XOTC:GROT Grote Molen Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 
 
FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

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

For the transition period from ___________ to __________

Commission File 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 o  
Accelerated filer o  
Non-accelerated filer o
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 o
 No ý

As of August 13, 2011, there were 21,000,000 shares of the Registrant’s common stock, $0.001 par value per share, outstanding.
 
 
 
 

 

GROTE MOLEN, INC.
FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2012


PART I - Financial Information
 
   Page
Item 1.  Financial Statements
 
     
 
Condensed Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011
2
 
Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2012 and 2011 (unaudited)
3
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2011 (unaudited)
4
 
Notes to Condensed Consolidated Financial Statements (unaudited)
5
     
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
     
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
15
     
Item 4T.  Controls and Procedures
15
     
PART II - Other Information
 
     
Item 1.  Legal Proceedings
16
     
Item 1A.  Risk Factors
16
     
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
16
     
Item 3.  Defaults upon Senior Securities
16
     
Item 4.  Mine Safety Disclosures
16
     
Item 5.  Other Information
16
     
Item 6.  Exhibits
16
     
Signatures
17

 
 
 
1

 
 
PART I - FINANCIAL INFORMATION
 

 
Item 1.  Financial Statements
 
GROTE MOLEN, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS

   
June 30,
2012
   
December 31,
2011
 
ASSETS
 
(Unaudited)
       
Current Assets:
           
   Cash
  $ 160,816     $ 251,401  
   Accounts Receivable
    50,232       50,287  
   Inventories
    233,609       118,584  
   Deposits
    348,872       335,490  
   Prepaid Expenses
    367       342  
                 
   Total Current Assets
    793,896       756,104  
Property and Equipment, net
    7,463       7,386  
Intangible Assets, net
    4,030       4,556  
                 
   Total Assets
  $ 805,389     $ 768,046  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
         
Current Liabilities:
               
   Accounts Payable
  $ 37,009     $ 30,795  
   Accrued Interest Payable – Related Parties
    25,487       23,463  
   Accrued Interest Payable
    3,056       1,656  
   Income Taxes Payable
    4,517       4,190  
   Current Portion of Long-Term Debt – Related Party
    38,477       37,164  
   Notes Payable – Related Parties
    104,627       95,627  
   Notes Payable
    35,000       35,000  
                 
   Total Current Liabilities
    248,173       227,895  
                 
Long-Term Debt – Related Party
    115,643       135,216  
                 
   Total Liabilities
    363,816       363,111  
                 
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, 21,000,000 Shares Issued and Outstanding
    21,000       21,000  
   Additional Paid-In Capital
    89,000       89,000  
   Retained Earnings
    331,573       294,935  
                 
   Total Stockholders’ Equity
    441,573       404,935  
                 
   Total Liabilities and Stockholders’ Equity
  $ 805,389     $ 768,046  

See Notes to Condensed Consolidated Financial Statements
 
 
 
2

 
GROTE MOLEN, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
                         
Sales
  $ 386,724     $ 399,560     $ 840,342     $ 884,408  
                                 
Cost of Sales
    292,592       284,235       602,599       636,499  
                                 
Gross Profit
    94,132       115,325       237,743       247,909  
                                 
Operating Costs and Expenses:
                               
   Selling, General and Administrative
    78,009       89,867       179,334       207,705  
   Depreciation and Amortization
    630       649       1,257       1,328  
                                 
   Total Operating Costs and Expenses
    78,639       90,516       180,591       209,033  
                                 
Income From Operations
    15,493       24,809       57,152       38,876  
                                 
Other Expense:
   Interest Expense – Related Parties
    4,214       4,642       8,528       9,311  
   Interest Expense
    700       299       1,400       332  
                                 
  Total Other Expense
    4,914       4,941       9,928       9,643  
                                 
Income Before Income Taxes
    10,579       19,868       47,224       29,233  
                                 
Income Tax Provision
    2,334       4,638       10,586       7,047  
                                 
Net Income
  $ 8,245     $ 15,230     $ 36,638     $ 22,186  
                                 
Net Income Per Common Share -
                               
   Basic and Diluted
  $ 0.00     $ 0.00     $ 0.00     $ 0.00  
                                 
Weighted Average Shares Outstanding -
                               
   Basic and Diluted
    21,000,000       21,000,000       21,000,000       21,000,000  
 
See Notes to Condensed Consolidated Financial Statements
 
 
 
3

 
 
GROTE MOLEN, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

   
Six Months Ended
June 30,
 
   
2012
   
2011
 
             
Cash Flows from Operating Activities:
           
   Net Income
  $ 36,638     $ 22,186  
   Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:
               
