UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

______________________________



FORM 10-KSB

______________________________

(Mark One)

[X]

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

For the fiscal year ended October 1, 2006



[  ]

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  (IRS Employer Identification No.)

or organization)



10275 Wayzata Blvd S, Suite 310, Minnetonka, MN  55305

(Address of principal executive offices)



(952) 545-2776

(Issuers telephone number)



Securities registered under Section 12(b) of the Exchange Act:   None

Securities registered under Section 12(g) of the Exchange Act:



Common stock, Par Value $.01 Per Share

(Title of Class)

Three-Year Common Stock Purchase Warrant

(Title of Class)



Check whether the issuer is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  [   ]   Yes    [X]   No



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.  [X]   Yes     [   ]   No



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy of information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]



Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): [   ]   Yes     [X]   No



State issuers revenues for its most recent fiscal year:   $8,878,563



Based upon the closing price of the issuers common stock on December 15, 2006 of $5.00 as reported by The NASDAQ Capital Market, the aggregate market value of such common stock held by non-affiliates of the issuer as of December 15, 2006 was approximately $5,334,980.



As of December 15, 2006, the issuer had outstanding 2,018,957 shares of common stock, $.01 par value.



Documents Incorporated by Reference:The information called for by Part III of this Form 10-KSB will be filed as an amendment to this Form 10-KSB not later than the end of the 120 day period following the end of the fiscal year covered by this report.





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TABLE CONTENTS



|           |                                                                                                                 | Page No.
|---------- | --------------------------------------------------------------------------------------------------------------- | --------
|PART I     |                                                                                                                 | 2       
|           |                                                                                                                 |         
|ITEM 1     | DESCRIPTION OF BUSINESS                                                                                         | 2       
|ITEM 2     | DESCRIPTION OF PROPERTY                                                                                         | 9       
|ITEM 3     | LEGAL PROCEEDINGS                                                                                               | 11      
|ITEM 4     | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                             | 11      
|           |                                                                                                                 |         
|PART II    |                                                                                                                 | 12      
|           |                                                                                                                 |         
|ITEM 5     | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES  | 12      
|ITEM 6     | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                       | 13      
|ITEM 7     | CONSOLIDATED FINANCIAL STATEMENTS                                                                               | 18      
|ITEM 8     | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                            | 19      
|ITEM 8A    | CONTROLS AND PROCEDURES                                                                                         | 19      
|ITEM 8B    | OTHER INFORMATION                                                                                               | 19      
|           |                                                                                                                 |         
|PART III   |                                                                                                                 | 20      
|           |                                                                                                                 |         
|ITEM 9     | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT | 20      
|ITEM 10    | EXECUTIVE COMPENSATION                                                                                          | 20      
|ITEM 11    | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS                  | 20      
|ITEM 12    | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                                  | 20      
|ITEM 13    | EXHIBITS                                                                                                        | 20      
|ITEM 14    | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                          | 23      
|           |                                                                                                                 |         
|SIGNATURES |                                                                                                                 | 24      





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PART I



ITEM 1. DESCRIPTION OF BUSINESS



Forward Looking Statements

Statements included in this Annual Report on Form 10-KSB, in our quarterly reports, in future filings by us with the Securities and Exchange Commission, in the Companys press releases, and oral statements made with the approval of an authorized executive officer that are not historical, or current facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When used in this report, the words believe, expect, will, can, estimate,  anticipate and similar expressions are intended to identify such forward-looking statements. Certain important factors could cause results to differ materially from those anticipated by some statements made herein and these statements are not predictions of actual future results.  Investors are cautioned that all forward-looking statements involve risks and uncertainties. A number of factors that could cause results to differ materially are those discussed in this Annual Report on Form 10-KSB, including those discussed under Risks Related to Our Business, as well as others not now anticipated. All such forward-looking statements, whether written or oral, and whether made by or on our behalf are expressly qualified by these cautionary statements. In addition, we disclaim any obligation to update forward-looking statements to reflect events or circumstances after the date hereof.



Introduction

Effective February 2, 2005, we changed our name to STEN Corporation (STEN) from Sterion Incorporated (Sterion). We were incorporated in Minnesota in 1978 under the name Oxboro Medical International, Inc. STEN is a diversified business.



On September 19, 2006, the Board of Directors of STEN Corporation adopted a resolution changing the Companys fiscal year end from September 30 to the Sunday closest (before or after) to September 30. As a result, the Companys 2006 fiscal year will end on Sunday, October 1, 2006 and the Companys 2007 fiscal year will end on Sunday, September 30, 2007.  The Board of Directors also changed the quarterly periods within the new fiscal year such that each quarter will consist of thirteen weeks of two four-week periods followed by one five-week period.



Prior to November 2004, our principal business was manufacturing and marketing medical products in a business we refer to as the Medical Products Group. In May 2003, we sold the assets relating to our surgical instrument sterilization container business to STERIS Corporation (STERIS). We manufacture these products for STERIS under a manufacturing agreement and this comprises our Contract Manufacturing Business. On November 8, 2004, we sold the remaining assets and certain liabilities of the Medical Products Business to Grand Rapids, Michigan-based Aspen Surgical Products, Inc. (Aspen) for $6.5 million.



In November 2003, through our LifeSafe Services, Inc. (LifeSafe) subsidiary, we purchased certain assets and liabilities of SOS International, Inc. (SOS) relating to the business of leasing and servicing oxygen systems for emergency purposes. In June 2004, we also purchased certain assets relating to a line of first aid kits for hurricane, emergency and disaster preparedness marketed under the LifeKit brand name. Together, these businesses comprised our Emergency Oxygen Business.  On June 30, 2005, we completed the sale to Life Safe Services, LLC of assets related to our Emergency Oxygen Business for $2,450,000 in cash, a $700,000 note receivable plus the assumption by the Buyer of certain liabilities.



On July 1, 2004, through our Burger Time Acquisition Corporation (BTAC) subsidiary, we purchased the assets and business operations of a chain of restaurants operated under the Burger Time name. BTAC operates our thirteen-unit chain of quick-service restaurants focusing on high-quality hamburgers offered at competitive prices. In May of 2005, we completed a mortgage financing relating to eight parcels of real estate used by BTAC in its operation of the Burger Time restaurants.



On August 11, 2006, through our wholly-owned subsidiary, STEN Financial Corporation (STEN Financial), we entered into an agreement to purchase certain assets of a business operating as Alliance Cash Advance. These assets consisted principally of a retail lending location in Tempe, Arizona and related receivables.To acquire the assets, STEN Financial paid $275,000 in cash from working capital.  STEN Financial intends to use the assets to continue offering short term consumer loans principally in the form of deferred presentment or payday loan transactions. Our customers, many of whom receive income on an irregular basis or from multiple



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employers, are drawn to our convenient neighborhood location, extended operating hours and quality customer service. Our products, principally our short-term consumer loan program, provide immediate access to cash for living expenses or other needs. In addition, following the end of our fiscal year, on October 2, 2006, STEN Financial purchased the assets of an unrelated internet-based payday loan business operating as Money World Lending for $200,000. On October 3, 2006, we purchased, in another unrelated transaction, through our STEN Financial Corporation subsidiary, three check-cashing payday loan stores located in Salt Lake City, Utah for $600,000.



The recent acquisitions of assets by STEN Financial together with the sale to of our Medical Products Group to Aspen and the sale of our Emergency Oxygen Business to Life Safe Services, LLC 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 which we believe will principally be in STEN Financial Corporation.



In our fiscal year 2006 and 2005 financial statements, we have accounted for the Medical Products Group, the  Emergency Oxygen Business, the sale of the Companys former headquarters in Ham Lake, MN, and our write-down of advances to Site Equities and its Pay Centers operation all as Discontinued Operations.



Principal Products and Distribution



In 2006, our continuing operations were divided into three areas: the business operations of STEN Corporation, which includes our corporate and Contract Manufacturing Business, the business operations of BTAC, which includes our Burger Time restaurants and the business operations of STEN Financial, which includes our consumer lending business. Our corporate offices are located in approximately 1,142 square feet of leased office space in Minnetonka, Minnesota. The Contract Manufacturing Business products are manufactured and distributed from our facility located in Jacksonville, Texas. The Texas facility is ISO 13485 certified. Of the properties relating to our fourteen Burger Time restaurants, eleven are owned and three are leased. The Burger Time properties are located in Minnesota, North Dakota, South Dakota and Iowa. Our STEN Financial business, which includes Alliance Cash Advance, leases approximately 1,400 square feet of office and space in Tempe, Arizona and is operated by STEN Financial Corporation which, effective October 2, 2006, will be located in administrative offices in Salt Lake City, Utah.



Purchasing

The raw materials used in our Contract Manufacturing Business are readily available from multiple sources. Burger Time purchases food, beverages and supplies from Company-approved suppliers. All products must meet our standards and specifications, and management monitors the quality of the food, beverages and supplies. All essential food and beverage products are available, or upon short notice and could be available from alternate qualified suppliers. Among other factors, profitability for our Burger Time business is dependent upon our ability to anticipate and react to changes in food costs. Various factors beyond our control, such as climate changes and adverse weather conditions, may also affect food costs.



Patents, Trademarks, and Licenses

Currently, we have no patents or registered trademarks relating to our STEN Corporation business, our Burger Time business, or in our STEN Financial business. We own the trademark  Hot N Now and have licensed the trademark to 9 operators for approximately $13,500 in annual license fees.



Historically, we have not relied upon patents for protection of the intellectual property relating to our products or processes. We had no patents relating to the products in our Medical Products Group or the Emergency Oxygen Business.  Further, we pursued only limited registrations for trademarks and license agreements in connection with the marketing of our Medical Products Group and Emergency Oxygen Business products and the intellectual property associated with these businesses was transferred to the respective buyers.



Competition

Each of our businesses is extremely competitive. In our Burger Time business we face direct competitors with substantially greater assets, marketing capability, and experience. Our Contract Manufacturing Business relies on the ability of our sole customer to market, sell and service to the end user. In our STEN Financial business we face competitors from traditional borrowers like banks and credit unions and non-traditional borrowers in the sub-



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prime markets like finance and other payday loan companies. We believe that in each of our businesses we must offer a competitive price, superior quality, reliability, and speed of order fulfillment to be competitive.



Our Burger Time restaurants compete in the quick-service restaurant industry, which is highly competitive with respect to price, concept, quality and speed of service, location, attractiveness of facilities, customer recognition, convenience and food quality and variety. The industry includes many quick-service chains, including national chains which have significantly greater resources to devote to advertising, product development and new restaurants, and which makes them less vulnerable to fluctuations in food, paper, labor and other costs. The quick-service industry is often significantly affected by many factors, including changes in local, regional or national economic conditions affecting consumer spending habits, demographic trends and traffic patterns, changes in consumer taste, consumer concerns about the nutritional quality of quick-service food and increases in the number, type and location of competing quick-service restaurants. We compete primarily on the basis of speed of service, price, value, food quality and taste. All of the major chains have increasingly offered selected food items and combination meals, including hamburgers, at temporarily or permanently discounted prices. Increased competition, additional discounting and changes in marketing strategies by one or more of these competitors could have an adverse effect on our sales and earnings.



Our consumer lending business operates in a business which is highly fragmented. There are several public and private companies with large networks of stores. There are also many local chains and single-unit operators. These national and regional companies have significantly greater resources to devote to advertising and new locations. Many, if not all, of these companies frequently survey and research customer trends and purchasing patterns in order to place the most effective advertising in their market. We compete on the basis of, and believe that, convenience, hours of operations and other aspects of customer service are the principal factors influencing customers.



Research and Development Expenditures

The Company did not incur any expenses related to research and development for the years ended October 1, 2006 and September 30, 2005.



Government Regulation

While we sold the Medical Products Group business in November 2004, we continue to be subject to regulation by the FDA, the U.S. Department of Health and Human Services and similar state agencies because we are a contract manufacturer of sterilization containers and associated materials. Medical devices intended for human use are classified into three categories (Classes I, II and III). The amount of regulation varies dependant upon the classification. Most of the Medical Products Group products, and the sterilization container products, were Class I products. However, our Quality Management System was compliant with the requirements for Class I and Class II medical products.



The sterilization container products are also subject to regulation in foreign countries, including ISO 9000 certification, which is required to conduct business in the European Community and Canada. The sterilization container products have received ISO 9002 and ISO 13485 Certification and are also covered under a CE Certificate. For our Contract Manufacturing Business we have continued to devote, significant financial and human resources to comply with the extensive regulations by the FDA and other government agencies.



The restaurant industry is subject to numerous federal, state and local government regulations, including those relating to the preparation and sale of food and building and zoning requirements. In addition, we are subject to laws governing our relationship with employees, including minimum wage requirements, overtime, working and safety conditions and citizenship requirements. Many of our employees are paid hourly rates based upon the federal and state minimum wage laws. Legislation increasing the minimum wage would result in increased labor costs. An increase in the minimum wage rate, employee benefit costs or other costs associated with employees could have a material adverse effect on our business, financial condition and results of operation.



In our consumer lending business we are subject to regulation by federal and state governments that affects the products and services we provide. In general, these regulations are designed to protect consumers who deal with us. These regulations include those governing lending practices and terms, such as content, form and accuracy of our consumer disclosures, limitations on the cost of credit, fair debt collection practices and rules regarding advertising content.





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If we fail to comply with the regulations applicable to our lines of business, we would be subject to administrative and criminal actions, which could have a material adverse effect on our business. Our operations may be affected with the passage of new legislation or court rulings with respect to existing legislation. Our continued compliance with all regulatory requirements may be costly.



Currency Reporting Regulation



Regulations promulgated by the U.S. Treasury Department under the Bank Secrecy Act require reporting of transactions involving currency in an amount greater than $10,000, or the purchase of monetary instruments for cash in amounts from $3,000 to $10,000. In general, every financial institution must report each deposit, withdrawal, exchange of currency or other payment or transfer that involves currency in an amount greater than $10,000. In addition, multiple currency transactions must be treated as a single transaction if the financial institution has knowledge that the transactions are by, or on behalf of, any one person and result in either cash in or cash out totaling more than $10,000 during any one business day. We believe that our point-of-sale system and employee training programs support our compliance with these regulatory requirements.



Also, money services businesses are required by the Money Laundering Act of 1994 to register with the U.S. Treasury Department. Money services businesses include check cashers and sellers of money orders. Money services businesses must renew their registrations every two years, maintain a list of their agents, update the agent list annually and make the agent list available for examination. In addition, the Bank Secrecy Act requires money services businesses to file a Suspicious Activity Report for any transaction conducted or attempted involving amounts individually or in total equaling $2,000 or greater, when the money services businesses knows or suspects that the transaction involves funds derived from an illegal activity, the transaction is designed to evade the requirements of the Bank Secrecy Act or the transaction is considered so unusual that there appears to be no reasonable explanation for the transaction. The United States PATRIOT Act includes a number of anti-money-laundering measures designed to assist in the identification and seizure of terrorist funds, including provisions that directly impact check cashers and other money services businesses. Specifically, the United States PATRIOT Act requires all check cashers to establish certain programs designed to detect and report money laundering activities to law enforcement. We believe we are in compliance with the United States PATRIOT Act. The U.S. Treasury Departments Office of Foreign Assets Control administers economic sanctions and embargo programs that require assets and transactions involving target countries and their nationals (referred to as specially designated nationals and blocked persons) be frozen. We maintain procedures to assure compliance with these requirements.



Privacy Regulation

We are subject to a variety of state and federal regulations restricting the use and seeking to protect the confidentiality of identifying and other personal consumer information. We have systems in place intended to safeguard such information as required.



Environmental Matters

We are subject to various federal, state and local environmental laws. These laws govern discharges to air and water from our restaurants, as well as handling and disposal practices for solid and hazardous waste. These laws may impose liability for damages for the costs of cleaning up sites of spills, disposals or other releases of hazardous materials. We may be responsible for environmental conditions relating to our restaurants and the land on which the restaurants are located or were located, regardless of whether the restaurants or land in question are leased or owned and regardless of whether such environmental conditions were created by us or by a prior owner, tenant, or other third party.



In our manufacturing business the Company is subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the United States. The Company has made, and intends to continue to make, significant expenditures for compliance with these laws and regulations. The Company cannot predict with certainty future capital expenditures or operating costs associated with environmental law and regulation compliance.



The Company believes that it is currently in conformity in all material respects with applicable environmental, health, and safety requirements. However, there can be no assurance that future or current regulatory, governmental, or private action will not have a material adverse effect on the Company or its performance, results, or value.



Employees

As of October 1, 2006 we employed 3 full-time and 1 part-time employees in the Minnetonka, Minnesota facility; 15 full-time employees in our Jacksonville, Texas facility; through our Burger Time restaurants we employed 26 full-time and 150 part-time employees; and in connection with our Alliance Cash Advance business, 2 full-time and 1 part-time employees in our Tempe, Arizona office. We have never had a work stoppage and none of our employees are currently represented under collective bargaining agreements. We consider relations with our employees to be good.



RISKS RELATED TO OUR BUSINESS



The following are important factors that could cause actual results, performance, or achievements to materially different from any future results, performance, or achievements expressed or implied by any forward-looking statement made by or on behalf of us.



