**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-Q**





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





For
      the
      quarterly period ended **September
      30, 2008**





or





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





For
      the
      transition period from _____to______





Commission
      File Number 1-4436





**THE
      STEPHAN CO.**


(Exact
      name of registrant as specified in its charter)





Florida
            59-0676812(State
                or other jurisdiction of incorporation or organization)
            (IRS
                Employer Identification No.)





1850
      West
      McNab Road, Fort Lauderdale, Florida 33309


(Address
      of principal executive offices)(Zip Code)





Registrant’s
      telephone number, including area code: (954) 971-0600





Former
      name, former address and former fiscal year, if changed since last report:
      not
      applicable.





Indicate
      by check mark whether the Registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
      the
      preceding 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 xNO o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      definitions of "large accelerated filer,” “accelerated filer" and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filer o
            Accelerated
                filer o
            Non-accelerated
                filer o
            Smaller
                reporting company x(Do
                not check if a smaller reporting
                company)





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES oNO
x





Indicate
      the number of shares outstanding of each of the registrant’s classes of common
      stock, as of the latest practicable date:





4,370,944
      shares of common stock, $0.01 par value, as of November 10,
      2008








THE
      STEPHAN CO. AND SUBSIDIARIES


INDEX
      TO
      QUARTERLY REPORT


ON
      FORM
      10-Q





Page**PART
                I – FINANCIAL INFORMATION**Item
                1:
            Financial
                Statements
            3Item
                2:
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            13Item
                3:
            Quantitative
                and Qualitative Disclosures about Market Risk
            16Item
                4T:
            Controls
                and Procedures
            16**PART
                II – OTHER INFORMATION**Item
                1:
            Legal
                Proceedings
            17Item
                1A:
            Risk
                Factors
            17Item
                2:
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            17Item
                3:
            Defaults
                Upon Senior Securities
            17Item
                4:
            Submission
                of Matters to a Vote of Security Holders
            17Item
                5:
            Other
                Information
            18Item
                6:
            Exhibits
            18Signatures
            
            19Certifications
            
            20


2


**PART
      I – FINANCIAL INFORMATION**





**Item
      1 - Financial Statements**





Certain
      statements in this Quarterly Report on Form 10-Q ("Form 10-Q") under "Item
      1.
      Financial Statements" and "Item 2. Management’s Discussion and Analysis of
      Financial Condition and Results of Operations," constitute "forward-looking
      statements" within the meaning of the Private Securities Litigation Reform
      Act
      of 1995 (the "Reform Act"). Such forward-looking statements involve known and
      unknown risks, uncertainties and other factors which may cause our actual
      results, condition (financial or otherwise), performance or achievements to
      be
      materially different from any future results, performance, condition or
      achievements expressed or implied by such forward-looking
      statements.





Words
      such as "projects," "believe," "anticipates," "estimate," "plans," "expect,"
      "intends," and similar words and expressions are intended to identify
      forward-looking statements and are based on our current expectations,
      assumptions, and estimates about us and our industry. In addition, any
      statements that refer to expectations, projections or other characterizations
      of
      future events or circumstances are forward-looking statements. Although we
      believe that such forward-looking statements are reasonable, we cannot assure
      you that such expectations will prove to be correct.





Our
      actual results could differ materially from those anticipated in such
      forward-looking statements as a result of several factors, risks and
      uncertainties. These factors, risks and uncertainties include, without
      limitation, our ability to satisfactorily address any material weakness in
      our
      financial controls; general economic and business conditions; competition;
      the
      relative success of our operating initiatives; our development and operating
      costs; our advertising and promotional efforts; brand awareness for our product
      offerings; the existence or absence of adverse publicity; acceptance of any
      new
      product offerings; changing trends in customer tastes; the success of any
      multi-branding efforts; changes in our business strategy or development plans;
      the quality of our management team; the availability, terms and deployment
      of
      capital; the business abilities and judgment of our personnel; the availability
      of qualified personnel; our labor and employee benefit costs; the availability
      and cost of raw materials and supplies; changes in or newly-adopted accounting
      principles; changes in, or our failure to comply with, applicable laws and
      regulations; changes in our product mix and associated gross profit margins,
      as
      well as management’s response to these factors, and other factors that may be
      more fully described in the Company’s literature, press releases and
      publicly-filed documents with the Securities and Exchange Commission. You are
      urged to carefully review and consider these disclosures, which describe certain
      factors that affect our business.





We
      do not
      undertake, subject to applicable law, any obligation to publicly release the
      results of any revisions, which may be made to any forward-looking statements
      to
      reflect events or circumstances occurring after the date of such statements
      or
      to reflect the occurrence of anticipated or unanticipated events. Therefore,
      we
      caution each reader of this report to carefully consider the specific factors
      and qualifications discussed herein with respect to such forward-looking
      statements, as such factors and qualifications could affect our ability to
      achieve our objectives and may cause actual results to differ materially from
      those projected, anticipated or implied herein.


3


The
      Stephan Co.


Condensed
      Consolidated Balance Sheets


(in
      thousands, except share data)





**September 30, 2008**
            
            December 31, 2007CURRENT
                ASSETSCash
                and cash equivalents
            
            **$**
            **4,494**
            
            $
            4,977Short-term
                investments
            
            
            **3,150**
            
            
            3,950Restricted
                cash
            
            
            **278**
            
            
            1,110Accounts
                receivable, net
            
            
            **1,394**
            
            
            1,430Inventories
            
            
            **5,536**
            
            
            4,240Prepaid
                expenses and other current assets
            
            
            **364**
            
            
            306TOTAL
                CURRENT ASSETS
            
            
            **15,216**
            
            
            16,013Property,
                plant and equipment, net
            
            
            **1,436**
            
            
            1,419Deferred
                income taxes
            
            
            **-**
            
            
            277Trademarks,
                goodwill and other intangibles, net
            
            
            **6,744**
            
            
            5,749Other
                assets
            
            
            **2,842**
            
            
            2,846**TOTAL
                ASSETS**
            
            **$**
            **26,238**
            
            $
            26,304CURRENT
                LIABILITIESCurrent
                portion of long-term debt
            
