FORM  10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM  10-Q

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

FOR THE QUARTERLY PERIOD ENDED:March27, 2016April 2, 2017

COMMISSION FILE NUMBER:001-7829

BOWL AMERICA INCORPORATED

(Exact name of registrant as specified in its charter)

6446 Edsall Road, Alexandria, Virginia  22312

(Address of principal executive offices)(Zip Code)

(703) 941-6300

(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 theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X 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 X    No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company, or an emerging growth company. See the definitions of “ large accelerated filer,” “accelerated filer,” “large accelerated filer”“smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer __      Accelerated Filer __

Non-Accelerated Filer __      Smaller Reporting Company X      Emerging Growth Company __

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extendedtransition period for complying with any new or revised financial accounting standardsprovided pursuant to Section 13(a) of the Exchange Act. __

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act)

    Yes __    NoX

Indicate the number of shares outstanding of each of the issuer's

classesissuer'sclasses of common stock, as of the latest practicable date:

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

  BOWL AMERICA INCORPORATED AND SUBSIDIARIES

  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

  (Unaudited)

The operating results for the thirteen (13) and thirty-nine (39) week periods ended March 27, 2016April 2, 2017 are not necessarily indicative of results to be expected for the year.  

See notes to condensed consolidated financial statements.

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (CONTINUED)

(Unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

The operating results for the thirteen (13) and thirty-nine (39) week periods ended March 27, 2016April 2, 2017 are not necessarily indicative of results to be expected for the year.

See notes to condensed consolidated financial statements.

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

Condensed  Consolidated Balance Sheets

(Unaudited)

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS  OF CASH FLOWS

(Unaudited)

See notes to condensed consolidated financial information.

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Thirteen and Thirty-nine Weeks Ended

March 27, 2016April 2, 2017

(Unaudited)

1.  Basis for Presentation

The accompanying unaudited condensed consolidated financial statements of Bowl America Incorporated and subsidiaries (the(collectively, the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  The condensed consolidated balance sheet as of June 28, 2015July 3, 2016 has been derived from the Company's audited financial statements.  Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for the fair presentation of the Company’s financial position and results of operations for the periods presented.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended June 28, 2015.July 3, 2016.

2.  Investments

     The Company’s investments are categorized as available-for-sale. Short-term investments consist of certificates of deposits with maturities of generally three months to one year. Equity securities consist primarily of telecommunications stocks. Mutual funds consist of federal agency mortgage backed securities (Ginnie Mae). The fair value of the Company’s investments at March 27,April 2, 2017 and July 3, 2016 and June 28, 2015 were as follows:

The fair values of the Company’s investments were determined as follows:

The shares of common stocksstock included in the equity securities portfolio as of March 27, 2016April 2, 2017 were:

       On August 1, 2016, Dex Media, a spin off from Verizon, completed a financial restructure. Previous shares of Dex Media’s common stock were cancelled with no distribution to shareholders resulting in a loss of $5,845 on the Company’s holdings.

       Communications Sales & Leasing Inc (“CSAL”) changed its corporate name to Uniti Group Inc (“UNIT”) effective February 27, 2017.

       The Mutual fund included in the table above is Vanguard GNMA Admiral Shares #536 fund. The fair value of certificates of deposits is estimated using present value techniques and comparing the values derived from those techniques to certificates with similar values.

3. Note Payable

       In August 2016, the Company obtained a $500,000 short-term loan that was due in February 2017. The loan interest was at the one month LIBOR rate plus 2.5% with interest only payable monthly. A portion of the loan was collateralized by certificates of deposits. The loan was paid in full on January 6, 2017.

4. Commitments and Contingencies

The Company’s purchase commitments at March 27, 2016April 2, 2017 are for materials, supplies, services and equipment as part of the normal course of business.

4.

5.  Employee benefit plans

The Company has two defined contribution plans with Company contributions determined by the Board of Directors.  The Company has no defined benefit plan or other postretirementpost-retirement plan.

5.

6. New Accounting Standards

     In January 2016, the Financial Accounting Standards Board (FASB) issued guidance on equity securities that requires entities to recognize changes in unrealized gains and losses on equity securities in income in the current period unless the entity is recording the related investment under the equity method or consolidating the related entity. This amendment is effective forthefor the Company’s fiscal year ending June 2019 with earlier adoption permitted. Management is currently assessing the impact of this standard on the Company’s financial statements.

     In February 2016, the FASB issued guidance on leases which requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new guidance also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information.This amendment is effective for the Company’s fiscal year ending June 2020 with early adoption permitted. We are in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures

6. Subsequent Events

      The Company has evaluated subsequent events throughThere were no new accounting pronouncements during the time of filing these financial statements with the Securities and Exchange Commission on May 10, 2016, and has determinedquarter ended April 2, 2017, that no material subsequent events have occurred.would impact theCompany.

