UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

______________________________



FORM 10-K

______________________________

(Mark One)

[X]

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

For the fiscal year ended September 28, 2008



[  ]

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:

Common stock, Par Value $.01 Per Share

(Title of Class)

Three-Year Common Stock Purchase Warrant

(Title of Class)



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



Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  [   ]  Yes   [ X ]  No



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

[   ]  Yes    [X]  No



Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding- 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  [X]   Yes     [   ]   No



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  Large Accelerated Filer  [   ]         Accelerated Filer  [  ]  Non-Accelerated Filer  [  ]    Smaller Reporting Company [ 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



Based upon the $3.05 per share closing price of the registrants common stock on March 30, 2008, the last business day of the registrants most recently completed second fiscal quarter, as reported by The NASDAQ Capital Market, the aggregate market value of such common stock held by non-affiliates of the registrant as of March 30, 2008 was approximately $6,391,433.



As of December 29, 2008, the issuer had outstanding 2,528,751 shares of common stock, $.01 par value.



Documents Incorporated by Reference:None.





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TABLE OF CONTENTS



|           |                                                                                                 | Page No.
|---------- | ----------------------------------------------------------------------------------------------- | --------
|PART I     |                                                                                                 | 2       
|           |                                                                                                 |         
|ITEM 1     | BUSINESS                                                                                        | 2       
|ITEM 1A    | RISK FACTORS                                                                                    | 6       
|ITEM 1B    | UNRESOLVED STAFF COMMENTS                                                                       | 12      
|ITEM 2     | PROPERTIES                                                                                      | 12      
|ITEM 3     | LEGAL PROCEEDINGS                                                                               | 13      
|ITEM 4     | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                             | 13      
|           |                                                                                                 |         
|PART II    |                                                                                                 | 14      
|           |                                                                                                 |         
|ITEM 5     | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 14      
|ITEM 6     | SELECTED FINANCIAL DATA                                                                         | 15      
|ITEM 7     | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS           | 15      
|ITEM 8     | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                        | 21      
|ITEM 9     | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE            | 21      
|ITEM 9A    | CONTROLS AND PROCEDURES                                                                         | 21      
|ITEM 9B    | OTHER INFORMATION                                                                               | 21      
|           |                                                                                                 |         
|PART III   |                                                                                                 | 22      
|           |                                                                                                 |         
|ITEM 10    | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                         | 22      
|ITEM 11    | EXECUTIVE COMPENSATION                                                                          | 24      
|ITEM 12    | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS  | 28      
|ITEM 13    | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                       | 29      
|ITEM 14    | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                          | 29      
|           |                                                                                                 |         
|PART IV    |                                                                                                 | 30      
|ITEM 15    | EXHIBITS                                                                                        | 30      
|           |                                                                                                 |         
|SIGNATURES |                                                                                                 | 33      





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PART I

ITEM 1. BUSINESS



Forward Looking Statements



Statements included in this Annual Report on Form 10-K, 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-K, including those discussed under Item 1A Risk Factors, 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



STEN Corporation is a diversified business. We were incorporated in Minnesota in 1978 under the name Oxboro Medical International, Inc. In February 2005, we changed our name to STEN Corporation (STEN) from Sterion Incorporated. Our corporate offices are located in Minnetonka, Minnesota.



Currently, our operations are divided into two areas. The first is the business operations of STEN, which includes our corporate functions and a contract manufacturing business we conduct through our subsidiary, Stencor, Inc. Since May 2003, Stencor has provided contract manufacturing services at our Jacksonville, Texas facility. Historically, we have provided contract services to a single customer, STERIS Corporation; however, we have recently added four new customers to our contract manufacturing business and have started a distribution business known as Zbiz.



The second area of our continuing operations is comprised of the business of STEN Financial Corporation (STEN Financial) and its two subsidiaries: STEN Credit Corporation (STEN Credit) and EasyDrive Cars and Credit Corporation (EasyDrive). Since November 2006, STEN Credit has provided automobile loans to consumers with poor or limited credit history. STEN Credit also provides inventory financing to used car dealers.



In February 2007, through EasyDrive, STEN Credit opened a Buy Here/Pay Here retail used car business where we both sell used cars and finance their sale through STEN Credit. We lease used car lots in Phoenix, Maricopa and in Tucson, Arizona and operate these three used car lots under the names EasyDrive Cars and Credit.



From October 2006 to July 2008, our subsidiary, Alliance Advance, Inc. (Alliance Advance), had provided payday cash advances through a website at www.moneyworldlending.com, deferred presentment loans and check cashing services under the name Alliance Cash Advance at a retail store in Tempe, Arizona and through three stores located in Salt Lake City, Utah. On July 31, 2008, STEN Financial and Alliance Advance completed a sale of substantially all assets of this business to Western Capital Resources, Inc. for promissory notes totaling $263,038.



From July 2004 to May 2007, our subsidiary, Burger Time Acquisition Corporation (BTAC), operated a chain of quick service restaurants under the Burger Time name. On May 11, 2007, BTAC completed the sale to BTND, LLC of assets related to our Burger Time business for $1,000,000 in cash, an $806,319 note receivable plus a second promissory note of $1,886,432 relating to the assumption of mortgages. We will continue to hold certain real estate assets related to Burger Time pending the expected assumption of the related mortgages by BTND, LLC at which time transfer of the ownership to the property will be completed.



The recent business development activities of STEN Financial, together with the sale of our Alliance Advance Burger Time businesses, 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.



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Note Regarding Fiscal Year and Discontinued Operations



On September 19, 2006, the Board of Directors of STEN adopted a resolution changing STENs fiscal year end from September 30 to the Sunday closest (before or after) to September 30. As a result, our 2008 fiscal year ended on Sunday, September 28, 2008 and our 2009 fiscal year will end on Sunday, September 26, 2009. 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.



In our fiscal year 2008 and 2007 financial statements, we accounted for the sale of our Alliance Advance in July 2008 and Burger Time business in May 2007, all as Discontinued Operations.



CONTRACT MANUFACTURING BUSINESS



Principal Products and Distribution



In our Contract Manufacturing business, we manufacture sterilization containers and associated materials. These products are manufactured and distributed from our facility located in Jacksonville, Texas. The Texas facility is ISO 13485 certified. We recently added four new customers to our Contract Manufacturing business. Further, we have a distribution agreement with Air Glacier Systems, Inc. to manufacture and distribute Zero Bug Zone and distribute Liquid Filter products. These products are distributed through a division of Stencor called ZBiz and are sold principally through the website www.gozbiz.com.



Purchasing



The raw materials used in our Contract Manufacturing Business are readily available from multiple sources and primarily consist of plastics. Among other factors, the profitability of our Contract Manufacturing business depends upon our ability to anticipate and react to changes in raw material costs, which are influenced by the cost of crude oil used to make plastics. Various factors beyond our control, such as crude oil prices, may also affect our business.



Competition



Our Contract Manufacturing business is extremely competitive. Although we have made progress toward reducing our dependence on our major customer, STERIS Corporation, we rely on our contract customers to market and sell the products to the end users. Thus, we are affected by competition from other product manufacturers for sales to our contract customers of similar products, as well as competition faced by our customers for sales of products to end users. To be competitive in our Contract Manufacturing business, we believe that we must offer competitively priced products of superior quality and reliability.



Government Regulation



A significant portion of our Contract Manufacturing business and our manufacturing practices are subject to regulation by the Food and Drug Administration, the U.S. Department of Health and Human Services and similar state agencies. 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. Our sterilization container products are Class I products. However, our quality management system complies 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.



In addition, we are subject to various federal, state and local environmental laws. These laws govern discharges to air and water from our facility, 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. In our Contract Manufacturing business, we are also subject to various laws and governmental regulations concerning



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environmental matters and employee safety and health in the United States. We have made, and will likely continue to make, significant expenditures for compliance with these laws and regulations. We cannot predict with certainty future capital expenditures or operating costs associated with environmental law and regulation compliance.



We believe that we are 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 our Contract Manufacturing business.



STEN FINANCIAL BUSINESS



Products and Services



STEN Financial is comprised of STEN Credit Corporation and EasyDrive Cars and Credit. At our two locations of STEN Credit, we provide automobile financing to consumers with poor or limited credit history. Our EasyDrive Cars and Credit locations are Buy Here/Pay Here used car lots. The profitability of our STEN Credit and EasyDrive retail used auto lots depends on our ability to minimize our changes in credit costs and our ability to efficiently collect loan amounts due from our customers. Various factors beyond our control, such as the cost of credit, may also affect our business.



Our Locations



Our STEN Financial business, operates in five separate leased locations, consisting of two STEN Credit store fronts located in Arizona and three used car lots in Arizona, two in greater Phoenix and another in Tucson. The STEN Credit store fronts range from approximately 1,800 to 2,400 square feet and the retail car lots are approximately 34,000 and 25,000 square feet in Phoenix and 34,400 square feet in Tucson.



Our Customers



Our STEN Credit and Buy Here/Pay Here retail used car customers typically would not qualify for conventional financing as a result of limited credit histories or past credit problems.



Competition



In our STEN Financial business, we face competition from traditional borrowers like banks, credit unions, automobile finance companies, and non-traditional borrowers in the sub-



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prime markets like finance companies.



In our auto financing business, the market for consumers who do not qualify for conventional auto financing is large and highly competitive. We compete directly with other Buy Here/Pay Here dealerships where the dealer finances the consumers purchases and services the consumer loan themselves. The market is also served by banks, captive finance affiliates of automobile manufactures, credit unions and independent finance companies both publicly and privately owned. Many of these companies are much larger than we are and have greater resources than we do. These companies typically target customers with better credit within our markets. In order to be successful we believe that we must provide a high level of service to our customers and dealer-partners. There is the potential that significant direct competition could emerge and that we may be unable to compete successfully.



Our Automobiles



Automobiles for our Buy Here/Pay Here retail used auto lots are acquired from a number of sources including auto auctions, wholesalers and from private individuals. We do not have a guaranteed or exclusive source of supply for automobiles. Existing and future governmental regulation, typically environmental protection regulations governing emissions or fuel consumption, may negatively affect our business by depleting the supply of used vehicles that we sell.



Our Sources of Funds



Our STEN Financial businesses and in particular, our STEN Credit automobile finance business, depend upon our ability to fund loans to consumers. A significant source of capital to fund new loans is the cash flow from our existing loan portfolios.



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Government Regulation



In our STEN Financial 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. We are also 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 this information.



Moreover, various aspects of STEN Financial businesses are subject to various state and federal laws and regulations, which:



·

require licensing and qualification,



·

regulate interest rates, fees and other charges,



·

require specified disclosures to consumers,



·

govern the sale and terms of ancillary products;



·

define our rights to collect consumer loans and repossess and sell collateral;



·

require reporting under the Bank Secrecy Act 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 and report certain financial activity, such as where a transaction involves funds derived from an illegal activity; and



·

under the Money Laundering Act of 1994, require us to register with the U.S. Treasury Department and under the United States PATRIOT Act, require us to establish programs to detect and report money-laundering or terrorist funds.



We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable laws and regulations. Additionally, we believe that our operating procedures and employee training programs support our compliance with regulatory requirements.



Our failure to comply with these laws or regulations could have a material adverse effect on our business by, among other things, subjecting us to government, civil or criminal legal actions, limiting the states in which we may operate, restricting our ability to realize the value of the collateral securing the consumer loans, or resulting in potential liability related to the servicing of consumer loans accepted from dealer-partners. Our dealer servicing agreement with dealer-partners requires that the dealer-partner indemnify us with respect to any loss or expense we incur as a result of the dealer-partners failure to comply with applicable laws and regulations.



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.



Patents, Trademarks, and Licenses



Currently, we have no patents or registered trademarks relating to any of our businesses.



Research and Development Expenditures



We did not incur any expenses related to research and development for the years ended September 28, 2008 and September 30, 2007.



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Employees



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At September 28, 2008, we had 60 employees. The following table shows the number of employees in each of our businesses at September 28, 2008:



|Business/Location                                 | Employees
|------------------------------------------------- | ---------
|STEN corporate functions (Minnetonka, Minnesota ) | 4        
|Stencor (Jacksonville, Texas)                     | 26       
|STEN Credit (Scottsdale and Tucson, Arizona)      | 11       
|EasyDrive (Phoenix and Tucson, Arizona)           | 19       



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.



ITEM 1A.  RISK FACTORS



The occurrence of any of the following risks could harm our business.  The risks and uncertainties described below are not the only ones we face.  Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our operations.  If any of these risks materialize, the trading price of our common stock could decline, and investors may lose all or part of their investment.



RISKS RELATED TO OUR CONSOLIDATED BUSINESSES



The diversity of our current and future businesses may divert management attention from each of our businesses, intensify the risks of our businesses, and result in poor consolidated financial performance.



Over the past five years we have purchased, sold, developed or tested several different businesses. While each of our current businesses 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. Further, all of our businesses depend on a common executive management team. Because of the number of businesses we operate and their diversity, our management may not be able to timely respond to the needs of each of our businesses and therefore, the risks inherent in each of our businesses may affect us more acutely.



We made the strategic decision in November 2006 to devote substantially all of our limited resources to developing an automobile finance business conducted through STEN Credit Corporation. However, we also have invested some of our resources in exploring other business opportunities. We do not intend to limit our consideration of future business opportunities to any particular industry, to the industries in which we have prior experience, or to those businesses that have synergies with our existing businesses. To be successful, we must successfully execute multiple business plans at the same time. Our lack of focus on a single business activity, together with the significant risk of failure of each of our businesses and the limited experience of our executive management in any of our businesses, may contribute to poor financial performance for each of our business and harm our consolidated financial performance.



If we cannot successfully develop a new business, integrate it into our existing businesses, and realize the anticipated benefits of the new business, our financial condition and operating results may suffer.

Historically, part of our business strategy has been to identify and test the viability of new business opportunities. We have further developed some business opportunities, such as our Buy Here/Pay Here automobile sales business. We have also determined that some business opportunities were not viable, such as the Alliance Advance, Inc. We will not develop every business we evaluate. Further, exploring new business opportunities can be time consuming, result in significant expenses that may never be recouped and may divert managements attention from our existing businesses. Even if we determine to further develop a business, the integration of any new business into our ongoing business will likely be a complex, time consuming and expensive process and may disrupt business operations if not completed in a timely and efficient manner. Our failure to successfully integrate any new businesses with our existing businesses, which may be particularly difficult given the diversity of our existing businesses or to receive the anticipated benefits of new businesses could have a material adverse effect on our business, financial condition and operating results.



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Our historical financial results may not be indicative of future results because of our change in strategic direction.

In our fiscal year ended September 28, 2008, our total revenues were $15,871,601, consisting of revenue from our corporate and contract manufacturing business of $2,053,430 and revenue from our STEN Financial business of $13,818,171. In November 2006, we made the strategic decision to focus substantially all of our limited resources on the automobile finance business conducted by our STEN Credit subsidiary. Further, on July 31, 2008, we completed the sale of substantially all assets related to our Alliance Advance Inc. business to Western Capital Resources, Inc. and on May 11, 2007, we completed the sale of assets related to our Burger Time business to BTND, LLC. Therefore our fiscal year 2008 operating results provide only a limited basis for you to assess our consolidated business and our historical financial results are not indicative of our future financial results.



Our subsidiaries own nearly all of our assets and earn nearly all of our total operating revenues and our ability to repay our indebtedness depends upon the performance of these subsidiaries and their ability to make distributions to us.



STEN Corporation is a holding company and it currently conducts its operations through direct and indirect wholly-owned subsidiaries. As a result, substantially all of our assets are owned, and our cash flows are generated, by our subsidiaries. Accordingly, STEN Corporation depends upon dividends, loans and other intercompany transfers from our subsidiaries to meet our debt service and other obligations. These transfers are subject to the earnings of our subsidiaries. If our subsidiaries do not pay dividends or other distributions, we may not have sufficient cash to fulfill our obligations.



We are dependent on management and key personnel to succeed.



Our future success depends, in significant part, upon the continued service and performance of our senior management and other key personnel, in particular, Kenneth W. Brimmer, our Chief Executive Officer, John E. Halvorsen, the Chief Operating Officer of STEN Financial, and Mark F. Buckrey, our Chief Financial Officer. The loss of Mr. Brimmers or Mr. Halvorsens services could impair our ability to effectively manage our company and to carry out our business plan. We are also dependent upon key personnel in each of our businesses and the ability of our management to effectively manage and grow our various businesses. In addition, competition for skilled employees in our industry is intense. Our future success also depends on our continuing ability to attract, retain and motivate highly qualified managerial, service, technical and sales personnel. Our inability to retain or attract qualified personnel could have a significant negative effect and materially harm our business and financial condition.



Our management has limited experience in the automobile finance business, the payday lending business, or the retail used car business.



While we have historically been a diverse business, our business had been primarily focused on the development, marketing, manufacturing and sale of various medical products. Therefore, our senior management team has limited experience in our automobile finance business. Our managements experience consists of its experience in our businesses, each of which has only recently been developed. Because of the inexperience of our management, we cannot assure you we will be able to manage each of these businesses profitably, particularly during the critical start-up phase of each business, or be able to identify and effectively pursue growth opportunities in any of our existing businesses. Our lack of experience in each of these businesses could result in significant losses for our businesses or failure of a single or particular business, either of which would negatively effect and materially harm our business and financial condition.



Material weaknesses in our internal controls could have a material adverse effect on us.

Effective internal controls over financial reporting are necessary for us to provide reasonable assurance with respect to our financial statements and to effectively prevent fraud. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If we fail to implement required, new, or improved controls, if we encounter difficulties in implementing internal controls, or if we fail to remediate any existing or future material weakness, we may not be able to timely and reliably report our financial information, which may result in material misstatements in our financial statements or cause us to fail to meet our reporting obligations. The existence of a material weakness in internal controls, difficulties in implementing appropriate internal controls, and the development and implementation of internal control plans and remediation plans may also result in increased expense associated with accounting, auditing and compliance professionals. Our inability to provide timely and reliable financial information and otherwise meet our reporting obligations could cause our shareholders, existing investors and prospective investors to lose confidence in our reported financial information. This inability could also damage our reputation with shareholders, investors, lenders, customers, suppliers and others.



Managements assessment identified material weaknesses in internal controls over financial reporting as of September 28, 2008. Controls related to financial close and reporting for financial statement and footnote preparation including analysis of the estimates related to deferred tax asset; the loans allowance for auto financing and accounting for the debt medication were inadequate as of September 28, 2008. These deficiencies in the design and implementation of our internal control over financial reporting resulted in post-closing adjustments to be recorded in the fourth quarter of 2008. These adjustments were limited to $52,008 and were not material to previously reported interim periods, but were material had they not been detected on audit.



Because of the material weakness described above, management believes that, as of September 28, 2008, our internal controls over financial reporting were not effective.



RISKS RELATED TO OUR AUTO FINANCE BUSINESS



The future growth of our auto finance business depends significantly on the availability of capital resources and if such capital is not timely available to us on terms acceptable to us, our auto finance business may suffer.

Our auto finance business requires substantial cash to support entering into loans, financing inventory, and other cash requirements, in addition to debt service. To the extent that increases in the volume of loans provide income, a substantial portion of such income is received by us in cash over the life of the loans. The cash requirements of our automobile finance business is capital intensive and has required and will require cash flow outlays that are disproportionate to current income generated by the cash flows. In order to expand our loan programs with our dealer-partners, we may require additional capital in the future to fund installment notes and dealer floor plan financing. Equity and debt financing, however, might not be available when needed or, if available, might not be available on terms satisfactory to us. If we are unable to obtain adequate financing or financing on terms satisfactory to us, our ability to continue to support our business growth and to respond to business challenges could be significantly limited. Further, if we are unable to meet the needs of our dealer-partners for consumer financing or dealer floor-plan financing, our dealer-partners may lose confidence in our ability to service this aspect of their business and may seek alternative sources for such programs. Factors which could affect our access to the capital markets, or the costs of such capital, include changes in interest rates, general economic conditions, the perception in the capital markets of our business, results of operations, leverage, financial condition and business prospects, and the performance of our automobile finance business.



Our automobile finance business would be harmed if we cannot maintain and expand relationships with independent dealers.

We enter into automobile contracts primarily through our three Company Buy Here/Pay Here locations and recourse relationships with eleven automobile dealer-partners. Many of our competitors have long-standing relationships with used automobile dealers and may offer dealers or their customers other forms of more attractive or favorable financing that we currently do not provide. Our dealer-partner program may be difficult to develop with new dealers in its current form if these dealers determine that alternative programs are more attractive. Additionally, because we compete with some of our dealer-partners in our Buy Here/Pay Here retail used car business; it may be more difficult for us to maintain our relationships with dealer-partners. If we are unsuccessful in maintaining and expanding our Buy Here/Pay Here locations, we may be unable to purchase contracts in volume and on the terms that we anticipate and consequently our automobile finance business would be materially and adversely affected.



Because we loan money to borrowers with impaired credit or limited credit histories, we may have a higher risk of loan delinquencies and defaults.

Substantially all of our automobile contracts involve loans made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than are permitted by traditional lenders and we also enter into loans with higher loan-to-collateral value than most other lenders in the auto-financing business. Loans made to borrowers who are restricted in their ability to obtain financing from traditional lenders generally have a higher risk of delinquency, default and repossession, and higher losses than loans made to borrowers with better credit profiles. Delinquency may interrupt the flow of projected interest income from a loan, and default could eventually lead to credit losses.



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The used car dealer inventory financing program we offer exposes us to losses that are generally greater than similar types of inventory financing.

A used car inventory financing program involves the basic risks inherent in inventory financing, such as the risk that the dealers cost of holding the inventory may result in a loss on the ultimate sale of the inventory and make it more difficult for the dealer to repay the amount borrowed for the inventory financing. However, because of our inability to exercise full control over the floored items of inventory, our exposure to loss is generally greater than in other similar types of financing. Further, most dealers have minimal capital bases relative to debt. As a result, if the value of the collateral at the time of the loan to the dealer-partner or subsequently is less than the amount financed, we may face greater risk that any delinquency will not be covered by the collateral and losses. In addition, individual dealers may utilize multiple financial sources. In one case, we discovered that a dealers collateral was pledged to multiple lenders, resulting in competing security interests covering the same collateral. Should a similar situation develop in the future we could suffer a substantial loss.



The automobile finance business is highly competitive.

The automobile finance market is highly fragmented and is served by a variety of companies. The most significant competition in our segment comes from Buy Here/Pay Here dealerships where the dealer finances the consumers purchase and services the consumer loan themselves. The market is also currently served by banks, captive finance affiliates of automobile manufacturers, credit unions and independent finance companies; both publicly and privately owned. Many of these companies are much larger and have greater financial resources than are available to us, and many have long-standing relationships with automobile dealerships. Providers of automobile financing have traditionally competed based on the interest rate charged, the quality of credit accepted, the flexibility of loan terms offered and the quality of service provided to dealers and consumers. In seeking to establish STEN Credit as one of the principal financing sources of our dealer-partners, we intend to compete predominately on the basis of service and strong dealer relationships, and by offering the dealer-partners a high level of assurance that their customers will qualify for financing, removing one barrier to the dealer-partners completion of the sale. While we are only aware of a few companies that offer a credit approval program similar to ours, there is the potential that significant direct competition could emerge and that we may be unable to compete successfully.



The automobile finance industry is highly regulated by federal, state and local laws.

Our automobile finance business is subject to various laws and regulations which require licensing and qualification; limit the interest rate, fees and other charges associated with loans, require specified disclosures to consumers and define the rights to repossess and sell collateral. Failure to comply with, or an adverse change in, these laws or regulations could have a material adverse effect on our automobile finance business by, among other things, limiting the jurisdictions in which this business may operate, restricting the ability to realize the value of the collateral securing the loans, making it more costly or burdensome to do business, or resulting in potential liability. In addition, governmental regulations which would deplete the supply of used vehicles, such as environmental protection regulations governing emissions or fuel consumption, could have a material adverse effect on our automobile finance business.



Adverse economic conditions, particularly in Arizona, could adversely affect our auto finance business.

