UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-QSB





[x]

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2004



[  ]

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from ______ to _______



Commission file number 0-18785

_________





STEN CORPORATION

(Exact name of small business issuer as specified in its charter)



Minnesota                                                                                         41-1391803

(State or other jurisdiction of incorporation or organization)                              (IRS Employer Identification No.)







13828 Lincoln Street N.E., Ham Lake, Minnesota 55304(Address of principal executive offices)





(763) 767-7217(Issuers telephone number)



Sterion Incorporated(Former name, former address and former fiscal year, if changed from last report)



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES [x]  NO [  ]



At February 11, 2004, 1,731,718 shares of the issuers Common Stock were outstanding.



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STEN CORPORATION
INDEX TO FORM 10-QSB





|PART I-FINANCIAL INFORMATION:
|-----------------------------
|                             
|Item 1.                      
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|                             
|Item 2.                      
|                             
|Item 3.                      
|                             
|PART II - OTHER INFORMATION: 
|                             
|Item 6.                      
|                             
|SIGNATURES                   
|                             





















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STEN CORPORATION AND SUBSIDIARIES

(formerly Sterion Incorporated and Subsidiaries)

CONSOLIDATED BALANCE SHEETS





ASSETS

|                                              |   | December 31, 2004
(unaudited) |   | September 30, 2004
(audited)
|--------------------------------------------- | - | ----------------------------- | - | ----------------------------
|CURRENT ASSETS                                |   |                               |   |                             
|Cash and cash equivalents                     | $ | 821,837                       | $ | 431,942                     
|Accounts receivable, net                      |   | 687,609                       |   | 847,379                     
|Inventories                                   |   | 970,628                       |   | 1,033,736                   
|Deferred income taxes                         |   | 128,400                       |   | 128,400                     
|Current assets of discontinued business       |   | 0                             |   | 3,302,194                   
|Current portion of note receivable            |   | 250,000                       |   | 0                           
|Other current assets                          |   | 219,023                       |   | 252,086                     
|Total Current Assets                          |   | 3,077,497                     |   | 5,995,737                   
|PROPERTY AND EQUIPMENT, NET                   |   | 5,076,647                     |   | 5,870,733                   
|OTHER ASSETS                                  |   |                               |   |                             
|Intangible assets, net                        |   | 1,247,503                     |   | 1,394,259                   
|Note receivable, net of current portion       |   | 250,000                       |   | 0                           
|Other assets of discontinued business         |   | 0                             |   | 1,170,351                   
|Assets of discontinued business held for sale |   | 722,856                       |   | 0                           
|Net cash surrender value of life insurance    |   | 32,865                        |   | 32,865                      
|Total Other Assets                            |   | 2,253,224                     |   | 2,597,475                   
|TOTAL ASSETS                                  | $ | 10,407,368                    | $ | 14,463,945                  



LIABILITIES AND STOCKHOLDERS EQUITY

|CURRENT LIABILITIES                                                                                                                        |   |            |   |           
|------------------------------------------------------------------------------------------------------------------------------------------ | - | ---------- | - | ----------
|Line of credit payable to bank                                                                                                             | $ | 0          | $ | 1,440,921 
|Current portion of long-term debt                                                                                                          |   | 133,415    |   | 534,448   
|Accounts payable                                                                                                                           |   | 302,418    |   | 519,054   
|Accrued payroll and related taxes                                                                                                          |   | 117,320    |   | 248,920   
|Deferred revenue and service cost liability                                                                                                |   | 739,129    |   | 849,451   
|Other accrued expenses                                                                                                                     |   | 75,751     |   | 210,244   
|Liabilities of discontinued business                                                                                                       |   | 848,317    |   | 342,260   
|Total Current Liabilities                                                                                                                  |   | 2,216,350  |   | 4,145,298 
|LONG-TERM LIABILITIES                                                                                                                      |   |            |   |           
|Long-term debt, net of current portion                                                                                                     |   | 809,819    |   | 3,785,063 
|Deferred income taxes                                                                                                                      |   | 117,000    |   | 117,000   
|Total Liabilities                                                                                                                          |   | 3,143,169  |   | 8,047,361 
|STOCKHOLDERS EQUITY                                                                                                                       |   |            |   |           
|Capital stock, $.01 par value, 20,000,000 common shares                                                                                    |   | 17,317     |   | 17,313    
|authorized, 5,000,000 undesignated shares authorized, 1,800,718 and 1,800,318 common shares issued and
1,731,718 and 1,731,318 outstanding |   |            |   |           
|Additional paid-in capital                                                                                                                 |   | 3,295,743  |   | 3,445,774 
|Retained earnings                                                                                                                          |   | 3,951,139  |   | 3,112,908 
|Deferred compensation                                                                                                                      |   | 0          |   | (159,411) 
|Total Stockholders Equity                                                                                                                 |   | 7,264,199  |   | 6,416,584 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                 | $ | 10,407,368 | $ | 14,463,945



See accompanying notes to unaudited consolidated financial statements



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STEN CORPORATION AND SUBSIDIARIES

(formerly Sterion Incorporated and Subsidiaries)

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended December 31,

(unaudited)



