10-K/A 1 bwl-a20181012_10ka.htm FORM 10-K/A bwl-a20180701_10k.htm
 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

Amendment No. 1

 

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended July 1, 2018                        Commission file Number 1-7829

 

BOWL AMERICA INCORPORATED

(Exact name of registrant as specified in its charter.)

 

MARYLAND

(State of Incorporation)

54-0646173

(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 Class Name of Exchange on which registered
   
Class A Common stock (par value $.10) NYSE American

                                                                          

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ ] NO [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES[ ] NO [X]

 

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 (Section 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K, (Section 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [X]

 

 

 

 

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 in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer [ ]                                   Accelerated Filer [ ]

Non-accelerated Filer [ ]                   Smaller reporting company [X]                   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 checkmark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). YES [ ] NO [X]

 

As of December 29, 2017, the last business day of the registrant's most recently completed second quarter, 3,746,454 Class A common shares were outstanding, and the aggregate market value of such shares (based upon the closing price of $15.00 per share as reported on the NYSE American) held by non-affiliates of the registrant was approximately $29 million. As of that date, 1,414,517 Class B common shares were outstanding. Class B common shareholders have the right to convert their Class B common stock to Class A common stock on a share for share basis. If all of the Class B shares were converted to Class A shares as of December 29, 2017, the total aggregate market value for both classes of common stock held by non-affiliates would be approximately $31 million.

 

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

 

   

Shares outstanding at

September 15, 2018

 
Class A Common Stock        

$.10 par value

    3,746,454  
Class B Common Stock        

$.10 par value

    1,414,517  

 

 

 

 

DOCUMENTS INCORPORATED BY REFERENCE

 

     Portions of registrant's definitive proxy statement, which will be filed with the Commission not later than 120 days after July 1, 2018, are incorporated by reference into Part III of this Form 10-K.  The Selected Financial Data (Item 6), Management’s Discussion & Analysis (Item 7), Financial Statements (Item 8) and Management’s Annual Report on Internal Control Over Financial Reporting (Item 9A) attached to this filing as exhibits are incorporated herein by reference.

 

 

 

 

EXPLANATORY NOTE

 

     This Amendment No. 1 to the Form 10-K of Bowl America Incorporated, for the year ended July 1, 2018, as filed with the Securities and Exchange Commission on September 27, 2018 (the “Original Filing”) is being filed solely to correct scrivener's errors in the Original Filing with respect to (i) the Earnings from continuing operations for the year ended July 1, 2018 on page 14, (ii) the Balance of Class A shares for the year ended July 3, 2016 on page 18 and (iii) the Balance of Additional Paid-In Capital for the year ended July 2, 2017 on page 18.  Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and the rules of the SEC, we are also including new certifications by our Chief Executive Officer and Chief Financial Officer (as Exhibits 31.1, 31.2 and 32)..

 

     Except as described above, no other changes have been made to the Original Filing, and this amendment does not otherwise amend, update or change the financial statements or other disclosures in the Original Filing.  This Amendment No. 1 to Form 10-K does not reflect any event occurring after the filing of the Original Filing.

 

 

 

 

 

BOWL AMERICA INCORPORATED

INDEX TO FISCAL 2018 10-K FILING

 

      Page
   

PART I

 

   

 

 

ITEM 1.

Business

 

  (a)

General Development of Business

1

  (b)

Financial Information about Industry Segments

1

  (c)

Narrative Description of Business

1

  (d)

Financial Information about Geographic Areas

1

   

 

 

ITEM 1A.

Risk Factors

1

   

 

 

ITEM 2.

Properties

2

   

 

 

ITEM 3.

Legal Proceedings

2

   

 

 

ITEM 4.

Mine Safety Disclosures

2

   

 

 

PART II

   

 

 

ITEM 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

2

   

 

 

ITEM 6.

Selected Financial Data

3

   

 

 

ITEM 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

3

   

 

 

ITEM 8.

Financial Statements and Supplementary Data

3

   

 

 

ITEM 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

3

   

 

 

ITEM 9A

Controls and Procedures

3

       

PART III

   

 

 

ITEM 10.

Directors, Executive Officers and Corporate Governance

4

   

 

 

ITEM 11.

Executive Compensation

4

   

 

 

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

4

   

 

 

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

4

   

 

 

ITEM 14.

Principal Accountant Fees and Services

4

   

 

 

PART IV

   

 

 

ITEM 15.

Exhibits and Financial Statement Schedules

 

  (a)

Financial Statements

5

  (b)

Exhibits

5

     
Signatures

 

6-7

 

 

 

 

 

PART I

 

ITEM 1. BUSINESS

 

(a) General Development of Business

Bowl America Incorporated (herein referred to as the “Company”) was incorporated in 1958. The Company commenced business with one bowling center in 1958, and at the end of fiscal year 2018, the Company and its wholly-owned subsidiaries operated 18 bowling centers.

 

(b) Financial Information about Industry Segments

The Company operates in one segment. Its principal source of revenue consists of fees charged for the use of bowling lanes and other facilities and from the sale of food and beverages for consumption on the premises. At the end of the fiscal year 2018, the Company had operating revenues from continuing operations of approximately $24.8 million, and approximately $29 million in total assets. Merchandise sales, including food and beverages, were approximately 29% of operating revenues. The balance of operating revenues (approximately 71%) represents fees for bowling and related services. Earnings per share for fiscal 2018 were $0.73.

 

(c) Narrative Description of Business

As of September 1, 2018 the Company operated 10 bowling centers in the greater metropolitan area of Washington, D.C., one bowling center in the greater metropolitan area of Baltimore, Maryland, three bowling centers in the greater metropolitan area of Jacksonville, Florida, and four bowling centers in the greater metropolitan area of Richmond, Virginia. These 18 bowling centers contain a total of 726 lanes.

 

These establishments are fully air-conditioned with facilities for service of food and beverages, game rooms, rental lockers, and meeting room facilities. All centers provide shoes for rent, and bowling balls are provided free. In addition, each center sells retail bowling accessories. Most locations are equipped for glow-in-the-dark bowling, popular for parties and non-league bowling. The Company outsourced the operation of its amusement games to a third party for a one year term at a flat annual fee.

 

The bowling equipment essential for the Company's operation is readily available. The Company’s major source of equipment is Brunswick Corporation.

 

The bowling business is a seasonal one, and most of the business takes place from October through May. It is highly competitive, but the Company has managed to maintain its position in the markets in which it operates. The principal method of competition is the quality of service furnished to the Company's customers. Its primary competitor is Bowlero Corporation (formerly Bowlmor AMF) and many of our centers face competition from bowling centers located in close proximity to our centers.         

 

Compliance with federal, state and local environmental protection laws has not materially affected the Company.

 

The number of persons employed by the Company and its subsidiaries is approximately 500 including approximately 250 full time employees.

 

(d) Financial Information about Geographic Areas

 

The Company has no foreign operations.