Our evolving business plan has significant risks.The risks inherent in each of our businesses may affect us more acutely because our businesses are diverse.Over the past five years we have purchased and sold several business units. We may, in the future, also consider additional business opportunities, which may not necessarily be in industries in which we have prior experience or in any industry in particular and which may or may not have synergies with our existing businesses. As a result of the sale of our Medical Products Group in November 2004 and our LifeSafe business in June 2005, we are directing our limited resources toward our Burger Time, Contract Manufacturing Business and increasingly to our STEN Financial businesses. We also have invested some of our resources in exploring other business ventures. While our Burger Time, Contract Manufacturing business and STEN Financial business share certain risks related to their small size in relation to industries characterized by numerous well established competitors who have substantially greater financial resources and longer operating histories, each of these businesses has many unique risks associated with it. To be successful with each of the Burger Time, Contract Manufacturing Business and STEN Financial, we must successfully execute three distinct business plans at the same time. Given our limited management and lack of experience in each of these businesses, we believe it may be more difficult for us to succeed with such diverse businesses. A lack of focus on a single business activity together with the significant risk of failure that may occur in pursuing possible growth opportunities in these and new businesses, where we have limited executive management experience, may contribute to poor financial performance and significant losses for our shareholders.



We are dependent on management and key personnel to succeed. We depend on the experience of our principal executive officers and key personnel. Our continued success also depends on the ability of our management to effectively manage and grow our business. The loss of the services of any of our executive officers or other key personnel, or our failure to attract and retain other skilled and experienced personnel on acceptable terms, could impede the achievement of our business objectives and have a material adverse effect on our business. In addition, as we seek to develop our Burger Time and financial services business, the market for attracting experienced management is particularly competitive.



Future growth in our Burger Time business is expected to be limited. Our success in opening any new units depends on numerous factors, many of which are beyond our control including: the hiring, training and retention of qualified management and other restaurant personnel; the ability to obtain necessary governmental permits and approvals; competition for desirable site locations; the availability of appropriate financing; and general economic conditions. Although we currently expect development of new units, if any, will be limited, our ability to successfully open additional restaurants will depend upon a number of other factors, particularly the acceptance of the Burger Time concept in new markets, competition and market saturation. To manage any future expansion, we must ensure the continuing adequacy of our existing systems and procedures, including our supply and distribution arrangements, restaurant management, financial controls and information systems. While we expect to modestly expand our Burger Time business, we cannot assure you that we will be able to identify favorable expansion opportunities, moreover, there is no assurance that we will be able  to maintain the same-store sales growth in our existing units.



We have no experience in the financial services area.STEN Financial Corporation is expected to be the  principal focus of our growth efforts over fiscal year 2007. We expect to focus our efforts in the sub-prime segment of this market. In addition to being a highly regulated and competitive industry, our management team has no prior experience in this area. Because of the inexperience of our management, we may be subject to, and actually experience, more significant risk of failure in our STEN Financial business. In addition, we cannot assure you that our management will be able to manage our STEN Financial business profitably or be able to identify and pursue growth opportunities in this new business.



The payday loan business is regulated under numerous state laws and regulations, which are subject to change and which may impose significant costs or limitations on the way we conduct or expand our business. As of December 31, 2005, a majority of states and the District of Columbia had legislation permitting or not prohibiting payday loans. During the last few years, legislation has been adopted in some states



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that prohibits or severely restricts payday loans. For example, in May 2004, a new law became effective in Georgia that effectively prohibits direct payday lending in the state and effectively restricts marketing and servicing of payday loans for a lending bank in the state. According to industry sources, as of February 2006, over 100 bills have been introduced in more than 25 state legislatures that would revise current law governing payday loans in that state, which includes bills introduced in virtually every state in which we are doing business as a payday lender. In certain instances, the bills, if adopted, would adversely affect our ability to compete and grow this segment of our business earnings in that state. Some states, including Arizona, in which we operate, have sunset provisions in their payday loan laws that require renewal of the laws by the state legislatures at periodic intervals. Legislation regulations prohibiting payday loans or making them less profitable or unprofitable, could be passed in any of these states at any time, or existing payday loan laws could expire or be amended. Statutes authorizing payday loans typically provide state agencies that regulate banks and financial institutions with significant regulatory powers to administer and enforce the law. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways or issue new administrative rules, even if not contained in state statutes, that affect the way we do business and may force us to terminate or modify our operations in particular states. They may also impose rules that are generally adverse to this industry.



The payday loan industry is regulated under federal law.Although states provide the primary regulatory framework under which we offer payday loans, certain federal laws also affect our business. For example, because payday loans are viewed as extensions of credit, we must comply with the federal Truth-in-Lending Act and Regulation Z adopted under the Act. Additionally, we are subject to the Equal Credit Opportunity Act, the Gramm-Leah-Bliley Act, and the Fair Debt Practices Act. Any failure to comply with any of these federal laws and regulations could have a material adverse effect on our business, results of operations and financial condition.



Additionally, anti-payday loan legislation has been introduced in the U.S. Congress periodically, with recent legislation specifically targeting lending to military personnel. Congressional members continue to receive pressure from consumer advocates and other industry opposition groups to adopt this type of legislations. Any federal legislative or regulatory action that restricts or prohibits payday loans, could have a material adverse impact on our business, results of operations and financial condition.



The payday loan industry is subject to various local rules and regulations.In addition to state and federal laws and regulations, our business is subject to various local rules and regulations such as local zoning regulations and permit licensing. We have seen increasing efforts by local jurisdictions to restrict payday lending through the use of local zoning and permitting laws. Those zoning-type actions have continued to accelerate. Any actions taken in the future by local zoning boards or other governing bodies to require special use permits for, or impose other restrictions on, payday lenders could have a material adverse effect on our ability to grow and compete in the payday loan industry.



Our success depends on our ability to compete with our major competitors. Both the financial services and foodservice industries are intensely competitive. Our foodservice competitors include a variety of mid-price, full-service casual-dining restaurants, health and nutrition-oriented restaurants, delicatessens and prepared food stores, as well as supermarkets and convenience stores. In our Contract Manufacturing Business, we face competition from a variety of firms both large and small who offer similar contract manufacturing services.



In the area of financial services we face particularly intense competition. Our competitors have significantly greater resources, access to better locations, management, and systems. The payday lending market is becoming more competitive as this industry matures and begins to consolidate. Virtually all of our competitors have larger and more established customer bases and substantially greater financial, marketing and other resources than we have. As a result, we could lose market share and our revenues could decline, thereby affecting our earnings and potential for growth.



In our Burger Time, Contract Manufacturing Business and STEN Financial business, many of our competitors have substantially greater financial, marketing and other resources than we have, which may give them competitive advantages. Our competitors could also make changes to pricing or other marketing strategies. As our competitors expand operations or product offerings, we expect competition to intensify. Such increased competition could have a material adverse effect on our financial condition and results of operations.





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Consumer preferences and perceptions, seasonality and general economic conditions may have significant effects on our Burger Time business. Foodservice businesses are often affected by changes in consumer tastes, national, regional and local economic conditions and demographic trends. The performance of individual restaurants may be adversely affected by traffic patterns, demographics and the type, number and locations of competing restaurants. Restaurant performance may also be affected by adverse weather conditions, because a significant number of them are located in areas which experience severe winter conditions. Multi-unit foodservice businesses such as ours can also be materially and adversely affected by publicity resulting from poor food quality, illness, injury or other health concerns or operating issues stemming from one or a limited number of restaurants. We can be similarly affected by consumer concerns with respect to the nutritional value of quick-service food. In addition, our dependence on frequent deliveries of food and paper products subjects our restaurants to the risk that shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the availability, quality and cost of ingredients. Unfavorable trends or developments concerning factors such as inflation, increased food, labor and employee benefit costs (including increases in hourly wage and unemployment tax rates), increases in the number and locations of competing quick-service restaurants, regional weather conditions and the availability of experienced management and hourly employees may also adversely affect our financial condition and results of operations. Changes in economic conditions affecting our customers could reduce traffic in  some or all of our restaurants or impose practical limits on pricing, either of which could have a material adverse effect on our financial condition and results of operations. Our continued success will depend in part on our management's ability to anticipate, identify and respond to changing conditions.



Our Contract Manufacturing Business is dependent on a single customer. In fiscal year 2006, we realized sales of approximately $2,156,000 and $465,500 in gross profit from our Contract Manufacturing Business, all of which were derived from sales to STERIS Corporation. Our manufacturing agreement with STERIS continues through December 31, 2006, with extensions subject to agreement between the parties and STERIS may terminate the agreement at any time upon 90 days notice. While we are obligated to manufacture the products exclusively for STERIS, STERIS has the right to manufacture the products itself or arrange for another party to manufacture the products. Any action by STERIS to obtain alternative manufacturing would adversely affect our revenue from this business. Further, there are no minimum purchase obligations under the manufacturing agreement. Any action by STERIS to otherwise limit or discontinue its purchases from us would have a material adverse impact on sales of our products and, consequently, our financial results. Our Contract Manufacturing Business is dependent upon our on-going relationship with STERIS and the ability and desire of STERIS to continue marketing the products to its customers. While we believe our relationship with STERIS is good, there can be no assurance this business will continue.



Changes in applicable laws and regulations governing consumer protection and lending practices, both domestically and abroad, may have a significant negative impact on our business, results of operations and financial condition. Our business is subject to numerous state and certain federal and foreign laws and regulations which are subject to change and which may impose significant costs or limitations on the way we conduct or expand our business. These regulations govern or affect licensing and posting fees, lending practices, such as truth in lending and installment and single-payment lending, interest rates and usury, loan amount and fee limitations, currency reporting, privacy of personal consumer information.



As we develop and introduce new products and services, we may become subject to additional federal and state regulations. In addition, future legislation or regulations may restrict our ability to continue our current methods of operation or expand our operations and may have a negative effect on our business, results of operations and financial condition. Also, states may also seek to impose new licensing requirements or interpret or enforce existing requirements in new ways. Our business is also subject to litigation and regulatory proceedings, which could generate adverse publicity or cause us to incur substantial expenditures or modify the way we conduct our business



Public perception and press coverage of single-payment consumer loans as being predatory or abusive could negatively affect our revenues and results of operations. Consumer advocacy groups and some legislators have recently advocated governmental action to prohibit or severely restrict certain types of short-term consumer lending. Typically the consumer groups, some legislators and press coverage focus on lenders that charge consumers interest rates and fees that are higher than those charged by credit card issuers to more creditworthy consumers. This difference in credit cost may become more significant if a consumer does not repay the loan promptly, but renews the loan for one or more additional short-term periods. These types of short-term single-payment loans are often characterized by consumer groups, some legislators and press coverage as predatory



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or abusive toward consumers. If consumers accept this negative characterization of certain single-payment consumer loans and believe that the loans we provide to our customers fit this characterization, demand for our loans could significantly decrease, which could negatively affect our revenues and results of operations.



If our estimates of loan losses are not adequate to absorb losses, our results of operations and financial condition may be adversely affected.We maintain an allowance for loan losses for anticipated losses for loans we make directly as well as for fee adjustments for losses on loans we originate and service for others. To estimate the appropriate level of loan loss reserves, including the reserve for estimated reductions to loan servicing fees, we consider the amount of outstanding loans owed to us, as well as loans owed to banks and serviced by us, historical loans charged off, current collection patterns and current economic trends. Our current allowance for loan losses is based on our charge-offs, expressed as a percentage of loan amounts originated for the last twelve months applied against the total amount of outstanding loans that we make directly and outstanding loans we originate and service for others. As of October 1, 2006, our allowance for loan losses on company-funded consumer loans was $4,300.



Control by existing management. Our officers and directors, together with family and related entities own approximately 47.15% of the issued and outstanding shares of the common stock of the Company. As a result, such shareholders acting as a group will have the ability to influence or control transactions requiring shareholder approval, including the election or removal of members of the board of directors, mergers and other business combinations, and changes in control of our company.



In addition, conflicts of interest may arise between those significant shareholders that are members of management and non-management minority shareholders. We may not be able to resolve conflicts of interests, or if resolved, the resolution may be less favorable than if it involved unaffiliated parties. There can be no assurance that conflicts of interest will not adversely affect our business and the value of shares of our common stock.



Fluctuations in quarterly operating results may negatively affect stock price.We may experience variability in our net sales and operating profit on a quarterly basis as a result of many factors, including, among other things, the buying habits of our customers, seasonality in our Burger Time business, size and timing of orders by certain customers, shifts in demand for types of products, technological changes and industry announcements of new products. If revenues do not meet expectations in any given quarter, our stock price may be materially adversely affected.



We have a limited public market for our common stock.  As of December 15, 2006, we had 2,018,957 shares of common stock outstanding, of which 951,961 shares are held by persons other than members of our management.  The concentration of shares of our common stock in the hands of our management may limit the availability of shares for sale. Further, the average daily trading volume of our common stock on The NASDAQ Capital Market has historically been low. For example, the average daily trading volume in calendar year 2006 was approximately 3,300 shares. There can be no assurance that an active market will exist for our common stock, or that our common stock could be sold without a significant negative impact on the publicly quoted price per share.



There is no assurance that future capital will be available to us, and additional capital will dilute the holdings of our stockholders. Our shareholders have no preemptive rights. Our shareholders, who are not entitled to participate in any future stock issuance, will experience dilution of their equity investment if we commence a subsequent public or private offering of common stock, convertible debt, or preferred stock; or issue preferred stock or shares of common stock upon exercise of warrants to consultants or other parties providing goods or services to us in lieu of or in addition to cash consideration.



We cannot assure that additional financing will be available or if available, that it will be available on terms favorable to our shareholders. If funds are not available to satisfy our short-term and long-term operating requirements, we may limit or suspend our operations in the entirety or, under certain circumstances, seek protection from our creditors. We believe that future financing undertaken may contain terms that could result in more substantial dilution that we now have, which would adversely affect our business.



ITEM 2. DESCRIPTION OF PROPERTY



In August 2006, the Company, through STEN Financial Corporation, entered into a lease for certain real property located in Tempe, Arizona. The property consists of 1,400 square feet. Base rent is $1,540 plus property



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taxes and shared expenses of $393 per month and rent expense was $2,917 for the year ended October 1, 2006. The term of the lease is for 45 months, expiring on May 31, 2010.



On December 19, 2005, the Company entered into a Commercial Real Property Sales Contract with Robert Nichols Enterprises, Inc. for the purchase by the Company of certain real property located in Jacksonville, Texas for $675,000 in cash. At the time of the agreement, the Company leased the property from Robert Nichols Enterprises. The property consists of 13.7 acres of land and an approximately 30,000 square foot steel manufacturing facility used in our contract manufacturing operations. Using the proceeds from the sale of the Companys former Ham Lake, Minnesota property, the Company completed the purchase of the Jacksonville, Texas facility on January 20, 2006 for total consideration including closing fees of $684,800.



In October 2005, we moved our headquarters to Minnetonka, Minnesota, a suburb of Minneapolis, from our facilities in Ham Lake, Minnesota. Our headquarters in Minnetonka is leased office space of approximately 1,142 square feet located in an office building. The lease requires monthly payments of $2,460 per month and expires on December 31, 2008 with our option to extend the lease for an additional 36 months.



In connection with our Burger Time restaurant business, we own eleven properties, eight of which are subject to mortgage, and we lease three additional restaurant locations.  The following table describes our Burger Time locations:



|Burger Time Locations     
|--------------------------
|                          
|Location                  
|Fargo, North Dakota +     
|Moorhead, Minnesota +     
|Waite Park, Minnesota +   
|Detroit Lakes, Minnesota +
|Bismarck, North Dakota +  
|Grand Forks, Minnesota +  
|Sioux Falls, South Dakota 
|Sioux Falls, South Dakota*
|Minot, North Dakota +     
|Elk River, Minnesota +    
|Sioux City, Iowa          
|Watertown, South Dakota*  
|Fergus Falls, Minnesota   
|NDSU, North Dakota*       

* Leased

+ Subject to mortgage described below



We lease the Sioux Falls, South Dakota property for $1,000 per month and the lease expires December 31, 2010. We entered into a lease dated January 1, 2005 with respect to the Watertown, South Dakota property which requires base rent payments of $2,000 per month. This lease expires December 1, 2008. In June 2005, the Company through Burger Time, entered into a lease as part of a license to operate a fast food hamburger operation at North Dakota State University (NDSU). On June 6, 2006 the Company and North Dakota State University signed an amendment, Amendment Number 1, to the license agreement revising the term of the agreement. The new term states, The license to operate a fast food hamburger operation within the Memorial Union shall be for a term of three (3) years beginning August 1, 2006 through July 31, 2009 subject to annual renewal thereafter upon mutual consent of North Dakota State University and the Licensee.



On May 9, 2005 and May 10, 2005, we completed a mortgage financing relating to eight parcels of real estate used in the operation of the Burger Time restaurants. To facilitate the mortgage financing, BTAC created a wholly-owned subsidiary, BTAC Properties, Inc., a Minnesota corporation (BTAC Properties) and then transferred to BTAC Properties eight parcels of real estate.



BTAC Properties received a total of $2,055,000 in the mortgage financing from its lender, Standard Insurance Company. In consideration of these loans, BTAC Properties issued two promissory notes (each, a Note) to the lender, one in the amount of $995,000 and the other in the amount of $1,060,000. Kenneth W. Brimmer, our Chief Executive Officer and director, and Gary Copperud, a director of STEN, are also joint and several borrowers with BTAC Properties on the Notes. To facilitate the payment by BTAC Properties of the obligations on the Notes, BTAC and BTAC Properties have entered into a lease for each of the eight properties. The rent amounts to be paid by BTAC and BTAC Properties under the leases have been assigned to the Lender for repayment of amounts owed under the Notes. Amounts under the Notes accrue interest at a rate of 6.25% per annum and are payable in 180 equal installments of an aggregate of $17,621 with the entire indebtedness evidenced by the Notes due June 1, 2020. Monthly payments on the Notes began on July 1, 2005. The obligations of the Notes are secured by a mortgage, assignment of rents, security agreement and fixture filing in favor of the lender on each of the eight properties.



The Company regularly reviews general maintenance and when appropriate, does the necessary repairs. We consider all of our properties to be in excellent operational condition.





