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)twenty-six (26) week periods ended March 29,December 27, 2020 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 statements.information.

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 Thirteen and Thirty-nineTwenty-six Weeks Ended

March 29,December 27, 2020

(Unaudited)

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

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

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.control, including but not limited to the duration of the continued negative impact from the COVID-19 pandemic. 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 stopmitigate 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 estimateOur three Florida locations reopened in May 2020, which provided 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 forCompany some revenue in the fourth quarter ending June 28,of fiscal 2020 while all other centers remained closed. All of our Virginia centers reopened in early July 2020, one Maryland location opened July 22, 2020 and the last closed center was allowed to reopen on August 31, 2020. Currently, the Florida centers may operate at 100% capacity while the Virginia locations are mandated at 30% capacity and reduced times for selling alcoholic beverages. Maryland locations operated between 25% and 50% during whichthe second quarter for fiscal 2021 with county officials adjusting capacities based on reported COVID cases in their jurisdictions. We implemented social distancing and enhanced cleaning procedures and we willcontinue to request the wearing of masks in the centers except when eating or drinking. Our safety procedures are designed to keep employees and customers safe and have no revenues unlessallowed us to offer league bowling. All center employees except the center manager were furloughed in March 2020 and the corporate staff was reduced to a minimum. Employees are returned to work as business requires and currently approximately 62% of pre-COVID employees have been returned to work. The Company has maintained health insurance for all employees on the plan at the time of closure through January 31, 2021.

Future developments in the continuously changing pandemic environment, whether new mandated closures or restrictions, a worsening of the global and local economy, high unemployment rates, reduced consumer discretionary spending and other factors can negatively affect our centers arebusiness, however it is difficult to determine with much accuracy what the longer term impact could be. Our fall league bowling season was better than expected in spite of the limitations, as we have been able to reopen prior tobe creative in making maximum use of space while following social distancing requirements. However, revenues from parties and corporate events are currently non-existent. Most bowling leagues adopted a split season schedule with the endhope that more bowlers could be added in the second half of the quarter. Many leagues decidedseason. We have seen some increase in the number of league bowlers since the third quarter of fiscal 2021 began.

Management believes the effects of the pandemic will continue to end their seasons early as it became clear that a reopening would not occur quickly. The Company did not receive league lineage feeshave an adverse effect on our revenues, financial condition and operating results for the weeks during which there was no bowling. Restrictions on operations upon reopening in our operating areas will likely result in few summer leaguesfiscal 2021 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.potentially, some time after.

LIQUIDITY AND CAPITAL RESOURCES

The Company has long viewedviews a strong financial position as a major benefit to shareholders and has invested ashareholders. 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 domestically domiciledequity securities, primarily telecommunications stocks, with the perceived potential of appreciation, primarily telecommunications stocks.appreciation. 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)T-Mobile) purchased in 1979 and 1984 and from one insurance company acquired at no cost when that company demutualized. While not all stocks in the portfolio are domestic American companies any longer, sinceSince 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 deductionfavorable tax treatment 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 March 29,December 27, 2020 was approximately $4,661,000$5,029,000 and on June 30, 201928, 2020 was approximately $5,100,000.$4,725,000.

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. In May 2020, $500,000 was redeemed to fund operating costs. The fund is carried at fair value on the last day of the reporting period. At March 29,December 27, 2020, the fair value was approximately $985,000$492,000 and at June 30, 2019,28, 2020, the fair value was $1,930,000.$491,000.

In March 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which is administered by the Small Business Administration was signed into law. The CARES Act established a Paycheck Protection Program (“PPP”) under which qualified businesses could apply for a loan to help fund payroll, rent and related costs. The Company applied for a PPP loan and on June 1, 2020 received $1,500,000 under a loan agreement which calls for interest of 1%.  The loan repayment, after a seven month deferral, begins January 1, 2021 and final payment is due June 1, 2022.  All or a portion of payments of principal and interest may be forgiven if used for covered, documented payroll costs, rent and utilities. We anticipate applying for loan forgiveness in the third quarter of fiscal 2021. Any amount not forgiven will be due at maturity. The Consolidated Appropriations Act of 2021 allows any expenses paid with the PPP Loan and forgiven will be deductible for federal tax purposes.