 

ITEM 1A. RISK FACTORS

 

Not required for smaller reporting companies

 

-1-

 

 

ITEM 2. PROPERTIES

 

The Company owns its general corporate offices which are located at 6446 Edsall Road, Alexandria, Virginia 22312. Two of the Company's bowling centers are located in leased premises, and the remaining sixteen centers are owned by the Company. Each of the Company's leases expire in fiscal 2020. The specific locations of the bowling centers are discussed under Item 1(c).

 

ITEM 3. LEGAL PROCEEDINGS

 

There are no material pending legal proceedings other than ordinary routine litigation incidental to the business.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

PART II

 

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

The principal market on which the Company's Class A Common Stock is traded is the NYSE American. The Company's Class B Common Stock is not listed on any exchange and is not publicly traded. Each share of Class B Common Stock can be converted to one share of Class A Common Stock at any time.

  

The table below presents the high and low sales price of the Company's Class A Common Stock in each quarter of fiscal years 2018 and 2017 as reported by the NYSE American.

 

2018

 

1st Qtr

   

2nd Qtr

   

3rd Qtr

   

4th Qtr

 
                                 

High

  $ 14.74     $ 15.30     $ 16.64     $ 16.05  

Low

  $ 13.43     $ 14.25     $ 14.50     $ 14.50  

 

2017

 

1st Qtr

   

2nd Qtr

   

3rd Qtr

   

4th Qtr

 
                                 

High

  $ 15.04     $ 17.25     $ 16.79     $ 14.74  

Low

  $ 14.11     $ 14.09     $ 14.15     $ 14.17  

 

Holders

As of July 1, 2018, the approximate number of holders of record of the Company's Class A Common Stock was 263 and of the Company's Class B Common Stock was 18.

 

Cash Dividends

The table below presents the quarterly cash dividends per share of Class A Common Stock and Class B Common Stock paid, and the quarter in which the payment was made during fiscal 2018 and 2017.

 

Class A and Class B Common Stock

Quarter

2018

2017

     

First

17 cents

17 cents

Second

17 cents

17 cents

Third

17 cents

17 cents

Fourth

17 cents

17 cents

 

The Board of Directors decides the amount and timing of any dividend at its quarterly meetings based on its appraisal of the state of the business, the economic climate and estimate of future opportunities at such time.

 

-2-

 

 

ITEM 6. SELECTED FINANCIAL DATA

 

The information is set forth in the section of Exhibit 99(a) entitled "Selected Financial Data" on page 14 of this Form 10-K and is incorporated herein by reference. Such information should be read in conjunction with the audited financial statements.

 

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The information is set forth in the section of Exhibit 99(b) entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on Pages 9 through 13 of this Form 10-K and is incorporated herein by reference.

 

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements and notes thereto are set forth in Exhibit 99(c) on pages 16 through 27 of this Form 10-K and is incorporated herein by reference.

Supplementary data is not required.

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None   

 

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

The Company's disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by it in its periodic reports filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Based on an evaluation of the Company’s disclosure controls and procedures conducted by the Company’s Chief Executive Officer and Chief Financial Officer, such officers concluded that the Company's disclosure controls and procedures were effective as of July 1, 2018. Additionally, the Company’s officers concluded that the Company’s disclosure controls and procedures were effective as of July 1, 2018 to ensure that information required to be disclosed in the reports filed under the Exchange Act was accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

 

Internal Control over Financial Reporting

 

(a) Management’s Annual Report on Internal Control Over Financial Reporting

 

In accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 and Item 308(a) of Regulation S-K, the report of management on the Company’s internal control over financial reporting is set forth in Exhibit 99(d) in this Annual Report on Form 10-K and is included herein by reference.

 

(b) Changes in Internal Control Over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting that occurred during the fourth quarter ended July 1, 2018 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

-3-

 

 

PART III

 

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item regarding directors and executive officers is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

 

ITEM 11. EXECUTIVE COMPENSATION

 

Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

 

-4-

 

 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

(a)

Financial Statements

The following consolidated financial statements of Bowl America Incorporated and its subsidiaries are incorporated by reference in Part II, Item 8:

 

Reports of Independent Registered Public Accounting Firms

 

Consolidated balance sheets as of July 1, 2018 and July 2, 2017

 

Consolidated statements of earnings and comprehensive earnings - years ended July 1, 2018 and July 2, 2017

 

Consolidated statements of stockholders' equity - years ended July 1, 2018 and July 2, 2017

 

Consolidated statements of cash flows - years ended July 1, 2018 and July 2, 2017

 

Notes to the consolidated financial statements - years ended July 1, 2018 and July 2, 2017

 

 

(b)

Exhibits:

3.1   Articles of Incorporation of the Registrant and amendments through December 1994 thereto (incorporated by reference to Exhibit 3.1 to Form 10-K filed September 28, 2017)

 

3.2   By-laws of the Registrant (incorporated by reference to Exhibit 3.2 to Form 10-K filed September 28, 2017)

  

10.1   Amended Employment Agreement, dated as of December 5, 2017, between the Company and Leslie H. Goldberg (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 6, 2017).

 

10.2   Amended Employment Agreement, dated as of June 22, 2015, between the Company and Cheryl A. Dragoo (incorporated by reference to Exhibit 10.2 to Form 8-K filed on June 22, 2015).

 

20   Press release dated September 27, 2018

 

21   Subsidiaries of registrant (Incorporated by reference from exhibit number 21 to the Registrant's Annual Report on Form 10-K for fiscal year ended June 30, 2002.)

 

31.1 Written statement of Chief Executive Officer (Rule 13a-14a Certification)

31.2 Written statement of Chief Financial Officer (Rule 13a-14a Certification)

32 Written statement of Chief Executive and Chief Financial Officers (Section 1350 Certifications)

              

99(a) Selected Financial Data (Item 6), set forth as page 14 hereof

 

99(b) Management’s Discussion & Analysis of Financial Condition and Results of Operations (Item 7), set forth as pages 9-13 hereof

 

99(c) Consolidated Financial Statements (Item 8), set forth as pages 16-27 hereof

 

99(d) Management’s Annual Report on Internal Control Over Financial Reporting, (Item 9-A) set forth as page 8 hereof

 

101 Interactive files formatted in XBRL (Extensible Business Reporting Language)

 

-5-

 

 

BOWL AMERICA INCORPORATED

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange 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

 

 

/s/ Leslie H. Goldberg

Leslie H. Goldberg

President

Chief Executive and Operating Officer

 

Date: October 15, 2018

 

 

/s/ Cheryl A. Dragoo

Cheryl A. Dragoo

Chief Financial Officer,

Senior Vice President

Principal Financial and Accounting Officer

 

Date: October 15, 2018

 

-6-

 

 

SIGNATURES

 

         Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and the dates indicated.

