##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION



WASHINGTON, D.C. 20549

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FORM 20-F

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(Mark One)



| ̈ |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
|- |  | ---------------------------------------------------------------------------------------------------



|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ------------------------------------------------------------------------------------



For the fiscal year ended January 31, 2005



OR



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



For the transition period from
 to



Commission file number 000-29512

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BARBEQUES GALORE LIMITED

(Exact name
of registrant as specified in its charter)

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|                                                                                        |  |                                                                                                                                         
|--------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Australian Capital Territory, Australia (Jurisdiction of incorporation or organization) |  | Building A2, Campus Business Park 350-374 Parramatta Road, Homebush, Sydney, NSW 2144 Australia (Address of principal executive offices)



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



|                      |  |                                            
|--------------------- |  | -------------------------------------------
|(Title of each class) |  | (Name of each exchange on which registered)
|None                  |  | Not Applicable                             

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

American Depositary Shares, each representing one Ordinary Share

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of
the Act:

Not Applicable

(Title of Class)

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Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock as of the close of the period covered by the annual report:



4,245,291 Ordinary Shares



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 which financial statement item the registrant has elected to follow:

Item 17 ̈Item
18  x



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##### Table of Contents

TABLE OF CONTENTS



|               |  |                                                                              |  |   
|-------------- |  | ---------------------------------------------------------------------------- |  | --
|PART I         |  | 2                                                                           
|Item 1.        |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        |  | 2 
|Item 2.        |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                      |  | 2 
|Item 3.        |  | KEY INFORMATION                                                              |  | 2 
|Item 4.        |  | INFORMATION ON OUR COMPANY                                                   |  | 12
|Item 5.        |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |  | 23
|Item 6.        |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   |  | 44
|Item 7.        |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |  | 53
|Item 8.        |  | FINANCIAL INFORMATION                                                        |  | 56
|Item 9.        |  | THE OFFER AND LISTING                                                        |  | 57
|Item 10.       |  | ADDITIONAL INFORMATION                                                       |  | 58
|Item 11.       |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 64
|Item 12.       |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 65
|               | 
|PART II        |  | 65                                                                          
|Item 13.       |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 65
|Item 14.       |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 65
|Item 15.       |  | CONTROLS AND PROCEDURES                                                      |  | 66
|Item 16.       |  | RESERVED                                                                     |  | 66
|               | 
|PART III       |  | 67                                                                          
|Item 17.       |  | FINANCIAL STATEMENTS                                                         |  | 67
|Item 18.       |  | FINANCIAL STATEMENTS                                                         |  | 67
|Item 19.       |  | EXHIBITS                                                                     |  | 68
|               | 
|SIGNATURES     |  | 70                                                                          
|CERTIFICATIONS |  |                                                                             



TRADEMARKS



BARBEQUES GALORE, GRAND TURBO, TURBO, CAPTN COOK,
COOK-ON, BAR-B-CHEF, TURBO APOLLO, KENT and KENT  THE FLAME OF THE FUTURE, are federally registered trademarks and/or service marks in the United States. We use the phrases EVERYTHING YOU NEED FOR BARBECUING, AMERICAS LARGEST CHAIN OF
BARBEQUE STORES and RIGHT IN YOUR BACKYARD as common-law trademarks in the United States. BARBEQUES GALORE and COOK-ON are also registered with the State of California. In Australia, we have registered, among others, the names BARBEQUES GALORE,
TURBO, BEEFMASTER, CALYPSO, NORSEMAN, KENT and SAXON and additionally use the phrases GOOD TIMES GALORE, CORDON BLEU, DOWN UNDER and PATIO MASTER, as common-law trademarks. This Annual Report contains other trade names, trademarks and service marks
of ours and other organizations.



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This Annual Report on Form 20-F (Annual Report) report contains certain statements of a
forward-looking nature relating to future events affecting Barbeques Galore Limited (Barbeques Galore or the Company), a public limited company organized under the laws of Australia, or the markets or industries in which it
operates or the future financial performance of the Company. Such statements convey our expectations, hopes, beliefs, intentions, or strategies regarding the future. These statements use words among others such as expect,
will, may, anticipate, goal, intend, seek, believe, plan, strategy, estimate, project and derivatives of such words.
These forward looking statements include statements regarding:



| |  |  | sufficiency of our working capital;
| | - |  | -----------------------------------



| |  |  | seasonality of our business;
| | - |  | ----------------------------



| |  |  | expected impact of foreign currency fluctuations;
| | - |  | -------------------------------------------------



| |  |  | availability of necessary supplies;
| | - |  | -----------------------------------



| |  |  | expected timing of financial benefits from the continued downsizing of our Sydney manufacturing operations;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | ability to realize benefits from lower-cost manufacturing alliances in China;
| | - |  | -----------------------------------------------------------------------------



| |  |  | growth strategies;
| | - |  | ------------------



| |  |  | plans with regard to store openings and closings;
| | - |  | -------------------------------------------------



| |  |  | success of our new store formats and our ability to successfully launch new marketing and advertising campaigns;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | expected costs and other effects of the closure of retail stores;
| | - |  | -----------------------------------------------------------------



| |  |  | anticipated adequacy and efficiencies of new distribution facilities;
| | - |  | ---------------------------------------------------------------------



| |  |  | anticipated effects of being unable to purchase any particular line of products for resale;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | impact arising from the implementation of accounting standards and policies;
| | - |  | ----------------------------------------------------------------------------



| |  |  | adequacy of our accounting reserves;
| | - |  | ------------------------------------



| |  |  | timing and effects of changes in tax laws;
| | - |  | ------------------------------------------



| |  |  | expected results of ongoing litigation;
| | - |  | ---------------------------------------



| |  |  | expected effect of tax assessments;
| | - |  | -----------------------------------



| |  |  | ability to take advantage of deferred tax assets; and
| | - |  | -----------------------------------------------------



| |  |  | automated store inventory replenishment systems, including implementation of the new web-based ordering system known as eZorder, for our Licensees.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



We caution you that such statements are only predictions and that
actual events or results may differ materially. These forward looking statements are based on information available to us on the date hereof and we assume no obligation to update any such forward looking statements. Our actual results and timing of
certain events could differ materially from those in such forward looking statements due to a number of factors, including but not limited to, general economic conditions, the weather in areas in which we conduct business, the uncertainties of
litigation, our ability to meet the covenants in our credit facilities, the accuracy of our estimates, the final amount of tax assessments, the popularity of certain products and our working capital needs, as well as the matters set forth under the
caption Item 3. Key Information - D. Risk Factors. In addition, you should carefully review the other information contained in this Annual Report and in our periodic reports and other documents filed with the United States Securities and
Exchange Commission (SEC). Unless the context requires otherwise, references to Barbeques Galore, we, our, us and similar terms, refer to Barbeques Galore Limited and its controlled
entities.



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##### Table of Contents

PART I



|ITEM |  | 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|---- |  | -----------------------------------------------------------



Not applicable.



|ITEM |  | 2.    OFFER STATISTICS AND EXPECTED TIMETABLE
|---- |  | ---------------------------------------------



Not applicable.



ITEM 3.    KEY INFORMATION



|A. |  | SELECTED FINANCIAL DATA (RESTATED  See Note 1.B of Notes to Consolidated Financial Statements)
|-- |  | -----------------------------------------------------------------------------------------------



You should read the following selected financial data in conjunction with
our consolidated financial statements and the related notes and Item 5. Operating and Financial Review and Prospects included elsewhere in this Annual Report. The selected financial data as of January 31, 2003, 2002 and 2001 and for the
fiscal years ended January 31, 2002 and 2001, is derived from our audited consolidated financial statements, revised to reflect the restatements thereof as more fully discussed in Note 1.B of Notes to Consolidated Financial Statements. We have not,
however, included our audited consolidated financial statements for those periods in this Annual Report. The selected financial data presented below under the captions Statement of Operations Data and Balance Sheet Data as of
January 31, 2005 and 2004 and for the fiscal years ended January 31, 2005, 2004 and 2003, is derived from our consolidated financial statements, which financial statements have been audited by KPMG, an independent registered public accounting firm.
The consolidated financial statements as of January 31, 2005 and 2004 for each of the years in the three-year period ended January 31, 2005 and the report thereon, are included elsewhere in this Form 20-F. The selected data should be read in
conjunction with the consolidated financial statements for the year ended January 31, 2005, the related notes and the independent registered public accounting firms report which refers to the restatement of our consolidated financial
statements as of January 31, 2004 and for the years ended January 31, 2004 and 2003. The information presented below under the captions Selected U.S. Operating Data and Selected Australian Operating Data is not derived from
the financial statements.



We restated our consolidated
financial statements as of and for the years ended January 31, 2004, 2003, 2002 and 2001. The restatement reflects adjustments to correct our accounting for leases and other out-of-period adjustments, including the applicable tax effect as follows:



|                          |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|------------------------- |  | ---------------------------------------- | ----- | - | ---- | - | ----- |  | - | ------ | - |  | - | -----
|                          |  | Year Ended January 31,                  
|                          |  | 2004                                     |       |   | 2003 |   | 2002  |  |   | 2001  
|                          |  | (In A$ thousands, except per share data)
|Previously reported:      |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|Net (loss) income         |  | $                                        | (536  | ) |      | $ | 4,521 |  | $ | (2,538 | ) |  | $ | 4,483
|                          |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|(Loss) earnings per share |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|Basic                     |  | $                                        | (0.13 | ) |      | $ | 1.10  |  | $ | (0.60  | ) |  | $ | 0.99 
|                          |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|Diluted                   |  | $                                        | (0.13 | ) |      | $ | 1.09  |  | $ | (0.60  | ) |  | $ | 0.96 
|                          |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|Restated:                 |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|Net (loss) income         |  | $                                        | (777  | ) |      | $ | 4,888 |  | $ | (2,896 | ) |  | $ | 4,425
|                          |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|(Loss) earnings per share |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|Basic                     |  | $                                        | (0.19 | ) |      | $ | 1.19  |  | $ | (0.68  | ) |  | $ | 0.97 
|                          |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      
|Diluted                   |  | $                                        | (0.19 | ) |      | $ | 1.18  |  | $ | (0.68  | ) |  | $ | 0.94 
|                          |  |                                          |       |   |      |   |       |  |   |        |   |  |   |      



We have re-evaluated
our lease accounting practices and corrected the way we account for our leases, specifically the accounting for operating leases with scheduled rent increases and tenant allowances.



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Under the requirements of FASB Technical Bulletin 85-3, Accounting for Operating Leases with
Scheduled Rent Increases, rent expense should be amortized on a straight-line basis over the term of the lease. In prior periods, we had incorrectly determined that the term of the lease begins on the commencement date of the lease which
generally coincides with the store opening date, instead of at the time we took physical possession of the property to start construction of leasehold improvements. This had the effect of excluding the construction period of the stores from the
calculation of the period over which rent is expensed.



In
addition, under FASB Technical Bulletin 88-1, Issues Relating to Accounting for Leases, lease incentives such as tenant allowances received from the landlord to cover construction costs incurred by us should be reflected as a
deferred liability, amortized over the term of the lease and reflected as a reduction to rent expense. We had previously incorrectly classified a portion of the tenant allowances as a reduction to store build out costs capitalized instead of as
deferred lease liability on the consolidated balance sheet. As a result, we incorrectly amortized the deferred lease liability over the capitalized asset life as a reduction to depreciation expense instead of over the lease term as a reduction to
rent expense.



We have restated our previously reported
consolidated financial statements as of January 31, 2004 and for the fiscal years ended January 31, 2004 and 2003 to correct our accounting for leases. Selected financial data presented below has been restated with effect from February 1, 2000. The
lease accounting restatement adjustments resulted in a decrease to opening retained earnings of A$1,279,000 as of February 1, 2000, an increase in net loss of A$73,000 in fiscal 2004 (inclusive of an increase in deferred income tax benefit of
A$38,000) and a decrease in net income of A$138,000 in fiscal 2003 (inclusive of an increase in deferred income tax benefit of A$82,000), an increase in net loss of A$146,000 in fiscal 2002 (inclusive of an increase in deferred income tax benefit of
A$89,000) and a decrease in net income of A$104,000 in fiscal 2001 (inclusive of an increase in deferred income tax benefit of A$63,000) In total, the lease accounting restatement adjustments resulted in a decrease to retained earnings of
A$1,740,000 as of January 31, 2004.



The restated financial
statements also reflect certain adjustments for out-of-period adjustments previously recorded in the period we identified the error that were otherwise considered at the time immaterial individually and in aggregate to the reporting periods
presented. These adjustments include:



| | (i) |  | recording A$571,008 of in-transit inventory and the related payable while in-transit as of January 31, 2004, rather than when received as previously reported; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) |  | a change in the timing of expense and income items previously recognized.
| | ---- |  | -------------------------------------------------------------------------



The out-of-period restatement adjustments resulted in a decrease to opening retained earnings of A$137,000 as of February 1, 2000, an increase in net loss
of A$168,000 in fiscal 2004 (inclusive of an increase in deferred income tax benefit of $177,000) an increase in net income of A$505,000 in fiscal 2003 (inclusive of an increase in deferred income tax benefit of $170,000), an increase in net loss of
A$212,000 in fiscal 2002 (inclusive of an decrease in deferred income tax benefit of $342,000) and an increase in net income of A$46,000 in fiscal 2001 (inclusive of an increase in deferred income tax benefit of $120,000). In total, the
out-of-period restatement adjustments resulted in an increase to retained earnings of A$34,000 as at January 31, 2004.



We restated our total shareholders equity as of January 31, 2004 by decreasing the balance by A$1,241,000 from the amount previously reported. The
components of this decrease include:



| | (i) |  | the restatement adjustments discussed above relating to lease accounting and out-of-period adjustments in the combined amount of A$1,706,000, net decrease; and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (ii) |  | the effects of currency translation on the consolidation of the U.S.A. subsidiaries and related U.S.A. restatement adjustments in the amount of A$465,000, net increase.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The fiscal 2004 consolidated statement of cash
flows was restated to correctly classify interest on capital leases in net cash provided by operating activities instead of net cash (used in) financing activities. The restatement adjustments did not have any further effect on the consolidated
statements of cash flows.



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|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|--------------------------------------------------------------- |  | -------------------------------------------------------------------- | ------- | ---- | ------------- | --- | ------- | ------------- |  | --- | ------------- | ---- |  | ------------- | ------- | --- |  | --- | ------- |  | -
|                                                                |  | Year Ended January 31,                                               |         |     
|                                                                |  | 2005                                                                 |         |      | 2004 Restated |     |         | 2003 Restated |  |     | 2002 Restated |      |  | 2001 Restated |         |    
|                                                                |  | (In A$ thousands, except per share and selected U.S. operating data) |         |     
|Statement of Operations Data:                                   |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Net sales                                                       |  | $                                                                    | 287,092 |      |               | $   | 294,029 |               |  | $   | 325,551       |      |  | $             | 333,276 |     |  | $   | 304,471 |  |  
|Cost of goods sold, warehouse, distribution and occupancy costs |  |                                                                      | 198,480 |      |               |     | 207,451 |               |  |     | 230,335       |      |  |               | 235,307 |     |  |     | 207,138 |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Gross profit                                                    |  |                                                                      | 88,612  |      |               |     | 86,578  |               |  |     | 95,216        |      |  |               | 97,969  |     |  |     | 97,333  |  |  
|Selling, general and administrative expenses                    |  |                                                                      | 86,882  |      |               |     | 85,923  |               |  |     | 89,670        |      |  |               | 97,191  |     |  |     | 87,632  |  |  
|Store pre-opening costs                                         |  |                                                                      | 200     |      |               |     | 14      |               |  |     | 139           |      |  |               | 137     |     |  |     | 639     |  |  
|Relocation and closure (gains) costs                            |  |                                                                      | (170    | )    |               |     | 3,427   | (1)           |  |     | (3,552        | )(2) |  |               | 2,207   | (3) |  |     |        |  |  
|Other (income)                                                  |  |                                                                      | (959    | )(4) |               |     | (3,004  | )(5)          |  |     |              |      |  |               |        |     |  |     |        |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Operating income (loss)                                         |  |                                                                      | 2,659   |      |               |     | 218     |               |  |     | 8,959         |      |  |               | (1,566  | )   |  |     | 9,062   |  |  
|Equity in (loss) income of affiliates                           |  |                                                                      |        |      |               |     | (218    | )             |  |     | 462           |      |  |               | 295     |     |  |     | 340     |  |  
|Interest expense                                                |  |                                                                      | 2,091   |      |               |     | 2,044   |               |  |     | 2,259         |      |  |               | 2,785   |     |  |     | 2,920   |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Income (loss) before income tax expense (benefit)               |  |                                                                      | 568     |      |               |     | (2,044  | )             |  |     | 7,162         |      |  |               | (4,056  | )   |  |     | 6,482   |  |  
|Income tax expense (benefit)                                    |  |                                                                      | 280     |      |               |     | (1,267  | )             |  |     | 2,274         |      |  |               | (1,160  | )   |  |     | 2,057   |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Net income (loss)                                               |  | $                                                                    | 288     |      |               | $   | (777    | )             |  | $   | 4,888         |      |  | $             | (2,896  | )   |  | $   | 4,425   |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Earnings (loss) per share(6)                                    |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Basic                                                           |  | $                                                                    | 0.07    |      |               | $   | (0.19   | )             |  | $   | 1.19          |      |  | $             | (0.68   | )   |  | $   | 0.97    |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Diluted                                                         |  | $                                                                    | 0.07    |      |               | $   | (0.19   | )             |  | $   | 1.18          |      |  | $             | (0.68   | )   |  | $   | 0.94    |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Dividend declared per share(7)                                  |  | A$                                                                   | 0.32    |      |               | A$  | 0.30    |               |  | A$  | 0.27          |      |  |               |        |     |  |     |        |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Dividend declared per share(7)                                  |  | US$                                                                  | 0.22    |      |               | US$ | 0.20    |               |  | US$ | 0.15          |      |  |               |        |     |  |     |        |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Weighted average shares outstanding(6)                          |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Basic                                                           |  |                                                                      | 4,182   |      |               |     | 4,117   |               |  |     | 4,117         |      |  |               | 4,231   |     |  |     | 4,542   |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Diluted                                                         |  |                                                                      | 4,385   |      |               |     | 4,117   |               |  |     | 4,150         |      |  |               | 4,231   |     |  |     | 4,689   |  |  
|                                                                |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|In thousands                                                    |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Balance Sheet Data:                                             |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Working capital(8)                                              |  | $                                                                    | 27,259  |      |               | $   | 46,579  |               |  | $   | 45,863        |      |  | $             | 46,821  |     |  | $   | 57,125  |  |  
|Total assets                                                    |  |                                                                      | 105,273 |      |               |     | 108,344 |               |  |     | 118,411       |      |  |               | 127,793 |     |  |     | 134,088 |  |  
|Total short-term debt borrowings                                |  |                                                                      | 20,206  |      |               |     |        |               |  |     |              |      |  |               |        |     |  |     |        |  |  
|Total long-term debt                                            |  |                                                                      | 2,333   |      |               |     | 24,113  |               |  |     | 24,192        |      |  |               | 29,200  |     |  |     | 36,554  |  |  
|Total shareholders equity                                      |  |                                                                      | 48,308  |      |               |     | 48,602  |               |  |     | 58,427        |      |  |               | 60,363  |     |  |     | 62,759  |  |  
|Capital stock(9)                                                |  |                                                                      | 39,471  |      |               |     | 38,537  |               |  |     | 38,537        |      |  |               | 38,537  |     |  |     | 40,733  |  |  
|Ordinary shares outstanding (in thousands)                      |  |                                                                      | 4,245   |      |               |     | 4,117   |               |  |     | 4,117         |      |  |               | 4,117   |     |  |     | 4,542   |  |  
|                                                                |  |                                                                      |         |      |               |    
|Selected U.S. Operating Data:                                   |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Stores open at period-end(10)                                   |  |                                                                      | 65      |      |               |     | 61      |               |  |     | 60            |      |  |               | 63      |     |  |     | 61      |  |  
|Average net sales per store (in thousands)(11)                  |  | US$                                                                  | 1,673   |      |               | US$ | 1,580   |               |  | US$ | 1,499         |      |  | US$           | 1,450   |     |  | US$ | 1,515   |  |  
|Comparable store sales increase (decrease)(12)(13)              |  |                                                                      | 6.7     | %    |               |     | 5.5     | %             |  |     | 1.9           | %    |  |               | (2.6    | %)  |  |     | 6.4     |  | %
|Selling square feet (in thousands)                              |  |                                                                      | 224.6   |      |               |     | 209.9   |               |  |     | 216.8         |      |  |               | 219.4   |     |  |     | 195.7   |  |  
|Sales per selling square foot                                   |  | US$                                                                  | 465     |      |               | US$ | 453     |               |  | US$ | 420           |      |  | US$           | 403     |     |  | US$ | 376     |  |  
|                                                                |  |                                                                      |         |      |               |    
|Selected Australian Operating Data:                             |  |                                                                      |         |      |               |     |         |               |  |     |               |      |  |               |         |     |  |     |         |  |  
|Stores open at period-end                                       |  |                                                                      | 43      |      |               |     | 39      |               |  |     | 35            |      |  |               | 36      |     |  |     | 35      |  |  
|Average net sales per store (in thousands)(11)                  |  | $                                                                    | 2,380   |      |               | $   | 2,459   |               |  | $   | 2,488         |      |  | $             | 2,634   |     |  | $   | 2,671   |  |  
|Comparable store sales (decrease) increase(12)(14)              |  |                                                                      | (2.1    | %)   |               |     | (1.0    | %)            |  |     | 0.3           | %    |  |               | (0.2    | %)  |  |     | 1.4     |  | %
|Selling square feet (in thousands)                              |  |                                                                      | 395.6   |      |               |     | 348.6   |               |  |     | 337.3         |      |  |               | 356.9   |     |  |     | 348.3   |  |  
|Sales per selling square foot                                   |  | $                                                                    | 247     |      |               | $   | 265     |               |  | $   | 272           |      |  | $             | 262     |     |  | $   | 273     |  |  