      Depreciation and Amortization
    1,257       1,328  
      (Increase) Decrease in:
               
         Accounts Receivable
    55       (19,176 )
         Inventories
    (115,025 )     67,323  
         Deposits
    (13,382 )     (39,763 )
         Prepaid Expenses
    (25 )     1,783  
      Increase (Decrease) in:
               
         Accounts Payable
    6,214       11,018  
         Accrued Interest Payable – Related Parties
    2,024       2,571  
         Accrued Interest Payable
    1,400       332  
         Income Taxes Payable
    327       4,356  
                 
   Net Cash Provided by (Used in) Operating Activities
    (80,517 )     51,958  
                 
Cash flows from Investing Activities:
               
   Purchase of Property and Equipment
    (808 )     -  
                 
   Net Cash Used in Investing Activities
    (808 )     -  
                 
Cash Flows from Financing Activities:
               
   Proceeds from Notes Payable – Related Parties
    9,000       -  
   Proceeds from Notes Payable
    -       15,000  
   Repayment of Long-Term Debt – Related Party
    (18,260 )     (4,072 )
                 
  Net Cash Provided by (Used in) Financing Activities
    (9,260 )     10,928  
                 
Net Increase (Decrease) in Cash
    (90,585 )     62,886  
 
               
Cash, Beginning of the Period
    251,401       111,759  
                 
Cash, End of the Period
  $ 160,816     $ 174,645  
 
 
See Notes to Condensed Consolidated Financial Statements


 
4

 
GROTE MOLEN, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS PRESENTED AS OF JUNE 30, 2012 AND FOR THE THREE MONTHS
AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011 ARE 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 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 June 30, 2012 and for the three months and six months ended June 30, 2012 and 2011 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 June 30, 2012, the consolidated results of operations for the three months and six months ended June 30, 2012 and 2011, and cash flows for the six months ended June 30, 2012 and 2011 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, 2011.

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.

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:

   
June 30,
2012
   
December 31,
2011
 
   
(Unaudited)
       
             
Trade accounts receivable – related parties
  $ 19,926     $ 14,819  
Trade accounts receivable
    25,306       30,468  
Employee advances
    5,000       5,000  
                 
    $ 50,232     $ 50,287  
 
Property and equipment consist of the following:

   
June 30,
2012
   
December 31,
2011
 
   
(Unaudited)
       
             
Office equipment
  $ 4,335     $ 3,527  
Warehouse equipment
    10,097       10,097  
Website development
    2,000       2,000  
                 
      16,432       15,624  
Accumulated depreciation
    (8,969 )     (8,238 )
                 
    $ 7,463     $ 7,386  
 
Intangible assets consist of the following:

   
June 30,
2012
   
December 31,
2011
 
   
(Unaudited)
       
             
License
  $ 10,500     $ 10,500  
Patent
    100       100  
                 
      10,600       10,600  
Accumulated amortization
    (6,570 )     (6,044 )
                 
    $ 4,030     $ 4,556  
 
 
 
6

 

NOTE 3 – DEBT

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

   
June 30,
2012
   
December 31,
2011
 
   
(Unaudited)
       
             
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       -  
                 
Non-interest bearing advances from stockholders, with no formal repayment terms
    9,127       9,127  
                 
Total
  $ 104,627     $ 95,627  


The notes payable of $35,000 at June 30, 2012 and December 31, 2011 are comprised of two notes payable to a non-related party, are unsecured, payable upon demand, and bear interest at 8% per annum.  Accrued interest payable on the notes payable was $3,056 and $1,656 at June 30, 2012 and December 31, 2011, respectively.

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

   
June 30,
2012
   
December 31,
2011
 
   
(Unaudited)
       
             
Note payable to a stockholder, due in monthly installments of $4,000 through February 2016, with interest at 6.97% per annum
  $  154,120     $  172,380  
Less current portion
    (38,477 )     (37,164 )
                 
Long-term portion
  $ 115,643     $ 135,216  

Interest expense on related party debt was $4,214 and $4,642 for the three months ended June 30, 2012 and 2011, respectively, and $8,528 and $9,311 for the six months ended June 30, 2012 and 2011, respectively.  Accrued interest payable to related parties was $25,487 and $23,463 at June 30, 2012 and December 31, 2011, respectively.
 
 
 
7

 
 
NOTE 4 – 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.  We 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.  Effective February 1, 2011, the monthly fee was increased to $10,700.  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 $32,550 for the three months ended June 30, 2012 and 2011 and $65,100 and $63,600 for the six months ended June 30, 2012 and 2011, respectively.