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ITEM 3. LEGAL PROCEEDINGS



On May 9, 2005, our former Chief Executive Officer, Larry Rasmusson, filed a Complaint in Minnesota District Court, Hennepin County, against STEN and Aspen Surgical Products, Inc claiming that the November 8, 2004 Asset Purchase Agreement between STEN and Aspen Surgical violated an April 1,1990 licensing and royalty agreement between STEN and Rasmusson.



In an Order dated June 26, 2006, the Court granted STENs and Aspens motion for summary judgment and dismissed all of Rasmussons claims. Mr. Rasmusson appealed the order to the Minnesota Court of Appeals by a notice of appeal served on October 30, 2006 and the appeal is currently pending. The Company believes that this appeal has no merit and intends to vigorously contest the appeal. However, the Company cannot assure that it will prevail in this action and any adverse outcome could require the Company, among other things, to pay damages to Mr. Rasmusson. The Company does not believe it is currently possible to calculate the potential for, or the extent of, any liabilities resulting from this claim, if any.





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.





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PART II



ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES



Our common stock is traded on The NASDAQ Capital Market under the symbol STEN. The following table sets forth the quarterly high and low closing bid prices for our common stock for each quarter of the past two fiscal years as reported by The NASDAQ Capital Market. The prices may not reflect actual transactions.





|               |  | Closing Bid Price
|-------------- |  | -----------------
|Period         |  | High             
|Fiscal 2005    |  |                  
|First Quarter  |  | $6.62            
|Second Quarter |  | 6.25             
|Third Quarter  |  | 5.55             
|Fourth Quarter |  | 4.98             
|Fiscal 2006    |  |                  
|First Quarter  |  | $5.50            
|Second Quarter |  | 5.14             
|Third Quarter  |  | 4.60             
|Fourth Quarter |  | 4.12             



As of December 15, 2006, there were approximately 400 holders of record of our common stock.



Common Stock Purchase Warrants



In connection with a registered offering that was completed in October 2000, we issued warrants to purchase common stock. At October 1, 2006, there were outstanding common stock purchase warrants to purchase 369,973 shares at $4.00 per share. On May 11, 2005, our Board of Directors extended the expiration date of the outstanding common stock purchase warrants to September 30, 2008 at 5:00 p.m. Minneapolis time.



Dividend Policy



We have paid no cash dividends on our common stock and do not intend to pay any dividends in the future.



Information Regarding Equity Compensation Plans



The following table sets forth information regarding our equity compensation plans in effect as of October 1, 2006. Each of our equity compensation plans is an employee benefit plan as defined by Rule 405 of Regulation C of the Securities Act of 1933.



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Securities Authorized for Issuance Under Equity Compensation Plans

|Plan category                                           |  | Number of shares of common stock to be issued upon exercise of outstanding options, warrants and rights |  | Weighted-average exercise price of outstanding options, warrants
and rights |  | Number of shares of common stock remaining available for future issuance under equity compensation plans
|------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by stockholders:     |  | 305,000                                                                                                 |  | $6.060                                                                      |  | 295,000                                                                                                 
|                                                        |  |                                                                                                         |  |                                                                             |  |                                                                                                         
|Equity compensation plans not approved by stockholders: |  | 369,793                                                                                                 |  | $3.960                                                                      |  | -                                                                                                       
|                                                        |  |                                                                                                         |  |                                                                             |  |                                                                                                         
|Total                                                   |  | 674,793                                                                                                 |  | $4.910                                                                      |  | 295,000                                                                                                 





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Repurchases of Common Stock



The following table provides certain information regarding purchases made by us of our equity securities in the fourth quarter of fiscal year 2006:



Issuer Purchases of Equity Securities



|Period                        | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plan or Program | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
|----------------------------- | -------------------------------- | ---------------------------- | ------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------
|July 1  July 30, 2006        | 5,934                            | $   4.19                     | 5,934                                                                          | 46,711                                                                            
|August 1  August 30, 2006    | 11,167                           | 4.03                         | 11,167                                                                         | 35,544                                                                            
|September 1  October 1, 2006 | 20,472                           | 4.03                         | 20,472                                                                         | 15,072                                                                            
|Total                         | 37,573                           | $   4.05                     | 37,573                                                                         | 15,072                                                                            

(1)

On September 17, 2001, we announced that our board of directors had approved a stock repurchase program authorizing us to repurchase up to 175,000 shares of our common stock from time to time in open market transactions or in privately negotiated transactions and on November 8, 2004, our Board of Directors authorized a repurchase program covering a total of 175,000 shares, replacing our earlier repurchase plan.



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION



Managements Discussion and Analysis or Plan of Operation discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.



We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we used in applying the critical accounting policies. Within the context of these critical accounting policies, we are not currently aware of any reasonably likely event that would result in materially different amounts being reported.



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 and Shipping and Handling Costs  We recognize revenue in accordance with Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition.  SAB 104 required revenue to be recognized when all of the following are met: a) persuasive evidence of an arrangement exists; b) delivery has occurred or services have been rendered; c) the sellers price to the buyer is fixed or determinable; and d) collectibility is reasonable assured.



We record sales revenue for the Contract Manufacturing Business segment at the time all merchandise is shipped, contractual obligations have been substantially met and title and risk of loss have passed to the customer. Revenues from the Burger Time business segment is recognized at the time the food is served.  Revenues from the STEN Financial business segment is recognized at the time the loan and interest is paid by the customer.



We record amounts being charged to customers for shipping and handling as sales in accordance with Emerging Issues Task Force (EITF) Issue 00-10, Accounting for Shipping and Handling Fees and Costs. Shipping and handling costs incurred by us related to the Contract Manufacturing Business are included in cost of goods sold.





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(b) Allowance for Uncollectible Accounts Receivable -Accounts receivable is 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 (first-in, first-out method) 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. We believe no impairment charges need to be recorded as of October 1, 2006.



(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 us revising our assumptions and, if required, recognizing an impairment loss.



Recent Accounting Pronouncements

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. The SEC recently amended its compliance to be effective at the beginning of the next fiscal year 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 first quarter of our fiscal 2007 and we estimate the cost of stock options will be approximately $58,000 for the year ending September 30, 2007.



The FASB has published FASB Interpretation (FIN) No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxes, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in FASB SFAS No. 109, Accounting for Income Taxes, on the uncertainty in income taxes recognized in an enterprises financial statements. Specifically, FIN No. 48 prescribes (a) a consistent recognition threshold and (b) a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides related guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 will apply to fiscal years beginning after October 1, 2007, with earlier adoption permitted.



FASB has issued SFAS No. 157, Fair Value Measurements, to eliminate the diversity in practice that exists due to the different definitions of fair value and the limited guidance for applying those definitions in GAAP that are dispersed among the many accounting pronouncements that require fair value, but clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or liability in the principal or most advantageous market for the asset of liability. Moreover, the SFAS states that the transaction is hypothetical at the measurement date, considered from the perspective of the market participant who holds the asset or liability. Consequently, fair value is defined as the price that would be received to sell an asset or paid to



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transfer a liability in an orderly transaction between market participants at the measurement date (an exit price), as opposed to the price that would be paid to acquire the asset or received to assume the liability at the measurement date (an entry price).



SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).  Finally, SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. Entities are encouraged to combine the fair value information disclosed under SFAS No. 157 with the fair value information disclosed under other accounting pronouncements, including SFAS No. 107, Disclosures about Fair Value of Financial Instruments, where practicable. The guidance in the Statement applies for derivatives and other financial instruments measured at fair value under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, at initial recognition and in all subsequent periods.



SFAS No. 157 is effective for financial statements issued for fiscal years beginning after September 29, 2008, and interim periods within those fiscal years, although earlier application is encouraged.  Additionally, prospective application of the provisions of SFAS No. 157 is required as of the beginning of the fiscal year in which it is initially applied, except when certain circumstances require retrospective application. The Company is currently evaluating the effect of adopting SFAS No. 157 on their consolidated financial statements.



FASB has issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, to require an employer to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare, and other postretirement plans in their financial statements.  Previous standards required an employer to disclose the complete funded status of its plan only in the notes to the financial statements.  Moreover, because those standards allowed an employer to delay recognition of certain changes in plan asset or liability that almost always differed from the plans funded status.  Under SFAS No. 158, a defined benefit postretirement plan sponsor that is a public or private company or a nongovernmental not-for-profit organization must (a) recognize in its statement of financial position an asset for a plans overfunded status or a liability for the plans underfunded status, (b) measure the plans assets and its obligations that determine its funded status as of the end of the employers fiscal year (with limited exceptions), and (c) recognize, as a component of other comprehensive income, the changes in the funded status of the plan that arise during the year but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, Employers Account for Pensions, or SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions.  SFAS No. 158 also requires an employer to disclose in the notes to financial statements additional information on how delayed recognition of certain changes in the funded status of a defined benefit postretirement plan affects net periodic benefit cost for the next fiscal year.  The Company does not anticipate the adoption of SFAS No. 158 will have a material impact on their consolidated financial statements.



Results of Operations



For the year ended October 1, 2006 and September 30, 2005

Net sales from continuing operations for the year ended October 1, 2006 were $8,878,563 an increase of 6.22% compared to the year ended September 30, 2005 net sales of $8,358,447. Revenues attributable to Burger Time were $6,692,181, or 75.37% of our net sales for the year ended October 1, 2006, as compared to sales of $6,212,443 for the corresponding period in 2005. Net sales in the Contract Manufacturing Business segment increased slightly to $2,156,069 or 24.28% of our net sales for the year ended October 1, 2006, as compared to $2,146,004 for the same period in fiscal year 2005. Revenues attributable to our newly created wholly-owned subsidiary STEN Financial were $30,313 of our net sales for the year ended October 1, 2006. The increase in revenues, $520,116 for fiscal 2006 as compared to fiscal 2005 can mostly be attributed to our Burger Time business where we had increases in same store sales of $184,160, and increases from our Watertown, Fergus Falls and NDSU locations of $295,498 which were either partially open or not at all in fiscal 2005. Net Sales for our Contract Manufacturing and Burger Time business are expected to grow slightly in Fiscal 2007. The Company expects most of its future in the STEN Financial business (See Note 14  Subsequent Events).



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Gross profit for the year ended October 1, 2006 was $938,951 compared to $548,453 for the corresponding period in fiscal year 2005. Gross profit as a percent of net sales for fiscal year 2006 and 2005 was 10.58% and 6.56%, respectively. The increase in gross profit dollars and increase in gross profit as a percent of net sales for the year ended October 1, 2006 as compared to the year ended September 30, 2005 is the result of lower food costs in our Burger Time business and better efficiencies in our Contract Manufacturing business. For the year ended October 1, 2006, Burger Time contributed $478,609 in gross profits or 5.39% gross profit as a percent of net sales. The increase in our Burger Time gross profit can be attributed to lower food costs and continued efforts to streamline our server labor costs in our restaurants.  Our Contract Manufacturing Businesss gross profit as a percent of net sales for the year ended October 1, 2006 was 5.24% or gross profit of $465,462. The increase of $149,783 in our Contract Manufacturing gross profit as compared to fiscal 2005 comes from sales mix and efforts to control costs. Our STEN Financial business contributed a loss of $5,120 to gross profits attributed mainly to start-up expenses.



Selling, General and Administrative (SG&A) expenses increased to $1,302,454 from $827,762 for the year ended October 1, 2006 and September 30, 2005, respectively. This increase of $474,692 comes from additional labor costs of approximately $121,000, costs associated with new business development of approximately $60,000, rent of the corporate leased facility of $25,000, additional attorney and accounting fees of approximately $110,000, and other costs associated with being  public of approximately $158,000.



The loss on impairment of intangible asset of $172,329, for the year ended September 30, 2005 relates to the net book value of the HotN Now Franchise Agreement that the Company determined to be impaired. The impairments were based on changes in circumstances and the delay in negotiating new agreements with individual franchisees.



Interest expense for the year ended October 1, 2006 was $131,033 compared to $51,118 for the year ended September 30, 2005. The increase in interest expense of $79,915 is related to $124,675 of interest expense associated with permanent financing obtained through a mortgage on four Minnesota and four North Dakota Burger Time properties in May 2005, paid in fiscal 2006. For the year ended October 1, 2006, we paid $6,358 in interest relating to the original financing of the Burger Time real estate. The Company recognized interest income of $207,414 for the year ended October 1, 2006 as compared to $55,260 for the year ended September 30, 2005. The increase in interest income is related to a note receivable relating to our sale of the Medical Products Group to Aspen, interest income from a note receivable from our sale of the Emergency Oxygen Business to Life Safe, LLC (see Note 1) and interest earned on the Companys short-term investments.  The Company recognized $7,520 in interest income on the Aspen note and $52,180 in interest income on the Life Safe note for the year ended October 1, 2006. The balance of the interest income $147,714 relates to short-term investments for the year ended October 1, 2006.



A loss per share for the year ended October 1, 2006 were $0.30 basic and $0.30 diluted as compared to net income of  $0.19 basic and $0.18 diluted in the same period of 2005. Loss from continuing operations per share for the year ended October 1, 2006 were $0.10 basic and $0.10 diluted as compared to a loss of $0.16 basic and $0.16 diluted in the same period of 2005. A loss from discontinued operations per share for the year ended October 1, 2006 were $0.20 basic and $0.20 diluted as compared to income of $0.35 basic and $0.34 diluted in the same period of 2005. The Company recorded a loss for the year ended October 1, 2006 of $608,238 as compared to income of $326,882 for the year ended September 30, 2005.



The loss from discontinued operations for the year ended October 1, 2006 was $589,652 before income taxes. This represented a gain on the sale of our Ham Lake property of $493,019 and a loss on the Site Equities loan of $1,082,671 that occurred in Fiscal 2006. The income from discontinued operations for the year ended September 30, 2005 was $969,108 before income taxes and was reflected by the gain on the sale of our Medical Products Group of $1,254,808 and the loss on the sale of our Emergency Oxygen Business group of $285,700.



Liquidity and Capital Resources



Historically, we have financed our operations through internal working capital and a bank line of credit and notes. On January 11, 2006, we closed on the purchase agreement with Old Holdings LLC and sold the Ham Lake property to Holdings for $1,600,000 in cash. On November 15, 2005, we entered into a subscription agreement with two private investors for the sale of 222,222 shares of our common stock to each investor for cash consideration of $4.50 per share. The closing dates for the subscription agreements were November 25, 2005 and



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November 28, 2005. At the closing, each investor delivered the purchase price of $999,999 for the 222,222 shares issued. In May 2005, we completed mortgage financing of eight parcels of real estate used in our Burger Time business for total proceeds from the loans of $2,055,000.  We believe that we have adequate capital from these transactions, our internally generated working capital and bank line of credit and term loan to meet our cash requirements for the next twelve months.  As of October 1, 2006, we had working capital of $3,868,180 as compared to $3,799,558 at September 30, 2005, and long term debt of $1,855,001 at October 1, 2006 compared to $2,679,732 at September 30, 2005. As of October 1, 2006, we had $3,171,594 in cash and cash equivalents as compared to $2,648,044 at September 30, 2005. In December 2004, we repaid our line of credit borrowings in the amount of $1,440,921, repaid the term loan with Citizens Independent Bank of Hopkins, Minnesota (Citizens Bank) in the amount of $1,247,439 and fully paid the contracts for deed on our Burger Time properties held by the former owner in the amount of $2,000,000. The increase in working capital at October 1, 2006 compared to September 30, 2005 was the combined result of cash proceeds from sale of assets and the sale of our common stock to two private investors.



During January 2005, we entered into a $750,000 line of credit agreement with Citizens Independent Bank.  The line of credit is subject to a defined borrowing base. Amounts outstanding bear interest at prime plus .5% (8.75% and 6.75% at October 1, 2006 and September 30, 2005, respectively). The line of credit is collateralized by our receivables and inventory. At October 1, 2006 and September 30, 2005, there were no borrowings outstanding under this agreement and we had the entire amount available under the borrowing base formula. On April 20, 2006, the Company and Citizens Independent Bank, through an amendment to the original agreement, extended the agreement through January 2, 2007. All other terms and conditions of the original agreement remain in full force and shall continue to be binding to the Company.



The restaurant industry, in general, operates with a working capital deficit because most investments are in long-term restaurant operating assets. The operation of our Burger Time business does not normally require large amounts of working capital to maintain operations since sales are for cash, purchases are on open accounts and meat and produce inventories are limited to a three-to-five day supply to assure freshness. Burger Time does not have significant levels of accounts receivable or inventory, and it receives credit from our trade suppliers.  Funds available from cash sales are not needed immediately to pay our trade suppliers and as we continue to grow our Burger Time business the cash from sales may be used for non-current capital expenditures.



In November 2004, concurrent with the sale of our Medical Products Group, we repaid in full all amounts then outstanding with our bank, Citizens Bank of $2,688,360 and all amounts under contacts for deed related to the Burger Time acquisition of $2,000,000. The debt to Citizens Bank was a $1,500,000 term note due November 1, 2008, with an interest rate of prime plus 0.5% resulting in an initial rate of 4.500%. The term note required monthly principal and interest payments of approximately $28,000. The term loan with Citizens Bank was collateralized by substantially all of the assets of the Company and the Companys indebtedness to Citizens Bank was guaranteed by Messrs. Kenneth W. Brimmer, our Chief Executive Officer and director, and Gary Copperud, also an officer and a director. The contracts for deed were $2,000,000 in aggregate original principal amount relating to ten parcels of real estate. The contacts for deed had an interest rate of 6% and required monthly interest only payments of approximately $10,000 with the balance of interest and principal due June 30, 2019.



At October 1 2006, our debt consists of two mortgage notes to Standard Insurance Company relating to eight of our Burger Time properties in the aggregate amount of $1,947,362.