Our auto finance business is affected by changes in general economic conditions, including changes in employment rates, prevailing interest rates and real wages. Because our existing dealer-partners are located in the Phoenix, Arizona area and a majority of the consumers to whom we lend are located in the Phoenix metropolitan area, our auto finance business will be particularly affected by changes in economic conditions in Phoenix, the surrounding area, or in Arizona generally. During periods of economic slowdown or recessions, we may experience a decrease in demand for loans, an increase in our costs, a decline in collateral values or an increase in loan delinquencies and defaults, or the failure of a dealer-partner. A decline in collateral value and an increase in loan delinquencies and defaults increase the possibility of losses. Any sustained period of increased loan delinquencies, defaults, losses, or dealer-partner failures would materially and adversely affect the financial condition, results of operations and business prospects of our automobile finance business.



Our automobile finance business is subject to seasonality that may cause our quarterly operating results to fluctuate materially.

Our automobile finance business is seasonal in nature with demand generally higher in our existing market during the first quarter of the calendar year, which corresponds with the second quarter of each of our fiscal years. Therefore, we expect that we will typically experience periods of increased revenues during the second quarter. Additionally, because demand for financing products is tied to the demand for used automobiles, our revenues will be adversely affected by a decrease in demand for used automobiles. However, because the timing of demand for used automobiles and the strength of the demand is difficult to anticipate, we cannot estimate the fluctuation of our sales from quarter to quarter in a fiscal year or the impact of such demand from year to year.



Fluctuations in interest rates could adversely affect our net interest income and the profitability of our lending activities.



Our results of operations depend to a large extent upon our net interest income, which is the difference between interest received by us on the automobile installment contracts and the interest payable under the sources of funds we use to finance the installment contracts.



Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions, which are beyond our control. Several factors affect our ability to manage interest rate risk, such as the fact that automobile contracts are entered into at fixed interest rates, while amounts borrowed under our credit facilities may bear interest at different rates. In addition, the interest rates charged on the automobile installment contracts are limited by statutory maximums, which restrict our ability to ensure we receive a stable net interest income on the installment contracts. Therefore, we cannot predict the profitability of our lending activities.



Potential legislative initiatives and future regulatory requirements could affect our automobile lending business.



Legislation has been introduced in some states to create or reduce the maximum interest rate allowed by law and to require additional lending disclosures. While it is not possible to determine what legislation might be adopted, federal and state regulations regarding consumer lending are subject to future change. We cannot predict the impact, if any, these changes might have on our business. Future changes in regulations or enforcement policies could impose more stringent requirements on us, compliance with which could adversely affect our business. These changes also could, for example, limit the types of loan products we offer, increase our liability or increase our cost to offer such services. These changes may relax some requirements, which could prove beneficial to our competitors and thus adversely affect our business. We cannot assure you that future legislation and regulation will not adversely affect our business, financial condition and results of operations.



Defaults by consumers on their automobile loans and the resulting repossessions of their vehicles may expose us to risk of increased default by our dealer-partners who guaranty the consumer installment notes, or potential disputes, and liability relating to the vehicle repossessions.



In our automobile finance business, our dealer partner is assigned the responsibility of repossessing vehicles in the case of default under the consumer installment notes. The rate of default and repossessions varies from dealer to dealer; however, our expected rate is approximately 25% of all contracts entered into. Although our dealer-partner is responsible for making the repossessions, a consumer may claim that we are vicariously responsible for wrongful actions of the dealer-partner in performing the repossession. Because of the possibility of legal claims arising from defaults and repossessions, we may become involved in legal disputes with consumers or dealer-partners. Our agreement with the dealer-partner provides that the full amount of the consumers installment note contract is with full recourse to the dealer, meaning that the dealer must satisfy any remaining loan balance in the event of default. However, the high percentage of defaults by consumers could make it more difficult for dealer-partners to be able to satisfy their obligation to us, especially if the dealer-partner is not able to resell a repossessed vehicle and obtain at least the amount of the outstanding loan balance. Defaults by consumers and repossessions by dealer-partners may increase claims against us and the rate of defaults by dealer-partners, either of which will adversely affect our business, financial condition and results of operations.  In fiscal 2008, the Company has decided to exit the business dealing with dealer-partners.



Negative public opinion could damage our reputation and adversely impact our earnings.



Reputation risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect our ability to keep and attract dealer-partners, loan customers, and employees and can expose us to litigation and regulatory action. Although we take steps to minimize reputation risk in dealing with our dealer-partners, customers and communities, we believe that reputation risk will always be present in the automobile loan business, especially the sub-prime automobile lending business. Our inability to control the publics perception of our automobile loan business could have a material adverse effect on our financial condition.



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RISKS RELATED TO THE BUY HERE/PAY HERE USED AUTOMOTIVE RETAIL AND FINANCE INDUSTRY



Our automotive retail and finance business may experience a higher risk of delinquency and default than traditional lenders because we loan money to credit-impaired borrowers.



In our business of selling used automobiles and financing their sale, we anticipate that substantially all sales and automobile contracts will involve loans made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Loans made to borrowers who are restricted in their ability to obtain financing from traditional lenders generally entail a higher risk of delinquency, default and repossession, and higher losses than loans made to borrowers with better credit. Delinquency interrupts the flow of projected interest income and repayment of principal from a loan, and a default can ultimately lead to a loss if the net realizable value of the automobile securing the loan (taking into account costs of repossession and sale) is insufficient to cover the principal and interest due on the loan, or the vehicle cannot be recovered. The profitability of our automobile sales and finance business depends, in part, upon our ability to properly evaluate the credit worthiness of non-prime borrowers and efficiently service such loans. Although we believe that our underwriting criteria and collection methods enable us to manage the higher risks inherent in loans made to non-prime borrowers, no assurance can be given that such criteria or methods will afford adequate protection against such risks. If we experience higher losses than anticipated, our financial condition, results of operations and business prospects would be materially and adversely affected.



A reduction in the availability or access to sources of inventory could be limited.



We expect to acquire vehicles primarily through wholesalers and from auctions. There can be no assurance that sufficient inventory will continue be available to us at attractive prices. We do not have a guaranteed or exclusive source of supply for automobiles. Existing and future governmental regulation, typically environmental protection regulations governing emissions or fuel consumption, may negatively affect our business by depleting the supply of used vehicles that we sell. Any reduction in the availability of inventory or increases in the cost of vehicles would adversely affect gross profit percentages as we focus on keeping payments affordable to our customer base.



The used automotive retailing industry is highly competitive and fragmented.



We compete principally with other independent Buy Here/Pay Here dealers, some of which have extensive operations including Drive Time and J.D. ByRyder, both of which compete in the Arizona market with multiple locations. To a lesser degree, we will also compete with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions. We compete for both the purchase and resale of used vehicles. Our competitors may sell the same or similar makes of vehicles that we offer at competitive prices. Increased competition in the market, including new entrants to the market, could result in increased wholesale costs for used vehicles and lower-than-expected vehicle sales and margins. Further, if any of the competitors seek to gain or retain market share by reducing prices for used vehicles, we would likely reduce our prices in order to remain competitive, which may result in a decrease in our revenue and profitability and require a change in our operating strategies, resulting in minimal or negative gross profit.



An economic slowdown will have adverse consequences for the used automotive industry and may have greater consequences for the non-prime segment of the industry.



In the normal course of business, the used automotive retail and finance industry is subject to changes in regional U.S. economic conditions, including, but not limited to, interest rates, gasoline prices, inflation, personal discretionary spending levels, and consumer demand and/or increased costs, which could result in lower profitability for us. Due to our focus on non-prime borrowers, the actual rate of delinquencies, repossessions and credit losses on loans could be higher under adverse economic conditions than those experienced in the automotive retail finance industry in general.



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The used automotive retail industry operates in a highly regulated environment.



The used automotive retail industry is subject to a wide range of federal, state, and local laws and regulations, such as local licensing requirements and laws regarding advertising, vehicle sales, financing, and employment practices. Facilities and operations are also subject to federal, state, and local laws and regulations relating to environmental protection and human health and safety. The violation of these laws and regulations could result in administrative, civil, or criminal penalties against us, or in a cease and desist order. As a result, we have incurred, and will continue to incur, capital and operating expenditures, and other costs in complying with these laws and regulations. Further, over the past several years, private plaintiffs and federal, state, and local regulatory and law enforcement authorities have increased their scrutiny of advertising, sales, and finance and insurance activities in the sale of motor vehicles.



Our business is geographically concentrated and therefore, our results of operations may be adversely affected by unfavorable conditions in our local markets.



Our performance is subject to local economic, competitive, and other conditions prevailing in Arizona, the only state in which we have our EasyDrive Cars and Credit locations, and the state of residence of most of our customers. Our current results of operations depend substantially on general economic conditions and consumer spending habits in these local markets.



RISKS RELATING TO OUR CONTRACT MANUFACTURING BUSINESS



Our contract manufacturing business is dependent on a major customer.



For the year ended September 28, 2008, we realized sales of approximately $2,053,430 from our contract manufacturing business, of which $1,251,537 were derived from sales to STERIS Corporation.



Our manufacturing agreement with STERIS continues through December 31, 2008 with extensions subject to agreement between the parties. STERIS may terminate the agreement at any time upon 90 days notice. The Company is in the process of negotiating a new agreement with STERIS. 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. Our manufacturing agreement with STERIS does not contain any minimum purchase obligations, nor does it contain requirements that a certain percentage of STERIS sales are of our products. Further, purchases by STERIS depend upon STERIS ability to market and sell these products to its customers effectively. STERIS may choose to devote its efforts to its other products or products that compete with ours, or may reduce or fail to devote the necessary resources to provide effective sales and marketing support of the products we manufacture and supply. We believe that our future success will continue to depend in large part upon the success of STERIS in generating demand for the products we manufacture. Any significant reduction, delay or cancellation of orders from STERIS, or the loss of STERIS as the sole customer for our contract manufacturing business, could have a negative impact upon the operating results of our contract manufacturing business.



Our contract manufacturing business depends upon raw materials and fluctuations in the cost of raw materials may adversely affect our contract manufacturing business.



Our contract manufacturing business depends upon raw materials, such as plastic, from third-party suppliers. A variety of factors can materially and adversely affect the quality, quantity and cost of raw materials available, thereby materially and adversely affecting production costs and the ability of our contract manufacturing business to generate income. If our contract manufacturing business experiences raw material supply, production or shipment difficulties, such difficulties could adversely affect our ability to supply products to STERIS. Because our contract with STERIS only provides for yearly increases in product sales prices, we are also directly affected by increases in the costs of such raw materials. Any significant increases in the quality, quantity, availability or cost of raw materials could have a negative impact upon the operating results of our contract manufacturing business.



ITEM 1B. UNRESOLVED STAFF COMMENTS

None.



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ITEM 1. PROPERTIES



We lease approximately 1,140 square feet of office space for our headquarters in Minnetonka, Minnesota, a suburb of Minneapolis. The lease requires monthly payments of $3,000 per month and expires on March 31, 2009 with our option to extend the lease for an additional 36 months. We paid rents in the amount of $39,439 for the year ended September 28, 2008.



In April 2008, STEN Financial assumed a land lease located in Phoenix, Arizona, under which the Company has developed a Buy Here/Pay Here automobile business under the name EasyDrive Cars and Credit.  This second Phoenix lot opened for business on October 1, 2008. The Phoenix lot consists of approximately 25,000 square feet with approximately 2,000 square feet of office space. Monthly rent is $1,800 and the lease expires on April 30, 2028.  We paid rents of $1,800 for the year ended September 28, 2008 and $0 for the year ended September 30, 2007.



In March 2008, STEN Financial entered into a lease for retail automobile sales lot located in Tucson, Arizona under which operates a Buy Here/Pay Here automobile business under the names EasyDrive Cars and Credit and a STEN Credit office. The Tucson lot consists of approximately 33,400 square feet with a showroom of approximately 4,800 square feet and offices of approximately 2,100 square feet. Monthly rent is $7,514 and the lease expires on March 31, 2011. We paid rents in the amount of $23,400 for the year ended September 28, 2008.



In March 2007, STEN Financial entered into a lease for retail automobile sales lot located in Phoenix, Arizona under which it operates a Buy Here/Pay Here automobile businesses under the names EasyDrive Cars and Credit. The Phoenix lot consists of approximately 34,000 square feet with two small, modular office structures. Monthly rent is $7,215 and the lease expires on August 31, 2013. We paid rents in the amount of $87,735 for the year ended September 28, 2008.



In November 2006, STEN Credit entered into a lease for certain real property located in Scottsdale, Arizona. The Phoenix property consists of 1,800 square feet with a monthly base rent of $3,822. The term of the Scottsdale expires December 31, 2009, which we anticipate to renew for one year. The Scottsdale rent expense was $46,227 and $40,922 for the years ended September 28, 2008 and September 30, 2007, respectively.



We also own real property located in Jacksonville, Texas consisting of 15 acres of land and an approximately 30,000 square foot steel manufacturing facility used in our contract manufacturing operations.



Our wholly-owned subsidiary, BTAC Properties, Inc. (BTAC Properties), currently owns eight properties relating to our former Burger Time business that are subject to mortgages. As part of our sale of our Burger Time assets to BTND, LLC on May 11, 2007, these eight properties and their respective mortgages were transferred to BTND, with BTNDs assumption of the mortgages subject to the mortgagees consent. Pending receipt of consent of the mortgagee, we entered into two promissory notes with BTND and we use the proceeds of these notes to pay the mortgage amounts on the eight properties. As of September 28, 2008, $1,344,407 was outstanding on the mortgages relating to these properties. Kenneth W. Brimmer, our Chief Executive Officer and director and Gary Copperud, a former director, are joint and several borrowers with BTAC Properties on the mortgage notes. To facilitate the payment by BTAC Properties of the obligations under the mortgage notes, BTAC and BTAC Properties have entered into lease 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 obligations of the notes relating to each of the eight 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 following table describes these eight Burger Time locations:



|Burger Time Locations   
|------------------------
|                        
|Location                
|Fargo, North Dakota     
|Moorhead, Minnesota     
|Waite Park, Minnesota   
|Detroit Lakes, Minnesota
|Bismarck, North Dakota  
|Grand Forks, Minnesota  
|Minot, North Dakota     
|Fergus Falls, Minnesota 





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ITEM 2. LEGAL PROCEEDINGS



We have been and are involved in various legal proceedings and other matters that arise in the normal course of our business. Based upon currently available information, we believe that the ultimate resolution of these matters will not have a material effect on the financial position, liquidity or results of operations of the Company.



ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.

PART II



ITEM 4. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Use of Notes Proceeds



On April 5, 2007, the Securities and Exchange Commission declared effective our registration statement for the sale of up to $25 million of renewable unsecured subordinated notes with maturities from three months to ten years. As of September 28, 2008, we sold $7,504,571 in renewable unsecured subordinated notes. All of the proceeds from the renewable unsecured subordinated notes have been used to fund the Companys working capital requirements.



Market for Common Equity



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 sale 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 Sales Price
|-------------- |  | -------------------
|Period         |  | High               
|Fiscal 2007    |  |                    
|First Quarter  |  | $  5.04            
|Second Quarter |  | 4.70               
|Third Quarter  |  | 4.27               
|Fourth Quarter |  | 4.45               
|Fiscal 2008    |  |                    
|First Quarter  |  | $  3.41            
|Second Quarter |  | 4.70               
|Third Quarter  |  | 3.65               
|Fourth Quarter |  | 1.55               



As of November 26, 2008, 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 that originally expired three years after issuance (the Warrants). On May 11, 2005, our Board of Directors extended the expiration date of the outstanding Warrants to September 30, 2011 at 5:00 p.m. Minneapolis time. At September 28, 2008, there were 762,089 outstanding common stock purchase warrants to purchase 219,900 shares at $4.50 per share, 359,983 shares at $4.00 per share, 115,000 shares at $3.00, 22,206 shares at $1.00 and 45,000 shares at $0.01. At September 30, 2007, there were outstanding common stock purchase warrants to purchase 219,000 shares at $4.50 and 359,983 shares at $4.00 per share.



Dividend Policy



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



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Information Regarding Equity Compensation Plans



The following table sets forth information regarding our equity compensation plans in effect as of September 28, 2008. 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.



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:
(Option Grants) |  | 416,300                                                                                                 |  | $4.83                                                                       |  | 185,700                                                                                                 
|                                                                    |  |                                                                                                         |  |                                                                             |  |                                                                                                         
|Equity compensation plans not approved by stockholders:             |  | 762,089                                                                                                 |  | $3.64                                                                       |  | -                                                                                                       
|                                                                    |  |                                                                                                         |  |                                                                             |  |                                                                                                         
|Total                                                               |  | 1,178,389                                                                                               |  | $4.07                                                                       |  | 185,700                                                                                                 



The equity compensation plans not approved by stockholder includes warrants issued to consultants.  In January and February 2008, the Company issued warrants to three consultants to purchase an aggregate of 115,000 shares of the Companys common stock. The warrant exercise price is $3.00 per share of common stock. STEN shares were trading within a range of $1.33 to $1.38 at the time of issuance of warrants. The warrants may be exercised by the holder at anytime and up to five years from the date of execution, at which time all of the warrant holders rights shall expire.  In February 2007, the Company also issued warrants to purchase 219,900 shares of common stock at $4.50 per share.





|Grant date             | Warrant Outstanding | Expiration  date      | Exercise price
|---------------------- | ------------------- | --------------------- | --------------
|09/30/2000             | 359,983             | 09/30/2011            | $4.00         
|02/14/2007             | 219,900             | 03/01/2012            | $4.50         
|12/03/2007             | 22,206              | 03/01/2012            | $1.00         
|01/01/2008 -02/27/2008 | 115,000             | 01/01/2013-02/27/2013 | $3.00         
|08/22/2008             | 45,000              | 08/22/2013            | $0.01         
|                       | 762,089             |                       | $3.642        





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Repurchases of Common Stock



We made no purchases of our equity securities in the fourth quarter of the fiscal year ended September 28, 2008.



ITEM 5. SELECTED FINANCIAL DATA



Not applicable to a smaller reporting company.



ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion should be read in conjunction with our financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of selected factors, including those set forth under Risk Factors in Item 1A. All forward-looking statements included herein are based on information available to us as of the date hereof, and we undertake no obligation to update any such forward-looking statements.



Critical Accounting Estimates and Policies



This Item 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 and loans receivable, (c) inventories, (d) goodwill, intangible and other long-lived assets,(e) accounting for business combinations and (f) valuation of stock-based compensation award.



(a) Revenue Recognition and Shipping and Handling Costs  Interest on notes receivable associated with the consumer auto loans or vehicle installment notes is recognized as revenue based on the outstanding monthly unpaid principal balance and is generally contractually provided at the rate of 29% per annum. In addition, discount points paid at the time the installment note is entered into are recognized as finance charge revenue over the life of the loan. Should inventory financing receivables, or note receivables maybe determined to be impaired, the recognition of revenue would be suspended and a provision for losses equal to the difference between the carrying value and the present value of the expected cash flows would be recorded. Under our current arrangements with the dealer-partner in the event of default, the dealer-partner is required to pay the remaining principal amount of the contract and the vehicle collateral is assigned to the dealer for foreclosure and repossession.



In our Buy Here/Pay Here retail used auto sales business, revenue is recognized from the sale of a vehicle when the vehicle is delivered, the sales contract is signed, the down payment is received and funding has been approved.



For our Contract Manufacturing, we recognize revenue in accordance with Staff Accounting bulletin No. 104 (SAB 104), Revenue Recognition. SAB 104 requires revenue to be recognized when all of the following are met: a) persuasive evidence of an arrangement exists; b) delivery of product has occurred; c) the sellers price to the buyer is fixed or determinable; and d) collectability 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.





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(b) Allowance for Uncollectible Accounts and Loans 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. Loans receivable over 30 days are considered past due. We do 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. 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, Intangibles 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. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision, or that the remaining balance of these assets may not be recoverable. During Fiscal 2008, the Company decided to shift its auto finance business away from the dealer/partner relationships towards financing its own contracts through its Buy Here/Pay Here lots.  The Companys evaluation indicated that the future undiscounted cash flows of the Customer Lists are not sufficient to recover the carrying value of such assets, the assets were adjusted to their fair values of $0 and a $571,667 charge was expensed in the year ended September 28, 2008. As required by an amendment with Valens, Kenneth W. Brimmer, the Companys Chief Executive Officer and Chairman of the Board of Directors, entered into a letter agreement dated October 31, 2008.  Under the Letter, Mr. Brimmer agreed to deliver an executed asset purchase agreement to the agent within 30 days of October 31, 2008.  The asset purchase agreement would provide for the purchase by Mr. Brimmer of substantially all of the assets of Stencor Inc. for consideration of no less than $1,300,000 net of certain payments and assumptions. The Companys evaluation of the letter agreement and subsequent review of the fair values of its property and equipment the Company determined that the assets were overvalued and a $650,000 impairment charge was expensed in the year ended September 28, 2008. No impairment was recorded on property and equipment during the year ended September 30, 2007.



(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.



(f)  Valuation of Stock-Based Compensation Awarded  -  Effective October 2, 2006, we adopted Statement of Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment(SFAS 123(R)), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options based on fair values. Our determination of fair value of share-based payment awards is based on the date of grant using an option-pricing model which incorporates a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility and estimates regarding projected employee stock option exercise behaviors and forfeitures. We recognize the expense related to the fair value of the award straight-line over the vesting period.



Recent Accounting Pronouncements



In May 2008, the Financial Accounting Standards Board (FASB) issued Statements of Financial Standards No. 162 (SFAS 162), The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities.



Prior to the issuance of SFAS 162, GAAP hierarchy was defined in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69 (SAS 69), The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. SAS 69 has been criticized because it is directed to the auditor rather than the entity. SFAS 162 addresses these issues by establishing that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.



SFAS 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect SFAS 162 to have a material effect on its consolidated financial statements.



During March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities  and amendment of FASB Statement No. 133, (SFAS161) which requires enhanced disclosures about an entitys derivative and hedging activities. The standard requires entities to disclose the fair values of derivative instruments and their gains and losses in a tabular format to provide financial statement users with a more complete picture of the location in the entitys financial statements of both the derivative positions existing at year-end and the effect of using derivatives during the reporting period. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys statements issued for fiscal years beginning after November 15, 2008. The Company does not believe that the adoption of SFAS 161 will have a material effect on its results of operations, financial positions, or cash flows.



Results of Operations



For the year ended September 28, 2008 and September 30, 2007



Net sales from continuing operations for the year ended September 28, 2008 were $15,871,601 an increase of 320.3% compared to the year ended September 30, 2007 net sales of $3,776,637. Revenues attributable to STEN Financial were $13,818,171, or 87.06% of our net sales for the year ended September 28, 2008, as compared to sales of $2,331,815 for the corresponding period in 2007. Net sales in the Contract Manufacturing Business (STENCOR Inc.) segment increased 42.12% to $2,053,430 for the year ended September 28, 2008, as compared to $1,444,822 for the same period in fiscal year 2007. The increase in revenues, $12,094,964 for fiscal 2008 as compared to fiscal 2007 can be attributed to the greater focus in developing our STEN Financial business segment. With the formation of STEN Credit Corporation, our two, soon to be three, Buy Here/Pay Here used automobile sales lots (EasyDrive Cars and Credit), we expect STEN Financial to become our dominate business segment. Revenues for fiscal 2008 for STEN Credit and EasyDrive Cars were $2,416,110, and $11,402,061, respectively, as compared to $1,164,603 and $1,167,212 for fiscal 2007. The 42.12% increase in revenue for the year ended September 28, 2008 in out contract manufacturing business comes from the addition of three new customers.



Costs of goods sold related to our STENCOR business for the year ended September 28, 2008 was $2,079,164 compared to $1,903,240 for the year ended September 30, 2007. The cost of goods sold reflects the expenses incurred in manufacturing in our Contract Manufacturing business segment. The $175,924 increase in costs of goods sold is reflected by the increase in revenue in the Contract Manufacturing business experienced in the year ended September 28, 2008 as compared to the year ended September 30, 2007.