 

Name, Title, Capacity

 

 

/s/ Leslie H. Goldberg

Leslie H. Goldberg

President, Principal Executive

& Operating Officer and Director

 

Date: October 15, 2018

 

 

 

/s/ Ruth Macklin

Ruth Macklin

Senior Vice President, Secretary,

Treasurer and Director

/s/ Cheryl A. Dragoo

Cheryl A Dragoo

Senior Vice President, Principal Financial

& Accounting Officer and Director

   
Date: October 15, 2018 Date: October 15, 2018
   
   
   

/s/ Allan L. Sher

Allan L. Sher

Director

/s/ Merle Fabian

Merle Fabian

Director

   
Date: October 15, 2018 Date: October 15, 2018
   
   
   

/s/ Arthur H. Bill

Arthur H. Bill

Director

/s/ Nancy Hull

Nancy E. Hull

Director

   
Date: October 15, 2018 Date: October 15, 2018

 

-7-

 

 

Exhibit 99(d) Management’s Annual Report on Internal Control Over Financial Reporting

 

Management’s Annual Report on Internal Control Over Financial Reporting

 

The following sets forth, in accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 and Item 308(a) of Regulation S-K, the annual report of management of the Company on the Company’s internal control over financial reporting.

 

1. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting in a process designed by, or under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

 

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

 

 

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

2. Management of the Company, in accordance with Rule 13a-15(d) under the Securities Exchange Act of 1934 and with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of July 1, 2018. The framework on which management’s evaluation of the Company’s internal control over financial reporting is based is the “Internal Control-Integrated Framework” published in 2013 by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission.

 

3. Management has determined that the Company’s internal control over financial reporting, as of July 1, 2018, was effective. No material weaknesses in the Company’s internal control over financial reporting were identified by management. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

4. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to a permanent exemption for non-accelerated filers from the internal control audit requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.

 

-8-

 

 

Exhibit 99(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K 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.

 

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.

 

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 during downturns in business, to capitalize on opportunities for expansion and modernization, to provide a secure source of income and to provide a predictable return to its owners. For these reasons, the Company prefers a conservative approach to investing rather than taking greater risk for possible rapid growth. The Company balances market volatility by using both fixed income and equity investments in managing its reserve funds. Any equity security is subject to price fluctuation; however, the stocks held by the Company have relatively low volatility. The Company has long been invested in a Government National Mortgage Association (“GNMA”) fund and domestically domiciled stocks, primarily telecommunications stocks, with the perceived potential of appreciation. This diversity also provides a measure of safety of principal.

 

With the exception of an additional 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 $5,000,000 in dividends, the majority of which were tax favored in the form of a partial exclusion from federal taxable income. While the exclusion continues into the current year, the Tax Cuts and Jobs Act (“Tax Act”) reduces the percent excludable. These marketable securities are carried at their fair value on the last day of each reporting period. The fair value of the securities on July 1, 2018 was approximately $4,817,000 and the value of securities held at July 2, 2017 was approximately $5,272,000.

 

-9-

 

 

The Company’s original investment in the Vanguard GNMA mutual fund began in 1988 with purchases of shares in the fund totaling approximately $1,400,000. The fund is carried at fair value on the last day of the reporting period and at July 1, 2018 the fair value was approximately $1,825,000. In August 2017, approximately $1,000,000 of shares of this fund were redeemed to meet the August 2017 dividend payment.

 

Short-term investments at the end of fiscal 2018, including the GNMA mutual fund, Certificates of Deposits, US Treasury bills, and cash and cash equivalents totaled $3,166,000 at the end of fiscal 2018. Short-term investments consisting of the GMNA fund, Certificates of Deposits, and cash and cash equivalents totaled $3,556,000 at the end of fiscal 2017.

 

The Company's position in all the above investments is a source of expansion capital. 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 regularly and any use of this reserve at its quarterly meetings.

 

Cash flow provided by operating activities for the year ended July 1, 2018, was $3,999,000. Proceeds from GNMA dividends totaling approximately $56,000 in fiscal year 2018 were used to purchase additional shares in the fund. Cash on hand and the partial redemption of the GNMA fund, mentioned above, were used to meet the $3,509,000 required to pay regular dividends during the fiscal year.

 

The Company paid cash dividends totaling approximately $3.5 million, or $.68 per share, to shareholders during the 2018 fiscal year. In June 2018, the Company declared a quarterly $.17 per share dividend, paid in August 2018. The economic climate is part of the consideration at the Directors quarterly reviews of future estimates of cash flows. The Board of Directors decides the amount and timing of any dividend at its quarterly meeting based on its appraisal of the state of the business and estimate of opportunities at such time.

 

Building, entertainment and restaurant equipment purchases during fiscal year 2018 used approximately $787,000. The Company has no long-term debt and has made no application for third party funding as cash and cash flows are currently sufficient to finance all contemplated purchases and to meet short-term purchase commitments and operating lease commitments.

 

RESULTS OF OPERATIONS

 

The following table sets forth the items in our consolidated summary of operations for the fiscal fourth quarters ended July 1, 2018 and July 2, 2017, respectively, and the dollar and percentage changes therein.

 

   

Thirteen weeks ended July 1, 2018 and July 2, 2017

 
                                 
   

Dollars in thousands

 
   

2018

   

2017

   

Change

   

% Change

 

Operating Revenues:

                               

Bowling and other

  $ 3,830     $ 3,633     $ 197       5.4

%

Food, beverage & merchandise sales

    1,682       1,510       172       11.4  
      5,512       5,143       369       7.2  

Operating Expenses:

                               

Compensation & benefits

    2,685       2,617       68       2.6  

Cost of bowling & other

    1,366       1,380       (14

)

    (1.0 )

Cost of food, beverage & merchandise sales

    530       505       25       5.0  

Depreciation & amortization

    234       145       89       61.4  

General & administrative

    173       125       48       38.4  
      4,988       4,772       216       4.5  

Gain (loss) on disposal of assets

    (3

)

    44       (47

)

    (106.8 )

Operating income

    521       415       106       25.5  

Interest, dividend and other income

    95       97       (2

)

    (2.1 )

Earnings before taxes

    616       512       104       20.3  

Income taxes

    65       163       (98

)

    (60.1 )

Net Earnings

  $ 551     $ 349     $ 202       57.9  

 

-10-

 

 

The following table sets forth the items in our consolidated summary of operations for the 52 week fiscal years ended July 1, 2018 and July 2, 2017, respectively, and the dollar and percentage changes therein.

  

 

   

Fifty-two weeks ended July 1, 2018 and July 2, 2017

 
                                 
   

Dollars in thousands

 
   

2018

   

2017

   

Change

   

% Change

 

Operating Revenues:

                               

Bowling and other

  $ 17,486     $ 16,888     $ 598       3.5

%

Food, beverage & merchandise sales

    7,285       7,045       240       3.4  
      24,771       23,933       838       3.5  

Operating Expenses:

                               

Compensation & benefits

    10,891       10,818       73       .7  

Cost of bowling & other

    5,890       5,881       9       .2  

Cost of food, beverage & merchandise sales

    2,189       2,195       (6

)

    (.3 )

Depreciation & amortization

    946       974       (28

)

    (2.9 )

General & administrative

    836       803       33       4.1  
      20,752       20,671       81       .4  

(Loss) gain on disposal of assets

    (3

)

    78       (81

)

    (103.8 )

Operating income

    4,016       3,340       676       20.2  

Interest, dividend and other income

    387       412       (25

)

    (6.1 )

Interest expense

    -       6       (6

)

    (100.0 )

Earnings before taxes

    4,403       3,746       657       17.5  

Income taxes

    617       1,295       (678

)

    (52.4 )

Net Earnings

  $ 3,786     $ 2,451     $ 1,335       54.5  

 

 

Net Earnings were $551,260 or $.10 per share for the thirteen week period and $3,785,985 or $.73 per share for the fifty-two week period ended July 1, 2018. For the thirteen week and fifty-two week periods ended July 2, 2017 net earnings were $349,057 or $.07 per share and $2,451,110 or $.48 per share, respectively. Fiscals 2018 and 2017 each consisted of 52 weeks. Eighteen centers were in operation throughout both years. The fiscal 2017 comparisons to its prior year as noted below are influenced by the fact that fiscal year 2016 was a 53-week year.