            **$**
            **413**
            
            $
            1,110Accounts
                payable and accrued expenses
            
            
            **2,112**
            
            
            2,156TOTAL
                CURRENT LIABILITIES
            
            
            **2,525**
            
            
            3,266Long-term
                debt, less current portion
            
            
            **392**
            
            
            -COMMITMENTS
                AND CONTINGENCIESSTOCKHOLDERS'
                EQUITYPreferred
                stock, $.01 par value; 1,000,000 shares authorized; none
                issued.Common
                stock, $.01 par value; 25,000,000 shares authorized;4,389,771
                shares issued at September 30, 2008 and December 31, 2007
            
            
            **44**
            
            
            44Additional
                paid-in capital
            
            
            **17,796**
            
            
            17,736Retained
                earnings
            
            
            **5,537**
            
            
            5,258Treasury
                stock, 18,827 shares held at September 30, 2008, at cost
            
            
            **(56**
            **)**
            
            -TOTAL
                STOCKHOLDERS' EQUITY
            
            
            **23,321**
            
            
            23,038**TOTAL
                LIABILITIES & STOCKHOLDERS' EQUITY**
            
            **$**
            **26,238**
            
            $
            26,304





See
      Notes
      to Consolidated Financial Statements.


4


Condensed
        Consolidated Statements of Operations
 (in
        thousands, except share data)
 
 **Quarter ended Sept. 30**
              
              **Nine Months ended Sept. 30,****2008**
              
              2007
              
              **2008**
              
              2007Revenue
              
              **$**
              **5,420**
              
              $
              5,600
              
              **$**
              **14,129**
              
              $
              15,747Cost
                  of revenue
              
              
              **2,849**
              
              
              2,960
              
              
              **7,281**
              
              
              8,491Gross
                  profit
              
              
              **2,571**
              
              
              2,640
              
              
              **6,848**
              
              
              7,256Selling,
                  general and administrative expenses
              
              
              **2,194**
              
              
              2,064
              
              
              **6,130**
              
              
              6,536Operating
                  income
              
              
              **377**
              
              
              576
              
              
              **718**
              
              
              720Interest
                  income
              
              
              **36**
              
              
              93
              
              
              **193**
              
              
              278Interest
                  expense
              
              
              **(3**
              **)**
              
              (6
              )
              
              **(9**
              **)**
              
              (20
              )Income
                  before income taxes
              
              
              **410**
              
              
              663
              
              
              **902**
              
              
              978Provision
                  for income taxes
              
              
              **164**
              
              
              260
              
              
              **360**
              
              
              389NET
                  INCOME
              
              **$**
              **246**
              
              $
              403
              
              **$**
              **542**
              
              $
              589Basic
                  income per share
              
              **$**
              **0.06**
              
              $
              0.09
              
              $
              0.12
              
              $
              0.13Diluted
                  income per share
              
              **$**
              **0.06**
              
              $
              0.09
              
              $
              0.12
              
              $
              0.13Dividends
                  per share
              
              **$**
              **0.02**
              
              $
              0.04
              
              $
              0.06
              
              $
              0.06





Note:
      Amounts for the third quarter and nine months of 2008 include results of
      operations of Bowman Barber and Beauty Supply, Inc. from August 14, the date
      of
      acquisition, to September 30, 2008. See “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations.”





See
      Notes
      to Consolidated Financial Statements.


5


The
        Stephan Co.
 Condensed
        Consolidated Statements of Cash Flows
 (in
        thousands)
 
 **Nine Months Ended Sept. 30,****2008**
              
              2007CASH
                  FLOWS FROM OPERATING ACTIVITIESNET
                  INCOME
              
              **$**
              **542**
              
              $
              589Adjustments
                  to reconcile net income to net cash flowsprovided
                  by operating activities:Depreciation
                  and amortization
              
              
              **87**
              
              
              102Stock
                  option compensation
              
              
              **60**
              
              
              69Deferred
                  income taxes
              
              
              **277**
              
              
              321Changes
                  in operating assets & liabilitiesAccounts
                  receivable
              
              
              **76**
              
              
              (124
              )Inventories
              
              
              **(1,089**
              **)**
              
              (177
              )Prepaid
                  expenses and other current assets
              
              
              **(50**
              **)**
              
              (66
              )Other
                  assets
              
              
              **4**
              
              
              9Accounts
                  payable and accrued expenses
              
              
              **(354**
              **)**
              
              (81
              )Total
                  adjustments to net income
              
              
              **(989**
              **)**
              
              53**NET
                  CASH FLOWS (USED IN) PROVIDED BY OPERATING
                  ACTIVITIES**
              
              
              **(447**
              **)**
              
              642CASH
                  FLOWS FROM INVESTING ACTIVITIESProceeds
                  from sale of short-term investments
              
              
              **800**
              
              
              -Acquisition
                  of Bowman Beauty and Barber Supply, Inc. ("Bowman")
              
              
              **(500**
              **)**
              
              -Purchases
                  of property, plant and equipment
              
              
              **(17**
              **)**
              
              (16
              )**NET
                  CASH FLOWS PROVIDED BY (USED IN) INVESTING
                  ACTIVITIES**
              
              
              **283**
              
              
              (16
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESDecrease
                  in restricted cash
              
              
              **832**
              
              
              836Repayment
                  of long-term debt
              
              
              **(832**
              **)**
              
              (832
              )Purchases
                  of treasury stock
              
              
              **(56**
              **)**
              
              -Dividends
              
              
              **(263**
              **)**
              
              (263
              )**NET
                  CASH FLOWS (USED IN) FINANCING ACTIVITIES**
              
              
              **(319**
              **)**
              
              (259
              )**NET
                  (DECRASE) INCREASE IN CASH AND CASH EQUIVALENTS**
              
              
              **(483**
              **)**
              
              367CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF YEAR
              
              
              **4,977**
              
              
              7,064**CASH
                  AND CASH EQUIVALENTS AT END OF THIRD QUARTER**
              
              **$**
              **4,494**
              
              $
              7,431SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:Interest
                  paid
              
              **$**
              **12**
              
              $
              20Income
                  taxes paid
              
              **$**
              **-**
              
              $
              82Note
                  payable issued to former owner of Bowman and other liabilities
                  assumed
              
              **$**
              **(528**
              **)**
              $
              -


See
      Notes
      to Consolidated Financial Statements.