As required by an amendment with Valens, Kenneth W. Brimmer, the Companys Chief Executive Officer and Chairman of the Board of Directors, entered into a letter agreement dated October 31, 2008.  Under the Letter, Mr. Brimmer agreed to deliver an executed asset purchase agreement to the agent within 30 days of October 31, 2008.  The asset purchase agreement would provide for the purchase by Mr. Brimmer of substantially all of the assets of Stencor Inc. for consideration of no less than $1,300,000 net of certain payments and assumptions. The Companys evaluation of the letter agreement and subsequent review of the fair values of its property and equipment the Company determined that the assets were overvalued and a $650,000 impairment charge was expensed in the year ended September 28, 2008.



Cost of autos sold for the year ended September 28, 2008 was $7,755,240 compared to $1,002,808 for the year ended September 30, 2007. Expenses of $7,755,240 reflect the costs of autos sold in our Easydrive Cars and Credit locations. We expect, given the current supply of used autos and the Arizona market, to maintain the current margins on the sale of used automobiles in the next fiscal year.



Salaries and benefits for the STEN Financial business segment for the year ended September 28, 2008 were $1,307,904 compared to $727,352 for the year ended September 30, 2007. The salaries and benefits included $751,916 in our STEN Credit operations, $555,988 in our EasyDrive Car and Credit locations for the year ended September 28, 2008. The salaries and benefits included $570,846 in our STEN Credit operations, $156,506 in our EasyDrive Car and Credit locations for the year ended September 30, 2007.



Occupancy and operating expenses for the year ended September 28, 2008 was $778,980 compared to $240,923 for the year ended September 30, 2007. These expenses reflect the costs of rents, local and long distance telephone charges, office supplies, permits, property taxes, utilities and other fees and costs associated with STEN Financial. We have four locations in Arizona in this business segment. Occupancy and operating expenses were $283,493 in our STEN Credit operations, $495,487 in our EasyDrive Cars and Credit locations for the year ended September 28, 2008. Occupancy and operating expenses were $140,292 in our STEN Credit operations, $100,631 in our EasyDrive Cars and Credit locations for the year ended September 30, 2007. We plan to open the second Phoenix area lot in October 2008 so we anticipate an increase in these expenses in fiscal 2009.



Depreciation and amortization for the year ended September 28, 2008 was $251,853 compared to $200,301 for the year ended September 30, 2007. These expenses reflect the depreciation and amortization of assets affiliated with STEN Financial. Depreciation and amortization was $245,489 for our STEN Credit operations and $6,364 for our EasyDrive Cars & Credit operations for the year ended September 28, 2008.



Provision for loan losses and adjustments for the year ended September 28, 2008 was $3,435,116 compared to $1,160,936 for the year ended September 30, 2007. These expenses reflect the costs to administer the loans such as costs of bad debt and write-offs, lead costs, credit inquiries and other related expenses associated with the STEN Financial segment and are recorded as an offset to revenue. Provisions for loan losses and adjustments were $3,425,274 in our STEN Credit operations and $9,842 in our EasyDrive Cars and Credit locations for the year ended September 28, 2008. In the year ended September 30, 2007, we incurred a charge of $1,137,439 related to a dealer partner who closed operations. A charge of $942,439 was related to inventory financed by this dealer that closed operations in the fourth quarter of fiscal 2007. The Company fully reserved for the value of the financed inventory that is the subject of a dispute relating to competing security interests covering the properties.



Interest expense, net for the year ended September 28, 2008 was $3,297,357 compared to $626,728 for the year ended September 30, 2007. Interest expense in our STEN Credit operations were $1,094,099 and relates to interest paid on the Companys promissory notes and our senior creditor for the year end September 28, 2008. Interest expense in our Corporate operations were $2,137,369 and relates to interest paid on the Companys mortgage in Texas, interest paid related to our S-1 registration, debt issuance expenses, debt extinguishment costs and expenses related to our S-1 registration for the year end September 28, 2008. The Company had interest income of $65,889 for the year ended September 28, 2008. Since we began conducting this business, we have relied upon receivable-based borrowings and the issuance of the renewable unsecured subordinated notes to support the growth of this business. We expect to continue to rely upon these and other sources, to meet our capital requirements in future periods.



The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision, or that the remaining balance of these assets may not be recoverable. During Fiscal 2008, the Company decided to shift its auto finance business away from the dealer/partner relationships towards financing its own contracts through its Buy/Here Pay/Here lots.  The Companys evaluation indicated that the future undiscounted cash flows of the Customer Lists are not sufficient to recover the carrying value of such assets, the assets were adjusted to their fair values of $0 and a $571,667 charge was expensed in the year ended September 28, 2008.



Selling, general and administrative expenses for the year ended September 28, 2008 was $1,179,381 compared to $667,891 for the year ended September 30, 2007. In the year ended, September 28, 2008, the expenses were salary and benefits of $427,728, professional fees of $347,467, stock based compensation of $101,656, and occupancy and operation expenses of $260,794 for the year ended September 28, 2008.



Liquidity and Capital Resources



Historically, we have satisfied our liquidity needs through various debt arrangements, sales of debt and equity, and cash provided by operations. In fiscal year 2008 and 2007, principal liquidity needs have included cash for making loans in our automobile finance business, our development of our Buy Here/Pay Here retail used car business, and debt service requirements.



As of September 28, 2008, we had a working capital of a negative $2,304,347 as compared to $1,044,448 at September 30, 2007, and long-term debt of $10,983,738 at September 28, 2008 compared to $4,457,458 at September 30, 2007. The $3,348,795 decrease in working capital at September 28, 2008 compared to September 30, 2007 was primarily the result of a promissory note for $1,400,000 coming due within the 2009 fiscal year and approximately $2,445,000 more in required repayments of our renewable unsecured subordinated notes in fiscal 2008 as compared to fiscal 2007.



The Company believes that we have a plan that shows adequate capital to meet our cash requirements for the next twelve months from our internal working capital and a security agreement we entered into with U.S. SPV I, LLC (Valens) on November 23, 2007.  At September 28, 2008, our availability under our security agreement with Valens was $2,135,000.  In order to obtain additional availability under this security agreement, we entered into an amendment with Valens on November 4, 2008 to permit certain Stencor inventory to be included among the assets we may use to borrow under the security agreement. We intend to work with Valens to increase the amount of borrowings available consistent with the assets we have pledged to Valens as security for our indebtedness.



Our auto finance business conducted through STEN Credit will require significant capital to continue. Since we began conducting this business, we have relied upon receivable-based borrowings, such as the Valens security agreement, and the sale of our renewable unsecured subordinated notes to support the growth of this business. If such borrowings were not available to us and if we are unable to otherwise adequately fund the STEN Credit business, the growth of this business, and of STEN, would be restricted. In our lending businesses, we expect that net receivable balances will grow in the foreseeable future. We expect that, given our relatively early-stage involvement in these businesses, growth in the financial business will require significant additional capital to maintain the targeted growth rates.



Operating Activities



As of September 28, 2008, we had $242,733 in cash and cash equivalents as compared to $156,399 at September 30, 2007. We also had $2,135,000 available under the terms the security agreement with Valens as of September 28, 2008.  Net cash used in operating activities was $7,327,148 for the year ended September 28, 2008, compared to $7,010,226 used in operating activities for the year ended September 30, 2007. The primary uses of cash for the year ended September 28, 2008 were to fund the net loss from operations of $6,677,061, increased allowances for loan losses of $2,223,628, increased auto loans receivable of $6,300,077, increase inventories by $696,575, increased amortization of debt issuance costs of $1,286,791, and reduced dealer reserve payable of $1,049,404.



Investing Activities



Investing activities for continuing operations consist primarily of purchasing assets (tangible and intangible) to develop new businesses or augment existing businesses. Net cash used from investing activities was $71,284 for the year ended September 28, 2008 as compared to net cash used in investing activities of $530,167 for the year ended September 30, 2007. The difference is primarily due to construction in progress (the Companys second Phoenix retail lot) of $452,257, equipment purchases of $110,305 and note receivable payments of $619,697.



Financing Activities



Net cash provided by financing activities was $7,529,704 for the year ended September 28, 2008, compared to $5,621,600 for the year ended September 30, 2007. The change was primarily due to proceeds from debt agreements of $6,714,515 offset by repayments of obligations to an individual lender, Citizens Independent Bank and R.W. Sabes Investment, LLC in the amount of $2,450,475 primarily in late November and early December 2007. The Company charged $1,543,383 in debt issuance costs related to the S-1 registration in the year ended September 28, 2008. Additionally, the Company received $777,278 in proceeds from a common stock private placement and received debt proceeds of $4,711,769 from its renewable unsecured subordinated notes during the year ended September 28, 2008.



Under the security agreement among STEN, certain of our subsidiaries and Valens, Valens may make revolving loans to these borrowers from time to time during the three year term of up to $8,850,000, subject to a defined borrowing base. The borrowing base takes into account reserves established by Valens, the amount of certain available accounts of the borrowers and the amount of certain available inventory of the borrowers. The amounts loaned to the borrowers are evidenced by a secured revolving note in the maximum aggregate amount of $8,850,000 that matures on August 22, 2011 and bears interest at a rate equal to the prime rate from time to time plus 8.25%, but no less than 16.25%. Interest is payable monthly, in arrears, commencing on December 1, 2007 on the first business day of each consecutive calendar month thereafter. In an event of default, as defined under the security agreement, the borrowers will be obligated to pay additional interest of 2% per month as a penalty until the event of default is cured or waived and the agent for Valens may demand repayment of the obligations of the note and the security agreement or may elect to demand a default payment equal to 130% of the outstanding principal amount of the note, plus accrued but unpaid interest and all other fees and amounts then remaining unpaid. The obligations of the security agreement and the note are secured by a security interest in all of the borrowers assets, as well as the assets of our other subsidiaries and our equity interest in our subsidiaries.



The Company issued an original issue discount term note in the amount of $1,500,000 (no cash was or will be received), paid closing fees representing 3.6% of the $8,850,000 ($318,600) and agreed to revenue sharing where the Company will pay Valens 0.75% of gross revenues payable in cash each month for a period no less than the 6 years with the first payment being due 13 months post funding or (September 30, 2011).  The original issue discount term note will be paid 5 years from the closing (August 22, 2013). The Company will provide $600,000 and $900,000 payments at month 48 (August 22, 2012) and month 60 (August 22, 2013) respectively.  The Company may retire the debt for $1,000,000 at any time prior to the 37th month (September 22, 2011). The closing fees of $318,600 were recorded as debt issuance costs and are being amortized over the life of the loan (see Note 16). The Company will be charging interest expense monthly as it accrues this liability over the payment term. The balance accrued for the note was $16,365 as of September 28, 2008.



In February 2007, we filed a registration statement for an offering of up to $25 million of renewable unsecured subordinated notes that was declared effective in April 2007. As of September 28, 2008, we had $7,504,571 outstanding in renewable unsecured subordinated notes and $371,060 of accrued interest for a total of $7,875,630.



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The following summarizes our contractual obligations at September 28, 2008. The notes payable consists of two mortgage notes, (one to Austin Bank in the amount of $473,041 and one to Bremer Bank in the amount of $369,585), two promissory notes (one to Flash Motors in the amount of $1,400,000 and one to Valens in the amount of $6,662,700) and the renewable unsecured subordinated notes of $7,504,571 at September 28, 2008. The original issue discount term note of $1,500,000 will be accrued over the five year term and the Company will provide $600,000 and $900,000 payments at month 48 (August 2012) and month 60 (August 2013). The operating leases include the lease of our Minnetonka, Minnesota offices and our leases related to STEN Financial businesses. The table shows the effect these contractual obligations, which includes our discontinued operations, are expected to have on our liquidity and cash flows as of September 28, 2008.





|                                  | Total        |  | 1 Year or Less |  | 1-3 years   |  | 3-5 Years   |  | Over 5 Years
|--------------------------------- | ------------ |  | -------------- |  | ----------- |  | ----------- |  | ------------
|                                  |              |  |                |  |             |  |             |  |             
|Operating Leases                  | $  1,193,400 |  | $   263,497    |  | $   369,598 |  | $   217,105 |  | $  343,200  
|Original issue discount term note | 1,500,000    |  | -              |  | -           |  | 1,500,000   |  | -           
|Notes Payable                     | 16,426,262   |  | 5,442,524      |  | 9,744,391   |  | 813,148     |  | 426,199     
|Total                             | $19,119,662  |  | $5,706,021     |  | $10,113,989 |  | $2,530,253  |  | $  769,399  



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ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies.



ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The following financial statements are included in the Form 10-K:



|Report of Independent Registered Public Accounting Firm       | F-1        
|------------------------------------------------------------- | -----------
|                                                              |            
|For the years ended September 28, 2008 and September 30, 2007 |            
|                                                              |            
|Consolidated Balance Sheets                                   | F-2        
|Consolidated Statements of Operations                         | F-3        
|Consolidated Statements of Stockholders Equity (Deficit)     | F-4        
|Consolidated Statements of Cash Flows                         | F-5        
|Notes to Consolidated Financial Statements                    | F-6 to F-30







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



None.



ITEM 9A. CONTROLS AND PROCEDURES



(a)    Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a15-(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that:

(i)

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(ii)

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(iii)

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision of our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment and those criteria, management believes that the Company maintained effective internal control over financial reporting as of September 28, 2008.

Managements assessment identified the following material weakness in internal controls over financial reporting as of September 28, 2008:

Controls related to financial close and reporting for financial statement and footnote preparation including analysis of the estimates related to deferred tax asset; the loans allowance for auto financing and accounting for the debt modification were inadequate as of September 28, 2008. These deficiencies in the design and implementation of our internal control over financial reporting resulted in post-closing adjustments to be recorded in the fourth quarter of 2008. These adjustments were limited to 2008 and were not material to previously reported interim periods, but were material had they not been detected on audit.

Because of the material weakness described above, management believes that, as of September 28, 2008, our internal controls over financial reporting were not effective.

Subsequent to September 28, 2008 we have undertaken and will continue to undertake work to remediate the material weakness described above, including implementing, documenting and testing new controls and procedures.

This Annual Report on Form 10-K does not include an attestation report of the Companys independent registered public accounting firm, Virchow, Krause & Company, LLP, regarding internal controls over financial reporting. Managements report was not subject to attestation by Virchow, Krause & Company, LLP pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this Annual Report on Form 10-K.

(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, our internal control over financial reporting.



The Companys internal control report is included in this report under Item 8, under the caption Managements Report on Internal Control over Financial Reporting.





ITEM 9B. OTHER INFORMATION

On January 12, 2009, the Company received a received a Staff Deficiency Letter regarding a deficiency in the composition of the Companys Audit Committee for the period from October 28, 2008 to December 12, 2008.  Due to the resignation of Steven F. Sabes from the Board and Audit Committee on October 28, 2008, the Company became non-compliant with the audit committee requirement for continued listing on The Nasdaq Stock Market as set forth in Marketplace Rule 4350(d)(2) because the Companys Audit Committee was comprised of only two instead of three members.  On December 12, 2008, the Companys Board of Directors appointed Gervaise Wilhelm, an independent director, to serve on the Audit Committee.  As a result of this action, the Companys Audit Committee is now comprised of three members, all of whom are independent directors. Accordingly, as stated in the Staff Deficiency Letter, the Nasdaq staff has determined that the Company has regained compliance with the Marketplace Rule 4350(d)(2).





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PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



Information Regarding Directors

The names and biographical information concerning our current directors are set forth below, based upon information furnished to the Company by the directors.



Class I Director: Terms Expiring After Fiscal 2008



Gervaise Wilhelm, age 64. Ms. Wilhelm has been a director of STEN Corporation since February 2000.  Since 2005, she has served as the Chief Executive Officer of Closys Corporation, which develops, tests and manufactures arterial sealing devices. She also is the managing director of Endomedical Technologies, a developer of endoscope barrier sheathing products, and has been affiliated with Endomedical Technologies since 1998. Ms. Wilhelm served as the Chief Executive Officer of Paradigm Diagnostics, a food safety monitoring company from 2001 to 2005 and also served as a director. She is currently a director of Closys Corporation and Endomedical Technologies.



Class II Directors: Term Expiring After Fiscal 2009



Kenneth W. Brimmer, age 53. Mr. Brimmer has been a director of STEN Corporationsince February 1998. Mr. Brimmer has been the Companys Chief Executive Officer since September 2003. Mr. Brimmer also has been Chief Manager of Brimmer Company, LLC, a private investment company, since December 2001. Mr. Brimmer was the Chairman and a Director of Active IQ Technologies, Inc. from April 2000 until June 2003 and was its Chief Executive Officer from April 2000 until December 2001. Previously, Mr. Brimmer was President of Rainforest Cafe, Inc. from April 1997 until April 2000 and he was also its Treasurer from its inception in 1995 until April 2000. Mr. Brimmer currently serves on the board of directors of New York Stock Exchange listed Landrys Restaurants, Inc. Mr. Brimmer also is currently a member of the board of directors of Hypertension Diagnostics, Inc. and Landrys Restaurants, Inc.



Robert S. Kuschke,age 52.  Mr. Kuschke been a director of STEN Corporationsince May 16, 2007.  He has been the Director of External Reporting at Entegris, Inc., a manufacturer in the microelectronics sector, since February 2000. From 1983 to 2000, Mr. Kuschke served in various accounting and reporting roles with Apogee Enterprises, Inc. From 1977 to 1983, he was employed by Main Hurdman, a public accounting firm, now a part of KPMG International. Mr. Kuschke is a graduate of St. Johns University and a certified public accountant.



Class III Directors: Terms Expiring After Fiscal 2010



Allan D. Anderson, age 54. Mr. Anderson has been a director of STEN Corporationsince October 2000. Mr. Anderson is currently the Chief Financial Officer and a director of Reliafund, Inc. Reliafund, Inc. is a third-party processing company of ACH transactions. In January 2001, Mr. Anderson sold his interest in RiverBend Solutions (RiverBend) having served as President since August 2000 and as Chief Financial Officer since January 2000. He was a director of RiverBend from 1995 to 2001. Mr. Anderson was the President of Metropolitan Financial Management, Inc. from 1997 to 1999 and served as its Treasurer from 1995 to 1999. He was a director of Metropolitan Financial Management, Inc. from 1991 to 1999. Prior to joining Metropolitan, he was the Chief Financial Officer of Pan Am Systems, Inc. from 1994 to 1995. Mr. Anderson has a degree in Accounting and worked as a CPA and Audit Manager with Arthur Andersen & Co. from 1976 through 1983.



Information Regarding Executive Officers



Below is certain biographical and other information regarding our Chief Financial Officer, Mark F. Buckrey and the Chief Operating Officer of STEN Financial, John Halvorsen. Information regarding Kenneth W. Brimmer, our Chief Executive Officer, is set forth above under Information Regarding Directors.



Mark F. Buckrey, age 51. Mr. Buckrey has served as the Chief Financial Officer of STEN Corporationsince August 2002. Mr. Buckrey joined the Company in November 2001 as Controller. Prior to joining the Company, Mr. Buckrey was employed by Birch Bridge Communications, formerly Uniplex Corporation, for more than 10 years, first as Controller, and then as Vice President.



John Halvorsen, age 42, has served as Chief Operating Officer of STEN Financial since January 21, 2008.  Prior to joining the Company, Mr. Halvorsen served as General Manager of Lund Cadillac Company in Phoenix, Arizona. Mr. Halvorsen started his employment at Lund Cadillac in June 1996.



Compliance With Section 16(a) of the Exchange Act



Pursuant to Section 16(a) under the Securities Exchange Act of 1934, our executive officers, directors and 10% shareholders are required to file reports on Forms 3, 4, and 5 of their beneficial holdings and transactions in our common stock. To our knowledge, all of our executive officers, directors and 10% shareholders made timely filings of Forms 3, 4 or 5 with respect to transactions or holdings during fiscal year 2008.



Code of Ethics and Code of Conduct



We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer and controller and other persons performing similar functions. This code of ethics is included in our Code of Ethics filed as Exhibit 14.1 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2003 filed with the Securities and Exchange Commission.



We have also adopted a code of business conduct applicable to each of our directors, officers and employees to promote the ethical handling of conflicts of interest, full and fair disclosure, and compliance with laws, rules and regulations.  This code of conduct is available on our website at www.stencorporation.com.



We intend to satisfy the disclosure requirements of the Securities and Exchange Commission regarding certain amendments to, or a waivers from, provisions of our code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller by posting such information on our website at www.stencorporation.com.



Description of Committees of the Board of Directors



The board of directors has established a Compensation Committee and an Audit Committee. The composition and function of these committees are set forth below.



Audit Committee.The Audit Committee is currently comprised of Allan D. Anderson, Robert S. Kuschke (Chair) and Gervaise Wilhelm. The Audit Committee assists the board by reviewing the integrity of our financial reporting processes and controls; the qualifications, independence and performance of the independent auditors; and compliance by us with certain legal and regulatory requirements. The Audit Committee has the sole authority to retain, compensate, oversee and terminate the independent auditors. The Audit Committee reviews our annual audited financial statements, quarterly financial statements and filings with the Securities and Exchange Commission. The Audit Committee reviews reports on various matters, including our critical accounting policies, significant changes in our selection or application of accounting principles and our internal control processes. The Audit Committee also pre-approves all audit and non-audit services performed by the independent auditor. The Committee acts under a written charter most recently amended on December 11, 2003 and attached as Appendix A to our proxy statement for our 2007 Annual Meeting of Shareholders. During the fiscal year ended September 28, 2008 the Audit Committee met four times.



In December 2008, our board of directors has reviewed the education, experience and other qualifications of each of the members of the Audit Committee. After review, the board of directors determined that Mr. Kuschke meets the Securities and Exchange Commission definition of an audit committee financial expert.



Compensation Committee.The Compensation Committee reviews and makes recommendations to the board concerning salaries, bonus awards and benefits for officers and key employees. The current members of the Compensation Committee are Gervaise Wilhelm, Robert S. Kuschke and Allan D. Anderson (chair). During fiscal year ended September 28, 2008, the Compensation Committee met one time.



Nomination and Shareholder Communications Processes



We do not currently have a nominating committee. The board as a whole performs certain of the functions typical of a nominating committee, including the identification and recruitment of nominees for election as a director of STEN Corporation.  The board believes that a nominating committee separate from the whole board is not necessary at this time to ensure that candidates are appropriately evaluated and selected, given our size and the size of our board.  The board also believes that, given our size and the size of our board, an additional committee of the board would not add to the effectiveness of the evaluation and nomination process. For these reasons, the board believes it is not appropriate to have a nominating committee.



Three of the four current members of the board, Messrs. Anderson, Kuschke and Ms. Wilhelm are independent as that term is defined by The Nasdaq Marketplace Rules and the rules of the Securities and Exchange Commission. These independent directors participate in the consideration of director nominees and select the nominees for election of director.



The boards process for recruiting and selecting nominees is for board members to attempt to identify individuals who are thought to have the business background and experience, industry specific knowledge and general reputation and expertise that would allow them to contribute as an effective director to our governance, and who are willing to serve as a director of a public company. Generally, the board will first consider current board members since they meet the criteria listed above and possess an in-depth knowledge of our business, our history, strengths, weaknesses, goals and objectives. This level of knowledge has proven very valuable to us. To date, we have not engaged any third party to assist in identifying or evaluating potential nominees.



After a possible candidate is identified, the individual meets with various members of the board to discuss their possible interest and willingness to serve, and board members discuss amongst themselves the individuals potential to be an effective board member.  If the discussions and evaluation are positive, the individual is invited to serve on the board.



The board will consider shareholder recommendations for candidates to serve on the board and would evaluate any shareholder recommended nominee using the same process as applied to any other candidate.  In evaluating candidates, the board will require that candidates possess, at a minimum, a desire to serve on our board, an ability to contribute to the effectiveness of the board, an understanding of the function of the board of a public company and relevant industry knowledge and experience. In addition, while not required of any one candidate, the board would consider favorably experience, education, training or other expertise in business or financial matters and prior experience serving on boards of public companies. Collectively, the composition of the board must allow us to meet the listing standards of The Nasdaq Stock Market. In evaluating any candidate for director nominee, the board will also evaluate the contribution of the proposed nominee toward compliance with The Nasdaq Stock Market listing standards.  There have been no material changes to the procedures by which security holders may recommend nominees to the board of directors since the our 2007 Annual Meeting of Shareholders.