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---

|(1) |  | Relates to the A$4.16 million incurred in connection with the previously announced down-sizing of our manufacturing operations in Sydney, Australia and a surplus of
A$0.7 million arising pursuant to an insurance payment received primarily for the fixed assets destroyed in the Keswick, Australia store fire on April 5, 2003.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Relates to compensation of A$4.1 million received from the State Rail Authority in relation to the expropriation of leasehold property occupied by the Chatswood,
Australia store. This was offset by A$0.2 million of professional fees, advertising expenses and asset write-offs relating to the Chatswood store and, an additional A$0.4 million in connection with a further amount required in relation to a store
originally identified for closure during fiscal 2003 pursuant to historical underperformance and one U.S. store identified for closure in fiscal 2004 for similar reasons.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | The fiscal 2002 relocation and closure costs relates to the closure of seven U.S. stores, two of which were closed during fiscal 2002, one during fiscal 2003 and two
during fiscal 2004. A further one store was identified for closure in fiscal 2004 pursuant to historical underperformance and the amounts reserved for two stores were reversed, following a decision to continue trading pursuant to an improvement in
performance. One store now remains for closure with no store closures having taken place during fiscal 2005. An accrued liability is reflected at January 31, 2005 for the remaining lease obligation costs to occur for this store being closed.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Relates primarily to the gain on disposal arising pursuant to the sale of one Australian property as part of the long-term plan to consolidate our Sydney
distribution center onto one single site, our corporate headquarters onto a separate single site and to contracting out part of our storage and bulk distribution to third parties, the reversal of the provision for the one claim which was the subject
of a successful court appeal by the Company and in respect of which the opposing party has recently been granted leave to make a further appeal to the High Court of Australia and a business interruption insurance payment received pursuant to the
Keswick, Australia fire on April 5, 2003.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Relates primarily to the surplus of A$(3.611) million pursuant to the disposal of two Australian properties as part of the original plan to consolidate our Sydney
distribution center onto one single site, our corporate headquarters onto a separate single site and to consider contracting out part of our storage and bulk distribution to third parties. This was offset by a provision of A$565,000 in relation to
certain temporary workers physical damages claims which did not enjoy insurance cover as a result of our former insurance provider having been placed into liquidation as outlined on page 12. All these claims were settled during fiscal 2005
apart from one claim which was the subject of a successful court appeal by the Company and in respect of which the opposing party has recently been granted leave to make a further appeal to the High Court of Australia.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Basic earnings (loss) per share is computed by dividing net income (loss) available to ordinary shareholders, by the weighted average number of ordinary shares.
Diluted earnings (loss) per share is computed by dividing net income (loss) available to ordinary shareholders, by the sum of the weighted average number of ordinary shares and dilutive ordinary share equivalents for the period. In calculating the
dilutive effect of share options, we use the treasury stock method.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Dividends are declared in U.S. dollars per share and have been converted to A$ based on the rate of exchange ruling at date of payment.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | Working capital comprises total current assets less total current liabilities.
|--- |  | ------------------------------------------------------------------------------

|(9) |  | Capital stock comprises ordinary shares outstanding less treasury stock.
|--- |  | ------------------------------------------------------------------------

|(10) |  | Excludes two (2003 and prior: three) Military concession stores and the e-Commerce site.
|---- |  | ----------------------------------------------------------------------------------------

|(11) |  | For stores open at beginning of period indicated.
|---- |  | -------------------------------------------------

|(12) |  | For definition of comparable store sales, see Item 5A  Results of Operations  Table of Comparable Store Sales.
|---- |  | ------------------------------------------------------------------------------------------------------------------

|(13) |  | The number of comparable stores used to compute such percentages was 61, 61, 64, 62 and 52, for the fiscal years ended January 31, 2005, 2004, 2003, 2002 and 2001,
respectively.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) |  | The number of comparable stores used to compute such percentages was 38, 32, 34, 35 and 35, for the fiscal years ended January 31, 2005, 2004, 2003, 2002 and 2001,
respectively.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Exchange Rates



The Australian dollar is convertible into U.S. dollars at freely floating
rates, and there are currently no restrictions on the flow of Australian currency between Australia and the United States. On January 31, 2005, the Noon Buying Rate was US$0.7759 = A$1.00.



Fluctuations in the exchange rate between the Australian dollar and the U.S.
dollar may affect our earnings, the book value of our assets and shareholders equity as expressed in Australian and U.S. dollars and consequently may affect the market price for the American Depository Shares (ADSs). Such
fluctuations will also affect the conversion into U.S. dollars (for payment to holders of ADSs) by Morgan Guaranty Trust Company of New York as Depositary, (the Depositary), if any cash dividends were paid in Australian dollars



5



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##### Table of Contents

on the Ordinary Shares represented by the ADSs. Similarly, the above exchange rate fluctuations would also affect the conversion into Australian Dollars (for
payment to holders of ADSs) by the Depositary, if any cash dividends were paid in U.S. dollars on the Ordinary Shares represented by the ADSs. See Item 9 - The Offer and Listing - Price Range of our ADSs on the Nasdaq Stock Market® (Nasdaq) and Item 10.
Additional Information - D. Exchange Control - Restrictions on Foreign Ownership; Antitakeover Restrictions.



The following table sets forth, for the periods indicated, certain information concerning Noon Buying Rates for Australian dollars:



|                       |  |            |  |        |  |        |  |           
|---------------------- |  | ---------- |  | ------ |  | ------ |  | ----------
|                       |  | Average(1) |  | High   |  | Low    |  | Period End
|Year Ended January 31, |  |            |  |        |  |        |  |           
|2001                   |  | 0.5734     |  | 0.6387 |  | 0.5112 |  | 0.5480    
|2002                   |  | 0.5137     |  | 0.5540 |  | 0.4828 |  | 0.5072    
|2003                   |  | 0.5492     |  | 0.5922 |  | 0.5070 |  | 0.5860    
|2004                   |  | 0.6678     |  | 0.7805 |  | 0.5843 |  | 0.7625    
|2005                   |  | 0.7361     |  | 0.7979 |  | 0.6840 |  | 0.7759    
|                       |  |            |  |       
|Month                  |  |            |  |        |  |        |  |           
|January 2005           |  | 0.7668     |  | 0.7790 |  | 0.7578 |  | 0.7759    
|February 2005          |  | 0.7812     |  | 0.7940 |  | 0.7669 |  | 0.7940    
|March 2005             |  | 0.7848     |  | 0.7974 |  | 0.7685 |  | 0.7729    
|April 2005             |  | 0.7738     |  | 0.7834 |  | 0.7658 |  | 0.7834    
|May 2005               |  | 0.7663     |  | 0.7810 |  | 0.7550 |  | 0.7591    
|June, 2005             |  | 0.7665     |  | 0.7792 |  | 0.7498 |  | 0.7618    

---

|(1) |  | Determined by averaging the closing price for each date in the period.
|--- |  | ----------------------------------------------------------------------



|B. |  | CAPITALIZATION AND INDEBTEDNESS
|-- |  | -------------------------------



Not applicable.



|C. |  | REASONS FOR THE OFFER AND USE OF PROCEEDS
|-- |  | -----------------------------------------



Not applicable.



|D. |  | RISK FACTORS
|-- |  | ------------



The following are certain factors that you should consider when evaluating our business, financial conditions and results of operations. However, these
factors are not exclusive and you are urged to consider the statements made elsewhere in this Annual Report and in our other publicly filed documents.



If we do not successfully implement our proposed store expansion program, we will not be able to attain the financial and operational goals that we and the investment
community expect.



Our growth is partially dependent upon
our ability to successfully expand our store base, particularly in the United States. This will embrace such factors as the identification of suitable markets and sites for new stores, negotiation of leases on acceptable terms, construction or
renovation of sites, receipt of all necessary permits and governmental approvals therefor and, if necessary, the obtaining of additional financing for those sites. In addition, we must be able to hire, train and retain competent managers and
personnel and manage the systems and operational components of our growth. There can be no assurance that we would be able to locate suitable store sites or enter into suitable lease agreements. In addition, we cannot assure you that, as we open new
stores in existing markets, these new stores will not have an adverse effect on comparable store sales at existing stores in these markets. Failure to open new stores on a timely basis, obtain acceptance in markets in which we currently have limited
or no presence, attract qualified management and personnel or appropriately adjust operational systems and procedures, would adversely affect our future operating results.



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As part of our growth strategy, we may also open stores in new markets where we will not initially
benefit from knowledge of local market conditions, pre-existing retail brand name recognition or marketing, advertising, distribution and regional management efficiencies made possible by our store networks in existing markets. Expansion into new
markets may present construction, operating, marketing, product ranging, climatic and competitive challenges that are different from those encountered in the past within our existing markets. Any store expansion program will attract an increase in
store pre-opening costs and related capital expenditure. We cannot assure you that we will anticipate all the challenges and changing demands that our proposed store expansion program will impose on our management or operations and failure to adapt
thereto, would adversely affect the implementation of our growth strategy.



Weakening economic conditions may have an adverse affect on our business and results of operation.



The success of our operations depends upon a number of factors related to consumer spending, including future economic conditions affecting disposable
consumer income such as employment, business conditions, interest rates and taxation. If existing economic conditions were to deteriorate, consumer spending may decline, thereby adversely affecting our business and results of operations. These
adverse affects may be exacerbated by the significant current regional concentration in each state and territory of our business in Australia and the Pacific West, Southwestern and East coast U.S. markets.



We face business, political and economic risk because we transact business outside of the
United States.



Our headquarters, non-U.S. stores, exports
and limited wholesale and manufacturing operations are located in Australia. We transact a large proportion of our business in Australia and obtain the majority of our merchandise, parts and raw materials from China and other markets outside of the
United States and Australia, such as Taiwan, Indonesia, Thailand and Italy. There are risks inherent in doing business in international markets, including:



| |  |  | tariffs;
| | - |  | --------



| |  |  | customs duties and other trade barriers;
| | - |  | ----------------------------------------



| |  |  | difficulties in staffing and managing foreign operations;
| | - |  | ---------------------------------------------------------



| |  |  | political instability, expropriation, nationalization and other political risks;
| | - |  | --------------------------------------------------------------------------------



| |  |  | foreign exchange controls, technology, export and import restrictions or prohibitions;
| | - |  | --------------------------------------------------------------------------------------



| |  |  | the difficulties of compliance with foreign laws and regulations;
| | - |  | -----------------------------------------------------------------



| |  |  | compulsory resumption of a Barbeques Galore store by statutory authority in connection with an infrastructure project or otherwise;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | delays from customs brokers or government agencies;
| | - |  | ---------------------------------------------------



| |  |  | seasonal reductions in business activity;
| | - |  | -----------------------------------------



| |  |  | subjection to multiple taxation regimes and potentially adverse tax consequences;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | labor stoppages or strikes;
| | - |  | ---------------------------



| |  |  | freight rates and shipping charges;
| | - |  | -----------------------------------



| |  |  | availability and cost of raw materials;
| | - |  | ---------------------------------------



| |  |  | acts of terrorism;
| | - |  | ------------------



| |  |  | port closures;
| | - |  | --------------



| |  |  | actual or intended warfare; and
| | - |  | -------------------------------



| |  |  | medical issues such as Severe Acute Respiratory Syndrome (SARS).
| | - |  | ------------------------------------------------------------------



Any of these risks could materially adversely affect our business, operating results and financial condition.



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We rely on a few significant vendors and suppliers who may discontinue selling to us at any time.



We purchase the majority of our merchandise and all of our raw materials
from numerous vendors and suppliers and generally have no long-term purchase contracts with any vendor or supplier. During the twelve months ended January 31, 2005, approximately 58% of our merchandise purchases in such period were obtained from our
ten largest vendors. We consider certain barbecue brands to be significant to our business, especially in the United States. No single vendor accounted for more than 5% of our merchandise purchases other than Grand Hall Enterprises Limited, Chant
(Far East) Limited, Honfeld Limited, Dimension Industries Company Limited and the Weber group of companies which supplied us with approximately 13.73%, 12.68%, 7.60%, 6.66% and 5.87% respectively, of our merchandise purchases during the fiscal year
ended January 31, 2005. Our results of operations could be adversely affected by a disruption in purchases from any of these key vendors or suppliers.



Foreign currency fluctuations could adversely affect our results.



We prepare our consolidated financial statements in Australian dollars but a substantial portion of our revenues, purchases and expenses are denominated
in U.S. dollars and, to a lesser extent, other foreign currencies. Accordingly, we are subject to risks of currency exchange to the extent of currency fluctuations between the Australian dollar and the U.S. dollar or other currencies in which we
transact our business. This currency imbalance has resulted in and may continue to result in, foreign currency transaction gains and losses. Our Australian operations generally economically hedge a major portion of their imports against exchange
rate fluctuations with respect to the Australian dollar.



In
our U.S. operations, however, we have not and currently do not actively economically hedge against exchange rate fluctuations, as the vast majority of our U.S. operations purchases are transacted in U.S. dollars, although we may elect to do so
in the future. Changes in exchange rates may have a material adverse effect on our net sales, cost of goods sold, gross profit and net (loss) income, any of which alone or in the aggregate may in turn have a material adverse effect on our business,
operating results and financial condition. Such currency issues could thus affect the market price for our ADSs. Pursuant to a decision by the Board of Directors to initiate a regular dividend policy, the above exchange rate fluctuations would
affect the conversion into U.S. dollars (for payment to holders of ADSs) by the Depositary, if any cash dividends were paid in Australian dollars on the Ordinary Shares represented by the ADSs. Similarly, the above exchange rate fluctuations would
also affect the conversion into Australian dollars (for payment to holders of ADSs) by the Depository, if any cash dividends were paid in U.S. dollars on the Ordinary Shares represented by the ADSs. See Item 3. Key Information - A. Selected
Financial Data - Exchange Rates and Item 9. The Offer and Listing - Price Range of our ADSs on the Nasdaq Stock Market® (Nasdaq).



Intense competition in our market could prevent us from increasing or sustaining our revenues.



The market for barbecues and our other product offerings is highly competitive in both the United States and Australia. Our
retail operations compete against a wide variety of retailers, including mass merchandisers, discount or outlet stores, department stores, hardware stores, home improvement centers, specialty patio, fireplace or cooking stores, warehouse clubs, web
sites and mail order companies. We compete for retail customers primarily based on our broad assortment of competitively priced, quality products (including proprietary and exclusive products), convenience, customer service and the attractive
presentation of merchandise within our stores and on our web site. Many of our competitors have greater financial, marketing, distribution and other resources than we do and, particularly in the United States, may have greater name recognition than
us. Furthermore, the lack of significant barriers to entry into our segment of the retail industry may also result in new competition in the future. If we fail to compete effectively, we may be unable to increase our market share or our market share
may decline, which could adversely affect our revenues.



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Changing merchandise trends, consumer demands or product quality could adversely affect our sales.



Our success depends on our ability to anticipate and respond to changing
merchandise trends and consumer demands in a timely manner. We believe we have benefited from a lifestyle trend towards consumers investing more in their backyards and spending more quality time in outdoor family gatherings and social activities.
Any change in this trend could adversely affect consumer interest in our major product lines. Moreover, our products must appeal to a broad cross-section of consumers whose preferences (as to product features such as colors, styles, finishes and
fuel types) cannot always be predicted with certainty and may change between sales seasons. If we misjudge either the market for our merchandise or our customers purchasing habits, we may experience a material decline in sales or be required
to sell inventory at reduced margins. We could also suffer a loss of customer goodwill if our manufacturing sources or stores do not adhere to our quality control or service procedures or otherwise fail to ensure satisfactory quality of our
products. These outcomes may have a material adverse effect on our business, operating results and financial condition.



Failure to maintain and upgrade core computer systems which operate and monitor all major aspects of our business could have a material adverse effect upon our
business.



We rely on certain management information
systems to obtain daily sales information from our stores and to operate and monitor all major aspects of our business. Our Head Office Information Systems process all distribution, warehouse management, inventory control, purchasing, merchandising,
financial and office automation applications. Each store has PC-based point-of-sale (POS) registers which manage all sales transactions and store based purchasing transactions. The store check-out registers are networked to an In-Store
Processor (ISP) located in the back office of each store. At the end of each days processing, the data from each register is consolidated onto the ISP which has an attached modem and which is polled daily to upload the data to the
head office system. We rely upon our management information systems in operating and monitoring all major aspects of our business, including sales, gross profits, warehousing, distribution, purchasing, inventory control, financial accounting and
human resources. Any disruption in the operation of our management information systems, or our failure to continue to upgrade, integrate or expend capital on such systems as our business expands, could have a material adverse effect upon our
business, operating results and financial condition.



Failure to hire, train
and retain competent managers and personnel could have a material adverse affect on our business.



The success of our operations depends on our ability to hire, train and retain competent managers and other personnel and to manage the systems and
operational components of our growth. Failure to attract and retain qualified management and personnel or appropriately adjust operational systems and procedures, would adversely affect our future operating results.



Our success depends on several of our directors, senior management and employees, and they
may not remain with us in the future.



Our success is
partly dependent on the efforts and abilities of our directors, senior management and employees, particularly Sam Linz, Chairman of the Board, Robert Gavshon, Deputy Chairman of the Board, John Price, Head of Product Management and Development in
Australia and Director, Sydney Selati, Director and Chairman of Barbeques Galore, Inc., our U.S. operating subsidiary, Michael Lindblad, Chief Executive Officer, responsible for all aspects of our U.S. retail operations, with all senior U.S.
operating executives reporting directly to him and Michael Varley, Head of Product Management and Development in the United States. We do not have long-term employment contracts with any of our directors, senior management and employees. The loss of
the services of these individuals or other key employees could have a material adverse effect on our business, operating results and financial condition.



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If we fail to execute certain operational changes, our ability to implement our business strategies would be adversely
affected.



We have identified a number of areas in our
operations in which improvement would have a significant impact on our business strategies. In addition, when we expand into new regions, we may need additional warehouse capacity. We may in the future, need to secure further distribution centers,
expand our current warehouse facilities in the United States or utilize public warehousing space, in each case depending on availability and cost at such time. We cannot assure you as to whether or when we will be able to effect any expansion or
replacement of distribution facilities, or any other necessary operational changes that may arise, or that we will not incur cost overruns or disruptions in our operations in connection therewith. Our failure to effect these and any other necessary
operational changes on a timely basis would adversely affect our expense structure and, therefore, our business, financial condition and operating results.



Our revenues fluctuate from period to period and are subject to various factors including seasonality and weather.



Our business is subject to substantial seasonal variations which have caused
and which we expect to continue to cause our quarterly results of operations to fluctuate significantly. Historically, we have realized a major portion of our net sales and a substantial portion of our net income for the year during summer months
and holiday seasons when consumers are more likely to purchase barbecue products, outdoor furniture and other backyard products. In anticipation of our peak selling seasons (late spring and early summer), we substantially increase our inventory
levels and hire a significant number of part-time and temporary employees. In non-peak periods, particularly in late winter in the United States and early fall in Australia, we regularly experience monthly losses. We believe this is the general
pattern associated with our segment of the retail industry and expect that this pattern will continue in the future. Sales of any of our major product lines, however, (in particular home heaters and outdoor furniture), may vary widely in peak
seasons depending on, among other things, prevailing weather patterns, local climate conditions, actions by competitors, shifts in timing of holidays and shifts in consumer tastes. Our results of operations may also fluctuate significantly as a
result of a variety of other factors, including the timing of new store openings, releases of new products, delivery times of products from overseas manufacturers and changes in merchandise mix throughout the year. We have in the past experienced
quarterly losses, particularly in our fiscal first quarter and expect to experience such losses in the future. Because of these fluctuations in operating results, our results of operations in any quarter are not necessarily indicative of the results
that we may achieve for a full fiscal year or any future quarter. If for any reason our sales or gross profits during peak seasons or periods were substantially below expectations, our quarterly and annual results would be adversely affected.



We depend on third-party carriers to distribute our products.



We distribute merchandise to our stores primarily from
our distribution centers located at Auburn, New South Wales (NSW), a third party distribution center at Yennora, NSW, Ontario, California and Charlotte, North Carolina. In distributing our merchandise, we rely upon third-party sea
carriers to ship our manufactured products from Australia and China, to the United States and from China to Australia, as well as third-party surface freight carriers to transport all our merchandise from our distribution centers and warehouses to
our stores. Accordingly, we are subject to numerous risks associated with the distribution of our merchandise, including:



| |  |  | mechanical risks;
| | - |  | -----------------



| |  |  | labor stoppages or strikes;
| | - |  | ---------------------------



| |  |  | inclement weather;
| | - |  | ------------------



| |  |  | import regulation;
| | - |  | ------------------



| |  |  | changes in fuel prices;
| | - |  | -----------------------



| |  |  | medical issues such as SARS; and
| | - |  | --------------------------------



| |  |  | port closures due to acts of actual or threatened terrorism.
| | - |  | ------------------------------------------------------------



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In addition, we believe that, while our distribution facilities are sufficient to meet our current needs,
we may need another distribution center or larger facilities in the United States or Australia to support the further growth and expansion of stores. If our third-party carriers fail to distribute our products or our distribution facilities cannot
support our needs, our sales will suffer and our results of operations will be adversely affected.