6





The
      Stephan Co. And Subsidiaries


Notes
      To
      Condensed Consolidated Financial Statements


Quarters
      ended September 30, 2008 and 2007





NOTE
      1:
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





NATURE
      OF
      OPERATIONS: The Company is engaged in the manufacture, sale and distribution
      of
      hair grooming and personal care products principally throughout the United
      States and has allocated substantially all of its business into two segments:
      Brands and Distributors.





BASIS
      OF
      PRESENTATION: In the opinion of management, the accompanying unaudited, interim
      condensed consolidated financial statements have been prepared by the Company
      pursuant to the rules and regulations of the Securities and Exchange Commission.
      These interim financial statements do not include all of the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements and should be read in conjunction with the Company’s annual
      financial statements as of December 31, 2007. These interim financial statements
      have not been audited. However, management believes the accompanying unaudited,
      interim financial statements contain all adjustments, consisting of only normal
      recurring adjustments, necessary to present fairly the consolidated financial
      position of The Stephan Co. and subsidiaries as of September 30, 2008 and the
      results of their operations and cash flows for the nine months then ended.
      The
      results of operations and cash flows for the interim period are not necessarily
      indicative of the results of operations or cash flows that can be expected
      for
      the year ending December 31, 2008.




USE
      OF
      ESTIMATES: The preparation of consolidated financial statements in conformity
      with U.S. GAAP 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 revenue and expenses during the reporting period. Actual
      results could differ significantly from those estimates if different assumptions
      were used or different events ultimately transpire. We believe that the
      following are the most critical accounting policies that require management
      to
      make difficult, subjective and/or complex judgments, often due to a need to
      make
      estimates about matters that are inherently uncertain:





PRINCIPLES
      OF CONSOLIDATION: The consolidated financial statements include the accounts
      of
      The Stephan Co. and its wholly owned subsidiaries: Foxy Products, Inc., Old
      97
      Company, Williamsport Barber and Beauty Supply Corp., Stephan & Co.,
      Scientific Research Products, Inc. of Delaware, Sorbie Distributing Corporation,
      Stephan Distributing, Inc., Morris Flamingo-Stephan, Inc., American Manicure,
      Inc., Bowman Barber and Beauty Supply, Inc., and Lee Stafford Beauty Group,
      Inc.
      (collectively, the "Company"). All significant inter-Company balances and
      transactions have been eliminated in consolidation. Certain reclassifications
      (having no net profit or loss impact) have been made to the previously reported
      amounts in the 2007 financial statements to reflect comparability with the
      2008
      presentation.





IMPAIRMENT
      OF LONG-LIVED ASSETS AND GOODWILL: The Company periodically evaluates whether
      events or circumstances have occurred that would indicate that long-lived assets
      may not be recoverable or that their remaining useful lives may be impaired.
      When such events or circumstances are present, the Company assesses the
      recoverability of long-lived assets by determining whether the carrying value
      will be recovered through the expected future cash flows resulting from the
      use
      of the asset. If the results of this testing indicates an impairment of the
      carrying value of the asset, an impairment loss equal to the excess of the
      asset's carrying value over its fair value is recorded. The long-term nature
      of
      these assets requires the projection of their associated cash flows and then
      the
      discounting of these projected cash flows to their present value.





In
      accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," goodwill
      and other indefinite-lived intangible assets are to be evaluated for impairment
      on an annual basis and, between annual tests, whenever events or circumstances
      indicate that the carrying value of an asset may exceed its fair value at
      September 30, 2008. The Company has less than $7.0 million of intangibles
      subject to future impairment testing. No events or circumstances occurred that
      indicated a possible impairment of intangible assets during the quarter and
      nine
      months ended September 30, 2008.





MAJOR
      CUSTOMERS: There were no sales to any single customer in excess of 10% of
      revenue in 2008 or 2007. The Company performs ongoing credit evaluations of
      its
      customers' financial condition and, generally, requires no collateral. The
      Company does not believe that its customers' credit risk represents a material
      risk of loss to the Company.





STOCK-BASED
      COMPENSATION: Effective January 1, 2006, the Company adopted Statement of
      Financial Accounting Standards No. 123 (revised), “Share-Based Payment”
(“SFAS 123(R)”), and chose to utilize the modified prospective transition
      method. Under this method, compensation costs recognized in 2008 and 2007 relate
      to the estimated fair value at the grant date of stock options granted each
      year
      subsequent to January 1, 2006. Prior to the adoption of SFAS 123(R) the
      Company accounted for stock options in accordance with APB Opinion No. 25,
“Accounting for Stock Issued to Employees,” and, using the intrinsic value of
      the grant to determine stock option value, recognized no compensation expense
      in
      net income for stock options granted and elected the “disclosure only”
provisions of SFAS 123. In accordance with the provisions of SFAS 123(R),
      options granted prior to January 1, 2006 have not been restated to reflect
      the adoption of SFAS 123(R). The required services for awards prior to January
      1, 2006 had been rendered prior to December 31, 2005.


7





As
      a
      result of adopting SFAS 123(R) on January 1, 2006, the Company’s net income
      for the year-to-date periods ended September 30, 2008 and 2007 was reduced
      as a
      result of the Company's recognition of approximately $60,000 and $69,000 (net
      of
      income tax benefit), respectively, and for the quarterly periods then ended
      by
      $20,000 and $21,000. These amounts have been included in compensation expense
      (included in Selling, General and Administrative Expenses). The impact on basic
      and diluted earnings per share for the nine months ended September 30 of each
      year was approximately $0.01 per common share; the effect on the third quarter
      was approximately $0.005 per common share of each year. The Company employed
      the
      Black-Scholes option pricing model to estimate the fair value of stock options
      using assumptions consistent with past practices. On January 1, 2008 the company
      granted 50,000 shares to our CEO and on June 30, 2008 granted a total of 20,248
      shares to our outside directors.





FAIR
      VALUE OF FINANCIAL INSTRUMENTS: The Company, using available market information
      and recognized valuation methodologies, has determined the estimated fair values
      of financial instruments that are presented herein. However, considerable
      judgment is required in interpreting market data to develop estimates of fair
      value. Accordingly, the estimates presented herein are not necessarily
      indicative of amounts the Company could realize in a current market sale of
      such
      instruments.





