10-Q 1 bwl-a20200930_10q.htm FORM 10-Q bwl-a20200930_10q.htm
 

 

FORM  10-Q

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

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

 

FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 27, 2020

or

☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

COMMISSION FILE NUMBER: 001-7829

 

BOWL AMERICA INCORPORATED

(Exact name of registrant as specified in its charter)

 

MARYLAND

54-0646173

(State of Incorporation)

(I.R.S.Employer Identification No.)

 

6446 Edsall Road, Alexandria, Virginia  22312

(Address of principal executive offices)(Zip Code)

 

(703) 941-6300

(Registrant's telephone number including area code)

 

Securities registered pursuant to Section 12(b) of the Act: 

 

Title of each class  

Trading Symbol(s)  

Name of each exchange on which registered  

Class A Common stock (par value $.10)

BWL-A

NYSE American

 

 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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☒ No ☐

 

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

 

Large Accelerated Filer ☐      Accelerated Filer ☐

Non-Accelerated Filer ☐      Smaller Reporting Company ☒      Emerging Growth Company ☐

 

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

 

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

    Yes ☐    No ☒

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

 

  

Shares Outstanding at

  

November 10, 2020

Class A Common Stock,

  

$.10 par value

3,746,454

  

  

Class B Common Stock,

  

$.10 par value

1,414,517

 

 

 

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

 

  BOWL AMERICA INCORPORATED AND SUBSIDIARIES

  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

  (Unaudited)

                                    

   

Thirteen Weeks Ended

 
   

September 27,

   

September 29,

 
   

2020

   

2019

 

Operating Revenues:

               

Bowling and other

  $ 1,166,872     $ 3,609,673  

Food, beverage and merchandise sales

    469,130       1,514,938  

Total Operating Revenue

    1,636,002       5,124,611  
                 

Operating Expenses:

               

Employee compensation and benefits

    1,319,472       2,735,214  

Cost of bowling and other services

    943,680       1,602,173  

Cost of food, beverage and merchandise sales

    147,273       444,032  

Depreciation and amortization

    247,808       235,178  

General and administrative

    157,500       268,099  

Total Operating Expenses

    2,815,733       5,284,696  
                 

Operating Income

    (1,179,731

)

    (160,085

)

                 

Interest, dividend and other income

    89,516       106,457  

Change in value of investments

    126,226       429,053  

PPP Loan interest expense

    4,690       -  
                 

(Loss) earnings before provision for income tax

    (968,679

)

    375,425  
                 

Provision (benefit) for income tax

    (230,956

)

    90,100  
                 

Net (Loss) earnings

  $ (737,723

)

  $ 285,325  
                 

Net (Loss) earnings per share-basic & diluted

    (.14

)

    .06  
                 

Weighted average shares outstanding

    5,160,971       5,160,971  
                 

Dividends paid

  $ 0     $ 903,170  
                 

Per share, dividends paid, Class A

  $ 0     $ .175  
                 

Per share, dividends paid, Class B

  $ 0     $ .175  

 

The operating results for the thirteen (13) week period ended September 27, 2020 are not necessarily indicative of results to be expected for the year.  See notes to condensed consolidated financial statements.

 

2

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

 

   

As of

 
   

September 27,

   

June 28,

 
   

2020

   

2020

 

ASSETS

 

CURRENT ASSETS:

               

Cash and cash equivalents

  $ 1,120,490     $ 1,659,264  

Short-term investments

    134,224       134,202  

Marketable investment securities

    5,344,294       5,216,218  

Inventories

    452,742       486,105  

Prepaid expenses and other

    254,724       523,662  

Income taxes refundable

    766,244       766,244  

TOTAL CURRENT ASSETS

    8,072,718       8,785,695  

LAND, BUILDINGS & EQUIPMENT, net of accumulated depreciation of $41,287,255 and $41,039,447

    17,444,961       17,667,517  
                 

OTHER ASSETS:

               

Right to use asset

    1,772,662       1,812,937  

Cash surrender value-life insurance

    282,895       282,895  

Other

    64,265       64,265  

TOTAL OTHER ASSETS

    2,119,822       2,160,097  

TOTAL ASSETS

  $ 27,637,501     $ 28,613,309  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

CURRENT LIABILITIES:

               

