UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ýQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2016

☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ___________ to __________

Commission File No. 0-18958

Grote Molen, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	20-1282850
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
322 West Griffith Road
Pocatello, Idaho 83201
(Address of principal executive offices, including zip code)
(208) 234-9352
(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý    No ☐

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

(Check one):

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ý

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ý

As of May 20, 2016, there were 22,200,000 shares of the Registrant's common stock, $0.001 par value per share, outstanding.

GROTE MOLEN, INC. AND SUBSIDIARY

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2016

PART I - Financial Information

Item 1.  Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 (unaudited)	2
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations		11
Item 3.  Quantitative and Qualitative Disclosures About Market Risk		17
Item 4.  Controls and Procedures		17
PART II - Other Information
Item 1.  Legal Proceedings		18
Item 1A.  Risk Factors		18
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3.  Defaults upon Senior Securities		18
Item 4.  Mine Safety Disclosures		18
Item 5.  Other Information		18
Item 6. Exhibits		19
Signatures		20

1

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

GROTE MOLEN, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
	March 31, 2016		December 31, 2015
ASSETS
Current assets:
Cash	$	10,263	$	9,251
Accounts receivable		14,381		27,565
Accounts receivable – related parties		5,000		11,365
Inventories		795,737		708,893
Deposits		108,400		64,685
Prepaid expenses		398		356
Total current assets		934,179		822,115
Property and equipment, net		135,480		139,688
Intangible assets, net		62,820		63,068
Total assets	$	1,132,479	$	1,024,871
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	225,682	$	73,020
Accounts payable – related parties		12,365		1,950
Accrued interest payable – related parties		55,463		53,507
Accrued interest payable		25,060		22,686
Current portion of long-term debt – related party		-		2,943
Notes payable – related parties		126,627		130,127
Notes payable		161,100		136,100
Total current liabilities		606,297		420,333
Long-term debt:
Note payable		148,100		145,139
Total long-term debt		148,100		145,139
Total liabilities		754,397		565,472
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued and outstanding		-		-
Common stock, $.001 par value, 100,000,000 shares authorized, 22,200,000 shares issued and outstanding		22,200		22,200
Additional paid-in capital		147,800		147,800
Retained earnings		208,082		289,399
Total stockholders' equity		378,082		459,399
Total liabilities and stockholders' equity	$	1,132,479	$	1,024,871

See notes to condensed consolidated financial statements

2

GROTE MOLEN, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2016			2015
Revenues:
Sales	$	168,672		$	302,176
Sales to related parties		3,620			14,589
Total revenues		172,292			316,765
Cost of revenues:
Cost of sales		122,461			214,843
Cost of related party sales		2,628			10,373
Total cost of revenues		125,089			225,216
Gross profit		47,203			91,549
Operating costs and expenses:
Selling, general and administrative		118,056			109,878
Depreciation and amortization		4,456			4,538
Total operating costs and expenses		122,512			114,416
Loss from operations		(75,309	)		(22,867	)
Other expense:
Interest expense – related parties		1,920			4,523
Interest expense		4,088			1,690
Total other expense		6,008			6,213
Loss before income taxes		(81,317	)		(29,080	)
Provision for income taxes		-			-
Net loss	$	(81,317	)	$	(29,080	)
Net loss per common share -
Basic and diluted	$	(0.00	)	$	(0.00	)
Weighted average shares outstanding -
Basic and diluted		22,200,000			22,200,000

See notes to condensed consolidated financial statements

3

GROTE MOLEN, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2016			2015
Cash flows from operating activities:
Net loss	$	(81,317	)	$	(29,080	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		4,456			4,538
(Increase) decrease in:
Accounts receivable		13,184			24,134
Accounts receivable – related parties		6,365			(7,659	)
Inventories		(86,844	)		(142,472	)
Deposits		(43,715	)		142,405
Prepaid expenses		(42	)		10
Increase (decrease) in:
Accounts payable and accrued expenses		152,662			7,671
Accounts payable – related parties		10,415			450
Accrued interest payable – related parties		1,956			2,400
Accrued interest payable		2,374			1,814
Net cash provided by (used in) operating activities		(20,506	)		4,211
Cash flows from investing activities		-			-
Net cash used in investing activities		-			-
Cash flows from financing activities:
Proceeds from long-term note payable		5,300			22,000
Proceeds from notes payable		25,000			20,000
Repayment of notes payable – related parties		(3,500	)		(9,000	)
Repayment of long-term debt – related party		(2,943	)		(11,147	)
Repayment of long-term note payable		(2,339	)		(8,855	)
Net cash provided by financing activities		21,518			12,998
Net increase in cash		1,012			17,209
Cash, beginning of the period		9,251			60,808
Cash, end of the period	$	10,263		$	78,017