Short-term investments including Certificates of Deposits, Treasury Bills and cash and cash equivalents totaled  $3,288,000$981,000 at the end of the fiscal thirdsecond quarter of 20202021 compared to $703,000$1,793,000 at June 30, 2019.28, 2020.  

The Company’s position in all the above investments is a source of capital for 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 negatively impact the Company’s available resources.fair value of the securities. 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 nine-monthsix-month period ended March 29,December 27, 2020, the Company expended approximately $473,000$76,000 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 reserves and cash flows are currently sufficient to finance all contemplated purchases and to meet short-term purchase commitments and operating lease commitments.

The nine-monthsix-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 29,December 27, 2020, league deposits of approximately $1,952,000$532,000 were included in the current liabilities category.

Cash flow provided byused in operating activities in the thirty-ninetwenty-six weeks ended March 29,December 27, 2020 was $4,247,000approximately  $737,000 which, along with cash on hand 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 March 29, 2020, and the nine months total was approximately $2,710,000 or $.525 per share.needs. In March 2020, the Company suspended its regular quarterly dividend due todividends following the unpredictabilityrequired shutdown of the business interruption from COVID-19.Company’s bowling centers. 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 March 29,December 27, 2020, and March 31,December 29, 2019, and the dollar and percentage changes thereintherein.

The Company closed all bowling centers on March 18,For the thirteen week and twenty-six week periods ended December 27, 2020 as the orders from the statenet loss was $301,782 or $.06 per share. 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$1,039,505 or for 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 $1,001,000$.20 per share, respectively. Earnings were $877,675 or $.17 per share and $1,163,000 or $.23 per share for the thirteen week period ended March 29, 2020, were $157,322 or $.03 per share. Net earnings forand the thirty-ninetwenty-six week period ended MarchDecember 29, 2020, including a decrease in the value of investment securities of $411,000 were $1,320,322 or $.26 per share.2019, respectively.  

ForAll seventeen of the thirteen-week and thirty-nine week periods ended March 31, 2019,including increases in the value of investment securities of $367,000 and $174,000, respectively, net earnings were $1,806,243 or $.35 per share and $2,804,066 or $.54 per share, respectively.

SeventeenCompany’s bowling centers were closed on March 18, 2020, by government order due to the COVID-19 pandemic. Only our three Florida centers were open the entire 13 week period ended September 27, 2020, having reopened in operation for 8late May 2020. Thirteen of the 9 monthsremaining locations opened in July 2020 and the last center reopened on August 31, 2020. All locations were mandated at 50% capacity or less during the first quarter. In the quarter ended December 27, 2020, Virginia and Maryland imposed tighter restrictions not only on capacity but on food and beverage service. While mild weather more conducive to outdoor activities may have been a factor, the pandemic was the primary negative factor on revenues. All comparisons in this discussion are significantly impacted by the ongoing government mandates and public perception of the current year period following the closingstate of the Mathis Avenue, Manassas center on July 28, 2019. Expenses related to the center closing were approximately $104,000 and were reported in the current year first quarter. Eighteen centers were in operation throughout the prior year periods.

COVID-19 pandemic. The operating results for the fiscal 20202021 periods included in this report are not necessarily indicative of results to be expected for the year.

Operating Revenues

Total operating revenues decreased $1,183,000$3,645,000 or 59.1% to $6,260,000$2,520,000 in the most recent quarter ended December 27, 2020 compared to a decrease of $183,000$163,000 or 2.6% to $7,443,000$6,165,000 in the three-month periodquarter ended March 31,December 29, 2019. The current fiscal nine month2021 six-month period operating revenues were down $1,663,000$7,133,000 or 63.2% versus a decrease of $46,000$480,000 or 4.0% in the comparable nine monthsix-month period a year ago. Bowling and other revenue decreased $802,000$2,488,000 in the quarter and $1,125,000decreased $4,930,000 year-to-date for the periods ended March 29,December 27, 2020 versus decreasesa decrease of $165,000$99,000 in the quarter and $155,000a decrease of $323,000 for the nine-monthsix-month period ended March 31,December 29, 2019.

Food, beverage and merchandise sales decreased $381,000$1,157,000 or 17.4%62.4% in the current year quarter and were down $538,000$2,203,000 or 9.4%65.4% in the nine-monthsix-month period.  Cost of sales decreased 15.4%58.6% in the current fiscal three monthsmonth period and decreased 6.0% in36.8% for the ninesix month periodsperiod ended March 29,December 27, 2020.