The
      following methods and assumptions were used to estimate fair value: 1) the
      carrying amounts of cash and cash equivalents, short-term investments, accounts
      receivable and accounts payable were assumed to approximate fair value due
      to
      their short-term nature; 2) debt service cash flows were discounted using
      current interest rates for financial instruments with similar characteristics
      and maturity to determine the fair value of bank debt. As of September 30,
      2008
      and December 31, 2007 there were no significant differences in the carrying
      values and fair market values of financial instruments.





REVENUE
      RECOGNITION: Revenue is recognized when all significant contractual obligations,
      which involve the delivery of the products sold and reasonable assurance as
      to
      the collectibility of the resulting account receivable, have been satisfied.
      The
      Company does not sell on a consignment basis; returns are permitted for damaged
      or unsaleable items only. Revenue is shown after deductions for payment and
      volume discounts and returns. The Company estimates that these discounts and
      returns will approximate between 1% and 2% of gross revenue, and we accrue
      for
      these costs accordingly. The Company participates in various promotional
      activities in conjunction with its retailers and distributors, primarily through
      the use of discounts, new warehouse allowances, slotting allowances, co-op
      advertising and periodic price reduction programs. These costs have been
      subtracted from revenue and approximated $221,000 and $61,000 for the nine-and
      three-month periods, respectively, ended September 30, 2008. Such costs were
      $190,000 and $91,000 for the nine-and and three-month periods, respectively,
      ended September 30, 2007. The allowances for sales returns, and consumer and
      trade promotion liabilities, are established based on the Company’s estimate of
      the amounts necessary to settle future and existing obligations for such items
      on products sold as of the balance sheet date.




COST
      OF
      GOODS SOLD: This item includes the costs of raw materials, packaging, inbound
      freight, direct labor and depreciation. Other manufacturing-related overhead,
      including purchasing, receiving, inspection, internal transfer costs,
      warehousing and manufacturing center costs (principally rent, real estate taxes
      and insurance, related to product manufacturing and warehousing) are classified
      in Selling, General and Administrative Expenses in the Condensed Consolidated
      Statements of Operations. For the quarters ended September 30, 2008 and 2007,
      the manufacturing-related overhead included in Selling, General and
      Administrative Expenses was approximately $183,000 and $208,000, respectively.
      For the year-to-date periods ended September 30, 2008 and 2007, these costs
      approximated $572,000 and $794,000, respectively.




SHIPPING
      AND HANDLING FEES AND COSTS: Expenses for the shipping and delivery of products
      sold to customers were approximately $417,000 and $435,000 for the quarters
      ended September 30, 2008 and 2007. For the year-to-date periods ended September
      30, 2008 and 2007, these costs approximated $1.2 million in each period.





CASH
      AND
      CASH EQUIVALENTS: Cash and cash equivalents include cash, money market funds,
      repurchase agreements and similar highly-liquid investments having maturities
      of
      90 days or less when acquired. The Company maintains cash deposits at certain
      financial institutions in amounts in excess of federally insured limits
      (effective October 2, 2008) of $250,000. Cash and cash equivalents exclude
      restricted cash of $0.3 million pledged for the repayment of bank debt and
      also
      excludes short-term investments.





SHORT-TERM
      INVESTMENTS: At September 30, 2008, we owned $3.2 million of auction rate
      securities. We sold all of these securities at par in the fourth
      quarter.





ALLOWANCE
      FOR DOUBTFUL ACCOUNTS: The allowance is based upon specific identification
      of
      customer balances that are unlikely to be collected plus an estimated amount
      for
      potentially uncollectible amounts.


8





INVENTORIES:
      Inventories are stated at the lower of cost (determined on the first-in,
      first-out basis) or market. Other manufacturing – related costs (see COST OF
      GOODS SOLD) classified in Selling, General and Administrative expenses, are
      allocated to finished goods inventory. The amount of these allocations to
      inventory was approximately $540,000 at both September 30, 2008 and December
      31,
      2007. We periodically evaluate our inventory composition, giving consideration
      to factors such as the probability and timing of anticipated usage and the
      physical condition of the items, and then estimate an allowance (reducing the
      inventory) to be provided for slow moving, obsolete or damaged inventory. These
      estimates could vary significantly, either favorably or unfavorably, from actual
      requirements based upon future economic conditions, customer inventory levels
      or
      competitive factors that were not foreseen or did not exist when the inventory
      write-downs were established.





At
      September 30, 2008 and December 31, 2007 we classified as Other Assets
      approximately $4.8 million of slow moving and potentially obsolete inventories.
      We have subtracted obsolescence reserves of $2.0 million in both periods. The
      net long-term inventory amount in Other Assets was $2.8 million at September
      30,
      2008 and December 31, 2007.





PROPERTY,
      PLANT AND EQUIPMENT: Property, plant and equipment are recorded at cost. Routine
      repairs and maintenance are expensed as incurred. Depreciation is provided
      on a
      straight-line basis over the estimated useful lives of the assets as
      follows:





Buildings
                and improvements
            15-30
                yearsMachinery
                and equipment
            5-10
                yearsFurniture
                and office equipment
            3-5
                years





INCOME
      TAXES: Income taxes are calculated under the asset and liability method of
      accounting. Deferred income taxes are recognized by applying the enacted
      statutory rates applicable to estimated future year differences between the
      financial statement (“book basis”) and tax basis carrying amounts. At September
      30, 2008 and December 31, 2007, respectively, the Company had a net deferred
      tax
      liability (classified as Accrued Expenses and Other Current Liabilities) of
      $48,000 and a deferred tax asset of $277,000.




BASIC
      AND
      DILUTED EARNINGS PER SHARE: Basic and diluted earnings per share are computed
      by
      dividing net income by the weighted average number of shares of common stock
      outstanding. At September 30, 2008, the Company had approximately 400,000
      options outstanding of which none had exercise prices that were less than the
      Company’s stock price at September 30, 2008. Consequently, no additional
      equivalent shares, in addition to the actual weighted average outstanding
      shares, were assumed to be outstanding for purposes of calculating diluted
      net
      income per share. The weighted average shares outstanding were 4.371 million
      and
      4.384 million for the third quarter and year-to-date periods, respectively,
      ended on September 30, 2008. In 2007, the weighted average shares outstanding
      were 4.390 million for the third quarter and nine-month year-to-date
      periods.





