**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 **June
      30, 2008**





or





o
            TRANSITION
                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:





4,377,158
      shares of common stock, $0.01 par value, as of August 12, 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
              15Item
                  4T:
              Controls
                  and Procedures
              15**PART
                  II - OTHER INFORMATION**Item
                  1:
              Legal
                  Proceedings
              16Item
                  1A:
              Risk
                  Factors
              16Item
                  2:
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              16Item
                  3:
              Defaults
                  Upon Senior Securities
              16Item
                  4:
              Submission
                  of Matters to a Vote of Security Holders
              16Item
                  5:
              Other
                  Information
              16Item
                  6:
              Exhibits
              16Signatures
              
              17Certifications
              
              18


2




**PART
      I - FINANCIAL INFORMATION**





**Item
      1 - Financial Statements**





Certain
      statements in this Quarterly Report on 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," "believes," "anticipates," "estimates," "plans," "expects,"
      "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 that 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)
  **June
                  30,**
                **2008**
              
              December
                  31, 2007CURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              **4,373**
              
              $
              4,977Short-term
                  investments
              
              
              **3,950**
              
              
              3,950Restricted
                  cash
              
              
              **555**
              
              
              1,110Accounts
                  receivable, net
              
              
              **1,066**
              
              
              1,430Inventories
              
              
              **5,574**
              
              
              4,240Prepaid
                  expenses and other current assets
              
              
              **202**
              
              
              306TOTAL
                  CURRENT ASSETS
              
              
              **15,720**
              
              
              16,013Property,
                  plant and equipment, net
              
              
              **1,377**
              
              
              1,419Deferred
                  income taxes
              
              
              **103**
              
              
              277Goodwill,
                  net
              
              
              **2,603**
              
              
              2,603Trademarks,
                  net
              
              
              **3,070**
              
              
              3,070Other
                  intangible assets, net
              
              
              **76**
              
              
              76Other
                  assets
              
              
              **2,844**
              
              
              2,846**TOTAL
                  ASSETS**
              
              $
              **25,793**
              
              $
              26,304CURRENT
                  LIABILITIESCurrent
                  portion of long-term debt
              
              $
              **555**
              
              $
              1,110Accounts
                  payable and accrued expenses
              
              
              **2,047**
              
              
              2,156TOTAL
                  CURRENT LIABILITIES
              
              
              **2,602**
              
              
              3,266Long-term
                  debt, less current portion
              
              
              **-**
              
              
              -TOTAL
                  LIABILITIES
              
              
              **2,602**
              
              
              3,266COMMITMENTS
                  AND CONTINGENCIESSTOCKHOLDERS'
                  EQUITYPreferred
                  stock, $.01 par value; 1,000,000 shares authorized; none
                  issued.Common
                  stock, $.01 par value; 25,000,000 shares authorized;4,389,779
                  shares issued at June 30, 2008 and December 31, 2007
              
              
              **44**
              
              
              44Additional
                  paid-in capital
              
              
              **17,776**
              
              
              17,736Retained
                  earnings
              
              
              **5,378**
              
              
              5,258Treasury
                  stock, 2,200 shares held at June 30, 2008, at cost
              
              
              **(7**
              **)**
              
              -TOTAL
                  STOCKHOLDERS' EQUITY
              
              
              **23,191**
              
              
              23,038**TOTAL
                  LIABILITIES & STOCKHOLDERS' EQUITY**
              
              $
              **25,793**
              
              $
              26,304




See
      Notes
      to Condensed Consolidated Financial Statements.