7.  Reclassifications

Certain previous year amounts have been reclassified to conform with current year presentation.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business, our sales and the industry in which we operate and our management’s beliefs and assumptions. These statements are not guarantees of future performance or development and involve risks, uncertainties and other factors that are in some cases beyond our control. The forward-looking statements included in this Quarterly Report on Form 10-Q are made as the date hereof. We are under no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

LIQUIDITY AND CAPITAL RESOURCES

The Company views a strong financial position as a major benefit to shareholders and emphasizes payment of dividends as part of its financial plan.  A portion of earnings has consistently been invested to create a reserve to protect the Company in downturns in business, to capitalize on opportunities for expansion and modernization, and to provide a secure source of income.income and to provide a predictable return to its owners.  For these reasons, the Company prefers a conservative approach to investing rather than taking greater risk for possible rapid growth.  The Company balances market volatility by using both fixed income and equity investments in managing its reserve funds. Any equity security is subject to price fluctuation, however, the stocks held by the Company have relatively low volatility. The Company has long been invested in a Government National Mortgage Association (“Ginnie Mae”GNMA”) fund and domestically domiciled stocks with the perceived potential of appreciation, primarily telecommunications stocks. The Company considers that this diversity also provides a measure of safety of principal.

With the exception of 13,120 shares of Verizon, the shares of common stocksstock in our portfolio have come from spin-offs,mergers and acquisitions of AT&T and United Telecommunications (now Sprint) purchased in 1979 and 1984 and from one insuranceoneinsurance company acquired at no cost when that company demutualized. The Company purchased a total of 10,000While not all shares of Verizon during previous periods at a cost of approximately $430,000 and 3,120 shares of Verizon were received as a special dividend from Vodafone. Not all stocks in the portfolio are domestic AmericandomesticAmerican companies any longer. Sincelonger, since the original purchases at an approximate cost of $630,000, we have received approximatelyreceivedapproximately $967,000 from mergers and sales, and over $4,151,000$4,400,000 in dividends, the majority of which receive favorablewere tax treatment in thefavored inthe form of a dividends received deductionan exclusion from federal taxable income. The dividends received deductionexclusion continues into this fiscal year. These equityThesemarketable securities are carried at their fair value on the last day of each reporting period. The fair value of the securities onApril 2, 2017 was approximately $5,728,000 and on March 27,July 3, 2016 was approximately $5,496,000.$6,002,000.

The Company’s original investment in the Vanguard GNMA bondmutual fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000. In August 2015, $1,000,000 of this fund was redeemed to meet the August 2015 dividend payment. The fund is carried at fair value on the last day of the reporting period. At March 27, 2016,April 2, 2017, the fair value was approximately $2,772,000.$2,795,000.

Short-term investments consisting mainly of Certificates of Deposits, and cash and cash equivalents totaled $4,165,000$2,893,000 at the end of the fiscal third quarter of 20162017 compared to $912,000$1,471,000 at June 28, 2015.July 3, 2016.

The Company’s position in all the above investments is a source of capital for possible expansion. Potential volatility in the trading prices of the marketable securities held by the Company could impact the Company’s opportunities for expansion. The Board of Directors reviews the portfolio weekly and any use of this reserve at its quarterly meetings.

 In August 2016 the Company obtained a $500,000 short-term loan to meet the August 2016 dividend obligation. The loanwas collateralized by certificates of deposits. Interest was due and paid monthly and was based on the one-month LIBORrate plus 2.5%. The loan was repaid in full on January 6, 2017.

In the nine-month period ended March 27, 2016,April 2, 2017, the Company expended approximately $235,000$239,000 for the purchase of building, entertainment and restaurant equipment. In the quarter ended March 2017 the Company signed an agreement with a third party vendor to take over operations of its amusement games. The vendor is purchasing all of the Company’s games, the majority of which are fully depreciated, and replacing them, at their expense, with new games. As of March 27, 2017, the Company had received approximately $39,000 for the games sold to that point. The agreement is for a one year period and the Company will receive a flat fee that exceeds the Company’s annual net profit on those games in recent years. The Company has no long-term debt and has made no application forcurrent plans to obtain additional third party funding as cash and cash flows are sufficient to finance all contemplated purchases and to meet short-term purchase commitments and operating lease commitments.

The nine-month decreases in the categories of Prepaid expenses and other, Accounts Payable and Accrued Expenses are primarily due to seasonal timing of payments including compensation, insurance and taxes and for contributions to benefit plans.

Current liabilities generally increase during the first three quarters of the fiscal year as leagues deposit prize fund monies with the Company throughout the league season. These funds are returned to the leagues at the end of the bowling season, generally in the fourth quarter. At March 27, 2016,April 2, 2017, league deposits of approximately $2,065,000$1,907,000 were included in the current liabilities category.