Any shareholder who desires to communicate directly with our board of directors may address correspondence to the whole board, or any particular member of the board, in care of the Corporate Secretary at the Companys offices: 10275 Wayzata Boulevard South, Suite 310, Minnetonka, Minnesota 55305. All communications delivered in this manner will be promptly forwarded to the specified addressee, without alteration.



ITEM 11.  EXECUTIVE COMPENSATION



Explanation of Compensation



The following discussion and analysis describes our compensation objectives and policies as applied to the persons serving as our directors in fiscal year 2008, as well as for Kenneth W. Brimmer, our Chief Executive Officer, John E. Halvorsen, the Chief Operating Officer of STEN Financial, and Mark F. Buckrey, our Chief Financial Officer. Messrs. Brimmer, Halvorsen and Buckrey are referred to in this Annual Report on Form 10-K as the Named Executive Officers.



This explanation section is intended to provide a framework for understanding the actual compensation awarded to or earned by the directors and each Named Executive Officer during 2008, as reported in the compensation tables and accompanying narrative sections of this proxy statement.



The Compensation Committee reviews and approves salaries, cash bonuses and benefits for executive officers and key employees, as well as the other terms of employment of our executive officers. The Compensation Committee has also been appointed by the Board of Directors to administer our 2000 Stock Option Plan (the 2000 Plan). Under the Compensation Committees charter, the Compensation Committee has the authority to retain, at our expense, such independent counsel or other advisers as it deems necessary to carry out its responsibilities. For 2008, the Compensation Committee did not use the services of a compensation consultant, but may do so in the future.



In determining compensation for Named Executive Officers other than the Chief Executive Officer, the Compensation Committee solicits input from the Chief Executive Officer regarding the duties, responsibilities and performance of the other executive officer. The Chief Executive Officer also recommends to the Compensation Committee the base salary for all Named Executive Officers and the awards under any long-term equity program. From time to time, the Named Executive Officers are invited to attend meetings of the Compensation Committee. No Named Executive Officer attends any executive session of the Compensation Committee or is present during deliberations or determination of such Named Executive Officers compensation.



For the Named Executive Officers, annual compensation consists of base salary and long-term equity-based compensation. The Named Executive Officers are also eligible for cash bonuses that may be granted, from time to time, at the discretion of the Compensation Committee for outstanding performance in any fiscal year.  For the directors, annual compensation consists of annual fees and long-term equity-based compensation. Mr. Brimmer, who is both a director and a Named Executive Officer, receives no compensation for his service as a board member.



During fiscal year 2008, the Compensation Committee did not recommend any changes in the compensation of directors or executive officers. For the directors, the Compensation Committee believes that the compensation received by board members was comparable to that earned by directors of other comparable companies and consistent with our historical compensatory practices. For executive officers, the Compensation Committee did not adjust the compensation of the Chief Executive Officer which is $11,250 per month. The Compensation Committee did not adjust the compensation of any Named Executive Officer because it did not believe that our performance or the compensation of executive officers at similar companies compelled an adjustment. Likewise, the Compensation Committee did not award any bonuses to the Named Executive Officers for fiscal year 2008 performance. The Compensation Committee is considering implementing a more structured bonus program based upon established performance goals.



The Compensation Committee provides long-term equity compensation to the Named Executive Officers through annual, discretionary option grants under a shareholder-approved equity compensation plan. Currently, the Compensation Committee grants options under the shareholder-approved 2000 Plan. In January and February 2008, the Compensation Committee granted a stock option under the 2000 Plan to Kenneth Brimmer and Mark Buckrey in recognition of his services in fiscal year 2007. Committee granted a stock option under the 2000 Plan to John Halvorsen in January 2008, at the time he was hired. No Named Executive Officer received stock options in recognition of service in fiscal year 2008. As described below, the Compensation Committee granted options on December 13, 2007 to non-employee directors under the 2000 Plan in recognition of service in fiscal year 2007 but no grant has yet been made in respect of fiscal year 2008 service. See Item 10. Executive Compensation  Director Compensation for additional information regarding these grants.



Employment Agreements and Post-Termination Compensation



We do not have a written employment agreement with Kenneth W. Brimmer, our Chief Executive Officer, John E. Halvorsen, the Chief Operating Officer of STEN Financial, or with Mark F. Buckrey, our Chief Financial Officer. However, since January 2004, Mr. Brimmers employment as our Chief Executive Officer and his compensation have been determined by a series of resolutions adopted by our board of directors.  Currently, the resolution provides that Mr. Brimmer will be paid a monthly salary of $11,250 and he would be eligible for a bonus under a performance based program determined at a future date. Our employment arrangement with Mr. Brimmer does not provide for severance or any other post-termination compensation. There is no employment arrangement regarding Mr. Halvorsens and Mr. Buckreys employment or any arrangement providing for severance or other post-employment compensation.



Summary Compensation Table



The following table shows information concerning compensation earned for services in all capacities during fiscal years 2008 and 2007 for: (i) Kenneth W. Brimmer, who served as our Chief Executive Officer in fiscal year 2008, (ii) John E. Halvorsen, who served as the Chief Operating Officer of STEN Financial during a portion of fiscal year 2008 and (iii) Mark F. Buckrey, who served as our Chief Financial Officer in fiscal year 2008 (together referred to as the Named Executive Officers). There were no other executive officers whose total compensation was at least $100,000, less the amount representing the change in pension value and nonqualified deferred compensation earnings, in fiscal years 2008 and 2007.



|Name and Position     | Year | Salary ($) | Options
Awards
($) (1) | All Other Compensation
($)(2) | Total ($)
|--------------------- | ---- | ---------- | ---------------------- | ----------------------------- | ---------
|Kenneth W. Brimmer    | 2008 | $ 121,154  | $60,545                | $3,167                        | $184,866 
|                      | 2007 | $60,000    | $52,246                | $1,211                        | $113,457 
|John E. Halvorsen (3) | 2008 | $ 159,231  | $15,298                | $0                            | $174,529 
|Mark F. Buckrey       | 2008 | $   98,152 | $11,651                | $2,958                        | $112,763 
|                      | 2007 | $92,000    | $29,203                | $1,857                        | $123,060 



(1)

Values expressed represent the actual compensation cost recognized by our company during the fiscal year noted for equity awards granted in fiscal year and prior years as determined pursuant Statement of Financial Accounting Standards No. 123, Share-Based Payment (SFAS 123R) utilizing the assumptions discussed in Note 1  Nature of Business and Summary of Significant Accounting Policies  Stock-Based Compensation in the notes to financial statements included in this Annual Report on Form 10-K for the year ended September 28, 2008.

(2)

All amounts are employer match under our 401(k) plan.

(3)

Mr. Halvorsen began employment with us on January 21, 2008 and therefore, amounts represent a partial year of service.



22



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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information concerning equity awards outstanding to the Named Executive Officers at September 28, 2008.

|                   | Option Awards                                                      
|------------------ | -------------------------------------------------------------------
|                   | Number of Securities Underlying Unexercised Options (#)
Exercisable
|Kenneth W. Brimmer | 5,000                                                              
|Kenneth W. Brimmer | 50,000                                                             
|Kenneth W. Brimmer | 10,000                                                             
|Kenneth W. Brimmer | 0                                                                  
|John E. Halvorsen  | 10,000                                                             
|Mark F. Buckrey    | 10,000                                                             
|Mark F. Buckrey    | 10,000                                                             
|Mark F. Buckrey    | 3,000                                                              
|Mark F. Buckrey    | 3,000                                                              



Of the options described above held by Mr. Brimmer, the option expiring in 2008 were fully vested on the date of grant; the option expiring in 2016 and 2018 vests in increments of 20% of the underlying shares on the first five anniversaries of the date of grant. Of the options described above held by Mr. Halvorsen, 10,000 options vested on the date of grant and the remaining options vest in increments of 20% of the underlying shares on the first five anniversaries of the date of grant. Of the options described above held by Mr. Buckrey, 3,000 options were vested (options expiring in 2018) on the date of the grant and all others options vest in increments of 20% of the underlying shares on the first five anniversaries of the date of grant.



Director Compensation



We historically have compensated our non-employee directors through a combination of cash and stock options. Four non-employee directors served during fiscal 2008: Allan D. Anderson, Gervaise Wilhelm, Robert S. Kuschke and Steven F. Sabes (from August 10, 2007 to October 28, 2008). Mr. James B. Lockhart served as a director from May 16, 2007 to October 25, 2007, which included a portion of fiscal year 2008.  However, Mr. Lockhart received no compensation in fiscal year 2008 due to the short term of his service.  In fiscal year 2008, Mr. Brimmer, our Chief Executive Officer, served as a director and received no compensation for his services as a director.



On December 13, 2007, the Compensation Committee granted Robert S. Kuschke and Steven F. Sabes an option to purchase 5,000 shares of common stock. While newly appointed or elected directors are typically granted additional options effective on the date of their appointment, we did not finalize the option awards as of that date. Therefore, the additional option grant on December 13, 2007 to Messrs. Kuschke and Sabes is intended to represent the options that should have been granted on the respective dates of their appointment. All stock options granted to the directors were made under the 2000 Plan, have a term of five years, and an exercise price of $2.50, which was in excess of the fair market value of our common stock on the date of grant.



23



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The following table shows for fiscal year 2008, the cash and other compensation earned or paid to each of our board members for board and committee service:



|Name of Director  |  | Option Awards
$ (1) (2) | Total Compensation
|----------------- |  | ----------------------- | ------------------
|                  |  |                         |                   
|Allan D. Anderson |  | $1,977                  | $1,977            
|Gervaise Wilhelm  |  | $1,977                  | $1,977            
|Robert S. Kuschke |  | $4,448                  | $4,448            
|Steven F. Sabes   |  | $4,448                  | $4,448            
|                  |  |                         |                   



(1)

Values expressed represent the actual compensation cost recognized by our company during fiscal 2008 for equity awards granted in fiscal year 2008 and prior yearsas determined pursuant to SFAS 123R utilizing the assumptions discussed in Note 1  Nature of Business and Summary of Significant Accounting Policies  Stock-Based Compensation in the notes to consolidated financial statements included in this Annual Report on Form 10-K for the year ended September 28, 2008.

(2)

At September 28, 2008, the aggregate number of shares underlying outstanding options for each director was as follows: Allan D. Anderson, 16,500 shares; Gervaise Wilhelm 16,500 shares; Robert S. Kuschke, 9,000 shares; Steven F. Sabes, 9,000 shares.



24



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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



The following table presents, as of December 29, 2008, certain information regarding beneficial ownership of our  common stock by (i) each person known by us to beneficially own more than 5% of the 2,528,751 outstanding shares of common stock on that date; (ii) each of our current directors; (iii) each Named Executive Officer and (iv) all of our current executive officers and directors as a group. Unless otherwise indicated, the persons listed below have sole voting and investment power with respect to the shares and may be reached at 10275 Wayzata Blvd. S., Suite 310, Minnetonka, Minnesota 55305.

|Shares Beneficially Owned                                                                                           
|--------------------------------------------------------------------------------------------------------------------
|                                                                                                                    
|Name of Beneficial Owner                                                                                            
|Gary Copperud (2)                                                                                                   
|CMM Properties, LLC (2)                                                                                             
|Lyle Berman (3) 
130 Cheshire Lane
Minnetonka, MN  55350                                                            
|Gary A. Dachis (4) 
10550 Wayzata Blvd. 
Minnetonka, MN  55305                                                      
|Valens U.S. SPV I, LLC(5)
c/o Valens Capital Management, LLC
335 Madison Avenue, 10th Floor
New York, New York 10017
|Bradley A. Berman (6)
130 Cheshire Lane
Minnetonka, MN  55305                                                       
|Kenneth W. Brimmer (7)(8)                                                                                           
|John E. Halvorsen (8)                                                                                               
|Mark F. Buckrey (8)                                                                                                 
|Allan D. Anderson (7)                                                                                               
|Gervaise Wilhelm (7)                                                                                                
|Robert Kuschke(7)                                                                                                   
|All Current Officers and Directors as a Group (6 persons)                                                           

* Less than 1%

(1)

Shares of common stock subject to options and warrants that are currently exercisable or exercisable within 60 days are deemed to be beneficially owned by the person holding the options and warrants for computing such persons percentage, but are not treated as outstanding for computing the percentage of any other person.

(2)

Based on an Amendment No. 10 to Schedule 13D dated December 31, 2006 filed by the shareholder.  Shares held by Mr. Copperud include shares held by CMM Properties, LLC, of which Mr. Copperud is the President. Mr. Copperud has voting and investment control over the shares held by CMM Properties, LLC.

(3)

Based on a Schedule 13G dated November 28, 2005 filed by the shareholder and information provided by the shareholder.

(4)

Based on a Schedule 13G dated November 25, 2005 filed by the shareholder.

(5)

Based on a Schedule 13G dated November 23, 2007 filed by the shareholder

(6)

Based on an Amendment No. 1 to Schedule 13G dated October 11, 2007 filed by the shareholder.

(7)

Current Director.

(8)

Named Executive Officer.

(9)

Includes 4,000 shares owned by Mr. Brimmer directly, 90,717 shares beneficially owned by Mr. Brimmer through his IRA, 255,076 shares over which Mr. Brimmer shares voting and dispositive power with his wife, and 87,405 shares beneficially owned by Mr. Brimmers wife in her IRA.

(10)

Includes options to purchase 120,000 shares of common stock, warrants to purchase 3,000 shares of common stock beneficially owned by Mr. Brimmer through his IRA, warrants to purchase 63,437 shares held jointly by Mr. Brimmer and his wife and warrants to purchase 6,000 shares held by Mr. Brimmers wife through her IRA.



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



Certain Relationships and Related Transactions



Since the beginning of fiscal year 2008, we have not entered into any transaction and there are no currently proposed transactions, in which we were or are to be a participant and the amount involved exceeds lesser of $120,000 or one percent of the average of our total assets at year-end for the last three completed fiscal years and in which any related person had or will have a direct or indirect material interest.



Independence of Directors and Committee Members



The board of directors undertook a review of director independence in December 2008 as to all four directors then serving. As part of that process, the board reviewed all transactions and relationships between each director (or any member of the directors immediate family) and us, our executive officers and our auditors, and other matters bearing on the independence of directors. As a result of its review, the board of directors affirmatively determined that Allan D. Anderson, Robert S. Kuschke, and Gervaise Wilhelm are independent according to the independence definition of the Nasdaq Marketplace Rules. Kenneth W. Brimmer is not independent because he serves as our Chief Executive Officer.



We have also established separate criteria for eligibility to serve as a member of our Audit Committee. The charter of the Audit Committee requires that the Audit Committee be comprised solely of directors who are independent of our management and are free of any relationship that, in the opinion of the board of directors, would interfere with their exercise of independent judgment as a committee member. Additionally, the charter requires that the members of the Audit Committee must be independent as such term is defined by the Nasdaq Marketplace Rules and regulations of the Securities and Exchange Commission. The board of directors affirmatively determined that the current members of the Audit Committee, Allan D. Anderson, Robert S. Kuschke and Gervaise Wilhelm are independent of management, free of any relationship that would interfere with their exercise of independent judgment, and are independent as defined by the Nasdaq Marketplace Rules and as defined by Rule 10A-3 adopted by the Securities and Exchange Commission. Moreover, under the Audit Committees charter all members of the committee must have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements, and at least one member of the committee shall have accounting or related management expertise. The board of directors also determined that the members of the Audit Committee meet these requirements.



ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES



Virchow, Krause & Company, LLP, independent registered public accounting firm and certified public accountants, served as independent accountants of the Company for the fiscal year ended September 28, 2008. The following is an explanation of the fees billed to the Company by Virchow, Krause & Company, LLP for professional services rendered for the fiscal years ended September 28, 2008 and September 30, 2007, which totaled $301,260 and $215,510, respectively.



Audit Fees



The aggregate fees billed to the Company for professional services related to the audit of the Companys annual financial statements, review of financial statements included in the Companys Form 10-QSB, or other services normally provided by Virchow, Krause & Company, LLP in connection with statutory and regulatory filings or engagements for the fiscal years ended September 28, 2008 and September 30, 2007 totaled $258,160 and $157,820, respectively.



Audit-Related Fees



There were no audit related fees for professional services for the fiscal year ended September 28, 2008. The aggregate fees billed to the Company by Virchow, Krause & Company, LLP for professional services related to the registration statement for our renewable unsecured subordinated notes for the fiscal year ended September 30, 2007 totaled $18,190.



Tax Fees



The aggregate fees billed to the Company by Virchow, Krause & Company, LLP for professional services related to tax compliance, tax advice, and tax planning, including services related to the Companys federal, state, franchise and income tax filings for the fiscal years ended September 28, 2008 and September 30, 2007 totaled $38,160 and $37,610, respectively.



25



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All Other Fees



The aggregate fees billed to the Company by Virchow, Krause & Company, LLP for professional services related to due diligence on acquisitions for the fiscal years ended September 28, 2008 and September 30, 2007 totaled $4,940 and $1,225, respectively.



Audit Committee Pre-Approval Procedures



The Company has adopted pre-approval policies and procedures for the Audit Committee require the Audit Committee to pre-approve all audit and all permitted non-audit engagements and services (including the fees and terms thereof) by the independent auditors, except that the Audit Committee may delegate the authority to pre-approve any engagement or service less than $5,000 to one of its members, but requires that the member report such pre-approval at the next full Audit Committee meeting. The Audit Committee may not delegate its pre-approval authority for any services rendered by the Companys independent auditors relating to internal controls. These pre-approval policies and procedures prohibit delegation of the Audit Committees responsibilities to Company management. Under the policies and procedures, the Audit Committee may pre-approve specifically described categories of services which are expected to be conducted over the subsequent twelve months on its own volition, or upon application by management or the independent auditor.



All of the services described above for 2008 were pre-approved by the Audit Committee or a member of the Committee before Virchow, Krause & Company, LLP was engaged to render the services.



PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES





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|Exhibit Number | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1            | Distribution and Management Agreement between the Company, Sumner Harrington Ltd. and Sumner Harrington Agency, Inc. dated April 5, 2007 (incorporated by reference to form of document at Exhibit 1.1 of the Companys Registration Statement on Form S-1 (File No. 333-140852) (the Form S-1)).                                                                                                                                                                                                                         
|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).                                                                                                                                                                                                                                                                                                                                  
|4.1            | Indenture between the Company and Wells Fargo Bank, National Association dated April 5, 2007 (incorporated by reference to form of document at Exhibit 4.1 of the Form S-1).                                                                                                                                                                                                                                                                                                                                                
|4.2            | Form of Note (incorporated by reference to Exhibit 4.2 of the Form S-1).                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.3            | Form of Note Confirmation(incorporated by reference to Exhibit 4.3 of the Form S-1).                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.4            | Form of Subscription Agreement (incorporated by reference to Exhibit 4.4 of the Form S-1).                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.5            | Paying Agent Agreement between Wells Fargo Bank, National Association and STEN Corporation dated April 5, 2007(incorporated by reference to form of document at Exhibit 4.5 of the Form S-1).                                                                                                                                                                                                                                                                                                                               
|10.1           | * STEN Corporation 2000 Stock Option Plan, as amended (incorporated by reference to Exhibit B  to the proxy statement for the Companys Annual Meeting of Shareholders held on March 16, 2000, as amended as described in the proxy statements for the Companys Annual Meeting of Shareholders held on April 23, 2003 and May 12, 2004).                                                                                                                                                                                   
|10.2           | 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)                                                                                                                                                                                                                                                                                                                       
|10.3           | 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 10.2 of the Companys Current Report on Form 8-K dated June 30, 2005).                                                                                                                                                                                                                                                                       
|10.4           | 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).                                                                                                                                                                                                                                                                                                                  
|10.5           | 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)).                                                                                                                                                                                                           
|10.6           | 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).                                                                                                                                                                                                                                                                            
|10.7           | 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).                                                                                                                                                                                                                                                                                                                        
|10.8           | 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).                                                                                                                                                                                                                                                                                                       
|10.9           | 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).                                                                                                                                                                                                                                                                               
|10.10          | 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).                                                                                                                                                                                                                                                                                                                        
|10.11          | Warrant to purchase 219,900 shares of Common Stock dated February 13, 2007 issued by STEN Corporation to R.W. Sabes Investment, LLC (incorporated by reference to Exhibit 10.11 to the Companys Quarterly Report on Form 10-QSB for the period ended December 31, 2006 (the December 2006 10-Q).                                                                                                                                                                                                                         
|10.12          | Registration Rights Agreement dated February 13, 2007 by and between STEN Corporation and R.W. Sabes Investment, LLC (incorporated by reference to Exhibit 10.12 to the December 2006 10-Q).                                                                                                                                                                                                                                                                                                                                
|10.13          | Lease Agreement dated February 15, 2007 by and between STEN Corporation and JAML LTD., LLLP (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated February 15, 2007).                                                                                                                                                                                                                                                                                                                
|10.14          | Lease dated February 15, 2007 by and between Harry March and MWJ, Inc., as assigned to STEN Corporation on February 15, 2007 (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated February 15, 2007).                                                                                                                                                                                                                                                                               
|10.15          | Promissory Note dated March 1, 2007 in principal amount of $1,400,000 by STEN Credit Corporation (f/k/a Colfax Financial Corporation) as maker and Flash Motors, Inc. as holder (incorporated by reference to Exhibit 10.3 of the March 2007 8-K).                                                                                                                                                                                                                                                                          
|10.16          | Asset Purchase Agreement made May 11, 2007 retroactive to April 29, 2007 between Burger Time Acquisition Corporation and BTND, LLC (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the thirteen week period ended April 1, 2007).                                                                                                                                                                                                                                             
|10.17          | Promissory Note dated May 11, 2007 in the amount of $806,317 by BTND, LLC as maker and Burger Time Acquisition Corporation as payee  (incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the thirteen week period ended April 1, 2007).                                                                                                                                                                                                                                           
|10.18          | Promissory Note dated April 28, 2007 in the amount of $1,886,431.94 by BTND, LLC as maker and STEN Corporation as payee.                                                                                                                                                                                                                                                                                                                                                                                                    
|10.19          | Security Agreement made as of November 23, 2007 by and among Valens U.S. SPV I, LLC, as lender, LV Administrative Services, Inc., as administrative and collateral agent, STEN Credit Corporation, Stencor, Ind., EasyDrive Cars and Credit Corporation, STEN Corporation and the other parties thereto (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated November 23, 2007 (the November 2007 8-K).                                                                           
|10.20          | Secured Revolving Note dated November 23, 2007 issued by STEN Corporation and the other companies thereto to Valens U.S. SPV I, LLC, as holder in the maximum principal amount of $5,500,000 (incorporated by reference to Exhibit 10.2 to November 2007 8-K).                                                                                                                                                                                                                                                              
|10.21          | Common Stock Purchase Warrant dated November 23, 2007 issued by STEN Corporation to Valens U.S. SPV I, LLC for 22,006 shares of common stock  (incorporated by reference to Exhibit 10.3 to November 2007 8-K).                                                                                                                                                                                                                                                                                                             
|10.22          | Irrevocable Proxy dated November 23, 2007 by Valens U.S. SPV I, LLC appointing STEN Corporation (incorporated by reference to Exhibit 10.4 to November 2007 8-K).                                                                                                                                                                                                                                                                                                                                                           
|10.23          | Registration Rights Agreement dated November 23, 2007 by and between STEN Corporation and Valens U.S. SPV I, LLC  (incorporated by reference to Exhibit 10.5 to November 2007 8-K).                                                                                                                                                                                                                                                                                                                                         
|10.24          | Waiver of Registration Rights dated February 14, 2008 by Valens U.S. SPV I, LLC to STEN Corporation (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated February 13, 2008).                                                                                                                                                                                                                                                                                                        
|10.25          | Omnibus Amendment dated October 31, 2008 by and among STEN Corporation, STEN Credit Corporation, STENCOR, Inc., STEN Financial Corp., EasyDrive Cars and Credit Corp., BTAC Properties, Inc., Alliance Advance, Inc., STEN Acquisition Corporation, and Burger Time Acquisition Corporation, and Valens U.S. SPV I, LLC, as lender, LV Administrative Services, Inc., as administrative and collateral agent (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated November 4, 2008).
|10.26          | Common Stock Purchase Warrant dated October 31, 2008 issued by STEN Corporation to Valens U.S. SPV I, LLC for 100,000 shares of common stock (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated November 4, 2008).                                                                                                                                                                                                                                                                
|10.27          | Letter dated October 31, 2008 from Kenneth W. Brimmer to LV Administrative Services, Inc. (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K dated November 4, 2008).                                                                                                                                                                                                                                                                                                                   
|10.28          | Asset Purchase Agreement dated as of November 26, 2008 by and between Brimmer Company, LLC, STEN Corporation and Stencor, Inc. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated November 26, 2008).                                                                                                                                                                                                                                                                             
|10.29          | Lease Agreement dated June 16, 2008 by and between STEN Corporation and JAML LTD., LLLP                                                                                                                                                                                                                                                                                                                                                                                                                                     
|21             | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|23.1           | Consent of Virchow, Krause & Company, LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|25.1           | Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Wells Fargo, National Association (incorporated by reference to Exhibit 25.1 of the Form S-1).                                                                                                                                                                                                                                                                                                                                               
|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                                                                                                                                                                                                                                                                                                                                                                                                                                  
|32             | Certification pursuant to 18 U.S.C. §1350                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   





27



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





28



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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 January 12, 2009.