See notes to condensed consolidated financial statements

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GROTE MOLEN, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2016

(UNAUDITED)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNICANT ACCOUNTING POLICIES

Organization

Grote Molen, Inc. ("Grote Molen") was incorporated under the laws of the State of Nevada on March 15, 2004.  BrownWick, LLC ("BrownWick"), a wholly owned subsidiary, was formed in the State of Idaho on June 5, 2005.  The principal business of Grote Molen and BrownWick (collectively the "Company") is to distribute grain mills, kitchen mixers and related accessories for home use.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Grote Molen and BrownWick.  All significant inter-company balances and transactions have been eliminated.

Basis of Presentation

The accompanying condensed consolidated financial statements as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 are unaudited.  In the opinion of management, all adjustments have been made, consisting of normal recurring items, that are necessary to present fairly the consolidated financial position as of March 31, 2016 as well as the consolidated results of operations and cash flows for the three months ended March 31, 2016 and 2015 in accordance with U.S. generally accepted accounting principles.  The results of operations for any interim period are not necessarily indicative of the results expected for the full year.  The interim condensed consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2015.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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.

Earnings Per Share

The computation of basic earnings per common share is based on the weighted average number of shares outstanding during the period.

The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the period plus the common stock equivalents which would arise from the exercise of stock options and warrants outstanding using the treasury stock method and the average market price per share during the period.  Common stock equivalents are not included in the diluted earnings per share calculation when their effect is anti-dilutive.  We have not granted any stock options or warrants since inception of the Company.  Therefore, our basic earnings per share is the same as diluted earnings per share for the three months ended March 31, 2016 and 2015.

Comprehensive Income (Loss)

Comprehensive income (loss) is the same as net income (loss).

5

NOTE 2 – DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

Accounts receivable consist of the following:

	March 31, 2016		December 31, 2015
Trade accounts receivable – related parties	$	-	$	6,365
Employee advances		5,000		5,000
Total accounts receivable – related parties		5,000		11,365
Trade accounts receivable		14,381		27,565
	$	19,381	$	38,930

Property and equipment consist of the following:

	March 31, 2016			December 31, 2015
Office equipment	$	4,335		$	4,335
Warehouse equipment		16,927			16,927
Website development		2,000			2,000
Molds		150,615			150,615
		173,877			173,877
Accumulated depreciation		(38,397	)		(34,189	)
	$	135,480		$	139,688

Intangible assets consist of the following:

	March 31, 2016			December 31, 2015
License – definite lived	$	10,500		$	10,500
License – indefinite lived		62,720			62,720
Patent		100			100
		73,320			73,320
Accumulated amortization		(10,500	)		(10,252	)
	$	62,820		$	63,068

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NOTE 3 – RELATED PARTY DEBT

Notes payable – related parties are unsecured and are comprised of the following:

	March 31, 2016		December 31, 2015
Note payable to a stockholder, due on demand, with interest at 6% per annum	$	30,000	$	30,000
Note payable to a stockholder, due on demand, with interest at 6% per annum		3,500		3,500
Note payable to a stockholder, due on demand, with interest at 6% per annum		38,000		38,000
Note payable to a stockholder, due on demand, with interest at 6% per annum		10,000		10,000
Note payable to a stockholder, due on demand, with interest at 6% per annum		5,000		5,000
Note payable to a stockholder, due on demand, with interest at 8% per annum		9,000		9,000
Note payable to a stockholder, due on demand, with interest at 8% per annum		15,000		15,000
Note payable to a stockholder, due on demand, with interest at 8% per annum		7,000		10,500
Non-interest bearing advances from stockholders, with no formal repayment terms		9,127		9,127
Total	$	126,627	$	130,127