Accounts payable

  $ 197,760     $ 269,373  

Accrued expenses

    699,400       932,528  

Other current liabilities

    732,522       395,629  

TOTAL CURRENT LIABILITIES

    1,629,682       1,597,530  

Lease liability

    1,633,090       1,672,371  

Note Payable PPP Loan

    1,500,000       1,500,000  

DEFERRED INCOME TAXES

    1,095,435       1,326,391  

TOTAL LIABILITIES

    5,858,207       6,096,292  
                 

COMMITMENTS AND CONTINGENCIES

               
                 

STOCKHOLDERS' EQUITY

               

Preferred stock, par value $10 a share: Authorized and unissued, 2,000,000 shares

    -       -  

Common stock, par value $.10 a share: Authorized, 10,000,000 shares Class A issued and outstanding 3,746,454

    374,645       374,645  

Class B issued and outstanding 1,414,517

    141,452       141,452  

Additional paid-in capital

    7,854,108       7,854,108  

Retained earnings

    13,409,089       14,146,812  

TOTAL STOCKHOLDERS' EQUITY

    21,779,294       22,517,017  
                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

  $ 27,637,501     $ 28,613,309  

 

See notes to condensed consolidated financial statements.

 

3

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS  OF CASH FLOWS

(Unaudited)

 

   

Thirteen Weeks Ended

 
   

September 27,

   

September 29,

 
   

2020

   

2019

 

Cash Flows From Operating Activities

               

Net (loss) income

  $ (737,723

)

  $ 285,325  

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

               

Depreciation and amortization

    247,808       235,178  

Amortization of right to use asset

    40,275       46,422  

Increase in deferred taxes

    (230,956

)

    89,040  

Unrealized gain on marketable securities

    (126,226

)

    (424,849

)

Net purchases of marketable securities

    (1,850

)

    (10,242

)

Gain on sale of trading securities

    -       (9,487

)

Changes in assets and liabilities

               

Decrease (increase) in inventories

    33,363       (265

)

Decrease in prepaid & other

    268,938       537,805  

Decrease in accounts payable

    (71,613

)

    (403,093

)

Decrease in accrued expenses

    (233,128

)

    (272,689

)

Increase in income taxes refundable

    -       (5,000

)

Increase in other current liabilities

    336,893       635,914  

Decrease in lease liability

    (39,281

)

    (43,003

)

Net cash (used in) provided by operating activities

    (513,500

)

    661,056  
                 

Cash Flows From Investing Activities

               

Net expenditures for land, building and equipment

    (25,252

)

    (202,701

)

Net (purchases) sales & maturities of short-term investments

    (22

)

    299,119  

Proceeds from sale of securities

    -       1,000,000  

Net cash (used in) provided by investing activities

    (25,274

)

    1,096,418  
                 

Cash Flows From Financing Activities

               

Payment of cash dividends

    -       (903,170

)

Net cash used in financing activities

    -       (903,170

)

                 

Net Change in Cash and Equivalents

    (538,774

)

    854,304  
                 

Cash and Cash Equivalents, Beginning of period

    1,659,264       269,844  
                 

Cash and Cash Equivalents, End of period

  $ 1,120,490     $ 1,124,148  
                 
                 

Supplemental Disclosures of Cash Flow Information

               

Cash Paid During the Period for:

               

Income taxes

  $ -     $ 5,000  

 

See notes to condensed consolidated financial statements.

 

4

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

 

   

COMMON STOCK

                 
   

Class A

Shares

   

Class A

Amount

   

Class B

Shares

   

Class B

Amount

   

Additional

Paid-In Capital

   

Retained

Earnings

 

Balance, June 30 2019

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ 15,549,961  

Cash dividends paid

    -       -       -       -       -       (903,170

)

Net earnings for the quarter 

    -       -       -       -       -       285,325  

Balance, September 29, 2019

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ 14,932,116  

 

 

   

COMMON STOCK

                 
   

Class A

Shares

   

Class A

Amount

   

Class B

Shares

   

Class B

Amount

   

Additional

Paid-In Capital

   

Retained

Earnings

 

Balance, June 28, 2020

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ 14,146,812  

Cash dividends paid

    -       -       -       -       -       -  

Net loss for the quarter 

    -       -       -       -       -       (737,723

)

Balance, September 27, 2020

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ 13,409,089  

 

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

 

5

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

For the Thirteen Weeks Ended

September 27, 2020

(Unaudited)

 

 

1.     Basis for Presentation

 

The accompanying unaudited condensed consolidated financial statements of Bowl America Incorporated and subsidiaries (the "Company"), have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  The condensed consolidated balance sheet as of June 28, 2020 has been derived from the Company's audited financial statements.  Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for the fair presentation of the Company’s financial position and results of operations for the periods presented.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended June 28, 2020.