Our products and the personal use thereof are subject to certain government regulations which could influence product liability claims and impact the manner in which we distribute our products.



Many of our products use gas or wood and flame and, consequently, are
subject to regulation by authorities in both the United States and Australia in order to protect consumers, property and the environment. For example, our products and their personal use are subject to regulations relating to, among other things,
the use of fire in certain locations (particularly restrictions relating to the availability or frequency of use of wood heating in homes and barbecues in apartments), restrictions on the sale or use of products that enhance burning potential such
as lighter fluid, restrictions on the use of gas in specified locations (particularly restrictions relating to the use of gas containers in confined spaces) and restrictions on the use of wood burning heaters. Such regulations have had, and can be
expected to have, an increasing influence on product claims, manufacturing, quality standards, contents, packaging and heater usage. We cannot assure you that certain jurisdictions in which we operate will not impose additional restrictions on the
sale or use of our products. Such restrictions may negatively impact our sales and cause our business to suffer.



Failure of our franchisees and licensees to adhere to our standards could adversely affect customer loyalty and diminish our brand name and reputation.



As of January 31, 2005, there were 48 licensed stores in Australia and
seven franchised stores in the United States, all of which are operated under the Barbeques Galore name by independent licensees or franchisees to whom we sell proprietary and other store products, and provide support services. The
licensees and franchisees operate such stores pursuant to agreements which typically permit licensees and franchisees to assign the agreements to their immediate family and provide the licensees and franchisees with exclusive geographical sales
territories. A large part of our licensing agreements in Australia are terminable at will (absent fraud) by the licensees only, generally upon 90 days notice. We monitor our licensed and franchised stores to assure their conformity to our
standards and image and require the licensees and franchisees to comply with Barbeques Galores merchandising and advertising guidelines. Serious or protracted failures by licensees or franchisees to adhere to our standards could adversely
affect customer loyalty and diminish our brand name or reputation for quality products and services and could require us to devote significant management attention and resources to enforcing our rights under such agreements. Conversely, if we fail
to provide adequate support services or otherwise breach our contractual obligations to any licensee or franchisee, such failure or breach could result in termination of, or litigation relating to, the relevant licensing or franchise agreement and
the loss of fees and sales revenue.



Product liability claims could
materially adversely affect our customer relations and costs.



Failure of a product could give rise to product liability claims if customers, employees or third parties are injured or any of their property is damaged while using one or more of our products. Such injury could be caused, for example, by
a gas valve malfunction, gas leak or an unanticipated flame-up resulting in injury to persons and/or property. In the event of such an occurrence, we could incur substantial litigation expense, receive adverse publicity, suffer a loss of sales or
all or any of the foregoing. Even if such circumstances were beyond our control, our business, operating results and financial condition could be materially adversely affected. Although we maintain liability insurance in both Australia and the
United States, we cannot assure you that such insurance will provide sufficient coverage in any particular case.



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Our manufacturing operations are subject to government regulations.



Our limited barbecue and home heater manufacturing operations are subject to
regulations governing product safety and quality, the discharge of materials hazardous to the environment, water usage, workplace safety and labor relations. Our distribution facilities are also subject to workplace safety and labor relations
regulations. As a barbecue and barbecue accessories store, we sell lighter fluid, lighters, matches and similar products which may be considered flammable when in contact with open flame or activated. Our sale of certain products may result in
technical violations of certain of our leases which prohibit the sale of flammable materials in or on the leased premises. Over our operating history, we have made our landlords aware that we sell these products. To-date, no landlord has terminated
or threatened termination of any lease due to these sales. Violations of these regulations and restrictions could have a material adverse effect on our business, operating results or financial condition.



One of our former insurance providers has been placed into liquidation and the impact of
this on our insurance coverage is unclear.



We placed a
major portion of our insurance policies with HIH Casualty and General Insurance Limited (HIH) during the twelve months ended June 30, 2001 and earlier periods. HIH Insurance Limited and 17 of its subsidiaries (HIH Group) was
placed into liquidation on August 27, 2001. We have replaced these insurance policies with other insurers and currently have one claim of A$265,000, excluding legal costs, against us on foot in relation to the period during which we were covered by
HIH. Although this claim was the subject of a successful court appeal by the Company, the opposing party has recently been granted leave to make a further appeal to the High Court of Australia. Furthermore, to the best of our knowledge and belief,
we are unaware of any further material claims which may arise against us in relation to any events during the period we were covered by HIH. It is also unknown at this stage when and what amounts, if any, would be recoverable from the Liquidators of
the HIH Group, were such claims to arise.



ITEM 4.    INFORMATION ON OUR COMPANY



|A. |  | HISTORY AND DEVELOPMENT OF OUR COMPANY
|-- |  | --------------------------------------



Our name is Barbeques Galore Limited. We opened our first store in Sydney, Australia in 1977 to serve an unfilled niche in the retail market for
versatile, well-designed barbecues and incorporated in the Australian Capital Territory, as a limited liability company on June 16, 1982. In 1980, we opened our first U.S. store in Los Angeles.



During the 1980s, we vertically integrated our operations by expanding into
barbecue manufacturing in order to capture higher margins, control product development and improve inventory flexibility and supply. Fireplace products and, in Australia, home heaters were added to take advantage of the winter selling season. We
further diversified our product line through the addition of outdoor furniture and outdoor heating in Australia and other backyard products in both the United States and Australia, all of which complement our main barbecue line.



During the first fiscal quarter of 2004, we resolved to transition the bulk
of our barbecue production from our manufacturing operations in Sydney, Australia to third party manufacturers in China. The shift of the major part of our manufacturing to China was seamlessly achieved and resulted in the down-sized manufacturing
operation focusing primarily on home heaters and small-run barbecues, the latter now being phased out completely. The down-sizing program has enabled us to realize a number of benefits, including lower cost of product, continued control of product
development and improved inventory flexibility and supply. Information concerning principal capital expenditure currently in progress, the distribution of these investments geographically and the method of financing is set out in Item 5.
Operating and Financial Review and Prospects - B. Liquidity and Capital Resources.



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In April 1987, we listed our Ordinary Shares on the Australian Stock Exchange (ASE). In
October 1996, as part of our plans to accelerate new store expansion in the United States, we announced our intention to repurchase shares from the public, delist from the ASE (pursuant to a transaction which was consummated as of December 31, 1996)
and to seek capital in the United States. We consummated our initial public offering in the United States in November 1997.



Principal capital expenditures during our last three fiscal years are as follows:



| |  |  | During the fiscal year ended January 31, 2005, capital expenditures of A$5.9 million were incurred.
| | - |  | ---------------------------------------------------------------------------------------------------



In Australia, this related to:



| | (i) |  | the fit-out of:
| | --- |  | ---------------



| |  | new stores at Nunawading and Hoppers Crossing, Victoria (Vic), Marion, South Australia (SA), Fortitude Valley, Queensland (Qld) and the Licensee
store at Bowral, NSW which was taken over in June 2004 and operated as a company-owned store until February 28, 2005 when it was on-sold as a licensee store to a former Australian employee.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | relocated stores at Morley in Western Australia (WA) and Launceston in Tasmania (Tas); and
| | - | ----------------------------------------------------------------------------------------------



| |  | the expanded flagship store at Moore Park in NSW.
| | - | -------------------------------------------------



| | (ii) |  | the acquisition of furniture and fittings; and
| | ---- |  | ----------------------------------------------



| | (iii) |  | miscellaneous items of computer equipment, machinery and motor vehicles for our new corporate headquarters and manufacturing operations, respectively.
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



In the United States, this related to:



| | (i) |  | the opening of new stores at Wellington, Florida and Westlake Village, California;
| | --- |  | ----------------------------------------------------------------------------------



| | (ii) |  | development of new stores under construction at Folsom, California (this store subsequently opened in February 2005) and Norwalk, Connecticut;
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) |  | remodeling the existing store at Kearny Mesa, California, and the relocation and remodeling of the store at Tarzana, California;
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------



| | (iv) |  | acquisition of the two franchised stores at Atlanta and Duluth, Georgia respectively;
| | ---- |  | -------------------------------------------------------------------------------------



| | (v) |  | upgrade of the computer system located at the corporate headquarters in Lake Forest;
| | --- |  | ------------------------------------------------------------------------------------



| | (vi) |  | purchase of computer hardware and software equipment for the new stores at Wellington, Florida and Westlake Village, California and at our Lake Forest corporate headquarters; and
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) |  | installation of the Wide Area Network (WAN) for all our stores.
| | ----- |  | -----------------------------------------------------------------



| |  |  | During the fiscal year ended January 31, 2004, capital expenditures of A$3.4 million were incurred.
| | - |  | ---------------------------------------------------------------------------------------------------



In Australia, this related to:



| | (i) |  | the fit-out of new stores at Liverpool, Artarmon and Prospect, NSW and Myaree, WA.
| | --- |  | ----------------------------------------------------------------------------------



| | (ii) |  | the acquisition of furniture and fittings, computer equipment and machinery;
| | ---- |  | ----------------------------------------------------------------------------



| | (iii) |  | the remodeling of certain stores to encompass the new backyard concept and Good Times Galore marketing strategy; and
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------



| | (iv) |  | miscellaneous items of computer equipment and machinery for our corporate head office and manufacturing operations, respectively.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------



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In the United States, this related to the:



| | (i) |  | opening of a new store at Jacksonville, Florida;
| | --- |  | ------------------------------------------------



| | (ii) |  | remodeling of four existing stores at Kearny Mesa, California, Henderson, Nevada, Whitemarsh, Maryland and Sterling, Virginia;
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------



| | (iii) |  | purchase of interior signs for stores and office furniture for the corporate headquarters at Lake Forest;
| | ----- |  | ---------------------------------------------------------------------------------------------------------



| | (iv) |  | upgrade of the corporate server including hardware and software; and
| | ---- |  | --------------------------------------------------------------------



| | (v) |  | purchase of computer equipment for certain employees and for the new store at Jacksonville, Florida.
| | --- |  | ----------------------------------------------------------------------------------------------------



| |  |  | During the fiscal year ended January 31, 2003, capital expenditures of A$2.8 million were incurred. In Australia, this related to factory tooling and the commencement of the
refurbishment of certain stores to merchandize the new backyard products. In the United States, this related to the relocation of our distribution center to Ontario, California and the U.S. headquarters to Lake Forest, California and the remodeling
of two stores.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our principal executive and
registered offices were relocated on February 7, 2005 to our new corporate headquarters situated at Building A2, Campus Business Park, 350-374 Parramatta Road, Homebush NSW 2140, Australia. Our telephone number is 61 2 9735 4111. Our Internet
addresses arewww.bbqgalore.com and www.barbequesgalore.com.au.Information contained in our web sites does not constitute a part of this document.



Our agent for service in the United States is the Chairman, Barbeques Galore Inc., 10 Orchard Road, Suite 200, Lake
Forest, California 92630, telephone (949) 597 2400.



|B. |  | BUSINESS OVERVIEW
|-- |  | -----------------



Description of Business



We believe we are the leading specialty retail chain of barbecue and barbecue accessory stores in Australia and the United States, having regard to the number of stores and sales volume. We also base this belief on our years of experience
in the barbecue retail industry as well as our contacts with other industry retailers, suppliers and trade associations. Our stores carry a wide assortment of barbecues and related accessories, displayed in a format that emphasizes social activities
and healthy outdoor lifestyles, in addition to a comprehensive line of fireplace products and certain backyard products and, in Australia, home heaters, outdoor furniture and backyard products. As of January 31, 2005, we owned and operated 43 stores
in all six states in Australia and 67 stores (including two U.S. Military concession stores) in nine states in the United States. In addition, as of such date, there were 48 licensed stores in Australia and seven franchised stores in the United
States, all of which operate under the Barbeques Galore name.



During the fiscal year ended January 31, 2005, we increased the number of our company-owned stores in the United States to 67 (including two U.S. Military concession stores), with the opening of new stores at
Wellington, Florida and Westlake Village, California, respectively and the acquisition, effective November 1, 2004, of the franchise stores at Atlanta and Duluth, Georgia, respectively.



During the fiscal year ended January 31, 2005, we increased our company-owned stores in Australia from 39 to 43,
representing a 10% increase in the number of company-owned stores with the opening of new stores at Nunawading and Hoppers Crossing, Vic, Marion, SA and Fortitude Valley, Qld and the relocation of the Morley, WA and Launceston, Tas stores. The
Licensee store at Bowral, NSW was taken over in June 2004 and operated as a company-owned store until February 28, 2005 when it was on-sold as a licensee store to a former Australian employee. The store at Ringwood, Vic was closed on January 30,
2005.



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As of January 31, 2005, we licensed 48 Barbeques Galore stores, generally in rural areas of Australia and
franchised seven Barbeques Galore stores in the United States. We receive annual licensing fees and franchising royalties and benefit primarily from these arrangements through the sale of Barbeques Galore merchandise to the licensees and
franchisees. Independent licensees and franchisees operate such stores pursuant to agreements which require them to comply with Barbeques Galores merchandising and advertising guidelines and conform to the Barbeques Galore image. These
agreements typically provide the licensees and franchisees with exclusive geographical sales territories. A large part of the Australian licensing agreements have an indefinite term which permit licensees to terminate their arrangements at will,
while franchisees in the United States are generally contractually bound for fixed periods with renewal options. During the fiscal year ended January 31, 2005, total net sales to licensee and franchisee stores were A$21.3 million and US$7.0 million,
respectively. We estimate that the retail sales of Barbeques Galore products alone by licensees and franchisees were approximately A$26.6 million and US$8.2 million, respectively, in the same period. A number of our existing licensees have
refurbished their stores in accordance with our established criteria (although no licensee is required to do so) and we maintain an assistance program to provide advice relating to these enhancements. We may license additional Barbeques Galore
stores in Australia on a selective basis, although we do not intend to franchise any additional stores in the United States (except in and around geographical territories as defined under existing franchising agreements).



Effective November 1, 2004, we acquired the franchised stores operated in
Atlanta and Duluth, Georgia, respectively, whilst the Oxnard, California franchise is scheduled to terminate on August 31, 2005. In addition, we have agreed with the franchisor in Orange County, California, to permit the opening of a new franchised
outlet in San Clemente, California in 2006.



The following
table sets forth, for the periods indicated, the percentage of our main categories, by sales value, of product sold:



|                                |  |                        |   |  |       |   |  |       |  
|------------------------------- |  | ---------------------- | - |  | ----- | - |  | ----- | -
|                                |  | Year Ended January 31, |  
|                                |  | 2005                   |   |  | 2004  |   |  | 2003  |  
|Barbecues                       |  | 75.7                   | % |  | 73.8  | % |  | 72.7  | %
|Barbecue accessories            |  | 7.0                    |   |  | 8.3   |   |  | 10.6  |  
|Heating and fireplace equipment |  | 8.9                    |   |  | 8.1   |   |  | 6.2   |  
|Outdoor furniture               |  | 6.9                    |   |  | 5.9   |   |  | 4.8   |  
|Backyard products               |  | 1.4                    |   |  | 3.0   |   |  | 3.5   |  
|Camping equipment               |  | 0.1                    |   |  | 0.9   |   |  | 2.2   |  
|                                |  |                        |   |  |       |   |  |       |  
|                                |  | 100.0                  | % |  | 100.0 | % |  | 100.0 | %
|                                |  |                        |   |  |       |   |  |       |  



We are engaged
essentially in the retail industry and operate through stores located in two geographical segments, Australia and the United States of America. The following table sets forth the geographical distribution of our revenues from external customers in
A$ thousands and by percentage, for the periods indicated:



|                                 |  |                        |         |  |               |   |  |               |         |  |       |   |  |    |         |  |       |  
|-------------------------------- |  | ---------------------- | ------- |  | ------------- | - |  | ------------- | ------- |  | ----- | - |  | -- | ------- |  | ----- | -
|                                 |  | Year Ended January 31, |        
|                                 |  | 2005                   |         |  | 2004 Restated |   |  | 2003 Restated |        
|                                 |  | (In A$ thousands)      |        
|Revenues from external customers |  |                        |         |  |               |   |  |               |         |  |       |   |  |    |         |  |       |  
|Australia                        |  | $                      | 130,920 |  | 45.6          | % |  | $             | 133,340 |  | 45.3  | % |  | $  | 139,731 |  | 42.9  | %
|United States of America         |  |                        | 156,172 |  | 54.4          | % |  |               | 160,689 |  | 54.7  | % |  |    | 185,820 |  | 57.1  | %
|                                 |  |                        |         |  |               |   |  |               |         |  |       |   |  |    |         |  |       |  
|Total                            |  | A$                     | 287,092 |  | 100.0         | % |  | A$            | 294,029 |  | 100.0 | % |  | A$ | 325,551 |  | 100.0 | %
|                                 |  |                        |         |  |               |   |  |               |         |  |       |   |  |    |         |  |       |  



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In Australia, we have scaled-back our wholesale division which operates through Pricotech Leisure Brands
Pty Limited (Pricotech), a wholly-owned Australian subsidiary. Pricotech now distributes our own manufactured wood heaters, indents (selling directly from supplier to customer), a small number of barbecues for independent specialty
retailers and manages the exports. During the fiscal year ended January 31, 2005, the five largest customers of Pricotech accounted for approximately 21% of its net sales of approximately A$5.4 million. Pricotechs export business is
predominantly focused on the United Kingdom and Europe, with approximately 85% of sales generated through one United Kingdom-based distributor.



Information Systems



In the United States, we have installed a JDA Software Group Inc. (JDA) system on an IBM AS400 platform which allows us to manage
distribution, inventory control, purchasing, sales analysis, warehousing and financial applications. At the store level, we have installed POS computer terminals as our cash registers in all stores. Each POS terminal is equipped with a bar code
scanner for ease of product input and validation with each stores transaction data being captured by our POS terminals and transferred into the main JDA system daily. The JDA system provides extensive reporting and inquiry capability at both
the store and corporate levels, including daily transaction data, gross profit information, exception analysis and stock levels. Additionally, the system permits inventory and pricing updates to be electronically transmitted to the stores on a daily
basis.



Currently, we are in the process of upgrading our POS
software and equipment to the Store 21 package offered by Data Vantage Corporation, a subsidiary of Micros System Inc.. The new system has all the functionality of the JDA system but will also provide additional management information and
customer-tracking data. We expect the roll-out of the new system to be completed by the end of quarter four of fiscal 2006.



In Australia, we have installed a Berger Software Pty Limited (Berger) (now Advanta Software Pty Limited (Advanta)) system on a
Sun Unix platform which allows us to manage distribution, warehouse management, Distribution Requirements Planning (DRP), purchasing, sales analysis and financial applications. Berger operates in conjunction with Stratum, from Silvon
Software, to quickly and efficiently analyse our sales and inventory information both at summary and retail levels. We also used Demand Solutions from Demand Management Systems Pty Limited to produce product forecasts to be interfaced with DRP. At
store level, we have installed DposIT, supplied by QQQ Systems Pty Limited (trading as SVI Retail) which allows us to complete all our sales and inventory transactions. The store checkout registers are networked to a server in the back office of
each store, providing extensive consolidated reporting. The back office server has a Virtual Private Network (VPN) connection which enables our stores to use e-mail and browse our Berger system. Every evening, data from each store is
transferred back for integration with Berger and price changes are automatically sent to each store.



In February 2005, we relocated our Australian corporate headquarters to Homebush, NSW and part of our distribution center to a third party distribution
center at Yennora, NSW, retaining our existing distribution center and bulk warehouse and manufacturing operations, at Auburn, NSW. As connectivity was required from each of these sites to the servers which reside at our corporate headquarters, we
implemented a WAN which is a managed service supplied by Telstra and a secured private network using Internet Protocol (IP) technology.



As part of the relocation, we replaced our nine-year old PABX system with a new IP-enabled phone system from Avaya Inc.. Having established a WAN to cater
for data traffic between the four sites, we now use the WAN to carry our voice traffic as well and at no additional call cost.



Our Internet access was also upgraded at this time giving a far greater quality of service for inbound/outbound external e-mails, store connectivity and
web browsing. The most significant improvement has been in the area of store connectivity using VPN technology. Although we have been using VPN technology in our stores for over two years, the additional bandwidth was required of necessity, to cope
with increasing demand and, as with voice traffic using WAN, this was achieved without any additional expenditure.



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We have also begun to implement a web-based ordering system which will enable our Licensee stores to
purchase our product over the Internet. The ordering system known as eZorder, is supplied by Advanta.



We have purchased a web server for the eZorder system which will communicate in real-time with our Berger system. Each Licensee will be provided
with a link to our web server and a unique user account with which to log in. The only software that the Licensee will require to use eZorder, is a web browser (most commonly Microsoft Internet Explorer). The Licensee connects to the Internet
(as he normally would) and then uses both the link and user account to access the eZorder system. The Licensee can then order any product from the Licensee product range and the eZorder and Berger warehouse management systems will
provide real-time validation of the order. Validation is given against stock availability, pack quantities (if applicable), product substitutions (if applicable), pricing (including any special pricing) and credit checking. When the Licensee
completes and submits the order, the eZorder server immediately passes the order to our Berger system for picking.



We are currently working on modifications to the eZorder program to suit our specific business rules. Our target go-live date is August
15, 2005. The cost of the eZorder system, including the eZorder service, is approximately A$85,000.



