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 April 2, 20171, 2018 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 April 2, 20171, 2018 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

April 2, 20171, 2018

(Unaudited)

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, to provide a secure source of 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 (“GNMA”) fund and domestically domiciled stocks, primarily telecommunications companies, with the perceived potential of appreciation, primarily telecommunications stocks.appreciation. 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 stockequity securities 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 oneinsuranceone insurance company acquired at no cost when that company demutualized. While not all shares in the portfolio are domesticAmericandomestic American companies any longer, since the original purchases at an approximate cost of $630,000, we have receivedapproximatelyreceived approximately $967,000 from mergers and sales, and over $4,400,000$4,700,000 in dividends, the majority of which werereceived favorable tax favored inthetreatment in the form of ana dividends received exclusion from federal taxable income. The dividends received exclusion continues into this fiscal year. ThesemarketableThese marketable securities are carried at their fair value on the last day of each reporting period. The value of the securities onAprilon April 1, 2018 was approximately $5,029,000 and on July 2, 2017 was approximately $5,728,000 and on July 3, 2016 was approximately $6,002,000.$5,272,000.

The Company’s original investment in the Vanguard GNMA mutual fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000. The fund is carried at fair value on the last day of the reporting period. At April 2, 2017,1, 2018, the value was approximately $2,795,000.$1,818,000. In August 2017, the Company redeemed $1,000,000 of the fund to meet the August 2017 dividend payment.

Short-term investments consisting mainlyincluding the GNMA fund mentioned above that was reclassified to short term investments from the category of marketable securities in the prior year, Certificates of Deposits, Treasury Bills and cash and cash equivalents totaled $2,893,000$5,172,000 at the end of the fiscal third quarter of 20172018 compared to $1,471,000$3,556,000 at July 3, 2016.2, 2017.

The Company’s position in all the above investments is a source of capital for possible expansion.expansion and modernization. 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 repaidpaid in full on January 6, 2017.

In the nine-month period ended April 2, 2017,1, 2018, the Company expended approximately $239,000$713,000 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 current plans to obtain additionalapplication for 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 April 2, 2017,1, 2018, league deposits of approximately $1,907,000$1,886,000 were included in the current liabilities category.

Cash flow provided by operating activities in the thirty-nine weeks ended April 2, 20171, 2018 was $4,319,000$5,002,000 which, along with cash on hand, and redemption of a note inportion of the amount of $500,000,Vanguard GNMA fund, 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 April 2, 2017,1, 2018, and the nine months total was approximately $2,632,000 or $.51 per share.   In March 20172018 the Company declared a regular quarterly dividend of $.17 per share, payable May 16, 20172018 to shareholders of record on April 20, 2017.19, 2018. 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 preferences.  Generally, promotional and open play bowling, which depends on the public’s discretionary budget dollars and their choices, accounts for more than half of our business. An unstable economy can lead many to participate inWhile bowling has the advantage of being an entertainment that is close to home and relatively inexpensive.  Bowling has those advantages.  However ifinexpensive, new forms of sports and entertainment are offered to the economypublic continually creating challenges, but our response is perceived as unsteady, people are less willinghelped by having the resources to spend on other than necessities.be able to promote the sport.  Weather is also a factor, especially for casual bowlers.  While extreme heat or rainy weather prompt people to look for indoor activities, heavy snow storms can keep customers from reaching the centers. 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 spendingsequestration or other downsizing of the federal government. Current economic conditions continue to create challenging times but our 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 1, 2018, and April 2, 2017, and March 27, 2016, and the dollar and percentage changes therein.

Earnings were $1,406,867$1,602,799 or $.27$.31 per share for the thirteen week period and $2,102,053,$3,234,725, or $.41$.63 per share for the thirty-nine week periodsperiod ended April 2, 2017.1, 2018.    For the thirteen-week and thirty-nine week periods ended March 27, 2016,April 2, 2017, net earnings were $1,271,488$1,406,867 or $.25$.27 per share and $1,632,313$2,102,053 or $.32$.41 per share, respectively. Eighteen centers were in operation in both the current and prior year quarters. The current year quarter included colder than normal temperatures and winter storms while last year’s comparable quarter weather was unusually warm winter weather although there was a mid-March storm caused the postponementstorm. Postponement of some league games. Last year’s comparable quarter included the “Blizzard of 2016” which resultedgames occurred 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 quarter fell in the fiscal second quarter this year.both years. The operating results for fiscal 20172018 periods included in this report are not necessarily indicative of results to be expected for the year.