 

 

2.     Investments

 

The Company’s investments are categorized as current assets. Short-term investments consist of certificates of deposits and treasury bills with maturities of generally three months to one year. Equity securities consist primarily of telecommunications stocks and a mutual fund that invests in federal agency mortgage backed securities (Ginnie Mae). The fair value of the Company’s investments at September 27, 2020 and June 28, 2020 were as follows:

 

September 27, 2020

Description

 

Fair Value

   

Cost basis

   

Unrealized Gain

(Loss)

 

Short-term investments

  $ 134,224     $ 134,224     $ -  

Equity securities

  $ 4,853,973     $ 1,279,914     $ 3,574,059  

Mutual funds

  $ 490,321     $ 477,029     $ 13,292  

June 28, 2020

Description

 

Fair Value

   

Cost basis

   

Unrealized Gain

 

Short-term investments

  $ 134,202     $ 134,202     $ -  

Equity securities

  $ 4,725,470     $ 1,279,914     $ 3,445,556  

Mutual funds

  $ 490,748     $ 475,179     $ 15,569  

 

6

 

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

 

September 27, 2020

 

 

 

Description

 

Quoted

Price for

Identical Assets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
                         

Certificates of deposits and Treasury Bills

  $ -     $ 134,224     $ -  

Equity securities

    4,853,973       -       -  

Mutual funds

    490,321       -       -  
                         

Total

  $ 5,344,294     $ 134,224     $ -  

June 28, 2020

 

 

 

Description

 

Quoted

Price for

Identical Assets

(Level 1)

   

Significant

Other

Observable

Inputs

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
                         

Certificates of deposits

  $ -     $ 134,202     $ -  

Equity securities

    4,725,470       -       -  

Mutual funds

    490,748       -       -  
                         

Total

  $ 5,216,218     $ 134,202     $ -  

 

The equity securities portfolio includes the following stocks:

 

AT&T shares

    82,112  

Manulife shares

    2,520  

Uniti shares

    815  

NCR shares

    774  

Teradata shares

    774  

Vodafone shares

    6,471  

CenturyLink shares

    4,398  

Frontier Communications shares

    300  

T-Mobile shares

    4,102  

Verizon shares

    31,904  

Windstream shares

    135  

 

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.     Leasing arrangements

 

As of September 27, 2020, the Company leases one bowling center.  The lease is classified as an operating lease in accordance with ASU 2016-02.  For the first quarter ended September 27, 2020, the Company recorded amortization of its right to use asset under the related lease of $40,275 which is included as a component of rent expense.  The related long-term lease liability at September 27, 2020 was $1,633,090. The current portion of the lease liability of $154,335 is included in other current liabilities on the accompanying condensed consolidated balance sheet. 

 

 

4.     Commitments and Contingencies

 

The Company’s purchase commitments at September 27, 2020, are for materials, supplies, services and equipment as part of the normal course of business.

 

7

 

 

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 postretirement plan.

 

 

5.     New Accounting Standards

 

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. The Company adopted this standard effective July 1, 2019. The result was the recognition of a right to use asset of $1,977,523 and a corresponding lease liability for the same amount.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. As part of the FASB's disclosure framework project, it has eliminated, amended and added disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy of timing of transfers between levels of the fair value hierarchy and the valuation processes for Level 3 fair value measurements. Public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU is effective for public entities for annual and interim periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of any interim or annual reporting period.  The Company adopted this standard for its March 2020 fiscal quarter. The impact of adopting the standard was not material.

