NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business
Bowl America Incorporated is engaged in the operation of 19 bowling centers, with food and beverage service in each center. Eleven centers are located in metropolitan Washington D.C., one center in metropolitan Baltimore, Maryland, one center in metropolitan Orlando, Florida, three centers in metropolitan Richmond, Virginia, and three centers in metropolitan Jacksonville, Florida. These 19 centers contain a total of 746 lanes.

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 2002 ended June 30, 2002, fiscal year 2001 ended July 1, 2001, and fiscal year 2000 ended July 2, 2000. Fiscal years 2002 and 2001 each consisted of 52 weeks. Fiscal year 2000 consisted of 53 weeks.

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 that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Significant estimates include the deferred compensation liability for executives and key employees including survivor benefits, 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.

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.

Bowling lanes and equipment             3-10 years
Building and building improvements     10-30 years
Leasehold improvements                    10 years
Amusement games                          3-5 years

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 future cash flows are less that the carrying amount.

Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or market.

Income Taxes
Income taxes are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under this method, 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.

Fair Value of Financial Instruments
The fair value of short-term investments and the noncurrent marketable security portfolio is disclosed in Note 3.

Investment Securities
The Company accounts for its investments in accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity 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 5,132,083, 5,222,876 and 5,587,892, respectively, and have been adjusted to reflect both the 5% stock dividend distributed on July 26, 2001 and the 5% stock dividend distributed on July 26, 2000.

Comprehensive Earnings
In accordance with SFAS No. 130 "Reporting Comprehensive Income", 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 each of the three years in the period ended June 30, 2002.

Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, the Company considers money market funds, certificates of deposits, repurchase agreements and treasury securities with original maturities of three months or less to be cash equivalents.

New Accounting Pronouncements
In June 2002, SFAS No. 146, "Accounting for Costs of Exit or Disposal Activities" was issued. SFAS No. 146 supercedes Emerging Issues Task Force Issue ("EITF") No. 94-3 "Liability Recognition for Certain Employee Termina- tion Benefits and Other Costs to Exit an Activity (including certain costs incurred in a restructuring)". This statement requires that an exit or disposal activity related cost be recognized when the liability is incurred instead of when an entity commits to an exit plan. The provisions of SFAS No. 146 are effective for financial transactions initiated after December 15, 2002. The Company does not believe SFAS No. 146 will have a material impact on the Company's consolidated financial statements.

In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", was issued and is effective for fiscal years beginning after December 15, 2001. This statement supercedes SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal of a segment of a business. SFAS No. 144 retains many of the provisions of SFAS No. 121, but addresses certain implementation issues associated with that statement. The Company will adopt the provisions of SFAS No. 144 effective July 1, 2002. The Company believes that the adoption of SFAS No. 144 will not have a material effect on the Company's consolidated financial statements.

In August 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued. SFAS No. 143 addresses financial accounting and reporting obliga- tions associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company will adopt the provisions of SFAS No. 143 effective July 1, 2002. The Company believes SFAS No. 143 will not have a material effect on the Company's consolidated financial statements.

                                         June 30,         July 1,
                                           2002            2001
Demand deposits and cash on hand       $  688,048      $  473,010
Money market funds                        286,769         484,410
Repurchase agreements                     659,000         381,000
                                        _________       _________
                                       $1,633,817      $1,338,420

3. INVESTMENTS Short-term investments consist of certificates of deposits, U.S. Treasury securities and a mutual fund which invests in mortgage backed securities (maturities of generally three months to one year). At June 30, 2002, the fair value of short-term investments was $8,183,932 with an unrealized gain of $108,946. At July 1, 2001, the fair value of short-term investments was $6,236,665 with an unrealized gain of $78,543. Non-current investments are marketable equity securities which consist primarily of twelve telecommuni- cations stocks. The Company has classified all readily marketable debt and equity securities as available-for-sale. These available-for-sale securities are carried at fair value in accordance with the provisions of SFAS No. 115.

The following table summarizes the cost and approximate fair values of equity securities available-for-sale as of June 30, 2002, and July 1, 2001 as follows:

                                   Original      Unrealized        Fair
                                     Cost           Gain          Value
June 30, 2002
Securities available-for-sale      $857,782      $3,132,466      $3,990,248

July 1, 2001
Securities available-for-sale      $857,782      $5,359,146      $6,216,928

This portfolio includes the following telecommunications stocks:

16,835 shares of AT&T Wireless
2,209 shares of Agere
3,946 shares of Alltel
669 shares of Avaya
27,572 shares of Bell South
8,028 shares of Lucent Technologies 9,969 shares of Qwest
45,580 shares of SBC Communications 32,000 shares of Sprint Fon
16,000 shares of Sprint PCS
18,784 shares of Verizon
13,560 shares of Vodafone

There were no sales of available-for-sale securities in the years ended June 30, 2002 and July 2, 2000. In the year ended July 1, 2001, proceeds from the sale of available-for-sale securities were $2,072,112 with a corresponding gross realized gain of $290,951 recorded as interest and dividend income.

4. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment, as cost, consist of the following:

                                               June 30,        July 1,
                                                2002            2001
Bowling lanes and equipment                 $17,864,384     $17,951,732
Amusement games                                 948,045         934,716
Buildings and building improvements          19,667,611      19,216,027
Leasehold improvements                          317,398         522,101
Land                                          8,572,206       8,548,228
Bowling lanes and equipment not yet in use      132,033         503,989
                                             __________      __________
                                             47,501,677      47,676,793
Less accumulated depreciation and
  amortization                               26,996,091      26,598,008
                                             __________      __________
                                            $20,505,586     $21,078,785

Depreciation and amortization expense for Property, Plant and Equipment for fiscal years 2002, 2001, and 2000 was $1,763,931, $1,940,368, and $2,099,928 respectively.