NOTE
      2:
      NEW FINANCIAL ACCOUNTING STANDARDS:





In
      March
      2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and
      Hedging Activities, an Amendment of FASB Statement No. 133” (“SFAS 161”), which
      is effective for fiscal years and interim periods beginning after November
      15,
      2008, with earlier adoption encouraged. This statement is intended to improve
      transparency in financial reporting by requiring enhanced disclosures of an
      entity’s derivative instruments and hedging activities and their effects on the
      entity’s financial position, financial performance and cash flows. SFAS 161
      applies to all derivative instruments within the scope of SFAS 133, “Accounting
      for Derivative Instruments and Hedging Activities” (‘SFAS 133”) as well as
      related hedged items, bifurcated derivatives and nonderivative instruments
      that
      are designed and qualify as hedging instruments. We do not expect SFAS 161
      to
      have a material impact on our consolidated financial statements and plan to
      adopt it effective January 1, 2009.





In
      December 2007, the FASB issued SFAS No. 141 (R), “Business Combinations.” SFAS
      No. 141 (R) amends the principles and requirements for how an acquirer
      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 No. 141 (R) also establishes disclosure
      requirements to enable the evaluation of the nature and financial effects of
      the
      business combination. SFAS No. 141 (R) is effective for us on January 1, 2009,
      and we will apply its provisions prospectively to all business combinations
      after that time.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements –an amendment of Accounting Research Bulletin
      No. 51.” SFAS No. 160 establishes accounting and reporting standards for the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS No. 160 also establishes disclosure requirements that clearly
      identify and distinguish between controlling and noncontrolling interests and
      requires the separate disclosure of income attributable to controlling and
      noncontrolling interests. SFAS No. 160 is effective for fiscal years beginning
      after December 15, 2008. We do not expect SFAS 160 to have a material impact
      on
      our consolidated financial statements and plan to adopt it effective January
      1,
      2009.


9





On
      February 15, 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (SFAS No. 159). Under SFAS No. 159, the Company may elect to report
      financial instruments and certain other items at fair value on a
      contract-by-contract basis with changes in value reported in earnings. This
      election is irrevocable. SFAS No. 159 provides an opportunity to mitigate
      volatility in reported earnings that is caused by measuring hedged assets and
      liabilities that were previously required to use a different accounting method
      than the related hedging contracts when the complex provisions of SFAS
      No. 133, *Accounting for Derivative Instruments and Hedging Activities,* applicable to hedge accounting are not met. The Company adopted SFAS
      No. 159 on January 1, 2008. The Company chose not to elect the fair
      value option for its financial assets and liabilities existing at
      January 1, 2008 and did not elect the fair value option on financial assets
      and liabilities transacted in the nine months ended September 30, 2008.
      Therefore, the adoption of SFAS No. 159 had no impact on the Company’s
      interim condensed consolidated financial statements.




In
      September 2006 the FASB issued SFAS 157 “Fair Value Measurements.” SFAS 157 does
      not expand the use of fair value measurements in financial statements but
      standardizes their definition and guidance by defining fair value as used in
      numerous accounting pronouncements, establishes a framework for measuring fair
      value and expands disclosure related to the use of fair value measures. SFAS
      157
      did not have a material impact on our consolidated financial statements for
      the
      nine months ended September 30, 2008.





NOTE
      3:
      INVENTORIES





Inventories
      at September 30, 2008 and December 31, 2007 consisted of the
      following:


(in
                  thousands)
              
              2008
              
              2007Raw
                  materials
              
              $
              1,258
              
              $
              1,380Packaging
                  and components
              
              
              1,969
              
              
              1,995Work-in-process
              
              
              474
              
              
              437Finished
                  goods
              
              
              6,638
              
              
              5,231Total
                  inventory
              
              
              10,339
              
              
              9,043Less:
                  amount included in Other Assets
              
              
              (4,803
              )
              
              (4,803
              )Inventory
                  included in Current Assets
              
              $
              5,536
              
              $
              4,240





Raw
      materials include surfactants, chemicals and fragrances used in the production
      process. Packaging materials include cartons, inner sleeves and boxes used
      in
      the actual product, as well as outer boxes and cartons used for shipping
      purposes. Components are bottles or containers (plastic or glass), jars, caps,
      pumps and similar materials that will become part of the finished product.
      Finished goods also include hair dryers, electric clippers, lather machines,
      scissors and salon furniture.





Other
      Assets include long-term inventory not anticipated to be utilized within one
      year based on estimation methods established by the Company. We reduce the
      carrying value of this slower moving inventory to provide for an estimated
      amount that may ultimately become unusable or obsolete. See Note 1 to these
      Condensed Consolidated Financial Statements.





NOTE
      4:
      SEGMENT INFORMATION





We
      have
      identified two reportable operating segments based upon how we evaluate our
      business: Distributors and Brands. The Distributors segment generally has a
      customer base of distributors that purchase the Company's hair products and
      beauty and barber supplies for sale to salons and barbershops. Our sales to
      beauty schools are also classified in this segment. The Brands segment includes
      sales to mass merchandisers, chain drug stores and distributors. The Company
      conducts operations primarily in the United States; sales to international
      customers are not material to consolidated revenue. The following table
      summarizes significant items by reportable segment:


10




(in
                  thousands)
              
              Quarter ended Sept. 30,
              
              Nine Months ended Sept. 30,2008
              
              2007
              
              2008
              
              2007RevenueDistributors
              
              $
              4,183
              
              $
              4,082
              
              $
              10,674
              
              $
              10,681Brands
              
              
              1,237
              
              
              1,518
              
              
              3,455
              
              
              5,0665,420
              
              
              5,600
              
              
              14,129
              
              
              15,747Operating
                  Income (Loss)Distributors
              
              
              (85
              )
              
              147
              
              
              (308
              )
              
              (330
              )Brands
              
              
              462
              
              
              429
              
              
              1,026
              
              
              1,050377
              
              
              576
              
              
              718
              
              
              720Net
                  interest income
              
              
              33
              
              
              87
              
              
              184
              
              
              258Income
                  before income taxes
              
              
              410
              
              
              663
              
              
              902
              
              
              978Provision
                  for income taxes
              
              
              164
              
              
              260
              
              
              360
              
              
              389Net
                  income
              
              $
              246
              
              $
              403
              
              $
              542
              
              $
              589Sept.
                  30,
              
              
              December 31,2008
              
              
              2007Total
                  assetsDistributors
              
              
              
              
              
              
              
              $
              7,917
              
              $
              5,944Brands
              
              
              
              
              
              
              
              
              10,574
              
              
              11,274Total
                  segment assets
              
              
              
              
              
              
              
              
              18,491
              
              
              17,218Cash
                  and cash equivalents, short-term investments, restricted
                  cash
              
              7,922
              
              
              10,037Eliminations
                  and other
              
              
              
              
              
              
              
              
              (175
              )
              
              (951
              )Total
                  assets
              
              
              
              
              
              
              
              $
              26,238
              
              $
              26,304
 
 Note
        1:
        corporate overhead was allocated to each segment based on revenues contributed
        by that segment.
 