Each of the two principal stockholders of the Company own companies that are our customers.  Sales to these related parties totaled $25,433 and $29,551 for the three months ended June 30, 2012 and 2011, respectively, or approximately 7% of total sales for each period.  Sales to these related parties totaled $35,307 and $53,701 for the six months ended June 30, 2012 and 2011, respectively, or approximately 4% and 6% of total sales, respectively.  Accounts receivable from these related parties totaled $19,926 and $14,819 at June 30, 2012 and December 31, 2011, respectively.

Accounts payable to these related parties totaled $1,103 and $0 at June 30, 2012 and December 31, 2011, respectively.

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

NOTE 5 – 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 June 30, 2012 and December 31, 2011.

NOTE 6 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

During the six months ended June 30, 2012 and 2011, we had no non-cash financing and investing activities.

We paid cash for income taxes of $10,259 and $1,000 for the six months ended June 30, 2012 and 2011, respectively.  We paid cash for interest of $6,504 and $6,739 for the six months ended June 30, 2012 and 2011, respectively.
 
8

 
 
NOTE 7 – SIGNIFICANT CUSTOMERS

In addition to the sales to related parties discussed in Note 4, we had sales to one customer that accounted for approximately 11% and 13% of total sales for the six months ended June 30, 2012 and 2011, respectively.


NOTE 8 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

There were no new accounting pronouncements issued during the six months ended June 30, 2012 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 9 – 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 did not identify any material subsequent events requiring adjustment to or disclosure in our accompanying consolidated financial statements.
 
 
 
9

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

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.  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, 2011 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 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 June 30, 2012 and December 31, 2011.

Inventories

Inventories, consisting primarily of grain mills, 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.
 
 
 
10

 
 
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 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 and six months ended June 30, 2012 and 2011.

Revenue Recognition

We record revenue from the sales of grain mills 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 and six months ended June 30, 2012 and 2011.
 
 
 
11

 
 
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 which would affect the effective tax rate if recognized for the three months and six months ended June 30, 2012 and 2011.

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 June 30, 2012 and December 31, 2011, 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 own companies that are significant customers.  Our sales have been comprised of the following:

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
                         
Sales
  $ 361,291     $ 370,009     $ 805,035     $ 830,707  
Sales – related parties
    25,433       29,551       35,307       53,701  
                                 
Total sales
  $ 386,724     $ 399,560     $ 840,342     $ 884,408  

Sales to related parties represented approximately 7% of total sales for each of the three-month periods ended June 30, 2012 and 2011, and 4% and 6% for the six months ended June 30, 2012 and 2011, respectively.

 
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Our total sales decreased $12,836, or approximately 3%, during the three months ended June 30, 2012 compared to the three months ended June 30, 2011, and decreased $44,066, or approximately 5%, during the six months ended June 30, 2012 compared to the six months ended June 30, 2011.  We believe the continuing economic slowdown has had a negative impact on our sales.

Cost of Sales

Cost of sales for the three months ended June 30, 2012 was $292,592, compared to $284,235 for the three months ended June 30, 2011, an increase of $8,357, or approximately 3%.  Cost of sales for the six months ended June 30, 2012 was $602,599, compared to $636,499 for the six months ended June 30, 2011, a decrease of $33,900, or approximately 5%.  The decrease in cost of sales on a year-to-date basis in the current year is due primarily to the decrease in our sales.  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.  Cost of sales as a percentage of sales was approximately 76% for the three months ended June 30, 2012 compared to approximately 71% for the three months ended June 30, 2011.  Cost of sales as a percentage of sales was approximately 72% for the six months ended June 30, 2012 and the six months ended June 30, 2011.  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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $78,009 for the three months ended June 30, 2012, compared to $89,867 for the three months ended June 30, 2011, a decrease of $11,858 or approximately 13%.  Selling, general and administrative expenses were $179,334 for the six months ended June 30, 2012, compared to $207,705 for the six months ended June 30, 2011, a decrease of $28,371 or approximately 14%.The decrease in these expenses in the current year is primarily attributed to a decrease in advertising, outgoing freight expenses, bank charges and medical related benefits.

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.  We 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.  Effective February 1, 2011, the monthly fee was increased to $10,700.  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 $32,550 for the three months ended June 30, 2012 and 2011 and $65,100 and $63,600 for the six months ended June 30, 2012 and 2011, respectively.

Depreciation and Amortization Expense

Depreciation and amortization expense currently is not material to our business and has remained relatively constant for all periods presented.  Depreciation and amortization expense was $630 and $649 for the three months ended June 30, 2012 and 2011, respectively, and $1,257 and $1,328 for the six months ended June 30, 2012 and 2011, respectively.
 
 
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Research and Development Expenses

Research and development activities are not currently significant to our business.  We did not incur material research and development expenses in the three months and six months ended June 30, 2012 and 2011.

