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: JANUARY 1, 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 the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer __        Accelerated Filer __        Non-Accelerated Filer __        Smaller Reporting Company X

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

    Yes __    No X

Indicate the number of shares outstanding of each of the issuer's classes 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 twenty-six (26) week periods ended January 1, 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 twenty-six (26) week periods ended January 1, 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.

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

 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 Twenty-six Weeks Ended

January 1, 2017

(Unaudited)

1.  Basis for Presentation

The accompanying unaudited condensed consolidated financial statements of Bowl America Incorporated and subsidiaries (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 July 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 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 January 1, 2017 and July 3, 2016 were as follows:

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 January 1, 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.

      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 January 1, 2017 are for materials, supplies, services and equipment as part of the normal course of business.

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 post-retirement plan.

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 for 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

There were no new accounting pronouncements during the quarter ended January 1, 2017, that would impact the

Company.

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, 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 (“Ginnie Mae”) 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 stock 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. While not all shares 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 $4,400,000 in dividends, the majority of which were tax favored in the form of an exclusion from federal taxable income. The dividends exclusion continues into this fiscal year. These marketable securities are carried at their fair value on the last day of each reporting period. The value of the securities on January 1, 2017 was approximately $5,933,000 and on July 3, 2016 was approximately $6,002,000.

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. The fund is carried at fair value on the last day of the reporting period. At January 1, 2017, the value was approximately $2,786,000.

Short-term investments consisting mainly of Certificates of Deposits, and cash and cash equivalents totaled $1,855,000 at the end of the fiscal second quarter of 2017 compared to $1,471,000 at 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 loan was collateralized by certificates of deposits. Interest was due and paid monthly and was based on the one- month LIBOR  rate plus 2.5%. The loan was repaid in full on January 6, 2017.

In the six-month period ended January 1, 2017, the Company expended approximately $170,000 for the purchase of building, entertainment and restaurant equipment. The Company has no long-term debt and has no current 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 six-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 January 1, 2017, league deposits of approximately $1,396,000 were included in the current liabilities category.

Cash flow provided by operating activities in the twenty-six weeks ended January 1, 2017 was $1,859,000 which, along with cash on hand, and a note in the amount of $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 January 1, 2017, and the six months total was approximately $1,754,000 or $.34 per share.   In December 2016 the Company declared a regular quarterly dividend of $.17 per share, payable February 15, 2017 to shareholders of record on January 10, 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 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 in entertainment that is close to home and relatively inexpensive.  Bowling has those advantages.  However the longer the economy remains unsteady, the 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 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 spending 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 January 1, 2017, and December 27, 2015, and the dollar and percentage changes therein.

Earnings were $695,906 for the thirteen week period and $695,186, or $.14 per share for both the thirteen and twenty-six week periods ended January 1, 2017. For the thirteen-week and twenty-six periods ended December 27, 2015, net earnings were $508,901 or $.10 per share and $360,825 or $.07 per share, respectively. Eighteen centers were in operation in both the current and prior year quarters although Hurricane Matthew caused the closure of our Florida centers for two days. The fiscal 2017 second quarter included the holiday week between Christmas and New Year’s Day which typically falls in the third fiscal quarter. The operating results for fiscal 2017 periods included in this report are not necessarily indicative of results to be expected for the year.

Operating Revenues

Total operating revenues increased $229,000 to $6,235,000 in the most recent quarter compared to an increase of $36,000 to $6,006,000 in the three-month period ended December 27, 2015.  The current fiscal six-month period operating revenues were up $373,000 versus an increase of $327,000 in the comparable six-month period a year ago.  Bowling and other revenue increased $213,000 in the quarter and $316,000 year-to-date for the periods ended January 1, 2017 versus a decline of $37,000 in the quarter and an increase of $135,000 for the six-month period ended December 27, 2015.

Food, beverage and merchandise sales increased $16,000 or 0.8% in the current year quarter and were up $57,000 in the six-month period.  Cost of sales increased 2.5% in both the fiscal three month and six month periods ended January 1, 2017.

Operating Expenses

Operating expenses were down $44,000 or 0.8% in the current three month period and $183,000 or 1.7% in six-month period versus a decrease of  $23,000 and an increase of $13,000 or less than 1% in the three and six month periods, respectively, last year.  Employee compensation and benefits for the fiscal 2017 second quarter were flat and were down $64,000 or 1.2% in the six month period. In the comparable prior year periods ended December 27, 2015 there were decreases of $6,000 and $12,000 or less than 1%, respectively. Group health insurance costs decreased 6.4% as a result of changes in plan offerings and 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 increased $25,000 or 1.7% and decreased $16,000 or 0.5% in the three month and six month periods ended January 1, 2017, respectively. In the twenty-six weeks ended January 1, 2017, maintenance and repair costs declined $15,000 or 3.6%. Advertising costs during the current year twenty-six week period ended January 1, 2017, were up $4,000 or 2.2%.

For the fiscal six-month period ended January 1, 2017 utility costs were up $14,000 or 2.1 % primarily a result of higher utility taxes. Supplies and services expenses were down $11,000 or 2.8% in the current year six-month period and were up $9,000 or 2.2% in the six-month period in the prior year. The timing of purchases was the primary reason for the fluctuations in both years.

Insurance expense excluding health insurance decreased 1.7% in the current year-to-date period versus a decrease of 10% in last year’s comparable period.

Depreciation and amortization expense was down 15.9% in the current six-month period the result of a large group of assets reaching full depreciation.

As a result of the above, the first six-month period of fiscal 2017 resulted in operating income of $869,900 compared to operating income of $314,465 in the prior year comparable six-month period.

                Interest, Dividend and Other Income

Interest, dividend and other income decreased $36,000 in the fiscal 2017 six-month period and decreased $17,000 in the comparable 2016 year-to-date period, respectively. The decrease in both years relates primarily to ancillary income including the end of parking lot rental agreements.

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 January 1, 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 January 1, 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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