Operating Expenses

Operating expenses decreased $364,000were down $2,085,000 or 6.6% and $270,000 or 1.7%39.6% in the current three month period and nine-month periodsdecreased $4,554,000 or 43.1% in six-month period versus increasesan increase of $104,000$10,000 or 1.9%0.2% and $228,000an increase of $94,000 or 1.5%, respectively,less than 1% in the three and ninesix month periods last year.year, respectively.  Employee compensation and benefits for the fiscal 2020 third quartercurrent three and six month periods were down $194,000$1,172,000 or 6.8%43.0% and $239,000$2,587,000 or 2.9%47.4%, respectively, primarily the result of the reduced hours of operation due to restrictions in the nine month period.   In the comparable prior year quarter there was an increase of $42,000 or 1.5% and the nine month period ended March 31, 2019 showed an increase of $140,000 or 1.7%.capacity caused by COVID. Included in this category of expense are contributions to our two benefit plans, both of which are defined contribution plans. Contributions can only be made from profits. There is no additional obligation beyond the current year contribution.

Cost of bowling and other services decreased $121,000$1,109,000 or 7.6%36.8% and $149,000decreased $28,000 or 3.2%0.9% in the three month and nine monthsix-month periods ended MarchDecember 27, 2020 and December 29, 2020,2019, respectively. In the prior 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-ninetwenty-six weeks ended March 29,December 27, 2020, maintenance and repair costs, decreased $65,000including $18,000 in roof repairs at several locations, declined $179,000 or 9.2% and in42.1%. In the comparable period last yearended December 29, 2019, maintenance and repair costs increased $38,000decreased $22,000 or 5.6%5.0%. Both periods included repairs to 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 thirty-ninetwenty-six week period ended March 29,December 27, 2020 decreased $7,000were down $122,000 or 2.6%67.1%. For the fiscal nine-monthsix month period ended March 29,December 27, 2020 utility costs were down $39,000declined $216,000 or 3.7 %.30.8%. Supplies and services expenses were up less than 1% fordown $207,000 or 56.6% in the current nine monthyear six-month period.

Insurance expense excluding health insurance decreased 3.5%2.8% in the current year-to-date period versus a decrease of less than 1% in last year’s comparable period.however spring renewal premiums are expected to increase over the prior year.

Depreciation and amortization expense was up approximately 1.0%increased $25,000 or 5.3% in both the current andsix-month period versus a decrease of 1.7% in the prior year nine-month periods due to capital expenditures.six-month period.

As a result of the above, the nine-monthfirst six-month period of fiscal 20202021 resulted in operating incomeloss of $1,828,492$1,040,000 compared to operating income of $3,220,603$733,000 in the prior year comparable nine-month period.six-month period of fiscal 2020.

Interest, Dividend and Other Income

Interest, dividend and dividendother income decreased however an increase in parking space rental income resulted in an overall increase of $15,000 in the category$30,000 in the fiscal 2021 six-month period and increased $20,000 in the comparable 2020 nine-month period.year-to-date period, respectively.

Income Taxes

The Tax Act of December 2017 reduced the federal corporate tax rate from 34% to 21%. TaxesThe tax benefits in fiscal 2021 and the 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 thetheir evaluation of such controls and procedures as of March 29,December 27, 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 March 29,December 27, 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.5. Other Information

The COVID-19 outbreak is having a material adverse effect

On February 4, 2021, the Board of Directors of the Company and Ms. Cheryl Dragoo agreed to amend her amended and restated employment agreement to extend the term until the end of the Company’s 2022 fiscal year on our business and liquidityJune 27, 2022.

The COVID-19 pandemicforgoing summary does not purport to be complete and is having an unprecedented impact onqualified in its entirety by the U.S. economyAmendment No. 1 to the Employment Agreement, a copy of which is filed as federal, state and local governments reactExhibit 10.1 to this public health crisis, which has created significant uncertainties. These uncertainties include, but are not limitedQuarterly Report on Form 10-Q.

Item 9.01(d)   Financial Statements and Exhibits.

10.1          Amendment No. 1 to Amended Employment Agreement between the material adverse effect of the pandemic on the economy, our employeesCompany 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.Cheryl A. Dragoo.

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.