During the year ended October 1, 2006, the Company had cash uses from operating activities for continuing operations of $806,665 compared to September 30, 2005 where the Company had $1,277,491 in net cash proceeds from operating activities for continuing operations. The decrease from the prior year is primarily due to decreased profitability from continuing operations, an increase in depreciation and amortization, an increase in accounts receivable, and the decrease in accounts payable and accrued income taxes. The Company had $221,114 in net cash flows from operating activities for discontinued operations in the year ended October 1, 2006 and $2,157,138 in net cash uses from operating activities for discontinued operations for the year ended September 30, 2005. The increase from the prior year is primarily due to the impairment charge related to Site Equities which was offset by the gain on sale of assets held for sale. The Company created cash uses of $78,319 in investing activities for continuing operations and cash flows of $537,329 in investing activities for discontinued operations for the year ended October 1, 2006. The cash uses from investing activities for continuing operations were primarily purchases of property and equipment of $1,078,401 and the purchase of Alliance Cash Advance of $275,000 offset by payments made on the Companys note receivable of $353,708 and decrease in investments in certificates of



Page 17



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deposit of $912,609. The Companys purchase of property and equipment of $1,078,401, was primarily for its Jacksonville Texas facility of $684,800 and its Burger Time business, for the year ended October 1, 2006. The Company had cash flows of $650,091 in cash from financing activities for continuing operations, which included the subscription agreements with two private investors for the sale of 222,222 shares of our common stock totaling $1,999,998, paid down debt by $853,407, and repurchased common shares for $502,858 for the year ended October 1, 2006.



On October 2, 2006, STEN Financial entered into an agreement with Dimah Financial, Inc. to purchase certain assets and business known as moneyworldlending.com, an internet website. The total purchase price was $200,000 and included accounts receivable, websites, trade names, domain names and fixed assets. Of the total purchase consideration, STEN Financial paid $200,000 in cash from working capital.



On October 3, 2006, STEN Financial entered into an agreement to acquire certain Utah-based assets from National Financial Services, LLC. STEN Financial agreed to purchase certain assets and business known as Cash Advance. The total purchase price was $600,000 and included certain assets of Cash Advance including cash, accounts receivables, inventory and fixed assets. Of the total purchase consideration, STEN Financial paid $400,000 in cash from working capital and entered into a promissory note for $200,000, which was paid in full in November 2006. The promissory note bore interest at 8% per annum from October 2, 2006 payable in two installments of $100,000 with the first payment on April 2, 2007 and the second payment on October 2, 2007 together with principal and interest.



On November 7, 2006, we expanded our STEN Financial Corporation activities to include installment note and used car dealer inventory or floor plan financing. As part of this new business endeavor we entered into an agreement with Flash Motors transferring certain Dealer Floorplan Notes in the principal amount of $225,559 together with all rights to certain installment notes in the amount of $284,922, including dealer reserves of $92,933 and $54,561 (for a net amount transferred to Flash Motors for the customer installment notes of $137,428), for a combined purchase amount of $362,987. We expect to initially operate this business in Arizona under the Colfax Financial Corporation name.



On November 14, 2006, Colfax Financial Corporation, a newly formed wholly owned subsidiary of STEN Financial, entered into a consulting and non-compete agreement with Flash Motors, Inc. Under the agreement, Colfax Financial paid Flash Motors a consulting fee of $1.4 million. The fee was paid in the form of two promissory notes, one in the principal amount of $400,000 bearing interest at 20 percent per annum, due on demand with 30 days notice and the second promissory note in the amount of $1 million is due on demand with 30 days notice after 24 months and bearing interest a 10 percent per annum. Under both promissory notes, interest is payable monthly in arrears.



On November 14, 2006, Colfax Financial also entered into an Asset Purchase Agreement to acquire certain assets used in Flash Motors business for $100,000 paid in cash. Under the Asset Purchase Agreement, Colfax Financial also will assume the lease for Flash Motorss Scottsdale, Arizona office.



Other than as stated above, we have no planned capital expenditures as of October 1, 2006.



The following summarizes our contractual obligations at October 1, 2006. The notes payable consists of two mortgage notes to Standard Insurance Company in the amounts of $942,881 and $1,004,481 relating to the four North Dakota Burger Time properties and four Minnesota Burger Time properties, respectively. The operating leases include the lease of our Minnetonka, Minnesota offices and our Tempe Arizona offices, as well as leases of our Burger Time locations. The table shows the effect these contractual obligations are expected to have on our liquidity and cash flows as of October 1, 2006.



|                 | Total      |  | 1 Year or Less |  | 1-3 years |  | 3-5 Years |  | Over 5 Years   
|---------------- | ---------- |  | -------------- |  | --------- |  | --------- |  | ---------------
|                 |            |  |                |  |           |  |           |  |                
|Operating Leases | $470,135   |  | $157,783       |  | $260,676  |  | $51,676   |  | $             -
|Line of Credit   | -          |  | -              |  | -         |  | -         |  | -              
|Notes Payable    | 1,947,362  |  | 92,361         |  | 202,919   |  | 229,864   |  | 1,422,218      
|Total            | $2,417,497 |  | $250,144       |  | $463,595  |  | $281,540  |  | $1,422,218     



Page 18



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ITEM 7.  CONSOLIDATED FINANCIAL STATEMENTS



|Report of Independent Registered Public Accounting Firm    | F-2        
|---------------------------------------------------------- | -----------
|For the years ended October 1, 2006 and September 30, 2005 |            
|                                                           |            
|Consolidated Balance Sheets                                | F-2        
|Consolidated Statements of Operations                      | F-3        
|Consolidated Statements of Cash Flows                      | F-4        
|Consolidated Statements of Stockholders Equity            | F-5        
|Notes to Consolidated Financial Statements                 | F-6 to F-25





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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 8A. CONTROLS AND PROCEDURES



(a)

Evaluation of Disclosure Controls and Procedures

The Companys Chief Executive Officer, Kenneth W. Brimmer, and Chief Financial Officer, Mark F. Buckrey, have evaluated the Companys disclosure controls and procedures as of the end of the period covered by this report.  Based upon that evaluation, they have concluded that as of that date, the Companys disclosure controls and procedures are effective.



(b)

Changes in Internal Control Over Financial Reporting



There have been no changes in internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



ITEM 8B. OTHER INFORMATION



None.











Page 20



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PART III



ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT



ITEM 10. EXECUTIVE COMPENSATION



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information called for by Items 9-12 of Part III of this Form 10-KSB will be filed as an amendment to this Form 10-KSB not later than the end of the 120 day period following the end of the fiscal year covered by this report.





ITEM 13. EXHIBITS



Exhibit

Number

Description



3.1

Composite Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-QSB for the quarter ended March 31, 2000).



3.2

Amended and Restated Bylaws effective February 23, 1995 (incorporated by reference to Exhibit 3.1(b) to the Companys Annual Report on Form 10-KSB for the year ended September 30, 1998 (the 1998 Form 10-KSB)).



4.1

Warrant Agreement between the Company and Wells Fargo Bank Minnesota, N.A. dated August 23, 2000 (incorporated by reference to Exhibit 4(d) to the Companys Registration Statement on Form S-3 (File No. 333-43616) (the 2000 Form S-3)) as amended as reported by the Companys Current Report on Form 8-K dated August 12, 2003 and Current Report on Form 8-K dated May 13, 2005.



4.2

Form of Warrant Certificate (incorporated by reference to Exhibit 4(e) to the 2000 Form S-3) as amended as reported by the Companys Current Report on Form 8-K dated August 12, 2003).



10.1*

Non-qualified Stock Option Agreement between Gary Copperud and the Company effective as of April 20, 1999  (incorporated by reference to Exhibit 10.22 to the Companys Annual Report on Form 10-KSB for the year ended September 30, 1999).



10.2*

Non-qualified Stock Option Agreement between Kenneth W. Brimmer and the Company effective as of April 20, 1999 (incorporated by reference to Exhibit 10.23 to the Companys Annual Report on Form 10-KSB for the year ended September 30, 1999).



10.3

Mortgage Note dated December 15, 2000 issued in the amount of $975,000 by StanCorp. (Incorporated by reference to Exhibit 10.23 of the Companys Annual Report on Form 10-KSB for September 30, 2002)



10.4

Lease dated December 21, 2000, as amended by letter agreement dated March 6, 2001 by and between ZEP Properties, as Landlord, and Complient Corporation, as Tenant, as assigned to LifeSafe Services, Inc. on November 26, 2003 (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated November 26, 2003).



10.5

Assignment of Real Estate Lease effective July 1, 2004 between Burger Time Acquisition Corporation and Burger Time Corporation with Landlord Consent and Estoppel by Dallas



Page 21



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Vandenboos and Janice Vandenboos (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K dated July 1, 2004).



10.6

Closing Promissory Note dated November 8, 2004 issued by Aspen Surgical Products, Inc. to Sterion Incorporated in the original principal amount of $500,000 (incorporated by reference to Exhibit 10.2 of the Companys Current Report dated November 8, 2004).



10.7

Transitional Services Agreement dated November 8, 2004 between Sterion Incorporated and Aspen Surgical Products, Inc. (incorporated by reference to Exhibit 10.3 of the Companys Current Report dated November 8, 2004).



10.8

Subordinated Promissory Note dated June 30, 2005 in the principal amount of $700,000 made by Life Safe Services, LLC to STEN Corporation (incorporated by reference to Exhibit 0.2 of the Companys Current Report on Form 8-K dated June 30, 2005).



10.9

Guaranty dated June 30, 2005 by Patrick Hoene and Christine Hoene in favor of STEN Corporation. (incorporated by reference to Exhibit 0.3 of the Companys Current Report on Form 8-K dated June 30, 2005).



10.10

Mortgage, Assignment of Rents, Security Agreement Fixture Filing dated as of April 15, 2005 between BTAC Properties, Inc. and Standard Insurance Company (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005 (the June 2005 10-Q)).



10.11

Note in the principal amount of $1,060,000 dated April 15, 2005 payable to Standard Insurance Company and made by BTAC Properties, Inc., Gary Copperud and Kenneth W. Brimmer (incorporated by reference to Exhibit 10.2 to the June 2005 10-Q).



10.12

Assignment of Lessors Interest in Leases dated as of April 15, 2005 between BTAC Properties, Inc. and Standard Insurance Company (incorporated by reference to Exhibit 10.3 to the June 2005 10-Q).



10.13

Mortgage, Assignment of Rents, Security Agreement Fixture Filing dated April 25, 2005 between BTAC Properties, Inc. and Standard Insurance Company (incorporated by reference to Exhibit 10.4 to the June 2005 10-Q).



10.14

Note dated April 25, 2005 in the principal amount of $995,000 payable to Standard Insurance Company and made by BTAC Properties Inc., Gary Copperud and Kenneth W. Brimmer (incorporated by reference to Exhibit 10.5 to the June 2005 10-Q).



10.15

Assignment of Lessors Interest in Leases dated as of April 25, 2005 between BTAC Properties, Inc. and Standard Insurance Company (incorporated by reference to Exhibit 10.6 to the June 2005 10-Q).



10.16

Loan and Merger Agreement dated November 22, 2005 by and between STEN Acquisition Corporation, Site Equities International, Inc. and Paycenters, LLC (incorporated by reference to Exhibit 10.1 to the Companys Form 8-K dated November 22, 2005 (the Paycenters 8-K).



10.17

Amendment to Loan and Merger Option Agreement dated as of March 9, 2006 by and among STEN Acquisition Corporation, Site Equities International, Inc. and Paycenters, LLC (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated March 9, 2006).



10.18

Promissory Note dated November 22, 2005 by Site Equities International, Inc. as maker and STEN Acquisition Corporation as payee (incorporated by reference to Exhibit 10.2 to the Paycenters 8-K).



10.19

Guaranty dated November 22, 2005 by and between STEN Acquisition Corporation and Paycenters, LLC (incorporated by reference to Exhibit 10.3 to the Paycenters 8-K).



Page 22



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10.20

Security Agreement dated November 22, 2005 by and between STEN Acquisition Corporation and Paycenters, LLC (incorporated by reference to Exhibit 10.4 to the Paycenters 8-K).



10.21

Pledge Agreement dated November 22, 2005 by Site Equities International, Inc. in favor of STEN Acquisition Corporation (incorporated by reference to the Paycenters 8-K).



10.22

Debt Subordination Agreement dated November 22, 2005 by and between STEN Acquisition Corporation and Arthur Petrie (incorporated by reference to Exhibit 10.6 to the Paycenters 8-K).



10.23

Form of Voting Agreement dated November 22, 2005 by each of Kenneth Antos, Mark Hill, and Arthur Petrie and STEN Acquisition Corporation (incorporated by reference to Exhibit 10.7 to the Paycenters 8-K).



10.24

Form of Letter of Understanding dated November 22, 2005 between STEN Acquisition Corporation and each of Kenneth Antos and Mark Hill (incorporated by reference to Exhibit 10.8 to the Paycenters 8-K).



10.25

Lease and Option to Purchase dated October 22, 2004 between Burger Time Acquisition Corporation and Mark Fiechtner (relating to Watertown, South Dakota Burger Time location) (incorporated by reference to Exhibit 10.36 to the Companys Form 10-KSB for the year ended September 30, 2005 (the 2005 10-KSB).



10.26

Purchase Agreement dated August 10, 2005 by and between STEN Corporation and OLD Holdings, LLC (incorporated by reference to Exhibit 10.37 to the 2005 10-KSB).



10.37

Lease Agreement dated October 15, 2005 by and between STEN Corporation and OLD Holdings, LLC (incorporated by reference to Exhibit 10.38 to the 2005 10-KSB).



10.38

Lease dated September 13, 2005 by and between Ambar, L.L.C. and STEN Corporation (incorporated by reference to Exhibit 10.39 to the 2005 10-KSB).



10.39

Amendment No. 1 to Purchase Agreement dated December 12, 2005 by and between STEN Corporation and OLD Holdings, LLC (incorporated by reference to Exhibit 10.40 to the 2005 10-KSB).



10.40

Consultant and Non-Compete Agreement dated as of November 14, 2006 by and between Colfax Financial Corporation and Flash Motors, Inc.



10.41

Asset Purchase Agreement dated as of November 14, 2006 by and between Colfax Financial Corporation and Flash Motors, Inc.



10.42

Promissory Note dated November 14, 2006 from Colfax Financial Corporation as the maker and Flash Motors, Inc. as payee in the principal amount of $1,000,000.



10.43

Promissory Note dated November 14, 2006 from Colfax Financial Corporation as the maker and Flash Motors, Inc. as payee in the principal amount of $400,000.



10.44

Assignment and Transfer  Bill of Sale (JJ Ltd. William Hamen) from Flash Motors (d/b/a Colfax Financial) as assignor and Colfax Financial Corporation as assignee dated effective November 7, 2006.



11

Computation of Earnings Per Share  See footnote 1, page F-9



14

Code of Ethics of STEN Corporation (f/k/a Sterion Incorporated) (incorporated by reference to Exhibit 14 to the Companys Form 10-KSB for the year ended September 30, 2003).



21

List of Subsidiaries



Page 23



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23.1

Consent of Virchow, Krause & Company, LLP



31.1

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



31.2

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



99.1

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



* Management contact, compensatory plan or arrangement required to be filed as an exhibit to this Form 10-KSB.



ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information called for by Item 14 of Part III of this Form 10-KSB will be filed as an amendment to this Form 10-KSB not later than the end of the 120 day period following the end of the fiscal year covered by this report.







Page 24



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SIGNATURES



In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto authorized on December 21, 2006.











| | STEN CORPORATION            
| | ----------------------------
| |                             
| | By:   /s/ Kenneth W. Brimmer
| | Kenneth W. Brimmer          
| | Chief Executive Officer     







POWER OF ATTORNEY



Each person whose signature appears below constitutes and appoints Kenneth W. Brimmer as his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for the undersigned and in the undersigneds name, place and stead in any and all capacities to sign any of all amendments to this Annual Report on Form 10-KSB and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.



In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 21, 2006.





|/s/    Kenneth W. Brimmer  |  | Director, Chief Executive Officer
|-------------------------- |  | ---------------------------------
|Kenneth W. Brimmer         |  | (Principal Executive Officer)    
|                           |  |                                  
|                           |  |                                  
|/s/   Mark F. Buckrey      |  | Chief Financial Officer          
|Mark F Buckrey             |  | (Principal Financial Officer)    
|                           |  |                                  
|                           |  |                                  
|/s/   Gary Copperud        |  | Director                         
|Gary Copperud              |  |                                  
|                           |  |                                  
|                           |  |                                  
|/s/   Gervaise Wilhelm     |  | Director                         
|Gervaise Wilhelm           |  |                                  
|                           |  |                                  
|                           |  |                                  
|/s/   Allan D. Anderson    |  | Director                         
|Allan D. Anderson          |  |                                  
|                           |  |                                  
|                           |  |                                  
|/s/   Jeffrey A. Zinnecker |  | Director                         
|Jeffrey A. Zinnecker       |  |                                  



Page 25



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TABLE OF CONTENTS



|                                                        |            
|------------------------------------------------------- | -----------
|                                                        | Page
Number
|Report of Independent Registered Public Accounting Firm | F-1        
|Consolidated Financial Statements                       |            
|Balance Sheets                                          | F-2        
|Statements of Operations                                | F-3        
|Statements of Stockholders Equity                      | F-4        
|Statements of Cash Flows                                | F-5        
|Notes to Consolidated Financial Statements              | F-6 to F-25









Page 26



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM









To the Shareholders, Audit Committee and Board of Directors

STEN Corporation and Subsidiaries

Minnetonka, Minnesota



We have audited the accompanying consolidated balance sheets of STEN Corporation and Subsidiaries as of October 1, 2006 and September 30, 2005 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated statements are the responsibility of the company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of STEN Corporation and Subsidiaries as of October 1, 2006 and September 30, 2005 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.