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



POWER OF ATTORNEY



Each person whose signature appears below hereby constitutes and appoints Kenneth W. Brimmer and Mark F. Buckrey, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution, to sign on his behalf, individually and in each capacity stated below, all amendments and post-effective amendments to this Form 10-K and to file the same, with all exhibits thereto and any other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as each might or could do in person, hereby ratifying and confirming each act that said attorneys-in-fact and agents 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 January 12, 2009.





|/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/   Allan D. Anderson   |  | Director                         
|Allan D. Anderson         |  |                                  
|                          |  |                                  
|                          |  |                                  
|/s/   Robert S. Kuschke   |  | Director                         
|Robert S. Kuschke         |  |                                  
|                          |  |                                  
|                          |  |                                  
|/s/   Gervaise Wilhelm    |  | Director                         
|Gervaise Wilhelm          |  |                                  
|                          |  |                                  





29



---









|TABLE OF CONTENTS                                      
|-------------------------------------------------------
|                                                       
|Report of Independent Registered Public Accounting Firm
|Consolidated Financial Statements                      
|Balance Sheets                                         
|Statements of Operations                               
|Statements of Stockholders Equity (Deficit)           
|Statements of Cash Flows                               
|Notes to Consolidated Financial Statements             







---







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







To the Stockholders, 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 September 28, 2008 and September 30, 2007, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended.  These consolidated financial 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 the 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 consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.  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 consolidated 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 September 28, 2008 and September 30, 2007 and the results of their  operations and their  cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.



The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a working capital deficiency. These factors raise substantial doubt about its ability to continue as a going concern. Managements plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.





/s/ Virchow, Krause & Company, LLP



Minneapolis, Minnesota

January 9, 2009





Page F-1



---

STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 28, 2008 and September 30, 2007











ASSETS

|                                         |   | 09/28/2008 |   | 09/30/2007
|---------------------------------------- | - | ---------- | - | ----------
|CURRENT ASSETS                           |   |            |   |           
|Cash and cash equivalents                | $ | 242,733    | $ | 156,399   
|Accounts receivable, net                 |   | 358,424    |   | 337,242   
|Current portion of notes receivable      |   | 149,092    |   | 153,783   
|Current portion of loans receivable      |   | 2,668,142  |   | 2,059,866 
|Inventories                              |   | 1,831,928  |   | 1,135,353 
|Other current assets                     |   | 943,897    |   | 1,631,257 
|Assets of discontinued operations        |   | 80,074     |   | 1,928,575 
|Total Current Assets                     |   | 6,274,290  |   | 7,402,475 
|PROPERTY AND EQUIPMENT, NET              |   | 824,141    |   | 1,051,012 
|OTHER ASSETS                             |   |            |   |           
|Intangible assets, net                   |   | 447,674    |   | 1,228,889 
|Notes receivable, net of current portion |   | 857,418    |   | 1,208,383 
|Loan receivable, net of current portion  |   | 7,955,639  |   | 4,487,466 
|Assets of discontinued operations        |   | 1,489,703  |   | 1,344,407 
|Other assets                             |   | 376,272    |   | 590,047   
|Total Other Assets                       |   | 11,126,706 |   | 8,859,192 
|TOTAL ASSETS                             | $ | 18,225,137 | $ | 17,312,679



LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)

|CURRENT LIABILITIES                                                                                                                                                                                                                    |   |             |   |           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | ----------
|Line of credit, bank                                                                                                                                                                                                                   | $ | 0           | $ | 680,000   
|Current portion of long-term debt                                                                                                                                                                                                      |   | 5,442,524   |   | 2,886,265 
|Accounts payable                                                                                                                                                                                                                       |   | 954,302     |   | 496,385   
|Other current liabilities                                                                                                                                                                                                              |   | 837,404     |   | 668,625   
|Liabilities of discontinued operations                                                                                                                                                                                                 |   | 1,344,407   |   | 1,626,752 
|Total Current Liabilities                                                                                                                                                                                                              |   | 8,578,637   |   | 6,358,027 
|LONG-TERM LIABILITIES                                                                                                                                                                                                                  |   |             |   |           
|Dealer reserves                                                                                                                                                                                                                        |   | 27,303      |   | 1,076,707 
|Long-term debt, net of current portion                                                                                                                                                                                                 |   | 10,983,738  |   | 4,457,458 
|Total Long-Term Liabilities                                                                                                                                                                                                            |   | 11,011,041  |   | 5,534,165 
|                                                                                                                                                                                                                                       |   |             |   |           
|Total Liabilities                                                                                                                                                                                                                      |   | 19,589,678  |   | 11,892,192
|STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                                         |   |             |   |           
|Capital stock, $.01 par value, 20,000,000 common shares authorized, 5,000,000 undesignated shares authorized, 2,528,751 and 1,990,957 common shares issued and outstanding at September 28, 2008 and September 30, 2007, respectively. |   | 25,287      |   | 19,909    
|Additional paid-in capital                                                                                                                                                                                                             |   | 6,005,720   |   | 4,774,740 
|Retained earnings (accumulated deficit)                                                                                                                                                                                                |   | (7,395,548) |   | 625,838   
|Total Stockholders Equity (Deficit)                                                                                                                                                                                                   |   | (1,364,541) |   | 5,420,487 
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                                                                                                   | $ | 18,225,137  | $ | 17,312,679





See accompanying notes to consolidated financial statements.



Page F-2



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STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

September 28, 2008 and September 30, 2007









Page F-3



---

STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended September 28, 2008 and September 30, 2007







|                                                                       |   | 09/28/2008  |   | 09/30/2007 
|---------------------------------------------------------------------- | - | ----------- | - | -----------
|REVENUES                                                               |   |             |   |            
|Stencor sales                                                          | $ | 2,053,430   | $ | 1,444,822  
|STEN Financial, auto loan interest and other                           |   | 2,416,110   |   | 1,164,603  
|STEN Financial, vehicle sales                                          |   | 11,402,061  |   | 1,167,212  
|TOTAL REVENUES                                                         |   | 15,871,601  |   | 3,776,637  
|                                                                       |   |             |   |            
|COST AND EXPENSES                                                      |   |             |   |            
|Costs of goods sold related to Stencor                                 |   | 2,079,164   |   | 1,903,240  
|Loss on impairment Stencor assets                                      |   | 650,000     |   | -          
|Expenses related to STEN Financial                                     |   |             |   |            
|Cost of autos sold                                                     |   | 7,755,240   |   | 1,002,808  
|Salaries and benefits                                                  |   | 1,307,904   |   | 727,352    
|Occupancy and operation expenses                                       |   | 778,980     |   | 240,923    
|Depreciation and amortization                                          |   | 251,853     |   | 200,301    
|Provision for credit losses                                            |   | 3,435,116   |   | 1,160,936  
|Interest expense, net                                                  |   | 3,297,357   |   | 626,728    
|Loss on impairment STEN Financial intangibles                          |   | 571,667     |   | -          
|Selling, general and administrative                                    |   | 1,179,381   |   | 667,891    
|TOTAL COST AND EXPENSES                                                |   | 21,306,662  |   | 6,530,179  
|                                                                       |   |             |   |            
|Loss from Continuing Operations Before Income Taxes                    |   | (5,435,061) |   | (2,753,542)
|                                                                       |   |             |   |            
|PROVISION FOR (BENEFIT FROM) INCOME TAXES                              |   | 1,242,000   |   | (892,204)  
|LOSS FROM CONTINUING OPERATIONS                                        |   | (6,677,061) |   | (1,861,338)
|Loss from Discontinued Operations Before Income Taxes                  |   | (289,127)   |   | (650,844)  
|Gain (loss) on Sale of Discontinued Business                           |   | (1,055,198) |   | 100,000    
|Benefit from income taxes                                              |   | 0           |   | (206,468)  
|Loss from discontinued operations                                      |   | (1,344,325) |   | (344,376)  
|NET LOSS                                                               | $ | (8,021,386) | $ | (2,205,714)
|                                                                       |   |             |   |            
|LOSS PER SHARE FROM  CONTINUING OPERATIONS:                            |   |             |   |            
|Basic                                                                  | $ | (2.71)      | $ | (0.93)     
|Diluted                                                                | $ | (2.71)      | $ | (0.93)     
|LOSS PER SHARE FROM DISCONTINUED OPERATIONS:                           |   |             |   |            
|Basic                                                                  | $ | (0.54)      | $ | (0.18)     
|Diluted                                                                | $ | (0.54)      | $ | (0.18)     
|NET LOSS PER SHARE:                                                    |   |             |   |            
|Basic                                                                  | $ | (3.25)      | $ | (1.11)     
|Diluted                                                                | $ | (3.25)      | $ | (1.11)     
|WEIGHTED AVERAGE COMMON AND COMMON       EQUIVALENT SHARES OUTSTANDING |   |             |   |            
|Basic                                                                  |   | 2,470,348   |   | 1,989,975  
|Diluted                                                                |   | 2,470,348   |   | 1,989,975  





See accompanying notes to consolidated financial statements.



Page F-4



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STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended September 28, 2008 and September 30, 2007







Page F-5



---

STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)

Years ended September 28, 2008 and September 30, 2007









|                                              |              |           |              |              
|--------------------------------------------- | ------------ | --------- | ------------ | -------------
|                                              |              |           |              |              
|                                              |              |           | Retained     |              
|                                              |              |           | Additional   | Earnings     
|                                              | Common Stock | Paid-in   | (Accumulated | Stockholders
|                                              | Shares       | Amount    | Capital      | Deficit)     
|BALANCES, October 1, 2006                     | 2,018,957    | 20,189    | 4,564,325    | 2,831,552    
|                                              |              |           |              |              
|Exercise of warrants                          | 9,810        | 99        | 39,142       | -            
|Repurchase of common shares                   | (37,810)     | (379)     | (167,048)    | -            
|Discounts on long-term debt                   | -            | -         | 175,000      | -            
|Stock based compensation                      | -            | -         | 163,321      | -            
|Net loss                                      | -            | -         | -            | (2,205,714)  
|BALANCES, September 30, 2007                  | 1,990,957    | $  19,909 | $4,774,740   | $625,838     
|                                              |              |           |              |              
|Sale of common stock                          | 310,000      | 3,100     | 771,900      | -            
|Sale of common stock related to debt offering | 227,794      | 2,278     | -            | -            
|Discounts on long-term debt                   | -            | -         | 302,636      | -            
|Warrants issued for services rendered         | -            | -         | 54,788       | -            
|Stock based compensation                      | -            | -         | 101,656      | -            
|Net loss                                      | -            | -         | -            | (8,021,386)  
|BALANCES, September 28, 2008                  | 2,528,751    | $  25,287 | $6,005,720   | $(7,395,548) 





See accompanying notes to consolidated financial statements.







Page F-6



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STEN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended September 28, 2008 and September 30, 2007





|                                                                                                      | 09/28/2008     |  | 09/30/2007    
|----------------------------------------------------------------------------------------------------- | -------------- |  | --------------
|                                                                                                      |                |  |               
|Cash flows from operating activities:                                                                 |                |  |               
|Loss from continuing operations                                                                       | $  (6,677,061) |  | $  (1,861,338)
|Adjustments to reconcile loss from continuing operations to net cash flows from operating activities: |                |  |               
|Loss on disposal of equipment                                                                         | 2,380          |  | -             
|Loss on impairment of Stencor Assets                                                                  | 650,000        |  | -             
|Loss on impairment of STEN Financial intangible asset                                                 | 571,667        |  | -             
|Glendale inventory reserve                                                                            | -              |  | 165,000       
|Depreciation and amortization                                                                         | 334,168        |  | 217,193       
|Amortization of original issue discount and debt extinguishment costs                                 | 409,366        |  | 32,820        
|Allowances for loan losses                                                                            | 2,223,628      |  | 1,137,439     
|Amortization of debt issuance and debt extinguishment costs                                           | 1,286,791      |  | 130,891       
|Stock based compensation                                                                              | 101,656        |  | 163,321       
|Warrant based compensation                                                                            | 54,788         |  | -             
|Deferred income taxes                                                                                 | 1,242,000      |  | (1,145,000)   
|Changes in certain assets and liabilities:                                                            |                |  |               
|Accounts  receivable                                                                                  | (21,182)       |  | (53,211)      
|Loans receivable                                                                                      | (6,300,077)    |  | (7,174,291)   
|Inventories                                                                                           | (696,575)      |  | (589,828)     
|Other current assets                                                                                  | (52,263)       |  | 168,424       
|Other assets                                                                                          | (33,727)       |  | -             
|Accounts payable                                                                                      | 457,918        |  | 487,360       
|Other current liabilities                                                                             | 168,779        |  | 546,781       
|Dealer reserve                                                                                        | (1,049,404)    |  | 764,213       
|Net Cash flows from operating activities-continuing operations                                        | (7,327,148)    |  | (7,010,226)   
|Net cash used in discontinued operations                                                              | 1,166,984      |  | (799,812)     
|Loss from operations of discontinued business                                                         | (289,127)      |  | (444,376)     
|Gain or (Loss) on sale of assets of discontinued business held for sale                               | (1,055,198)    |  | 100,000       
|Net Cash flows from operating activities-discontinued operations                                      | (177,341)      |  | (1,144,188)   
|Net Cash flows from operating activities                                                              | (7,504,489)    |  | (8,154,414)   
|                                                                                                      |                |  |               
|Cash flows from investing activities:                                                                 |                |  |               
|Purchase of assets related to vehicle finance business                                                | -              |  | (462,987)     
|Proceeds on sale of equipment                                                                         | 17,000         |  | -             
|Purchases of property and equipment                                                                   | (562,562)      |  | (145,560)     
|Purchase of intangibles                                                                               | (2,851)        |  | (2,620)       
|Payments received on notes receivable                                                                 | 619,697        |  | 81,000        
|Net Cash flows from investing activities-continuing operations                                        | 71,284         |  | (530,167)     
|Purchase of assets of discontinued business                                                           | (10,165)       |  | (892,498)     
|Proceeds from sale of Burger Time                                                                     | -              |  | 1,000,000     
|Net Cash flows from investing activities-discontinued operations                                      | (10,165)       |  | 107,502       
|Net Cash flows from investing activities                                                              | 61,119         |  | (422,665)     
|                                                                                                      |                |  |               
|Cash flows from financing activities:                                                                 |                |  |               
|Advance (payment) on line of credit, bank                                                             | (680,000)      |  | 680,000       
|Net proceeds from renewable unsecured subordinated notes                                              | 4,711,769      |  | 2,816,153     
|Net proceeds from long-term debt                                                                      | 6,714,515      |  | 3,673,541     
|Payments on long-term debt                                                                            | (2,450,475)    |  | (1,287,791)   
|Proceeds from mortgage of property                                                                    | -              |  | 884,000       
|Prepaid financing costs                                                                               | -              |  | (8,315)       
|Debt issuance costs on long-term debt and renewable unsecured
subordinated   notes                    | (1,543,383)    |  | (1,007,802)   
|Repurchase of common shares                                                                           | -              |  | (167,427)     
|Proceeds from exercise of warrants                                                                    | -              |  | 39,241        
|Proceeds from sale of common stock                                                                    | 777,278        |  | -             
|Net Cash flows from financing activities continuing operations                                        | 7,529,704      |  | 5,621,600     
|Net Cash flows from financing activities discontinued operations                                      | -              |  | -             
|Net Cash flows from financing activities                                                              | 7,529,704      |  | 5,621,600     
|Net increase (decrease) in cash and cash equivalents                                                  | 86,334         |  | (2,955,479)   
|Cash and cash equivalents - beginning of year                                                         | 156,399        |  | 3,111,878     
|Cash and cash equivalents - end of year                                                               | $   242,733    |  | $   156,399   

See accompanying notes to consolidated financial statements



Page F-7



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







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, primarily focused on its financing business through STEN Financial Corporation.



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.), STENCOR Inc., BTAC Properties Inc. and STEN Financial Corporation as of January 2006. STEN Financial consists of wholly-owned subsidiaries STEN Credit Corporation (formerly Colfax Financial Corporation), and EasyDrive Cars and Credit Corporation, which operates in the Buy Here/Pay Here retail used auto selling business.  The Company is also a fifty percent owner in EasyDrive AZ LLC, which also operates in the Buy Here/Pay Here retail used auto selling business and opened on October 1, 2008 after the close of our fiscal year.



Fiscal Year



Our fiscal year end is the Sunday closest (before or after) to September 30 (a fifty-two or fifty-three week year). Our quarterly reporting periods consist of thirteen weeks (two four-week periods followed by one five-week period). Our 2008 fiscal year ended on September 28, 2008 and our 2007 fiscal year ended on September 30, 2007.



Auto Financing



We are devoting significant portion of our resources to developing our automobile finance business and Buy Here/Pay Here auto sales business. Our auto finance business is conducted through our wholly-owned subsidiary, STEN Credit Corporation (STEN Credit or Auto Finance Subsidiary).



Through STEN Credit, we are engaged in providing auto loans to consumers with limited or impaired credit history. Historically, our loans were offered through a limited number of dealer-partners who would benefit by selling vehicles to customers who otherwise could not obtain financing. We historically offered loans through approximately ten dealer-partners in Arizona. Recently, we have changed the focus of our business and the majority of current and future loans will result from vehicles sold at our own retail operations. When a dealer-partner is involved, the contracts with customers are installment loans contracts with full-recourse to dealer-partners. The dealer-partners are paid approximately 68% of the principal contract value at the time we enter into the installment sales contract with the customer. The dealer-partner assumes responsibility for repossessing the vehicle in the event of a contract default. At the time of default and foreclosure of the contract, the Company and the dealer-partner agree to a value of the collateral, which typically goes back into our inventory, and the dealer-partner generally reimburses the remaining value of the contract. The dealer-partners also maintain a reserve account or hold-back with STEN Credit as an additional level of collateral for the recourse guarantee equal to approximately 25% of the outstanding installment note receivable balance. This is classified as auto loan reserves payable on the consolidated balance sheet of STEN. The dealer-partner reserve account, or hold-back, is only payable to the dealer after the net amount due to STEN Credit has been fully satisfied and amounts due on the contracts are collected from the underlying installment note borrowers. The auto loan reserves payable account under these arrangements at September 28, 2008 and September 30, 2007 was $27,303 and $1,076,707, respectively. The liability decreased due to excessive foreclosure on dealer-partner contracts. The dealer-partner also pays to us discount points of up to 7% of the face value of the installment receivable contracts at the time the contract is entered into. The value of this discount is recognized as additional imputed interest income over the life of the contract.



In addition to installment receivable contracts, we formerly financed a portion of the dealer-partner vehicle inventory through a floor-plan program. Under this program, STEN Credit financed up to the full wholesale cost of the dealer-partners vehicle inventory. We hold title to the vehicles and have the related reserve account as collateral. In our auto financing business, the dealer-partners are charged a fee equal to 2% per month or slightly more than 24% per annum to finance their floorplan. We entered the business of dealer floor-planning on November 7, 2006 by acquiring a portfolio of automobile-related receivables consisting of $225,559 in dealer flooring financing notes and $284,922 in automobile installment purchase notes valued at fair value at the date of purchase. The aggregate purchase price, after deducting reserves payable to the dealer of $147,474, was $362,987, which we paid in cash. (See Note 3). As of September 28, 2008 the Company had dealer flooring notes, net reserve of $18,282 and we have exited this business in fiscal 2008.



Used Auto Sales-Retail



The Company has developed its own Buy Here/Pay Here retail used car business. Our subsidiary, EasyDrive Cars and Credit Corporation, sells used cars and STEN Credit finances their sale. STEN Credit finances sales to customers that typically would not qualify for conventional financing as a result of limited credit histories or past credit problems. STEN has leased four used car lots for the Easy Drive Cars and Credit business in Arizona and operate under the names EasyDrive Cars and Credit and Best Price Auto Sales. A lot, located in Tucson, opened in May 2008 and will also accommodate our Tucson STEN Credit office. Another lot, located in Glendale, Arizona, is currently under construction and is expected to open in the first quarter of fiscal 2009. As of September 28, 2008 the Company has capitalized $452,000 of costs and included them in property and equipment on the consolidated balance sheet.



Contract Manufacturing



The Company manufactures, on a contract basis, a line of sterilization containers and filters for use by hospitals, clinics and surgery centers. The Company also provides custom injection molding and light assembly work for four regional customers. The Company anticipates a sale of substantially all assets associated with this business in fiscal year 2009 (See Note 16).



Discontinued Operations



Consumer Financing



On July 31, 2008, the Companys wholly-owned subsidiary, STEN Financial Corporation, sold certain assets, including the business operations of its consumer finance business, operating under the names or Alliance Cash Advance and Moneyworldlending, to Western Capital Resources Inc, a Minnesota corporation.  The Asset Purchase Agreement provides for the sale by STEN Financial of substantially all of the assets related to the Companys consumer finance business, including the tangible and intangible assets of Alliance Cash Advance and Moneyworldlending.



Burger Time



On May 11, 2007, the Companys wholly-owned subsidiary, Burger Time Acquisition Corporation, sold certain assets, including the business operations of its Burger Time business, effective April 29, 2007, to BTND LLC, a Colorado limited liability company. The Asset Purchase Agreement provides for the sale by BTAC of substantially all of the assets related to the Companys Burger Time business, including the tangible and intangible assets of Burger Time Acquisition Corporation and certain real estate. The Company will continue to hold certain real estate assets related to Burger Time pending the expected assumption of the related mortgages to BTND, at which time transfer of the ownership to the property will be completed.



In accordance with appropriate accounting rules, we have reclassified our previously reported financial results to exclude the results of operations related to Alliance Cash Advance, Moneyworldlending and Burger Time, and presented them on a historical basis as a separate line in our consolidated statements of operations and consolidated balance sheets entitled Discontinued Business or Discontinued Operations.



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.



Page F-8



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007





Accounts Receivable, net



Tradeaccounts receivable from our non-finance activities are shown net of an allowance for doubtful accounts of $0 at both September 28, 2008 and September 30, 2007. 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. There was not an allowance for the accounts receivables related to contract manufacturing at September 28, 2008 or September 30, 2007.



Loans Receivable



Loans receivable are comprised from our STEN Credit business.