Seasonality; Weather; Fluctuations in Results



Our business is subject to substantial seasonal variations which have caused and which we expect to continue to cause our results of operations to
fluctuate significantly. Historically, we have realized a major portion of our net sales and a substantial portion of our net income for the year during summer months and holiday seasons when consumers are more likely to purchase barbecue products,
outdoor furniture and other backyard products. In anticipation of our peak selling seasons (late spring and early summer), we substantially increase our inventory levels and hire a significant number of part-time and temporary employees. In non-peak
periods, particularly in late winter in the United States and early fall in Australia, we regularly experience monthly losses.



We believe this is the general pattern associated with our segment of the retail industry and expect this pattern will continue in the future. In order to
partially offset the effects of seasonality, we operate in both the Southern and Northern hemispheres which have opposite seasons and offer fireplace products and, (in Australia), home heaters in the fall and winter months and an extensive range of
outdoor furniture. Sales of any of our major product lines, however, (in particular home heaters and outdoor furniture), may vary widely in peak seasons depending on, among other things, prevailing weather patterns, local climate conditions, actions
by competitors, shifts in timing of holidays and shifts in consumer trends. Our results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of new store openings, releases of new products,
delivery times of products from overseas manufacturers and changes in merchandise mix throughout the year.



Manufacturing



We have
developed strategic alliances with overseas manufacturers, particularly in China, from whom we source our proprietary Grand Turbo, Turbo, CaptN Cook, Cook-On, Bar-B-Chef, Beefmaster, Calypso, Cordon Bleu, Down Under and Patio Master barbecue
brands and accessories and certain other house brands. In our Australian factory facilities, we manufacture home heaters under our proprietary Norseman, Kent, Saxon and Austwood brands. During fiscal 2003, we absorbed the Saxon branded heaters into
our manufacturing operations thereby cementing our position as Australias leading wood heater manufacturer. During the fiscal year ended January 31, 2005, proprietary barbecue retail sales in our own stores represented approximately 46% and
87% of our total barbecue sales in the United States and Australia, respectively. Our manufactured products are closely coordinated by our product development activities. We have a product management and development team that is dedicated to
barbecue market analysis and product development. The team continuously studies sales data, customer feedback, consumer trends and product designs, working closely with our other departments (in both



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the United States and Australia) and strategic alliance suppliers, to develop the annual Barbeques Galore product line. During the fiscal years ended January
31, 2005, 2004 and 2003, we expended A$0.8 million, A$1.0 million and A$1.0 million, respectively, on product management and development.



Purchasing



We believe we have good relationships with our merchandise vendors and suppliers of parts and raw materials and do not anticipate that, as volume
increases, there will be any significant difficulty in obtaining adequate sources of supply in a timely manner and on satisfactory economic terms.



We deal with our merchandise vendors principally on an order-by-order basis and do not maintain any long-term purchase contracts with any vendor.
Merchandise is purchased for our U.S. and Australian stores by our central buying staffs in our respective headquarters. In selecting merchandise, the buying staffs obtain input from a variety of sources, including our product management and
development team, store employees, focus groups, customer surveys, industry conventions and trade shows. During the fiscal year ended January 31, 2005, approximately 58% of our merchandise purchases in such period were obtained from our ten largest
vendors. See Item 3. Key Information - D. Risk Factors. No single vendor accounted for more than 5% of our merchandise purchases other than Grand Hall Enterprises Limited, Chant (Far East) Limited, Honfeld Limited, Dimension Industries
Company Limited and the Weber group of companies which supplied us with approximately 13.73%, 12.68%, 7.60%, 6.66% and 5.87% respectively, of our merchandise purchases during the fiscal year ended January 31, 2005. We do not believe that the loss of
any single brand, including those made by Weber-Stephen Products Co. and Onward Multi-Corp., would have a material adverse effect on our operating results.



Our buying office in Hong Kong was dismantled during fiscal 2002 and Asian purchases, other than those where we deal directly from our Australian and
U.S.A. headquarters, are handled by Honfeld Limited, a third party buyer. We previously had a one-third equity interest in Bromic Pty Limited (Bromic) which was sold on the terms and conditions set out on page 33. Bromic supplies us with
gas valves and related products. We also use back-up suppliers to ensure competitive pricing. See Item 3. Key Information - D. Risk Factors.



Distribution



In the United States we currently maintain a 98,821 square foot distribution center in Ontario, California and an 80,000 square foot distribution center
in Charlotte, North Carolina, having relocated from our previous 27,000 square foot Charlotte, North Carolina distribution center in February 2005, for reasons of physical constraints and anticipated, enhanced distribution efficiencies. In Australia
we currently maintain an 81,298 square foot distribution center and bulk warehouse at Auburn, NSW and occupy a further 64,583 square foot third party distribution center at Yennora, NSW. The retention of our existing distribution center and bulk
warehouse at Auburn, NSW and the relocation of part of our distribution center to Yennora, NSW followed the earlier disposals of a 17,024 square foot warehouse facility during the second fiscal quarter of 2004 and a 78,268 square foot warehouse
facility during the third fiscal quarter of 2004 with both disposals being part of the long-term plan to consolidate our Sydney distribution center onto one single site, our corporate headquarters onto a separate single site and to contracting out
part of our storage and bulk distribution to third parties. We also use smaller warehouses in Melbourne, Brisbane and Perth, Australia as well as in Spaldin, United Kingdom (all of which are third party owned and operated), for our operations.



Vendors and suppliers deliver merchandise to our distribution
facilities and, in certain instances, directly to stores, where it is inspected and logged into our centralized inventory management systems. Merchandise is then shipped by our trucks or third party surface freight weekly or twice weekly, thereby
providing stores with a steady flow of merchandise.



We
maintain separate inventory management systems in Australia and the United States which allow us to closely monitor sales and track in-store inventory. Current plans include the introduction of an automated store inventory replenishment system in
order to better manage our inventory. We estimate that our inventory shrinkage represents no more than 0.5% of our aggregate retail sales. We are not aware of any barbecue industry



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source from which an industry average shrinkage rate can be derived. We believe, however, that the general shrinkage rate for retailers is approximately 1.5%
to 2.0% of retail sales and that our rate compares favorably to that of other retailers.



As we expand into new regions, we may eventually need additional warehouse capacity. In order to meet such needs and to minimize the impact of freight costs, we may secure another distribution center, expand our
current warehouse facilities in the United States or utilize public warehousing space. We believe there is an ample supply of warehousing space available at commercially reasonable rates. Wherever possible, we also solicit the cooperation of our
vendors, through drop shipments to public warehouses and/or stores, in order to reduce our freight and handling costs. We believe that our existing Australian distribution arrangements, together with public warehousing space as needed, are
sufficient to meet our current needs.



Competition



The retail and distribution markets for barbecues and our other product
offerings are highly competitive in both the United States and Australia. Our retail operations compete against a wide variety of retailers, including mass merchandisers, discount or outlet stores, department stores, hardware stores, home
improvement centers, specialty patio, fireplace or cooking stores, warehouse clubs, web sites and mail order companies. We compete for retail customers primarily based on our broad assortment of competitively priced, quality products (including
proprietary and exclusive products), convenience, customer service and the attractive presentation of merchandise within our stores and on our web site. Many of our competitors have greater financial, marketing, distribution and other resources than
we do and, particularly in the United States, may have greater name recognition than us. Furthermore, the lack of significant barriers to entry into our segment of the retail industry may also result in new competition in the future.



We believe that the following business strengths have contributed
significantly to our past success and intend to further capitalize on those strengths in executing our business strategy.



Selection of Merchandise.    We offer an extensive selection of quality barbecues and barbecue accessories designed to suit
consumer lifestyles, preferences and price points. Our stores offer a variety of barbecues, with a range of styles, finishes and special features, including our proprietary brands as well as more than 60 other barbecues under different brand names.
Accompanying these barbecues is an assortment of barbecue replacement parts and accessories which generate high margins. As the leading retail chain specializing in barbecues and related merchandise, we offer consumers one-stop shopping convenience
for virtually all their barbecue cooking needs and in Australia, additionally, for outdoor furniture.



Store Environment.    Our stores offer a shopping environment which is consistent with our outdoor lifestyle image and promotes
the total barbecuing experience. We have recently updated our store image with the aid of outside consultants and our stores are designed to be consumer-friendly, with merchandise displayed to convey the breadth and depth of our product lines. An
array of barbecues is displayed on the selling floor, complete with accessories, to provide the consumer with the opportunity to compare and contrast different models. Store presentation is based on a detailed and comprehensive store plan regarding
visual merchandising to ensure that all stores provide a consistent portrayal of the Barbeques Galore image. Average store retail selling area is approximately 3,650 square feet in the United States and approximately 10,400 square feet in Australia
to include the extensive display of outdoor furniture.



Customer Service.    We recognize that customer service is fundamental to our success. We have a satisfaction guaranteed return policy and honor all manufacturer warranties for products sold at our
stores. Store managers and sales associates undergo product, sales and customer service training programs which enable them to recommend merchandise that satisfies each customers lifestyle and needs. We monitor each stores service
performance and reward high quality customer service both on a team and individual level. We believe that our employees knowledge of our product offerings and the overall barbecue market and their understanding of our customer needs, are
critical components of providing customer service and distinguish us from our competitors.



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Convenient Store Locations.    We position our stores in locations that
maximize convenience and accessibility. Stores are typically situated at highly visible locations and in close proximity to middle to upper-income residential neighborhoods or areas of new housing construction. Stores generally feature ample
customer parking space and ready access to major thoroughfares. Many stores are situated in retail power centers or close to complementary retail stores, further attracting customer traffic. As a result of our site selection criteria, we believe we
have been effective in identifying successful new store locations.



On-line Retail Opportunities.    In May 1999, our e-commerce site in the United States, www.bbqgalore.com went live with minimal marketing. Sales from the site have been recorded in all 50 states in the
U.S.A. and, as a result, we are reaching customers in regions where we currently do not have a retail store presence.



Manufacturing; New Product Development.    We manufacture home heaters for our retail stores in Australia. The vast majority of
our barbecues are manufactured for us in China by third party manufacturers. In addition, we have an experienced in-house product management and development team dedicated to barbecue and home heater market analysis and product development that can
identify and respond to changing consumer trends. We believe that manufacturing alliances in China are realizing a number of benefits for us, including lower cost of product, the continuing control of product development and improved inventory
flexibility and supply.



Experienced Management
Team.    Our senior executive management team has an average of more than 35 years of retail industry experience. Since the current executive management team assumed responsibility in 1982, the number of Barbeques Galore
stores has grown from twelve stores (including one licensed store) as of June 30, 1982 to 165 stores (including 55 licensed or franchised stores) as of January 31, 2005. We believe that managements experience positions us to execute our
business and growth strategies. Our directors and senior management beneficially own approximately 48.4% of our outstanding Ordinary Shares.



Trademarks and Patents



Barbeques Galore, Grand Turbo, Turbo, CaptN Cook, Cook-On, Bar-B-Chef,
Beefmaster, Endeavor, Kent, Kent - The Flame of the Future and Maxiheat, are federally registered trademarks and/or service marks in the United States. In addition, we own a federal
trademark registration for the distinctive configuration of our Turbo grill. We use the phrases Everything You Need for Barbecuing, Americas Largest Chain of Barbecue Stores and Right in Your Backyard, as
common-law trademarks in the United States. Barbeques Galore and Cook-On are also registered with the State of California. In Australia, we have registered, among others, the names Barbeques Galore,
Turbo, Beefmaster, Calypso, Norseman, Kent and Saxon and additionally use the phrases Good Times Galore, Cordon Bleu, Down Under and
Patio Master, as common-law trademarks. We further utilize a number of different trademarks relating to various barbecues, barbecue accessories, home heaters and outdoor furniture, manufactured or offered by us. We are presently not
aware of any claims of infringement or other challenges to our right to use our marks and our name in the United States and Australia.



We also own a number of copyrighted works, including brochures and other literature about our products and many drawings and designs that we use in
marketing those products.



Governmental Regulation



Many of our products use gas, wood and flame and consequently, are subject
to regulation by authorities in both the United States and Australia in order to protect consumers, property and the environment. For example, our home heater manufacturing, enameling and powder coating operations are subject to regulations
governing product safety and quality, the discharge of materials hazardous to the environment, water usage, workplace safety and labor relations. We believe that we comply in all material respects with such regulations. Our products or personal use
thereof, are subject to regulations relating to, among other things, the use of fire in certain locations (particularly restrictions relating to the availability or frequency of use of wood heating in homes and barbecues in apartments), restrictions
on the sale or use of products that enhance burning potential such as lighter



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fluid, restrictions on the use of gas in specified locations (particularly restrictions relating to the use of gas containers in confined spaces) and
restrictions on the use of and compliance with, quality control procedures for wood burning heaters. See Item 3. Key information - D. Risk Factors.



In addition, if our level of foreign ownership exceeds 40%, we would be considered a foreign person and would require certain governmental approvals in
connection with certain acquisitions in Australia. See Item 10. Additional Information - D. Exchange Control - Restrictions on Foreign Ownership; Antitakeover Restrictions.



|C. |  | ORGANIZATIONAL STRUCTURE
|-- |  | ------------------------



We are primarily engaged in the business of selling barbecues, other backyard products and heating products, operating from two countries, U.S.A. and
Australia.



In the U.S.A. we are involved in the retailing,
through company-owned and franchised stores, of barbecues and related accessories, fireplace equipment and backyard products.



In Australia we are involved in the retailing of barbecues and related accessories, home heaters, outdoor furniture and backyard products through
company-owned and licensed stores and, to a lesser extent, in the manufacture of home heaters, the wholesaling of home heaters and barbecues and the exporting of barbecues.



As of July 15, 2005, our listing of controlled entities is as follows:



Barbeques Galore Limited

whose controlled entities are:



Barbeques Galore (Aust) Pty Limited

whose
controlled entities are:



Galore Pty Limited

The Galore Group (International) Pty Limited

whose controlled entity is:



The Galore Group
(U.S.A.), Inc.

whose controlled entities are:



Barbeques Galore, Inc.

Barbeques Galore Online, Inc.



Barbeques Galore Services Pty Limited

whose controlled entities are:



Cook-on-Gas Products (Australia) Pty Limited

whose controlled entities are:



Bosmana Pty Limited

Cougar Leisure
Products Pty Limited



G.L.G. Australia Pty Limited

whose controlled entities are:



Australian Enamellers Pty Limited

Douglas Manufacturing Pty Limited

Park-Tec Engineering Pty Limited



Pricotech Leisure Brands Pty Limited

Redgun Pty Limited



Galore Group Nominees Pty Limited

GLG
Trading Pte Limited

Vilbrent Pty Limited



21



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##### Table of Contents

|(a) |  | All the abovementioned controlled entities are incorporated in Australia with the exception of:
|--- |  | -----------------------------------------------------------------------------------------------



The Galore Group (U.S.A.), Inc.;

Barbeques Galore, Inc.; and

Barbeques Galore Online, Inc.



which are incorporated in the United States of America; and



GLG Trading Pte Limited



which
is incorporated in Singapore.



|(b) |  | All the abovementioned controlled entities have ordinary shares as issued share capital and are 100% owned.
|--- |  | -----------------------------------------------------------------------------------------------------------



|D. |  | PROPERTY, PLANTS AND EQUIPMENT
|-- |  | ------------------------------



We currently lease all our stores and expect that our policy of leasing, rather than owning store properties will continue. Existing store leases provide
for original lease terms that generally range from two to ten years, with single or multiple renewal options that range from three to five years at increased rents. Certain of the leases provide for scheduled rent increases or for contingent rent
(based upon store sales exceeding stipulated amounts). In Australia, no amount was payable in respect of contingent rental during the fiscal year ended January 31, 2005. In the U.S.A., contingent rentals of US$13,938, US$22,191 and US$2,045 were
paid in respect of stores situated at Encinitas, California, Walnut Creek, California and Columbia, Maryland, respectively.



In the United States we lease our 98,821 square foot distribution center at Ontario, California (under a five-year and seven-month lease with an option to
renew for an additional five years) and our 12,696 square foot headquarters at Lake Forest, California (under a five-year lease). The 80,000 square foot distribution center at Charlotte, North Carolina has been leased for a period of ten years and
two months with a renewal option for a further ten years. See Item 4. Information on our Company - B. Business Overview - Manufacturing and  - Distribution.



In Australia, we currently maintain an 81,298 square foot distribution center
and bulk warehouse at Auburn, NSW and lease a further 64,583 square foot third party distribution center at Yennora, NSW. The retention of our existing distribution center and bulk warehouse at Auburn, NSW and the relocation of part of our
distribution center to Yennora, NSW followed the earlier disposals of a 17,024 square foot warehouse facility during the second fiscal quarter of 2004 and a 78,268 square foot warehouse facility during the third fiscal quarter of 2004 with both
disposals being part of the long-term plan to consolidate our Sydney distribution center onto one single site, our corporate headquarters onto a separate single site and to contracting out part of our storage and bulk distribution to third parties.



The Contract of Sale for the disposal of a 62,449 square foot
facility previously utilized for the storage of components and finished goods inventory and which also accommodated part of our administrative facilities was settled on January 31, 2005. We lease the adjacent 75,000 square foot barbecue and home
heater factory under a five-year lease with two successive five-year renewal options for a total maximum remaining lease term at present of 15 years and use smaller warehouses at Melbourne, Brisbane and Perth, Australia as well as at Spaldin, United
Kingdom (all of which are third party owned and operated), for our operations. During fiscal 2004, we downsized our manufacturing operations in Sydney, Australia as part of our plan for implementing potentially significant cost savings and margin
enhancement opportunities with the sourcing of a number of our proprietary barbecues from China. As a result thereof, the down-sized manufacturing operation during fiscal 2005 focused primarily on home heaters and small-run barbecues, the latter now
being phased out completely.



Our ownership interest in our
distribution center and bulk warehouse at Auburn, NSW and all our leasehold interests in real property are subject to a mortgage interest of Australia and New Zealand Banking Group Limited (ANZ) governed by a Letter of Offer and related
documents between ANZ (successor-in-interest to Westpac Banking Corporation) and ourselves. See Item 19. Exhibits - Exhibit Number 10.3.



22



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ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS



The following discussion of our operating and financial results contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended which involve risks and uncertainties. These statements relate to our future prospects, developments and business strategies and are based on analyses of
forecasts of future results and estimates of amounts not yet determinable. These forward-looking statements are identified by their use of terms and phrases such as anticipate, believe, could,
estimate, expect, intend, may, plan, predict, project, will, and similar terms and phrases, including references to assumptions. Specifically, without
limitation, statements relating to:



| | (1) |  | identification of new areas for growth in our United States and Australian store bases respectively;
| | --- |  | ----------------------------------------------------------------------------------------------------



| | (2) |  | expansion of our product range to include other backyard products; and
| | --- |  | ----------------------------------------------------------------------



| | (3) |  | strengthening of our alliances with overseas manufacturers,
| | --- |  | -----------------------------------------------------------



are forward-looking statements within the meaning of Safe Harbor of the abovementioned laws. These statements are based on managements
current expectations and are subject to certain risks and uncertainties.



Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under Risk Factors within this section and
elsewhere in this Annual Report on Form 20-F. Factors that could cause or contribute to such differences include those discussed herein as well as those included in the documents that we file from time to time with the SEC.



The following discussion of our business, financial condition and results of
operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth under Item 3. Key Information - D. Risk Factors and elsewhere in this Annual Report.



Overview



We believe we are the leading specialty retail chain of barbecue and barbecue accessory stores in Australia and the United
States, having regard to the number of stores and sales volume. We base this belief on our years of experience in the barbecue retail industry as well as our contacts with other industry retailers, suppliers and trade associations. We opened our
first store in Sydney, Australia in 1977 and our first U.S. store in Los Angeles in 1980. Our stores carry a wide assortment of barbecues and related accessories, displayed in a format that emphasizes social activities and healthy outdoor lifestyles
in addition to a comprehensive line of fireplace products and certain backyard products and, in Australia, home heating products, outdoor furniture and backyard products. As of January 31, 2005, we owned and operated 43 stores in all six states in
Australia and 67 stores (including two U.S. Military concession stores) in nine states in the United States. In addition, as of such date, there were 48 licensed stores in Australia and seven franchised stores in the United States, all of which
operate under the Barbeques Galore name.



There are
a number of internal and external key performance indicators which we use to manage our business. Internally, we examine, amongst other factors, period comparisons on overall transactions, unit sales divided into price points, (commencing at the
lower-end of the market under A$400, middle-market to A$1,000 and ending at the high-end of the market in excess of A$1,000), gross margin analysis by product category and expense ratios. Externally, we examine, amongst other factors, performance by
peers (their reports), economic data (specifically consumer confidence and in particular, related to durables), foreign exchange movements, interest rates and taxation.



In Australia, retail sales growth slowed sharply in the second half of fiscal 2005. This slower growth was due to a number
of factors, including increases in petrol prices, a weakening in construction of new dwellings



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and the slow down in growth in residential prices and residential property turnover. Price declines were also registered in the main markets of Sydney and
Melbourne. As a result, there was limited cash flow from residential property sales available for household spending. Furthermore, expenditure on Recreation and Furnishings slowed at a faster rate than overall retail spending. During the
year there were no changes in interest rates and taxation. The number of transactions in Australia in our retail stores was down by 12.4% due in part, to the scaling back of smaller backyard accessories from the range. In our core barbecue business,
we experienced a planned positive shift towards the high- and middle-end with a decrease in the low-end. Within the total mix, unit sales at the high-end increased by 1.7%, the middle-end by 5.7% and the low-end decreased by 7%. In each of our main
categories in Australia, barbecues, furniture and heating, gross margins experienced an increase in the fiscal 2005 year.