/s/ Virchow, Krause & Company, LLP







Minneapolis, Minnesota

November 29, 2006



Page F-1





---





STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Years ended October 1, 2006 and September 30, 2005



ASSETS

|                                              |   | 10/01/06   |   | 09/30/05  
|--------------------------------------------- | - | ---------- | - | ----------
|CURRENT ASSETS                                |   |            |   |           
|Cash and cash equivalents                     | $ | 3,171,594  | $ | 2,648,044 
|Certificates of deposit                       |   | 0          |   | 912,609   
|Accounts receivable, net                      |   | 405,559    |   | 377,327   
|Inventories                                   |   | 604,484    |   | 563,579   
|Income Taxes Receivable                       |   | 189,500    |   | 0         
|Deferred income taxes                         |   | 24,000     |   | 46,000    
|Current portion of notes receivable           |   | 108,000    |   | 370,708   
|Other current assets                          |   | 109,674    |   | 94,624    
|Total Current Assets                          |   | 4,612,811  |   | 5,012,891 
|PROPERTY AND EQUIPMENT, NET                   |   | 4,378,540  |   | 3,730,190 
|OTHER ASSETS                                  |   |            |   |           
|Intangible assets, net                        |   | 254,981    |   | 90,041    
|Notes receivable, net of current portion      |   | 574,000    |   | 665,000   
|Prepaid mortgage costs                        |   | 87,320     |   | 93,678    
|Assets of discontinued business held for sale |   | 0          |   | 728,680   
|Deferred income taxes                         |   | 73,000     |   | 53,000    
|Net cash surrender value of life insurance    |   | 35,046     |   | 46,749    
|Total Other Assets                            |   | 1,024,347  |   | 1,677,148 
|TOTAL ASSETS                                  | $ | 10,015,698 | $ | 10,420,229



LIABILITIES AND STOCKHOLDERS EQUITY

|CURRENT LIABILITIES                                                                                                                                                                                              |   |            |   |           
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | ----------
|Current portion of long-term debt                                                                                                                                                                                | $ | 92,361     | $ | 121,037   
|Accounts payable                                                                                                                                                                                                 |   | 245,009    |   | 440,493   
|Accrued payroll and related taxes                                                                                                                                                                                |   | 222,761    |   | 228,136   
|Other accrued expenses                                                                                                                                                                                           |   | 97,319     |   | 88,438    
|Deferred revenue                                                                                                                                                                                                 |   | 10,628     |   | 0         
|Accrued income taxes including those related to discontinued operations                                                                                                                                          |   | 0          |   | 266,160   
|Liabilities of discontinued businesses                                                                                                                                                                           |   | 76,553     |   | 69,069    
|Total Current Liabilities                                                                                                                                                                                        |   | 744,631    |   | 1,213,333 
|LONG-TERM LIABILITIES                                                                                                                                                                                            |   |            |   |           
|Long-term debt, net of current portion                                                                                                                                                                           |   | 1,855,001  |   | 2,679,732 
|Total Liabilities                                                                                                                                                                                                |   | 2,599,632  |   | 3,893,065 
|STOCKHOLDERS EQUITY                                                                                                                                                                                             |   |            |   |           
|Capital stock, $.01 par value, 20,000,000 common shares
authorized, 5,000,000 undesignated shares authorized,
2,047,414 and 1,697,583 common shares issued and 2,018,957
and 1,684,283 common shares outstanding |   | 20,189     |   | 16,843    
|Additional paid-in capital                                                                                                                                                                                       |   | 4,564,325  |   | 3,070,531 
|Retained earnings                                                                                                                                                                                                |   | 2,831,552  |   | 3,439,790 
|Total Stockholders Equity                                                                                                                                                                                       |   | 7,416,066  |   | 6,527,164 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                       | $ | 10,015,698 | $ | 10,420,229





See accompanying notes to consolidated financial statements.





Page 2



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STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended October 1, 2006 and September 30, 2005



|                                                                       | 10/01/06         |  | 09/30/05      
|---------------------------------------------------------------------- | ---------------- |  | --------------
|                                                                       |                  |  |               
|Sales, net                                                             | $ 8,878,563      |  | $ 8,358,447   
|                                                                       |                  |  |               
|Cost of goods sold                                                     | 7,939,612        |  | 7,809,994     
|Gross profit                                                           | 938,951          |  | 548,453       
|                                                                       |                  |  |               
|Selling, general and administrative expenses                           | 1,302,454        |  | 827,762       
|Loss on impairment of intangible asset                                 | 0                |  | 172,329       
|Loss from operations                                                   | (363,503)        |  | (451,638)     
|                                                                       |                  |  |               
|Other income (expense)                                                 |                  |  |               
|Interest income                                                        | 207,414          |  | 55,260        
|Interest expense                                                       | (131,033)        |  | (51,118)      
|Total other income (expense)                                           | 76,381           |  | 4,142         
|                                                                       |                  |  |               
|Loss from continuing operations before income taxes                    | (287,122)        |  | (447,496)     
|                                                                       |                  |  |               
|Benefit from income taxes                                              | (87,939)         |  | (168,000)     
|Loss from continuing operations                                        | (199,183)        |  | (279,496)     
|                                                                       |                  |  |               
|Income (loss) from discontinued operations                             | (589,652)        |  | 969,108       
|                                                                       |                  |  |               
|Provision for (benefit from) income taxes from discontinued operations | (180,597)        |  | 362,730       
|                                                                       |                  |  |               
|Income (loss) from discontinued operations                             | (409,055)        |  | 606,378       
|                                                                       |                  |  |               
|NET INCOME (LOSS)                                                      | $   (608,238)    |  | $    326,882  
|                                                                       |                  |  |               
|Loss from continuing operations per share                              |                  |  |               
|Basic                                                                  | $        (0.10)  |  | $       (0.16)
|Diluted                                                                | $        (0.10)  |  | $       (0.16)
|Income (loss) from discontinued operations per share                   |                  |  |               
|Basic                                                                  | $         (0.20) |  | $         0.35
|Diluted                                                                | $         (0.20) |  | $         0.34
|Net income (loss) per share                                            |                  |  |               
|Basic                                                                  | $         (0.30) |  | $         0.19
|Diluted                                                                | $         (0.30) |  | $         0.18
|Weighted average common and common
equivalent shares outstanding       |                  |  |               
|Basic                                                                  | 2,032,429        |  | 1,708,792     
|Diluted                                                                | 2,032,429        |  | 1,801,288     







See accompanying notes to consolidated financial statements.







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STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

Years ended October 1, 2006 and September 30, 2005



|                                      |              |            |            |            |                 
|------------------------------------- | ------------ | ---------- | ---------- | ---------- | ----------------
|                                      |              | Additional |            |            | Total           
|                                      | Common Stock | Paid-in    | Retained   | Deferred   | Stockholders   
|                                      | Shares       | Amount     | Capital    | Earnings   | Compensation    
|BALANCES, September 30, 2004          | 1,731,318    | $  17,313  | $3,445,774 | $3,112,908 | $(159,411)      
|                                      |              |            |            |            |                 
|Exercise of warrants                  | 500          | 5          | 1,995      | -          | -               
|Compensation related to stock options | -            | -          | -          | -          | 7,784           
|Cancellation of consultant options    | -            | -          | (151,627)  | -          | 151,627         
|Repurchase of common shares           | (47,535)     | (475)      | (225,611)  | -          | -               
|Net income                            | -            | -          | -          | 326,882    | -               
|BALANCES, September 30, 2005          | 1,684,283    | $  16,843  | $3,070,531 | $3,439,790 | $              -
|                                      |              |            |            |            |                 
|Sale of Common Stock                  | 444,444      | 4,444      | 1,995,554  | -          | -               
|Repurchase of common shares           | (109,770)    | (1,098)    | (501,760)  | -          | -               
|Net loss                              | -            | -          | -          | (608,238)  | -               
|BALANCES, October 1, 2006             | 2,018,957    | $  20,189  | $4,564,325 | $2,831,552 | $              -





See accompanying notes to consolidated financial statements.



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STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended October 1, 2006 and September 30, 2005

|                                                                                        | 10/01/06        |  | 09/30/05
(Restated  See Note 2)
|--------------------------------------------------------------------------------------- | --------------- |  | --------------------------------
|Cash flows from operation activities:                                                   |                 |  |                                 
|Net Income (Loss)                                                                       | $     (608,238) |  | $     326,882                   
|Adjustments to reconcile net income (loss) to net cash flows
from operating activities: |                 |  |                                 
|Depreciation and amortization                                                           | 465,770         |  | 397,286                         
|Loss on impairment of intangible assets                                                 | 0               |  | 172,329                         
|Provision for deferred taxes                                                            | 2,000           |  | (87,600)                        
|Compensation related to non-employee stock option                                       | 0               |  | 7,784                           
|Changes in certain assets and liabilities:                                              |                 |  |                                 
|Accounts  receivables, net                                                              | 26,768          |  | (19,037)                        
|Inventories                                                                             | (40,905)        |  | 252,924                         
|Other current assets                                                                    | (15,050)        |  | 157,462                         
|Deferred Revenue                                                                        | 10,628          |  | 0                               
|Accounts payable                                                                        | (195,484)       |  | (60,363)                        
|Accrued payroll and related taxes                                                       | (5,375)         |  | (20,784)                        
|Income taxes                                                                            | (455,660)       |  | 272,414                         
|Other accrued expenses                                                                  | 8,881           |  | (121,806)                       
|Net Cash flows from operating activities-continuing operations                          | (806,665)       |  | 1,277,491                       
|Net cash used in discontinued operations                                                | (368,538)       |  | (1,188,030)                     
|Loss from operations of discontinued operations                                         | 1,082,671       |  | 210,614                         
|Gain on sale of assets of discontinued business held for sale                           | (493,019)       |  | (1,179,722)                     
|Net Cash flows from operating activities-discontinued operations                        | 221,114         |  | (2,157,138)                     
|Net Cash flows from operating activities                                                | (585,551)       |  | (879,647)                       
|                                                                                        |                 |  |                                 
|Cash flows from investing activities:                                                   |                 |  |                                 
|Investments in certificate of deposit                                                   | 912,609         |  | (912,609)                       
|Purchase of franchise license of Hot N Now                                             | 0               |  | (175,000)                       
|Purchase of property and equipment                                                      | (1,078,401)     |  | (962,460)                       
|Purchases of Alliance Cash Advance                                                      | (275,000)       |  | 0                               
|Purchases of intangibles                                                                | (2,938)         |  | (12,059)                        
|Payments received on notes receivable                                                   | 353,708         |  | 164,292                         
|Cash surrender value of life insurance                                                  | 11,703          |  | (13,884)                        
|Net Cash flows from investing activities-continuing operations                          | (78,319)        |  | (1,911,720)                     
|Advance to Site Equities                                                                | (1,062,671)     |  | 0                               
|Net Proceeds related to discontinued operations                                         | 1,600,000       |  | 8,604,874                       
|Net Cash flows from investing activities-discontinued operations                        | 537,329         |  | 8,604,874                       
|Net Cash flows from investing activities                                                | 459,010         |  | 6,693,154                       
|                                                                                        |                 |  |                                 
|Cash flows from financing activities:                                                   |                 |  |                                 
|Net decrease in line of credit, bank                                                    | 0               |  | (1,440,921)                     
|Proceeds from long term debt                                                            | 0               |  | 2,055,000                       
|Payments on long-term debt                                                              | (853,407)       |  | (3,573,742)                     
|Prepaid mortgage costs                                                                  | 6,358           |  | (93,678)                        
|Repurchase of common shares                                                             | (502,858)       |  | (226,086)                       
|Proceeds from sale of common stock                                                      | 1,999,998       |  | 0                               
|Proceeds from exercise of stock warrants or stock options                               | 0               |  | 2,000                           
|Net Cash flows from financing activities-continuing operations                          | 650,091         |  | (3,277,427)                     
|Payments related to discontinued operations                                             | 0               |  | (319,978)                       
|Net Cash flows from financing activities-discontinued operations                        | 0               |  | (319,978)                       
|Net Cash flows from financing activities                                                | 650,091         |  | (3,597,405)                     
|                                                                                        |                 |  |                                 
|Net increase in cash and cash equivalents                                               | 523,550         |  | 2,216,102                       
|                                                                                        |                 |  |                                 
|Cash and cash equivalents - beginning of year                                           | 2,648,044       |  | 431,942                         
|Cash and cash equivalents - end of year                                                 | 3,171,594       |  | $   2,648,044                   
|                                                                                        |                 |  |                                 
|Supplemental cash flow information:                                                     |                 |  |                                 
|Cash paid for interest                                                                  | $  131,033      |  | $        51,118                 
|                                                                                        |                 |  |                                 
|Noncash investing and financing activities:                                             |                 |  |                                 
|Note Receivable in connection with sale of discontinues business                        | $             0 |  | $  1,200,000                    

See accompanying notes to consolidated financial statements.



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended October 1, 2006 and September 30, 2005





NOTE 1 - Nature of Business and Summary of Significant Accounting Policies





Nature of Business

STEN Corporation and subsidiaries (the Company or STEN) is a diversified business. The Company manufactures, on a contract basis, a line of sterilization containers and filters for use by hospitals, clinics and surgery centers. In July 2004, the Company created Burger Time Acquisition Corporation (BTAC) as a wholly-owned subsidiary and purchased an 11-store chain of fast food restaurants located in the upper Midwest. In fiscal year 2005, the Company opened two additional restaurants, one in Watertown, South Dakota and the other in Fergus Falls, Minnesota.  In May 2005, the Company created BTAC Properties Inc, (BTAC Properties) to own certain real estate related to Burger Time. In August 2006 the Company opened a leased Burger Time restaurant in the food court at North Dakota State University. In  January 2006, the Company created STEN Financial Corporation as a wholly-owned subsidiary. The Company through STEN Financial Corporation purchased certain assets of a consumer loan company in August 2006. The business is located in Tempe, Arizona.



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).  On June 30, 2005, we sold substantially all of the assets relating to our emergency oxygen service business (the Emergency Oxygen Service Business) to Life Safe Services, LLC. On January 11, 2006 we sold the property at 13828 Lincoln Street NE, Ham Lake, Minnesota to OLD Holdings, LLC. This property formerly held the medical products group and corporate headquarters. In the year ended October 1, 2006, the Company recorded an impairment of $1,062,671 to discontinued operations relating to a note receivable from Site Equities. During the fourth quarter of 2006, the Companys management took possession of the Site Equities Property. The Companys STEN Acquisition Corp subsidiary also engaged or hired an individual who worked on projections to analyze if the Companys operations of the Site Equities business would fit with the STEN business model. By October 1, 2006, management determined it was not economical to pursue operating the Site Equities Business. Therefore the impairment of the Note Receivable of $1,062,671 and expenses incurred by STEN Acquisition Corporation of $20,000 were classified as discontinued operations. In accordance with appropriate accounting rules, we have reclassified our previously reported financial results to exclude the results of the Medical Products Group, the Emergency Oxygen Service Business, the sale of the property in Ham Lake and the note receivable to Site Equities and these results are presented on a historical basis as a separate line in our statements of operations and balance sheets entitled Discontinued Businesses 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 2).



Principles of Consolidation

The consolidated financial statements include the accounts of STEN Corporation and its wholly-owned subsidiaries, Oxboro, Inc. (formerly known as Oxboro Medical, Inc.), Burger Time Acquisition Corporation as of July 2004, BTAC Properties Inc. as of May 2005, and STEN Financial Corporation as of January 2006. All significant intercompany transactions and balances have been eliminated in consolidation. Subsequent to year end, Colfax Financial Corporation was formed which is a wholly owned subsidiary of STEN Financial Corporation (See Note 14).



Fiscal Year

Our fiscal year ends on the Sunday nearest September 30th of each year. Our fiscal year is generally 52 weeks; however it periodically consists of 53 weeks. The 2006 fiscal year ended October 1, 2006 and was 52 weeks. The 2007 fiscal year will end September 30, 2007 (52 weeks) and the 2008 fiscal year will end September 27, 2008 (52 weeks). Fiscal year 2009 will end October 3, 2009 and will consist of 53 weeks.



Cash and Cash Equivalents

The Company includes as cash and cash equivalents highly liquid, short-term investments with maturity of three months or less when purchased, which are readily convertible into known amounts of cash. The Company maintains its cash in high quality financial institutions. The balances, at times, may exceed federally insured limits. The Company has several certificates of deposit which mature on November 13, 2006.



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Accounts Receivable

For corporate and contract manufacturing, the Company reviews customers credit history before extending unsecured credit and establishes an allowance for uncollectible accounts based upon factors surrounding the credit risk of specific customers and other information. Accounts receivable over 30 days are considered past due. The Company does not accrue interest on past due accounts receivable. Receivables are written off only after all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer. For the STEN Financial segment, loans receivable over 30 days are considered past due. The Company does not accrue interest on past due loans receivable. Loans are written off only after all collection attempts have failed and are based on individual credit evaluation and specific circumstances of the customer. The Company records a loan receivable for the amount loaned to the customer. The fee charged by the Company, which varies for each loan, is not recorded until the cash is collected. Accounts receivable have been reduced by an allowance for uncollectible accounts of approximately $4,300 and $4,000 at October 1, 2006 and September 30, 2005, respectively.



Inventories

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



Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for tax consequences of 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, related party accruals, allowance for doubtful accounts and inventory valuation adjustments. Deferred taxes are reduced by a valuation allowance to the extent that realization of the related deferred tax assets is not assured.



Prepaid Mortgage Costs

Debt issuance costs are amortized over the life of the loan using the straight-line method. On May 10, 2005 we completed a mortgage financing relating to real estate used by our subsidiary, Burger Time Acquisition Corporation. In the course of closing the mortgages, we incurred costs of $93,678. These mortgage costs are being amortized over of the life of the notes (15 years). We expensed $6,358 and $2,422 for years ended October 1, 2006 and September 30, 2005, respectively.