Loans receivable consisted of the following at years ended September 28, 2008 and September 30, 2007:



|                                         | 09/28/2008    |  | 09/30/2007   
|---------------------------------------- | ------------- |  | -------------
|                                         |               |  |              
|Dealer flooring notes                    | $   1,147,659 |  | $     616,293
|Installment loan receivable              | 11,699,750    |  | 6,089,141    
|Less: loans allowance for auto financing | (2,223,628)   |  | (158,102)    
|Total loans receivable                   | 10,623,781    |  | 6,547,332    
|Less: current portion                    | 2,668,142     |  | 2,059,866    
|Loans receivable, net of current         | $   7,955,639 |  | $  4,487,466 



Our installment loans contracts are offered both through our own retail locations and through referrals from independent dealer/partners. The interest on the installment notes with borrowers historically has been at the rate of 29% per annum. The installment notes are collateralized by a lien on the vehicle. The loan agreements require payments over periods generally ranging from 12 to 42 months. The components of the STEN Credit installment loans receivable balance at September 28, 2008 and September 30, 2007 are as follows:





|                                                                                        | 09/28/2008      |  | 09/30/2007  
|--------------------------------------------------------------------------------------- | --------------- |  | ------------
|Gross contract amount                                                                   | $ 11,699,750    |  | $ 6,089,141 
|Contracts in delinquency                                                                |                 |  |             
|31-60 days                                                                              | $       844,667 |  | $    481,469
|61-90 days                                                                              | 503,480         |  | 236,067     
|91 + days                                                                               | 781,294         |  | 299,904     
|Total delinquencies                                                                     | 2,169,441       |  | 1,017,440   
|Amount in repossession                                                                  | 230,767         |  | 165,613     
|Total delinquencies and amount in repossession                                          | $ 2,400,208     |  | $ 1,183,053 
|Delinquencies as a percentage of gross contract amount                                  | 18.54%          |  | 16.71 %     
|Total delinquencies and amount in repossession as a percentage of gross contract amount | 20.51%          |  | 19.43 %     





Page F-9



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







Changes in the Companys loans receivable for the years ended September 28, 2008 and September 30, 2007 are as follows:



|                                | 09/28/2008    |  | 09/30/2007        
|------------------------------- | ------------- |  | ------------------
|Balance at beginning of period  | $  6,089,141  |  | $                0
|Financed receivables            | 12,194,531    |  | 7,058,988         
|Financed receivable collections | (1,552,045)   |  | (709,121)         
|Net charged off and repossessed | (5,031,877)   |  | (260,726)         
|Balance at end of period        | $  11,699,750 |  | $  6,089,141      



Changes in the Companys loans allowance, for auto financing credit losses, for the years ended September 28, 2008 and September 30, 2007 are as follows:



|                                | 09/28/2008    |  | 09/30/2007        
|------------------------------- | ------------- |  | ------------------
|Balance at beginning of period  | $   1,234,809 |  | $                0
|Allowance for credit losses     | 6,047,999     |  | 1,495,535         
|Net charge offs and repossessed | (5,031,877)   |  | (260,726)         
|Balance at end of period        | $   2,250,931 |  | $  1,234,809      



The installment loans receivable allowance for credit losses for the year ended September 28, 2008, consist of dealer reserves payable of $27,303 and reserves for auto financing of $2,223,628. The installment loans receivable allowance for credit losses for the year ended September 30, 2007 consists of dealer reserves payable of $1,076,707 and Company reserves of $158,102.



Inventories



Inventories consist of products related to our contract manufacturing operations and used autos at our Buy Here/Pay Here lots. Inventories 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, accruals, deferred revenue, prepaid expenses, warrants issued, 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.



Intangible Assets



Intangible assets primarily consist of non-solicitation agreements and customer databases. The non-solicitation agreements and other intangibles are being amortized over their estimated useful lives using the straight-line method for 60 months (weighted average life of 5.00 years) at September 28, 2008. Intangible assets subject to amortization consist of the following:



|                           |  | September 28, 2008    |                          | September 30, 2007 |                       |                         
|-------------------------- |  | --------------------- | ------------------------ | ------------------ | --------------------- | ------------------------
|                           |  | Gross Carrying Amount | Accumulated
Amortization |                    | Gross Carrying Amount | Accumulated Amortization
|                           |  |                       |                          |                    |                       |                         
|Customer lists             |  | $                0    | 0                        |                    | $   700,000           | $  58,333               
|Non-solicitation agreement |  | 700,000               | 256,666                  |                    | 700,000               | 116,666                 
|Other intangibles          |  | 8,642                 | 4,302                    |                    | 5,792                 | 1,904                   
|                           |  |                       |                          |                    |                       |                         
|Total                      |  | $    708,642          | $  260,968               |                    | $1,405,792            | $  176,903              



The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision, or that the remaining balance of these assets may not be recoverable. During fiscal 2008, the Company decided to shift its auto finance business away from the dealer-partner relationships and toward financing its own contracts through its Buy Here/Pay Here business.  The Companys evaluation on long-lived asset realization indicated that the future undiscounted cash flows of its customer lists were not sufficient to recover the carrying value of such assets. The assets were adjusted to their fair values of $0, and a $571,667 impairment charge was expensed in the year ended September 28, 2008.



Amortization of intangible assets was $212,399 and $175,000 for the years ended September 28, 2008 and September 30, 2007. Estimated amortization expense of intangible assets for fiscal years 2009, 2010, 2011, 2012, and 2013 is $140,997, $140,997, $140,997, $24,331, and $352 per year, respectively.



Property and Equipment



Property and equipment are recorded at cost. Improvements are capitalized and amortized over the shorter of the lease term or the estimated useful life. Maintenance, repairs, and minor renewals are expensed as 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



At September 28, 2008, the Company held three notes receivable $100,000, $101,003, and $63,038, related to the sale of our consumer finance business to Western Capital Resources. The notes are unsecured and bear an interest charge of 0% to 6% per annum.  The terms of the notes range from 6 months to four years.  Amounts due on the notes receivable for the years ending 2009, 2010 and 2011 are $100,000, $101,003 and $63,038, respectively.



A note receivable from BTND, LLC, a Colorado limited liability company, related to the sale of our Burger Time Business, as of September 28, 2008 and September 30, 2007, was $742,469 and $788,166, respectively, secured by the real estate, and bears interest at a rate of 7.00% per annum with a term of 12 years. Amounts due on the note receivable for the fiscal years ending 2009, 2010, 2011, 2012, and 2013 are $49,092, $52,641, $56,447, $60,527, and 64,903, respectively.





|                                            | 09/28/2008    |  | 09/30/2007      
|------------------------------------------- | ------------- |  | ----------------
|Note receivable  Western Capital Resources | $     100,000 |  | $              0
|Note receivable  Western Capital Resources | 101,003       |  | 0               
|Note receivable  Western Capital Resources | 63,038        |  | 0               
|Note receivable  Life safe Services, LLC   | 0             |  | 574,000         
|Note receivable- BTND,  LLC                 | 742,469       |  | 788,166         
|Totals                                      | 1,006,510     |  | 1,362,166       
|Less current portion                        | (149,092)     |  | (153,783)       
|Notes receivable, net of current portion    | $   857,418   |  | $  1,208,383    



Page F-10



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







Other Assets



At September 28, 2008 and September 30, 2007, the Company had Other Assets of the following:



|                                       | 09/28/2008        |  | 09/30/2007  
|-------------------------------------- | ----------------- |  | ------------
|                                       |                   |  |             
|Deferred income taxes                  | $               0 |  | $    555,000
|Cash surrender value of life insurance | 35,047            |  | 35,047      
|Debt issuance costs  senior debt      | 300,900           |  | 0           
|Other                                  | 40,325            |  | 0           
|Other Assets                           | $   376,272       |  | $  590,047  



Debt issuance Costs

Debt Issuance costs are amortized over the life of the loan using the straight-line method.

On November 23, 2007 the Company entered into a security agreement with LV Administrative Services, Inc. as administrative and collateral agent for Valens U.S. SPV I, LLC (Valens) and incurred costs of $486,640. These costs were being amortized over the life of the security agreement (2 years). On August 22, 2008, the Company entered into an amendment of the original security agreement with Valens. As a result of the amendment, the Company determined that the modification resulted in a debt extinguishment and expensed the net remaining capitalized costs associated with the original security agreement with Valens. Amortization of these costs are included in interest expense and were $486,640 for the year ended September 28, 2008. The Company incurred an additional $318,600 of costs upon amending the original agreement. The amortization of these costs were $17,700 for the year ended September 28, 2008. (See Note 9).

The Company incurred, since the beginning of the renewable unsecured subordinated notes program, $1,745,948 in debt issuance costs through September 28, 2008. The on-going costs associated with the debt offering are being amortized over the weighted-average term of the debt and are included in interest expense. The current weighted-average term is 22 months. Future debt proceeds costs will continue to be incurred. Annual costs will be amortized over a 12-month period and offering costs to be amortized over a 3-year period.

Changes in the Companys debt issuance costs associated with its renewable unsecured subordinated notes are as follows:

|                                       | 09/28/08    |  | 09/30/07         
|-------------------------------------- | ----------- |  | -----------------
|Balance at beginning of period         | $   876,912 |  | $               0
|Debt issuance costs incurred           | 738,145     |  | 1,007,802        
|Amortization expense of costs incurred | (782,453)   |  | (130,891)        
|Balance at end of period               | $   832,604 |  | $    876,911     

























Revenue Recognition



Interest on notes receivable associated with the consumer auto loans or vehicle installment notes is recognized as revenue based on the outstanding monthly unpaid principal balance and is generally contractually provided at the rate of 29% per annum. We record the auto loan interest revenue when it is collected. In addition, discount points paid at the time the installment note is entered into are recognized as finance charge revenue over the life of the loan. Should floorplan receivables, or note receivables be determined to be impaired, the recognition of revenue would be suspended and a provision for losses equal to the difference between the carrying value and the present value of the expected cash flows is recorded. Under our current arrangements with the dealer-partner, the dealer-partner is required to pay the remaining principal amount of the contract and the vehicle collateral is assigned to the dealer for foreclosure and repossession in the event of default.



In our auto financing business, the dealer-partners are charged a fee of 2% per month, or for any fraction thereof to finance vehicle inventory. The result is an annualized charge of slightly more than 24%. We record this fee as revenue when collected.



Page F-11



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







In our Buy Here/Pay Here retail used auto sales business, revenue is recognized from the sale of a vehicle when the vehicle is delivered, the sales contract is signed, the down payment is received and funding has been approved.



In June 2006, the Financial Accounting Standards Board (FASB) ratified the consensus of Emerging Issues Task Force Issue No. 06-3. How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (Gross versus Net Presentation) (EITF 06-3). EITF06-3 concluded that the presentation of taxes imposed on revenue-producing transactions (sales, use, value added and excise taxes) on either a gross (included in revenues and costs) or a net (excluded from revenues) basis is an accounting policy that should be disclosed. The Company adopted EITF 06-3 during the year ended September 30, 2007, and it did not have any impact on our results of operations or financial condition. Our policy is to present taxes imposed on revenue-producing transactions on a net basis.



For our Contract Manufacturing, we recognize revenue in accordance with Staff Accounting bulletin No. 104 (SAB 104), Revenue Recognition. SAB 104 requires revenue to be recognized when all of the following are met: a) persuasive evidence of an arrangement exists; b) delivery of product has occurred; c) the sellers price to the buyer is fixed or determinable; and d) collectability is reasonable assured. We record sales revenue for the Contract Manufacturing business segment at the time all merchandise is shipped, at which time the price to us is fixed or determinable, contractual obligations have been substantially met and title and risk of loss have passed to the customer.



Shipping and Handling Costs



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 accordance with generally accepted accounting principles, we defer certain fees charged to customers of our STEN Credit business as part of the fees yield over the life of the agreements. Deferred revenue at September 28, 2008 and September 30, 2007 was $84,628 and $310,077, respectively.



Advertising



Advertising costs are charged to operations when incurred. Advertising expense was $201,449 and $177,563 for the years ended September 28, 2008 and September 30, 2007, respectively.



Stock-Based Compensation



The Company implemented SFAS No. 123(R) Share Based Paymenton October 2, 2006 using the modified prospective method. The Company recognizes compensation expense related to any awards that are fully vested as of the effective date. Compensation expense for the unvested awards is measured based on the fair value of the awards in accordance with the provisions of SFAS No. 123(R). The amount of expense recorded for the years ended September 28, 2008 and September 30, 2007 was $101,656 ($0.04 per share) and $163,321 ($0.08 per share), respectively. Based on option grants outstanding at September 28, 2008, the Company estimates an expense of $66,423 $66,423, $66,423, $17,597 and $6,130 for the years ended 2009, 2010, 2011, 2012, and 2013, respectively.



Page F-12



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







The per share, weighted-average fair value of each option granted is calculated using the Black-Scholes pricing model with the following assumptions used for grants in the following years:



|                                 | Fiscal 2008   | Fiscal 2007  
|-------------------------------- | ------------- | -------------
|Risk free interest rate          | 3.50-4.25%    | 4.50%-4.75%  
|Expected life of options granted | 2.5-7.5 years | 2.5-6.5 years
|Expected volatility range        | 50.00-85.00%  | 50.00%       
|Expected dividend yield          | 0%            | 0%           



The volatility factor is based on our historical stock price fluctuations for a period of approximately 5 years. This period is shorter than the expected life of the options but was deemed more relevant given the significant change in the Companys business model and strategy. The Company has not issued and does not intend to issue dividends; therefore the dividend yield is zero. The Company applied the risk-free interest rate based on the U.S. Treasury yield in effect at the time of the grant. The expected term of the option is based on the simplified method as defined by SAB No. 107. The Company estimates the forfeiture rate for stock options using 10%.



The weighted-average remaining contractual term of options exercisable at September 28, 2008 was 5.6 years. The weighted-average per share fair market value of options granted was $0.95 and $2.21, for the years ended September 28, 2008 and September 30, 2007 respectively, using the Black-Scholes option-pricing model.



Net Loss per Share



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



Page F-13



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007





dilutive, for the reporting period. Options totaling 416,300 and 380,500 and warrants of 762,089 and 578,983 were excluded from the computation of diluted loss per share for the years ended September 28, 2008 and September 30, 2007 as their effect was anti-dilutive. Following is a reconciliation of basic and diluted net loss per share:



|                                        | Fiscal 2008  |  | Fiscal 2007 
|--------------------------------------- | ------------ |  | ------------
|Net loss per share  basic and diluted: |              |  |             
|Net loss                                | $(8,021,386) |  | $(2,205,714)
|                                        |              |  |             
|Weighted average shares outstanding     | 2,470,348    |  | 1,989,975   
|                                        |              |  |             
|Net loss per share  basic and diluted  | $(3.25)      |  | $(1.11)     



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



Our three reportable segments are strategic business units that offer different products: consumer finance, retail used car sales, and corporate and contract manufacturing. They are managed separately as each business requires different technology and business processes. STEN Financial is comprised of the businesses of its two subsidiaries: STEN Credit Corporation, which operates the automobile finance business, and EasyDrive Cars and Credit, which operates our retail used car sales lots. The Company includes its STEN Credit business in its consumer finance segment and includes its Easy Drive Cars and Credit business in the separate segment of retail used car sales lots. Corporate and contract manufacturing represents the administrative activities and costs associated with our general corporate activities, including our Texas-based STENCOR, Inc. subsidiary that is engaged in providing contract injection molding services. The Company did not include in identifiable assets those assets related to discontinued operations. Assets excluded were $1,569,777 and $3,272,982 for the years ended September 28, 2008 and September 30, 2007, respectively.



Operating loss is total net sales less operating expenses. We did not have any sales between business 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 property and equipment. 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 of non-recurring gains or losses. The following table summarizes data by industry segment.



|                              | Corporate and Contract Manufacturing |  | STEN Financial (Consumer Finance) |  | STEN Financial
(Retail Used Car lot Sales) |  | Total         
|----------------------------- | ------------------------------------ |  | --------------------------------- |  | ------------------------------------------ |  | --------------
|                              |                                      |  |                                   |  |                                            |  |               
|Year ended September 28, 2008 |                                      |  |                                   |  |                                            |  |               
|Revenues                      | $   2,053,430                        |  | $   2,416,110                     |  | $  11,402,061                              |  | $   15,871,601
|Income (loss) from operations | (3,535,678)                          |  | (2,318,222)                       |  | 418,839                                    |  | (5,435,061)   
|Identifiable assets           | 2,208,706                            |  | 13,418,052                        |  | 1,678,602                                  |  | 17,305,360    
|Depreciation and amortization | 79,461                               |  | 246,629                           |  | 6,362                                      |  | 332,452       
|Capital expenditures          | 59,382                               |  | 25,882                            |  | 477,298                                    |  | 562,562       
|                              |                                      |  |                                   |  |                                            |  |               
|Year ended September 30, 2007 |                                      |  |                                   |  |                                            |  |               
|Revenues                      | $    1,444,822                       |  | $    1,164,603                    |  | $   1,167,212                              |  | $    3,776,637
|Loss from operations          | (1,355,383)                          |  | (1,268,813)                       |  | (129,346)                                  |  | (2,753,542)   
|Identifiable assets           | 4,176,454                            |  | 9,384,285                         |  | 478,958                                    |  | 14,039,697    
|Depreciation and amortization | 68,160                               |  | 147,335                           |  | 1,698                                      |  | 217,193       
|Capital expenditures          | 96,934                               |  | 28,478                            |  | 20,148                                     |  | 145,560       
|                              |                                      |  |                                   |  |                                            |  |               





Page F-14



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







Financial Instruments



The carrying amounts for all financial instruments approximate fair value. The carrying amounts for cash and cash equivalents, accounts receivable, notes receivable, loans receivable, inventory, 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 better reflecting the lending activity of the Company. These reclassifications had no effect on the Companys net loss or stockholders equity (deficit). Adjustments of $158,000 reduced liabilities and assets for adjustments related to dealer-partner right of offset.



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.



During Fiscal 2008, the Company decided to shift its auto finance business away from the dealer-partner relationships and toward financing its own contracts through its Buy Here/Pay Here business.  The Companys evaluation  of long-lived asset realization indicated that the future undiscounted cash flows of its customer lists were not sufficient to recover the carrying value of such assets included in the consumer finance segment. The assets were adjusted to their fair values of $0, and a $571,667 impairment charge was expensed in the year ended September 28, 2008.

The Company assesses the impairment of its property and 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.



As required by an amendment with Valens, Kenneth W. Brimmer, the Companys Chief Executive Officer and Chairman of the Board of Directors, entered into a letter agreement dated October 31, 2008.  Under the Letter, Mr. Brimmer agreed to deliver an executed asset purchase agreement to the agent within 30 days of October 31, 2008.  The asset purchase agreement would provide for the purchase by Mr. Brimmer of substantially all of the assets of Stencor Inc., which is the contract manufacturing segment, for consideration of no less than $1,300,000 net of certain payments and assumptions. The Companys evaluation of the letter agreement and subsequent review of the fair values of its property and equipment the Company determined that the assets were overvalued and a $650,000 impairment charge was expensed in the year ended September 28, 2008. No impairment was recorded on property and equipment during the year ended September 30, 2007.



Recent Accounting Pronouncements



In May 2008, the Financial Accounting Standards Board (FASB) issued Statements of Financial Standards No. 162 (SFAS 162), The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities.



Prior to the issuance of SFAS 162, GAAP hierarchy was defined in the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 69 (SAS 69), The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. SAS 69 has been criticized because it is directed to the auditor rather than the entity. SFAS 162 addresses these issues by establishing that the GAAP hierarchy should be directed to entities because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP.



SFAS 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company does not expect SFAS 162 to have a material effect on its consolidated financial statements.



During March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activities  and amendment of FASB Statement No. 133, (SFAS161) which requires enhanced disclosures about an entitys derivative and hedging activities. The standard requires entities to disclose the fair values of derivative instruments and their gains and losses in a tabular format to provide financial statement users with a more complete picture of the location in the entitys financial statements of both the derivative positions existing at year-end and the effect of using derivatives during the reporting period. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys statements issued for fiscal years beginning after November 15, 2008. The Company does not believe that the adoption of SFAS 161 will have a material effect on its results of operations, financial positions, or cash flows.





NOTE 2  Going Concern



The Company incurred losses from continuing operations before taxes of $5,435,061 and $2,753,542 for the years ended September 28, 2008 and September 30, 2007, respectively. The Companys liquidity is largely a function of the amount available to borrow on its senior credit facility. The amount available to borrow on the senior credit facility is the direct result of the collections and aging on its auto installment notes receivable. The Company has analyzed the historic collections and projected a reduced level of sales activity at its three retail locations. This analysis indicates that the Company will begin to generate positive operating cash flow beginning in the first quarter and its operations will generate cash to reduce the senior indebtedness.



On January 2, 2009, the Company filed a Form 8-K with the Securities and Exchange Commission reporting its plan to discontinue its offering of renewable unsecured subordinated notes and at that time, STEN also announced the suspension of individual note repayments. At January 2, 2009, there were approximately $7.3 million in unsecured subordinated notes outstanding. The Company has acknowledged that an event of default has occurred regarding certain specific subordinated notes. Non-payment of any note may result in an event of default under our agreement with Valens, giving Valens the right to accelerate its entire note and foreclose on all of the assets of the consolidated Company businesses. The decision to suspend note repayments was the result of a cash short fall that occurred at the end of December. The liquidity issue arose because of lower than projected cash flow from our auto finance receivables near December 31, 2008. Unexpectedly poor collection results limited the amount of cash available on the Valens facility, reducing our liquidity below planned levels. The Company decided on January 2, 2009 to discontinue the note offering and to suspend payment of principal and interest on the subordinated notes while it assesses alternatives to strengthen its liquidity.



Valens has not notified us that it is exercising any right to accelerate its debt. While there is no assurance the senior lender will not conclude to exercise these rights, we are currently working cooperatively with Valens to develop and implement a revised business plan. Given Valens rights under the senior credit facility, the Company believes any plan it develops must have the support of Valens to succeed. The Company believes its used car finance business is a viable enterprise and it is the Companys intention to take every possible step to enhance the viability of this business as part of a plan to fund future debt repayments.



As a result of implementing these steps, the Company believes it will have sufficient resources to meet its operating requirements over the next 12 months.



NOTE 3 - Acquisitions and Dispositions of Assets



Acquisitions



STEN Credit Corporation



On November 7, 2006, STEN Financial entered into an agreement to acquire a loan portfolio from Flash Motors, (See Note 1). STEN Financial paid $362,987 in cash from working capital to purchase the loan portfolio. Consideration for the purchase was determined through arms length negotiations between the Company and Flash Motors. STEN Financial through its STEN Credit subsidiary is engaged in developing an auto finance subsidiary serving the sub-prime market.



Flash Motors continues to retain and service the primary installment loan portfolio it held prior to the date of the agreement. 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, STEN Credit also entered into an Asset Purchase Agreement to acquire certain assets used in Flash Motors business including the equipment for $100,000 which we paid in cash. Under the Asset Purchase Agreement, STEN Credit also assumed the lease for Flash Motorss Scottsdale, Arizona office (See Note 7).



In November 2006, and as amended March 2007, the Company entered into a non-solicitation agreement with Flash Motors. The term of the agreement is five years. STEN Credit will pay Flash Motors a total sum of $1,400,000 for Flash Motors and its representatives agree not to solicit the accounts and prospects provided in the agreement. The $1,400,000 was allocated between the non-solicitation agreement and customer list for $700,000 each. Concurrently, STEN Credit issued a promissory note in the principal amount of $1,400,000 effective March 1, 2007 with interest at a rate of 13% per annum paid monthly in arrears starting on April 1, 2007. After November 14, 2008, the note holder may demand payment of principal of $250,000 which will be payable within 30 days and additional increments of up to $250,000 may be demanded every thirty days thereafter until the note is paid in full.  As the Company changes focus towards the Buy Here/Pay Here business model the Company and Flash Motors are in negotiations to modify the promissory note.  Flash Motors demanded payment on this note in November 2008. The Company has since claimed the Flash Motors has not honored the full terms of the agreement.  Therefore, Flash Motors may not honor the non-solicitation provisions.  The Company feels that if Flash Motors violates the non-solicitation portion, full amounts on the note may not be owed.



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 of a business operating three retail locations 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. 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. The note was paid in full in November 2006. 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 offering check cashing and related services including deferred presentment or payday loans and title loans. The purchase price was allocated based on the fair value of the assets acquired.  These assets were sold in July 2008 (see disposition of assets).



Moneyworldlending



On October 2, 2006, STEN Financial entered into an agreement with Dimah Financial, Inc. to purchase certain assets of an on-line deferred presentment lending business known as moneyworldlending.com. 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 arms-length negotiations between the Company and Dimah Financial Inc and the purchase price was allocated based on the fair value of the assets acquired. These assets were sold in July 2008 (see disposition of assets).



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 including accounts receivable, websites, tradenames, and fixed assets 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 acquisition is not material to the consolidated financial statements of the Company; therefore no proforma disclosures are required.