In the U.S.A., same store sales grew at double digit rates through the first and second quarters, were steady at approximately 5.3% during the third
quarter and, as a result of heavy rainfall in many of our most productive markets, were sharply negative in the fourth.



The gains in the first and second quarters were magnified by easier comparatives against the prior year, (where the war in Iraq severely impacted retail
sales) but we were well positioned and able to take full advantage of the trend towards high-end stainless steel grills which in turn helped drive customer traffic and higher average ticket sales through much of the year. Other dominant underlying
factors that fueled consumer growth, were the very strong performance of the housing market in most states, low interest mortgage and refinancing rates and the actions of the Federal Reserve Bank to keep inflation in check.



The proprietary grill category (mid-range prices) dropped 1.7% to 21.7% of
sales for the year while the high-end stainless steel grills grew by 4.2% for the year to 30.0% of total sales. Low-end gas and charcoal grills dropped by 3.2% to 12.6% of total sales. A sharp increase in sales of outdoor cooking islands and related
accessories accounted for a 2.5% increase in sales in that category while an increase in service income for the year added 0.4% of the sales growth for the year and offset some of the reduced content in accessories, heating and backyard products.
Overall, the transaction count dropped by 0.5% for the year while the average transaction amount rose by approximately 10.0% in fiscal 2005. Prime interest rates in the U.S. rose by 1.0% during the year to 5.0% at year-end. Average personal tax
rates in the U.S. dropped by approximately 2.0% during the year in an effort by the government to stimulate consumer spending.



We derive our revenue primarily from two geographic areas, U.S.A. and Australia. These geographic areas represented 54.4% and 45.6% respectively, of our
net sales for the fiscal year ended January 31, 2005, representing a (2.8%) and (1.8%) (decrease) over their respective net sales levels for the fiscal year ended January 31, 2004.



Restatement of Financial Statements



We have re-evaluated our lease accounting practices and corrected the way we account for our leases, specifically the accounting for operating leases with
scheduled rent increases and tenant allowances.



Under the
requirements of FASB Technical Bulletin 85-3, Accounting for Operating Leases with Scheduled Rent Increases, rent expense should be amortized on a straight-line basis over the term of the lease. In prior periods, we had
incorrectly determined that the term of the lease begins on the commencement date of the lease which generally coincides with the store opening date, instead of at the time we took physical possession of the property to start construction of
leasehold improvements. This had the effect of excluding the construction period of the stores from the calculation of the period over which rent is expensed.



In addition, under FASB Technical Bulletin 88-1, Issues Relating to Accounting for Leases, lease incentives such as tenant
allowances received from the landlord to cover construction costs incurred by us should be reflected as a deferred liability, amortized over the term of the lease and reflected as a reduction to rent



24



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##### Table of Contents

expense. We had previously incorrectly classified a portion of the tenant allowances as a reduction to store build out costs capitalized instead of as
deferred lease liability on the consolidated balance sheet. As a result, we incorrectly amortized the deferred lease liability over the capitalized asset life as a reduction to depreciation expense instead of over the lease term as a reduction to
rent expense.



We have restated our previously reported
consolidated financial statements as of January 31, 2004 and for the fiscal years ended January 31, 2004 and 2003 to correct our accounting for leases. The lease accounting restatement adjustments resulted in a decrease to opening retained earnings
of A$1,529,000 as of February 1, 2002, an increase in net loss of A$73,000 in fiscal 2004 (inclusive of an increase in deferred income tax benefit of A$38,000) and a decrease in net income of A$138,000 in fiscal 2003 (inclusive of an increase in
deferred income tax benefit of A$82,000). In total, the lease accounting restatement adjustments resulted in a decrease to retained earnings of A$1,740,000 as of January 31, 2004.



The restated financial statements also reflect certain adjustments for out-of-period adjustments previously recorded in the
period we identified the error that were otherwise considered at the time immaterial individually and in aggregate to the reporting periods presented. These adjustments include:



| | (i) |  | recording A$571,008 of in-transit inventory and the related payable while in-transit as of January 31, 2004, rather than when received as previously reported; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | a change in the timing of expense and income items previously recognized.
| | ---- |  | -------------------------------------------------------------------------



The out-of-period restatement adjustments resulted in a decrease to opening retained earnings of A$303,000 as of February 1, 2002, an increase in net loss
of A$168,000 in fiscal 2004 (inclusive of an increase in deferred income tax benefit of $177,000) and an increase in net income of A$505,000 in fiscal 2003 (inclusive of an increase in deferred income tax benefit of $170,000). In total, the
out-of-period restatement adjustments resulted in an increase to retained earnings of A$34,000 as at January 31, 2004.



We restated our total shareholders equity as of January 31, 2004 by decreasing the balance by A$1,241,000 from the amount previously reported. The
components of this decrease include:



| | (i) |  | the restatement adjustments discussed above relating to lease accounting and out-of-period adjustments in the combined amount of A$1,706,000, net decrease; and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | the effects of currency translation on the consolidation of the U.S.A. subsidiaries and related U.S.A. restatement adjustments in the amount of A$465,000, net increase.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The fiscal 2004 consolidated statement of cash
flows was restated to correctly classify interest on capital leases in net cash provided by operating activities instead of net cash (used in) financing activities. The restatement adjustments did not have any further effect on the consolidated
statements of cash flows.



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The following is a summary of the effect of these adjustments on the Companys consolidated
financial statements:



|                                                                |  |                                                                      |         |   |             |   |        |             |  |   |         |  
|--------------------------------------------------------------- |  | -------------------------------------------------------------------- | ------- | - | ----------- | - | ------ | ----------- |  | - | ------- | -
|                                                                |  | Consolidated Statements of Operations and Other Comprehensive (Loss) |        
|                                                                |  | As previously reported                                               |         |   | Adjustments |   |        | As restated | 
|                                                                |  | (In A$ thousands except per share data)                              |        
|Year ended January 31, 2004                                     |  |                                                                      |         |   |             |   |        |             |  |   |         |  
|Net sales                                                       |  | $                                                                    | 294,029 |   |             | $ |       |             |  | $ | 294,029 |  
|Cost of goods sold, warehouse, distribution and occupancy costs |  |                                                                      | 207,514 |   |             |   | (63    | )           |  |   | 207,451 |  
|Gross profit                                                    |  |                                                                      | 86,515  |   |             |   | 63     |             |  |   | 86,578  |  
|Operating income                                                |  |                                                                      | 674     |   |             |   | (456   | )           |  |   | 218     |  
|(Loss) before income tax (benefit)                              |  |                                                                      | (1,588  | ) |             |   | (456   | )           |  |   | (2,044  | )
|Income tax (benefit)                                            |  |                                                                      | (1,052  | ) |             |   | (215   | )           |  |   | (1,267  | )
|Net (loss)                                                      |  |                                                                      | (536    | ) |             |   | (241   | )           |  |   | (777    | )
|Other comprehensive (loss)                                      |  |                                                                      | (8,141  | ) |             |   | 327    |             |  |   | (7,814  | )
|Comprehensive (loss)                                            |  |                                                                      | (8,677  | ) |             |   | 86     |             |  |   | (8,591  | )
|Loss per share  basic                                          |  | $                                                                    | (0.13   | ) |             | $ | (0.06  | )           |  | $ | (0.19   | )
|Loss per share  diluted                                        |  | $                                                                    | (0.13   | ) |             | $ | (0.06  | )           |  | $ | (0.19   | )
|                                                                | 
|                                                                |  | Consolidated Statements of Operations and Other Comprehensive (Loss) |        
|                                                                |  | As previously reported                                               |         |   | Adjustments |   |        | As restated | 
|                                                                |  | (In A$ thousands except per share data)                              |        
|Year ended January 31, 2003                                     |  |                                                                      |         |   |             |   |        |             |  |   |         |  
|Net sales                                                       |  | $                                                                    | 325,551 |   |             | $ |       |             |  | $ | 325,551 |  
|Cost of goods sold, warehouse, distribution and occupancy costs |  |                                                                      | 230,441 |   |             |   | (106   | )           |  |   | 230,335 |  
|Gross profit                                                    |  |                                                                      | 95,110  |   |             |   | 106    |             |  |   | 95,216  |  
|Operating income                                                |  |                                                                      | 8,844   |   |             |   | 115    |             |  |   | 8,959   |  
|Income before income tax expense                                |  |                                                                      | 7,047   |   |             |   | 115    |             |  |   | 7,162   |  
|Income tax expense                                              |  |                                                                      | 2,526   |   |             |   | (252   | )           |  |   | 2,274   |  
|Net income                                                      |  |                                                                      | 4,521   |   |             |   | 367    |             |  |   | 4,888   |  
|Other comprehensive (loss)                                      |  |                                                                      | (5,921  | ) |             |   | 236    |             |  |   | (5,685  | )
|Comprehensive (loss)                                            |  |                                                                      | (1,400  | ) |             |   | 603    |             |  |   | (797    | )
|Earnings per share  basic                                      |  | $                                                                    | 1.10    |   |             | $ | 0.09   |             |  | $ | 1.19    |  
|Earnings per share  diluted                                    |  | $                                                                    | 1.09    |   |             | $ | 0.09   |             |  | $ | 1.18    |  
|                                                                | 
|                                                                |  | Consolidated Balance Sheets                                          |        
|                                                                |  | As previously reported                                               |         |   | Adjustments |   |        | As restated | 
|                                                                |  | (In A$ thousands)                                                    |        
|As of January 31, 2004                                          |  |                                                                      |         |   |             |   |        |             |  |   |         |  
|Total current assets                                            |  | $                                                                    | 77,807  |   |             | $ | 683    |             |  | $ | 78,490  |  
|Property, plant and equipment, net                              |  |                                                                      | 22,577  |   |             |   | 644    |             |  |   | 23,221  |  
|Deferred income taxes, non-current                              |  |                                                                      | 3,176   |   |             |   | 856    |             |  |   | 4,032   |  
|Total assets                                                    |  |                                                                      | 106,161 |   |             |   | 2,183  |             |  |   | 108,344 |  
|Accounts payable and accrued liabilities                        |  |                                                                      | 29,910  |   |             |   | (159   | )           |  |   | 29,751  |  
|Total current liabilities                                       |  |                                                                      | 32,092  |   |             |   | (181   | )           |  |   | 31,911  |  
|Total long-term liabilities                                     |  |                                                                      | 24,226  |   |             |   | 3,605  |             |  |   | 27,831  |  
|Retained earnings                                               |  |                                                                      | 16,643  |   |             |   | (1,706 | )           |  |   | 14,937  |  
|Accumulated other comprehensive (loss)                          |  |                                                                      | (5,337  | ) |             |   | 465    |             |  |   | (4,872  | )
|Total shareholders equity                                      |  |                                                                      | 49,843  |   |             |   | (1,241 | )           |  |   | 48,602  |  
|Total liabilities and shareholders equity                      |  |                                                                      | 106,161 |   |             |   | 2,183  |             |  |   | 108,344 |  



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|                                          |  |                                       |   |  |             |   |  |             |  
|----------------------------------------- |  | ------------------------------------- | - |  | ----------- | - |  | ----------- | -
|                                          |  | Consolidated Statements of Cash Flows |  
|                                          |  | As previously reported                |   |  | Adjustments |   |  | As restated |  
|                                          |  | (In A$ thousands)                     |  
|Year ended January 31, 2004               |  |                                       |   |  |             |   |  |             |  
|Net cash provided by operating activities |  | 2,537                                 |   |  | (347        | ) |  | 2,190       |  
|Net cash (used in) financing activities   |  | (1,795                                | ) |  | 347         |   |  | (1,448      | )



|A. |  | OPERATING RESULTS
|-- |  | -----------------



The following table sets forth comparisons of our consolidated operating results as a percentage of net sales for the periods indicated:



TABLE OF PERCENTAGE OF NET SALES



|                                                                |  |                     |   |  |               |    |  |               |  
|--------------------------------------------------------------- |  | ------------------- | - |  | ------------- | -- |  | ------------- | -
|                                                                |  | Year Ended Jan. 31, |  
|                                                                |  | 2005                |   |  | 2004 Restated |    |  | 2003 Restated |  
|Net sales                                                       |  | 100.0               | % |  | 100.0         | %  |  | 100.0         | %
|Cost of goods sold, warehouse, distribution and occupancy costs |  | 69.1                |   |  | 70.6          |    |  | 70.8          |  
|                                                                |  |                     |   |  |               |    |  |               |  
|Gross profit                                                    |  | 30.9                |   |  | 29.4          |    |  | 29.2          |  
|Selling, general and administrative expenses                    |  | 30.3                |   |  | 29.2          |    |  | 27.5          |  
|Store pre-opening costs                                         |  | 0.1                 |   |  | 0.0           |    |  | 0.0           |  
|Relocation and closure (gains) costs                            |  | (0.1                | ) |  | 1.2           |    |  | (1.1          | )
|Other (income)                                                  |  | (0.3                | ) |  | (1.1          | )  |  | 0.0           |  
|                                                                |  |                     |   |  |               |    |  |               |  
|Operating income                                                |  | 0.9                 |   |  | 0.1           |    |  | 2.8           |  
|Equity in (loss) income of affiliates                           |  | 0.0                 |   |  | (0.1          | )  |  | 0.1           |  
|Interest expense                                                |  | 0.7                 |   |  | 0.7           |    |  | 0.7           |  
|                                                                |  |                     |   |  |               |    |  |               |  
|Income (loss) before income tax expense (benefit)               |  | 0.2                 |   |  | (0.7          | )  |  | 2.2           |  
|Income tax expense (benefit)                                    |  | 0.1                 |   |  | (0.4          | )  |  | 0.7           |  
|                                                                |  |                     |   |  |               |    |  |               |  
|Net income (loss)                                               |  | 0.1                 | % |  | (0.3          | )% |  | 1.5           | %
|                                                                |  |                     |   |  |               |    |  |               |  



There has been no
material impact of inflation and changing prices on our net sales and operating income for each of the fiscal years ended January 31, 2005, 2004 and 2003, respectively.



TABLE OF COMPARABLE STORE SALES



|                        |  |                                        |   |  |                                        |  
|----------------------- |  | -------------------------------------- | - |  | -------------------------------------- | -
|                        |  | Twelve months ended January 31,        |  
|                        |  | 2005 versus 2004 % (decrease) increase |   |  | 2004 versus 2003 % (decrease) increase |  
|Australia (in A$ terms) |  | (2.1                                   | ) |  | (1.0                                   | )
|U.S.A. (in US$ terms)   |  | 6.7                                    |   |  | 5.5                                    |  



Comparable store sales
are calculated by including the sales of all retail stores, commencing in the fourteenth month after opening, for the current and comparable prior periods.



Relocated/expanded retail stores are excluded from the current and prior years comparable store sales during the twelve months immediately following
the relocation/expansion, unless the relocated/expanded retail store:



| |  |  | is in the same general precinct as the retail store it replaces; and
| | - |  | --------------------------------------------------------------------



| |  |  | is not at variance by more than 20% in floor selling space.
| | - |  | -----------------------------------------------------------



27



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Closed retail stores are excluded from the current and prior years comparable store sales from the
date of closure and on the basis of not having traded uninterruptedly for a minimum of twelve months.



Strategy



Our main
focus is on retail particularly in further developing our retail brand Barbeques Galore both in the United States and Australia.



Our unique retailing concept differentiates us from our competitors by:



| | (i) |  | offering an extensive selection of barbecues and related accessories to suit all consumer lifestyles, preferences and price points;
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | offering certain heating products;
| | ---- |  | ----------------------------------



| | (iii) |  | in the case of Australia, expanding our product range to include outdoor furniture and backyard products;
| | ----- |  | ---------------------------------------------------------------------------------------------------------



| | (iv) |  | showcasing these products at convenient store locations with a shopping environment that promotes the backyard experience; and
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------



| | (v) |  | providing exceptional customer service through well-trained sales associates who have in-depth knowledge of the products and understanding of customer needs.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



In the United States we intend to develop our
brand by growing our store base and filling in existing markets and examining new markets based on an analysis of demographics and customer profiles which emanate from our existing stores and which will enable us to identify new areas
for growth. Our marketing strategy is currently centered around the print media.



In Australia, we enjoy a high level of retail brand awareness and will be seeking to further exploit that awareness by further expanding our product range to include a more comprehensive range of patio furniture and
other backyard products. We have re-merchandized our stores to encompass the backyard and they are supported by a marketing strategy Good Times Galore through both the print and electronic media.



Our aim is to be the Category Killer in the barbecue
industry in the United States and in the Backyard generally, in Australia.



On the supply side, we will continue to develop proprietary products to keep us at the forefront of the industries in which we operate and strengthen our alliances with overseas manufacturers.



28



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##### Table of Contents

TABLE OF CONSOLIDATED STATEMENTS OF OPERATIONS IN A$000



|                                                                |  |       |      |                                |         |              |          |    |         |                                |  |        |              |  |    |         |   |  |    |         |   |  |        |   
|--------------------------------------------------------------- |  | ----- | ---- | ------------------------------ | ------- | ------------ | -------- | -- | ------- | ------------------------------ |  | ------ | ------------ |  | -- | ------- | - |  | -- | ------- | - |  | ------ | --
|                                                                |  | Notes |      | Twelve months endedJanuary 31, |         |              | % change |    |         | Twelve months endedJanuary 31, |  |        | % change     | 
|                                                                |  |       | 2005 |                                |         | 2004Restated |          |    |         | 2004Restated                   |  |        | 2003Restated |  |   
|Net sales                                                       |  |       |      |                                |         |              |          |    |         |                                |  |        |              |  |    |         |   |  |    |         |   |  |        |   
|-Australia                                                      |  |       |      | A$                             | 130,920 |              |          | A$ | 133,340 |                                |  | (1.8   | )            |  | A$ | 133,340 |   |  | A$ | 139,731 |   |  | (4.6   | ) 
|-U.S.A.                                                         |  |       |      |                                | 156,172 |              |          |    | 160,689 |                                |  | (2.8   | )            |  |    | 160,689 |   |  |    | 185,820 |   |  | (13.5  | ) 
|                                                                |  |       |      |                                |         |              |          |    |         |                                |  |        |              |  |    |         |   |  |    |         |   |  |        |   
|Total net sales                                                 |  | 1     |      |                                | 287,092 |              |          |    | 294,029 |                                |  | (2.4   | )            |  |    | 294,029 |   |  |    | 325,551 |   |  | (9.7   | ) 
|Cost of goods sold, warehouse, distribution and occupancy costs |  |       |      |                                | 198,480 |              |          |    | 207,451 |                                |  | 4.3    |              |  |    | 207,451 |   |  |    | 230,335 |   |  | 9.9    |   
|                                                                |  |       |      |                                |         |              |          |    |         |                                |  |        |              |  |    |         |   |  |    |         |   |  |        |   
|Gross profit                                                    |  | 2     |      |                                | 88,612  |              |          |    | 86,578  |                                |  | 2.3    |              |  |    | 86,578  |   |  |    | 95,216  |   |  | (9.1   | ) 
|Selling, general and administrative expenses                    |  | 3     |      |                                | 86,882  |              |          |    | 85,923  |                                |  | (1.1   | )            |  |    | 85,923  |   |  |    | 89,670  |   |  | 4.2    |   
|Store pre-opening costs                                         |  |       |      |                                | 200     |              |          |    | 14      |                                |  | n/a    |              |  |    | 14      |   |  |    | 139     |   |  | 89.9   |   
|Relocation and closure (gains) costs                            |  | 4     |      |                                | (170    | )            |          |    | 3,427   |                                |  | 105.0  |              |  |    | 3,427   |   |  |    | (3,552  | ) |  | (196.5 | ) 
|Other (income)                                                  |  | 5     |      |                                | (959    | )            |          |    | (3,004  | )                              |  | (68.1  | )            |  |    | (3,004  | ) |  |    |        |   |  | n/a    |   
|                                                                |  |       |      |                                |         |              |          |    |         |                                |  |        |              |  |    |         |   |  |    |         |   |  |        |   
|Operating income                                                |  |       |      |                                | 2,659   |              |          |    | 218     |                                |  | n/a    |              |  |    | 218     |   |  |    | 8,959   |   |  | (97.6  | ) 
|Equity in (loss) income of affiliates                           |  | 6     |      |                                |        |              |          |    | (218    | )                              |  | 100.0  |              |  |    | (218    | ) |  |    | 462     |   |  | (147.2 | ) 
|Interest expense                                                |  | 7     |      |                                | 2,091   |              |          |    | 2,044   |                                |  | (2.3   | )            |  |    | 2,044   |   |  |    | 2,259   |   |  | 9.5    |   
|                                                                |  |       |      |                                |         |              |          |    |         |                                |  |        |              |  |    |         |   |  |    |         |   |  |        |   
|Income (loss) before income tax expense (benefit)               |  |       |      |                                | 568     |              |          |    | (2,044  | )                              |  | 127.8  |              |  |    | (2,044  | ) |  |    | 7,162   |   |  | (128.5 | ) 
|Income tax expense (benefit)                                    |  | 8     |      |                                | 280     |              |          |    | (1,267  | )                              |  | (122.1 | )            |  |    | (1,267  | ) |  |    | 2,274   |   |  | 155.7  |   
|                                                                |  |       |      |                                |         |              |          |    |         |                                |  |        |              |  |    |         |   |  |    |         |   |  |        |   
|Net income (loss)                                               |  |       |      | A$                             | 288     |              |          | A$ | (777    | )                              |  | 137.1  | %            |  | A$ | (777    | ) |  | A$ | 4,888   |   |  | (115.9 | )%
|                                                                |  |       |      |                                |         |              |          |    |         |                                |  |        |              |  |    |         |   |  |    |         |   |  |        |   



Twelve Months Ended January 31,
2005 Compared to Restated Twelve Months Ended January 31, 2004



|1 |  | Sales
|- |  | -----



The overall reduction of A$6.9 million in total net sales comprises decreases of:



| | ­ |  | A$4.5 million in U.S.A. comparable store sales due to the effect of the strengthening in the average rate of exchange between the Australian dollar and the U.S. dollar;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | A$2.3 million in Australian comparable store sales due to:
| | - |  | ----------------------------------------------------------



| |  |  | a general slow-down in Australian retail industry particularly for consumer durables during the summer season;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | furniture ranging strategy issues particularly as a result of not catering for the lower end of the market;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | managements decision in calendar 2004 to exit the camping business as it did not form part of the future strategy for Australian retail which decided to concentrate on the
Backyard; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | A$10.7 million in Australian sales due to national chains sourcing product direct from China.
| | - |  | ---------------------------------------------------------------------------------------------



These overall decreases were partially offset by increases of A$7.6 million in sales from stores in both the U.S.A. and
Australia which did not form part of comparable store sales, A$2.6 million in sales to Australian Licensees and A$0.3 million in export sales due to an increased market share in Europe on the part of our U.K. export distributor.