 Note
        2:
        capital expenditures and depreciation expense were not
        significant.


11


NOTE
      5.
      ACQUISITION





On
      August
      14, 2008, we acquired 100% of the outstanding common stock of Bowman Beauty
      and
      Barber Supply, Inc., a distributor located in Wilmington, NC. The acquiree
      reported unaudited revenue of approximately $3.0 million in 2007. The purchase
      price was approximately $1.0 million, comprised of cash of $0.5 million and
      notes issued and assumed aggregating approximately $0.5 million. The
      results of operations of the acquired entity have been included in the
      consolidated results of operations of the Company since August 14, 2008, the
      date of acquisition:


Bowman
                  purchase price allocation:(000)Accounts
                  receivable, net
              
              $
              40Inventories
              
              
              207Prepaid
                  expenses and other current assets
              
              
              8Property,
                  plant and equipment, net
              
              
              87Accounts
                  payable and accrued expenses
              
              
              (309
              )Long-term
                  debt assumed
              
              
              (28
              )Net
                  assets of Bowman
              
              
              5Goodwill
              
              
              995Purchase
                  price ($500 cash plus $500 note payable)
              
              $
              1,000





The
      following table sets forth certain pro forma information about the Company
      assuming that the Bowman acquisition had taken place at the beginning of the
      third quarters and also at the beginning of the nine-month periods
      presented:


(in
                  thousands, except per share data)
              
              Quarter ended Sept. 30
              
              Nine Months ended Sept. 30,2008
              
              2007
              
              2008
              
              2007Revenue
              
              $
              5,657
              
              $
              6,334
              
              $
              15,665
              
              $
              17,950Net
                  income
              
              $
              246
              
              $
              403
              
              $
              542
              
              $
              589Net
                  income per share
              
              $
              0.06
              
              $
              0.09
              
              $
              0.12
              
              $
              0.13





NOTE
      6.
      SUBSEQUENT EVENT





At
      September 30, 2008, the Company held short-term investments in auction rate
      securities totaling $3.2 million. All of these investments were sold at par
      subsequent to quarter-end.




12






**Item
              2.**
            **Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations**





**Results
      of Operations**





**NINE
      MONTHS YEAR-TO-DATE 2008 v. 2007**





As
      a
      result of worldwide credit issues, we had been unable to liquidate our auction
      rate securities aggregating $3.9 million. However, due to a series of events,
      beginning in July and ending in November 2008, we have sold all $3.9 million
      auction rate securities at par value. Our next filing will show higher cash
      and
      cash equivalents, and no short-term investments, reflecting the liquidation
      of
      these securities.





On
      August
      14, 2008 we acquired 100% of the common stock of Bowman Beauty and Barber
      Supply, Inc. (“Bowman”), a distributor in Wilmington, NC. We believe that this
      acquisition will prove to be a synergistic fit with our other operations since
      we already own another barber supply business, and another of our subsidiaries
      buys from some of the same vendors as the barber supply companies. We have
      already effected lower prices from some vendors as a result of improved,
      consolidated purchasing, and we anticipate that we will be able to continue
      this
      trend. We also have been able to selectively increase selling prices in our
      barber supply businesses. We anticipate that the acquisition of Bowman, despite
      being unprofitable prior to our ownership, will add to shareholder value going
      forward. In both the three-and nine-month periods ended September 30, 2008,
      the
      following results of Bowman have been included in our consolidated
      results:


(000)Revenue
              
              $
              410Cost
                  of revenue
              
              
              246Gross
                  profit
              
              
              164Selling,
                  general and administrative expenses
              
              
              131Operating
                  income
              
              
              33Interest
                  expense
              
              
              1Income
                  before income taxes
              
              $
              32





The
      following table sets forth the percentage year-to-year changes for the third
      quarter and the nine months ended September 30, 2008. The table exhibits the
      changes with and without the Bowman results.


Variances
                  versus Prior Year
              
              Third
                  Qtr.
              
              Year-to-Date(in
                  thousands)
              
              
              
              Excluding
              
              
              
              ExcludingAs
                  Reported
              
              Bowman
              
              As
                  Reported
              
              BowmanRevenue
              
              $
              (180
              )
              $
              (590
              )
              $
              (1,618
              )
              $
              (2,028
              )Cost
                  of revenue
              
              
              (111
              )
              
              (357
              )
              
              (1,210
              )
              
              (1,456
              )Gross
                  profit
              
              
              (69
              )
              
              (233
              )
              
              (408
              )
              
              (572
              )Selling,
                  general and administrative expenses
              
              
              130
              
              
              (1
              )
              
              (406
              )
              
              (537
              )Operating
                  income
              
              $
              (199
              )
              $
              (232
              )
              $
              (2
              )
              $
              (35
              )




Note
      that
      the increase in the Company’s Selling, General and Administrative expenses in
      the third quarter was due to the normal operating expenses associated with
      the
      Bowman operations from August 14 until September 30, 2008.




13




Operating
      income for the first nine months of 2008 approximated that in the comparable
      period of 2007.





While
      revenue decreased approximately 10.0%, the percentage gross margin improved
      and
      operating expenses were lower than those in the comparable period of the prior
      year. Revenue in 2008 included $0.4 million related to Bowman Beauty and Barber
      Supply, Inc.(“Bowman”), acquired on August 14, 2008.





On
      a pro
      forma basis, assuming that the acquisition of Bowman had occurred at January
      1,
      2008 and 2007, revenue would have declined approximately 13.0% in the nine-month
      period ended September 30, 2008 compared to the comparable period in
      2007.