Long-term debt – related party is comprised of the following:

	March 31, 2016		December 31, 2015
Note payable to a stockholder, due in monthly installments of $4,000 through February 2016, with interest at 6.97 % per annum	$	-	$	2,943
Less current portion		-		(2,943	)
Long-term portion	$	-	$	-

Interest expense on related party debt was $1,920 and $4,523 for the three months ended March 31, 2016 and 2015.  Accrued interest payable to related parties was $55,463 and $53,507 at March 31, 2016 and December 31, 2015, respectively.

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NOTE 4 – NOTES PAYABLE

Short-term notes payable to non-related parties are unsecured and are comprised of the following:

	March 31, 2016		December 31, 2015
Note payable, due on demand, with interest at 8% per annum	$	15,000	$	15,000
Note payable, due on demand, with interest at 8% per annum		20,000		20,000
Note payable, due on demand, with interest at 8% per annum		5,000		5,000
Note payable, due on demand, with interest at 8% per annum		7,000		7,000
Note payable, due on demand, with interest at 6% per annum		15,000		15,000
Note payable, due on demand, with interest at 6% per annum		10,000		10,000
Note payable, due on demand, with interest at 6% per annum		4,000		4,000
Note payable, due on demand, with interest at 6% per annum		5,600		5,600
Note payable, due on demand, with interest at 6% per annum		10,000		10,000
Note payable, due on demand, with interest at 6% per annum		10,000		10,000
Note payable, due on demand, with interest at 6% per annum		10,000		10,000
Note payable, due on demand, with interest at 6% per annum		10,000		10,000
Note payable, due on demand, with interest at 6% per annum		2,500		2,500
Note payable, due on demand, with interest at 6% per annum		9,000		9,000
Note payable, due on demand, with interest at 6% per annum		3,000		3,000
Note payable, due on demand, with interest at 6% per annum		20,000		-
Note payable, due on demand, with interest at 6% per annum		5,000		-
Total	$	161,100	$	136,100

8

At March 31, 2016 and December 31, 2015, we had a long-term note payable to a bank with a principal balance of $148,100 and $145,139, respectively.  The long-term note payable is a line of credit promissory note bearing interest at an indexed rate plus 2% (4.50% at March 31, 2016), requiring monthly interest payments only, and maturing on May 16, 2021.  The note payable has a maximum line of credit of $150,000, and is secured by a deed of trust on certain real estate owned by one of the principal stockholders of the Company and by the Company's inventories, property and equipment, and intangible assets.

Accrued interest payable on notes payable was $25,060 and $22,686 at March 31, 20156 and December 31, 2015, respectively.

NOTE 5 – RELATED PARTY TRANSACTIONS

Pursuant to an agreement effective in February 2011, we pay a monthly management fee to a company owned by one of the major stockholders of the Company to manage our day-to-day business activities and to provide business space.  Historically we have paid monthly management fees in varying amounts to this related party pursuant to prior agreements approved by the stockholders of the Company.  The agreement is on a month-to-month basis and can be cancelled at any time by the vote of management.  The agreement was amended and restated on October 31, 2014 to increase the fee to $12,500 effective November 1, 2014.  Also included in management fees are monthly payments of $150 to another major stockholder of the Company for expense reimbursement.  Included in selling, general and administrative expenses were management fees totaling $37,950 for each of the three-month periods ended March, 31, 2016 and 2015.

Each of the two principal stockholders of the Company owns a company that is our customer.  Sales to these related parties totaled $3,620 and $14,589 for the three months ended March 31, 2016 and 2015, respectively, or approximately 2% and 5%, respectively.  Accounts receivable from these related parties totaled $0 and $6,365 at March 31, 2016 and December 31, 2015, respectively.

Accounts payable to these related parties totaled $12,365 and $1,950 at March 31, 2016 and December 31, 2015, respectively.

See Note 3 for discussion of related party debt and interest expense.

NOTE 6 – CAPITAL STOCK

The Company's preferred stock may have such rights, preferences and designations and may be issued in such series as determined by our Board of Directors.  No shares of preferred stock were issued and outstanding at March 31, 2016 and December 31, 2015.

