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 twenty-six (26)thirty-nine (39) week periods ended DecemberMarch 29, 20192020 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.statements.

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

The accompanying notes to the consolidated financial statements are an integral part of these financial statements.

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Twenty-sixThirteen and Thirty-nine Weeks Ended

DecemberMarch 29, 20192020

(Unaudited)

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

The shares of common stock included in the equity securities portfolio includes the following stocks:as of March 29, 2020 were:

On April 1, 2020, T-Mobile and Sprint completed their merger exchanging 40,000 shares of Sprint for 4,102 shares of T-Mobile.   

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.

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. More recent risks and uncertainties include the ongoing effects of the business disruption related to the current COVID-19 pandemic on revenues, operating income, the ability to reopen locations, governmental regulations to limit the spread of COVID-19 such as social distancing and enhanced safety measures, times of operation and reaction should the virus rise again. 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.

COVID-19

The Company closed all bowling centers on March 18, 2020, as required by the orders from the state and federal governments in an effort to stop the spread of COVID-19. Most employees were laid off temporarily but will be called back as needed for their services as we reopen. While this center closure is expected to be temporary, with no known time frame for reopening, or what steps will have to been taken for a reopening, we cannot currently estimate the full financial impact to the Company. However, because the center closure occurred near the end of the quarter ended March 29, 2020, the impact was not as great as it will be for the fourth quarter ending June 28, 2020 during which we will have no revenues unless our centers are able to reopen prior to the end of the quarter. Many leagues decided to end their seasons early as it became clear that a reopening would not occur quickly. The Company did not receive league lineage fees for the weeks during which there was no bowling. Restrictions on operations upon reopening in our operating areas will likely result in few summer leagues and modified hours of operation assuming our centers are able to re-open. The Company suspended its quarterly dividend and expects to use cash on hand and, if necessary, its reserves, until the centers reopen.

LIQUIDITY AND CAPITAL RESOURCES

The Company viewshas long viewed a strong financial position as a major benefit to shareholders and emphasizes payment of dividends as part of its financial plan.  Ahas invested 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.  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 historically had relatively low volatility. The Company has long been invested in a Government National Mortgage Association (“Ginnie Mae”) fund and equity securities, primarily telecommunicationsdomestically domiciled stocks with the perceived potential of appreciation.appreciation, primarily telecommunications stocks. The Company considers that this diversity also provides a measure of safety of principal. Regulatory orders requiring the closure of our bowling centers in March 2020 with an uncertain time for reopening could require use of those reserves.

With the exception of 13,120 shares of Verizon, the equity 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 one insurance company acquired at no cost when that company demutualized. SinceWhile not all stocks in the portfolio are domestic American companies any longer, since the original purchases at an approximate cost of $630,000, we have received approximately $967,000 from mergers and sales, and over $5,300,000 in dividends, the majority of which received favorable tax treatment in the form of a dividends received deduction from federal taxable income. While the favorable tax treatmentdeduction continues into this fiscal year, the Tax Cuts and Jobs Act (“Tax Act”) reduces the percent deductible. These equity securities are carried at their fair value on the last day of each reporting period. The fair value of the securities on DecemberMarch 29, 20192020 was approximately $5,685,000$4,661,000 and on June 30, 2019 was approximately $5,100,000.

The Company’s original investment in the Vanguard GNMA bond fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000.    In August 2019, $1,000,000 of this fund was redeemed to meet the August 2019 dividend payment. The fund is carried at fair value on the last day of the reporting period. At DecemberMarch 29, 2019,2020, the fair value was approximately $957,000$985,000 and at June 30, 2019, the fair value was $1,930,000.

Short-term investments, including Certificates of Deposits, Treasury Bills and cash and cash equivalents totaled $1,942,000$3,288,000 at the end of the fiscal secondthird quarter of 2020 compared to $703,000 at June 30, 2019.

The Company’s position in all the above investments is a source of capital for possible expansion.use as needed to pay league prize funds and expenses during the COVID-19 shutdown and reopening. Barring additional catastrophic or unknown events, cash on hand and the investments noted above should provide funding for the Company through September 2020 should the locations remain closed. Potential volatility in the trading prices of the marketable securities held by the Company could impact the Company’s opportunities for expansion.available resources. The Board of Directors reviews the portfolio and any use of this reserve at its quarterly meetings.

The Company closed its leased Mathis Avenue location in Manassas, Virginia, which had been operating with a negative cash flow, on July 28, 2019. Most of the equipment was transferred to our other locations.