4


The
                  Stephan Co.Condensed
                  Consolidated Statements of Operations(in
                  thousands, except share data)
  **Quarter
                  ended June 30,**
              
              
              **Six
                  Months ended June 30,****2008**
              
              
              2007
              
              
              **2008**
              
              
              2007Revenue
              
              **$**
              **4,289**
              
              $
              5,018
              
              **$**
              **8,709**
              
              $
              10,147Cost
                  of revenue
              
              
              **2,133**
              
              
              2,673
              
              
              **4,432**
              
              
              5,531Gross
                  profit
              
              
              **2,156**
              
              
              2,345
              
              
              **4,277**
              
              
              4,616Selling,
                  general and administrativeexpenses
              
              
              **1,995**
              
              
              2,215
              
              
              **3,936**
              
              
              4,472Operating
                  income
              
              
              **161**
              
              
              130
              
              
              **341**
              
              
              144Interest
                  income
              
              
              **67**
              
              
              95
              
              
              **157**
              
              
              185Interest
                  expense
              
              
              **(2**
              **)**
              
              (7
              )
              
              **(6**
              **)**
              
              (14
              )Income
                  before income taxes
              
              
              **226**
              
              
              218
              
              
              **492**
              
              
              315Provision
                  for income taxes
              
              
              **90**
              
              
              89
              
              
              **196**
              
              
              129NET
                  INCOME
              
              $
              **136**
              
              $
              129
              
              $
              **296**
              
              $
              186Basic
                  income per share
              
              $
              **0.03**
              
              $
              0.03
              
              $
              **0.07**
              
              $
              0.04Diluted
                  income per share
              
              $
              **0.03**
              
              $
              0.03
              
              $
              **0.07**
              
              $
              0.04Dividends
                  per share
              
              $
              **0.02**
              
              $
              -
              
              $
              **0.04**
              
              $
              0.02





See
      Notes
      to Condensed Consolidated Financial Statements.




5





The
                  Stephan Co.Condensed
                  Consolidated Statements of Cash Flows(in
                  thousands)
  **Six
                  Months Ended June 30,****2008**
              
              2007CASH
                  FLOWS FROM OPERATING ACTIVITIESNET
                  INCOME
              
              **$**
              **296**
              
              $
              186Adjustments
                  to reconcile net income to net cash flows provided
                  by operating activities:Depreciation
                  and amortization
              
              
              **58**
              
              
              101Stock
                  option compensation
              
              
              **40**
              
              
              48Deferred
                  income tax expense
              
              
              **174**
              
              
              85Changes
                  in operating assets & liabilitiesRestricted
                  cash
              
              
              **555**
              
              
              -Accounts
                  receivable
              
              
              **364**
              
              
              80Inventories
              
              
              **(1,334**
              **)**
              
              (438
              )Prepaid
                  expenses and other current assets
              
              
              **104**
              
              
              124Other
                  assets
              
              
              **2**
              
              
              105Accounts
                  payable and accrued expenses
              
              
              **(109**
              **)**
              
              94Total
                  adjustments to net income
              
              
              **(146**
              **)**
              
              199**NET
                  CASH FLOWS PROVIDED BY OPERATING ACTIVITIES**
              
              
              **150**
              
              
              385CASH
                  FLOWS FROM INVESTING ACTIVITIESDecrease
                  in non-current restricted cash
              
              
              **-**
              
              
              648Purchases
                  of property, plant and equipment
              
              
              **(16**
              **)**
              
              (2
              )**NET
                  CASH FLOWS (USED IN) PROVIDED BY INVESTING
                  ACTIVITIES**
              
              
              **(16**
              **)**
              
              646CASH
                  FLOWS FROM FINANCING ACTIVITIESRepayment
                  of long-term debt
              
              
              **(555**
              **)**
              
              (555
              )Purchases
                  of treasury stock
              
              
              **(7**
              **)**
              
              -Dividends
              
              
              **(176**
              **)**
              
              (88
              )**NET
                  CASH FLOWS (USED FOR) FINANCING ACTIVITIES**
              
              
              **(738**
              **)**
              
              (643
              )**NET
                  (DECRASE) INCREASE IN CASH AND CASH EQUIVALENTS**
              
              
              **(604**
              **)**
              
              388CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF YEAR
              
              
              **4,977**
              
              
              7,064CASH
                  AND CASH EQUIVALENTS AT END OF SECOND QUARTER
              
              $
              **4,373**
              
              $
              7,452SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATION:Interest
                  paid
              
              **$**
              **6**
              
              $
              13Income
                  taxes paid
              
              **$**
              **-**
              
              $
              50See
                  Notes to Condensed Consolidated Financial
                  Statements.