|                                                                                 |   | 2004      |   | 2003     
|-------------------------------------------------------------------------------- | - | --------- | - | ---------
|SALES, NET                                                                       | $ | 2,433,191 | $ | 735,371  
|COST OF GOODS SOLD                                                               |   | 1,982,193 |   | 596,256  
|Gross Profit                                                                     |   | 450,998   |   | 139,115  
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                     |   | 429,469   |   | 185,206  
|Income (Loss) from Operations                                                    |   | 21,529    |   | (46,091) 
|OTHER  EXPENSE                                                                   |   |           |   |          
|Interest expense                                                                 |   | (20,177)  |   | (5,708)  
|Net Other Expense                                                                |   | (20,177)  |   | (5,708)  
|Income (Loss) from Continuing Operations Before Income Taxes                     |   | 1,352     |   | (51,799) 
|PROVISION FOR INCOME TAXES (BENEFIT)                                             |   | 507       |   | (18,682) 
|INCOME (LOSS) FROM CONTINUING OPERATIONS                                         |   | 845       |   | (33,117) 
|INCOME FROM DISCONTINUED OPERATIONS (including a gain on disposal of $1,604,258) |   | 1,425,160 |   | 25,820   
|PROVISION FOR INCOME TAXES FROM DISCONTINUED   OPERATIONS                        |   | 587,774   |   | 9,682    
|NET INCOME FROM DISCONTINUED OPERATIONS                                          |   | 837,386   |   | 16,138   
|NET INCOME (LOSS)                                                                | $ | 838,231   | $ | (16,979) 
|INCOME (LOSS) PER SHARE FROM OPERATIONS:                                         |   |           |   |          
|Basic                                                                            | $ | 0.00      | $ | (0.02)   
|Diluted                                                                          | $ | 0.00      | $ | (0.02)   
|INCOME PER SHARE FROM DISCONTINUED OPERATIONS:                                   |   |           |   |          
|Basic                                                                            | $ | 0.48      | $ | 0.01     
|Diluted                                                                          | $ | 0.45      | $ | 0.01     
|NET INCOME (LOSS) PER SHARE:                                                     |   |           |   |          
|Basic                                                                            | $ | 0.48      | $ | (0.01)   
|Diluted                                                                          | $ | 0.45      | $ | (0.01)   
|WEIGHTED AVERAGE COMMON AND COMMON  EQUIVALENT SHARES OUTSTANDING                |   |           |   |          
|Basic                                                                            |   | 1,731,379 |   | 1,738,435
|Diluted                                                                          |   | 1,868,030 |   | 1,738,435





See accompanying notes to unaudited consolidated financial statements



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STEN CORPORATION AND SUBSIDIARIES

(formerly Sterion Incorporated and subsidiaries)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

|                                                                                        | For the Three Months Ended
|--------------------------------------------------------------------------------------- | --------------------------
|                                                                                        | December 31,              
|                                                                                        | 2004                      
|                                                                                        |                           
|Cash flows from operation activities:                                                   |                           
|Net Income (loss)                                                                       | $  838,231                
|Adjustments to reconcile net income (loss) to net cash flows
from operating activities: |                           
|Depreciation and amortization                                                           | 210,549                   
|Compensation related to non-employee stock options                                      | 7,784                     
|Amortization of debt issuance costs                                                     | 3,597                     
|(Income)/loss from operations of discontinued operations                                | 179,098                   
|Gain on sale of discontinued business                                                   | (1,604,258)               
|Changes in certain assets and liabilities:                                              |                           
|Accounts  receivables, net                                                              | 159,770                   
|Inventories, net                                                                        | 63,108                    
|Other current assets                                                                    | 33,063                    
|Accounts payable                                                                        | (216,636)                 
|Accrued payroll and related taxes                                                       | (131,600)                 
|Deferred revenue                                                                        | (110,322)                 
|Other accrued expenses                                                                  | (134,493)                 
|Net Cash flows from operating activities                                                | (702,109)                 
|                                                                                        |                           
|Cash flows from investing activities:                                                   |                           
|Proceeds from the sale of discontinued business                                         | 6,000,000                 
|Proceeds from sale of property and equipment                                            | 0                         
|Acquisition of certain assets from SOS Technologies                                     | 0                         
|Purchases of personal property, equipment                                               | (92,344)                  
|Purchase of intangibles                                                                 | (46,052)                  
|Net Cash flows from investing activities                                                | 5,861,604                 
|                                                                                        |                           
|Cash flows from financing activities:                                                   |                           
|Net increase (decrease)  in line of credit, bank                                        | (1,440,921)               
|Proceeds from long-term debt                                                            | -                         
|Payments on long-term debt                                                              | (3,376,277)               
|Payments on capital lease obligation                                                    | -                         
|Proceeds from exercise of stock warrants                                                | 1,600                     
|Net Cash flows from financing activities                                                | (4,815,598)               
|                                                                                        |                           
|Net cash used in discontinued operations                                                | 45,998                    
|                                                                                        |                           
|Net increase (decrease) in cash and cash equivalents                                    | 389,895                   
|                                                                                        |                           
|Cash and cash equivalents - beginning of period                                         | 431,942                   
|Cash and cash equivalents - end of period                                               | $    821,837              
|                                                                                        |                           
|Supplemental cash flow information:                                                     |                           
|Cash paid for interest                                                                  | $       39,391            
|                                                                                        |                           
|Noncash investing and financing activities:                                             |                           
|Stock options issued for guarantee of long-term debt                                    | $               0         
|Note receivable in connection with sale of
discontinued business                        | $    500,000              
|                                                                                        |                           



See accompanying notes to unaudited consolidated financial statements

Page F-5



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STEN CORPORATION AND SUBSIDIARIES

(formerly Sterion Incorporated)

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003



Note 1.  Basis of Financial Statement Presentation



The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been consolidated or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading.



In the opinion of management, the unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position and results of operations. Results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year or of the results for any future periods.



In preparation of our consolidated financial statements, we are required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses.  Actual results could differ from the estimates used by management.



Discontinued Operations  On November 8, 2004, we sold substantially all of the assets relating to our medical products manufacturing and distribution business, our Medical Products Group to Aspen Surgical Products, Inc. (Aspen). In accordance with appropriate accounting rules, we have reclassified our previously reported financial results to exclude the results of the Medical Products Group business and these results are presented on a historical basis as a separate line in our income statements and balance sheets entitled Discontinued Business or Discontinued Operations. All of the financial information in the financial statements and notes to the financial statements has been revised to reflect only the results of our continuing operations. See Note 13 in the Notes to Unaudited Consolidated Financial Statements.



Note 2.  Significant Accounting Policies



Principles of Consolidation Effective February 2, 2005, the Company changed its name to STEN Corporation (STEN) from Sterion Incorporated (Sterion).The consolidated financial statements include the accounts of STEN Corporation and its subsidiaries, Oxboro, Inc. (formerly known as Oxboro Medical, Inc.), LifeSafe Services, Inc. (LifeSafe), as of November 26, 2003 and Burger Time Acquisition Corporation (BTAC), as of July 1, 2004.   All significant intercompany transactions and balances have been eliminated in consolidation.



Accounts ReceivableAccounts receivable are shown net of an allowance for doubtful accounts of approximately $108,000 and $35,000 at December 31, 2004 and September 30, 2004, respectively.