 

 

6.     Reclassifications

 

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

 

8

 

 

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 keep locations open, governmental regulations to limit the spread of COVID-19 such as social distancing and enhanced safety measures, times of operation and reaction to increased cases of COVID-19. 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 of 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 state and federal governments, in an effort to mitigate the spread of COVID-19. The majority of bowling leagues chose to end their Spring 2020 season early as it became clear that a return to bowling would not be quick. Our three Florida locations reopened in May 2020, which provided the Company some revenue in the fourth quarter of fiscal 2020 while all other centers remained closed. All of our Virginia centers reopened in early July, one Maryland location opened July 22 and the last closed center was allowed to reopen on August 31, 2020 with a maximum of 50 customers at one time. Almost all locations are currently required to operate at only 50% capacity. We implemented social distancing and enhanced cleaning procedures and all areas in which we operate continue to mandate 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 allowed us to offer league bowling. All center employees except the center manager were furloughed in March and the corporate staff was reduced to a minimum. Employees are returned to work as business requires and currently approximately 60% of pre-COVID employees have been returned to work. The Company maintained health insurance for all employees on the plan at the time of closure, paying the employee portion of premiums due for those furloughed.

 

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 business, however it is difficult to determine with much accuracy what the longer term impact could be. Our fall league bowling season has begun better than expected in spite of the limitations, but we have been able to be creative in making maximum use of space while following social distancing requirements. However, revenues from parties and corporate events are currently non-existent.

 

Management believes the effects of the pandemic will continue to have an adverse effect on our revenues, financial condition and operating results for fiscal 2021 and potentially, some time after.

 

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 historically had 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 common stocks in our portfolio have come from spin-offs, mergers and acquisitions of AT&T and United Telecommunications (now T-Mobile) purchased in 1979 and 1984 and one insurance company acquired at no cost when the company demutualized. While 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 $5,500,000 in dividends, the majority of which were tax favored in the form of exclusion from federal taxable income. These marketable securities are carried at their fair value on the last day of each reporting period. The value of the securities on September 27, 2020 was approximately $4.9 million. The value of securities held at June 28, 2020 was approximately $4.7 million.

 

9

 

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 and have been used as a source of cash when needed.. The fund is carried at fair value on the last day of the reporting period. At September 27, 2020, the value was approximately $490,000. In August 2019 approximately $1,000,000 of the fund was redeemed to meet the August 2019 dividend payment.

 

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 second quarter of fiscal 2021. Any amount not forgiven will be due at maturity. Any expenses paid with the loan and forgiven will not be deductible for federal tax purposes.

 

Short-term investments including any Certificates of Deposits, Treasury Bills and cash and cash equivalents totaled $1,254,714 at September 27, 2020 compared to $1,793,466 at June 28, 2020.

 

The Company’s position in all the above investments is a source of liquidity during downturns in business and in other times can serve as 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 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.

 

During the three-month period ended September 27, 2020, the Company expended approximately $25,000 for the purchase of building, entertainment and restaurant equipment. The Company has no current plans to obtain additional third party funding for any equipment purchases as cash and cash flows are currently sufficient to finance all contemplated purchases and to meet short-term purchase commitments and operating lease commitments.

 

The first quarter decreases in the categories of Prepaid expenses and other and of Accounts Payable were attributable primarily to the timing of the 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 bowling 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 September 27, 2020, league deposits of approximately $402,000 were included in the current liabilities category.

 

Cash used in operating activities in the thirteen weeks ended September 27, 2020 was approximately $514,000. Cash flow and cash on hand were sufficient to meet day-to-day cash needs. In March 2020, the Company suspended quarterly dividends following the required shutdown of the 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 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 vulnerable to sequestration or other downsizing of the federal government.

 

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RESULTS OF OPERATIONS

 

All seventeen of the Company’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 late May 2020. Thirteen of the remaining 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 quarter. While the bowling business is seasonal and the first or “summer” quarter is typically the slowest, 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 state of the COVID-19 pandemic.

 

For the thirteen week period ended September 27, 2020, net loss was $737,723 or $.14 per share and for the period ended September 29, 2019, net earnings were $285,325 or $.06 per share.

 

The following table sets forth the items in our consolidated summary of operations for the fiscal quarters ended September 27, 2020, and September 29, 2019, and the dollar and percentage changes therein.