Cash flow provided by operating activities in the thirty ninethirty-nine weeks ended March 27, 2016April 2, 2017 was $5,175,000$4,319,000 which, along with cash on hand, and redemptiona note in the amount of a portion of the Vanguard GNMA fund,$500,000, mentioned above, was sufficient to meet day-to-day cash needs and pay dividends. Cash dividends of approximately $877,000, or $.17 per share, were paid to shareholders during the quarter ended March 27, 2016,April 2, 2017, and the nine months total was approximately $2,632,000 or $.51 per share.   In March 20162017 the Company declared a regular quarterly dividend of $.17 per share, payable May 11, 201616, 2017 to shareholders of record on April 19, 2016.20, 2017. The economic climate is part of the consideration at the Directors’ quarterly reviews of future estimates of cash flows. The Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state and trends of the business and estimate of future opportunities at such time.

OVERVIEW

The Company is in the entertainment business which, by its nature, has ups and downs based on consumer tastes and whims.preferences.  Generally, promotional and open play bowling which depends on the public’s discretionary budget dollars andtheirand their choices, accounts for more than half of our business. An unstable economy can lead many to participate inentertainmentin entertainment that is close to home and relatively inexpensive.  Bowling has those advantages.  However if the longer theeconomy remains unstable, theeconomy is perceived as unsteady, people are less willing people are to spend on other than necessities.  Weather is also a factor,especially for casual bowlers.  While extreme heat or rainy weather promptsprompt people to look for indoor activities, snowstormsheavy snow storms can keep customers from reaching the centers. The “Blizzard of 2016” occurred on the weekend of January 22-24,2016 causing the closure of all of our northern market locations for up to 3 days. Weekends tend to be heaviest foropen play while the majority of league play occurs on weekdays. Postponed league games are made up later in the season, but lost open play income is never recovered.  The Company operates primarily in the Washington, DC area where its business is vulnerable to decreases in government spending or other downsizing of the federal government. Current economic conditions continue to create challenging times but ourresponseour response will be helped by having the resources to be able to promote the sport.

RESULTS OF OPERATIONS

The following tables set forth the items in our consolidated summary of operations for the fiscal quarters and year-to-date periods ended April 2, 2017, and March 27, 2016, and the dollar and percentage changes therein.

Earnings were $1,271,488$1,406,867 or $.25$.27 per share for the thirteen week period and $1,632,313$2,102,053, or $.32$.41 per share for the thirty-nine week periodperiods ended March 27, 2016.April 2, 2017. For the thirteen-week and thirty-nine week periods ended March 29, 2015,27, 2016, net earnings were $1,269,291$1,271,488 or $.25 per share and $1,436,477$1,632,313 or $.28$.32 per share, respectively. BothEighteen centers were in operation in both the current and prior year quarters. The current year quarter included unusually warm winter weather although a mid-March storm caused the postponement of some league games. Last year’s comparable quarter included the “Blizzard of 2016” which resulted in the closure of all northern market locations for up to 3 days. The holiday week between Christmas and New Year’s Day which typically falls in the third fiscal years were impacted by snow storms causing postponements of league bowling and loss of open play revenue. Management believes thatquarter fell in the public is more cautious in discretionary spending during times of economic concern.fiscal second quarter this year. The operating results for fiscal 20162017 periods included in this report are not necessarily indicative of results to be expected for the year.

The following tables set forth the items in our consolidated summary of operations for the fiscal quarter and year-to-date periods ended March 27, 2016, and March 29, 2015, and the dollar and percentage changes therein.

                Operating Revenues

Total operating revenues decreasedincreased $69,000 to $7,491,000 in the most recent quarter compared to a decline of $94,000 to $7,422,000 in the quarter ended March 27, 2016 compared to an increase of $209,000 to $7,516,000 in the three-month period ended March 29, 2015.  For the27, 2016.  The current fiscal nine-monthnine month period operating revenues were up $232,000$442,000 versus an increase of $92,000$232,000 in the comparable nine-monthnine month period a year ago.  Bowling and other revenue declinedincreased $62,000 in the quarter and $378,000 year-to-date for the periods ended April 2, 2017 versus a decline of $70,000 in the quarter and increasedan increase of $65,000 infor the year-to-datenine-month period ended March 27, 2016, and was up $139,000 and $32,000, respectively, in the prior year comparable periods. Management believes the winter weather in each of the quarters ended in March 2016 and 2015 negatively impacted open play revenue. In addition, some league play scheduled for the third quarter will occur in the fourth quarter.2016.

Food, beverage and merchandise sales decreased $24,000increased $7,000 or 1%0.3% in the current year quarter and were up $167,000$64,000 or 3%1.2% in the nine-month period.  Cost of sales was down 1%increased 4.0% in the current year quarterfiscal three months and up 2% for3.1% in the nine month periodperiods ended March 27, 2016.April 2,

2017.