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 $4,214 and $4,642 for the three months ended June 30, 2012 and 2011, respectively, and $8,528 and $9,311 for the six months ended June 30, 2012 and 2011, respectively.  Other interest expense to non-related parties was $700 and $299 for the three months ended June 30, 2012 and 2011, respectively, and $1,400 and $332 for the six months ended June 30, 2012 and 2011, respectively.

Liquidity and Capital Resources

As of June 30, 2012, we had total current assets of $793,896, including cash of $160,816, and current liabilities of $248,173, resulting in working capital of $545,723.  Our current assets and working capital included inventories of $233,609 and deposits of $348,872.  At times, we are required to pay significant advance deposits toward the purchase of inventories from our principal suppliers.  In addition, as of June 30, 2012, we had total stockholders’ equity of $441,573.  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, and from proceeds from the issuance of our common stock.

For the six months ended June 30, 2012, net cash used in operating activities was $80,517, as a result of increases in inventories of $115,025, deposits of $13,382 and prepaid expenses of $25, partially offset by our net income of $36,638, non-cash expenses of $1,257, decrease in accounts receivable of $55, and increases in accounts payable of $6,214, accrued interest payable – related parties of $2,024, accrued interest payable of $1,400 and income taxes payable of $327.

By comparison for the six months ended June 30, 2011, net cash provided by operating activities was $51,958, as a result of our net income of $22,186, non-cash expenses of $1,328, decreases in inventories of $67,323 and prepaid expenses of $1,783, and increases in accounts payable of $11,018, accrued interest payable – related parties of $2,571, accrued interest payable of $332, and income taxes payable of $4,356, partially offset by increases in accounts receivable of $19,176 and deposits of $39,763.

Net cash used in investing activities for the six months ended June 30, 2012 was $808 for the purchase of property and equipment.  We had no cash used in or provided by investing activities in the six months ended June 30, 2011.

For the six months ended June 30, 2012, net cash used in financing activities was $9,260, comprised of repayment of long-term debt – related party of $18,260, partially offset by proceeds from the issuance of notes payable – related parties of $9,000.

For the six months ended June 30, 2011, net cash provided by financing activities was $10,928, comprised of proceeds from the issuance of notes payable of $15,000, partially offset by repayment of long-term debt – related party of $4,072.
 
At June 30, 2012, we had short-term notes payable – related parties totaling $104,627, 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 June 30, 2012, we had short-term notes payable to non-related parties totaling $35,000, which are unsecured, bear interest at 8% per annum and are due on demand.

 
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At June 30, 2012, we had long-term debt – related party of $154,120 (current portion $38,477) payable to a principal stockholder, bearing interest at 6.97% per annum and due in monthly installments of $4,000 through February 2016.

Accrued interest payable – related parties was $25,487 and $23,463 at June 30, 2012 and December 31, 2011, respectively.

We believe we will have adequate funds to meet our obligations for the next twelve months from our current cash and projected cash flows from operations.

Recent Accounting Pronouncements

There were no new accounting pronouncements issued during the six months ended June 30, 2012 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 the day-to-day business activities of the Company and provide business space.  The agreement is on a month-to-month basis and can be cancelled at any time by the vote of management. We paid monthly management fees in varying amounts to this related party pursuant to prior agreements approved by the stockholders of the Company.  Effective February 1, 2011, the monthly fee was increased to $10,700.

We also pay another major stockholder of the Company at the rate of $150 per month for expense reimbursement.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.  The Company is a “smaller reporting company.”

Item 4T.   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 June 30, 2012, 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 June 30, 2012 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 June 30, 2012 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 2011 annual report on Form 10-K filed with the SEC on March 30, 2012.

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

Not Applicable.

Item 3.  Defaults upon Senior Securities

Not Applicable.

Item 4.  Mine Safety Disclosures

Not Applicable.

Item 5.  Other Information

Not Applicable.

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)
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.

* Exhibits filed with this report.
 
** XBRL information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934, and is not subject to liability under those sections, is not part of any registration statement or prospectus to which it relates and is not incorporated or deemed to be incorporated by reference into any registration statement, prospectus or other document.
 
 
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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:  August 14, 2012
By /s/ John B. Hofman
 
John B. Hofman
 
President, Secretary and Treasurer
 
(Principal Executive and Accounting Officer)
 
 
 
 
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XOTC:GROT Grote Molen Inc Quarterly Report 10-Q Filling

Grote Molen Inc XOTC:GROT Stock - Get Quarterly Report SEC Filing of Grote Molen Inc XOTC:GROT stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:GROT Grote Molen Inc Quarterly Report 10-Q Filing - 6/30/2012
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