In the six-monthnine-month period ended DecemberMarch 29, 2019,2020, the Company expended approximately $455,000$473,000 for the purchase of building, entertainment and restaurant equipment. The Company has no long-term debt and currently has no plans to obtain 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 six-monthnine-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 DecemberMarch 29, 2019,2020, league deposits of approximately $1,386,000$1,952,000 were included in the current liabilities category.

Cash flow provided by operating activities in the twenty-sixthirty-nine weeks ended DecemberMarch 29, 20192020 was $2,501,000$4,247,000 which, along with cash on hand and redemption of a portion of the Vanguard GNMA fund, mentioned above, was sufficient to meet day-to-day cash needs and pay dividends. Cash dividends of approximately $903,000, or $.175 per share, were paid to shareholders during the quarter ended DecemberMarch 29, 2019,2020, and the sixnine months total was approximately $1,806,000$2,710,000 or $.35$.525 per share.   In December 2019,March 2020 the Company declared asuspended its regular quarterly dividend due to the unpredictability of $.175 per share, payable February 12, 2020 to shareholders of record on January 10, 2020.the business interruption from COVID-19. 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. While bowling has the advantage of being an entertainment that is close to home and relatively inexpensive, new forms of sports and entertainment are offered to the public continually creating challenges, but our response is helped by having the resources to 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 also vulnerable to sequestration or other downsizing of the federal government. The Company currently operates 17 bowling centers, 16 of which are owned by the Company and 1 of which is a leased center. In March 2019, the Company elected not to renew the lease for its bowling center in Manassas due to the performance at the center. The lease terminated August 31, 2019.

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 DecemberMarch 29, 2019,2020, and December 30, 2018,March 31, 2019, and the dollar and percentage changes therein.therein

Earnings were $877,675

The Company closed all bowling centers on March 18, 2020, as the orders from the state and federal governments required, in an effort to stop the spread of COVID-19. While this closure is expected to be temporary, with no known time frame for lifting the ban or $.17 per sharefor reopening, we cannot currently estimate the full financial impact to the Company. Many leagues decided to end their seasons early as it became clear that a reopening would not occur quickly. Because the closure occurred near the end of the quarter ended March 29, 2020 the impact was not as great as it will be for the fourth quarter.

Net earnings, including the decrease in the value of investment securities of $1,001,000 for the thirteen week period and $1,163,000ended March 29, 2020, were $157,322 or $.23$.03 per shareshare. Net earnings for the twenty-sixthirty-nine week period ended DecemberMarch 29, 2019.  2020, including a decrease in the value of investment securities of $411,000 were $1,320,322 or $.26 per share.

For the thirteen-week and twenty-sixthirty-nine week periods ended December 30, 2018,March 31, 2019,including increases in the value of investment securities of $367,000 and $174,000, respectively, net earnings were $557,442$1,806,243 or $.11 per shares and $997,823 or $.19$.35 per share and $2,804,066 or $.54 per share, respectively. Eighteen locations

Seventeen centers were in operation in the first monthfor 8 of the current 26 week period, before the Manassas closing, mentioned above, and throughout the prior year 26 week period. The operation of one fewer center9 months in the current year period impacted comparisonsfollowing the closing of revenues and expenses shown in this report.the Mathis Avenue, Manassas center on July 28, 2019. Expenses related to closing the Manassas center closing were approximately $104,000 and were reported in the first quarter. Management believes that weather conducive to outdoor activities during the current year 26 week period contributed to a declinefirst quarter. Eighteen centers were in open play bowling. operation throughout the prior year periods.

The operating results for the fiscal 2020 periods included in this report are not necessarily indicative of results to be expected for the year.

Operating Revenues

Total operating revenues decreased $163,000 or 2.6%$1,183,000 to $6,165,000$6,260,000 in the most recent quarter ended December 29, 2019 compared to a decrease of $41,000 or 0.6%$183,000 to $6,328,000$7,443,000 in the three-month period ended December 30, 2018.March 31, 2019.  The current fiscal six-monthnine month period operating revenues were down $480,000 or 4.0%$1,663,000 versus an increasea decrease of $137,000 or 1.2%$46,000 in the comparable six-monthnine month period a year ago.  Bowling and other revenue decreased $99,000$802,000 in the quarter and decreased $323,000$1,125,000 year-to-date for the periods ended DecemberMarch 29, 20192020 versus a decreasedecreases of $75,000$165,000 in the quarter and an increase of $10,000$155,000 for the six-monthnine-month period ended December 30, 2018.March 31, 2019.