Research and Development

The Company expenses all costs related to product research and development as incurred. The  Company did not incur any research and development expenses for the years ended October 1, 2006 and September 30, 2005, respectively.



Assets of Discontinued Business Held For Sale

As a part of the sale of our Medical Products Group in November 2004, we held for sale our former headquarters and operations facility located in Ham Lake, Minnesota.  Accordingly, we reflected the carrying value of the building as an asset of discontinued business held for sale as of September 30, 2005. As a result, we discontinued recording depreciation on the building. The building was sold on January 11, 2006 and as a result, we recognized a pre-tax gain of $493,019 for the year ended October 1, 2006 (see Note 2).



Depreciation

Property and equipment are recorded at cost. Improvements are capitalized and amortized over the shorter of the lease term or the estimated useful life. Capital leases are capitalized at the lower of the present value of the future minimum lease payments or fair market value at the inception of the lease while maintenance, repairs and minor renewals are expensed when incurred. Depreciation is computed using the straight-line method based on estimated service lives of the various assets as follows:



|Buildings               | 30 years 
|----------------------- | ---------
|Containers              | 5 years  
|Furniture and equipment | 3-7 years
|Vehicles                | 10 years 





Notes Receivable

Notes receivable consists of $700,000 due from Life Safe Services, LLC (Life Safe) related to the purchase of the Emergency Oxygen Business, which is in the form of a subordinated promissory note personally guaranteed by the



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owners of Life Safe. The Life Safe Note bears interest at a rate of 7.25% per annum. The Life Safe Note calls for payments of interest only for the first twelve months, interest and principal based upon a sixty month amortization schedule for months 13 to 41 and a balloon payment of all remaining outstanding interest and principal at the end of month 42. The Companys rights under the Life Safe Note are subordinate to those of the Buyers senior lender. The balance of the notes receivable was $682,000 and $1,035,708 at October 1, 2006 and September 30, 2005, respectively. Future collections on the notes receivable for the years ending 2007, 2008, 2009 are $108,000, $108,000, and $466,000, respectively.



Notes receivable consisted of $335,708 due from Aspen related to the sale of the Medical Products Group. The note was unsecured and bore interest at 4.75% per annum. Aspen was obligated to repay the Note in six equal quarterly installments of $83,333 beginning on May 8, 2005 and ending August 8, 2006. The note receivable was paid in full at October 1, 2006.



Intangible Assets

|Intangible assets  subject to amortization consist of the following:
|--------------------------------------------------------------------
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Covenants not to compete                                            
|Franchise agreements                                                
|Customer lists                                                      
|Trade name                                                          
|Other intangibles                                                   
|                                                                    
|Total                                                               





Intangible assets are being amortized over their estimated useful lives ranging from 60 months to 120 months (weighted average life of 6.85 years). Amortization of intangible assets was $17,998 and $25,361 for the years ended October 1, 2006 and September 30, 2005, respectively. Estimated amortization expense of intangible assets for fiscal years 2007, 2008, 2009, 2010, and 2011 is $45,090, $45,090, $45,090, $44,458 and $38,381 per year, respectively. In September 2005, the Company determined that the HotN Now Franchise Agreements was impaired and accordingly the Company established a valuation reserve for the entire book value of $172,329.



Revenue Recognition and Shipping and Handling Costs

The Company records sales revenue for its contract manufacturing segment at the time all merchandise is shipped.  Revenues from Burger Time are recognized at the time food is served. Revenues from the Companys consumer lending business in STEN Financial Corporation are recognized at the time the customer makes loan and interest payments.



The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition. SAB No. 101, as amended by SAB No. 104, sets forth the SEC staffs position regarding the point at which it is appropriate for a registrant to recognize revenue. The SEC staff believes that revenue is realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or service has been rendered, the sellers price to the buyer is fixed or determinable and collectibility is reasonably assured. The Company uses the above criteria to determine whether revenue can be recognized.



The Company records amounts being charged to customers for shipping and handling as sales in accordance with Emerging Issues Task Force (EITF) Issue 00-10, Accounting for Shipping and Handling Fees and Costs. Shipping and handling costs incurred by the Company related to the Contract Manufacturing business are included in cost of goods sold.



Deferred Revenue

In August 2006, the Company acquired certain assets and assumed certain liabilities of Alliance Cash Advance through its wholly-owned subsidiary STEN Financial. The Company recognizes revenue as the customer makes payment



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and this creates a deferred revenue. The Company feels this conservative approach to revenue recognition more accurately reflects the operations of its business. The deferred revenue liability at October 1, 2006 was $10,628 and $0 as of September 30, 2005.



Advertising

Advertising costs are charged to operations when incurred. Advertising expense was $95,200 and $60,629 for the years ended October 1, 2006 and September 30, 2005, respectively.



Stock-Based Compensation

The Company uses 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 Statement of Financial Accounting Standards (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 Company adopted the disclosure provision of  SFAS No. 148 and has 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.



The Company has 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 the Companys stock options been determined based on fair value at the grant dates consistent with the method as defined under SFAS No. 123, the Companys net income (loss) would have changed to the pro forma amounts indicated below:



|                                     | Fiscal 2006        | Fiscal 2005
|------------------------------------ | ------------------ | -----------
|Net income (loss):                   |                    |            
|As reported                          | $   (608,238)      | $326,882   
|Pro forma                            | $   (677,301)      | $205,012   
|Net income (loss) per share basic:   |                    |            
|As reported                          | $         (0.30)   | $0.19      
|Pro forma                            | $         (0.33)   | $0.12      
|Net income (loss) per share diluted: |                    |            
|As reported                          | $         (0.30)   | $0.18      
|Pro forma                            | $         (0.33)   | $0.11      
|                                     |                    |            
|Stock based compensation:            |                    |            
|As reported                          | $                0 | $7,784     
|Pro forma                            | $       69,063     | $121,870   



The pro forma amounts may not be representative of the effects on reported net income (loss) for future years. The per share, weighted-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 2006 | Fiscal 2005
|-------------------------------- | ----------- | -----------
|Risk free interest rate          | 5.75%       | 5.00%-5.75%
|Expected life of options granted | 5 years     | 5 years    
|Expected volatility range        | 50.00%      | 50.00%     
|Expected dividend yield          | 0%          | 0%         





Net Income (Loss) per Share

Basic income (loss) per share are computed by dividing the net income (loss) by the weighted average number of shares outstanding for the reporting period. The Companys diluted net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding and common share equivalents, when



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dilutive, for the reporting period. Options totaling 305,000 and 300,500 were excluded from the computation of diluted income (loss) per share for the years ended October 1, 2006 and September 30, 2005 as their effect was antidilutive. Following is a reconciliation of basic and diluted net income (loss) per share:





|                                       | Fiscal 2006 |  | Fiscal 2005
|-------------------------------------- | ----------- |  | -----------
|Net income (loss) per share - basic:   |             |  |            
|Net income (loss)                      | $(608,238)  |  | $326,882   
|                                       |             |  |            
|Weighted average shares outstanding    | 2,032,429   |  | 1,708,792  
|                                       |             |  |            
|Net income (loss) per share - basic    | $(0.30)     |  | $0.19      
|                                       |             |  |            
|Net income (loss) per share - diluted: |             |  |            
|Net income (loss)                      | $(608,238)  |  | $326,882   
|                                       |             |  |            
|Weighted average shares outstanding    | 2,032,429   |  | 1,708,792  
|Effect of diluted securities           | 0           |  | 92,496     
|Weighted average shares outstanding    | 2,032,429   |  | 1,801,288  
|                                       |             |  |            
|Net income (loss) per share - diluted  | $(0.30)     |  | $0.18      



Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Segment Reporting

The Companys three reportable segments are strategic business units that offer different products. They are managed separately as each business requires different technology and manufacturing processes.



Operating income (loss) is total net sales less operating expenses, excluding interest. The Company did not have any sales between industry segments. Identifiable assets by industry segment include both assets directly identified with those operations and an allocable share of jointly used assets. General corporate assets consist primarily of cash, certificates of deposit and building costs. The accounting policies applied to determine segment information are the same as those described in the summary of significant accounting policies. Management evaluates the performance of each segment based on profit and loss from operations before income taxes, exclusive on non-recurring gains or losses. The following table summarizes data by industry segment.



|                              | Corporate and Contract Manufacturing |  | Burger Time |  | STEN Financial |  | Total      
|----------------------------- | ------------------------------------ |  | ----------- |  | -------------- |  | -----------
|                              |                                      |  |             |  |                |  |            
|Year ended October 1, 2006    |                                      |  |             |  |                |  |            
|Revenues                      | $  2,156,069                         |  | $ 6,692,181 |  | $ 30,313       |  | $ 8,878,563
|Income (loss) from operations | (461,206)                            |  | 115,991     |  | (18,288)       |  | (363,503)  
|Identifiable assets           | 5,457,396                            |  | 4,141,097   |  | 417,205        |  | 10,015,698 
|Depreciation and amortization | 72,793                               |  | 385,381     |  | 7,596          |  | 465,770    
|Capital expenditures          | 776,163                              |  | 252,140     |  | 50,098         |  | 1,078,401  
|                              |                                      |  |             |  |                |  |            
|Year ended September 30, 2005 |                                      |  |             |  |                |  |            
|Revenues                      | $ 2,146,004                          |  | $ 6,212,443 |  | $          0   |  | $ 8,358,447
|Loss from operations          | (235,407)                            |  | (216,231)   |  | 0              |  | (451,638)  
|Identifiable assets           | 5,536,547                            |  | 4,883,682   |  | 0              |  | 10,420,229 
|Depreciation and amortization | 70,856                               |  | 326,430     |  | 0              |  | 397,286    
|Capital expenditures          | 112,106                              |  | 850,354     |  | 0              |  | 962,460    





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Financial Instruments

The carrying amounts for all financial instruments approximates fair value. The carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The Companys long-term debt includes debt with variable interest rates. The fair value of long-term debt approximates the carrying amounts based upon the Companys expected borrowing rate for debt with similar remaining maturities and comparable risk.



Reclassifications

Certain accounts in the prior year consolidated financial statements have been reclassified for comparative purposes to conform with the presentation in the current year consolidated financial statements. These reclassifications had no effect on consolidated net income or stockholders equity.



Impairment of Long-lived and Intangible Assets

The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived may warrant revision, or that the remaining balance of these assets may not be recoverable. The Company evaluates the recoverability of its long-lived assets in accordance with Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or Disposal of Long-lived Assets When deemed necessary, the Company completes this evaluation by comparing the carrying amount of the assets against the estimated undiscounted future cash flows associated with them.  If such evaluations indicate that the future undiscounted cash flows of long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their estimated fair values. The Company assesses the impairment of its manufacturing equipment at least annually, or whenever events or changes in the circumstances indicate that the carrying value may not be recoverable. The Company uses a number of factors which it considers important which could trigger an impairment review, and potentially an impairment charge, including the following: significant underperformance relative to historical or projected  cash flows; significant changes in the manner of use of the acquired assets or the Companys overall business strategy; significant negative market or economic trends; significant decline in the Companys stock price for a sustained period changing the Companys market capitalization relative to its net book value. At September 30, 2005, there was an impairment of $172,329 related to a franchise agreement that was acquired by the Company in 2005 based on changes in circumstances and the delay in negotiating new agreements with individual franchisees.



Recent Accounting Pronouncements

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. The SEC recently amended its compliance to be effective at the beginning of the next fiscal year 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 first quarter of our fiscal 2007 and we estimate the cost of stock options will be approximately $58,000 for the year ending September 30, 2007.



The FASB has published FASB Interpretation (FIN) No. 48 (FIN No. 48), Accounting for Uncertainty in Income Taxes, to address the noncomparability in reporting tax assets and liabilities resulting from a lack of specific guidance in FASB SFAS No. 109, Accounting for Income Taxes, on the uncertainty in income taxes recognized in an enterprises financial statements. Specifically, FIN No. 48 prescribes (a) a consistent recognition threshold and (b) a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides related guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN No. 48 will apply to fiscal years beginning after October 1, 2007, with earlier adoption permitted.



FASB has issued SFAS No. 157, Fair Value Measurements, to eliminate the diversity in practice that exists due to the different definitions of fair value and the limited guidance for applying those definitions in GAAP that are dispersed among the many accounting pronouncements that require fair value, but clarifies that the exchange price is the price in an orderly transaction between market participants to sell an asset or liability in the principal or most advantageous market for the asset of liability. Moreover, the SFAS states that the transaction is hypothetical at the measurement date, considered from the perspective of the market participant who holds the asset or liability. Consequently, fair value is defined as the price that would be received to sell an asset or  paid to transfer a liability in an orderly transaction between market



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participants at the measurement date (an exit price), as opposed to the price that would be paid to acquire the asset or received to assume the liability at the measurement date (an entry price).



SFAS No. 157 also stipulates that, as a market-based measurement, fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability, and establishes a fair value hierarchy that distinguishes between (a) market participant assumptions developed based on market data  obtained from sources independent of the reporting entity (observable inputs) and (b) the reporting entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).  Finally, SFAS No. 157 expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition.  Entities are encouraged to combine the fair value information disclosed under SFAS No. 157 with the fair value information disclosed under other accounting pronouncements, including SFAS No. 107, Disclosures about Fair Value of Financial Instruments, where practicable.  The guidance in the Statement applies for derivatives and other financial instruments measured at fair value under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, at initial recognition and in all subsequent periods.



SFAS No. 157 is effective for financial statements issued for fiscal years beginning after September 29, 2008, and interim periods within those fiscal years, although earlier application is encouraged.  Additionally, prospective application of the provisions of SFAS No. 157 is required as of the beginning of the fiscal year in which it is initially applied, except when certain circumstances require retrospective application. The Company is currently evaluating the effect of adopting SFAS No. 157 on their consolidated financial statements.



FASB has issued SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, to require an employer to fully recognize the obligations associated with single-employer defined benefit pension, retiree healthcare, and other postretirement plans in their financial statements. Previous standards required an employer to disclose the complete funded status of its plan only in the notes to the financial statements. Moreover, because those standards allowed an employer to delay recognition of certain changes in plan asset or liability that almost always differed from the plans funded status.  Under SFAS No. 158, a defined benefit postretirement plan sponsor that is a public or private company or a nongovernmental not-for-profit organization must (a) recognize in its statement of financial position an asset for a plans overfunded status or a liability for the plans underfunded status, (b) measure the plans assets and its obligations that determine its funded status as of the end of the employers fiscal year (with limited exceptions), and (c) recognize, as a component of other comprehensive income, the changes in the funded status of the plan that arise during the year but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87, Employers Account for Pensions, or SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions.  SFAS No. 158 also requires an employer to disclose in the notes to financial statements additional information on how delayed recognition of certain changes in the funded status of a defined benefit postretirement plan affects net periodic benefit cost for the next fiscal year.  The Company does not anticipate the adoption of SFAS No. 158 will have a material impact on their consolidated financial statements.





NOTE 2 - Acquisitions and Dispositions of Assets



Acquisitions



Alliance Cash Advance

On August 11, 2006, the Company, through its wholly-owned subsidiary STEN Financial Corporation, entered into a purchase agreement with Alliance Cash Advance to purchase certain assets. The total purchase price was $275,000 which STEN Financial paid in cash from working capital. Consideration for the Alliance Cash Advance purchase was through arms length negotiations between the Company and Alliance Cash Advance. STEN Financial intends to use the assets to continue making consumer loans.  The purchase price was allocated based on the fair value of the assets acquired and liabilities assumed. The acquisition is not material to the consolidated financial statements of the Company, therefore no proforma disclosures are required.



Purchase Jacksonville, Texas Facility

On December 19, 2005, the Company entered into a Commercial Real Property Sales Contract with Robert Nichols Enterprises, Inc. for the purchase by the Company of certain real property located in Jacksonville, Texas for $675,000 in cash. At the time of the agreement, the Company leased the property from Robert Nichols Enterprises. The property consists of 13.7 acres of land and an approximately 30,000 square foot steel manufacturing facility used in our contract manufacturing operations. Using the proceeds from the sale of the Companys former Ham Lake, Minnesota



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property, the Company completed the purchase of the Jacksonville, Texas facility on January 20, 2006 for total consideration including closing fees of $684,800.



Hot N Now

On March 3, 2005, our Burger Time Acquisition Corporation completed the purchase of certain assets of the former franchisor of Hot N Now restaurants in a transaction approved by the United States Bankruptcy Court for the Western District of Michigan. The assets acquired include the Hot N Now franchise, all Hot N Now franchise agreements and all royalties and other franchise fees now due and owing. Among other things, the acquired rights also include the Hot N Now name and tradename. There are currently 14 franchisee locations of Hot N Now all operating in the State of Michigan. The purchase price paid was $175,000 for the franchise license. We are in the process of negotiating new agreements with the Hot N Now locations. As of October 1, 2006 the Company has entered into new agreements with 7 of the 14 locations. Revenue generated from these new agreements was $22,125 for the year ended October 1, 2006 and $0 for the corresponding year in Fiscal 2005. The purchase price of $175,000 was initially allocated to the franchise license acquired based on the estimated fair value as of the acquisition date and was deemed to be impaired and was fully written-off in the year ended September 30, 2005.



The purchase of these assets were considered immaterial, therefore, the Company is not including pro forma financial results for the yeas ended October 1, 2006 and September 30, 2005.



Disposition of Assets



On November 22, 2005, the Company, through its wholly-owned subsidiary, STEN Acquisition Corporation, entered into a Loan and Merger Option Agreement with Site Equities International, Inc. (Site Equities) and its wholly-owned subsidiary, Paycenters, LLC (Paycenters). Paycenters is engaged in placing kiosks in retail locations that are used to facilitate bill payment and other financial transactions.