Revenue
      in the Distributors Segment, which accounted for approximately 76% of total
      revenue in the nine-month period ended September 30, 2008, held steady relative
      to the same period in 2007. Revenue in the Brands Segment decreased by 32.0%
      as
      this smaller segment is more vulnerable to current economic conditions
      experienced by a majority of retailers nationwide. The Brands segment contains
      sales largely to people most impacted by the current economic conditions in
      the
      U.S. This trend could continue until the economy recovers. Additionally, sales
      of amenity items in the Brands Segment declined due to shortfalls in sales
      to a major hotel.





Operating
      results in both the Brands and the Distributors Segments were comparable from
      year-to-year. Segment operating results are affected by overhead allocations
      that are based on revenue contributed by each segment. The Distributors Segment
      showed an operating loss principally because we allocate corporate overhead
      to
      our segments based on revenue. Consequently a larger share of corporate overhead
      was charged to the Distributors segment compared to the Brands Segment. Bowman’s
      operating results were not significant in the nine-month period of either
      year.





Our
      selling, general and administrative expenses declined 6.0%, due to reductions
      in
      payroll and related costs, professional fees, insurance and a continued focus
      on
      cost reduction in all areas; these cost reductions, combined with higher gross
      margins, accounted for savings which offset the effect of the volume
      shortfall.





We
      anticipate that the continuing slowdown of the U.S. economy will affect our
      business adversely in the future. Revenue is likely to decline from 2007 levels
      and profitability may be impacted adversely. We also anticipate that cost
      increases on items purchased from the Far East, principally for our Distributors
      Segment, will continue to put pressure on margins. China’s elimination of its
      tax credit for business has contributed to higher costs for us. Cost increases
      have also resulted from oil-based products such as plastic and from fuel
      surcharges.





**THIRD
      QUARTER 2008 v. 2007**





Revenue
      declined 3.0% from the comparable period in 2007; Bowman revenue was $0.4
      million in 2008 and $-0- in 2007. Revenue in the Distributors Segment was 2.0%
      higher than that in the third quarter of 2007; revenue in the smaller Brands
      Segment was 19.0% less than that in the comparable period in 2007. The Brands
      Segment contains sales largely to people most impacted by the current economic
      conditions in the U.S.





On
      a pro
      forma basis, assuming that the acquisition of Bowman had occurred at July 1,
      2008 and 2007, revenue would have declined approximately 11.0% in the
      three-month period ended September 30, 2008 compared to the comparable period
      in
      2007.





Operating
      expenses were higher than those in the third quarter of 2007 primarily due
      to
      the acquisition of Bowman operations for the period from August 14, 2008 to
      September 30, 2008. These normal operating expenses approximated
      $130,000.





The
      increase in finished goods inventory in 2008 resulted primarily from seasonal
      inventory build up. Additionally, higher costs from the Far East and oil-related
      products in general contributed to the increase in inventory.





**Restated
      2007 interim financial statements**





As
      disclosed in our Form 8-K and Form 10-QSB filings for various interim periods
      in
      2007, a former manager misstated the results of operations at one our
      subsidiaries for the first six months of 2007. His actions resulted in the
      unintentional issuance of erroneous results by us for the first two quarters
      of
      2007. We detected the results of the manager’s actions and corrected the
      previously filed results in the third quarter Form 10-QSB for 2007. This
      subsidiary’s corrected results are included in these financial statements. We
      amended originally reported revenue, net income and net income per share for
      the
      second quarter and year-to-date 2007. Relative to originally reported results
      in
      the second quarter of 2007, revenue, net income and net income per share were
      reduced by $242,000, $35,000 and $0.01 per share, respectively. Relative to
      originally reported results for the six months ended June 30, 2007, revenue,
      net
      income and net income per share were reduced by $504,000, $82,000 and $0.02
      per
      share, respectively. The misstatements have been corrected and 2007 financial
      statements in this filing have been adjusted to the proper results.




14




**Liquidity
      and Capital Resources**





As
      of
      September 30, 2008, we had cash and cash equivalents of approximately $4.5
      million; however, in the fourth quarter we liquidated $3.2 million of our
      short-term investments (auction rate securities) at par. Had this sale of
      securities occurred at the end of the third quarter, our cash and cash
      equivalents would have been $7.7 million at September 30, 2008.





Our
      long-term debt, net of restricted cash of $0.3 million, increased to $0.5
      million due to debt issued and assumed in connection with the acquisition of
      Bowman.





Cash
      and
      cash equivalents declined by $0.5 million between December 31, 2007 and
      September 30, 2008. The decrease was due to 1) an outlay of $0.5 million in
      the
      third quarter related to the purchase of the stock of Bowman Beauty and Barber
      Supply, Inc. and 2) a temporary, seasonal increase in inventory principally
      in
      the Distributors segment. Offsetting these two items was an increase in cash
      of
      $0.8 million from the sale of short-term investments.





We
      have
      adequate liquidity and do not foresee the need for additional capital for
      day-to-day operations.





Our
      cash
      balance will vary with growth or decline in operating income and changes, if
      any, in dividends and non-cash working capital. Our cash flow will also benefit
      from the utilization of net operating loss carryforwards eliminating or reducing
      future federal income tax payments. At December 31, 2007, we had approximately
      $2.9 million (before taxes) of net operating loss carryforwards to offset future
      taxable income.





In
      2004,
      we paid a dividend of $2.00, or about $9.0 million. This caused a significant,
      one-time, reduction in cash. Since 2004, cash and cash equivalents have grown
      steadily.





Cash
      is
      driven by operating income which we endeavor to manage by 1) keeping expenses
      low, 2) competitively bidding purchases and freight costs, 3) developing new
      products, 4) searching out new markets or expanding existing markets through
      new
      product offerings to existing customers, 5) updating technology in critical
      customer service areas, 6) reducing purchases by utilizing existing inventory
      when possible, 7) increasing selling prices to the extent possible and 8)
      centralizing administrative functions. Capital expenditures are generally not
      significant for daily operations.





As
      the
      overall economy expands and contracts, or as we gain or lose customers, our
      cash
      flow will vary because we have, especially in the Brands Segment, high variable
      gross margins, and an increase or decrease in this segment could be significant
      to overall results. We expect a softening of demand in 2008 due to deteriorating
      economic conditions and a possible reduction in operating income. Cash and
      cash
      equivalents may be adversely impacted by these events. Cash may also be used
      to
      acquire other related businesses.