 

   

Thirteen weeks ended

 
   

September 27, 2020 and September 29, 2019

 
   

Dollars in thousands

 
   

2020

   

2019

   

Change

   

% Change

 

Operating Revenues:

                               

Bowling and other

  $ 1,167     $ 3,610     $ (2,443

)

    (67.7

)

Food, beverage and merchandise sales

    469       1,515       (1,046

)

    (69.0

)

      1,636       5,125       (3,489

)

    (68.1

)

Operating Expenses:

                               

Employee Compensation and benefits

    1,319       2,736       (1,417

)

    (51.8

)

Cost of bowling and other services

    944       1,602       (658

)

    (41.1

)

Cost of food, beverage and merchandise sales

    147       444       (297

)

    (66.9

)

Depreciation and amortization

    248       235       13       5.5  

General and administrative

    158       268       (110

)

    (41.0

)

      2,816       5,285       (2,469

)

    (46.7

)

                                 

Operating (loss) income

    (1,180

)

    (160

)

    (1,020

)

    (637.5

)

                                 

Interest, dividend and other income

    90       106       (16

)

    (15.1

)

Change in market value of marketable securities

    126       429       (303

)

    (70.6

)

PPP Loan interest expense

    5       -       5       100.0  

(Loss) earnings before income taxes

    (969

)

    375       (1,344

)

    (358.4

)

Income taxes

    (231

)

    90       (321

)

    (356.7

)

Net Earnings

  $ (738

)

  $ 285     $ (1,023

)

    (359.0

)

 

Operating Revenues

 

Total operating revenues decreased 68.1% or $3,489,000 to $1,636,000 in the thirteen-week period ended September 27, 2020, compared to a decrease of 5.8% or $316,000 to $5,125,000 in the three-month period ended September 29, 2019.  Bowling and other revenue decreased $2,443,000 or 67.7% in the current year fiscal quarter compared to a decrease of $223,000 or 5.8% in the comparable prior year quarter. Food, beverage and merchandise sales were down $1,046,000 or 69.0% in the current year quarter compared to a decrease of $93,000 or 5.8% in the prior year comparable quarter.  Cost of sales decreased $297,000 or 66.9% in the current year three-month period.

 

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Operating Expenses

 

Operating expenses decreased $2,469,000 or 46.7% to $2,816,000 in the three-month period ended September 27, 2020 compared to an increase of $84,000 or 1.6% to $5,285,000 in the prior year quarter ended September 29, 2019.  Employee compensation and benefits were down $1,417,000 or 51.8% and down $5,000 or 0.2% in the fiscal first quarters of 2021 and 2020, respectively. 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 $658,000 or 41.1% in the quarter ended September 27, 2020 versus an increase of $65,000 or 4.2% in the comparable quarter ended September 29, 2019. Maintenance and repair costs decreased $100,000 or 45.2% versus an increase of $15,000 or 7.5% in the current year and prior year quarters, respectively. Both the current and prior year periods included roof repairs and changeover to LED lightening in parking lots at several locations. Advertising costs decreased $51,000 or 60.8% in the quarter ended September 27, 2020.  Utility costs were down $130,000 or 34.5% in the current period and were flat in the prior year quarter. Supplies and services expenses in the current year period declined $129,000 or 67.2% as locations had supplies on hand prior to the March 2020 shutdown. The same category was up $26,000 or 15.8% in part related to closing costs at Manassas in the prior year quarter. Bank and credit card processing fees were down $137,000 as a result of lower traffic. Food and beverage supplies expense declined $54,000 or 27.7% in the quarter ended September 27, 2020.

 

Depreciation and amortization expense increased $13,000 or 5.5% period ended September 27, 2020 due to increased capital purchases in the prior year.

 

The quarter ended September 27, 2020 resulted in a net operating loss of $1,180,000. Operating loss was $160,000 in the prior year period which includes approximately $104,000 in one-time expenses related to the closing of the Manassas location.

 

Interest, Dividend and Other Income

 

Interest, dividend and other income decreased $16,000 to $90,000 in the three month period ended September 27, 2020.

 

Income Taxes

 

The loss for the quarter ended September 27, 2020, resulted in a tax benefit of approximately $231,000.

 

 

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 her evaluation of such controls and procedures as of September 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 September 27, 2020, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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BOWL AMERICA INCORPORATED AND SUBSIDIARIES

S.E.C. FORM 10-Q

 

PART II - OTHER INFORMATION

 

Item 6.     Exhibits.

 

20

Press release issued November 10, 2020 (furnished herewith)

  

  

31

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act filed herewith

  

  

32

Written Statement of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350 filed herewith

 

 

101

Interactive data files for the thirteen weeks ended September 27, 2020 in eXtensible Business Reporting Language

 

 

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.

 

  

Bowl America Incorporated

  

(Registrant)

  

  

  

  

Date: November 10, 2020

By:  /s/ Cheryl A. Dragoo

  

Cheryl A. Dragoo, CEO and CFO

 

13