Food, beverage and merchandise sales decreased $64,000$381,000 or 3.3%17.4% in the current year quarter and were down $157,000$538,000 or 4.5%9.4% in the six-monthnine-month period.  Cost of sales increased 7.3%decreased 15.4% in the current fiscal three month periodmonths and decreased 0.9% for6.0% in the sixnine month periodperiods ended DecemberMarch 29, 2019.2020.

Operating Expenses

Operating expenses were up $10,000decreased $364,000 or 0.2%6.6% and $270,000 or 1.7% in the current three month period and increased $94,000 in six-month periodnine-month periods versus increases of  $104,000 or less than 1%1.9% and $228,000 or 1.5%, versus a decrease of $10,000 or 0.2% and an increase of $124,000 or 1.2%respectively, in the three and sixnine month periods last year, respectively.year.  Employee compensation and benefits for the current three and six month periodsfiscal 2020 third quarter were down $39,000$194,000 or 1.4%6.8% and $45,000$239,000 or 0.8%, respectively, primarily2.9% in the resultnine month period.   In the comparable prior year quarter there was an increase of $42,000 or 1.5% and the closingnine month period ended March 31, 2019 showed an increase of a location, mentioned above, although the Company continues to contend with the tight labor market and increased overtime.$140,000 or 1.7%. 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 decreased $28,000$121,000 or 0.9%7.6% and increased $68,000$149,000 or 2.3%3.2% in the six-monththree month and nine month periods ended DecemberMarch 29, 2019 and December 30, 2018,2020, respectively. In the twenty-sixprior year comparable three month and nine month periods the same category showed increases of $35,000 and $103,000, or 2.3% each, respectively. In the thirty-nine weeks ended DecemberMarch 29, 2019, building2020 maintenance and repair costs decreased $65,000 or 9.2% and in the comparable period last year costs increased $29,000$38,000 or 34.9% primarily due5.6%. Both periods included repairs to a major plumbing repair at one location.

roofs and changeover to LED lighting in signs and parking lot lights, however the prior year period included snow removal costs of $38,000. Advertising costs during the current year twenty-sixthirty-nine week period ended DecemberMarch 29, 2019 were down $23,000 or11.1%2020, decreased $7,000 or 2.6%. For the fiscal six monthnine-month period ended DecemberMarch 29, 20192020 utility costs declined $14,000were down $39,000 or 1.9%.3.7 %. Supplies and services expenses were up $25,000 or 7.4% inless than 1% for the current year six-monthnine month period.

Insurance expense excluding health insurance decreased 4.9%3.5% in the current year-to-date period however spring renewal premiums are expected to increase over the prior year.versus a decrease of less than 1% in last year’s comparable period.

Depreciation and amortization expense decreased 1.7%was up approximately 1.0% in both the current six-month period versus an increase of 1.1% in theand prior year six-month period.nine-month periods due to capital expenditures.

As a result of the above, the first six-monthnine-month period of fiscal 2020 resulted in operating income of $733,000$1,828,492 compared to operating income of $1,307,000$3,220,603 in the prior year comparable six-monthnine-month period.

Interest, Dividend and Other Income

Interest and dividend and other income increased $20,000decreased however an increase in parking space rental income resulted in an overall increase of $15,000 in the category in the fiscal 2020 six-month period and increased $11,000 in the comparable 2019 year-to-date period, respectively.nine-month period.

Income Taxes

The Tax Act of December 2017 reduced the federal corporate tax rate from 34% to 21%. Taxes for both the fiscal 2020 and 2019 periods reflect the reduced federal rate.

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 investment securities.  The Company exercises judgment in determining their fair value.  The Company records these investments at their fair value with the unrealized gain or loss recorded in income or loss in the current period.

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 has concluded that the Company’s disclosure controls and procedures are effective based on theirthe evaluation of such controls and procedures as of DecemberMarch 29, 2019.2020. 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 DecemberMarch 29, 2019,2020, 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 1A,      Risk Factors.

The COVID-19 outbreak is having a material adverse effect on our business and liquidity

The COVID-19 pandemic is having an unprecedented impact on the U.S. economy as federal, state and local governments react to this public health crisis, which has created significant uncertainties. These uncertainties include, but are not limited to, the material adverse effect of the pandemic on the economy, our employees and customers, customer sentiment in general, and our bowling centers. The pandemic has materially adversely effected our near-term revenues, earnings, liquidity and cash flows, and has required significant actions in response, including but not limited to, employee furloughs and center closings, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S., the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. The Company cannot reasonably estimate the severity of COVID-19 on our operations but it currently anticipates a material adverse impact on our financial position, cash flows and results of operations. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.

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.