5. COMMITMENTS AND CONTINGENCIES
Lease Commitments The Company and its subsidiaries are obligated under long-term real estate lease agreements for three bowling centers. Certain of the Company's real estate leases provide for additional annual rents based upon total gross revenues and increases in real estate taxes and insurance.

At June 30, 2002, the minimum fixed rental commitments related to all noncancelable leases, were as follows:

           Year Ending
           2003                                       $294,604
           2004                                        294,604
           2005                                        294,604
           2006                                        294,604
           2007                                        294,604
           Thereafter                                1,846,592
                                                     _________
           Total minimum lease payments             $3,319,612

    Net rent expense was as follows:
                                            For the Years Ended
                                           2002      2001      2000
Minimum rent under operating leases    $333,060  $366,097  $421,515
Excess percentage rents                  92,497    89,807   125,612
                                        _______   _______   _______
                                       $425,557  $455,904  $547,127

6. STOCKHOLDERS' EQUITY The Class A shares have one vote per share voting power. The Class B shares may vote ten votes per share and are convertible to Class A shares at the option of the stockholder.

At June 30, 2002 and July 1, 2001, the Company had $43,956 and $88,623, respectively, in employee loans related to the issuance of shares. 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 6% to 6 1/2% and are payable over a term of 3 years from the date of the agreements which range from 2000 to 2001. These employee loans have been recorded as a reduction of additional paid-in capital.

The Company distributed a 5% stock dividend on July 26, 2001, where Class A and B stockholders received one share of common stock for each twenty shares of Class A and Class B common stock held as of the date of record.

7. PROFIT-SHARING AND ESOP PLAN The Company has a profit-sharing plan which, generally, covers all individ- uals who were employed at the end of the fiscal year and had one thousand or more hours of service during that fiscal year. The Plan provides for Company contributions as determined by the Board of Directors. For the years ended June 30, 2002, July 1, 2001, and July 2, 2000, contributions in the amount of $165,000, $160,000, and $170,000, respectively, were charged to operations.

Effective March 31, 1987, the Company adopted an Employee Stock Ownership Plan (ESOP) 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. Prior to fiscal year 1995, the contributions were allocated to participants based on compensation and years of service. Contributions since fiscal year 1995 are allocated based on compensation only in order to comply with Internal Revenue Service code requirements. The Company's contributions to the Plan for fiscal years 2002, 2001, and 2000 were $162,600, $165,100, and $178,080, respectively.

8. INCOME TAXES The significant components of the Company's deferred tax assets and liabil- ities were as follows:

                                       June 30,          July 1,
                                        2002             2001
Deferred tax assets:
   Other                                64,000           70,000
                                     _________        _________
Total deferred tax assets               64,000           70,000

Deferred tax liabilities:
   Property, plant and equipment       596,000          422,000
   Unrealized gain on available-
     for-sale securities             1,199,000        2,010,000
   Prepaid expenses                    140,000           69,000
   Other                                57,000           57,000
                                     _________        _________
Total deferred tax liabilities       1,992,000        2,558,000
                                     _________        _________
Net deferred income taxes           $1,928,000       $2,488,000

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
                                       2002     %          2001     %          2000    %
Taxes computed at statutory rate  $2,045,000  34.0%   $2,016,000  34.0%   $2,235,000  34.0%
State income taxes, net of Federal
 income tax benefit                  175,000   2.9        85,000   1.4
   162,000  2.47
Dividends received exclusion         (22,000) (.36)      (37,000) (.62)
   (33,000) (.51)
All other-net                        (24,000) (.41)       (4,000) (.07)
    (3,000) (.05)
                                   _________  ____     _________  ____
 _________  ____
                                  $2,174,000  36.1%   $2,060,000  34.7%   $2,361,000  35.9%

9. RELATED PARTIES At June 30, 2002 and July 1, 2001, the Company had recorded $102,200 and $102,600, respectively, in deferred compensation payable to one officer and one major shareholder. The amounts are payable over the next ten years. Deferred compensation payable to non-related parties was a total of $57,100 at June 30, 2002 and $56,700 at July 1, 2001. The current portion of these amounts, $26,800 at June 30, 2002 and $6,800 at July 1, 2001 is included in accrued expenses.

10. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following summary represents the results of operations for each of the quarters in fiscal years 2002 and 2001 (dollars in thousands, except for earnings per share):

                                              Earnings
                         Operating Operating   Before              Earnings
                         Revenues   Income    Income      Net        Per
                                               Taxes    Earnings    Share
2002
June 30, 2002             $6,512     $  693    $  845    $  519      $.10
March 31, 2002             8,997      2,535     2,711     1,738       .33
December 30, 2001          7,867      1,694     1,832     1,174       .23
September 30, 2001         6,434        472       605       388       .08

2001
July 1, 2001              $6,319     $  203    $  476    $  374      $.07
April 1, 2001              9,113      2,525     2,712     1,738       .34
December 31, 2000          7,575      1,631     1,805     1,157       .22
October 1, 2000            6,394        534       935       599       .11

Per share amounts have been adjusted to reflect both the 5% stock dividend distributed on July 26, 2001 and the 5% stock dividend distributed on July 26, 2000.