                Operating Expenses

Operating expenses were down $95,000 and $278,000 or 1.7% in both the current three month and nine-month period versus a decrease of  $116,000 or 2% and down $104,000 or 1% in the current three and nine-month periods, respectively, compared to an increase of  $26,000 or less than 1% and a decrease of $236,000 or 1%0.6% in the three and nine month periods, respectively, last year.  Employee compensation and benefits for the fiscal 2017 third quarter were up $18,000 or 0.7% and were down $81,000$46,000 or 3% for the current fiscal year three month period and down $93,000 or 1%0.6% in the nine month period versus no change and a decline of $87,000 or 1% inperiod. In the comparable prior year comparablethree and nine month periods ended March 27, 2016 there were decreases of $81,000 or 2.9% and $93,000 or 1.1%, respectively. Group health insurance costs were down $41,000 or 12% infor the current nine month period decreased 7.6% as a result of changes in plan offerings withand lower premiums. Included in this category of expense are contributions to our two benefit plans, both of which are defined contribution plans. There is no additional obligation beyond the current year contribution.

Cost of bowling and other services was down $148,000flat and decreased $16,000 or 3% versus a decrease of $128,000 or 3%0.4% in the nine-monththree month and nine month periods ended March 27, 2016 and March 29, 2015,April 2, 2017, respectively. In the current thirty-nine weeks ended March 27, 2016,April 2, 2017, maintenance and repair costs were up $11,000declined $25,000 or 2%. The current and prior year nine month periods included3.7% primarily due to lower snow removal costs of $120,000 and $80,000, respectively.in the current year. Advertising costs during the current year thirty-nine week period ended March 27, 2016April 2, 2017, were down $18,000. up $3,000 or 1.3%.

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For the nine monthfiscal nine-month period ended March 27, 2016April 2, 2017 utility costs were down $51,000 due to lower electric and gas expense as winter temperatures were milder than the prior year comparable period.up $10,000 or 1.0 % primarily a result of higher utility taxes. Supplies and services expenses were down $5,000 or 0.8% in the current year nine-month period and were up slightly in the comparable period in the prior year. While most supply costs were higher, the decline in amusement game supplies throughout the current year nine month period and were flat inmore than offset the nine month period ended March 29, 2015.increases.

Insurance expense excluding health insurance decreased 9%3.0% in the current year-to-date period due to lower premiums compared toversus a decrease of 1%9.0% in the prior year nine monthlast year’s comparable period.

Depreciation and amortization expense was up 2%down 17.9% in the nine monthcurrent nine-month period ended March 27, 2016 down 6% in the prior year comparable period.result of a large group of assets reaching full depreciation.

The Company recorded a $34,000 gain on the sale of some of its amusement games as it transitions from owning games to receiving income from a third party vendor as described above.

As a result of the above, the current nine-month period of fiscal 2016 showed2017 resulted in operating income of $2,171,000$2,924,646 compared to $1,835,000operating income of $2,170,933 in the prior year comparable nine-month period.

                Interest,Dividend and DividendOther Income

Interest, dividend and dividendother income decreased $35,000 or 9%$25,000 in the fiscal 2017 nine-month period and decreased $35,000 in the comparable 2016 nine-month period.year-to-date period, respectively. The prior year comparable period included greater long and short term gain on the Ginnie Mae portfolio.decrease in both years relates primarily to decreases in ancillary income.

CRITICAL ACCOUNTING POLICIES

Management has identified accounting for marketable investment securities as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the captions of Short-term investments and Marketable securities.  The Company exercises judgment in determining the classification of its investment securities as available-for-sale and in determining their fair value.  The Company records these investments at their fair value with the unrealized gain or loss recorded in accumulated other comprehensive earnings, a component of stockholders’ equity, net of deferred taxes.  Additionally, from time to time the Company must assess whether write-downs are necessary for other than temporary declines in value.

Management has identified accounting for the impairment of long-lived assets as a critical accounting policy due to the significance of the amounts included in the Company’s balance sheet under the caption of Land, Buildings and Equipment.  The Company reviews long-lived assets whenever events or changes indicate that the carrying amount of an asset may not be recoverable.  In making such evaluations, the Company compares the expected future cash flows to the carrying amount of the assets.  An impairment loss equal to the difference between the assets’ fair value and carrying value is recognized when the estimated future cash flows are less than the carrying amount.

ITEM 4. CONTROLS AND PROCEDURES.

The Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective based on their evaluation of such controls and procedures as of March 27, 2016.April 2, 2017. There was no change in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the quarter ended March 27, 2016,April 2, 2017, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

S.E.C. FORM 10-Q

PART II - OTHER INFORMATION

Item 6.  Exhibits.

SIGNATURES

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

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