We
      have
      no off-balance sheet financing arrangements.




15




**Item
              3.**
            **Quantitative
                and Qualitative Disclosure about Market
                Risk**





Not
      required.





**Item
              4T:**
            **Controls
                and Procedures**





(a)
            Evaluation
                of Disclosure Controls and
                Procedures




O ur
      Chief
      Executive Officer and Chief Financial Officer evaluated our disclosure controls
      and procedures as of the end of the period covered by this quarterly report
      within. Based upon this evaluation, the Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures are
      effective in ensuring that the information required to be disclosed is recorded,
      processed, summarized and reported within the time periods specified in the
      Securities and Exchange Commission’s rules and forms, and is accumulated and
      communicated to management, to allow for timely decisions regarding required
      disclosure of material information required to be disclosed in the reports
      that
      we file or submit under the Exchange Act.





(b)  Internal
      Control over Financial Reporting





There
      were no significant changes in our internal control over financial reporting
      to
      the knowledge of our management, or in other factors that have materially
      affected or are reasonably likely to materially affect these internal controls
      over financial reporting subsequent to the evaluation date.




16




**PART
      II – OTHER INFORMATION**




**Item
              1.**
            **Legal
                Proceedings**





In
      addition to the matters set forth below, the Company is involved in other
      litigation arising in the normal course of business. It is the opinion of
      management that none of such matters, at September 30, 2008, would likely,
      if
      adversely determined, have a material adverse effect on the Company's financial
      position or results of operations.





1)
      In
      March 2006, in a case styled Trevor Sorbie International, Plc. v. Sorbie
      Acquisition Co. (CASE NO. 05-14908-09), filed in the Circuit Court of the
      17 th Judicial
      Circuit in and for Broward County, Florida, Trevor Sorbie International, Plc.
      (“TSI”) instituted efforts to collect on a judgment it has against Sorbie
      Acquisition Co. (“SAC,” a subsidiary of the Company). The judgment derives from
      an October 25, 2004, Pennsylvania arbitration award in favor of TSI and against
      SAC with respect to certain royalties and interest due. The financial statements
      for the Company for the quarter ended September 30, 2008, reflected a liability
      of approximately $931,000, including interest, for payment of this judgment.
      Among other things, the Florida lawsuit alleges fraud and names as additional
      defendants The Stephan Co., Trevor Sorbie of America, Inc. and Sorbie
      Distributing Corporation, also subsidiaries of the Company. This matter is
      currently unresolved and the Company is unable, at this time, to determine
      the
      outcome of the litigation. The Company is vigorously defending this legal action
      against TSI. While we believe that we may ultimately prevail and/or settle
      for
      an amount substantially less than that accrued, due to the limited discovery
      taken and the complexities of the issues involved, the Company cannot predict
      the outcome of the litigation.





2)
      On May
      4, 2005, the Company entered into a Second Amendment of Lease Agreement (the
      "Amendment") with respect to the Danville, IL facility, Morris Flamingo -
      Stephan, Inc., extending the term of the lease to June 30, 2015, with a
      five-year renewal option, and increasing the annual rental to approximately
      $320,000. The base rent is adjustable annually, in accordance with the existing
      master lease, the terms of which, including a 90-day right of termination by
      the
      Company, remain in full force and effect. The Amendment provides a purchase
      option, effective during the term of the lease, to purchase the premises at
      the
      then fair market value of the building, or to match any bona fide third-party
      offer to purchase the premises.





On
      July
      6, 2005, the landlord, Shaheen & Co., Inc., the former owner of Morris
      Flamingo, notified the Company that its interpretation of the Amendment differed
      from that of the Company as to the existence of the 90-day right of termination.
      In October 2005, the landlord filed a lawsuit in the Circuit Court for the
      17th
      Circuit of Florida in and for Broward County, FL, styled Shaheen & Co., Inc.
      (Plaintiff) v. The Stephan Co., Case number 05-15175 seeking a declaratory
      judgment with respect to the validity of the 90-day right of termination. In
      addition, the lawsuit alleges damages with respect to costs incurred and the
      weakening marketability of the property. This matter is currently unresolved
      and
      the Company is unable, at this time, to determine the outcome of the litigation.
      However, if it is ultimately determined that the early termination provision
      has
      been eliminated with the Amendment, the Company’s minimum lease obligation would
      amount to $320,000 in each of the years 2008 through 2012 and approximately
      $800,000 thereafter, subject to adjustments for increases in the Consumer Price
      Index. We believe that we will prevail in this matter since the lease has been
      and is cancelable upon 90 days’ notice of termination to the landlord. Shouky A.
      Shaheen, a minority owner of Shaheen & Co., Inc., is currently a member of
      the Board of Directors and a significant shareholder of the Company.





**Item
              1A:**
            **Risk
                Factors**


Not
      required.





**Item
              2:**
            **Unregistered
                Sales of Equity Securities and Use of
                Proceeds**


None.





**Item
              3:**
            **Defaults
                upon Senior Securities**


None.





**Item
              4:**
            **Submission
                of Matters to a Vote of Security Holders**


On
      October 29, 2008, the Company held its Annual Meeting of Shareholders at which
      two Class III directors, Frank F. Ferola and Richard A. Barone were elected
      to a
      three-year term. As to Mr. Ferola, 2,456,994 shares, or 87.4% of shares voted,
      were voted FOR election and 353,978 shares voted WITHHELD. As to Mr. Barone,
      2,396,077 shares, or 85.2% of shares voted, were voted FOR election and 414,895
      shares voted WITHHELD.




17





**Item
              5:**
            **Other
                Information**


None.




**Item
              6:**
            **Exhibits**


Exhibit
      31.1 Certification of Chief Executive Officer


Exhibit
      31.2 Certification of Chief Financial Officer


Exhibit
      32.1 Certification of Chief Executive Officer


Exhibit
      32.2 Certification of Chief Financial Officer




18




SIGNATURES





Pursuant
      to the requirements of Section 13 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.





THE
                STEPHAN CO.By:
            /s/
                Frank F. FerolaFrank
                F. FerolaPresident
                and Chairman of the BoardNovember
                19, 2008By:
            /s/
                Robert C. SpindlerRobert
                C. SpindlerChief
                Financial OfficerNovember
                19, 2008




19