 

Operating Revenues

 

Total operating revenue increased 3.5%, or $838,000, to $24.8 million in fiscal 2018 compared to a decrease of 0.7%, or $165,000, to $23.9 million in fiscal 2017. Bowling and other revenue increased $598,000 in fiscal 2018 versus an increase of $10,000 in fiscal 2017. Food, beverage and merchandise sales increased $240,000 and decreased $175,000 in fiscal 2018 and fiscal 2017, respectively.

 

Management believes that in fiscal 2018 open play revenue and food and beverage sales increased as our customers responded to a perceived healthier economy and weather conducive to indoor activities.

 

Operating Expenses

 

As discussed in more detail below, total operating expenses increased 0.4%, or $81,000, in fiscal year 2018 versus a decrease of 2.6%, or $556,000 in fiscal 2017. Costs for employee compensation and benefits were up 0.7% or $73,000 in fiscal 2018 versus a decrease of 2.3% or $253,000 in fiscal 2017. Group health insurance costs declined primarily due to plan offerings and lower enrollment. This category includes contributions to our two benefit plans, both of which are defined contribution plans. The contributions can only be made from profits and there is no additional obligation beyond the current year contribution.

 

-11-

 

 

Cost of bowling and other services increased $9,000 or 0.2% in the year ended July 1, 2018 and decreased $66,000 or 1.1% in the prior fiscal year. Maintenance expense increased $17,000 or 1.9% in fiscal 2018 primarily due to roof repairs and interior upgrades, versus a decrease of $37,000 or 4.1% in fiscal 2017. Utility costs were up 2.6% and 0.7% in the current and prior years, respectively. The current year increase was primarily the result of increased gas usage in the unusually cold winter months Supplies expense decreased 9.7% in fiscal 2018 versus a decrease of 3.4% in fiscal 2017. The current year decrease is primarily attributable to the decrease in amusement game supplies as the Company outsourced its amusement game business. Advertising costs were down 2.6% in the current year and were flat in the fiscal year 2017.

 

Cost of food, beverage and merchandise sales decreased $6,000 or 0.3% in fiscal 2018, the result of better inventory control.

 

Depreciation expenses decreased approximately $28,000 or 2.9% in fiscal 2018 versus a decrease of approximately $179,000 or 15.5% in the prior year as large assets became fully depreciated.

 

Operating income increased 20.2% or $676,000 to $4.0 million in fiscal year 2018 from $3.3 million in fiscal 2017.

 

Interest, Dividend and Other Income

 

Interest and dividend income decreased $25,000 or 6.1% in fiscal 2018 and $38,000 or 8.4% in the prior year.

 

Income taxes

 

In December 2017 the U.S. government enacted tax legislation which reduced the corporate tax rate from 34% to 21%. Per the provisions of the law, the Company, which operates on a fiscal calendar, calculated taxes using a blended rate. The effective income tax rate on continuing operations for the Company was 28.8% for fiscal 2018, although a one time required adjustment to the Company’s deferred tax account due to the Tax Act resulted in a 14% rate for fiscal 2018. The prior year effective rate was 34.4%.

 

Net Earnings

 

Net earnings from continuing operations in fiscal 2018 were $3.8 million, or $.73 per share, compared to $2.5 million, or $.48 per share in fiscal 2017.

 

-12-

 

 

CRITICAL ACCOUNTING POLICIES

 

We have identified accounting for marketable investment securities as a critical accounting policy due to the significance of the amounts included in our balance sheet. 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 based on quoted market prices with the unrealized gain or loss recorded in accumulated other comprehensive income, 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.

 

We have identified accounting for the impairment of long-lived assets as a critical accounting policy due to the significance of the amounts included in our 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 undiscounted future cash flows are less than the carrying amount. There were no impairment losses recorded in fiscal 2018 or 2017.

 

-13-

 

 

Exhibit 99(a) Selected Financial Data

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED SUMMARY OF OPERATIONS

 

 

Selected Financial Data

 

   

For the Years Ended

 
   

July 1,

   

July 2,

   

July 3,

   

June 28,

   

June 29,

 
   

2018

   

2017

   

2016

   

2015

   

2014

 

Operating revenues

  $ 24,770,884     $ 23,932,504     $ 24,097,862     $ 23,124,541     $ 22,780,017  

Operating expenses

    20,751,639       20,670,929       21,226,560       21,214,632       21,581,531  

(Loss) gain on disposal of land, building and Equipment

    (3,306

)

    77,972       (10,035

)

    (3,854

)

    8,820  

Interest, dividend and other income

    387,531       412,299       449,998       494,645       662,693  

Interest expense

    -       6,296       -       -       -  

Earnings from continuing operations before provision for income taxes

    4,403,470       3,745,550       3,311,265       2,400,700       1,869,999  

Provision for income taxes

    617,485       1,294,440       1,160,240       760,471       496,831  

Earnings from continuing operations

  $ 3,785,985     $ 2,451,110     $ 2,151,025     $ 1,640,229     $ 1,373,168  

(Loss) gain from discontinued operations - net of tax

    -       -       -       -       (2,774

)

Net Earnings

  $ 3,785,985     $ 2,451,110     $ 2,151,025     $ 1,640,229     $ 1,370,394  
                                         

Weighted average shares outstanding- Basic & Diluted

    5,160,971       5,160,971       5,160,971       5,160,971       5,160,971  
                                         

Earnings per share-Basic & diluted

                                       

Continuing operations

  $ .73     $ .48     $ .42     $ .32     $ .27  

Discontinued operations

    .00       .00       .00       .00       .00  

Net earnings per share-Basic & diluted

  $ .73     $ .48     $ .42     $ .32     $ .27  
                                         

Net cash provided by operating activities

  $ 3,999,109     $ 3,128,551     $ 3,441,813     $ 3,052,817     $ 2,053,510  
                                         

Cash dividends paid

  $ 3,509,460     $ 3,509,460     $ 3,509,461     $ 3,509,460     $ 3,406,243  

Cash dividends paid Per share - Class A

  $ 0.68     $ 0.68     $ 0.68     $ 0.68     $ 0.66  

  - Class B

  $ 0.68     $ 0.68     $ 0.68     $ 0.68     $ 0.66  
                                         

Total assets

  $ 28,909,126     $ 29,618,151     $ 31,851,135     $ 32,062,409     $ 34,363,780  
                                         

Stockholders' equity

  $ 24,483,675     $ 24,586,393     $ 26,149,342     $ 26,974,079     $ 28,978,731  
                                         

Net book value per share

  $ 4.74     $ 4.76     $ 5.07     $ 5.23     $ 5.61  
                                         

Net earnings as a % of beginning stockholders' equity

    15.4

%

    9.4

%

    8.0

%

    5.7

%

    4.4

%

                                         