Under the Agreement, we originally agreed to loan up to an aggregate amount of $2,000,000 to Site Equities. The original agreement contemplated funding in three separate installments. An initial $800,000 was advanced on the date of the agreement. The loan is guaranteed by Paycenters pursuant to a guaranty and collateralized by all of the assets of Paycenters. Site Equities has also pledged the membership interest in Paycenters to the Company as collateral for the loan.  Amounts under the loan are senior to certain other debt of Site Equities.



On March 9, 2006, the parties entered into an Amendment to the Loan and Merger Option Agreement. The Amendment provided that the remaining $1,200,000 potentially be advanced provided certain conditions were met. We disbursed the second installment of $100,000 concurrent with the signing of this Amendment. Each of the additional installments was subject to various conditions and the failure by Site Equities to satisfy any of the conditions as to a particular installment relieved the Company of the obligation to make such loan installment. Among the conditions Site Equities was required to meet for the disbursement of the future installments was that Site Equities obtain a loan from a third party investor of $500,000. As of October 1, 2006 we had advanced $1,062,671 to Site Equities including transaction costs of $62,671. In May, 2006 Site Equities did not meet the requirements for additional advances from STEN. STEN concluded that because Site Equities has not achieved its objective of raising additional capital, the realization of the advances is doubtful. Therefore, we have recorded an impairment charge of $1,062,671 reflecting a full reserve for the amount advanced to Site Equities.



During the fourth quarter of 2006, the Companys management took possession of the Site Equities Property. The Company also engaged or hired a sales person who worked on projections to analyze if the Companys operations of the Site Equities business would fit with the STEN business model. By October 1, 2006, management determined it was not economical to pursue operating the Site Equities Business. Therefore the impairment of the Note Receivable of $1,062,671 and costs of $20,000 was classified as discontinued operations (See Note 2).



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In accordance with the provisions of SFAS 144, we have not included the impairment of the note receivable from Site Equities in the results from continuing operations. The results of this impairment have been reflected as discontinued operations. The loss from discontinued operations for the years ended October 1, 2006 and September 30, 2005 respectively, consist of the following:



|                                                      | 10/01/06           |  | 09/30/05     
|----------------------------------------------------- | ------------------ |  | -------------
|Gain on sale of assets:                               |                    |  |              
|Sale Price                                            | $                0 |  | $           0
|Less costs and expenses                               |                    |  |              
|Impairment of note receivable                         | 1,000,000          |  |              
|Other costs, legal                                    | 82,671             |  |              
|Total costs                                           | 1,082,671          |  | 0            
|Loss from discontinued operations before income taxes | $(1,082,671)       |  | $          0 



On August 10, 2005, we entered into a Purchase Agreement with OLD Holdings, LLC (Holdings), and unrelated party, for the sale to Holdings of our property located in Ham Lake, Minnesota. This property was the location of our disposed Medical Products Group segment. In connection with the Agreement, the Company and Holdings also entered into a lease agreement dated October 15, 2005 relating to the lease to Holdings of the Ham Lake facilities pending the closing of the sale. Other than in respect of the transactions contemplated by the Agreement, there are no relationships between Holdings and the Company, or any director or officer of the Company.



On January 11, 2006, we closed the transactions contemplated by the Agreement and sold the Ham Lake property to Holdings for $1,600,000 in cash, of which $25,000 was previously paid as earnest money. The consideration for the sale was determined through arms-length negotiations between STEN and Holdings. In connection with the sale, the Lease Agreement was merged as a matter of law when ownership of the property was transferred. Concurrently with the sale, we applied $786,474 of the purchase price to pay in full the mortgage relating to the Ham Lake property plus an early payment penalty of $27,973.



We recorded $273,521 of estimated expenses for accrued payables, early payment penalties, closing fees and other exit costs as a part of the sale of the building and discontinued operations. We made $279,468 in payments for the year  ended October 1, 2006 and the accrued amounts are summarized as follows:



|Accrued Payable       |               
|--------------------- | --------------
|Beginning balance     | $            0
|Estimated Expenses    | 82,500        
|Payments              | (82,500)      
|Ending balance        | $            0
|                      |               
|                      |               
|Other Exit Costs      |               
|Beginning balance     | $            0
|Early payment penalty | 27,973        
|Closing fees          | 6,690         
|Other exit costs      | 238,858       
|Payments              | (196,968)     
|Ending balance        | $   76,553    



In accordance with the provisions of SFAS 144, we have not included the sale of our Ham Lake property to OLD Holdings in the results from continuing operations. The results of this sale have been reflected as discontinued operations. The income from discontinued operations for the years ended October 1, 2006 and September 30, 2005 respectively, consist of the following:



Page 14



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|                                                        | 10/01/06      |  | 09/30/05     
|------------------------------------------------------- | ------------- |  | -------------
|Gain on sale of assets:                                 |               |  |              
|Sale Price                                              | $   1,600,000 |  | $           0
|Less costs and expenses                                 |               |  |              
|Property and Equipment, net                             | 750,960       |  |              
|Accrued Payable                                         | 82,500        |  |              
|Transaction, Legal, Transition and other                | 273,521       |  |              
|Total costs of sale                                     | 1,106,981     |  | 0            
|                                                        |               |  |              
|Net gain on sale before taxes                           | 493,019       |  |              
|Income from discontinued operations before income taxes | $     493,019 |  | $          0 



On June 30, 2005, we and our wholly-owned subsidiary, LifeSafe Services, Inc. completed the sale to Life Safe Services, LLC (the Buyer) of assets related to our Emergency Oxygen Service Business including the LifeSafe and LifeKit product lines. Life Safe Services, LLC is controlled by Patrick Hoene and Christine Hoene. The sale was made pursuant to an Asset Purchase Agreement dated June 30, 2005 by and among STEN, LifeSafe and the Buyer.



The purchase price for the assets was $3,150,000 plus the assumption by the Buyer of certain liabilities, subject to downward adjustment if the working capital, as defined, of the transferred business is determined to be less than $730,000 on June 30, 2005. Of the purchase price, $2,450,000 was paid in cash at closing and $700,000 was paid by delivery of a subordinated promissory note personally guaranteed by Patrick Hoene and Christine Hoene. The Note bears interest at a rate of 7.25% per annum. The Note calls for payments of interest only for the first twelve months, interest and principal based upon a sixty month amortization schedule for months 13 to 41 and a balloon payment of all remaining outstanding interest and principal at the end of month 42. Our rights under the Note are subordinate to those of the Buyers senior lender.



Additionally, in connection with the closing of the sale, each of STEN and LifeSafe entered into a Non-Competition and Non-Solicitation Agreement, prohibiting either of them from competing with the Business during the period the Note remains current and outstanding, plus a period of two years following the final payment of the Note.



We recorded $193,141 of estimated expenses for severance and other exit costs as a part of the sale of the Emergency Oxygen Service Business. We made no payments for the year ended October 1, 2006 and the accrued amounts are summarized as follows:



|Accrued Severance Costs                 |                  
|--------------------------------------- | -----------------
|Beginning balance                       | $               0
|Estimated Expenses                      | 35,000           
|Payments                                | (35,000)         
|Ending balance                          | $              0 
|                                        |                  
|                                        |                  
|Other Exit Costs                        |                  
|Beginning balance                       | $               0
|Estimated transition expenses           | 8,141            
|Reserve for working capital requirement | 150,000          
|Payments                                | (158,141)        
|Ending balance                          | $               0





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In accordance with the provisions of SFAS 144, we have not included the results of operations of our Emergency Oxygen Service Business in the results from continuing operations. The results of operations for this business have been reflected as discontinued operations. The loss from discontinued operations for years ended October 1, 2006 and September 30, 2005, consist of the following:



|                                                      | 10/01/06   |  | 09/30/05    
|----------------------------------------------------- | ---------- |  | ------------
|                                                      |            |  |             
|Revenue, Net                                          | $        0 |  | $ 2,169,478 
|                                                      |            |  |             
|Cost of Goods Sold                                    | 0          |  | 1,239,187   
|                                                      |            |  |             
|Gross Profit                                          | 0          |  | 930,291     
|                                                      |            |  |             
|Total operating expenses                              | 0          |  | 958,314     
|                                                      |            |  |             
|Net loss operations                                   | 0          |  | (28,023)    
|                                                      |            |  |             
|Gain on sale of assets:                               |            |  |             
|Sale Price                                            |            |  | 3,150,000   
|Less costs and expenses                               |            |  |             
|Accounts Receivable                                   |            |  | 532,710     
|Inventories                                           |            |  | 205,319     
|Prepaids                                              |            |  | 22,836      
|Property and Equipment, net                           |            |  | 2,014,485   
|Intangibles, net                                      |            |  | 1,182,024   
|Goodwill                                              |            |  | 60,198      
|Accounts Payable                                      |            |  | (10,141)    
|Severance                                             |            |  | 35,000      
|Reserve related to working capital agreement          |            |  | 150,000     
|Deferred Revenue                                      |            |  | (793,463)   
|Transaction, Legal, Transition and other              |            |  | 8,709       
|Total costs of sale                                   |            |  | 3,407,677   
|Net loss on sale before taxes                         |            |  | (257,677)   
|Loss from discontinued operations before income taxes | $        0 |  | $  (285,700)



On November 8, 2004, we completed the sale of certain assets and certain liabilities comprising our Medical Products Group to Aspen Surgical Products, Inc., a Michigan corporation. 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. We recorded a gain on the sale of the assets of $1,504,258 ($951,484 net of tax). The gain was calculated as the proceeds less $4,472,951 in net assets, $589,650 in transaction and shut down expenses (including employee severance costs, legal fees and other professional fees).  Net assets were comprised of inventory, fixed assets, prepaid expenses, intangibles, goodwill and certain liabilities consisting primarily of accounts payable.



We have recorded $589,650 in expenses for severance and other exit costs as a part of the sale of the Medical Products Group. We made payments totaling $69,069 for the year ended October 1, 2006. The total of $589,650 is summarized as follows:



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|Accrued Severance Costs      |                  
|---------------------------- | -----------------
|Beginning balance            | $               0
|Estimated expenses           | 100,000          
|Payments                     | (100,000)        
|Ending balance               | $              0 
|                             |                  
|                             |                  
|Other Exit Costs             |                  
|Beginning balance            | $               0
|Estimated shut down expenses | 50,000           
|Accrued legal, audit         | 116,859          
|Other expenses               | 322,791          
|Payments                     | (489,650)        
|Ending balance               | $               0



In connection with the Purchase Agreement, we also entered into a Transitional Services Agreement with Aspen.  Also in connection with the Purchase Agreement transactions, Mr. Kenneth Brimmer and Mr. Gary Copperud are providing Aspen certain services pursuant to an eighteen-month consulting agreement. Mr. Brimmer is our Chief Executive Officer and director, and Mr. Copperud is our director. We and Messrs. Brimmer and Copperud also entered into a non-competition agreement with Aspen. Messrs. Brimmer and Copperud were each paid $250,000 by Aspen in connection with these agreements. These payments were approved by our Audit Committee and our Board of Directors.



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 from discontinued operations for the year ended October 1, 2006 and 2005, consist of the following:



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|                                                        | 10/01/06          |  | 09/30/05      
|------------------------------------------------------- | ----------------- |  | --------------
|                                                        |                   |  |               
|Revenue, Net                                            | $               0 |  | $      710,574
|                                                        |                   |  |               
|Cost of Goods Sold                                      | 0                 |  | 470,320       
|                                                        |                   |  |               
|Gross Profit                                            | 0                 |  | 240,254       
|                                                        |                   |  |               
|Total operating expenses                                | 0                 |  | 422,845       
|                                                        |                   |  |               
|Net (loss) income operations                            | 0                 |  | (182,591)     
|                                                        |                   |  |               
|Gain on sale of assets:                                 |                   |  |               
|Sale Price                                              | 0                 |  | 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               |                   |  | 489,650       
|Total costs of sale                                     | 0                 |  | 5,062,601     
|                                                        |                   |  |               
|Net gain on sale before taxes                           | 0                 |  | 1,437,399     
|                                                        |                   |  |               
|Income from discontinued operations before income taxes | $               0 |  | $  1,254,808  





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The table below is a consolidation of the STEN Acquisition Corporation, sale of our property in Ham Lake, Minnesota, the Emergency Oxygen Service Business and the Medical Product Groups.  In accordance with the provisions of SFAS 144, we have not included the results of operations of our former Medical Products Group and Emergency Oxygen Service Business 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 years ended October 1, 2006 and September 30, 2005, consist of the following:



|                                                               | 10/01/06          |  | 09/30/05     
|-------------------------------------------------------------- | ----------------- |  | -------------
|                                                               |                   |  |              
|Revenue, Net                                                   | $               0 |  | $   2,880,052
|                                                               |                   |  |              
|Cost of Goods Sold                                             | 0                 |  | 1,709,507    
|                                                               |                   |  |              
|Gross Profit                                                   | 0                 |  | 1,170,545    
|                                                               |                   |  |              
|Total operating expenses                                       | 0                 |  | 1,381,159    
|                                                               |                   |  |              
|Net (loss) income operations                                   | 0                 |  | (210,614)    
|                                                               |                   |  |              
|Gain on sale of assets:                                        |                   |  |              
|Sale Price                                                     | 1,600,000         |  | 9,650,000    
|Less costs and expenses                                        |                   |  |              
|Accounts Receivable                                            |                   |  | 1,460,086    
|Note Receivable                                                | 1,000,000         |  | 0            
|Inventories                                                    |                   |  | 2,640,009    
|Prepaids                                                       |                   |  | 178,892      
|Property and Equipment, net                                    | 750,960           |  | 2,662,571    
|Intangibles, net                                               |                   |  | 1,333,227    
|Deferred Debt issuance Costs                                   |                   |  | 142,236      
|Goodwill                                                       |                   |  | 415,761      
|Accounts Payable                                               | 82,500            |  | (352,400)    
|Severance                                                      |                   |  | 135,000      
|Reserve related to working capital agreement                   |                   |  | 150,000      
|Deferred Revenue                                               |                   |  | (793,463)    
|Transaction, Legal,  Transition
and other                      | 356,192           |  | 498,359      
|Total costs of sale                                            | 2,189,652         |  | 8,470,278    
|Net gain (loss) on sale before taxes                           | (589,652)         |  | 1,179,722    
|Income (loss) from discontinued operations before income taxes | $ (589,652)       |  | $  969,108   





NOTE 3 - Inventories



Inventories consisted of the following at October 1, 2006 and September 30, 2005:







|                  | 10/01/06   |  | 09/30/05  
|----------------- | ---------- |  | ----------
|Raw materials     | $  516,986 |  | $  363,276
|Work in process   | 65,799     |  | 121,010   
|Finished goods    | 21,699     |  | 79,293    
|Total inventories | $  604,484 |  | $  563,579



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NOTE 4 - Property and Equipment



Property and equipment consisted of the following at October 1, 2006 and September 30, 2005:



|                                                | 10/01/06     |  | 09/30/05   
|----------------------------------------------- | ------------ |  | -----------
|                                                |              |  |            
|Land                                            | $ 1 ,329,312 |  | $ 1,160,562
|Building                                        | 1,480,118    |  | 935,944    
|Containers                                      | 17,940       |  | 17,940     
|Furniture and equipment                         | 2,536,791    |  | 2,321,874  
|Total                                           | 5,364,161    |  | 4,436,320  
|Less: accumulated depreciation and amortization | (985,621)    |  | (706,130)  
|Net                                             | $ 4,378,540  |  | $ 3,730,190



Depreciation and amortization expense on property and equipment was $447,772 and $371,925 for the years ended October 1, 2006 and September 30, 2005, respectively.



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NOTE 5 - Other Accrued Expenses



Other accrued expenses consisted of the following at October 1, 2006 and September 30, 2005:



|                          | 10/01/06    |  | 09/30/05   
|------------------------- | ----------- |  | -----------
|Accrued professional fees | $     7,653 |  | $    13,974
|Accrued property taxes    | 41,180      |  | 27,132     
|Accrued sales tax         | 48,486      |  | 47,332     
|Total                     | $   97,319  |  | $   88,438 



NOTE 6 - Line of Credit, Bank



During January 2005, we entered into a $750,000 line of credit agreement with Citizens Independent Bank.  The line of credit is subject to a defined borrowing base. Amounts outstanding bear interest at prime plus .5% (8.75% and 6.75% at October 1, 2006 and September 30, 2005, respectively). The line of credit is collateralized by our receivables and inventory. At October 1, 2006 and September 30, 2005, there were no borrowings outstanding under this agreement and we had the entire amount available under the borrowing base formula. On April 20, 2006, the Company and Citizens Independent Bank, through an amendment to the original agreement, extended the agreement through January 2, 2007. All other terms and conditions of the original agreement remain in full force and shall continue to be binding to the Company.



The Companys indebtedness to Citizens Independent Bank under the line of credit agreement and the term loan is guaranteed by Mr. Kenneth W. Brimmer, the Companys Chief Executive Officer and director, and Mr. Gary Copperud, a director of the Company. In exchange for the guaranty, Messrs Brimmer and Copperud were each granted five-year options to purchase 50,000 shares of its common stock, vested immediately, with an exercise price of $6.00. The options which were valued at $175,000 as debt issuance costs to be amortized over 5 years. The remaining unamortized debt issuance costs was eliminated on June 30, 2005 as part of the disposal of the Emergency Oxygen Business and was expensed to discontinued operations.



NOTE 7 - Long-Term Debt



On May 9, 2005 and May 10, 2005, the Company completed a mortgage financing relating to eight parcels of real estate used by the Companys subsidiary, Burger Time Acquisition Corporation (BTAC), in BTACs operation of a chain of fast-food, drive-thru restaurants under the Burger Time name.