6




The
      Stephan Co. And Subsidiaries


Notes
      To
      Condensed Consolidated Financial Statements


Quarters
      ended June 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
      financial statements have been prepared 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 condensed consolidated financial
      position of The Stephan Co. and subsidiaries as of June 30, 2008 and the results
      of their operations and cash flows for the three and six 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 condensed 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. and Lee Stafford Beauty Group, Inc. (collectively, the
      "Company"). All significant inter-company balances and transactions have been
      eliminated in consolidation. Reclassifications (having no net profit or loss
      impact) have been made to certain previously reported amounts in the 2007
      financial statements to make the 2008 and 2007 presentations
      comparable.





IMPAIRMENT
      OF LONG-LIVED ASSETS AND GOODWILL: The Company periodically evaluates whether
      events or circumstances have occurred that would indicate that long-lived assets
      might 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 expected future cash flows resulting from the use
      of
      the asset. If the results of this testing indicate 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 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. The
      Company has less than $6.0 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 six months ended June
      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 June 30, 2008 and 2007 was reduced as a
      result of the Company's recognition of approximately $40,000 and $48,000 (net
      of
      income tax benefit), respectively, and for the quarterly periods then ended
      by
      $20,000 and $25,000, respectively. 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 six months ended
      June
      30 of each year was approximately $0.01 per common share; the effect on the
      second 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 June 30, 2008
      and
      December 31, 2007 there were no significant differences between 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.
      We
      do 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. We estimate 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 $160,000 and $84,000 for the six-month and three-month periods,
      respectively, ended June 30, 2008. Such costs were $99,000 and $8,000 for the
      six-month and three-month periods, respectively, ended June 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 June 30, 2008 and 2007, the
      manufacturing-related overhead included in Selling, General and Administrative
      Expenses was approximately $156,000 and $301,000, respectively. For the
      year-to-date periods ended June 30, 2008 and 2007, these costs approximated
      $389,000 and $586,000, respectively.




SHIPPING
      AND HANDLING FEES AND COSTS: Expenses for the shipping and delivery of products
      sold to customers were approximately $401,000 and $117,000 for the quarters
      ended June 30, 2008 and 2007. For the year-to-date periods ended June 30, 2008
      and 2007, these costs approximated $796,000 and $522,000, respectively.





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 of
      $100,000. Cash and cash equivalents exclude restricted cash of $0.6 million
      pledged for the repayment of bank debt and short-term investments.





SHORT-TERM
      INVESTMENTS: At June 30, 2008, we had $3.9 million auction rate securities;
      in
      July 2008 the State of South Carolina called certain bonds at par in which
      we
      held positions totaling $0.8 million. This amount was paid to us in July 2008.
      We have, as of August 1, 2008, $3.1 million in government backed, Aaa-rated,
      student loan auction rate securities that have been subject recently to market
      illiquidity due to the effects of the sub-prime lending crisis and other
      factors. These bonds continue to pay cash interest as due. We believe, based
      on
      discussions with investment professionals and from other sources, that there
      is
      little or no credit risk associated with these investments and that the
      illiquidity in the market will eventually abate as the issuers refinance the
      auction rate securities in favor of long-term issuances. The Company has the
      intent and ability to hold these investments until liquidity returns to the
      market.





8




However,
      in the event that the Company needs to access the funds related to the affected
      securities, it may be unable to do so without a potential loss of principal
      unless future auctions on these securities are successful or the issues are
      refinanced. If the issuers are unable to successfully close future auctions
      or
      refinance their obligations and their credit ratings deteriorate, the Company
      may be required to adjust the carrying value of these securities and recognize
      an impairment charge for an other-than-temporary decline in the fair values
      of
      the securities. We have not reduced the carrying value of these investments
      as
      we believe that these securities will ultimately be refinanced by their issuers
      within the next twelve months as has already occurred in the case of South
      Carolina above. All of our short-term investments are classified as trading
      securities and are reported as current assets at their estimated fair market
      values.