Amortization Patents and trademarks and other intangible assets are being amortized over their estimated useful lives using the straight-line method.



Debt Issuance Costs Debt issuance costs are amortized over the life of the loan using the straight-line method, which approximates the interest method. During the three months ended December 31, 2003, in connection with securing a new loan agreement, the Company issued 100,000 five-year options, vested immediately, with an exercise price of $6.00.  These options were valued at $175,000. These options were granted to two directors of the Company for their personal guarantee of the Companys indebtedness to Citizens Independent Bank.  Amortization expense related to the debt issuance cost was $3,597 and $2,917 for the three months ended December 31, 2004 and 2003, respectively.  At the time of the sale to Aspen, the Company was required to repay all borrowings under this credit facility and the borrowing arrangement was cancelled.  The remaining unamortized debt issuance cost of $142,236 was expensed in the three months ended December 31, 2004 and is reflected in the gain from discontinued operations.

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Income Taxes We have adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, under which deferred income tax assets and liabilities are recognized for the temporary differences between the financial statement and income tax reporting bases of assets and liabilities based on currently enacted rates and laws.  These temporary differences include depreciation and related party accruals.  Accrued income taxes related to the sale of our Medical Products Group are reflected as a liability of discontinued business.



Research and Development We expense cost related to product research and development as incurred.  Research and development expense was $769 and $13,526 for the three months ended December 31, 2004 and 2003, respectively.



Assets of Discontinued Business Held For Sale  In conjunction with the sale of our Medical Products Group in November 2004, we concluded to pursue the sale of our building located in Ham Lake, Minnesota.  The building includes our former manufacturing and distribution facility and our corporate headquarters.  Accordingly, we have reflected the carrying value of the building as an asset of discontinued business held for sale as of December 31, 2004. As a result, we have discontinued recording depreciation on the building. We believe that the current market value of the building is in excess of its carrying value.



Stock-Based Compensation - We use the intrinsic value-based method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for employee stock options and stock based compensation. Under the intrinsic value method, compensation expense is recorded only to the extent that the market price of common stock exceeds the exercise price of the stock option on the date of grant.



In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148 as an amendment to SFAS No. 123 providing alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and also provides required additional disclosures about the method of accounting for stock-based employee compensation. The amendments are effective for financial statements for fiscal years ending after December 31, 2002 and for interim periods beginning after December 15, 2002.  The Company adopted the annual disclosure provision of SFAS No. 148 during the year ended September 30, 2003.  The Company has currently chosen to not adopt the voluntary change to the fair value based method of accounting for stock-based employee compensation, pursuant to SFAS No. 148.



We have adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized with respect to stock options. Had compensation cost for our stock options been determined based on fair value at the grant dates consistent with the method as defined under SFAS No. 123, our net income (loss) would have changed to the pro forma amounts indicated below:



|                                     | Three Months Ended December. 31,
|------------------------------------ | --------------------------------
|                                     | Fiscal 2005                     
|Net Income (loss):                   |                                 
|As reported                          | $    838,231                    
|Pro forma                            | $    807,943                    
|Net Income (loss) per share basic:   |                                 
|As reported                          | $         0.48                  
|Pro forma                            | $         0.47                  
|Net Income (loss) per share diluted: |                                 
|As reported                          | $        0.45                   
|Pro forma                            | $        0.43                   
|                                     |                                 
|Stock based compensation:            |                                 
|As reported                          | $       7,784                   
|Pro forma                            | $     30,288                    



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The pro forma amounts may not be representative of the effects on reported net loss for future years. The per share, weighed-average fair value of each option granted is calculated using the Black-Scholes pricing model with the following weighted-average assumptions used for grants in the following years:



|                                 | Fiscal 2005 |  | Fiscal 2004
|-------------------------------- | ----------- |  | -----------
|Risk free interest rate          | 5.00%       |  | 3-4.25%    
|Expected life of options granted | 3-5 years   |  | 5-10 years 
|Expected volatility range        | 50.0%       |  | 42.4%      
|Expected dividend yield          | 0%          |  | 0%         



Recent Accounting Pronouncements  In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 151   Inventory Costs, an amendment of ARB No. 43, Chapter 4,  which clarifies the types of costs that should be expensed rather than capitalized as inventory.  This statement also clarifies the circumstances under which fixed overhead costs associated with operating facilities involved in inventory processing should be capitalized.  The provisions of SFAS No. 151 are effective for fiscal years beginning after June 15, 2005 and we will adopt this standard in our fiscal year 2006.  No material impact on our consolidated financial statements is expected from the adoption of this standard.



The FASB issued SFAS No. 123 (Revised 2004) (SFAS No. 123R), Share-Based Payment, in December 2004.  SFAS No. 123R is a revision of FASB Statement 123, Accounting for Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance.  The FASB statement focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment transactions.  SFAS No. 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions).  That cost will be recognized over the period during which an employee is required to provide services in exchange for the award.  This statement is effective at the beginning of the first interim or annual reporting period that begins after June 15, 2005 for large public companies and after December 15, 2005 for small business filers.  We are required to adopt this statement in the second quarter of fiscal 2005 and we are currently analyzing the impact of its adoption on our consolidated financial statements.



Reclassifications  Certain accounts in the prior years quarterly consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current quarters consolidated financial statements.  The reclassifications had no effect on consolidated net income (loss) or stockholders equity.



Note 3.  Inventories



Inventories consist of products related to contract manufacturing sterilization containers, first aid supplies and training materials, restaurant food, and paper supplies and are valued at lower of cost using the first-in, first-out (FIFO) method or market.