Page F-15



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007





The purchase price was allocated based on the fair value of the assets acquired and liabilities assumed. These assets were sold in July 2008 (see disposition of assets).





|                            | Alliance Cash -AZ | Cash Advance- Utah | Moneyworldlending
|--------------------------- | ----------------- | ------------------ | -----------------
|                            |                   |                    |                  
|Total cash consideration    | $ 275,000         | $ 600,000          | $ 200,000        
|Add deferred revenue        | 10,500            | 23,412             | 28,349           
|Total consideration         | 285,500           | 623,412            | 228,349          
|Less cash received          | 0                 | 30,000             | -                
|Less loans receivable       | 65,500            | 165,822            | 41,998           
|Less inventories            | 0                 | 5,120              | -                
|Less property and equipment | 40,000            | 182,470            | -                
|Less intangible assets      | 180,000           | 240,000            | 186,351          
|                            | $            -    | $            -     | $            -   



The purchase of these assets were not considered material to our operating results or total assets, therefore, the Company is not including pro forma financial results for year ended September 30, 2007.



Dispositions of Assets



Consumer Finance Business



On July 31, 2008, our wholly-owned subsidiary, STEN Financial Corporation, sold certain assets from its consumer financing segment including the payday/check cashing business operations of its Alliance Cash Advance and Moneyworldlending businesses effective to Western Capital Resources, Inc. The purchase agreement between STEN Financial Corporation and Western Capital Resources, Inc. provides for the sale by STEN Financial Corporation of substantially all of the assets related to the Companys Alliance Cash Advance and Moneyworldlending businesses, including the tangible and intangible assets of STEN Financial Corporation.



The purchase price for the assets was approximately $263,038.  Of the purchase price $263,038 was paid by the delivery of three promissory notes. Note A has a value of $100,000, without interest, due 6 months from the effective date (January 31, 2009). Note B has a value of $100,000, with interest accruing on the outstanding principal at the rate of 6% per annum, and principal and interest due in 30 months (January 31, 2010). Note C is equal to the Accepted Tempe Receivable, currently $63,038, with interest accruing on the outstanding principal at a rate of 6% per annum, and principal and interest due 30 months (January 31, 2011). Western Capital Resources may, in its sole discretion, pay the outstanding principal, when due, in either cash or shares of restricted common stock of Western Capital Resources, with the price of each share being equal to the average closing price of the shares for the thirty trading days prior to the issuance. The loss on the sale was approximately $1,008,000 for the year ended September 28, 2008.



Page F-16



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







In accordance with the provisions of SFAS 144, we have not included the results of operations of our Alliance Cash Advance and Moneyworldlending in the results from continuing operations. The results of operations for this business have been reflected as discontinued operations. The results for the Alliance Cash Advance and Moneyworldlending operations for years ended September 28, 2008 and September 30, 2007, consist of the following:



|                                                      |  | 09/30/08       |  | 09/30/07     
|----------------------------------------------------- |  | -------------- |  | -------------
|                                                      |  |                |  |              
|Revenue, net                                          |  | $ 878,154      |  | $1,174,647   
|                                                      |  |                |  |              
|Cost of goods sold                                    |  | 312,506        |  | 371,512      
|                                                      |  |                |  |              
|Gross profit                                          |  | 565,648        |  | 803,135      
|                                                      |  |                |  |              
|Total operating expenses                              |  | 854,775        |  | 1,382,941    
|                                                      |  |                |  |              
|Loss from operations                                  |  | (289,127)      |  | (579,806)    
|Other non-operating expenses                          |  | -              |  | (1,627)      
|                                                      |  |                |  |              
|Gain on sale of assets:                               |  |                |  |              
|Sale Price                                            |  | 263,038        |  | -            
|Less costs and expenses                               |  |                |  |              
|Cash in Stores                                        |  | 37,000         |  | -            
|Accounts Receivable                                   |  | 503,042        |  | -            
|Inventories                                           |  | 2,046          |  | -            
|Prepaids                                              |  | 14,445         |  | -            
|Property and Equipment, net                           |  | 201,516        |  | -            
|Intangibles, net                                      |  | 451,010        |  | -            
|Transition, Legal and other                           |  | 61,724         |  | -            
|Total costs of sale                                   |  | 1,270,783      |  | -            
|Loss on sale                                          |  | (1,007,745)    |  | -            
|Loss from discontinued operations before income taxes |  | $  (1,296,872) |  | $   (581,433)



Burger Time Business



On May 11, 2007 the Companys wholly-owned subsidiary, Burger Time Acquisition Corporation, entered into and closed the transactions contemplated by an Asset Purchase Agreement dated May 11, 2007 effective April 29, 2007 with BTND LLC, a Colorado limited liability company. The Asset Purchase Agreement provides for the sale by BTAC of substantially all of the assets related to the Companys Burger Time business, including the tangible and intangible assets of Burger Time Acquisition Corporation and the real estate held by BTAC Properties Inc. Immediately prior to the transaction with BTND, LLC, Gary Copperud and Jeffrey A. Zinnecker, resigned as directors of the Company and Mr. Copperud resigned as an officer. BTND, LLC is an affiliate of Gary Copperud and Jeffrey A. Zinnecker.



The purchase price for the assets was $1,806,319 plus the assumption by the Buyer of certain liabilities relating to mortgages of BTAC Properties Inc. as of April 30, 2007. Of the purchase price, $1,000,000 was paid in cash and $806,319 was paid by delivery of a promissory note. The note bears interest at a rate of 7.00% per annum with a term of 12 years. The Company, through Burger Time Acquisition Corporation and BTND, LLC, also entered into a second promissory note of $1,886,432 relating to the assumption of two BTAC Properties mortgages with StanCorp. BTND, LLC intends to assume the Minnesota and North Dakota mortgages and the related promissory note in the fiscal year 2009. BTND, LLCs promissory note to Burger Time Acquisition Corporation is intended to pass along to BTND, LLC the obligations of Burger Time Acquisition Corporation under the notes and mortgages with StanCorp. (See Note 9). The Company recognized a gain of $100,000 upon the sale.



In accordance with the provisions of SFAS 144, we have not included the results of operations of our Burger Time Business 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 years ended September 28, 2008 and September 30, 2007, consist of the following:





|                                                        |  | 09/28/08          |  | 09/30/07   
|------------------------------------------------------- |  | ----------------- |  | -----------
|                                                        |  |                   |  |            
|Revenue, net                                            |  | $               0 |  | $ 3,580,035
|                                                        |  |                   |  |            
|Cost of goods sold                                      |  | 0                 |  | 3,303,726  
|                                                        |  |                   |  |            
|Gross profit                                            |  | 0                 |  | 276,309    
|                                                        |  |                   |  |            
|Total operating expenses                                |  | 0                 |  | 345,720    
|                                                        |  |                   |  |            
|Net income (loss) operations                            |  | 0                 |  | (69,411)   
|Other non-operating expenses                            |  | -                 |  | -          
|                                                        |  |                   |  |            
|Gain on sale of assets:                                 |  |                   |  |            
|Sale Price                                              |  |                   |  | 1,806,319  
|Less costs and expenses                                 |  |                   |  |            
|Cash in Stores                                          |  |                   |  | 10,200     
|Accounts Receivable                                     |  |                   |  | 21,124     
|Inventories                                             |  |                   |  | 56,659     
|Prepaids                                                |  |                   |  | 28,505     
|Property and Equipment, net                             |  |                   |  | 1,424,033  
|Intangibles, net                                        |  |                   |  | 71,669     
|Prepaid Mortgage Costs                                  |  |                   |  | 94,129     
|Total costs of sale                                     |  | 0                 |  | 1,706,319  
|Net gain on sale before taxes                           |  | 0                 |  | 100,000    
|Income from discontinued operations before income taxes |  | $             0   |  | $  30,589  



LifeSafe Services Business



On June 30, 2005, Company and its wholly-owned subsidiary, LifeSafe Services, Inc. completed the sale to Life Safe Services, LLC of assets related to our Emergency Oxygen Service Business including the LifeSafe and LifeKit product lines. The purchase price for the assets was $3,150,000. 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.  In July 2008, Life Safe Services LLC completely paid off the promissory note of $463,409 and was released from further obligations for $416,000.  A prepayment discount of $47,453 was recorded and expensed to discontinued operations in the year ended September 28, 2008.





Page F-17



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







The table below is a consolidation of the sale of our Alliance Cash Advance, Moneyworldlending, Burger Time businesses. In accordance with the provisions of SFAS 144, we have not included the results of operations of our former Alliance cash Advance, Moneyworldlending, Burger Time businesses in the results of continuing operations. The results of operations for these businesses have been reflected as discontinued operations. The income from discontinued operations for the years ended September 28, 2008 and September 30, 2007, consist of the following:



|                                                               |  | 09/28/08         |  | 09/30/07    
|-------------------------------------------------------------- |  | ---------------- |  | ------------
|                                                               |  |                  |  |             
|Revenue, Net                                                   |  | $ 878,154        |  | $4,754,682  
|                                                               |  |                  |  |             
|Cost of Goods Sold                                             |  | 312,506          |  | 3,675,238   
|                                                               |  |                  |  |             
|Gross Profit                                                   |  | 565,648          |  | 1,079,444   
|                                                               |  |                  |  |             
|Total operating expenses                                       |  | 854,775          |  | 1,728,661   
|                                                               |  |                  |  |             
|Loss from operations                                           |  | (289,127)        |  | (649,217)   
|Other non-operating expenses                                   |  | (47,453)         |  | 1,627       
|                                                               |  |                  |  |             
|Gain on sale of assets:                                        |  |                  |  |             
|Sale Price                                                     |  | 263,038          |  | 1,806,319   
|Less costs and expenses                                        |  |                  |  |             
|Cash in Stores                                                 |  | 37,000           |  | 10,200      
|Accounts Receivable                                            |  | 503,042          |  | 21,124      
|Inventories                                                    |  | 2,046            |  | 56,659      
|Prepaids                                                       |  | 14,445           |  | 28,505      
|Property and Equipment, net                                    |  | 201,516          |  | 1,424,033   
|Intangibles, net                                               |  | 451,010          |  | 71,669      
|Prepaid Mortgage Costs                                         |  | -                |  | 94,129      
|Accrued Payable                                                |  | -                |  | -           
|Transition, Legal and other                                    |  | 61,724           |  | -           
|Total costs of sale                                            |  | 1,270,783        |  | 1,706,319   
|Income (loss) on sale before taxes                             |  | (1,007,745)      |  | 100,000     
|Income (loss) from discontinued operations before income taxes |  | $    (1,344,325) |  | $  (550,844)





NOTE 4 - Inventories



Inventories consisted of the following at September 28, 2008 and September 30, 2007:



|                                         | 09/28/08     |  | 09/30/07    
|---------------------------------------- | ------------ |  | ------------
|                                         |              |  |             
|Raw materials - contract manufacturing   | $    476,962 |  | $    392,455
|Work in process - contract manufacturing | 1,221        |  | 46,353      
|Finished goods:                          |              |  |             
|Contract manufacturing                   | 285,907      |  | 47,962      
|Used autos                               | 1,067,838    |  | 648,583     
|Total Inventories                        | $ 1,831,928  |  | $ 1,135,353 
|                                         |              |  |             





Page F-18



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







NOTE 5  Other Current Assets



Other current assets consisted of the following at September 28, 2008 and September 30, 2007:



|                                                           | 09/28/08     |  | 09/30/07    
|---------------------------------------------------------- | ------------ |  | ------------
|Debt issuance costs-renewable unsecured subordinated notes | $    832,604 |  | $  876,911  
|Prepaid expenses                                           | 111,293      |  | 67,346      
|Deferred income taxes                                      | -            |  | 687,000     
|Total Other Current Assets                                 | $   943,897  |  | $  1,631,257





Page F-19



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007





NOTE 6 - Property and Equipment, net



Property and equipment consisted of the following at September 28, 2008 and September 30, 2007:



|                                                | 09/28/08    |  | 09/30/07    
|----------------------------------------------- | ----------- |  | ------------
|                                                |             |  |             
|Land                                            | $    83,744 |  | $    183,744
|Building                                        | 633,068     |  | 515,360     
|Furniture and equipment                         | 575,390     |  | 703,900     
|Total                                           | 1,292,202   |  | 1,403,004   
|Less: accumulated depreciation and amortization | (468,061)   |  | (351,992)   
|Net                                             | $ 824,141   |  | $ 1,051,012 



Depreciation and amortization expense on property and equipment was $120,053 and $42,193 for the years ended September 28, 2008 and September 30 2007, respectively.  The Company has a plan to dispose of the STENCOR assets (See Note 1) Impairment of Long lived and Intangible Assets, and has taken a charge of $650,000 for the year ended September 28, 2008.





NOTE 7 - Other Current Liabilities



Other current liabilities consisted of the following at September 28, 2008 and September 30, 2007:



|                                  | 09/28/08    |  | 09/30/07   
|--------------------------------- | ----------- |  | -----------
|Accrued payroll and related taxes | $   246,060 |  | $   234,362
|Deferred revenue                  | 84,628      |  | 310,077    
|Accrued interest                  | 371,061     |  | 87,454     
|Other accrued expenses            | 135,655     |  | 36,732     
|Total                             | $   837,404 |  | $   668,625





Page F-20



---

STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







NOTE 8 - Line of Credit, Bank



At September 30, 2007, we had 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% (8.25% at September 30, 2007). The line of credit was collateralized by our receivables and inventory. At September 28, 2008 and September 30, 2007, there was $0 and $680,000 outstanding under this agreement and the line was paid in full November 2007, and the agreement has since expired.



The Companys indebtedness to Citizens Independent Bank under the line of credit agreement and the term loan was guaranteed by Mr. Kenneth W. Brimmer, the Companys Chief Executive Officer and director, and Mr. Gary Copperud, who was a director of the Company at that time. 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 were being amortized over 5 years. With the line payoff in November 2007, the Company recorded an expense of $142,180 related to the net unamortized value of the cost in the year ended September 28, 2008.



NOTE 9 - Long-Term Debt





On November 23, 2007, the Company and all its wholly-owned subsidiaries entered into a security agreement with LV Administrative Services, Inc. as administrative and collateral agent for Valens (Valens).



Under the security agreement, Valens may make revolving loans to the Borrowers from time to time during the two year term of up to $5,500,000, subject to a defined borrowing base. The borrowing base takes into account reserves established by Valens, the amount of certain available accounts of the Borrowers, and the amount of certain available inventory of the Borrowers. The amounts loaned to the Borrowers are evidenced by a secured revolving note in the maximum aggregate amount of $5,500,000. Amounts under the original secured revolving note matured on November 23, 2009 and bear interest at a rate equal to the prime rate plus 8.25%, (15.00% at June 29, 2008) but not less than 15%. Interest is payable monthly. In an event of default, as defined under the security agreement, the Borrowers will be obligated to pay additional interest of 2% per month as a penalty until the event of default is cured or waived and the agent may demand repayment of the obligations of the secured revolving note and the security agreement or may elect to demand a default payment equal to 130% of the outstanding principal amount of the secured revolving note, plus accrued but unpaid interest and all other fees and amounts then remaining unpaid. The security agreement also contains loan covenants. The Company has violated certain covenants under this agreement but obtained appropriate waivers from Valens.



On November 23, 2007, the Borrowers drew $1,205,054 under the security agreement, of which $1,085,388 was used to repay all of the indebtedness of STEN Credit Corporation to an individual lender and the indebtedness of the Company to Citizens Independent Bank. On December 3, 2007, we drew $1,905,275 under the security agreement to satisfy the Companys outstanding indebtedness to R.W. Sabes Investment, LLC.



The obligations of the security agreement and the note are collateralized by a security interest in all of the Borrowers assets, as well as the assets of the Companys subsidiaries BTAC Properties, Inc., STEN Financial Corporation, Alliance Advance, Inc., Burger Time Acquisition Corporation and STEN Acquisition Corporation and the Companys equity interest in its subsidiaries. The collateral does not include the eight parcels of real property owned by BTAC Properties, Inc. in respect of the Burger Time restaurant business as these parcels of real property are subject to transfer to BTND, LLC under the asset purchase agreement dated May 11, 2007 retroactive to April 29, 2007. (See Note 1-Discontinued Operations.)



In exchange for the availability of revolving loans under the security agreement, the Company sold Valens 227,794 shares of its common stock (the Closing Shares) for $0.01 per share and the Company also issued Valens a fully vested common stock purchase warrant (the Warrant) to purchase 22,206 shares of its common stock. The Closing Shares represent 9.9% of the Companys 2,300,957 shares issued and outstanding immediately prior to the security agreement transactions. The exercise price of the Warrant is $0.01 per share and the Warrant has an indefinite term. By the terms of the Warrant, the holder may not exercise any portion of the Warrant that would result in beneficial ownership by the holder and its affiliates of any amount greater than 9.99% of the then outstanding shares of Common Stock (whether or not, at the time of such exercise, the holder and its affiliates beneficially own more than 9.99% of the then outstanding shares of common stock). Prior to transfer by Valens, the Closing Shares and the shares of common stock issuable upon exercise of the Warrant are subject to an irrevocable proxy naming STEN as proxy. The common stock and the common stock warrants were valued at $247,722 using managements estimation of their fair value and offset against long-term debt. The resulting original issue discount of the fair value of the Warrants as defined in EITF 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, was initially amortized over the life of the note using the straight-line method, which approximates the interest method. During the year ended September 28, 2008, $247,722 was expensed.



The Company and Valens also entered into a Registration Rights Agreement dated November 23, 2007 relating to the Companys obligation to register for resale the Closing Shares and the shares issuable upon exercise of the Warrant. Under the Registration Rights Agreement, the Company is obligated, among other things, to file a registration statement relating to the registerable securities within 90 days for Valens resale offering to be made on a continuous basis. Effective February 14, 2008, Valens waived the Companys obligations under the Registration Rights Agreement to file a registration statement relating to Valens' registerable securities and to cause such registration statement to be declared effective.



On August 22, 2008, the Company modified the original security agreement with Valens dated November 23, 2007.  The Revolving Credit Facility was increased from $5,500,000 to $8,850,000 and amounts under the extended secured revolving note mature on August 22, 2011, bear interest at a rate equal to the prime rate from time to time plus 8.25%, (16.25% at September 28, 2008) but not less than 16.25%. The $8,850,000 in availability will be based on accounts receivable at an advance rate to 60% of eligible auto accounts receivable (not to exceed 80% of wholesale book value) and 75% of non auto receivables.  All other terms and conditions of the original security agreement remain in place through August 22, 2011. As of September 28, 2008, we had $6,714,515 in borrowings against the Valens security agreement and $2,135,485 available with a limitation based on our borrowing base.



In exchange for the modifications to the original security agreement, STEN issued Valens the right to purchase 45,000 five year $0.01 common stock warrants.  The common stock warrants were valued at $54,913 using managements estimation of their fair value and offset as a discount against long-term debt and $3,099 was expensed during the year ended September 28, 2008. The resulting original issue discount of the fair value of the Warrants as defined in EITF 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, will be amortized over the life of the note using the straight-line method, which approximates the interest method. The Company has applied EITF 96-19,Debtors Accounting for a Modification or Exchange of Debt Instruments. Based on the analysis the debt instruments are considered to be substantially different. Therefore, the Company determined that the modification resulted in a debt extinguishment and expensed the net remaining capitalized costs associated with the original security agreement with Valens. Amortization of these costs are included in interest expense and were $486,640 for the year ended September 28, 2008.



In addition to the warrants the Company issued an Original Issue Discount Term Note in the amount of $1,500,000 (no cash was or will be received), paid closing fees representing 3.6% of the $8,850,000 ($318,600) and agreed to revenue sharing where the Company will pay Valens 0.75% of gross revenues payable in cash each month for a period no less the 6 years with the first payment will be due 13 months post funding or (September 30, 2011).  The Original Issue Discount Term note will be paid 5 years from the closing (August 22, 2013). The Company will provide $600,000 and $900,000 payments at month 48 (August 22, 2012) and month 60 (August 22, 2013) respectively.  The Company may retire the debt for $1,000,000 at any time prior to the 37 month (September 22, 2011). The closing fees of $318,600 were recorded as debt issuance costs and are being amortized over the life of the loan (see Note 16). The Company will be charging interest expense monthly as it accrues this liability over the payment term. The balance accrued for the note was $16,365 as of September 28, 2008.



On July 18, 2007, the Company, through its subsidiary BTAC Properties, Inc. sold a parcel of land located in Elk River, Minnesota to Elk River 229 Carson, LLC. The purchase price was $495,000, excluding closing costs and prepayment penalties. The proceeds were used to reduce the Minnesota mortgage to StanCorp Mortgage by $470,482.



In April 2007, STEN began offering for sale up to $25 million of renewable unsecured subordinated notes. As of September 28, 2008, we had $7,504,571 outstanding in renewable unsecured subordinated notes and $364,046 of accrued interest. The table below represents outstanding renewable unsecured subordinated notes as of September 28, 2008:



Page F-21



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007









Renewable unsecured subordinated notes:



|Original Term | Principal Amount | Weighted Average Interest Rate
|------------- | ---------------- | ------------------------------
|3 months      | $     421,056    | 8.58%                         
|6 months      | 330,255          | 9.30%                         
|1 year        | 3,154,182        | 13.47%                        
|2 years       | 741,583          | 13.82%                        
|3 years       | 2,362,995        | 14.79%                        
|4 years       | 249,500          | 16.04%                        
|5 years       | 171,000          | 15.30%                        
|10 years      | 74,000           | 12.85%                        
|Total         | $  7,504,571     | 13.57%                        



We made interest payments of $733,573 and $69,430 on the renewable unsecured subordinated notes during the years ended September 28, 2008 and September 30, 2007, respectively. The weighted average term on the outstanding renewable unsecured subordinated notes is 22 months.



On March 9, 2007, we completed a mortgage financing collateralized by the underlying building and real estate used in BTACs operations in the amount of $384,000. Kenneth W. Brimmer and Gary Copperud are joint and several borrowers with BTAC on the note. Messrs. Brimmer and Copperud did not receive any compensation for joining as borrowers on the note. The note accrues interest at a rate of 7.210% per annum and is payable in 59 equal monthly installments of $3,048 per month, with the final payment of all principal and all accrued interest not yet paid due March 5, 2012. The balance outstanding was $369,585 and $378,709 at September 28, 2008 and September 30, 2007, respectively.



On March 1, 2007, we completed a mortgage financing collateralized by the underlying building and real estate which is used by our subsidiary, STENCOR, in its contract manufacturing business, in the amount of $500,000. Kenneth W. Brimmer and Gary Copperud are joint and several borrowers with STENCOR on the note. Messrs. Brimmer and Copperud did not receive any compensation for joining as borrowers on the note. The note accrues interest at a rate of 8.75% then 7.625% per annum and is payable in 180 monthly installments, with the final payment of all principal and all accrued interest not yet paid due March 1, 2022. Payments of $5,036 are made in months 1 to 36 and payments of $4,755 are made in months 37 to 180. The balance outstanding was $473,041 and $491,953 at September 28, 2008 and September 30, 2007, respectively.



On February 13, 2007, STEN Credit and STEN entered into a credit agreement under which R. W. Sabes Investment, LLC (Sabes) would loan up to $3,000,000 to STEN Credit, subject to a defined borrowing base of STEN Credit assets. This note was paid in December 2007 with funds from the loans under the security agreement with Valens.



As additional consideration, STEN issued to Sabes a redeemable warrant to purchase 219,900 shares of its common stock at an exercise price of $4.50 per share. The warrant may be exercised by the holder at any time prior to March 1, 2012. The shares of common stock underlying the warrant may be redeemed by STEN in three separate tranches if the closing sales price of its common stock exceeds $6.00 per share for at least thirty consecutive trading days, among other conditions. The gross proceeds of $1,845,845 were allocated between the convertible note and the redeemable warrants based on the relative fair values of the securities at the time of issuance. The redeemable warrants were valued at $175,000 using managements estimation of their fair value and offset against long-term debt. The resulting original issue discount of the fair value of the warrants as defined in EITF 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, will be amortized over the life of the note using the straight-line method, which approximates the interest method. The conversion price of $8.20 was greater than the fair market value of the stock at the time of issuance. With the payoff of the obligations under the Sabes credit agreement in December 2007; we recorded interest expense for the remaining balance of the original issue discount of $142,180 in the year ended September 28, 2008.