29



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In the U.S.A., sales in US$ terms increased by US$7.9 million comprising an increase of US$5.8 million in
comparable store sales, US$2.5 million from new store openings and US$0.1 million from other sales activities. This was partially offset by reduced net sales of US$0.5 million to franchisees, having regard particularly to our acquisition of the
franchised outlets at Atlanta and Duluth, Georgia, respectively.



Australian retail, including Licensees, recorded a net sales increase of A$7.9 million, due to:



| | ­ |  | an increase of A$2.2 million in comparable barbecue sales with a new ranging strategy in both product and price and an earlier start to our marketing campaign for the Australian
summer;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | new store openings at Nunawading and Hoppers Crossing, Vic, Marion, SA and Fortitude Valley, Qld totaling A$4.5 million;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| | ­ |  | the relocation of stores at Morley, WA and Launceston, Tas;
| | - |  | -----------------------------------------------------------



| | ­ |  | an increase of A$1.7 million in barbecue sales to Licensees with a new ranging strategy in both product and price and an earlier start to our marketing campaign for the Australian
summer;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | an increase of A$0.6 million in furniture sales to Licensees as a result of a direct-selling program; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| | ­ |  | a strengthening in the acceptance on the part of consumers of our Saxon and Austwood heater brands, resulting in increased sales of A$0.3 million to Licensees.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



This was partially offset by a decrease of A$2.4
million in camping sales as a result of our exiting the camping business.



The scaled back Australian Wholesale recorded a net sales decrease of A$10.7 million due to:



| | ­ |  | a reduction of A$10.3 million as a result of national chains sourcing product direct from China;
| | - |  | ------------------------------------------------------------------------------------------------



| | ­ |  | slower heating sales of A$0.3 million due essentially to the expiry of a contract with Housing Tasmania and a wholesale customer becoming a Licensee; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | exiting the remaining camping and other backyard lines amounting to A$0.1 million.
| | - |  | ----------------------------------------------------------------------------------



Export sales increased by A$0.3 million due to an increased market share in Europe on the part of our U.K. distributor.



In the United States, new stores were opened at Wellington,
Florida and Westlake Village, California, respectively and the franchised stores at Atlanta and Duluth, Georgia, respectively were acquired, effective November 1, 2004. In Australia, new stores were opened at Nunawading and Hoppers Crossing, Vic,
Marion, SA and Fortitude Valley, Qld and the stores at Morley, WA and Launceston, Tas, respectively, were relocated. The licensee store at Bowral, NSW was taken over in June 2004 and operated as a company-owned store until February 28, 2005 when it
was on-sold as a licensee store to a former Australian employee. The store at Ringwood, Vic was closed on January 30, 2005.



|2 |  | Gross profit percentage and gross profit dollars
|- |  | ------------------------------------------------



The gross profit percentage is derived from the deduction of cost of goods sold, warehouse, distribution and occupancy costs from net sales.



In the U.S.A., gross profit percentage increased by 1.9% and
A$1.6 million in dollar terms, due to:



| | ­ |  | increased selling prices and margin growth of approximately 2.1% in our core product categories due to lower cost of sales on imported product from China;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | strong growth in our stainless steel and island categories throughout fiscal 2005 at margins approximately 3.0% above the previous levels in fiscal 2004;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | ­ |  | an increase in service revenue of approximately A$0.6 million as a result of managements focus on actively marketing our delivery and assembly services; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | increased discounts received on local purchases totaling A$0.2 million.
| | - |  | -----------------------------------------------------------------------



The U.S.A. gross profit percentage increase was partially offset by:



| | ­ |  | a soft winter season with weak sales of high margin proprietary grills and strong growth in lower margin stainless steel grills;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | competitive pressures, severe winter storms and a weak post-Christmas selling season;
| | - |  | -------------------------------------------------------------------------------------



| | ­ |  | clearance of slow-moving merchandize at lower gross margins; and
| | - |  | ----------------------------------------------------------------



| | ­ |  | occupancy costs of approximately A$0.5 million in relation to stores that were opened or acquired during the year.
| | - |  | ------------------------------------------------------------------------------------------------------------------



In Australia, gross profit percentage at the retail level including
Licensees, increased by 0.1% and A$2.5 million in dollar terms, due to a decrease in the cost of goods sold of 2.9% partially offset by a 1.6% increase in occupancy costs in relation to the five new stores opened during fiscal 2005.



The decrease in the cost of goods sold arose mainly in the categories of:



| | ­ |  | barbecues - 1.7% and A$1.2 million in dollar terms; and
| | - |  | -------------------------------------------------------



| | ­ |  | furniture - 3.8% and A$0.7 million in dollar terms,
| | - |  | ---------------------------------------------------



brought about by the lower actual cost price of goods imported from manufacturers in China. Higher margin sales in the high-end of our barbecue product range (0.3% and
A$0.2 million in dollar terms) also contributed to the increase in gross margin percentage.



The increase in gross profit percentage was partially offset by:



| | ­ |  | reduced selling prices as part of the ranging strategy to lower price points;
| | - |  | -----------------------------------------------------------------------------



| | ­ |  | an increase in Licensees cost of goods sold; and
| | - |  | ------------------------------------------------



| | ­ |  | reduced selling prices to Licensees to enable them to remain competitive and as part of on overall ranging strategy.
| | - |  | --------------------------------------------------------------------------------------------------------------------



In the scaled-back Wholesale/Export, gross profit percentage decreased by
3.1% arising from increased competitiveness in the export market. The A$2.3 million decrease in dollar terms, was mostly attributable to managements decision as mentioned earlier, to scale back its wholesale barbecue business, particularly
with direct sourcing from China by the national chains.



|3 |  | Selling, general and administrative expenses (SGA)
|- |  | ----------------------------------------------------



In the U.S.A., SGA increased by A$1.4 million mainly due to:



| | ­ |  | increased variable sales related expenses (commissions and sales promotion) of approximately A$0.3 million resulting from increased sales;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | increased personnel costs associated with corporate head office of approximately A$0.4 million including incremental costs during fiscal 2005 for the Companys Chief Executive
Officer who was appointed on September 15, 2003;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | increased repair costs of approximately A$0.2 million;
| | - |  | ------------------------------------------------------



| | ­ |  | increased legal costs of approximately A$0.1 million, the majority of which was associated with the establishment of a US$15.0 million revolving line of credit facility with the
Union Bank of California, N.A. (UBC) (the UBC Facility); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | an accelerated depreciation charge of approximately A$78,000 at under-performing stores situated at Fountains, Dallas and Coral Springs, Florida.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



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In Australia, SGA decreased by A$0.4 million due primarily to:



| | ­ |  | the implementation of our strategy to downsize, as mentioned earlier, resulting in fewer staff members and lower overheads decreasing SGA by $2.3 million; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | a decrease in rebates of $0.4 million which are no longer paid to our larger customers following the downsizing,
| | - |  | ----------------------------------------------------------------------------------------------------------------



partially offset by:



| | ­ |  | increased payroll expenditure associated with new store openings and employee time-tabling at store level totaling A$1.4 million;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | additional visual merchandize costs of A$0.3 million and A$0.2 million of POS software licences and maintenance for all our stores;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | additional credit card charges of A$0.1 million associated with increased credit purchases; and
| | - |  | -----------------------------------------------------------------------------------------------



| | ­ |  | additional depreciation and amortization charges totaling A$0.3 million associated with fixed asset additions at new and relocated stores.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



|4 |  | Relocation and closure (gains) costs
|- |  | ------------------------------------



The relocation and closure (gains) for fiscal 2005 comprise the loss of profits insurance payment received pursuant to the Keswick, Australia store fire
on April 5, 2003.



During the comparable period in fiscal 2004,
the relocation and closure costs arose from:



| | ­ |  | A$4.16 million incurred in connection with the previously announced downsizing of our manufacturing operations in Sydney, Australia; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | a surplus of A$0.7 million arising pursuant to an insurance payment received primarily for the fixed assets destroyed in the Keswick, Australia store fire on April 5, 2003.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|5 |  | Other (income)
|- |  | --------------



Other (income) relates predominantly to the surplus arising pursuant to the disposal of one Australian property as part of the long-term plan to
consolidate our Sydney distribution center onto one single site, our corporate headquarters onto a separate single site and to consider contracting out part of our storage and bulk distribution to third parties.



During the comparable period in fiscal 2004, other (income) comprised:



| | ­ |  | a surplus of A$(3.611) million pursuant to the disposal of two Australian properties as part of the long-term plan to consolidate our Sydney distribution center onto one single
site, our corporate headquarters onto a separate single site and to consider contracting out part of our storage and bulk distribution to third parties; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | a provision of A$565,000 in relation to certain temporary workers physical damages claims which did not enjoy insurance cover as a result of our former insurance provider
having been placed into liquidation as outlined on page 12. All these claims were settled during fiscal 2005 apart from one claim which was the subject of a successful court appeal by the Company and in respect of which the opposing party has
recently been granted leave to make a further appeal to the High Court of Australia.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6 |  | Equity in (loss) income of affiliates
|- |  | -------------------------------------



No equity in (loss) income of afflilates is reflected during fiscal 2005 as a result of the disposal of our equity interest during February 2004.



32



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##### Table of Contents

Equity in (loss) income of affiliates in respect of fiscal 2004, reflects the income from Bromic and
Renegade Pty Limited trading as Supagas (Supagas) amounting to approximately A$135,000 and A$91,000, respectively. The carrying value of A$959,000 at January 31, 2004 (prior to write-down) represented the cost of our equity interest in
both entities plus our share of the undistributed profits in Bromic and Supagas and was adjusted by the write-down of approximately A$444,000 during the year ended January 31, 2004 to reflect the re-assessed recoverable amount determined pursuant to
the consideration to be received in respect of the disposal to existing shareholders, of our aforementioned equity interest. Accordingly, there was no gain or loss recognized upon sale of the two affiliated companies.



The consideration for Bromic amounted to A$1,130,080 in addition to a
dividend of A$515,280 with payment in cash, (both of which were received during fiscal 2005), upon the execution of a formal agreement. In the case of Supagas, the consideration amounted to A$2,000,000 payable as to A$750,000 on January 1, 2005,
(and received during fiscal 2005), A$750,000 on January 1, 2006 and A$500,000 on January 1, 2007, subject to acceleration of the full balance in the case of default. The unpaid balance accrues interest at an annual rate of 6%, payable in arrears,
calculated from April 1, 2004 and payable with effect from January 1, 2005. As security for the performance of all the purchasers obligations, we have charged the pledge to us, over all the shares and loan account in Bromic and the shares in
Supagas, being sold.



|7 |  | Interest
|- |  | --------



The increase in interest expense comprises primarily of increases in the cost of core funding used to fund working capital requirements offset by a
reduction in the cost of trade finance used to fund vendor payments.



|8 |  | Taxation
|- |  | --------



Our effective tax rate was 49.3% for the fiscal year ended January 31, 2005 as a result of an Australian tax rate of 30%, the exclusion from taxation of
the surplus arising upon the disposal of one Australian property, the taxation of the U.S.A. profits at a rate of 40%, prior year adjustments amounting to A$75,000 and non-deductible expenditure for taxation purposes amounting to $64,000.



Our effective tax rate was 62.0% (benefit) for the fiscal year
ended January 31, 2004 as a result of an Australian tax rate of 30%, the exclusion from Australian taxation of the equity loss in affiliates of A$218,000, the non-taxable surplus of A$3.4 million arising upon the disposal of two Australian
properties, the taxation of the U.S.A. profits at a rate of 40% and non-deductible expenditure for taxation purposes in the United States.



Restated Twelve Months Ended January 31, 2004 Compared to Restated Twelve Months Ended January 31, 2003



|1 |  | Sales
|- |  | -----



The reduction in total net sales comprises decreases of:



| | ­ |  | A$22.1 million in comparable store sales due primarily, to the effect of the strengthening in the average rate of exchange between the Australian dollar and the U.S. dollar and
managements decision to exit the camping business;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | A$1.7 million in sales from stores which did not form part of comparable store sales; and
| | - |  | -----------------------------------------------------------------------------------------



| | ­ |  | A$7.8 million in Australian wholesale sales due primarily to a reduction in barbecue sales arising from the loss of certain customer accounts, partially offset by the changed
strategy of selling directly from supplier to customer (indent) which attracts a significantly lower selling price, rather than wholesaling and distributing from our warehouses.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In the U.S.A., sales were impacted during the first fiscal quarter by the
poor consumer confidence in the lead up to and during, the Iraq War and the particularly weak economic conditions in the U.S. generally.



33



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##### Table of Contents

Although this trend was partially reversed during the second fiscal quarter by a lift in consumer confidence which continued into both the third and fourth
fiscal quarters, this was offset by the aforementioned strengthening in the average rate of exchange.



In the U.S.A., sales increased in US$ terms due to the aforementioned continuing growth in consumer confidence. This resulted in an increase of US$5.0
million in comparable store sales and US$0.8 million in increased sales to franchisees and franchisee fees, partially offset by US$1.3 million resulting from store closures.



At the Australian retail level, sales increases of A$1.6 million, A$1.4 million and A$0.7 million were recorded in the
barbecue, backyard and furniture categories respectively, occasioned in the main, by natural growth on the previous year, the impact of new stores and, in the case of the furniture and backyard categories, the impact of expanded ranges. Sales in the
camping category declined by A$2.9 million due to managements decision to exit the camping business.



At the Australian licensee level, sales increases of A$891,000 and A$200,000 were recorded in the furniture and heating categories respectively,
occasioned primarily by forward order commitments as a result of the previous years success in the furniture category and the continuing strengthening of the Saxon and Austwood heater brands, leading to acceptance on the part of
consumers. This in turn was offset by sales reductions of A$560,000 and A$617,000 in the barbecue and camping categories respectively, the former due to increased competition and the latter due to the aforementioned management decision.



Australian wholesale sales were further impacted by reductions of
A$857,000 in camping (reflecting managements earlier stated decision to exit this category of business) and A$700,000 in exports due solely to the timing of despatches. Partially offsetting these reductions was an increase of A$884,000 in
heating due in the main, to a combination of new product ranges, marketing strategies and acceptance of the Saxon product on the part of consumers.



In the United States, one store was opened in Jacksonville, Florida and the U.S. Military concession store operated by the U.S. Navy Exchange in Pearl
Harbor, Hawaii was closed. In Australia, new stores were opened in Liverpool, NSW, Artarmon, NSW, (to replace the store previously operated in Chatswood, NSW and taken over by the State Rail Authority) and at Myaree in Western Australia. A further
one NSW store was relocated from Blacktown to Prospect and a temporary store was opened at Mile End in South Australia (SA) to replace the store at Keswick, SA which was totally destroyed by fire on April 5, 2003. The operations of a
Licensee store in Bathurst, NSW were taken over. One new Licensee store was opened in Bunbury, Western Australia and one Licensee store was closed in Gladstone, Queensland.



|2 |  | Gross profit percentage
|- |  | -----------------------



In the U.S.A., gross profit percentage increased due to the exceptionally strong sales at enhanced margins during the fiscal third and fourth quarters
brought about by a shift in sales mix towards our key proprietary product lines and the importation of lower priced items now being sourced and manufactured in China.



U.S.A. gross profit percentage was further enhanced by:



| | ­ |  | margin gains across a broad spectrum of smaller sales categories;
| | - |  | -----------------------------------------------------------------



| | ­ |  | reductions in occupancy costs in relation to stores that were closed during the previous year;
| | - |  | ----------------------------------------------------------------------------------------------



| | ­ |  | a sharp increase in service revenue due to managements focus on actively marketing our delivery and assembly services; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| | ­ |  | reductions during the current fiscal year for inventory shrinkage
| | - |  | -----------------------------------------------------------------



and partially offset by increases in the cost of goods sold primarily due to cost fluctuations.



34



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##### Table of Contents

In Australia, gross profit percentage at the Retail level decreased mainly due to:



| | ­ |  | strong competition from Chinese imported product in the lower-end barbecue category and a higher volume of lower-priced products sold at lower margins;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | backyard inventory clearance sales during category range improvement as well as during the half-yearly and post-Christmas sales;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | the on-going clearance of discontinued camping equipment; and
| | - |  | -------------------------------------------------------------



| | ­ |  | the combined impact of clearance sales and strong local competition in the furniture category.
| | - |  | ----------------------------------------------------------------------------------------------



In the Licensee division, gross profit percentage declined mainly due to:



| | ­ |  | backyard inventory clearance sales during category range improvement and excess inventory;
| | - |  | ------------------------------------------------------------------------------------------



| | ­ |  | the on-going clearance of discontinued camping equipment; and
| | - |  | -------------------------------------------------------------



| | ­ |  | the increased strong local competition in the furniture category.
| | - |  | -----------------------------------------------------------------



In the Wholesale division, gross profit percentage declined due entirely to the higher percentage of indent barbecue sales which generate a lower margin.



|3 |  | Selling, general and administrative expenses (SGA)
|- |  | ----------------------------------------------------



In the U.S.A., SGA decreased due to:



| | ­ |  | depreciation charges pursuant to stores closed or identified for closure and other assets that were either at, or near, the end of their estimated useful lives.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



and offset by:



| | ­ |  | a planned increase in advertising and sales promotional expenses;
| | - |  | -----------------------------------------------------------------



| | ­ |  | increased variable sales related expenses (commissions and sales promotion); and
| | - |  | --------------------------------------------------------------------------------



| | ­ |  | costs associated with the hiring of senior management
| | - |  | -----------------------------------------------------



At the Australian wholesale level, SGA decreased due to the change in the nature of our business from one of wholesale distribution to predominantly that
of indent as mentioned earlier, partially offset by an adverse exchange rate movement.



At the Australian retail level, SGA increased due to:



| | ­ |  | increased advertising expenditure associated with the launch of the Good Times Galore campaign;
| | - |  | -------------------------------------------------------------------------------------------------



| | ­ |  | increased payroll expenditure at existing stores, award pay increases and the impact of new stores;
| | - |  | ---------------------------------------------------------------------------------------------------



| | ­ |  | costs associated with the employment of senior management; and
| | - |  | --------------------------------------------------------------



| | ­ |  | additional depreciation and amortization charges associated with new stores.
| | - |  | ----------------------------------------------------------------------------



|4 |  | Relocation and closure costs (gains)
|- |  | ------------------------------------



The relocation and closure (costs) for fiscal 2004 comprise the:



| | ­ |  | A$3.98 million incurred in connection with the previously announced downsizing of our manufacturing operations in Sydney, Australia; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | surplus arising pursuant to an insurance payment received primarily for the fixed assets destroyed in the Keswick, Australia store fire on April 5, 2003.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



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During the comparable period in fiscal 2003, the relocation and closure (gains) arose from:



| | ­ |  | compensation of A$(4.1) million received from the State Rail Authority in relation to the expropriation of the leasehold property relating to the Chatswood, NSW store
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | an additional A$348,000 provided for the store closures in the U.S.A.; and
| | - |  | --------------------------------------------------------------------------



| | ­ |  | A$200,000 in professional fees, advertising expenses and asset write-offs relating to the Chatswood, NSW store.
| | - |  | ---------------------------------------------------------------------------------------------------------------



|5 |  | Other (income)
|- |  | --------------



Other (income) includes the:



| | ­ |  | surplus of A$(3.611) million pursuant to the disposal of two Australian properties as part of a plan to consolidate our Sydney distribution center and corporate headquarters on the
remaining company-owned sites and to contract out part of our storage and bulk distribution, to third parties; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | ­ |  | provision of A$565,000 in relation to certain temporary workers physical damages claims which did not enjoy insurance cover as a result of our former insurance provider having
been placed into liquidation as outlined on page 12. One of these claims is now the subject of a court appeal by the company.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6 |  | Equity in (loss) of affiliates
|- |  | ------------------------------



Equity in (loss) of affiliates reflects the income from Bromic and Renegade Pty Limited trading as Supagas (Supagas) amounting to
approximately A$135,000 and A$91,000, respectively. The carrying value of A$959,000 at January 31, 2004 (prior to write-down) represents the cost of our equity interest in both entities plus our share of the undistributed profits in Bromic and
Supagas and was adjusted by the write-down of approximately A$444,000 during the year ended January 31, 2004 to reflect the re-assessed recoverable amount determined pursuant to the consideration to be received in respect of the disposal to existing
shareholders, of our aforementioned equity interest.