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.





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 June 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
      June
      30, 2008 and December 31, 2007 we classified as Other Assets approximately
      $4.8
      million of slow moving and potentially obsolete inventories. From these amounts
      we have subtracted obsolescence reserves of $2.0 million in each year. The
      net
      long-term inventory amount in Other Assets was $2.8 million at June 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 enacted statutory
      rates to estimated future year differences between the financial statement
      (“book basis”) and tax basis carrying amounts. Our tax basis exceeds our book
      basis because our future tax benefits have already been recorded for book
      purposes; therefore, we have recorded a deferred tax asset. A valuation
      allowance (reducing the deferred tax asset) is recorded when it is more likely
      than not that some portion, or all, of the deferred tax asset will not be
      realized. We have recorded a valuation allowance of approximately $1.0 million
      against deferred tax assets at June 30, 2008 and December 31, 2007, resulting
      in
      net deferred tax assets of $103,000 and $277,000 at these dates, respectively.




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 (4,389,400 and 4,389,600 shares, respectively, for the three and
      six
      months ended June 30, 2008, and 4,389,800 for the three and six months ended
      June 30, 2007). At June 30, 2008, the Company had approximately 400,000 stock
      options outstanding of which an insignificant amount had exercise prices that
      were less than the Company’s stock price at June 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
      net income per share.





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 No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” 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.





9




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 No. 160 to have a material impact
      on our consolidated financial statements and plan to adopt it effective January
      1, 2009.





On
      February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value
      Option for Financial Assets and Financial Liabilities.” 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 six months ended June 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 No. 157 “Fair Value Measurements.” SFAS No.
      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
      No.
      157 did not have a material impact on our consolidated financial statements
      for
      the six months ended June 30, 2008.




NOTE
      3:
      INVENTORIES





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


(in
                  thousands)
              
              2008
              
              2007Raw
                  materials
              
              $
              1,282
              
              $
              1,380Packaging
                  and components
              
              
              2,097
              
              
              1,995Work-in-process
              
              
              451
              
              
              437Finished
                  goods
              
              
              6,547
              
              
              5,231Total
                  inventory
              
              
              10,377
              
              
              9,043Less:
                  amount included in Other Assets
              
              
              (4,803
              )
              
              (4,803
              )Inventory
                  included in Current Assets
              
              $
              5,574
              
              $
              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.





Included
      in Other Assets is long-term inventory not anticipated to be utilized within
      one
      year based upon 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 the
      Condensed Consolidated Financial Statements.




10




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:


Quarter
                  ended June 30,
              
              Six
                  Months ended June 30,(in
                  thousands)
              
              2008
              
              2007
              
              2008
              
              2007RevenueDistributors
              
              $
              3,129
              
              $
              3,147
              
              $
              6,491
              
              $
              6,599Brands
              
              
              1,160
              
              
              1,871
              
              
              2,218
              
              
              3,5484,289
              
              
              5,018
              
              
              8,709
              
              
              10,147Operating
                  Income (Loss)Distributors
              
              
              (170
              )
              
              (368
              )
              
              (223
              )
              
              (477
              )Brands
              
              
              331
              
              
              498
              
              
              564
              
              
              621161
              
              
              130
              
              
              341
              
              
              144Net
                  interest income
              
              
              65
              
              
              88
              
              
              151
              
              
              171Income
                  before income taxes
              
              
              226
              
              
              218
              
              
              492
              
              
              315Provision
                  for income taxes
              
              
              90
              
              
              89
              
              
              196
              
              
              129Net
                  income
              
              $
              136
              
              $
              129
              
              $
              296
              
              $
              186
  June
                  30,
              
              December
                  31,2008
              
              2007Total
                  assetsDistributors
              
              $
              6,776
              
              $
              5,944Brands
              
              
              11,337
              
              
              11,274Total
                  segment assets
              
              
              18,113
              
              
              17,218Cash
                  and cash equivalents, short-term investments, restricted
                  cash
              