NOTE 7 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

During the three months ended March 31, 2016 and 2015, we had no non-cash financing and investing activities.

During the three months ended March 31, 2016 and 2015, we paid no amounts for income taxes.

During the three months ended March 31, 2016 and 2015, we paid cash for interest of $1,678 and $1,998, respectively.

9

NOTE 8 – SIGNIFICANT CUSTOMERS

In addition to the sales to related parties discussed in Note 5, we had sales to one customer that accounted for approximately 18% and 10% of total sales for the three months ended March 31, 2016 and 2015, respectively.

NOTE 9 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements issued during the three months ended March 31, 2016 and through the date of this filing that we believe are applicable to or would have a material impact on the consolidated financial statements of the Company.

NOTE 10 – SUBSEQUENT EVENTS

We have evaluated events occurring after the date of our accompanying consolidated balance sheets through the date the financial statements were issued.  We have not identified any subsequent events that we believe require disclosure.

10

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

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements.  These statements reflect the Company's views with respect to future events based upon information available to it at this time.  These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from these statements.  These uncertainties and other factors include, but are not limited to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2015 in Part I, Item 1A under the caption "Risk Factors."  The words "anticipates," "believes," "estimates," "expects," "plans," "projects," "targets" and similar expressions identify forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.  The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, changes in assumptions, future events or otherwise.

You should read the following discussion in conjunction with our condensed consolidated financial statements, which are included elsewhere in this report.  The following information contains forward-looking statements. (See "Forward-Looking Statements" and "Risk Factors.")

General

Grote Molen, Inc. ("Grote Molen") was incorporated under the laws of the State of Nevada on March 15, 2004. BrownWick, LLC ("BrownWick"), a wholly owned subsidiary, was formed in the State of Idaho on June 5, 2005. The principal business of Grote Molen and BrownWick (collectively the "Company") is to distribute electrical and hand operated grain mills, kitchen mixers and related accessories for home use.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:

Accounts Receivable

Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. We determine the allowance for doubtful accounts by identifying potential troubled accounts and by using historical experience and future expectations applied to an aging of accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded as income when received. We determined that no allowance for doubtful accounts was required at March 31, 2016 and December 31, 2015.

Inventories

Inventories, consisting primarily of grain mills, kitchen mixers, parts and accessories, are stated at the lower of cost or market, with cost determined using primarily the first-in-first-out (FIFO) method. We purchase substantially all inventories from two foreign suppliers, and have been dependent on those suppliers for substantially all inventory purchases since we commenced operations.

11

Deposits

At times, we are required to pay advance deposits toward the purchase of inventories from our principal suppliers. Such advance payments are recorded as deposits, a current asset in the accompanying consolidated financial statements.

Property and Equipment

Property and equipment are carried at cost, less accumulated depreciation. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets, which range from 3 to 10 years. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed and any resulting gain or loss is recognized in operations for the period. The cost of maintenance and repairs is charged to operations as incurred. Significant renewals and betterments are capitalized.

Intangible Assets

Intangible assets are recorded at cost, less accumulated amortization. Amortization of definitive lived intangible assets is computed using the straight-line method based on the estimated useful lives or contractual lives of the assets, which range from 10 to 30 years.

Impairment of Long-Lived Assets

We periodically review our long-lived assets, including intangible assets, for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. No events or changes in circumstances have occurred to indicate that the carrying amount of our long-lived assets may not be recoverable. Therefore, no impairment loss was recognized during the three months ended March 31, 2016 and 2015.

Revenue Recognition

We record revenue from the sales of grain mills, kitchen mixers and accessories in accordance with the underlying sales agreements when the products are shipped, the selling price is fixed and determinable, and collection is reasonably assured.

Warranties

We provide limited warranties to our customers for certain of our products sold.  We perform warranty work at our service center in Pocatello, Idaho or at other authorized service locations.  Warranty expenses have not been material to our consolidated financial statements.