Lanes in operation

    726       726       726       726       726  

Centers in operation

    18       18       18       18       18  

 

-14-

 

 

 

1395 Piccard Drive, Suite 240

Rockville, Maryland 20850

Phone 301.337.3305

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of Bowl America Incorporated

 

Opinion on the Financial Statements

 

We have audited the accompanying Consolidated Balance Sheets of Bowl America Incorporated and Subsidiaries (the Company) as of July 1, 2018 and July 2, 2017, and the related Consolidated Statements of Earnings and Comprehensive Earnings, Stockholders’ Equity and Cash Flows for the years ended July 1, 2018 and July 2, 2017, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of July 1, 2018 and July 2, 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended July 1, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

 

We have served as the Company’s auditor since 2014.

 

/s/ MN Blum LLC

 

MN Blum, LLC

Rockville, Maryland

September 27, 2018

 

-15-

 

 

Exhibit 99(c) Consolidated Financial Statements

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 
   

As of

 
   

July 1,

   

July 2,

 
   

2018

   

2017

 

ASSETS

 

CURRENT ASSETS:

               

Cash and cash equivalents (Note 2)

  $ 1,008,433     $ 604,671  

Short-term investments (Note 3)

    2,157,875       2,951,315  

Inventories

    490,456       534,741  

Prepaid expenses and other

    760,561       555,687  

Income taxes refundable

    192,298       -  

TOTAL CURRENT ASSETS

    4,609,623       4,646,414  

LAND, BUILDINGS & EQUIPMENT, net (Note 4)

    18,698,651       18,860,778  

OTHER ASSETS:

               

Marketable investment securities (Note 3)

    4,816,804       5,272,318  

Cash surrender value-life insurance

    717,733       772,326  

Other

    66,315       66,315  

TOTAL OTHER ASSETS

    5,600,852       6,110,959  

TOTAL ASSETS

  $ 28,909,126     $ 29,618,151  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

CURRENT LIABILITIES:

               

Accounts payable

  $ 806,487     $ 673,786  

Accrued expenses

    1,107,226       1,069,668  

Dividends payable

    877,365       877,365  

Income taxes payable

    -       22,543  

Other current liabilities

    305,236       342,324  

TOTAL CURRENT LIABILITIES

    3,096,314       2,985,686  

LONG-TERM DEFERRED COMPENSATION

    17,440       18,413  

DEFERRED INCOME TAXES (Note 7)

    1,311,697       2,027,659  

TOTAL LIABILITIES

    4,425,451       5,031,758  
                 

COMMITMENTS AND CONTINGENCIES (Note 5)

               
                 

STOCKHOLDERS' EQUITY (Note 8)

               

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  

Accumulated other comprehensive earnings- Unrealized gain on available-for-sale

               

securities, net of tax

    2,102,745       2,481,988  

Retained earnings

    14,010,725       13,734,200  

TOTAL STOCKHOLDERS'EQUITY

    24,483,675       24,586,393  
                 

TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY

  $ 28,909,126     $ 29,618,151  

 

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

 

-16-

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

  CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS

   

 
    For the Years Ended  
   

July 1,

2018

   

July 2,

2017

 
Operating Revenues:                

Bowling and other

  $ 17,486,194     $ 16,887,857  

Food, beverage and merchandise sales

    7,284,690       7,044,647  

Total Operating Revenue

    24,770,884       23,932,504  
                 

Operating Expenses:

               

Employee compensation and benefits

    10,890,744       10,817,766  

Cost of bowling and other services

    5,890,052       5,881,168  

Cost of food, beverage and merchandise sales

    2,188,749       2,195,259  

Depreciation and amortization

    946,106       973,849  

General and administrative

    835,988       802,887  

Total Operating Expense

    20,751,639       20,670,929  

(Loss) gain on disposal of land, buildings and equipment

    (3,306

)

    77,972  

Operating Income

    4,015,939       3,339,547  

Interest, dividend and other income

    387,531       412,299  

Interest expense

    -       6,296  

Earnings before provision for income taxes

    4,403,470       3,745,550  

Provision for income taxes (Note 7)

               

Current

    1,197,410       1,368,326  

Deferred

    (579,925

)

    (73,886

)

Total Provision for Income Taxes

    617,485       1,294,440  

Net Earnings

  $ 3,785,985     $ 2,451,110  
                 

Earnings per share-basic & diluted

  $ .73     $ .48  
                 

Weighted average shares outstanding

    5,160,971       5,160,971  
                 

Dividends paid

  $ 3,509,460     $ 3,509,460  
                 

Per share, dividends paid, Class A

  $ 0.68     $ 0.68  
                 

Per share, dividends paid, Class B

  $ 0.68     $ 0.68  
                 

Net Earnings

  $ 3,785,985     $ 2,451,110  

Other comprehensive earnings- net of tax

               

Unrealized (loss) gain on available-for–sale securities net of tax (benefit) of ($135,137) and ($312,797)

    (375,723

)

    (508,218

)

Reclassification adjustment for (gain) loss included in Net Income, net of tax (benefit) of $2,167 and ($2,227)

    (3,520

)

    3,619  
                 

Comprehensive earnings

  $ 3,406,742     $ 1,946,511  

 

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

 

-17-

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

 

 
   

COMMON STOCK

           

Accumulated

         
   

Class A

Shares

   

Class A

Amount

   

Class B

Shares

   

Class B

Amount

   

Additional

Paid-In Capital

   

Other Comprehensive Earnings

   

Retained

Earnings

 

Balance, July 3, 2016

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ 2,986,587     $ 14,792,550  

Cash dividends paid

    -       -       -       -       -       -       (2,632,095

)

Accrued dividends declared June 27, 2017 payable August 15, 2017

    -       -       -       -       -       -       (877,365

)

Change in unrealized gain on available-for-sale securities (shown net of tax)

    -       -       -       -       -       (508,218

)

    -  

Reclassification adjustment for loss included in net income, net of tax

    -       -       -       -       -       3,619       -  

Net earnings for the year

    -       -       -       -       -       -       2,451,110  

Balance, July 2, 2017

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ 2,481,988     $ 13,734,200  

Cash dividends paid

    -       -       -       -       -       -       (2,632,095

)

Accrued dividends declared June 26, 2018, payable August 21, 2018

    -       -       -       -       -       -       (877,365

)

Change in unrealized gain on available-for-sale securities (shown net of tax)

    -       -       -       -       -       (375,723

)

    -  

Reclassification adjustment for loss included in net income, net of tax

    -       -       -       -       -       (3,520 )     -  

Net earnings for the year

    -       -       -       -       -       -       3,785,985  

Balance, July 1, 2018

    3,746,454     $ 374,645       1,414,517     $ 141,452     $ 7,854,108     $ 2,102,745     $ 14,010,725  