Inventories consisted of the following at:



|                  | December 31,
2004 |  | September 30,
2004
|----------------- | ----------------- |  | ------------------
|                  |                   |  |                   
|Raw materials     | $  414,621        |  | $481,832          
|Work in process   | 279,961           |  | 279,961           
|Finished goods    | 276,046           |  | 271,943           
|Total Inventories | $  970,628        |  | $1,033,736        



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Note 4.  Net Income (Loss) Per Share



Basic income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares outstanding for the reporting period.  Our diluted net income (loss) per share is computed by dividing net income by the weighted average number of common shares outstanding and common share equivalents, when dilutive, for the reporting period.  Options totaling 207,500 shares were excluded from the computation of diluted earnings per share for the three months ended December 31, 2004 as their effect was anti-dilutive.  All options and warrants were anti-dilutive for the corresponding period in 2003. Following is a reconciliation of basic and diluted net earnings per share:



|                                             | Three months ended,
|-------------------------------------------- | -------------------
|                                             | December 31,
2004  
|Net income (loss) from continuing operations | $     845          
|Net income from discontinued operations      | 837,386            
|Net income (loss)                            | 838,231            
|Net income (loss) per share   basic         |                    
|Weighted average shares outstanding          | 1,731,379          
|                                             |                    
|Net income (loss) per share  basic          | $     0.48         
|Net income (loss) per share  diluted        |                    
|Weighted average shares outstanding          | 1,731,379          
|Effect of diluted securities                 | 136,651            
|Weighted average shares outstanding          | 1,868,030          
|                                             |                    
|Net income (loss) per share  diluted        | $      0.45        







Note 5.  Income Taxes



We recorded a provision for income taxes of $507 and a tax benefit of $18,682 relating to net income from continuing operations for the three months ended December 31, 2004 and December 31, 2003, respectively.  We recorded a provision for income taxes of $587,774 and $9,682 relating to the Medical Products Group for the three months ended December 31, 2004 and 2003, respectively.



Note 6.  Deferred Income Taxes



Our deferred income tax assets and liabilities are recognized for the differences between the financial statement and income tax reporting basis of assets and liabilities based on currently enacted rates and laws.  These differences include depreciation, net operating loss carryforwards, capital loss carryforwards, allowance for accounts receivable, inventory valuation adjustments and accrued liabilities.



Our deferred tax asset as of December 31, 2004 and September 30, 2004 was $128,400. The deferred tax liability as of December 31, 2004 and September 30, 2004 was $117,000.





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Note 7.  Intangible Assets



|Intangible assets consist of the following:
|-------------------------------------------
|                                           
|                                           
|                                           
|                                           
|Franchise licenses                         
|Customer lists                             
|Covenants not to compete                   
|Trade name                                 
|Assignment of sales contracts              
|Debt issuance costs                        
|Patents                                    
|Other intangibles                          
|                                           
|Total                                      
|                                           



Intangibles are being amortized over their estimated useful lives ranging from 24 months to 180 months (weighted average life of 14.18 years). Amortization of intangible assets was $46,975 and $8,472 for the three months ended December 31, 2004 and 2003, respectively. Estimated amortization expense of intangible assets for the years ending September 30, 2005, 2006, 2007, 2008, and 2009 are $185,746, $184,038, $159,038, $159,038 and $123,038, respectively.



Note 8.  Deferred Revenue and Service Cost Liability



Deferred revenue represents payment received or amounts billed in advance of services to be performed.  With the acquisition as of November 26, 2003 of certain assets from, and the assumption of certain liabilities of SOS by LifeSafe, we assumed the obligation to provide on-going service to SOS customers.  In the course of the LifeSafe business, we also enter into new service agreements or leases with customers.  These service agreements are accounted for as operating leases. In addition to leasing the equipment to customers, we also provide equipment servicing and may provide training over the term of the agreement. These service agreements or operating leases generally require payments in advance that are deferred as reported revenue and are recognized as revenue on a pro-rated basis over the term of the service agreement. In addition to lease payment advances, deferred revenue also consists of customer deposits and prepayments for services not yet rendered. Deferred revenues are recognized ratably over the term of the contracts, typically 3 to 12 months. The amount of deferred revenue at December 31, 2004 was $739,129. The net amount of deferred revenue and service cost liability at September 30, 2004 was $849,451.



Note 9.  Long-term Debt



During July 2003, we entered into a term loan agreement with Citizens Independent Bank, of Hopkins, Minnesota in the amount of $500,000. On November 26, 2003, we repaid the term loan balance outstanding under this loan agreement of $473,000.  Concurrent with repayment of the prior facility, we entered into a new five-year term loan in the amount of $1,500,000 with Citizens. The terms of the loan require monthly principal and interest payments of approximately $27,900 at an interest rate of prime plus 0.5% (5.25% at September 30, 2004).  The loan was collateralized by substantially all assets of the Company.  We were not in compliance as of September 30, 2004 on loan covenants relating to working capital and tangible net worth and we obtained a waiver of these covenants. No consideration was paid for the waiver obtained. The term note was paid in full in November 2004. Long-term debt consisted of the following at December 31, 2004 and September 30, 2004:

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|                                                                                                                                                                                                                                    | December 31, 2004 |  | September 30, 2004
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- |  | ------------------
|Mortgage note payable to StanCorp Mortgage Investors, LLC.  with monthly installments of $8,175 including interest at 8.5%, due February 2011, collateralized by building and land.                                                 | $  837,426        |  | $  844,094        
|Note payable to Citizens Independent Bank  paid in full on November 8, 2004                                                                                                                                                        | 0                 |  | 1,247,439         
|Note payable to former owner of LifeKit.com.  Original amount of $150,000, monthly payments are equal to 27.5% of the monthly gross sales of LifeKit products and are payable until fully paid, non-interest bearing and unsecured. | 105,808           |  | 127,978           
|Note payable to Burger Time Corporation  paid in full on November 8, 2004.                                                                                                                                                         | 0                 |  | 100,000           
|Contracts for deed due to Burger Time Corporation  paid in full on November 8, 2004.                                                                                                                                               | 0                 |  | 2,000,000         
|Totals                                                                                                                                                                                                                              | 943,234           |  | 4,319,511         
|Less: Current portion                                                                                                                                                                                                               | (133,415)         |  | (534,448)         
|Long-term portion                                                                                                                                                                                                                   | $  809,819        |  | $3,785,063        