Research and Development Costs

Research and development costs are expensed as incurred in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification™ ("ASC") Topic 730, Research and Development. The costs of materials and other costs acquired for research and development activities are charged to expense as incurred. Salaries, wages, and other related costs of personnel, as well as other facility operating costs are allocated to research and development expense through management's estimate of the percentage of time spent by personnel in research and development activities. We had no material research and development costs for the three months ended March 31, 2016 and 2015.

12

Income Taxes

We account for income taxes in accordance with FASB ASC Topic 740, Income Taxes, using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

FASB ASC Topic 740, Income Taxes, requires us to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, we must measure the tax position to determine the amount to recognize in our consolidated financial statements. We performed a review of our material tax positions in accordance with recognition and measurement standards established by ASC Topic 740 and concluded we had no unrecognized tax benefit that would affect the effective tax rate if recognized for the three months ended March 31, 2016 and 2015.

We include interest and penalties arising from the underpayment of income taxes, if any, in our consolidated statements of operations in general and administrative expenses. As of March 31, 2016 and December 31, 2015, we had no accrued interest or penalties related to uncertain tax positions.

Fair Value of Financial Instruments

Our financial instruments consist of cash, accounts receivable, accounts payable and notes payable. The carrying amount of cash, accounts receivable and accounts payable approximates fair value because of the short-term nature of these items.  We believe the carrying amount of the notes payable approximates fair value because the interest rates on the notes approximate market rates of interest.

Results of Operations

Sales

Our business is not seasonal; however, our quarterly sales, including sales to related parties, may fluctuate materially from period to period.  At times, we derive a significant portion of our revenues from sales to related parties.  Each of our two principal stockholders owns a company that may be a significant customer.  Our sales were comprised of the following:

	Three Months Ended March 31,
	2016		2015
Sales	$	168,672	$	302,176
Sales – related parties		3,620		14,589
Total sales	$	172,292	$	316,765

Sales to related parties totaled approximately 2% and 5% of total sales for the three months ended March 31, 2016 and 2015, respectively.

Our total sales decreased $144,473, or approximately 46%, during the three months ended March 31, 2016 compared to the three months ended March 31, 2015.  While we experienced an increase in sales in 2015 attributable to the successful introduction of our new WonderMix kitchen mixer, we believe sales for the first quarter of 2016 were negatively impacted by a continuing overall slow-down in the preparedness market and a prolonged slow economic recovery in the United States.  We believe sales of the Wondermix will also increase in 2016; however, there can be no assurance that we will be successful in these endeavors.

13

Cost of Sales

Total cost of sales for the three months ended March 31, 2016 was $125,089, compared to $225,216 for the three months ended March 31, 2015, a decrease of $100,127, or approximately 44%.  Our cost of sales consists of the purchase price of our products incurred to our suppliers plus inbound shipping costs.  We do not manufacture our own products.  Our costs to purchase products for resale remained relatively constant during the first three months of 2016.  Therefore, the decrease in our cost of sales during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 was primarily attributed to the decrease in sales volume.   Included in cost of sales were costs of related party sales of $2,628 and $10,373 for the three months ended March 31, 2016 and 2016, respectively.  Total cost of sales as a percentage of total sales was approximately 73% and 71% for the three months ended March 31, 2016 and 2015, respectively.

Cost of sales as a percentage of sales may fluctuate from period to period, based on the mix of products sold during a particular period and pricing arrangements with our suppliers.  In addition, we purchase substantially all inventories from two foreign suppliers, and have been dependent on those suppliers for substantially all inventory purchases since we commenced operations.  International manufacturing is subject to factors that can have a material impact on our costs of sales, including: availability of labor at costs consistent with historical levels; changes in labor or other laws; instability of social, political and economic factors; freight costs, including domestic and international customs and tariffs; unexpected changes in regulatory environments; costs and availability of manufacturing materials; and other factors.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses were $118,056 for the three months ended March 31, 2016, compared to $109,878 for the three months ended March 31, 2015, an increase of $8,178, or approximately 7%.   The increase in selling, general and administrative expenses in the current year first quarter resulted primarily from higher levels of professional fees and advertising expenses.