 

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

 

-18-

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 
   

For the Years Ended

 
   

July 1,

   

July 2,

 
   

2018

   

2017

 

Cash Flows From Operating Activities

               

Net earnings

  $ 3,785,985     $ 2,451,110  

Adjustments to reconcile net earnings to net cash provided by operating activities:

               

Depreciation and amortization

    946,106       973,849  

Increase (decrease) in deferred income tax

    68,814       (74,567

)

Reduction in deferred income tax from Tax Act

    (651,807

)

    -  

Loss (gain) on disposition of assets-net

    3,306       (77,972

)

(Gain) loss on sale of available-for-sale securities

    (8,531

)

    5,845  

Changes in assets and liabilities

               

Decrease in inventories

    44,285       26,476  

(Increase) decrease in prepaid and other

    (106,406

)

    108,692  

Increase in income taxes refundable

    (192,298

)

    -  

Increase in accounts payable

    132,701       13,075  

Increase (decrease) in accrued expenses

    37,558       (123,795

)

Decrease in income taxes payable

    (22,543

)

    (185,297

)

(Decrease) increase in other current liabilities

    (37,088

)

    16,342  

Decrease in long-term deferred compensation

    (973

)

    (5,207

)

                 

Net cash provided by operating activities

    3,999,109       3,128,551  
                 

Cash Flows From Investing Activities

               

Expenditures for land, building and equipment

    (787,285

)

    (326,398

)

Sale of assets

    -       93,599  

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

    (199,106

)

    350,635  

Purchases of marketable securities

    (55,621

)

    (86,284

)

Proceeds from sale of marketable securities

    1,000,000       -  

Increase in cash surrender value

    (43,875

)

    (32,165

)

                 

Net cash used in investing activities

    (85,887

)

    (613

)

                 

Cash Flows From Financing Activities

               

Payment of cash dividends

    (3,509,460

)

    (3,509,460

)

                 

Net cash used in financing activities

    (3,509,460

)

    (3,509,460

)

                 

Net Change in Cash and Equivalents

    403,762       (381,522

)

                 

Cash and Equivalents, Beginning of period

    604,671       986,193  
                 

Cash and Equivalents, End of period

  $ 1,008,433     $ 604,671  
                 

Supplemental Disclosures of Cash Flow Information

               

Cash Paid During the Period for:

               

Interest paid

    -       6,296  

Income taxes

  $ 1,411,000     $ 1,575,623  

                                    

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

 

-19-

 

 

BOWL AMERICA INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Organization

Bowl America Incorporated is engaged in the operation of 18 bowling centers, with food and beverage service in each center. Ten centers are located in metropolitan Washington D.C., one center in metropolitan Baltimore, Maryland, four centers in metropolitan Richmond, Virginia, and three centers in metropolitan Jacksonville, Florida. These 18 centers contain a total of 726 lanes. The Company operates in one segment.

 

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiary corporations. All significant inter-company items have been eliminated in the consolidated financial statements.

 

Fiscal Year

The Company's fiscal year ends on the Sunday nearest to June 30. Fiscal year 2018 ended July 1, 2018, and fiscal year 2017 ended July 2, 2017. Fiscal years 2018 and 2017 each consisted of 52 weeks.

 

Subsequent Events

The Company has evaluated subsequent events through the date of filing these financial statements with the Securities and Exchange Commission on September 27, 2018.

 

Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Significant estimates include depreciation expense, cash surrender value of officers' life insurance, the Federal and State income taxes (current and deferred), and market assumptions used in estimating the fair value of certain assets such as marketable securities and long-lived assets.

 

Revenue Recognition

The Company records revenue for fees charged for use of bowling lanes and other facilities at the time the services are provided. Food, beverage and merchandise sales are recorded as revenue at the time the product is given to the customer.

 

-20-

 

 

Depreciation and Amortization

Depreciation and amortization for financial statement purposes are calculated by use of the straight-line method. Amortization of leasehold improvements is calculated over the estimated useful life of the asset or term of the lease, whichever is shorter. The categories of property, plant, and equipment and the ranges of estimated useful lives on which depreciation and amortization rates are based are as follows:

 

            

Bowling lanes and equipment (years) 3 - 10
Building and building improvements (years) 10 - 39
Leasehold improvements (years) 5 - 15
Amusement games (years) 3 - 5

 

Maintenance and repairs and minor replacements are charged to expense when incurred. Major replacements and betterments are capitalized. The accounts are adjusted for the sale or other disposition of property, and the resulting gain or loss is credited or charged to income.

 

Impairment of Long-Lived Assets

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 undiscounted future cash flows are less than the carrying amount.

 

Dividends

It is the Company's policy to accrue a dividend liability at the time the dividends are declared.

 

Advertising Expense

It is the Company's policy to expense advertising expenditures as they are incurred. The Company's advertising expenses for the years ending July 1, 2018, and July 2, 2017, were $311,090 and $319,382, respectively.

 

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories consist of resale merchandise including food and beverage and bowling supplies.

 

Income Taxes

Deferred income tax liabilities and assets are based on the differences between the financial statement and tax bases of assets and liabilities, using tax rates currently in effect. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.

 

Investment Securities

All of the Company's readily marketable debt and equity securities are classified as available-for-sale. Accordingly, these securities are recorded at fair value with any unrealized gains and losses excluded from earnings and reported, net of deferred taxes, within a separate component of stockholders' equity until realized. Realized gains or losses on the sale of debt and equity securities are reported in earnings and determined using the adjusted cost of the specific security sold.

 

Earnings Per Share

Earnings per share basic and diluted, have been calculated using the weighted average number of shares of Class A and Class B common stock outstanding of 5,160,971, for both fiscal years 2018 and 2017

 

Comprehensive Earnings

A consolidated statement of comprehensive earnings reflecting the aggregation of net earnings and unrealized gain or loss on available-for-sale securities, the Company's principal components of other comprehensive earnings, has been presented for the years ended July 1, 2018 and July 2, 2017.

 

-21-

 

 

Cash and Cash Equivalents

For purposes of the consolidated statements of cash flows, the Company considers money market funds and certificates of deposits, with original maturities of three months or less to be cash equivalents. The Company maintains cash accounts which may exceed federally insured limits during the year, but does not believe that this results in any significant credit risk.

 

Other Current Liabilities

Other current liabilities include prize fund monies held by the Company for bowling leagues. The funds are returned to the leagues at the end of the league bowling season. At July 1, 2018 and July 2, 2017 other current liabilities included $296,774 and $334,272, respectively, in prize fund monies.

 

Reclassifications

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

 

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. The Company will implement the new standard in the first quarter of fiscal 2019. The result will be the reclassification of $2,102,745(after adoption of ASU 2018-02) from accumulated other comprehensive income to retained earnings. The Company is also reclassifying all of its marketable equity securities as current assets on consolidated balance sheet.

 

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 is in the process of evaluating the impact the adoption of this guidance will have on our consolidated financial statements and related disclosures.