Note 10.  Segment Reporting



Following is our business segment information for quarters ended December 31, 2004 and December 31, 2003:





|                                | Corporate and Contract Manufacturing |  | LifeSafe     |  | BTAC         |  | Total       
|------------------------------- | ------------------------------------ |  | ------------ |  | ------------ |  | ------------
|                                |                                      |  |              |  |              |  |             
|Quarter ended December 31, 2004 |                                      |  |              |  |              |  |             
|Revenues                        | $    425,747                         |  | $    770,744 |  | $ 1,236,700  |  | $ 2,433,191 
|Income (loss) from operations   | (2,706)                              |  | 61,610       |  | (37,375)     |  | 21,529      
|Identifiable assets             | 3,132,706                            |  | 4,178,644    |  | 3,096,018    |  | 10,407,368  
|Depreciation and amortization   | 43,824                               |  | 109,127      |  | 57,598       |  | 210,549     
|Capital Expenditures            | 197                                  |  | 32,072       |  | 60,075       |  | 92,344      
|                                |                                      |  |              |  |              |  |             
|Quarter ended December 31, 2003 |                                      |  |              |  |              |  |             
|Revenues                        | $ 704,715                            |  | $     30,656 |  | $          0 |  | $    735,371
|Loss from operations            | (54,408)                             |  | 8,317        |  | 0            |  | (46,091)    
|Identifiable assets             | 10,615,741                           |  | 3,848,204    |  | 0            |  | 14,463,945  
|Depreciation and amortization   | 74,534                               |  | 30,138       |  | 0            |  | 104,672     
|Capital Expenditures            | 60,837                               |  | 0            |  | 0            |  | 60,837      



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Note 11.  Commitments and Contingencies



Stock Repurchase Program -In September 2001, our Board of Directors authorized a stock repurchase program under which the Company was authorized to repurchase up to 175,000 shares of the Company's common stock and on November 8, 2004, our Board of Directors authorized a new repurchase program in the amount of 175,000 shares replacing the September 2001 plan.  As of December 31, 2004 and 2003, the Company had repurchased a total of 62,700 and 55,400 common shares for a cost of $435,507 and $398,286, respectively under the September 2001 authorization.  No shares were purchased during the three months ended December 31, 2004 and a total of 175,000 were available for repurchase under the current plan.



Franchise Agreement  We operate a portion of our LifeSafe business under a franchise agreement that provides for exclusive territories for leasing a proprietary emergency oxygen system.  Currently royalties are paid to the franchisor at the rate of $8,081 per month.  Royalty expense under this agreement was $24,240 and $8,080 for the quarters ended December 31, 2004 and 2003.



Note 12.  Acquisitions and Disposition of Assets



On July 9, 2004, we purchased, through our LifeSafe subsidiary, substantially all of the assets of LifeKit.com, a California business offering web based emergency/disaster recovery kit business. In connection with the purchase, we entered into a non-compete agreement with the former sole proprietor of the business in favor of LifeSafe.  The purchase was pursuant to a Business Transfer Agreement dated July 9, 2004 between LifeSafe and LifeKit.  Of the total $287,000 of consideration relating to the transaction, LifeSafe paid $137,000 in cash from working capital and will pay $150,000 through a promissory note with monthly payments equal to 27.5% of monthly gross sales until the liability of $150,000 is paid in full. Consideration for the LifeKit purchase was through arms-length negotiations between the Company and LifeKit. LifeSafe intends to use the assets to continue the web-based business of selling emergency disaster recovery kits.



Statement of Financial Accounting Standards (SFAS) No. 141 Business Combinations requires that all business combinations after June 30, 2001 be accounted for under the purchase method of accounting. The acquisition of assets including covenant not to compete of $100,000, customer lists of $100,000, assignment of contract of $60,000 and domain and trade name of $27,000 were accounted for under the purchase method of accounting and, accordingly, the purchase price was allocated to assets acquired based on the estimated fair value as of the acquisition date. The following table is a condensed balance sheet summarizing the amounts assigned to the assets acquired and liabilities assumed:



|                                | LifeKit  
|------------------------------- | ---------
|Intangibles                     |          
|Covenant not to compete         | $ 100,000
|Customer lists                  | 100,000  
|Assignment of contract          | 60,000   
|Website software and trade name | 27,000   
|Net purchase price              | $ 287,000



On July 1, 2004, our BTAC subsidiary completed the purchase of substantially all of the assets of Burger Time Corporation (Burger Time) relating to Burger Times fast food restaurant business operated under the same name.



The purchase was pursuant to a Business Transfer Agreement dated as of July 1, 2004 between BTAC and Burger Time.  The purchase price for the assets was $3,064,950. Of the purchase price consideration, BTAC paid $764,950 in cash from working capital obtained from the Company and BTAC agreed to pay $2,000,000 through Contracts for Deed on ten parcels of real estate. The terms of the Contracts for Deed carried an interest rate of 6% and required monthly interest only payments of approximately $10,000. The principal was due at maturity. BTAC also assumed a lease relating to an eleventh parcel of real estate pursuant to an Assignment of Real Estate Lease effective July 1, 2004.  The remaining $300,000 of consideration for BTACs purchase was paid by a Promissory Note dated July 1, 2004.  Under the terms of the Business Transfer Agreement, if the purchase price for the assets had not been paid in full by November 12, 2004, the purchase price would increase by $300,000 and BTAC would have issued an additional promissory note for $300,000 to Burger Time. In connection with the transactions,

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Burger Time and two of its officers also entered into a Covenant Not to Compete dated July 1, 2004 in favor of BTAC.  In November 2004, all debt related to the Burger Time purchase was paid in full and as a result, there was no purchase price adjustment.



The obligations under the Contracts for Deed and Promissory Note(s) were guarantied by Gary Copperud, a director of the Company, pursuant to a Personal Guaranty.  Mr. Copperud received no consideration from the Company or BTAC in exchange for his guaranty, which was approved by the Audit Committee of the Board of Directors of the Company.  The obligations under the Contracts for Deed and Promissory Note(s) are also secured by a security interest in all of the assets acquired by BTAC pursuant to a Security Agreement. Consideration for the Burger Time purchase was determined through arms-length negotiations between the Company and Burger Time.  BTAC intends to use the assets acquired from Burger Time to continue the fast food restaurant business.