              
              8,878
              
              
              10,037Deferred
                  income tax assets
              
              
              103
              
              
              277Eliminations
                  and other
              
              
              (1,301
              )
              
              (1,228
              )Total
                  assets
              
              $
              25,793
              
              $
              26,304




Note1:
                corporate
                    overhead was allocated to each segment based on revenues contributed
                    by
                    that segment.


Note2:
                capital
                    expenditures and depreciation expense were not
                    significant.


NOTE
      5.
      SUBSEQUENT EVENTS





On
      July
      3, 2008, we entered into an agreement to purchase 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 not material to the total assets of
      our
      company.





11




The
      State
      of South Carolina redeemed certain of its auction rate securities of which
      the
      company held $0.8 million at June 30, 2008. We received the funds in July,
      reducing our total investment in student loan auction rate securities to $3.1
      million.





NOTE
      6:
      CONTINGENCIES AND COMMITMENTS





The
      Company has an employment agreement with its Chief Executive Officer. The
      agreement expires on December 31, 2011, but provides for the unilateral renewal
      by the CEO. The contract includes an incentive bonus award based on consolidated
      earnings per share in excess of the applicable base year, as defined in the
      employment agreement.





In
      July
      2005, the CEO took a voluntary, unilateral reduction in compensation to
      $540,000. In accordance with the terms of the employment agreement, this amended
      base compensation level is subject to an annual increase of 10% in each of
      the
      remaining years of the contract.





Also,
      the
      terms of the waiver of compensation allow the CEO to retain the right to his
      original contractual compensation level at the time of the occurrence of certain
      specified events relating to a change in control, or reasonable likelihood
      of a
      change in control of the Company, as defined in the waiver. If it were
      determined that a change in control existed, the CEO would be entitled to a
      payment of approximately $11.6 million.





The
      Company was not a party to any non-cancelable operating leases at June 30,
      2008,
      except for a warehouse lease in Tampa, FL that expired on July 31, 2008. The
      minimum annual rental due under this lease is approximately $92,000 for 2008.
      This lease was not renewed.





In
      addition to the matters set forth below, the Company is involved in other
      litigation arising in the normal course of business. It is our opinion that
      none
      of such matters, at June 30, 2008, would likely, if adversely determined, have
      a
      material adverse effect on the Company's financial position or results of
      operations. Additionally, there has been no material change in the status any
      pending litigation since the filing of our most recent annual report on Form
      10-K with the Securities and Exchange Commission for the year ended December
      31,
      2007.





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 condensed
      consolidated financial statements for the quarter ended June 30, 2008, reflected
      a liability of approximately $931,000, including interest, for 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.





12




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





**Results
      of Operations**




**SECOND
      QUARTER 2008 v. 2007**





Operating
      income was $161,000 in the second quarter of 2008 compared to $130,000 in the
      comparable period in 2007, an increase of 24.0%, principally due to lower
      spending that offset the effect of a gross profit decline. Income before income
      taxes, net income and net income per share in the second quarter of 2008
      approximated those in the second quarter of 2007. Interest income declined
      due
      to lower short-term investment rates in 2008 compared to 2007. Net income was
      marginally higher than that in the prior year; net income per share equaled
      that
      in 2007.





Our
      larger segment, Distributors, reflected stronger than anticipated results
      considering the present economic environment. Sales in the second quarter of
      2008 approximated those in the comparable period of 2007. See Note 4 - Segment
      Information. The Distributor 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.





Our
      overall revenue decline in the second quarter 2008 compared to that in the
      comparable period of 2007, $0.7 million, was due principally to softness in
      our
      smaller Brands segment. The Brands segment contains sales largely to people
      most
      impacted by the current economic condition in the U.S.