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To facilitate the mortgage financing, the Company created a wholly-owned subsidiary, BTAC Properties, Inc., a Minnesota corporation (BTAC Properties) and transferred to BTAC Properties eight parcels of real estate located in Minnesota and North Dakota.



On May 9, 2005, BTAC Properties received $995,000 relating to the North Dakota properties and on May 10, 2005, BTAC Properties borrowed $1,060,000 relating to the Minnesota properties from StanCorp Mortgage (the Lender).  In consideration of these loans, BTAC Properties issued two promissory notes to the Lender, one in the amount of $995,000 and one in the amount of $1,060,000. Kenneth W. Brimmer, our Chief Executive Officer and a director, and Gary Copperud, our director, are also joint and several borrowers with BTAC Properties on the notes. Messrs. Brimmer and Copperud did not receive any compensation for joining as borrowers on the notes. The participation of Messrs. Brimmer and Copperud in the notes transaction was approved by the Companys Audit Committee. To facilitate the payment by BTAC Properties of the obligations under the notes, BTAC and BTAC Properties have entered into leases for each of the eight properties.  The rent amounts to be paid by BTAC to BTAC Properties under the leases have been assigned to the Lender for repayment of amounts owed under the notes.



The notes accrue interest at a rate of 6.25% per annum and are payable in 180 equal monthly installments of an aggregate of $17,621, with the final payment due June 1, 2020. The obligations of the notes are collateralized by a mortgage, assignment of rents, security agreement and fixture filing in favor of the Lender on each of the eight properties.  For the years ended October 1, 2006 and September 30, 2005 the long-term debt consisted of the following:



|                                                                                                                                                                                                                                               | 10/01/06          |  | 09/30/05     
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- |  | -------------
|Mortgage note payable to StanCorp Mortgage Investors, LLC.  Paid in full January, 2006                                                                                                                                                         | $               0 |  | $     766,631
|Mortgage note payable to StanCorp Mortgage Investors, LLC.  With monthly installments of $9,089 including interest at 6.25%, due June 2020, collateralized by buildings and land located at Elk River, Waite Park, Moorhead and Detroit Lakes. | 1,004,481         |  | 1,049,240    
|Mortgage note payable to StanCorp Mortgage Investors, LLC.  With monthly installments of $8,532 including interest at 6.25%, due June 2020, collateralized by buildings and land located at Minot, Grand Forks, Bismarck and Fargo.            | 942,881           |  | 984,898      
|Totals                                                                                                                                                                                                                                         | 1,947,362         |  | 2,800,769    
|Less current portion                                                                                                                                                                                                                           | (92,361)          |  | (121,037)    
|Long-term portion                                                                                                                                                                                                                              | $  1,855,001      |  | $   2,679,732



Future maturities on long-term debt are as follows:



|Fiscal Year |            
|----------- | -----------
|2007        | $    92,361
|2008        | 98,298     
|2009        | 104,621    
|2010        | 111,351    
|2011        | 118,513    
|Thereafter  | 1,422,218  
|Total       | $1,947,362 



NOTE 8 - Stockholders Equity



During the year ended October 1, 2006, the Company issued five-year options to the Board of Directors and an employee to purchase 7,500 shares at $6.00 per share. A portion of these options were subject to forfeiture under certain performance criteria. These options were valued at $1.73 using the Black Scholes pricing method.



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Private Placement

On November 15, 2005, the Company entered into a subscription agreement with two private investors for the sale of 222,222 shares of our common stock to each investor for cash consideration of $4.50 per share. The closing dates for the subscription agreements were November 25, 2005 and November 28, 2005. At the closing, each investor delivered the purchase price of $999,999 for the 222,222 shares issued.



Stock Warrants

In connection with a registered offering that was completed in October 2000, the Company issued warrants to purchase common stock. On May 13, 2005, the Companys Board of Directors extended the expiration date of the outstanding common stock purchase warrants to September 30, 2008.  There was not an accounting charge related to the extension of the warrants. At October 1, 2006 and September 30, 2005, there were outstanding common stock purchase warrants to purchase 369,793 shares at $4.00 per share.



Stock Option Plan

The Company has a Stock Option Plan (the Plan) which provides for granting of incentive and non-qualified stock options to employees and others. The aggregate of 600,000 shares of the Companys common stock may be granted at exercise prices not less than fair market value at the date of grant (not less than 110% of fair market value for significant stockholders). The Board of Directors or a committee administers the Plan.  In general, options vest over five years and expire up to ten years from the date of grant. In addition, the Company has issued options outside the Plan.



During fiscal year 2006, the Company cancelled certain options to a consultant as a result of the sale of the Medical Products Group and accounted for them in discontinued operations.



Information regarding stock options is summarized below:



|                                        | Number of Options |  | Weighted Average Exercise Price |  | Range of Option Exercise Price
|--------------------------------------- | ----------------- |  | ------------------------------- |  | ------------------------------
|Options outstanding, September 30, 2004 | 439,000           |  | $5.92                           |  | $3.63-9.74                    
|Granted                                 | 32,500            |  | 6.00                            |  | 6.00                          
|Cancelled                               | (126,000)         |  | 5.61                            |  | 4.63-7.50                     
|Exercised                               | -                 |  | -                               |  | -                             
|Options outstanding, September 30, 2005 | 345,500           |  | 5.96                            |  | 3.63-9.74                     
|Granted                                 | 7,500             |  | 6.00                            |  | 6.00                          
|Cancelled                               | (48,000)          |  | 5.29                            |  | 3.63-7.50                     
|Exercised                               | -                 |  | -                               |  | -                             
|Options outstanding, October 1, 2006    | 305,000           |  | $6.06                           |  | $3.63-$9.74                   
|Options exercisable, October 1, 2006    | 286,000           |  | $6.03                           |  | $3.63-$9.74                   
|Options exercisable, September 30, 2005 | 317,500           |  | $5.89                           |  | $3.63-$9.74                   





The following table summarizes information about stock options outstanding at October 1, 2006.



|                | Options outstanding | Options exercisable
|--------------- | ------------------- | -------------------
|                |                     | Weighted-          
|                |                     | average            
|                | Number              | remaining          
|Exercise prices | outstanding         | contractual life   
|$3.63-$4.95     | 25,000              | 3.70               
|$5.35-$7.95     | 270,000             | 2.43               
|$9.74           | 10,000              | 5.08               
|$3.63-$9.74     | 305,000             | 2.62               



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NOTE 9 - Income Taxes



At October 1, 2006 the Company did not have any federal or state operating loss carryforwards. The Company has research and development credit carryforwards of approximately $10,000 which, if not used, will begin to expire in 2013. Future changes in the ownership of the Company may place limitations on the use of these carryforwards. The provision for income taxes from continuing operations consisted of the following components for the years ended October 1, 2006 and September 30, 2005.



|Current: | 2006          |  | 2005        
|-------- | ------------- |  | ------------
|Federal  | $  (100,000)  |  | $  (207,600)
|State    | (5,500)       |  | (20,000)    
|Deferred | 17,561        |  | 59,600      
|         | $    (87,939) |  | $  (168,000)





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The Companys total deferred tax liabilities and deferred tax assets consisted of the following at October 1, 2006 and September 30, 2005:



|                               | 2006        |  | 2005      
|------------------------------ | ----------- |  | ----------
|Total deferred tax assets      | $  97,000   |  | $   99,000
|Total deferred tax liabilities | 0           |  | 0         
|                               | $    97,000 |  | $   99,000



These amounts have been presented in the Companys financial statements as follows at October 1, 2006 and September 30, 2005:



|                               | 2006       |  | 2005      
|------------------------------ | ---------- |  | ----------
|Current deferred tax asset     | $   24,000 |  | $   46,000
|Non-current deferred tax asset | 73,000     |  | 53,000    
|                               | $   97,000 |  | $   99,000





The Companys deferred tax assets and liabilities are as follows at October 1, 2006 and September 30, 2005:



|                                 | 2006         |  | 2005     
|-------------------------------- | ------------ |  | ---------
|Deferred tax assets:             |              |  |          
|Accrued liabilities              | $     27,000 |  | $  16,200
|Allowance for doubtful accounts  | 1,000        |  | 1,400    
|Inventory valuation adjustments  | 18,000       |  | 14,300   
|Net operating loss carryforwards | 182,000      |  | 0        
|Intangible assets                | 53,000       |  | 62,000   
|Other                            | 28,000       |  | 14,100   
|                                 | 309,000      |  | 108,000  
|Deferred tax liabilities:        |              |  |          
|Depreciation                     | (212,000)    |  | (9,000)  
|Net Deferred Tax Asset           | $    97,000  |  | $99,000  



Reconciliation between the statutory rate and the effective tax rate for continuing operations for the years ended October 1, 2006 and September 30, 2005 is as follows:



|                                    | 2006    |  | 2005   
|----------------------------------- | ------- |  | -------
|Federal statutory tax rate          | (34.0%) |  | (34.0%)
|State taxes, net of federal benefit | (3.5)   |  | (3.5)  
|Other                               | 6.9     |  | 0.0    
|Effective tax rate                  | (30.6%) |  | (37.5%)



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NOTE 10 - Related Party Transactions



In September 1998, the Company entered into certain royalty agreements. A former officer received royalties on medical product sales under certain these royalty agreements. Royalty expense for the years ended October 1, 2006 and September 30, 2005 under these agreements was $0 and $5,195, respectively. With the sale of the Medical Products Group to Aspen in November 2004 (see Note 2), the Company no longer sells, markets or distributes products under this agreement.



NOTE 11 - Retirement Savings Plan



The Company has a pre-tax salary reduction/profit-sharing plan under the provisions of Section 401(k) of the Internal Revenue Code. The Plan covers substantially all full-time employees who have reached the age of 18 and have been employed by the Company for one year or worked 1,000 or more hours during the year.  The Company will match 50% of the first 3% of employee contributions.  Company contributions to the 401(k) plan, which are made at the discretion of management, for the years ended October 1, 2006 and September 30, 2005 were $4,973 and $8,394, respectively.





NOTE 12 -  Commitments and Contingencies



Operating Leases

In August 2006, The Company, through STEN Financial Corporation, entered into a lease for certain real property located in Tempe, Arizona. The property consists of 1,400 square feet.  Base rent is $1,540 plus property taxes and shared expenses of $393 per month and rent expense was $2,917 for the year ended October 1, 2006. The term of the lease is for 45 months, expiring on May 31, 2010.



On January 20, 2006, the Company purchased from Robert Nichols Enterprises, Inc. certain real property located in Jacksonville, Texas.  At the time of the agreement, the Company leased the property from Robert Nichols Enterprises, with a base rent of $9,000 monthly.  The Company paid rents of $33,273 for the year ended October 1, 2006 and $108,000 for the year ended September 30, 2005.



In October 2005, the Company leased office space in Minnetonka, Minnesota.  Base rent is $ 3,000 per month.  The term of the lease expires on December 31, 2008. The Company paid rents of $26,960 for the year ended October 1, 2006 and $0 for the year ended September 30, 2005. The Company also rents, on a month to month basis, approximately 300 square feet at a mini storage facility for $200 per month. The Company paid rents of $1,800 and $0 for years ended October 1, 2006 and September 30, 2005, respectively.



In June 2005, the Company through Burger Time, entered into a lease as part of a license to operate a fast food hamburger operation at North Dakota State University. The lease shall be for a term of three (3) years beginning August 1, 2006 through July 31, 2009. The Company paid rents of $5,669 and $0 for the years ended October 1, 2006 and September 30, 2005, respectively.



In January of 2005, the Company, through Burger Time, leased a property, land and building, at its Watertown location.  Base rent is $2,000 plus property taxes of $113, per month and rent expense was $25,355 for the year ended October 1, 2006. In October 2006, the Company and the Landlord agreed to extend the lease for another 24 months, expiring December 31, 2008 and the Company must provide notice of intent to exercise the purchase and must render it to the Landlord no later than December 1, 2008. The Company has the right to purchase this location for $275,000.



In July 2004, the Company through its subsidiary BTAC purchased Burger Time and assumed a lease for land at its Sioux Falls location. Base rent is $1,000 per month and was $12,000 for the years ended October 1, 2006 and September 30, 2005, respectively.  The Company, also assumed a month to month lease of approximately 500 square feet of office space in West Fargo, North Dakota.  Base rent is 369 per month and was $4,191 and $2,880 for the years ended October 1, 2006 and September 30, 2005, respectively.



In addition, the Company leases certain equipment under leases expiring through April 2007.  Monthly base rent for the equipment is $1,865. In November 2005, the Company entered into an agreement with the lesser and cancelled the remaining term of the lease and made a final payment of $16,000. Total rent and equipment expense was $120,541 and $222,709 for the years ended October 1, 2006 and September 30, 2005, respectively.



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|Future minimum rental payments are as follows:
|----------------------------------------------
|                                              
|Fiscal Year                                   
|2007                                          
|2008                                          
|2009                                          
|2010                                          
|2011                                          
|Total                                         





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Stock Repurchase Program

On November 8, 2004, our Board of Directors authorized a repurchase program in the amount of 175,000 shares replacing a repurchase program originally adopted in September 2001. As of October 1, 2006 and September 30, 2005, the Company has purchased 159,928 and 47,535 common shares, respectively for a cost of $728,945 and $226,086, respectively.



NOTE 13 - Concentrations



During the year ended October 1, 2006, the Company had one customer from our Contract Manufacturing Business representing 24% of sales constituting 43% of the accounts receivable balance. During the year ended September 30, 2005, the Company had one customer representing 25% of sales constituting 92% of the accounts receivable balance.



NOTE 14- Subsequent Events



www.Moneyworldlending.com



On October 2, 2006, STEN Financial entered into an agreement with Dimah Financial, Inc. to purchase certain assets and business known as moneyworldlending.com, an internet website. The total purchase price was $200,000 and included accounts receivable, websites, trade names, domain names and fixed assets. Of the total purchase consideration, STEN Financial paid $200,000 in cash from working capital. Consideration for the asset purchase was through arms length negotiations between the Company and Dimah Financial Inc. STEN Financial intends to use the assets to continue the borrowing of money into sub-prime markets.



Cash Advance-Utah



On October 3, 2006, STEN Financial entered into an agreement to acquire certain Utah-based assets from National Financial Services, LLC. STEN Financial agreed to purchase certain assets and business known as Cash Advance. The total purchase price was $600,000 and included certain assets of Cash Advance including cash, accounts receivables, inventory and fixed assets. Of the total purchase consideration, STEN Financial paid $400,000 in cash from working capital and entered into a promissory note for $200,000, which was paid in full in November 2006. The promissory note bore interest at 8% per annum from October 2, 2006 payable in two installments of $100,000 with the first payment on April 2, 2007 and the second payment on October 2, 2007 together with principal and interest. Consideration for the asset purchase was through arms length negotiations between the Company and National Financial Services, LLC. STEN Financial intends to use the assets to continue the borrowing of money into sub-prime markets.



Colfax Financial Corporation



On November 7, 2006, STEN Financial entered into an agreement to transfer and assign certain assets from Flash Motors, a corporation located in Scottsdale, Arizona. Flash Motors has transferred certain Dealer Floorplan Notes in the principal amount of $225,559 together with all rights to certain installment notes in the amount of $284,922, including dealer reserves of $92,933 and $54,561 (for a net amount transferred to Flash Motors for the customer installment notes of $137,428), for a combined purchase amount of $362,987. Of the total purchase consideration, STEN Financial paid $362,987 in cash from working capital. Consideration for the asset transfer and assignment was through arms length



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negotiations between the Company and Flash Motors. STEN Financial intends to use the assets to continue the borrowing of money into sub-prime markets.

On November 14, 2006, Colfax Financial Corporation, a newly formed wholly owned subsidiary of STEN Financial, entered into a consulting and non-compete agreement with Flash Motors, Inc. dba Colfax Financial, a corporation located in Scottsdale, AZ. Among other things, Flash Motors is in the business of generating and servicing a portfolio of automobile installment purchase notes.

Under the agreement, Flash Motors will provide certain financial, marketing and management advice to Colfax Financial through its Chief Executive Officer, Harry March. Colfax Financial expects that Mr. March, as the principal consultant under the agreement, will assist it in developing its portfolio of automobile installment notes receivable and initially will develop automobile dealer relationships in the Phoenix, Arizona area.

The term of the agreement is five years, unless earlier terminated by the death or disability of Mr. March or by the Company upon notice to Flash Motors or Mr. March for breach of the agreement, an act constituting a felony or an act that may injure the reputation, business or business relationships of Colfax Financial. Under the agreement, Colfax Financial paid Flash Motors a consulting fee of $1.4 million. The fee was paid in the form of two promissory notes, one in the principal amount of $400,000 bearing interest at 20 percent per annum, due on demand with 30 days notice and the second promissory note in the amount of $1 million is due on demand with 30 days notice after 24 months and bearing interest a 10 percent per annum.  Under both promissory notes, interest is payable monthly in arrears.

Under the agreement, Flash Motors is prohibited from competing with Colfax Financial within Maricopa County for a period of five years, disclosing confidential information to any third party for a period of five years, soliciting certain employees from Colfax Financial for a period of one year, or soliciting any business from customers or accepting any new business from customers of Colfax Financial during the term of the agreement.

Flash Motors continues to retain and service the primary installment loan portfolio held prior to the date of the agreement and continues to operate an automobile finance business in the Tucson, Arizona area. The Company also understands that Flash Motors historically has engaged in finance activities unrelated to automobile financing and that it will continue these activities.

On November 14, 2006, Colfax Financial Corporation also entered into an Asset Purchase Agreement to acquire certain assets used in Flash Motors business for $100,000 paid in cash.  Under the Asset Purchase Agreement, Colfax Financial also will assume the lease for Flash Motorss Scottsdale, Arizona office.







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