Statement of Financial Accounting Standards (SFAS) No. 141 Business Combinations requires that all business combinations after June 30, 2001 be accounted for under the purchase method of accounting. The acquisition of assets and assumed liabilities of Burger Time Corporation were accounted for under the purchase method of accounting and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair value as of the acquisition date. The following table is a condensed balance sheet summarizing the amounts assigned to the assets acquired and liabilities assumed:



|                          | Burger Time     
|------------------------- | ----------------
|Cash and cash equivalents | $          4,800
|Inventories               | 42,000          
|Property and equipment    | 2,918,150       
|Covenant not to compete   | 100,000         
|Net purchase price        | $ 3,064,950     



On November 26, 2003, we completed the purchase, through our LifeSafe subsidiary, of certain assets and the assumption of certain liabilities of SOS International, Inc. (SOS) from its parent corporation, Complient Corporation (Complient).  Included in the assets purchased were certain intangible assets such as the rights of SOS under its franchise agreement and its customer lists.  Included in the liabilities assumed was the assumption by LifeSafe of service obligations to existing SOS customers and the assumption by LifeSafe of a lease dated December 21, 2000, as amended, for approximately 5,000 square foot portion of a building located in Jacksonville, Florida.  As a result of this acquisition, the Company entered into the business of leasing and servicing emergency oxygen tanks.



The acquisition of the SOS assets was pursuant to an Asset Purchase Agreement with a purchase price for the assets acquired of $2.7 million. The Company financed the acquisition in part with proceeds from its borrowings as arranged with Citizens Independent Bank (See Note 9 - Long Term Debt).  The Companys assumed obligation to services former SOS customers is reflected as assumed liabilities in the following table. The consideration for the purchase was determined through arms-length negotiations between the Company and Complient.



Statement of Financial Accounting Standards (SFAS) No. 141 Business Combinations requires that all business combinations after June 30, 2001 be accounted for under the purchase method of accounting. The acquisition of assets and assumed liabilities of oxygen leasing and servicing business of SOS were accounted for under the purchase method of accounting and, accordingly, the purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair value as of the acquisition date. The following table is a condensed balance sheet summarizing the amounts assigned to the assets acquired and liabilities assumed:



|                       | SOS        
|---------------------- | -----------
|Accounts receivable    | $   372,791
|Inventories            | 23,360     
|Property and equipment | 2,293,960  
|Intangibles            | 963,000    
|Liabilities assumed    | (953,111)  
|Net purchase price     | $ 2,700,000



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The accompanying unaudited pro forma condensed consolidated results of operations for the three months ended December 31, 2004 and 2003 are presented to give effect to the SOS and Burger Time acquisitions described above as if such transactions had occurred on October 1, 2003.



The unaudited pro forma information does not purport to represent what our results of operations would actually have been if such transactions in fact had occurred at such date or to project our results of future operations.





|                           | December 31, |  | December 31, | 
|-------------------------- | ------------ |  | ------------ | 
|                           | 2004         |  | 2003         | 
|                           |              |  |              | 
|Sales, net                 | $ 2,433,191  |  | $2,238,713   | 
|                           |              |  |              | 
|Income from operations     | 21,529       |  | 111,157      | 
|                           |              |  |              | 
|Net income from operations | 845          |  | 35,061       | 
|                           |              |  |              | 
|Net income per share:      |              |  |              | 
|Basic                      | $0.01        |  | $0.02        | 
|Diluted                    | $0.01        |  | $0.02        | 





Note 13. Discontinued Operations



On November 8, 2004, we completed the sale of certain assets and certain liabilities to Aspen Surgical Products, Inc., a Michigan corporation, relating to products comprising the majority of our Medical Products Group, including its disposable operating room support products, private-label products and the Surgidyne brand of surgical wound drainage products, and excluding the physical plant which is currently an asset held for sale.



The consideration for the sale transaction consisted of $6 million in cash paid at closing and $500,000 in the form of a promissory note.  In addition we may receive additional proceeds based upon the total sales from the operations over the twelve months following the sale.  We recorded a gain on the sale of the assets of $1,604,258 ($1,016,484 net of tax).  The gain was calculated as the proceeds less $4,472,950 in net assets, $342,259 in transaction and shut down expenses (including employee severance costs, legal fees and other professional fees) and an estimate of $100,000 to cover any future costs. A dispute with a Medical Products Group customer was settled for $40,000 in January 2005 and was charged against this reserve. Net assets were comprised of inventory, fixed assets, prepaid expenses, intangibles, goodwill and certain liabilities consisting primarily of accounts payable.



In connection with the Purchase Agreement, we also entered into a Transitional Services Agreement with Aspen providing that the Company will provide transition manufacturing services for Aspen relating to the purchased product lines for a period of three months.  Also in connection with the Purchase Agreement transactions, Mr. Kenneth Brimmer and Mr. Gary Copperud will provide Aspen certain services pursuant to an eighteen-month consulting agreement.  Mr. Brimmer is the Companys Chief Executive Officer and a director and Mr. Copperud is a director of the Company. The Company and Messrs. Brimmer and Copperud also entered into a non-competition agreement with Aspen.



On November 10, 2004, we used $2,002,666 of the proceeds from the sale to Aspen to pay Burger Time Corporation the remaining principal and interest of ten contracts for deed relating to the Companys Burger Time restaurant locations.



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In accordance with the provisions of SFAS 144, we have not included the results of operations of our former Medical Products Group in the results from continuing operations.  The results of operations for this business have been reflected as discontinued operations.  The income (loss) from discontinued operations for the quarter ended December 31, 2004 and 2003 respectively, consist of the following:





|                                          | December 31, 2004 |  | December 31, 2003 | 
|----------------------------------------- | ----------------- |  | ----------------- | 
|                                          |                   |  |                   | 
|Revenue, Net                              | $  710,574        |  | $1,648,391        | 
|                                          |                   |  |                   | 
|Cost of Goods Sold                        | 453,606           |  | 941,764           | 
|                                          |                   |  |                   | 
|Gross Profit                              | 256,968           |  | 706,627           | 
|                                          |                   |  |                   | 
|Total operating expenses                  | 436,066           |  | 680,807           | 
|                                          |                   |  |                   | 
|Net (loss) income operations              | (179,098)         |  | 25,820            | 
|                                          |                   |  |                   | 
|Gain on sale of assets:                   |                   |  |                   | 
|Sale Price                                | 6,500,000         |  | -                 | 
|Less costs and expenses                   |                   |  |                   | 
|Accounts Receivable                       | 927,376           |  | -                 | 
|Inventories                               | 2,434,690         |  | -                 | 
|Prepaids                                  | 156,056           |  | -                 | 
|Property and Equipment, net               | 648,086           |  | -                 | 
|Intangibles, net                          | 151,203           |  | -                 | 
|Deferred Debt issuance Costs              | 142,236           |  | -                 | 
|Goodwill                                  | 355,563           |  | -                 | 
|Accounts Payable                          | (342,259)         |  | -                 | 
|Severance                                 | 100,000           |  | -                 | 
|Transaction, Legal,  Transition
and other | 322,791           |  | -                 | 
|Total costs of sale                       | 4,895,742         |  | -                 | 
|Net gain on sale before taxes             | 1,604,258         |  | -                 | 
|                                          |                   |  |                   | 
|Net income from discontinued
operations   | $1,425,160        |  | $     25,820      | 
|                                          |                   |  |                   | 