 

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220), which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Act. The amount of the reclassification is calculated based on the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of the enactment of the Tax Act related to items that remained in accumulated other comprehensive income (loss) at that time. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018 and early adoption is permitted. The Company is not adopting this optional new standard.

 

-22-

 

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which creates a single, comprehensive revenue recognition model for all contracts with customers. Under this ASU and subsequently issued amendments, an entity should recognize revenue to reflect the transfer of promised goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods and services. ASU 2014-9 may be adopted either retrospectively or on a modified retrospective basis. The standard is effective for interim and annual reporting periods beginning after December 15, 2017. The FASB permits early adoption of the standard, but not before the original effective date of December 15, 2016. The Company will adopt the standard for its 2019 fiscal year and does not believe it will have a material impact on the Company’s results of operations or disclosures.

 

 

2. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consisted of the following:

                                                      

    July 1, 2018     July 2, 2017  
                 
Demand deposits and cash on hand   $ 543,932     $ 467,161  
Money market funds     464,501       137,510  
Cash and Cash Equivalents   $ 1,008,433     $ 604,671  

 

The account balances at times exceed federally insured limits. The Company does not believe this poses any significant risk.

 

 

3. INVESTMENTS

The Company’s marketable securities are categorized as available-for-sale securities. The cost for marketable securities was determined using the specific identification method. The fair values of marketable securities are based on the quoted market price for those securities. At July 1, 2018, short-term investments consisted of a mutual fund that invests in mortgage backed securities, certificates of deposits and U.S. Treasury bills with maturities of generally three months to one year. The fair value of short-term investments was $2,157,875. At July 2, 2017, short-term investments consist of a mutual fund that invests in mortgage backed securities and certificates of deposits with maturities of generally three months to one year, and the fair value of short-term investments was $2,951,315. Non-current investments at July 1, 2018 and July 2, 2017 are marketable securities which primarily consist of telecommunications stocks. Unrealized gains and losses are reported as a component of accumulated other comprehensive earnings in Stockholders’ Equity.

 

As of July 1, 2018, $39,450 in gross unrealized losses were from its investments in federal agency mortgage backed securities which had a fair value of $1,824,846. As of July 2, 2017, the Company had $17,248 of gross unrealized gains from its investments in federal agency mortgage backed securities owned through a mutual fund which had a fair value of $2,817,392. In August 2017 the Company redeemed $1,000,000 of this fund to meet the August 2017 dividend payment.

 

-23-

 

 

The Company’s investments were as follows:

 

   

Original

Cost

   

Unrealized

Gain

   

Unrealized

Loss

   

Fair

Value

 
July 1, 2018                                

Equity securities

  $ 1,279,914     $ 3,545,288     $ (8,398 )   $ 4,816,804  
                                 
Mutual fund     1,864,296       -       (39,450 )     1,824,846  
                                 
Certificates of deposits & Treasury bills     333,029       -       -       333,029  
                                 
                                 
July 2, 2017                                
Equity securities   $ 1,279,914     $ 3,996,702     $ (4,298 )   $ 5,272,318  
                                 
Mutual fund     2,800,144       17,248       -       2,817,392  
                                 
Certificates of deposits     133,922       -       -       133,922  

 

During fiscal 2018 and fiscal 2017, the Company had certain equity securities with cumulative unrealized losses of $8,398 and $4,298 respectively.

 

    Less than 12 months        12 Months or greater        Total     
July 1, 2018  

Fair

Value

   

Unrealized

loss

   

Fair

Value

   

Unrealized

loss

   

Fair

Value

   

Unrealized

loss

 
Equity securities   $ 711     $ (479 )   $ 1,608     $ (7,919 )   $ 2,319     $ (8,398 )

 

    Less than 12 months        12 Months or greater        Total     
July 2, 2017  

Fair

Value

   

Unrealized

loss

   

Fair

Value

   

Unrealized

loss

   

Fair

Value

   

Unrealized

loss

 
Equity securities   $ -     $ -     $ 5,229     $ (4,298 )   $ 5,299     $ (4,298 )

 

-24-

 

 

The equity securities portfolio includes the following stocks:

 

AT&T shares

    82,112  

Manulife shares

    2,520  

NCR shares

    774  

Teradata shares

    774  

Vodafone shares

    6,471  

CenturyLink shares

    4,398  

Frontier Communications shares

    300  

Sprint shares

    40,000  

Verizon shares

    31,904  

Windstream shares

    135  

Uniti shares

    815  

 

On May 25, 2018, Windstream completed a 1-for-5 reverse split reducing Bowl America’s holdings to 135 shares. On July 10, 2017 Frontier Communications completed a 1-for-15 reverse stock split reducing Bowl America’s holdings to 300 shares.

 

As stated in Note 1, the Company records its readily marketable debt and equity securities at fair value. These assets are valued in accordance with a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1. Observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

The fair value of these assets as of July 1, 2018 is as follows:

 

   

Quoted

   

Significant

           

Unrealized

   

Cumulative

 
   

Price for

   

Other

   

Significant

   

gains/(losses)

   

Unrealized

 
   

Identical

   

Observable

   

Unobservable

   

for the

   

gains/(losses)

 
   

Assets

   

Inputs

   

Inputs

   

Year Ended

   

as of

 

Description

 

(Level 1)

   

(Level 2)

   

(Level 3)

   

July 1, 2018

   

July 1, 2018

 
                                         

Equity securities

  $ 4,816,804     $ -     $ -     $ (455,514 )   $ 3,536,890  
                                         

Mutual fund

    1,824,846       -       -       (62,572 )     (39,450 )
                                         

Certificates of deposits

    -       333,029       -       -       -  

TOTAL

  $ 6,641,650     $ 333,029       -     $ (518,086 )   $ 3,497,440  

 

-25-

 

 

The fair value of these assets as of July 2, 2017 was as follows:

 

   

Quoted

   

Significant

           

Unrealized

   

Cumulative

 
   

Price for

   

Other

   

Significant

   

gains/(losses)

   

Unrealized

 
   

Identical

   

Observable

   

Unobservable

   

for the

   

gains/(losses)

 
   

Assets

   

Inputs

   

Inputs

   

Year Ended

   

as of

 

Description

 

(Level 1)

   

(Level 2)

   

(Level 3)

   

July 2, 2017

   

July 2, 2017

 
                                         

Equity securities

  $ 5,272,318     $ -     $ -     $ (729,508 )   $ 3,992,404  
                                         

Mutual fund

    2,817,392       -       -       (91,507 )     17,248  
                                         

Certificates of deposits

    -       133,922       -       -       -  

TOTAL

  $ 8,089,710     $ 133,922       -     $ (821,015 )   $ 4,009,652  

 

The fair value of certificates of deposits is estimated using net present value techniques and comparing the values to certificates with similar terms.