The
consideration for Bromic amounted to A$1,130,080 in addition to a dividend of A$515,280 with payment in cash upon the execution of a formal agreement. In the case of Supagas, the consideration amounted to A$2,000,000 payable as to A$750,000 on
January 1, 2005, A$750,000 on January 1, 2006 and A$500,000 on January 1, 2007, subject to acceleration of the full balance in the case of default. The unpaid balance accrues interest at an annual rate of 6%, payable in arrears, calculated from
April 1, 2004 and payable with effect from January 1, 2005. As security for the performance of all the purchasers obligations, we have charged the pledge to us, over all the shares and loan account in Bromic and the shares in Supagas, being
sold.



|7 |  | Interest
|- |  | --------



The reduction in interest expense has been brought about by a decrease in the level of borrowings during the fiscal year.



|8 |  | Taxation
|- |  | --------



Our effective tax rate was 62.0% (benefit) for the fiscal year ended January 31, 2004 as a result of an Australian tax rate of 30%, the exclusion from
Australian taxation of the equity loss in affiliates of A$218,000, the non-taxable surplus of A$3.4 million arising upon the disposal of two Australian properties, the taxation of the U.S.A. profits at a rate of 40% and non-deductible expenditure
for taxation purposes in the United States.



During the fiscal
year ended January 31, 2003, our effective tax rate was 31.7% as a result of an Australian tax rate of 30%, the exclusion from Australian taxation of the equity income in affiliates of A$462,000, a A$0.4 million write-down in deferred tax assets to
reflect recoverable amount and the taxing of U.S.A. losses at a rate of 36%.



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##### Table of Contents

Critical Accounting Estimates



The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Management has identified the accounting estimates believed to be the most important to the portrayal of the Companys
financial condition and results and which require managements most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed
these critical accounting estimates with the Audit Committee and the Board of Directors. These critical accounting policies include:



Impairment of Long-Lived Assets and Goodwill



Long-lived assets, excluding goodwill, are periodically reviewed for impairment by comparing the carrying value of the
assets with the undiscounted cash flows expected to be generated by the long-lived asset or asset group. If the evaluation indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a
projected discounted cash flow method, using a discount rate that approximates the incremental borrowing rate. Assumptions are made with respect to cash flows expected to be generated by the related assets based upon updated projections. Any changes
in key assumptions or market conditions could result in an unanticipated impairment charge. For instance, in the event of a major market downturn, individual stores may become unprofitable which could result in a write-down of the carrying value of
the assets located in those stores. Any impairment would be recognized in operating results if a permanent reduction were to occur. There have been no significant changes to the assumptions used in determining the projected discounted cash flows in
any of the last three years presented. As of January 31, 2005 and 2004, we have property, plant and equipment of A$21,376,000 and A$23,221,000, respectively.



In accordance with Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, we test goodwill for impairment
annually, at the end of our fourth quarter, or more frequently if events occur which indicate a potential reduction in the fair value of a reporting units net assets below its carrying value. Fair value is the price a willing buyer would pay
for the reporting unit, and is generally estimated by discounting expected future cash flows from the reporting unit. An impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. There have been no
significant changes to the assumptions used in determining the fair value of the reporting unit in any of the last three years presented. As of January 31 2005 and 2004, we have goodwill of A$1,393,000 and A$1,096,000 respectively.



Income Taxes



Income taxes are determined by management based on current tax regulations
in the taxing jurisdictions in which we conduct our business. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some, or all of the deferred tax asset, will not be realized. In various situations, a
valuation allowance is determined based on estimates of the tax effects for certain transactions, the estimated reversal of timing differences and future projected profitability based on managements interpretation of existing facts,
circumstances and tax regulations. Should new evidence come to managements attention which could alter previous conclusions, the change in estimate could result in a material adverse or favorable impact on the financial statements. There have
been no significant changes to assumptions used in determining the tax effects from operations and the future projected recoverability of deferred tax assets in any of the last three years presented. As of January 31, 2005 and 2004, we have deferred
tax assets of A$6,680,000 and A$6,602,000, respectively and deferred tax liabilities of A$106,000 and A$60,000, respectively. For the years ended January 31, 2005, 2004 and 2003, income tax expense (benefit) included A$(145,000)(benefit),
A$(1,855,000)(benefit) and A$(371,000)(benefit), respectively, for deferred taxes to federal, foreign, state and local taxing jurisdictions.



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##### Table of Contents

Inventory Reserves



Inventories are valued at the lower of cost or market using the first-in,
first-out method. In assessing the adequacy of our reserve for inventory net realizable value, we make assumptions in relation to future demand and market conditions. Changes in estimates, developing trends and other new information can have a
material effect on future evaluations. If actual demand and market conditions are less favorable than those projected by management, additional inventory reserves may be required. There have been no significant changes to the assumptions used in
determining the net realizable value of inventory in any of the last three years presented. As of January 31, 2005 and 2004, we have inventory of A$59,009,000 and A$55,812,000, respectively and reserve balances of A$608,000 and A$368,000,
respectively.



Trade Accounts Receivable
Allowance



The allowance for doubtful accounts
is our best estimate of the amount of probable credit losses in our existing accounts receivable and is determined monthly based on historical write-off experience. Past due balances over 90 days and over a specified amount are reviewed individually
for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Changes in estimates, developing trends and other new information can
have a material effect on future evaluations. Future collections or lack thereof could result in a material charge or credit to earnings depending on the ultimate resolution of each individual customer past due. There have been no significant
changes to the assumptions used in determining the bad debts reserve in any of the last three years. As of January 31, 2005 and 2004, we have trade accounts receivable of A$7,866,000 and A$9,216,000, respectively and allowance balances of A$200,000
and A$250,000, respectively.



Foreign Exchange Fluctuations



See Item 3. Key Information - A. Selected Financial Data - Exchange
Rates and  - D. Risk Factors.



Governmental Regulation



See Item 4. Information on our Company - B.
Business Overview - Governmental Regulation.



|B. |  | LIQUIDITY AND CAPITAL RESOURCES
|-- |  | -------------------------------



We have historically financed our operations through cash flow from operations and bank borrowings. During the quarter ended October 31, 2004 and as part
of a re-arrangement of our credit lines between the U.S.A. and Australia, our U.S.A. operating subsidiaries, Barbeques Galore, Inc. and Barbeques Galore Online, Inc. entered into an agreement for the establishment of the UBC Facility, as defined on
page 31, in the amount of US$15.0 million. The unutilized portion of the facility is available for immediate borrowings in the U.S.A., subject to borrowing base limitations defined in the debt agreement. As part of this arrangement the previous
credit facility with Merrill Lynch Business Financial Services, Inc. was repaid.



Borrowings under the UBC Facility include both a subjective acceleration clause and a requirement to maintain a lock-box arrangement whereby remittances from the Companys customers reduce the debt outstanding.
Pursuant to EITF 95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include both a Subjective Acceleration Clause and a Lock-Box Arrangement, borrowings which reflect the
aforementioned characteristics, are considered short-term obligations and have accordingly been classified as a current liability.



Indebtedness under the UBC Facility accrues interest at the UBCs Reference Rate as defined in the aforementioned agreement or, the London
Inter-bank Offered Rate (LIBOR)plus 1.65%, is secured by a first security interest in certain assets of Barbeques Galore, Inc. and Barbeques Galore Online, Inc. and guaranteed by



38



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##### Table of Contents

The Galore Group (U.S.A.), Inc., the parent of Barbeques Galore, Inc. The UBC Facility matures on November 23, 2007, being three years from the date of the
initial advance. The UBC Facility is subject to financial covenants including minimum loan balance and maximum capital expenditures.



In Australia as of January 31, 2005, we had access to a facility with the Australian and New Zealand Banking Group Limited (ANZ), (the
ANZ Facility), of up to A$28.6 million (reduced on July 21, 2005 to A$23.8 million), comprising real property loans, overdraft, leasing, interchangeable commercial bill acceptance discount facilities, foreign currency and other
facilities. As of January 31, 2005 the Company had not utilized A$13.9 million of the total facility which is available for immediate borrowings in Australia, subject to borrowing base limitations defined in the debt agreement. The ANZ Facility is
secured by a first security interest over our present and future Australian assets and a second security interest (subordinate to a lien under the UBC Facility), in all our assets in the United States. The ANZ Facility is further guaranteed by each
of our subsidiaries, including The Galore Group (U.S.A.), Inc. and Barbeques Galore, Inc. (referred to collectively as Galore U.S.A.).



All Australian committed facilities are provided subject to regular periodic review of required limits, our performance and the normal terms and
conditions, including financial covenants, (relating to gearing ratios, fixed charge cover ratio, working capital ratio and restrictions on the level of shareholder funds, dividends paid and capital expenditures), applicable to bank lending. As of
January 31, 2005, we are in compliance with these financial covenants and we believe we will meet the applicable financial covenants associated with these facilities upon the next ANZ Facility review.



The next ANZ Facility review is anticipated to take place on October 31, 2005
when the ANZ may, in its absolute discretion, change some or all of the terms and conditions of the ANZ Facility which may include changing the interest rate, varying the type and level of assets secured and covenants imposed, varying the level of
the facility including its withdrawal or other matters. Any change by ANZ will require 30 days notice. In the event of the ANZ Facility falling due for repayment as a result of its review, we expect to have sufficient operating cash flows at
that time and the ability to obtain alternative funding to repay the ANZ Facility in full.



Certain measures of our liquidity are as follows:



|                                      |  |                                        |        |                                      |   |                                      |  |   |       
|------------------------------------- |  | -------------------------------------- | ------ | ------------------------------------ | - | ------------------------------------ |  | - | ------
|                                      |  | Year Ended January 31, 2005            |        | Year Ended January 31, 2004 Restated |   | Year Ended January 31, 2003 Restated
|                                      |  | (In A$ thousands except ratio details)
|Working capital                       |  | $                                      | 27,259 |                                      | $ | 46,579                               |  | $ | 45,863
|Short- term bank borrowings           |  |                                        | 20,206 |                                      |   |                                     |  |   |      
|                                      |  |                                        |        |                                      |   |                                      |  |   |       
|                                      |  | $                                      | 47,465 |                                      | $ | 46,579                               |  | $ | 45,863
|                                      |  |                                        |        |                                      |   |                                      |  |   |       
|Current ratio:                        |  |                                        |        |                                      |   |                                      |  |   |       
|Including short- term bank borrowings |  |                                        | 1.54   |                                      |   | 2.46                                 |  |   | 2.49  
|Excluding short- term bank borrowings |  |                                        | 2.55   |                                      |   | 2.46                                 |  |   | 2.49  



We are committed to
maintaining sufficient cash to support our business needs and to withstand the variations caused by seasonal and business cycle fluctuations. The current bank credit facilities are sufficient to meet our working capital requirements and planned
capital commitments for the foreseeable future. We anticipate further reducing our Australian debt levels during fiscal 2006 with such reduction to be funded by operating cash flows.



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##### Table of Contents

Cash Flows from Operating Activities



|                                                  |  |                             |        |   |                                      |   |       |                                      |  |   |        |  
|------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------------------ | - | ----- | ------------------------------------ |  | - | ------ | -
|                                                  |  | Year Ended January 31, 2005 |        |   | Year Ended January 31, 2004 Restated |   |       | Year Ended January 31, 2003 Restated | 
|                                                  |  | (In A$ thousands)           |       
|Net income (loss)                                 |  | $                           | 288    |   |                                      | $ | (777  | )                                    |  | $ | 4,888  |  
|Non-cash adjustments added back                   |  |                             | 4,165  |   |                                      |   | 2,030 |                                      |  |   | 8,539  |  
|                                                  |  |                             |        |   |                                      |   |       |                                      |  |   |        |  
|Net income after non-cash adjustments             |  |                             | 4,453  |   |                                      |   | 1,253 |                                      |  |   | 13,427 |  
|Changes in inventories                            |  |                             | (2,251 | ) |                                      |   | 1,008 |                                      |  |   | 484    |  
|Other changes in operating assets and liabilities |  |                             | (278   | ) |                                      |   | (71   | )                                    |  |   | (2,777 | )
|                                                  |  |                             |        |   |                                      |   |       |                                      |  |   |        |  
|Net cash provided by operating activities         |  | $                           | 1,924  |   |                                      | $ | 2,190 |                                      |  | $ | 11,134 |  
|                                                  |  |                             |        |   |                                      |   |       |                                      |  |   |        |  



Net cash provided by
operating activities during the year ended January 31, 2005 decreased by A$0.2 million compared with the prior year. While there was an improvement in net income after non-cash adjustments, the subdued trading conditions in Australia during the last
quarter resulted in an increase in inventory at fiscal year end.



The A$8.9 million decrease in net cash from operating activities for the year ended January 31, 2004 compared to the prior year, was primarily due to a decline in net earnings.



The reduction of our higher inventory holding during the last quarter of fiscal 2005 has been a key management focus and we
are continuing to reduce and control, inventory levels. We have already successfully reduced inventory levels in Australia during the first half of fiscal 2006 and anticipate that this trend will be maintained for the remainder of the fiscal year.
In the U.S.A., inventory growth is largely dependent upon the number of new stores opened.



Cash Flows from Investing Activities



Net cash (used in) provided by investing activities during the years ended January 31, 2005 and 2004 increased by A$4.6 million. This change was attributable to a $2.5 million increase in capital expenditure, a $2.6
million reduction in proceeds from the sale of property, plant and equipment and the proceeds of sale of our equity investment in affiliated companies.



Net cash (used in) provided by investing activities during the years ended January 31, 2004 and 2003 decreased by A$6.1 million, due to the sale of two
properties in Australia, as part of our long-term plan to consolidate our Sydney distribution center onto one single site, our corporate headquarters onto a separate single site and to consider contracting out part of our storage and bulk
distribution to third parties.



In any fiscal year, the level
of capital expenditure in both Australia and the U.S.A. is primarily a function of the number of new stores opened, refurbished or relocated. During the year ended January 31, 2005 we:



| |  |  | opened or re-fitted five stores in Australia, (compared to four during the prior year);
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | opened or re-fitted seven stores in the U.S.A., (compared to five during the prior year);
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | acquired the two franchised stores at Atlanta and Duluth, Georgia, respectively;
| | - |  | --------------------------------------------------------------------------------



| |  |  | upgraded the computer system located at the U.S. corporate headquarters in Lake Forest, California and installed a WAN for all U.S. stores; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | purchased miscellaneous items of plant and equipment for our Australian and U.S.A. operations.
| | - |  | ----------------------------------------------------------------------------------------------



The proceeds from the sale of property, plant and equipment during fiscal 2005 were mostly attributable to the sale of one
property in Australia, as part of the aforementioned long-term plan to consolidated our Sydney distribution center onto one single site, our corporate headquarters onto a separate single site and to contracting out part of our storage and bulk
distribution to third parties.



40



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##### Table of Contents

Our current plans for investment activities are primarily focused on the opening of up to ten new stores
in the U.S.A. and up to three new stores in Australia. Our available cash resources are sufficient to meet the capital expenditure required for these projects.



Cash Flows from Financing Activities



Net cash used in financing activities during the year ended January 31, 2005 increased by A$2.2 million compared to the prior year. We raised A$0.9
million from the exercise of employee options whilst our repayments under capital leases decreased by A$1.1 million, due to a decline in our overall commitment to capital lease finance.



Our combined bank debt commitment was reduced by A$1.5 million, compared to an increase of A$2.7 million in the previous
year. This is in line with our overall goal to reduce bank debt, particularly in Australia. A new bank facility was established with UBC during the year, for the purpose of funding the working capital needs of the U.S.A. for the next three years. At
January 31, 2005 the balance of this debt was A$7.4 million (2004: A$nil). Conversely, the total Australian bank debt had been reduced to A$12.8 million at January 31, 2005 (2004: A$22.0 million). This was made possible in part, by the sale of the
one property referred to above.



For the year ended 31 January
2004, net cash used in financing activities decreased by A$7.0 million compared to the previous year. The majority of this variation is attributable to the bank debt repayments achieved in the year ended January 31, 2003.



Our present and planned financing activities will maintain the same themes as
illustrated above. While providing for controlled store expansion, we will endeavour to reduce debt, particularly in Australia. We anticipate that better working capital management (i.e. inventory reduction) and improved profitability will provide
the capacity for us to achieve this debt reduction.



Capital Expenditures



In Australia, capital expenditure related to:



| | (i) |  | the fit-out of:
| | --- |  | ---------------



| |  | new stores at Nunawading and Hoppers Crossing, Victoria (Vic), Marion, South Australia (SA), Fortitude Valley, Queensland (Qld) and the Licensee
store at Bowral, NSW which was taken over in June 2004 and operated as a company-owned store until February 28, 2005 when it was on-sold as a licensee store to a former Australian employee.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | relocated stores at Morley in Western Australia (WA) and Launceston in Tasmania (Tas); and
| | - | ----------------------------------------------------------------------------------------------



| |  | the expanded flagship store at Moore Park in NSW.
| | - | -------------------------------------------------



| | (ii) |  | acquisition of furniture and fittings; and
| | ---- |  | ------------------------------------------



| | (iii) |  | miscellaneous items of computer equipment, machinery and motor vehicles for our new corporate headquarters and manufacturing operations, respectively.
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



In the United States, capital expenditure related to the:



| | (i) |  | the opening of new stores at Wellington, Florida and Westlake Village, California;
| | --- |  | ----------------------------------------------------------------------------------



| | (ii) |  | development of new stores under construction at Folsom, California (this store subsequently opened in February 2005) and Norwalk, Connecticut;
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| | (iii) |  | remodeling the existing store at Kearny Mesa, California, and the relocation and remodeling of the store at Tarzana, California;
| | ----- |  | --------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | (iv) |  | acquisition of the two franchised stores at Atlanta and Duluth, Georgia, respectively;
| | ---- |  | --------------------------------------------------------------------------------------



| | (v) |  | upgrade of the computer system located at the corporate headquarters in Lake Forest;
| | --- |  | ------------------------------------------------------------------------------------



| | (vi) |  | purchase of computer hardware and software equipment for the new stores at Wellington, Florida and Westlake Village, California and at our Lake Forest corporate headquarters; and
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (vii) |  | installation of the Wide Area Network (WAN) for all our stores.
| | ----- |  | -----------------------------------------------------------------



In the U.S.A. we continued to grow our store base with the opening of new stores at Wellington, Florida and Westlake
Village, California, the development of new stores under construction at Folsom, California (this store subsequently opened in February 2005) and Norwalk, Connecticut and the acquisition of the franchised stores at Atlanta and Duluth, Georgia,
respectively. We also have commitments to open three new stores at Temecula and Simi Valley, California and Alphareta, Georgia, respectively and are examining other opportunities on the East Coast. In Australia, we continued to position ourselves
for renewed growth having opened new stores at Nunawading and Hoppers Crossing, Vic, Marion, SA and Fortitude Valley, Qld. The operations of a licensee store in Bowral, NSW were taken over in June 2004 and operated as a company-owned store until
February 28, 2005 when it was on-sold as a licensee store to a former Australian employee. A new store is scheduled to open at Capalaba, Qld in July 2005.



Other



There are specified Permitted Distributions as part of the UBC Facility, relating to the ability of our U.S.A. subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. We are
subject to a restriction on the declaration or payment of dividends under the ANZ Facility, such that we are entitled to pay in any twelve month period, up to 331/3% of the net income in the immediately preceding twelve months.



|C. |  | RESEARCH AND DEVELOPMENT
|-- |  | ------------------------



See Item 4. Information on our Company - B. Business Overview - Manufacturing.



|D. |  | TREND INFORMATION
|-- |  | -----------------



This information has been disclosed elsewhere throughout this Annual Report.



|E. |  | OFF BALANCE SHEET ARRANGEMENTS
|-- |  | ------------------------------



Our off-balance sheet arrangements are limited to the leasing of plant and equipment and motor vehicles through operating leases. The leases do not expose
us to any material liabilities not recognized in the balance sheet.



|F. |  | TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
|-- |  | ---------------------------------------------



|                              |  |                   |         |                 |   |           |  |           |        |              |   |        |  |   |       
|----------------------------- |  | ----------------- | ------- | --------------- | - | --------- |  | --------- | ------ | ------------ | - | ------ |  | - | ------
|                              |  | Total             |         | Less than1 year |   | 2-3 years |  | 4-5 years |        | After 5years
|                              |  | (In A$ thousands)
|Capital lease obligations     |  | $                 | 4,242   |                 | $ | 1,555     |  | $         | 1,824  |              | $ | 863    |  |   |      
|Operating lease obligations   |  |                   | 92,231  |                 |   | 20,195    |  |           | 33,788 |              |   | 19,855 |  | $ | 18,393
|Purchase commitments(1)       |  |                   | 10,665  |                 |   | 10,665    |  |           |       |              |   |       |  |   |      
|Short-term bank borrowings(2) |  |                   | 20,206  |                 |   | 20,206    |  |           |       |              |   |       |  |   |      
|                              |  |                   |         |                 |   |           |  |           |        |              |   |        |  |   |       
|Total                         |  | $                 | 127,344 |                 | $ | 52,621    |  | $         | 35,612 |              | $ | 20,718 |  | $ | 18,393
|                              |  |                   |         |                 |   |           |  |           |        |              |   |        |  |   |       

---

|(1) |  | Represents commitments at year-end of inventory purchases.
|--- |  | ----------------------------------------------------------



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|(2) |  | The principal owed under the Companys short-term bank borrowings varies depending on need. Interest rates accrue in the U.S.A., at the UBCs Reference
Rate as defined in the UBC Facility or, the London Inter-bank Offered Rate (LIBOR) plus 1.65%. In Australia, interest rates are set at intervals of seven to 180 days. Given the highly seasonal nature of our business and the volatility of
our revenues, the determination of the exact cash flow requirements of the business (and, therefore, the debt funding required and associated interest), cannot be accurately quantified.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|G. |  | RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
|-- |  | ------------------------------------------------



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement No. 151, Inventory Costs,
(Statement 151) which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Under Statement 151, such items will be recognized as current-period charges. In
addition, Statement 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Any costs outside the normal range would be considered a period expense instead
of an inventoried cost. This standard is effective for us for the fiscal year beginning February 1, 2006. The adoption of Statement 151 is not expected to have a material impact on our financial position or net earnings.