Note 14.  Subsequent Events



On January 3, 2005, our LifeSafe subsidiary, entered into an asset purchase agreement with Barry Medical Corp. (Seller) and its sole shareholder, pursuant to which LifeSafe purchased substantially all of Sellers assets for $242,000 plus the assumption of certain liabilities.  The assets purchased relate to Sellers business of buying, leasing, selling, servicing and training customers in the use of emergency oxygen equipment and defibrillator units as the sole, exclusive franchisee of SOS in Connecticut and a representative of Oxygen Therapy Institute, Inc. in the states of Massachusetts, New Hampshire, Rhode Island and Vermont.  In connection with the purchase, the former owner entered into a non-compete agreement with LifeSafe.



The purchase price was paid $50,000 in cash with the balance of $192,000 being paid through a promissory note.  Amounts under the promissory note bear interest at 6% per year.  Principal and accrued interest are due in 36 equal monthly installments beginning February 1, 2005.  Amounts under the promissory note are secured by an interest in the equipment sold to LifeSafe and certain customer orders and contracts assigned to LifeSafe as part of the sale.  The Company has also agreed to guarantee all amounts owed by LifeSafe to the Seller under the promissory note.

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In the asset purchase agreement, each of LifeSafe and the Seller make representations and warranties to the other customary for a transaction of this type.  The Seller agreed to indemnify LifeSafe for any breach of such representations and warranties and for any liabilities not assumed by LifeSafe.  Additionally, the closing of the transactions contemplated by the asset purchase agreement was subject to conditions customary for a transaction of this type, all of which were fulfilled or waived by the parties upon execution of the asset purchase agreement.





Item 2. Managements Discussion and Analysis or Plan of Operation



Overview



STEN Corporation (STEN or the Company) was known as Sterion Incorporated until January 31, 2005 and previous to that until January 2002, the Company was known as Oxboro Medical, Inc.  We are a diversified business and our results reflect the impact of recent acquisitions and a significant divestiture.  Historically, our principal business was manufacturing and marketing medical products, the Medical Products Group.  As a result of the sale, the Medical Product Group is accounted for as a discontinued operation.  We continue to manufacture products for STERIS Corporation under a manufacturing agreement and this comprises our Contract Manufacturing Business. On November 26, 2003 we purchased, through our LifeSafe Services, Inc. (LifeSafe) subsidiary certain assets and liabilities of SOS International, Inc. (SOS) from Complient Corporation relating to SOSs business of leasing and servicing oxygen systems for emergency purposes. On July 1, 2004, our Burger Time Acquisition Corporation (BTAC) subsidiary completed the purchase of the assets and business operations of Burger Time. BTAC operates Burger Time, a chain of drive-through, quick-service restaurants that focus on high-quality hamburgers offered at competitive prices.



During the quarter ended December 31, 2004, we sold assets and certain liabilities relating to the Medical Products Business to Grand Rapids, Michigan-based Aspen Surgical Products, Inc. (Aspen) for $6 million in cash and a $500,000 note receivable. Our former Medical Products Group Business is being accounted for in the accompanying unaudited consolidated financial statements as a Discontinued Operation  See Note 13.



The sale to Aspen reflects our strategic decision to focus our management attention and resources on businesses we believe will provide better opportunities to grow value for our shareholders, including our LifeSafe and Burger Time businesses.



Net sales from continuing operations for three months ended December 31, 2004 were $2,433,191, an increase of $1,697,820 from the same period one year ago. The principal reason for the increase is the contribution to results from BTAC which earned total sales of $1,236,700 compared with $0 one year ago. The increase in net sales also reflects a significant increase in the contribution from LifeSafe which was acquired during the first quarter of fiscal 2004 and contributed $30,656 to net sales in the first quarter of 2004 and $770,744 to the first quarter of fiscal 2005.



The gross profit reflects our business mix. The highest gross profit percentage was earned in our LifeSafe subsidiary which realized a 48.1% gross profit or $370,941 in the quarter. The first quarter of our fiscal year is a seasonably weak period for BTAC. BTAC contributed $14,712 in gross profit dollars earning a 1.2% gross profit.  As the company continues to improve operations at recently acquired businesses it expects that gross margins will improve.



Our Contract Manufacturing Business gross profit percentage in the first quarter of fiscal to 2005 earned a 15.1% gross profit, or $64,263 on sales of $425,747 compared to $78,532 gross profit or 11.1% on sales of $704,715 in the fiscal 2004.



The increase in Selling, General and Administrative (SG&A) expenses is principally the result of SG&A related to recently acquired businesses including $309,331 for LifeSafe in the first quarter of fiscal 2005 and $52,266 for the first quarter of fiscal 2004 during which we purchased the business. BTAC incurred SG&A of $52,087 during the quarter and was not a part of the Company in the year earlier period.  The remaining $68,051 of SG&A relates to Corporate and contract manufacturing expenses.



Income (Loss) from Continuing Operation for the three-month period ended December 31, 2004 was $845 as compared to a net loss of $33,177 in the same period of fiscal 2004. The reduction in net loss is primarily of profitable operations at LifeSafe.