On January 24, 2007, STEN Credit borrowed $100,000 from a private lender under a promissory note with interest at a rate equal to 16.00% per annum. On January 30, 2007, STEN Credit borrowed $50,000 from the same private lender under a promissory note with interest at a rate equal to 16.00% per annum. The notes were paid in full on April 24, 2007 and May 1, 2007, respectively.



On January 11, 2007, STEN Credit borrowed $750,000 from Crown Bank in the form of a promissory note with a term of six months, expiring July 11, 2007. The promissory note was paid on February 13, 2007 using proceeds from the first draw of the available amounts under the credit agreement with Sabes.



On January 2, 2007, STEN Credit Corporation and a private lender entered into a promissory note in the amount of $400,000. This note was paid in full in November 2007.



In November 2006, and as amended March 2007, the Company entered into a non-solicitation agreement with Flash Motors. The term of the agreement is five years. STEN Credit will pay Flash Motors a total sum of $1,400,000 in exchange for an agreement by Flash Motors and its representatives not to solicit the accounts and prospects provided in the agreement. Concurrently, STEN Credit issued a promissory note to Flash Motors in the principal amount of $1,400,000 effective March 1, 2007 with interest at a rate of 13% per annum paid monthly in arrears starting on April 1, 2007. Beginning November 14, 2008, the note holder may demand payment of principal of $250,000 which will be payable within 30 days and additional increments of up to $250,000 may be demanded every thirty days thereafter until the note is paid in full. As the Company changes focus towards the Buy Here/Pay Here business model the Company and Flash Motors are in negotiations to modify the promissory note. The Company has since claimed the Flash Motors has not honored the full terms of the agreement.  Therefore, Flash Motors may not honor the non-solicitation provisions.  The Company feels that if Flash Motors violates the non-solicitation portion, full amounts on the note may not be owed.



As of September 28, 2008 and September 30, 2007, the long-term debt consisted of the following:



|                                                                                         | 09/28/08    |  | 09/30/07   
|---------------------------------------------------------------------------------------- | ----------- |  | -----------
|Renewable unsecured subordinated notes                                                   | $ 7,504,571 |  | $ 2,792,802
|Promissory note - private investor                                                       | 0           |  | 400,000    
|Promissory notes - Flash Motors                                                          | 1,400,000   |  | 1,400,000  
|Promissory note - R.W. Sabes Investment, LLC,
net of original issue discount of $142,180 | 0           |  | 1,880,259  
|Promissory note - Valens U.S. SPV I, LLC, net of original discount of $51,815            | 6,662,700   |  | 0          
|Promissory note - Valens U.S. SPV I, LLC, Original issue discount tern note              | 16,365      |  | 0          
|Mortgage note payable - Austin Bank                                                      | 473,041     |  | 491,953    
|Mortgage note payable - Bremer Bank                                                      | 369,585     |  | 378,709    
|Totals                                                                                   | 16,426,262  |  | 7,343,723  
|Less current portion                                                                     | (5,442,524) |  | (2,886,265)
|Long term portion                                                                        | $10,983,738 |  | $ 4,457,458



Future maturities on long-term debt are as follows:



|Fiscal Year |            
|----------- | -----------
|2009        | $5,442,524 
|2010        | 666,344    
|2011        | 9,078,047  
|2012        | 613,524    
|2013        | 199,624    
|Thereafter  | 426,199    
|Total       | $16,426,262



Future maturities excludes $1,488,635 related to the original issue discount term note due no later than the fiscal year ending 2013.



NOTE 10 - Stockholders Equity (Deficit)



As of September 28, 2008 and September 30, 2007, the Company had 20,000,000 shares authorized, 5,000,000 undesignated shares authorized, 2,528,751 and 1,990,957 shares issued, and shares outstanding, respectively.



During the year ended September 28, 2008, the Company issued five-year options to the Board of Directors and certain employees to purchase 147,000 shares at $2.50 per share. A portion of these options were subject to forfeiture under certain performance criteria. These options were valued at between $0.49 and $1.11 using the Black Scholes pricing method.



Page F-22



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







Stock Warrants



In connection with a registered offering that was completed in October 2000, the Company issued warrants to purchase common stock. On February 14, 2008, the Companys Board of Directors extended the expiration date of the outstanding common stock purchase warrants to September 30, 2011. There was not an accounting charge related to the extension of the warrants.



In January and February 2008, the Company issued warrants to three consultants to purchase an aggregate of 115,000 shares of the Companys common stock. The warrant exercise price is $3.00 per share of common stock. STEN shares were trading within a range of $1.33 to $1.38 at the time of issuance of warrants. The warrants may be exercised by the holder at anytime and up to five years from the date of execution, at which time all of the warrant holders rights shall expire. The warrants have been determined to have a total market value of $54,788 using the Black-Scholes option pricing model with a range of market value per common share of $1.33 to $1.38, a risk free rate of return range of 2.75% to 3.62%, an exercise period of 2.5 years and a volatility of 70%. Since the warrants may be exercised at anytime and there was not a signed consulting agreement noting the term of the services to be provided, the Company expensed the entire $54,788 in the year ended September 28, 2008.



At September 28, 2008, there were 762,089 outstanding common stock purchase warrants to purchase 219,900 shares at $4.50 per share, 359,983 shares at $4.00 per share, 115,000 shares at $3.00, 22,206 shares at $1.00 and 45,000 shares at $0.01. At September 30, 2007, there were outstanding common stock purchase warrants to purchase 219,000 shares at $4.50 and 359,983 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.



Page F-23



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







Information regarding stock options is summarized below:



|                                        | Number of Options |  | Weighted Average Exercise Price |  | Range of Option Exercise Price |  | Aggregate Intrinsic Value
|--------------------------------------- | ----------------- |  | ------------------------------- |  | ------------------------------ |  | -------------------------
|Options outstanding, October 1, 2006    | 305,000           |  | 6.06                            |  | $3.63-9.74                     |  | -                        
|Granted                                 | 246,500           |  | 6.00                            |  | 6.00                           |  | -                        
|Cancelled                               | (171,000)         |  | 6.15                            |  | 5.50-7.95                      |  | -                        
|Exercised                               | -                 |  | -                               |  | -                              |  | -                        
|Options outstanding, September 30, 2007 | 380,500           |  | 5.98                            |  | 3.63-9.74                      |  | -                        
|Granted                                 | 147,000           |  | 2.50                            |  | 2.50                           |  | -                        
|Cancelled                               | (111,200)         |  | 5.68                            |  | 3.63-6.00                      |  | -                        
|Exercised                               | -                 |  | -                               |  | -                              |  | -                        
|Options outstanding, September 28, 2008 | 416,300           |  | $4.83                           |  | $2.50-$9.74                    |  | $-                       
|Options exercisable, September 28, 2008 | 237,100           |  | $5.60                           |  | $2.50-$9.74                    |  | $-                       
|Options exercisable, September 30, 2007 | 227,500           |  | $5.97                           |  | $3.63-$9.74                    |  | $-                       



The following table summarizes information about stock options outstanding at September 28, 2008.



|                | Options outstanding | Options exercisable
|--------------- | ------------------- | -------------------
|                |                     | Weighted-          
|                |                     | average            
|                | Number              | remaining          
|Exercise prices | outstanding         | contractual life   
|$2.50-$4.95     | 152,000             | 6.28               
|$5.35-$7.95     | 254,300             | 3.33               
|$9.74           | 10,000              | 3.08               
|$2.50-$9.74     | 416,300             | 4.04               



Page F-24



---

STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007













NOTE 11 - Income Taxes



At September 28, 2008, the Company had net operating loss carryforwards for federal tax purposes of approximately $4,600,000 that begin to expire in 2026. 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 income tax provision for the year ended September 28, 2008 relates entirely to deferred income taxes.



In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.



As of September 28, 2008, due to operating losses that were incurred for the fiscal years ended September 28, 2008 and September 30, 2007, management felt it prudent to write-off the previously recorded deferred income tax asset.  This one-time, non-recurring expense is reflected in the accompanying statement of operations as of September 28, 2008.



The change in the valuation allowance was $2,957,000 and $0 for the years ended September 28, 2008 and September 30, 2007, respectively.



The provision for income taxes from continuing operations consisted of the following components for the years ended September 28, 2008 and September 30, 2007.



|Current: | 09/28/08           |  | 09/30/07    
|-------- | ------------------ |  | ------------
|Federal  | $                0 |  | $  40,296   
|State    | 0                  |  | (5,500)     
|Deferred | 1,242,000          |  | (1,145,000) 
|         | $   1,242,000      |  | $(1,110,204)



The Companys total deferred tax liabilities and deferred tax assets consisted of the following at September 28, 2008 and September 30, 2007:



|                               | 09/28/08            |  | 09/30/07   
|------------------------------ | ------------------- |  | -----------
|Total deferred tax assets      | $    3,005,000      |  | $ 1,242,000
|Total deferred tax liabilities | (48,000)            |  | 0          
|Less: valuation allowance      | (2,957,000)         |  | 0          
|                               | $                 0 |  | $ 1,242,000



These amounts have been presented in the Companys financial statements as follows at September 28, 2008 and September 30, 2007:



|                               | 09/28/08           |  | 09/30/07   
|------------------------------ | ------------------ |  | -----------
|Current deferred tax asset     | $                0 |  | $   687,000
|Non-current deferred tax asset | 0                  |  | 555,000    
|                               | $                0 |  | $ 1,242,000





Page F-25



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







The Companys deferred tax assets and liabilities are as follows at September 28, 2008 and September 30, 2007:



|                                        | 09/28/08           |  | 09/30/07    
|--------------------------------------- | ------------------ |  | ------------
|Deferred tax assets:                    |                    |  |             
|Accrued liabilities                     | $     35,000       |  | $     35,000
|Reserves on auto financing              | 1,037,000          |  | 187,000     
|Inventory valuation adjustments         | 0                  |  | 346,000     
|Deferred revenue                        | 30,000             |  | 105,000     
|Net operating loss carryforwards        | 1,607,000          |  | 525,000     
|Depreciation                            | 261,000            |  | -           
|Stock related compensation              | 17,000             |  | -           
|Other                                   | 18,000             |  | 13,000      
|                                        | 3,005,000          |  | 1,211,000   
|Deferred tax liabilities:               |                    |  |             
|Prepaid Expenses                        | (48,000)           |  | -           
|Depreciation                            | -                  |  | 31,000      
|                                        | (48,000)           |  | 31,000      
|                                        |                    |  |             
|Net deferred tax asset before allowance | $2,957,000         |  | $1,242,000  
|                                        |                    |  |             
|Valuation Allowance                     | (2,957,000)        |  | -           
|                                        |                    |  |             
|Net Deferred Tax Asset                  | $                0 |  | $1,242,000  



Reconciliation between the statutory rate and the effective tax rate for continuing operations for the years ended September 28, 2008 and September 30, 2007 is as follows:



|                                    | 09/28/08 |  | 09/30/07
|----------------------------------- | -------- |  | --------
|Federal statutory tax rate          | 34.0%    |  | (34.0%) 
|State taxes, net of federal benefit | 1.5%     |  | (1.6%)  
|Stock based compensation            | -        |  | (4.9%)  
|Change in valuation allowance       | (14.8%)  |  | -       
|Other                               | (1.1%)   |  | 2.1%    
|Effective tax rate                  | 19.6%    |  | (38.4%) 



Page F-26



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STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007











We file a consolidated U.S. federal tax return. The Internal Revenue has completed a review of our tax returns through the fiscal year ended September 30, 2005 and, as a result of the examination, no changes were proposed. In addition, as a result of the adoption of FASB Interpretation 48 (FIN48), effective October 1, 2007, we applied the requirements of FIN 48 to all tax positions for which the statute of limitations remained open. The Financial Accounting Standards Board published FIN 48 Accounting for Uncertainty in Income taxes to address the non-comparability in reporting tax assets and liabilities resulting from lack of specific guidance in FASB Statement of Financial Accounting Standards No. 109 (SFAS109), Accounting for Income Taxes on consistent recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides related guidance on derecognition, classification, interest and penalties, accounting interim periods, disclosures and transition. To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income taxes, such amounts would be accrued and classified as a component of income tax expenses on the Consolidated Statement of Operations.



We have completed our evaluation of the effects of FIN 48 and have concluded that the adoption of FIN 48 did not impact the consolidated financial statements for the year ended September 28, 2008. Our federal and state tax returns are potentially open to examinations for fiscal years 2006, 2007, and 2008.



NOTE 12 - 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 September 28, 2008 and September 30, 2007 were $14,018 and $10,685, respectively.



NOTE 13 - Commitments and Contingencies



Operating Leases



In fiscal 2008 the Company, through STEN Financial and its wholly-owned subsidiaries STEN Credit Corporation and EasyDrive Cars and Credit Corporation, entered into a number of leases for certain real-property located in Arizona. The following is a list of locations, monthly rents, rent expense paid and expiration date of the leases at September 30, 2007:



|Location                   | Monthly rents |  | Rent expense for 2008 |  | Expiring Date
|-------------------------- | ------------- |  | --------------------- |  | -------------
|                           |               |  |                       |  |              
|Arizona-7607 E McDowell    | 3,822         |  | 46,227                |  | 12/31/2009   
|Arizona-4888 E 22nd Street | 7,514         |  | 23,400                |  | 3/31/2011    
|Arizona-3148 Bell Road     | 7,215         |  | 87,735                |  | 8/31/2008    
|Arizona-13812 W Glendale   | 1,800         |  | 1,800                 |  | 4/30/2028    
|Total rents paid           |               |  | $  159,162            |  |              



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 March 31, 2009. The Company paid rents of $39,439 for the year ended September 28, 2008 and $38,968 for the year ended September 30, 2007.







Page F-27



---

STEN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 28, 2008 and September 30, 2007







|Future minimum rental payments are as follows:
|----------------------------------------------
|                                              
|Fiscal Year                                   
|2009                                          
|2010                                          
|2011                                          
|2012                                          
|2013                                          
|Thereafter                                    
|Total                                         



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 September 28, 2008 and September 30, 2007, the Company has purchased 0 and 37,810 common shares for a cost of $0 and $167,427, respectively.



NOTE 14 - Concentrations



During the year ended September 28, 2008, the Company had one customer, in its Contract Manufacturing business representing 8% of the total Company sales and constituting 65% of the accounts receivable balance. During the years ended September 28, 2008 and September 30, 2007, the Company had one vendor in our representing 13% and 12% of purchases constituting 18% and 20% of the accounts payable balance, respectively. During the year ended September 30, 2007, the Company had one customer representing 29% of sales constituting 70% of the accounts receivable balance.





NOTE 15  Supplemental Cash Flow Information







|                                                                                    | 09/28/2008  |  | 09/30/2007 
|----------------------------------------------------------------------------------- | ----------- |  | -----------
|                                                                                    |             |  |            
|Supplemental cash flow information:                                                 |             |  |            
|Cash paid for interest                                                              | $ 2,182,796 |  | $   554,726
|Cash received for income taxes                                                      | 0           |  | 143,172    
|                                                                                    |             |  |            
|Non-cash investing and financing activities:                                        |             |  |            
|Purchase of certain assets and assumed liabilities with                             |             |  |            
|Auto Finance Business:                                                              |             |  |            
|Loans receivable                                                                    | 0           |  | 510,481    
|Property and equipment                                                              | 0           |  | 100,000    
|Dealer reserves payable                                                             | 0           |  | 147,494    
|Issuance of common stock and stock warrants related to the issue of
long-term debt  | 302,635     |  | 175,000    
|Acquisition of customer list and non-solicitation agreement
through promissory note | 0           |  | 1,400,000  
|Sale of cash advance business for notes receivable                                  | 264,038     |  | 0          





NOTE 16- Subsequent Events

.

Renewable unsecured subordinated notes

The Company is the obligor on renewable unsecured subordinated notes (Notes) with various maturity dates.  The Notes are subject to an Indenture dated April 15, 2007 with Wells Fargo Bank National Association, as trustee.  Upon maturity, the notes will be automatically renewed for the same term as the maturing note at an interest rate that the Company is offering at that time to other investors with similar aggregate note portfolios for Notes of the same term, unless the Company or the holder elects not to have the note renewed.  As of December 31, 2008 there were $7,221,956 in principal amounts of notes outstanding.



As result of the current crisis in the credit markets and the Companys conclusion to evaluate the possible effects of significant note non-renewals, the Company concluded not to tender the required payment on the maturity date for a note of $100,000 in principal amount due to one holder electing not to renew such holders note.  The note had a maturity date of October 16, 2008. For similar reasons the Company also did not repay when due $150,000 in principal amount of a Note to another holder who also elected not to renew such holders note.  The note had a maturity date of October 28, 2008.  Under the Indenture, it is an event of default if the Company fails to pay the principal amount of any Note when the same becomes due and payable, and such failure continues for a period of 10 days.  Therefore, as of October 26, 2008 and October 28, 2008, there existed two events of default with respect to the notes.  Under the Indenture, if a payment event of default occurs and is continuing, the trustee by notice to the Company, or the holders of at least a majority in principal amount of the then outstanding Securities by written notice to the Company and the trustee, may declare the unpaid principal of and any accrued interest on all the notes to be due and payable.



On October 30, 2008, the Company repaid in full the $100,000 in principal amount of the past-due Note using, in part, funds drawn from Valens.  The Company believes it has an agreement in principle with the Valens to amend the Security Agreement to permit additional assets relating to its Stencor, Inc. manufacturing subsidiary to be included in the borrowing base under the Security Agreement, supplementing the Companys liquidity by permitting additional borrowing under the Security Agreement.  On November 7, 2008, the Company repaid the $150,000 in principal amount of the other past-due Note following the execution of an amendment to the Security Agreement.  The Lender waived the event of default under the Security Agreement triggered by the event of default with respect to the notes. Following the occurrence of an event of default under the Security Agreement, the agent for the Lender shall have the right to demand repayment in full of all obligations under the Security Agreement, whether or not otherwise due. Currently, the Company has not received a demand for payment of the obligations under the Security Agreement. STEN Corporation (the Company) is the obligor on renewable unsecured subordinated notes (the subordinated notes) with various maturity dates.  The subordinated notes are subject to an Indenture dated April 15, 2007 with Wells Fargo Bank National Association, as trustee (the Indenture).  Under the terms of the subordinated notes upon maturity, each subordinated note is automatically renewed for the same term as the maturing subordinated note at an interest rate that the offered at that time to other investors with the same term, unless the Company, or the holder, elects not to renew the subordinated note and therefore requests a redemption.  As of December 31, 2008, approximately $7,221,956 in principal amount of subordinated notes were outstanding.



Effective December 29, 2008 the Company suspended the subordinated note offering and the Company will not offer or sell additional subordinated notes. The Company continually evaluates the possible effects of non-renewals of subordinated notes on its liquidity, particularly as compared to cash flow from operations and amounts available for borrowing under the Security Agreement.   As a result of the continuing crisis in the credits markets and the resulting historic low levels in investor confidence, the net inflow of additional capital from the subordinated note offering has been significantly lower than the Company anticipated.  The current economic recession and a seasonally slowing of collections in the Companys finance business has also resulted in a lower than anticipated amount of funds available to the Company under the Security Agreement to fund the Companys business and to fund the outflow of funds associated with non-renewal of the subordinated notes.



To preserve its liquidity, the Company concluded not to tender the required payment on the maturity date for a subordinated note of $50,000 in principal amount as requested by the holder on December 17, 2008.  Under the Indenture, it is an event of default if the Company fails to pay the principal amount of any subordinated note when it becomes due and payable, and such failure continues for a period of 10 days.  Therefore, as of December 28, 2008, an event of default had occurred under the Indenture with respect to the subordinated note due on December 17, 2008.If a payment event of default occurs and is continuing, the trustee by notice to the Company, or the holders of at least a majority in principal amount of the then outstanding Securities by written notice to the Company and the trustee, may declare the unpaid principal of and any accrued interest on all the notes to be due and payable. As of the date of this filing, the Company has not received a notice of acceleration relating to the notes.



The payment default on the notes results in an event of default under the Security Agreement. As of December 31, 2008, there is approximately $7,624,000 in indebtedness outstanding under the Security Agreement. Following the occurrence of an event of default under the Security Agreement, the agent for the Lender has the right to demand repayment in full of all obligations under the Security Agreement, whether or not otherwise due.  As of the date of filing of this Form 8-K, the Company has not received a demand for payment of the obligations under the Security Agreement. As described above, on December 31, 2008, the Company entered into an amendment to the Security Agreement resulting in approximately $242,000 in additional current borrowing availability.  The Company intends to use these additional funds for its operations.



From December 17, 2008 to December 31, 2008, the Company has received requests for repayment of approximately $261,628 in additional subordinated notes.  The Company does not expect to generate sufficient liquidity from its operations to fund non-renewals of subordinated notes and does not expect the Lender to make funds available to fund repayment of the subordinated notes.  Therefore, the Company anticipates that the defaults in repayments of subordinated notes will continue and additional events of defaults will result as additional subordinated notes come due and are not repaid.



The Company is developing a plan to address its capital and liquidity issues.  The Company currently anticipates that it will propose amendments to the Indenture and, provided the amendments are approved as required under the Indenture, the amendments to the Indenture will cure the defaults in amounts due for repayment of subordinated notes.   The Company also expects that in connection with the amendments to the Indenture, the Lender will waive the events of default under the Security Agreement triggered by the event of default with respect to the subordinated notes.  Neither the approval of the Indenture nor any waiver by the Lender can be assured and the Company has no binding agreement with any person with respect to the same. The Companys business plan currently anticipates that its business will generate sufficient net cash flow to repay the amounts currently owed under the Security Agreement and the currently outstanding principal amount of the subordinated notes



Senior Credit Facility

Effective November 4, 2008, STEN and its subsidiaries entered into an Omnibus Amendment dated October 31, 2008 with Valens relating to the Security Agreement.



Pursuant to the Amendment, the parties amended the certain definitions of to permit certain inventory associated with Stencor, Inc., a wholly-owned subsidiary of STEN, to be included in the calculation of the amount the Companies may borrow under the Security Agreement.  The portion of the outstanding principal amount that relates to the availability provided by the Stencor inventory will bear additional interest at a rate equal to two percent per month.



In exchange for the Amendment, STEN issued the Lender a common stock purchase warrant to purchase 100,000 shares of the Companys common stock.  The exercise price of the warrant is $0.01 per share and the warrant expires on August 22, 2013.  By the terms of the warrant, the holder may not sell any part of the shares underlying the warrant prior to September 1, 2009 or exercise any portion of the warrant that would result in beneficial ownership by the holder and its affiliates of any amount greater than 9.99% of the then outstanding shares of common stock (whether or not, at the time of such exercise, the holder and its affiliates beneficially own more than 9.99% of the then outstanding shares of common stock). The Companies will also pay certain fees and expenses to the Lender in connection with the Amendment.





STENCOR Inc. Asset Disposal



As required by the Amendment with Valens dated October 31, 2008, Kenneth W. Brimmer, the Companys Chief Executive Officer and Chairman of the Board of Directors, entered into a letter agreement dated October 31, 2008 with the agent for the Lender.  Under the Letter, Mr. Brimmer agreed to deliver an executed asset purchase agreement to the agent within 30 days of October 31, 2008.  The asset purchase agreement would provide for the purchase by Mr. Brimmer of substantially all of the assets of Stencor for consideration of no less than $1,300,000 (inclusive of the assumption of the current mortgage and the assumption of certain accounts payable) and with other terms and conditions satisfactory to the Lender, including a closing date of no later than 60 days following the execution of the asset purchase agreement.  The Board of Directors of STEN has established a special committee to actively solicit and evaluate alterative proposals for the sale of Stencors assets or business on terms superior to those reflected in the Letter, as well as to negotiate any agreement with Mr. Brimmer relating to the Stencor assets.  STEN has no obligation to negotiate exclusively with Mr. Brimmer regarding any transaction involving Stencor.  The special committee is comprised of the independent members of the Board of Directors, Allan D. Anderson, Gervaise Wilhelm and Robert Kuschke.  Based on the value of the net assets being acquired compared to the purchase price, there is an estimated impairment of $650,000 which was expensed in the year ended September 30, 2008.



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