Pursuant to an agreement effective in February 2011, we pay a monthly management fee to a company owned by one of the major stockholders of the Company to manage our day-to-day business activities and to provide business space.  Historically we have paid monthly management fees in varying amounts to this related party pursuant to prior agreements.  The agreement is on a month-to-month basis and can be cancelled at any time by the vote of management.  The agreement was amended and restated on October 31, 2014 to increase the monthly fee to $12,500 effective November 1, 2014.  Also included in management fees are monthly payments of $150 to another major stockholder of the Company for expense reimbursement.  Included in selling, general and administrative expenses were management fees to related parties totaling $37,950 for each of the three-month periods ended March 31, 2016 and 2015.

Depreciation and Amortization Expense

Depreciation and amortization expense remained fairly constant and was $4,456 and $4,538 for the three months ended March 31, 2016 and 2015, respectively.

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Other Expense: Interest Expense

Other expense includes interest expense on our indebtedness, a significant portion of which is indebtedness to related parties.  Total interest expense – related parties was $1,920 and $4,523 for the three months ended March 31, 2016 and 2015, respectively.  The decrease in interest expense to related parties in the current year is due to the repayment in full of the long-term debt to related parties and a partial payment of notes payable – related parties during the three months ended March 31, 2016.

Other expense also includes interest expense to non-related parties of $4,088 and $1,690 for the three months ended March 31, 2016 and 2015, respectively.  The increase in interest expense to non-related parties in the first quarter of 2016 is primarily due to additional notes payable to non-related parties in 2015 and 2016.

Liquidity and Capital Resources

As of March 31, 2016, we had total current assets of $934,179, including cash of $10,263, and current liabilities of $606,297, resulting in working capital of $327,882.  Our current assets and working capital included inventories of $795,737 and deposits of $108,400.  Generally, we are required to pay significant advance deposits toward the purchase of inventories from our principal suppliers.

In addition, as of March 31, 2016, we had total stockholders' equity of $378,082.  We have financed our operations, the acquisition of inventories, and the payment of vendor deposits from our operations, short-term loans from our principal stockholders and non-related parties, a long-term note payable from a bank, and from the issuance of our common stock.

For the three months ended March 31, 2016, net cash used in operating activities was $20,506, as a result of our net loss of $81,317 and increases in inventories of $86,844, deposits of $43,715 and prepaid expenses of $42, partially offset by non-cash expenses of $4,456, decreases in accounts receivable of $13,184, and accounts receivable – related parties of $6,365, and increases in accounts payable and accrued expenses of $152,662, accounts payable – related parties of $10,415, accrued interest payable – related parties of $1,956 and accrued interest payable of $2,374.

By comparison, for the three months ended March 31, 2015, net cash provided by operating activities was $4,211, as a result of our net loss of $29,080 and increases in accounts receivable – related parties of $7,659 and inventories of $142,472, offset by non-cash expenses of $4,538, decreases in accounts receivable of $24,134, deposits of $142,405 and prepaid expenses of $10, and increases in accounts payable and accrued expenses of $7,671, accounts payable – related parties of $450, accrued interest payable – related parties of $2,400 and accrued interest payable of $1,814.

We had no net cash provided by or used in investing activities for the three months ended March 31, 2016 and 2015.

For the three months ended March 31, 2016, net cash provided by financing activities was $21,518, comprised of proceeds from long-term note payable of $5,300 and proceeds from notes payable of $25,000, partially offset by repayment of notes payable – related parties of $3,500, repayment of long-term debt – related party of $2,943 and repayment of long-term note payable of $2,339.

For the three months ended March 31, 2015, net cash provided by financing activities was $12,998, comprised of proceeds from long-term note payable of $22,000 and proceeds from notes payable of $20,000, partially offset by repayment of notes payable – related parties of $9,000, repayment of long-term debt – related party of $11,147 and repayment of long-term note payable of $8,855.

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At March 31, 2016, we had short-term notes payable – related parties totaling $126,627, which are payable to our principal stockholders, are unsecured, bear interest at rates ranging from 6% to 8% per annum and are generally due on demand.  In addition, at March 31, 2016, we had short-term notes payable to non-related parties totaling $161,100, which are unsecured, bear interest at rates ranging from 6% to 8% per annum and are due on demand.