Operating Revenues

Total operating revenues increased $69,000$135,000 to $7,491,000$7,626,000 in the most recent quarter compared to a declinean increase of $94,000$69,000 to $7,422,000$7,491,000 in the three-month period ended March 27, 2016.April 1, 2017.  The current fiscal nine month period operating revenues were up $442,000$468,000 versus an increase of $232,000$442,000 in the comparable nine month period a year ago.  Bowling and other revenue increased $124,000 in the quarter and $401,000 year-to-date for the periods ended April 1, 2018 versus increases of $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 an increase of $65,000 for the nine-month period ended March 27, 2016.April 2, 2017.

Food, beverage and merchandise sales increased $7,000$11,000 or 0.3%0.5% in the current year quarter and were up $64,000$67,000 or 1.2% in the nine-month period.  Cost of sales increased 4.0%decreased 3.2% in the fiscal three months and 3.1%1.9% in the nine month periods ended April 2,

2017.1, 2018.

Operating Expenses

Operating expenses were down $45,000 or 0.8% and $136,000 or 0.9% in the current three month and nine month periods versus decreases of  $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 $104,000 or 0.6% in the three and nine month periods respectively, last year.  Employee compensation and benefits for the fiscal 20172018 third quarter were up $18,000$19,000 or 0.7% and were down $46,000$5,000 or 0.6%0.1% in the nine month period. In the comparable prior year threequarter there was an increase of $18,000 or 0.7% and the nine month periodsperiod ended March 27, 2016 there were decreasesApril 2, 2017 showed a decrease of $81,000$46,000 or 2.9% and $93,000 or 1.1%, respectively.0.6%. Group health insurance costs for the current nine month period decreased 7.6%8.7% as a result of changes in plan offerings and lower premiums.enrollment. 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 flatdeclined $12,000 or 0.8% and decreased $16,000increased 23,000 or 0.4%0.5% in the three month and nine month periods ended April 2, 2017,1, 2018, respectively. In the thirty-ninethirteen weeks ended April 2, 2017,1, 2018, maintenance and repair costs declined $25,000$35,000 or 3.7%13.2% primarily due to lower snow removal costs in the current year. The same category for the current year thirty-nine week period was up $11,000 primarily due to interior upgrades at two locations. Advertising costs during the current year thirty-nine week period ended April 2, 2017,1, 2018, were up $3,000down $4,000 or 1.3%1.7%.

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For the fiscal nine-month period ended April 2, 20171, 2018 utility costs were up $10,000$27,000 or 1.02.6 % primarily a result of higher utility taxes.gas costs during the unusually cold winter months. Supplies and services expenses were down $5,000$70,000 or 0.8%11.3% 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,primarily due to the decline in amusement game supplies throughout the current nine month period more than offset the increases.as a result of outsourcing our amusement game business.

Insurance expense excluding health insurance decreased 3.0%increased 5.7% in the current year-to-date period versus a decrease of 9.0%3.0% in last year’s comparable period.

Depreciation and amortization expense was down 17.9%14.0% in the current nine-month period and down 17.9% in the result of a large group of assets reaching full depreciation.prior year comparable period.

TheIn the prior year nine month period the Company recorded a $34,000 gain on the sale of some of its amusement games as it transitionstransitioned from owning games to receiving income fromoutsourcing to a third party vendor as described above.

As a result of the above, the nine-month period of fiscal 20172018 resulted in operating income of $2,924,646$3,495,024 compared to operating income of $2,170,933$2,924,646 in the prior year comparable nine-month period.

Interest,Dividend and Other Income

Interest, dividend and other income decreased $25,000$23,000 in the fiscal 20172018 nine-month period and decreased $35,000$25,000 in the comparable 20162017 year-to-date period, respectively. The decrease in both yearsthe current year relates primarily to decreases in ancillary income.lower investment balances.

Income Taxes

On December 22, 2017 the U.S. government enacted comprehensive tax legislation, the Tax Cuts and Jobs Act (“Tax Act”), which reduced the corporate tax rate from 35% to 21%. The provisions call for a blended tax rate for fiscal year companies resulting in a reduction of the effective tax rate from 34.4% last year to approximately 30.5% in the current year. A required adjustment to the Company’s deferred tax account was made in the current year second quarter.

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 April 2, 2017.1, 2018. 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 April 2, 2017,1, 2018, 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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