.3 |   |   | **76.8** |   |   | 75.3 |   |
| Gross                profit                                 |   |                        | **22.7**  |                      |   | 24.7 |   |   | **23.2** |   |   | 24.7 |   |
| Selling,                general and administrative expenses |   |                        | **14.6**  |                      |   | 13.4 |   |   | **13.9** |   |   | 13.4 |   |
| Operating                income                             |   |                        | **8.1**   |                      |   | 11.2 |   |   | **9.3** |   |   | 11.3 |   |
| Other                income,                net             |   |                        | **.1**    |                      |   | .1 |   |   | **.1** |   |   | .1 |   |
| Interest                income                              |   |                        | **.2**    |                      |   | .1 |   |   | **.1** |   |   | .1 |   |
| Interest                expense                             |   |                        | **.7**    |                      |   | .6 |   |   | **.6** |   |   | .7 |   |
| Income                before income taxes                   |   |                        | **7.7**   |                      |   | 10.8 |   |   | **8.9** |   |   | 10.8 |   |
| Income                taxes                                 |   |                        | **2.6**   |                      |   | 3.8 |   |   | **3.1** |   |   | 3.8 |   |
| Net                income                                   |   |                        | **5.1**   | **%**                     |   | 7.0 | % |   | **5.8** | **%** |   | 7.0 | % |

----

**Financial      Condition, Liquidity and Capital Resources**

----

**Pension      Plan Termination**

**Critical      Accounting Policies**

**Forward-Looking      Statements**

----

| **ITEM 3.** | ** ****Quantitative and Qualitative Disclosures about                Market                Risk** |
|------------------|--------------------------------------------------------------------------------------------------------|

| **ITEM 4.** | ** Controls                and Procedures** |
|------------------|--------------------------------------------------|

| (a) | Evaluation                of                disclosure controls and procedures. Under the supervision and with                the                participation of our management, including our principal executive                officer                and principal financial officer, we conducted an evaluation of our                disclosure controls and procedures, as such term is defined under                Rule                13a-15(e) promulgated under the Securities Exchange Act of 1934,                as                amended (the Exchange Act). Based on this evaluation, our principal                executive officer and our principal financial officer concluded that                our                disclosure controls and procedures were effective as of the end of                the                period covered by this quarterly                report. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | Changes                in                internal controls over financial reporting. There were no changes                in our                internal control over financial reporting that occurred during the                second                quarter that have materially affected, or are reasonably likely to                materially affect, our internal control over financial                reporting. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item                  2. |  Unregistered                  Sales of Equity Securities and Use of                  Proceeds |
|--------------------------|-----------------------------------------------------------------------------------------------------|

|                                                 |                     |    |                      |   |                                              |   | Maximum                number (or                       |    |
|------------------------------------------------------|--------------------------|---------|---------------------------|--------|---------------------------------------------------|--------|---------------------------------------------------------|---------|
|                                                 |                     |    |                      |   | Total                number of                    |   | approximate                dollar                       |    |
|                                                 | Total                    |    |                      |   | Shares                purchased                   |   |                    value) of shares that |    |
|                                                 | number                of |    | Average                   |   | as                part                of publicly |   | may                yet                be purchased      |    |
|                                                 | Shares                   |    | price                paid |   | announced                plans                    |   | under                the plans or                       |    |
| Period                                               | Purchased                |    | per                share  |   | or                programs                        |   | programs                (a)                             |    |
|                                                 |                     |    |                      |   |                                              |   |                                                    |    |   |   |   |   |
| April                2                to May 6, 2006 |                     | 203,502 |                      | $      | 27.40                                             |   |                                                    | 203,502 |   | $ | 10,335,520 |   |
| May                7 to                June 3, 2006  |                     | 175,843 |                      | $      | 25.99                                             |   |                                                    | 175,843 |   | $ | 5,765,622 |   |
| June                4                to July 1, 2006 |                     | 208,000 |                      | $      | 22.96                                             |   |                                                    | 208,000 |   | $ | 989,197 |   |
|                                                 |                     |    |                      |   |                                              |   |                                                    |    |   |   |   |   |
| Total                                                |                     | 587,345 |                      | $      | 25.41                                             |   |                                                    | 587,345 |   |   |   |   |

| (a) | On                July                17, 2006, we announced that our Board of Directors increased our                stock                repurchase authorization to $50 million. Consequently, we may purchase                our                common stock, from time to time, either directly or through agents,                in the                open market, through negotiated purchases or otherwise, at prices                and on                terms satisfactory to us. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (b.) | The                stockholders of the Company elected two directors for a three-year                term                expiring at the annual meeting of stockholders to be held in 2009.                The                election was approved by the following                vote: |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                   |                   For |   |  Withheld                                                         |
|----------------------------------------|---------------------------------|--------|------------------------------------------------------------------------|
|                                   |                            |   |                                                                   |
|  Michael              P. Haley    |  11,220,402                |   |  11,510,242                                                       |
|                                   |                            |   |                                                                   |
|  Albert              L. Prillaman |  11,510,242                |   |                         98,151 |

| Item                6. | Exhibits |
|------------------------|----------|

| 3.1    | Restated                Certificate of Incorporation of the Registrant as amended (incorporated                by                reference to Exhibit 3.1 to the Registrant’s Form 10-Q (Commission File                No. 0-14938) for the quarter ended July 2, 2005). |   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |                                                                                                                                                                                                                                                                            |   |
| 3.2    | By-laws                of                the Registrant as amended (incorporated by reference to Exhibit 3                to the                Registrant’s Form 10-Q (Commission File No. 0-14938) for the quarter ended                September 27, 2003).            |   |
|   |                                                                                                                                                                                                                                                                            |   |
| 31.1   | Certification                by Jeffrey R. Scheffer, our Chief Executive Officer, pursuant to                18 U.S.C.                Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley                Act                of 2002.(1)                      |   |
|   |                                                                                                                                                                                                                                                                            |   |
| 31.2   | Certification                by Douglas I. Payne, our Chief Financial Officer, pursuant to 18                U.S.C.                Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley                Act                of 2002. (1)                        |   |
|   |                                                                                                                                                                                                                                                                            |   |
| 32.1   | Certification                of Jeffrey R. Scheffer, our Chief Executive Officer, pursuant to                18 U. S.                C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley                Act of 2002. (1)                                  |   |
|   |                                                                                                                                                                                                                                                                            |   |
| 32.2   | Certification                of Douglas I. Payne, our Chief Financial Officer, pursuant to 18                U. S. C.                Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley                Act                of 2002. (1)                      |   |

----

| Date:                July 18, 2006 |   | **STANLEY                FURNITURE COMPANY, INC.**                                        |
|------------------------------------|--------|-------------------------------------------------------------------------------------------|
|                               |   | By:                /s/ Douglas I. Payne                                                   |
|                               |   | Douglas                I. Payne                                                           |
|                               |   | Executive                V.P. - Finance & Administration And                Secretary |
|                               |   | (Principal                Financial and Accounting                Officer)                |