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





Our
      overall operating expenses declined 10.0%, due to lower payroll and related
      costs and a continued focus on cost reduction in all areas; this improvement
      contributed to our improvement in operating income in the second quarter of
      2008
      compared to the second quarter of 2007.





**Results
      of Operations**





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





Operating
      income was $341,000 in the first half of 2008 compared to $144,000 in the
      comparable period in 2007, an increase of 137.0%, principally due to lower
      spending that offset the effect of a gross profit decline. Income before income
      taxes for the six months ended June 30, 2008 improved by 56.0% compared to
      the
      first half of 2007. Interest income declined due to lower short-term investment
      rates in 2008 compared to 2007. Net income was 59% higher than that in
      year-to-date 2007; net income per share was $0.07 in 2008 compared to $0.04
      in
      2007.





Our
      larger segment, Distributors, reflected stronger than anticipated results
      considering the present economic environment. Sales in the first half of 2008
      approximated those in the comparable period of 2007. The Distributor 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.





Our
      overall revenue decline in the first six months of 2008 compared to that in
      the
      comparable period of 2007, $1.4 million, was due principally to softness in
      our
      smaller Brands segment. The Brands segment contains sales largely to people
      most
      impacted by the current economic condition in the U.S. This trend could continue
      until the economy recovers.





Our
      overall operating expenses declined 12.0%, due to lower payroll and related
      costs, professional fees, insurance and a continued focus on cost reduction
      in
      all areas; these cost reductions contributed to our improvement in operating
      income in the first half of 2008 compared to the comparable period of
      2007.





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
      business, will continue to put pressure on our margins. China’s elimination of
      its tax credit for business has contributed to higher costs for us. Cost
      increases also resulted from oil-based products such as plastic and from fuel
      surcharges.





13




**Restated
      2007 interim financial statements**





As
      disclosed in our Form 8-K, Form 10-QSB and Form 10-QSB/A filings for various
      interim periods in 2007 and in 2008, a former manager unilaterally and
      clandestinely 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 of 2007 on Form 10-QSB. 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 the 2007 financial
      statements in this filing have been adjusted to the proper results.




**Liquidity
      and Capital Resources**





As
      of
      June 30, 2008, we had cash and cash equivalents of approximately $4.4 million.
      Additionally we had short-term investments of $4.0 million, a total of $8.4
      million in cash and short-term investments.





We
      have
      no net long-term debt since our $0.6 million of long-term debt is offset by
      restricted cash collateral of the same amount.





Cash
      and
      equivalents declined by $0.6 million between December 31, 2007 and June 30,
      2008. Operating cash flows were temporarily suppressed by a seasonal increase
      in
      inventory principally in the Distributors segment.





Our
      short-term investments are comprised of auction rate securities. In July 2008,
      $0.8 million of these securities were called by the State of South Carolina.
      This action by South Carolina reduced our holdings of auction rate securities
      from $3.9 million at June 30, 2008, to $3.1 million as of the date of this
      filing. Our remaining auction rate securities are currently illiquid as the
      bond
      market restructures to cash out short-term holders (such as us) with proceeds
      from longer-term bondholders. However, these auction rate securities continue
      to
      pay current interest at “penalty” rates that have averaged approximately 4.0% in
      2008. 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. Our cash flow in 2008 will benefit from the utilization
      of
      net operating loss carryforwards, eliminating current 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 short-term investments 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’s revenue 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. See Note 5 — Subsequent
      Events.





We
      have
      no off-balance sheet financing arrangements.





14




**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.





15


**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 June 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 June 30, 2008, reflected a liability
      of
      approximately $931,000, including interest, for 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**




None.




**Item
      5 — Other Information**




None.





**Item
      6 — Exhibits**




None.





16




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. Ferola





Frank
      F.
      Ferola


President
      and Chairman of the Board


August
      14, 2008






By: 
      /s/ Robert C. Spindler





Robert
      C.
      Spindler


Chief
      Financial Officer


August
      14, 2008




17