At December 31, 2015, our long-term debt – related party was comprised of the remaining principal balance of $2,943 of a note payable to a principal stockholder.  The note was paid in full in February 2016.

At March 31, 2016, we had a long-term note payable to a bank with a principal balance of $148,100.  The long-term note payable is a line of credit promissory note bearing interest at an indexed rate plus 2% (4.5% at March 31, 2016), requiring monthly interest payments only and maturing on May 16, 2021.  For the past several months, we have made monthly payments of principal and interest in varying amounts.  The note payable has a maximum line of credit of $150,000 and is secured by a deed of trust on certain real estate owned by one of the principal stockholders of the Company and by the Company's inventories, property and equipment, and intangible assets.

Accrued interest payable – related parties was $55,463 and $53,507 at March 31, 2016 and December 31, 2015, respectively.  Accrued interest payable to non-related parties was $25,060 and $22,686 at March 31, 2016 and December 31, 2015, respectively.

In the event sales during 2016 do not meet our expectations, we may require additional funding from the sale of our common stock or debt in order to meet our obligations.  Depending on the requirement to pay advance deposits on orders from our suppliers, we estimate we may require $50,000 to $100,000 of additional funding in 2016.  No assurances can be given that, if required, such funding will be available to us on acceptable terms or at all.

Recent Accounting Pronouncements

There were no new accounting pronouncements issued during the three months ended March 31, 2016 and through the date of this filing that we believe are applicable to or would have a material impact on the consolidated financial statements of the Company.

Off-Balance Sheet Arrangements

Pursuant to an agreement effective in February 2011, we pay a monthly management fee to a company owned by one of the major stockholders of the Company to manage our day-to-day business activities and to provide business space.  Historically we have paid monthly management fees in varying amounts to this related party pursuant to prior agreements.  The agreement is on a month-to-month basis and can be cancelled at any time by the vote of management.  The agreement was amended and restated on October 31, 2014 to increase the fee to $12,500 effective November 1, 2014.  

Also included in management fees are monthly payments of $150 to another major stockholder of the Company for expense reimbursement.  

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.  The Company is a "smaller reporting company."

Item 4.   Controls and Procedures

Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our President and Treasurer who serves as our principal executive and principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("the Exchange Act") as of  March 31, 2016, the end of the period covered by this report.  Based upon that evaluation, our President and Treasurer concluded that our disclosure controls and procedures as of March 31, 2016 were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management, including our President and Treasurer, as appropriate to allow timely decisions regarding disclosure.  A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in internal controls over financial reporting.

There was no change in our internal control over financial reporting during the quarter ended March 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

We are not a party to any material pending legal proceedings.

Item 1A.  Risk Factors

See the risk factors described in Item 1A of the Company's 2015 annual report on Form 10-K filed with the SEC on March 30, 2016.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2016 we had no unregistered sales of equity securities.

Item 3.  Defaults upon Senior Securities

Not Applicable.

Item 4.  Mine Safety Disclosures

Not Applicable.

Item 5.  Other Information

Not Applicable.

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Item 6:  Exhibits

The following exhibits are filed as part of this report:

Exhibit No.	Description of Exhibit
3.1	Articles of Incorporation (1)
3.2	Bylaws (1)
10.1	Promissory Note dated March 4, 2016*
10.2	Promissory Note dated March 24, 2016*
31.1	Section 302 Certification of Chief Executive and Chief Financial Officer*
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer*
101 INS	XBRL Instance Document*
101SCH	XBRL Taxonomy Extension Schema*
101 CAL	XBRL Taxonomy Extension Calculation Linkbase*
101 DEF	XBRL Taxonomy Extension Definition Linkbase*
101 LAB	XBRL Taxonomy Extension Label Linkbase*
101 PRE	XBRL Taxonomy Extension Presentation Linkbase*

(1) Incorporated by reference from Exhibit Numbers 3.1 and 3.2 of the Company's registration statement on Form 10 filed with the SEC on May 14, 2010.

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* Exhibits filed with this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Grote Molen, Inc.
Dated:  May 20, 2016	By /s/ John B. Hofman
	John B. Hofman
	President, Secretary and Treasurer
	(Principal Executive and Accounting Officer)

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