 

 

4. LAND, BUILDINGS, AND EQUIPMENT

Land, buildings, and equipment, at cost, consisted of the following:

   

July 1,

2018

   

July 2,

2017

 
Buildings   $ 18,666,152     $ 18,666,152  
Leasehold and building improvements     8,223,932       8,168,717  
Bowling lanes and equipment     22,490,960       22,418,775  
Land     10,510,308       10,510,308  
Amusement games     17,519       17,519  
Bowling lanes and equipment not yet in use     53,803       57,916  
Total Land, Buildings, and Equipment     59,962,674       59,839,387  
Less accumulated depreciation and amortization     41,264,023       40,978,609  
Land, Buildings, and Equipment, net   $ 18,698,651     $ 18,860,778  

 

Depreciation and amortization expense for buildings and equipment for fiscal years 2018 and 2017 was $946,106, and $973,849, respectively. The Company includes construction in progress costs in the bowling lanes and equipment not yet in use category until completion of the project. Bowling lanes

and equipment not yet in use are not depreciated.

 

 

5. COMMITMENTS AND CONTINGENCIES

 

Lease Commitments

The Company and its subsidiaries are obligated under long-term real estate lease agreements for two bowling centers. Certain of the Company's real estate leases provide for increases in real estate taxes.

 

At July 1, 2018, the minimum fixed rental commitments related to all non-cancelable leases, were as follows:

          

Year Ending        
2019   $ 318,000  
2020     33,834  
Total minimum lease payments   $ 351,834  

 

-26-

 

  

Net rent expense was as follows:

      

    For the Years Ended  
   

July 1,

2018

   

July 2,

2017

 
                 
Minimum rent under operating leases   $ 318,000     $ 318,000  
Excess percentage rents     -       -  
Net rent expense   $ 318,000     $ 318,000  

 

Purchase Commitments

The Company's purchase commitments at July 1, 2018 are for materials, supplies, services and equipment as part of the normal course of business. Subsequent to year end the Company entered into an agreement to upgrade the automatic scoring system at one location at an approximate cost of $275,000.

 

 

6. PROFIT-SHARING AND ESOP PLAN

The Company has two defined contribution plans. The first is a profit-sharing plan which, generally, covers all employees who on the last day of the fiscal year or December 29 have been employed for one year with at least one thousand hours of service. The Plan provides for Company contributions as determined by the Board of Directors. For the years ended July 1, 2018 and July 2, 2017, contributions in the amounts of $113,000 and $90,000, respectively, were charged to operating expense.

 

Effective March 31, 1987, the Company adopted an Employee Stock Ownership Plan (ESOP) which generally covers all individuals who were employed at the end of the fiscal year and had one thousand or more hours of service during that fiscal year. The ESOP plan provides for Company contributions as determined by the Board of Directors. The Company contributed $113,000 for fiscal year 2018 and $90,000 for fiscal year 2017. The Company has no defined benefit plan or other post retirement plan.

 

 

7. INCOME TAXES

The Company is required to analyze all material positions it has taken or plans to take in all tax returns that have been filed or should have been filed with all taxing authorities for all years still subject to challenge by those taxing authorities. If the position taken is “more-likely-than-not” to be sustained by the taxing authority on its technical merits and if there is more than a 50% likelihood that the position would be sustained if challenged and considered by the highest court in the relevant jurisdiction, the tax consequences of that position should be reflected in the taxpayer’s financial statements.

 

The Company had no material unrecognized tax positions at July 1, 2018 nor does it expect any significant change in that status during the next twelve months. No accrued interest or penalties on uncertain tax positions have been included on the consolidated statements of earnings and comprehensive earnings or the consolidated balance sheet. Should the Company adopt tax positions for which it would be appropriate to accrue interest and penalties, such costs would be reflected in the tax expense for the period in which such costs accrued. The Company is subject to U.S. Federal income tax and to several state jurisdictions. Returns filed for tax periods ending after June 29, 2014 are still open to examination by those relevant taxing authorities.

 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).  The Tax Act includes broad and complex changes to the U.S. tax code, including a reduction in the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018.  For fiscal 2018, the Company recorded its income tax provision based on a blended U.S. statutory tax rate of 27.5 percent, which is based on a proration of the applicable tax rates before and after the effective date of the Tax Act.  The statutory tax rate of 21 percent will apply for fiscal 2019 and beyond.

 

-27-

 

 

The Tax Act also puts in place new tax laws that may impact the Company’s taxable income beginning in fiscal 2019, which include, but are not limited to (i) reducing the dividends received exclusion, (ii) adding a provision that could limit the amount of deductible interest expense, and (iii) limiting the deductibility of certain executive compensation. Shortly after the Tax Act was enacted, the SEC issued accounting guidance, which provides a one-year measurement period during which a company may complete its accounting for the impacts of the Tax Act.  To the extent a company’s accounting for certain income tax effects of the Tax Act is incomplete, the company may determine a reasonable estimate for those effects and record a provisional estimate in its financial statements.  If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

 

During the second quarter of fiscal 2018, the Company recorded a provisional discrete tax benefit of $604,190 related to the Tax Act.  The Company adjusted its U.S. deferred tax liabilities by $604,190 due to the reduction in the U.S. federal corporate tax rate.  At July 1, 2018, the Company has finalized the reduction in deferred tax liabilities as $651,807 which increased the year to date earnings per share by approximately $.13 cents. This net reduction in deferred tax liabilities also included the estimated impact on the Company’s net state deferred tax liabilities.

 

The significant components of the Company's deferred tax assets and liabilities were as follows:  

 

   

July 1,

2018

   

July 2,

2017

 
Deferred tax assets:                
Other   $ 20,723     $ 8,162  
Total deferred tax assets     20,723       8,162  
Deferred tax liabilities:                
Land, buildings, and equipment     418,254       521,818  
Unrealized gain on available-for-sale securities     905,056       1,529,585  
Prepaid expenses and other     9,110       (15,582 )
Total deferred tax liabilities     1,332,420       2,035,821  
Net deferred income taxes   $ 1,311,697     $ 2,027,659  

 

 

Income tax expense differs from the amounts computed by applying the U.S. Federal income tax rate to income before tax for the following reasons:      

                                                                                                              

    For the Years Ended  
    2018     2017  
Taxes computed at statutory rate     27.5 %     34.0 %
State income taxes, net of Federal income tax benefit     3.6       3.2  
Dividends received exclusion     (1.0 )     (1.8 )
Tax rate adjustment for change in tax law     (14.8 )     -  
All other net     (1.3 )     (1.0 )
Net effective rate     14.0 %     34.4 %

                                               

-28-

 

 

 

8. STOCKHOLDERS' EQUITY

The Class A shares have one vote per share. The Class B shares may vote ten votes per share and are convertible to Class A shares at the option of the stockholder.

 

At July 1, 2018, and July 2, 2017, the Company had $34,799 in employee loans related to the issuance of shares, respectively. These loans are secured by the shares of the Company's common stock acquired and are full recourse notes. The notes bear interest at rates of 2% to 2.5% and are payable over a term of three years from the date of the agreements which range from 2017 to 2018. These employee loans have been recorded as a reduction of additional paid-in capital.

 

 

9. DEFERRED COMPENSATION

Deferred compensation payable was a total of $19,431 at July 1, 2018, and $24,639 at July 2, 2017. The current portion of these amounts is $1,991 at July 1, 2018, and $6,226 at July 2, 2017, and is included in accrued expenses.

 

-29-