Liquidity and Capital Resources



We have typically financed our operations through internal working capital and a bank line of credit. Financing our building has been through a long-term mortgage. We believe that we have adequate capital to meet our cash requirements for the next twelve months from our internal working capital and bank line of credit. As of December 31, 2004, we had working capital of $861,147 as compared to $1,850,439 at September 30, 2004, and term debt of $943,234 at December 31, 2004 compared to $4,319,511 at September 30, 2004. As of December 31, 2004, the we had $821,837 in cash and cash equivalents as compared to $431,942 at September 30, 2004.  The increase in cash and cash equivalents is a result of the sale of certain assets to Aspen Surgical (See Note 13). During the three months ended December 31, 2004, we repaid our line of credit borrowings in the amount of $1,440,921, repaid the term loan with Citizens Independent Bank in the amount of $1,247,439 and fully paid the contract for deeds held by former owner of Burger Time, Burger Time Corporation, in the amount of $2,000,000. The decrease in working capital relates to the sale of current assets, such as accounts receivable and inventory to Aspen.



Critical Accounting Policies and Estimates



Our significant accounting policies are described in Note 1 to the consolidated financial statements. Our critical accounting policies and estimates are those both having the most impact to the reporting of our financial condition and results, and requiring significant judgments and estimates. Our critical accounting policies include those related to (a) revenue recognition, (b) allowance for uncollectible accounts receivable, (c) inventories, (d) goodwill, intangible and other long-lived assets and (e) accounting for business combinations.



(a) Revenue Recognition - The Companys revenues are recognized when products are shipped to unaffiliated customers. Revenues from our lease programs in LifeSafe are recognized on a straight-line basis over the life of the customer service agreement (typically 3 to 12 months) and revenues from our fast food business are recognized at the time the food is served. The Securities and Exchange Commissions Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition provides guidance on the application of accounting principles generally accepted in the United States of America to selected revenue recognition issues.  The Company has concluded that its revenue recognition policy is appropriate and in accordance with accounting principles generally accepted in the United States of America and SAB No. 101.



(b) Allowance for Uncollectible Accounts Receivable -Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future.  The estimated allowance for uncollectible amounts is based primarily on managements evaluation of the financial condition of the customer.  Future changes in the financial condition of a customer may require an adjustment to the allowance for uncollectible accounts receivable.



(c) Inventories and Related Allowance for Obsolete and Excess Inventory - Inventories are valued at the lower of cost or market value and have been reduced by an allowance for obsolete and excess inventories.  The estimated allowance is based on managements review of inventories on hand compared to estimated future usage and sales.



(d) Goodwill, Intangible and Other Long-Lived Assets -Property, equipment, and intangible assets are amortized over their useful lives.  Useful lives are based on managements estimates of the period that the assets will generate revenue. Property and equipment, goodwill and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  The Company believes no impairment charges need to be recorded as of September 30, 2004.

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(e) Accounting for Business Combinations- Goodwill and intangible assets represent the excess of consideration over the fair value of tangible net assets acquired.  Certain assumptions and estimates are employed by management in determining the fair value of assets acquired, including goodwill and other intangible assets, as well as determining the allocation of goodwill to the appropriate reporting unit.  In addition, we assess the recoverability of these intangibles by determining whether the fair values of the applicable reporting units exceed their carrying values.  The evaluation of fair value requires the use of projections, estimates and assumptions as to the future performance of the operations in performing a discounted cash flow analysis as well as assumptions regarding sales and earnings multiples that would be applied in comparable acquisitions in the industry.  Actual results could differ from these assumptions and projections resulting in the Company revising its assumptions and, if required, recognizing an impairment loss.



Special Note Regarding Forward-Looking Statements



Certain statements in this Form 10-Q under Part I, Item 2. Managements Discussion and Analysis or Plan of Operation,  and elsewhere in this Form 10-Q constitute forward-looking statements which we believe are within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. Also, when we use words such as believes, expects, anticipates or similar expressions, we are making forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. Some of the risks that should be considered include:



(i) The fact that we compete with numerous well established competitors in both our LifeSafe and Burger Time businesses having substantially greater financial resources and longer operating histories than us, which enables them to engage in substantial discounting as well as significant promotions. While this competition is already intense, if it increases, it could have an even greater adverse impact on our revenues and profitability.



(ii) The fact that we anticipate the need to continue the improvement in sales in all of our businesses if we are to achieve improved profitability. Sales increases will depend, among other things, on the success of our promotion efforts and the success of other operating, sales and training initiatives, all of which are speculative.



As a result of our Burger Time business, we may also be negatively impacted by other factors common to the restaurant industry such as changes in consumer tastes away from red meat and fried foods; consumer acceptance of new products; consumer frequency; increases in the costs of food, paper, labor, health care, workers compensation or energy; an inadequate number of available hourly paid employees; decreases in the availability of affordable capital resources; and/or development and operating costs. Other factors which may negatively impact the Company include, among others, adverse publicity; general economic and business conditions; availability, locations, and terms of sites for restaurant development; changes in business strategy or development plans; quality of management; availability, terms and deployment of capital; the results of financing efforts; business abilities and judgment of personnel; availability of qualified personnel; changes in, or failure to comply with, government regulations; continued NASDAQ listing; weather conditions; construction schedules; uninterrupted product supply; results of existing and future litigation and other risk factors referenced in this Form 10-Q and in our annual report on Form 10-K for the year ended September 30, 2004.



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Item 3. Controls and Procedures



(a) Disclosure Controls and Procedures.  The Companys Chief Executive Officer, Kenneth W. Brimmer, and Chief Financial Officer, Mark Buckrey, have evaluated the Companys disclosure controls and procedures as of the end of the period covered by this report.  Based upon that review, they have concluded that these controls and procedures are effective in ensuring that material information related to the Company is made known to them by others within the Company.



(b) Internal Control Over Financing Reporting.There have been no significant changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II

OTHER INFORMATION





Item 6. Exhibits:



(a)

Exhibits:



31.1

Certification of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.



31.2

Certification of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.



99.1

Certification pursuant to 18 U.S.C. §1350



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SIGNATURES



In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                        | STERION INCORPORATED                                                                                    
|----------------------- | --------------------------------------------------------------------------------------------------------
|Date: February 14, 2004 | By: /s/ Kenneth W. Brimmer

Kenneth W. Brimmer, Chief Executive Officer
(Principal Executive Officer)   
|Date: February 14, 2004 | By: /s/ Mark Buckrey

Mark Buckrey, Chief Financial Officer
(Principal Financial and Accounting Officer)





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