In December 2004, the FASB issued Statement No. 153, Exchanges of
Non-Monetary Assets  An Amendment of APB Opinion No. 29, (Statement 153). The amendments made by Statement 153 are based on the principle that exchanges of non-monetary assets should be measured based on the fair value of
the assets exchanged. Further, the amendments eliminate the narrow exception for non-monetary exchanges of similar productive assets and replace it with a broader exception for exchanges of non-monetary assets that do not have commercial substance.
Previously, APB Opinion No. 29 required that the accounting for an exchange of a similar productive asset should be based on the recorded amount of the asset relinquished. This standard is effective for us for the fiscal year beginning February 1,
2006. The adoption of Statement 153 is not expected to have a material impact on our financial position or net earnings.



In December 2004, the FASB issued Statement No. 123 (Revised 2004), Share-Based Payment, (Statement 123R). The new FASB
rule requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. We will be required to
apply Statement 123R as of February 1, 2006 and intend to use the modified-prospective-transition method, as defined therein. The scope of Statement 123R includes a wide range of share-based compensation arrangements including share options.
Statement 123R replaces Statement No. 123, Accounting for Stock-Based Compensation, (Statement 123) and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. The pro-forma
disclosures previously permitted under Statement 123 will no longer be an alternative to financial statement recognition. See Note 1.A(j) of Notes to Consolidated Financial Statements for the pro-forma net loss and net loss per share amounts,
for fiscal years 2005, 2004 and 2003, had we used a fair-value method as required under Statement 123, to measure compensation expense for employee stock option awards. We are evaluating the requirements of Statement 123R and expect that the
adoption may have a material impact on our future consolidated statements of operations.



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|ITEM |  | 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|---- |  | ------------------------------------------------



|A. |  | DIRECTORS AND SENIOR MANAGEMENT
|-- |  | -------------------------------



Our directors, senior management and key employees are as follows:



|                                |  |     |  |                                                                                      
|------------------------------- |  | --- |  | -------------------------------------------------------------------------------------
|Name                            |  | Age |  | Position                                                                             
|Directors and Senior Management |  |     |  |                                                                                      
|Sam Linz                        |  | 65  |  | Chairman of the Board and Chief Executive Officer                                    
|Robert Gavshon                  |  | 58  |  | Deputy Chairman of the Board, General Counsel and Chief Executive Officer (Australia)
|John Price                      |  | 55  |  | Head of Product Management and Development and Director                              
|Sydney Selati                   |  | 66  |  | Chairman - Galore U.S.A. and Director                                                
|Edgar Berner(1)(2)(3)           |  | 73  |  | Director                                                                             
|Martin Bloom(1)(2)              |  | 64  |  | Director                                                                             
|Gordon Howlett(1)(2)            |  | 64  |  | Director                                                                             
|David Glaser                    |  | 56  |  | Company Secretary                                                                    
|David James                     |  | 44  |  | Chief Financial Officer                                                              
|Michael Lindblad                |  | 50  |  | Chief Executive Officer - Galore U.S.A.                                              
|Kevin Ralphs                    |  | 51  |  | Chief Financial Officer - Galore U.S.A.                                              
|                                |  |    
|Key EmployeesAustralia         |  |     |  |                                                                                      
|Monique Collister               |  | 57  |  | Group Organizational Development Manager                                             
|Merrick Davies                  |  | 45  |  | National Operations Manager                                                          
|Steve Katsilis                  |  | 39  |  | Group Information Technology Manager                                                 
|Craig Moore                     |  | 40  |  | Group Supply Chain Manager                                                           
|Loucas Nicola                   |  | 47  |  | General Manager - Manufacturing                                                      
|Jason Piggott                   |  | 30  |  | Marketing Manager                                                                    
|Conrad Taylor                   |  | 37  |  | National Distribution Manager                                                        
|David Wickham                   |  | 52  |  | General Manager - Licensees/Wholesale/Export                                         
|                                |  |    
|Key EmployeesUnited States     |  |     |  |                                                                                      
|Robin Isaacsohn                 |  | 50  |  | Director of Merchandise Planning and Allocation                                      
|Richard Kilar, Jr               |  | 39  |  | Director of Information Technology                                                   
|Benjamin Ramsey                 |  | 50  |  | Executive Vice President - Operations                                                
|Tom Steele                      |  | 42  |  | Director of Marketing                                                                
|Jim Tullis                      |  | 46  |  | Director of Distribution and Logistics                                               
|Michael Varley                  |  | 58  |  | Vice President of Research and Development                                           

---

|(1) |  | Member of the Audit Committee
|--- |  | -----------------------------

|(2) |  | Member of the Compensation Committee
|--- |  | ------------------------------------

|(3) |  | Resigned on June 25, 2004
|--- |  | -------------------------



Directors and Senior Management



Sam Linzhas served as Chairman of the Board since joining us in May 1982. Until July 1997, Mr. Linz served as non-executive Chairman of the Board
of Rebel Sport Limited (Rebel), a leading national sports superstore chain in Australia. Mr. Linz was one of the founders of Rebel and a major shareholder until he sold his interest in July 1997. Prior to joining us, Mr. Linz developed
and managed a large chain of liquor stores and hotels in South Africa in association with Mr. Selati. Mr. Linz has over 38 years of experience in the retail industry.



Robert Gavshon joined us in January 1983 as General Counsel and has also served as Deputy Chairman of the Board since
August 1993. Until July 1997, Mr. Gavshon served as a non-executive Director of Rebel.



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Mr. Gavshon was one of the founders of Rebel and a shareholder until he sold his interest in July 1997. Prior to joining us, Mr. Gavshon acted as group
counsel and director of corporate affairs for a multinational corporation based in Sydney, Australia and prior thereto as a partner in a large commercial law firm in South Africa. Mr. Gavshon has over 23 years of experience in the retail
industry.



John Price joined us in 1981 as General
Manager of Wholesale and has served as Head of Product Management and Development since June 1989 and as a Director since November 1989. Prior to joining us, Mr. Price helped found and was Managing Director of, Cook-On-Gas Products Pty Limited,
a developer and manufacturer of consumer gas products which we acquired in 1981. Mr. Price has over 32 years of experience in the development and marketing of consumer gas products.



Sydney Selatihas served as a Director since July 1997 and Chairman of Galore U.S.A. since May 1988. From 1984 until
1988, Mr. Selati was President of Sussex Group Limited, a chain of retail furniture stores including Huffman-Koos, Colbys and Barker Brothers. Prior to that, Mr. Selati developed and managed a large chain of liquor stores and hotels in South
Africa in association with Mr. Linz. Mr. Selati has over 38 years of experience in the retail industry.



Edgar Bernerwas appointed as a non-executive Director on September 1, 1998 and resigned on June 25, 2004.



Martin Bloomwas appointed as a non-executive Director and member of
the Audit Committee on November 19, 2002. He is a Chartered Accountant (equivalent to a CPA) and has been a partner in two substantial accounting firms, Grant Thornton Kessel Feinstein in South Africa, from 1964 to 1972 and Horwath Sydney in
Australia, from 1974 to-date. Dr. Bloom acted as Managing Director of Horwath Australia Limited and served for a number of years on the Council of Horwath International. His experience lies in the areas of auditing, corporate finance and litigation
support. Dr. Bloom is also a member of the Disciplinary Committee of the Institute of Chartered Accountants and has served on a number of other high-ranking professional accounting committees.



Gordon Howletthas served as a non-executive Director since August
1991 and as Chairman of our Audit Committee since November 1991. Mr. Howlett is the Chief Executive Officer of Thorn Asia Pacific, Chairman of Kennards Hire Pty Limited and a non-executive Director of Ausron Limited. Mr. Howletts previous
business experience was as Executive General Manager - Operations Qantas Airways from 1994 to 1997 and Managing Director of Avis Australia and Vice President of Avis throughout Asia Pacific, from 1981 to 1994.



David Glaserhas served as Company Secretary since March 1994. Mr.
Glaser was the financial administrator to certain of our subsidiaries from July 1989 to January 1996 and has also provided management accounting services to our retail subsidiary from February 1996 to April 1998. Mr. Glaser has extensive commercial
experience in retail, manufacturing and service industries, both locally and overseas.



David Jamesjoined us in January 1992, serving in several group financial roles and ultimately as General Manager - Finance & Administration until his departure in September 1996. From September 1996 to
July 1997, Mr. James was employed as Finance Director by HMV Australia Pty Limited, a subsidiary of EMI plc.. He rejoined us in July 1997 as Chief Financial Officer. Prior to 1992, Mr. James served as a Senior Audit Manager for KPMG in Australia.



Michael Lindbladjoined us in September 2003 as Chief
Executive Officer - Galore U.S.A.. Mr. Lindblad previously served as Regional Vice President for the mid-western and western regions of the U.S.A. at Bloomingdales Department Stores and prior to that, in senior positions with May Department Stores
and as Chief Executive Officer of the apparel retailer, Childrens Collection.



Kevin Ralphshas served as Chief Financial Officer of Galore U.S.A. since February 1989. From May 1988 to February 1989, Mr. Ralphs served as Controller of Galore U.S.A.. Mr. Ralphs has also served as
controller for



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American Digital Products, Inc., a distributor of computer peripherals in the Northeast United States, treasurer for Hosken Intermediaries, Inc., a
reinsurance brokerage firm, and financial manager for Royal Beech-Nut (Pty) Limited, a foreign subsidiary of Nabisco.



Key Employees - Australia



Monique Collisterjoined us in April 1997 as the Training and Development Manager. Since March 1999, Ms. Collister has served as the Group
Organizational Development Manager for both the U.S.A. and Australian operations and has a mandate to ensure the development of employees at all levels of the organization. Ms. Collister emigrated to Australia in 1996 and, prior to joining us,
served as a Training and Development Specialist for Honeywell Australasia. Ms. Collister has had extensive overseas experience in personnel training with Walmart Canada, Pitney Bowes and Kinney Canada.



Merrick Davies joined us in January 2005 as the National Operations
Manager, including Licensees. In April 2005, Mr. Davies assumed additional responsibility for all product categories. Mr. Davies was previously employed as General Manager, Victoria/ACT for the Nuance Group and as Group Operations Manager for the
Harvey Norman/Domayne Group from 1996 until 2002. Prior to that, Mr. Davies held senior managerial positions at Captn Snooze and Freedom Furniture as well as working within the Banking and Finance industry from 1977 to 1989.



Steve Katsilisjoined us in 1985 where he initially worked at our
Kogarah store in Australia. In 1989 he was appointed store manager of our Silverwater store and the following year, moved to head office as Stock Control Manager prior to his appointment in 1993, as Information Technology Manager and in 2002, as
Group Information Technology Manager.



Craig Moorejoined us in 1998, serving as Business Administration Manager, including Licensees, prior to his appointment in April 2001, as Demand Manager and again in October 2003, to his current position of Group Supply Chain Manager. Mr. Moores
earlier experience included inventory management, buying, marketing and store development at department and specialty retail stores.



Loucas Nicolajoined us in March 1986, serving in various roles including Group Management Accountant, Group Information Technology Manager and
Financial Controller  Manufacturing before his appointment in November 2003, to the position of General Manager  Manufacturing. Mr. Nicola has extensive commercial experience in manufacturing, both at Barbeques Galore and prior to that,
during his eight years of service at Garlock Pty. Limited, a subsidiary of Colt Industries, Inc..



Jason Piggott joined us in September 1999 as Marketing Manager. Mr. Piggott previously served as a member of the brand management team at Southcorp
Wines and prior to that, as Marketing Services Manager with MacNaught Pty. Limited.



Conrad Taylor joined us in February 2001 as National Distribution Manager. Prior to joining us, Mr Taylor served as Warehouse Supervisor for Sydney Warehousing and Distribution Services and for seven years as a
corporal clerk supply in the Royal Australian Air Force.



David Wickhamjoined us in September 2001, initially as State Manager  Victoria for Pricotech and later as Operations Manager, prior to his appointment as its General Manager and subsequently General Manager of Licensees,
Wholesale and Export. Mr. Wickham previously served for fourteen years as General Manager at Saxon Wood Heaters and Austwood Heaters, national manufacturing and distribution companies.



Key Employees - United States



Robin Isaacsohn joined us in June 2001 as Director of Merchandise Planning and Allocation. Mr. Isaacsohn has over 20 years of experience in
the retail industry and prior to joining us, held various planning



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and allocation positions of progressively increasing responsibility with other specialty retailers including Sweet Factory, Womans World and Lerner New
York. Mr. Isaacsohn was previously a retail consultant with Deloitte and Touche.



Richard Kilar, Jr. joined us in February 1998 as Senior Systems Analyst and was appointed Director of Information Technology in April 2003. Prior to joining us, Mr. Kilar served for four years as a senior
programmer/analyst with Toshiba America Information Systems supporting the P.C. Manufacturing (Irvine, CA) and Toner Products divisions (Mitchell, SD). Mr. Kilar has over 15 years of experience in various information systems roles with Little Folks
Shop/Kidsmart Inc., Infotec Development Inc. and Toshiba America.



Benjamin Ramseyjoined us in March 1993 and held several management positions within Galore U.S.A. until August 1999 when he was appointed Executive Vice President. Mr. Ramsey previously spent ten years associated with 7-Eleven Food
Stores/Southland Corporation in managerial positions and was subsequently a franchise holder for a further four years.



Tom Steele joined us in July 2003 as Director of Marketing. Mr. Steele has over ten years of retail, catalog and e-commerce specialty marketing
experience. Prior to joining us, he served as Vice President of Marketing at cameraworld.com, a top-100 U.S. e-commerce site. He is currently a frequent speaker on multi-channel marketing.



Jim Tullis joined us in September 1998 as Director of Distribution
& Logistics. Prior to joining us, Mr. Tullis served as operations manager for Graco, Inc. and warehouse manager for Bio-Rad Laboratories.



Michael Varleyjoined us in January 1982 and served in a variety of sales- and buying-related positions, until May 1989 when he was appointed Vice
President of Operations and Purchasing. Mr. Varley has served as Vice President of Purchasing and Distribution since May 1994 and is currently Vice President of Research and Development, developing new products at the various Chinese factories with
which we have strategic alliances. From 1978 to 1981, Mr. Varley served as manufacturing/production manager for Mistral Fans, Inc., a manufacturing company, in both the United States and Australia. Prior to that, Mr. Varley worked as a product
engineer and technical salesperson for several companies in the United Kingdom, South Africa and Australia.



|B. |  | COMPENSATION
|-- |  | ------------



The aggregate annual compensation, including bonuses under the incentive program described below, paid by us to all our directors and senior management as
a group for services for the fiscal year ended January 31, 2005 (11 persons) was A$2,575,093. This aggregate compensation, however, amount does not include any stock options granted to such individuals as more fully described below in the section
titled Item 6. Directors and Senior Management - E. Share Ownership for Directors and Senior Management  Options to Purchase Securities from Registrant or Subsidiaries.



The total amount set aside by us and our subsidiaries to provide pension benefits to a defined contribution plan for
directors and senior management for the fiscal year ended January 31, 2005 was A$245,563.



On February 1, 2004, we continued with an incentive program whereby certain executives would receive a bonus if certain budget objectives were attained during fiscal year 2005. Under this program, Mr. Linz,
Mr. Gavshon, Mr. Price, and Mr. James would each receive a bonus of 20% and Mr. Selati, a bonus of 10%, of his respective base salary, if we achieved our budgeted pre-tax profit before trading contingencies for the fiscal year 2005. Mr. Selati
and Mr. Nicola would each receive a bonus of 10% of his respective base salary if his division achieved its budgeted operating contribution regardless of whether or not our budget was achieved and in the case of Mr. Nicola, he would receive a
further 10% of his base salary if he increased from the previous year, the net income in manufacturing attributable to third party work. The incentive program was not achieved other than in the case of Mr. Nicola to whom a bonus of A$29,000 was
paid.



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##### Table of Contents

|C. |  | BOARD PRACTICES
|-- |  | ---------------



At least one-third of our Board of Directors is elected at each annual meeting of shareholders. No director may serve for a period in excess of three
years without submitting himself for re-election. Furthermore, our directors do not have contracts that provide for benefits upon termination of their services with us. The Board of Directors has a Compensation Committee comprised of Mr. Howlett and
Dr. Bloom that reviews and makes recommendations for remuneration packages for executive directors and senior executives and an Audit Committee presently comprised of Mr. Howlett (Chairman) and Dr. Bloom that advises on the establishment and
maintenance of internal controls and ethical standards, the quality and reliability of financial information and information provided by our independent auditors.



The periods during which each of our directors has served on our Board is disclosed in Item 6.A. The terms of our directors
expire as of our annual meetings of shareholders to be held in the years indicated below:



|               |  |     
|-------------- |  | ----
|Sam Linz       |  | 2005
|Martin Bloom   |  | 2005
|Robert Gavshon |  | 2006
|Sydney Selati  |  | 2006
|Gordon Howlett |  | 2007
|John Price     |  | 2007



On November 28, 1991,
the Board of Directors adopted an Audit Committee Charter to govern the conduct and set forth the responsibilities of the Audit Committee. It was amended on March 25, 2003 to comply with changes in the United States securities laws and Nasdaq
listing requirements. We have filed the amended Audit Committee Charter as Exhibit 99.3 to this Annual Report.



|D. |  | EMPLOYEES
|-- |  | ---------



As of January 31, 2005, we employed a total of 1,262 persons, on a permanent, part-time or temporary basis of whom 721 were employed in Australia and 541
in the United States. The number of temporary employees fluctuates depending on seasonal needs. Park-Tec Engineering Pty Limited (Park-Tec) has entered into a non-union Certification of Agreement with its employees, (Park-Tec Agreement
2004-2006) and to our knowledge, nine of our employees are members of the Australian Metal Workers Union. We consider our relations with employees to be good and believe our employee turnover rate is low.



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##### Table of Contents

|E. |  | SHARE OWNERSHIP FOR DIRECTORS AND SENIOR MANAGEMENT
|-- |  | ---------------------------------------------------



The following table provides certain information with respect to the beneficial ownership of our Ordinary Shares, including Ordinary Shares held directly
or in the form of ADSs as of July 15, 2005, based on an aggregate of 4,246,091 Ordinary Shares outstanding as of such date, for each of our directors and all of our directors and senior management as a group as of such date.



|                                                            |  |                                            |  |       |  
|----------------------------------------------------------- |  | ------------------------------------------ |  | ----- | -
|                                                            |  | Ordinary Shares(1), (2) Beneficially Owned | 
|                                                            |  | Number                                     |  | %     |  
|Sam Linz(3)                                                 |  | 1,298,582                                  |  | 29.87 |  
|Robert Gavshon                                              |  | 445,994                                    |  | 10.26 |  
|Sydney Selati                                               |  | 210,688                                    |  | 4.91  |  
|John Price                                                  |  | 65,325                                     |  | 1.53  |  
|Martin Bloom(4)                                             |  | *                                          |  | *     |  
|Gordon Howlett(4)                                           |  | *                                          |  | *     |  
|David Glaser(4)                                             |  | *                                          |  | *     |  
|David James(4)                                              |  | *                                          |  | *     |  
|Michael Lindblad(4)                                         |  | *                                          |  | *     |  
|Kevin Ralphs(4)                                             |  | *                                          |  | *     |  
|All directors and senior management as a group (10 persons) |  | 2,097,562                                  |  | 48.37 | %

---

|* |  | Less than 1% of our outstanding shares.
|- |  | ---------------------------------------

|(1) |  | The number of Ordinary Shares listed in this table includes Ordinary Shares held directly or in the form of ADSs.
|--- |  | -----------------------------------------------------------------------------------------------------------------

|(2) |  | Applicable percentage of ownership for each shareholder is based on 4,246,091 Ordinary Shares outstanding as of July 15, 2005, together with applicable options for
such shareholders. There are an additional 504,378 authorized and unissued Ordinary Shares reserved for the grant of stock options under the 1997 Share Option Plan (the 1997 Plan). Ordinary Shares subject to options exercisable within 60
days of July 15, 2005 are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership is determined in accordance with the
rules of the SEC and includes voting and investment power with respect to Ordinary Shares. Unless otherwise indicated, the persons named in the table have sole voting and investment control with respect to all Ordinary Shares shown as beneficially
owned by them.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes 9,548 Ordinary Shares registered in the name of ANZ Nominees Limited.
|--- |  | ------------------------------------------------------------------------------

|(4) |  | Beneficially owns less than 1% of our outstanding shares.
|--- |  | ---------------------------------------------------------



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##### Table of Contents

Share Options for Directors



The following table contains information pertaining to share options held by directors or by their family-related entities
as of July 15, 2005:



|               |  |                                                          |  |                                 |                  |                         |                                                                                                                        
|-------------- |  | -------------------------------------------------------- |  | ------------------------------- | ---------------- | ----------------------- | -----------------------------------------------------------------------------------------------------------------------
|               |  | Number of Ordinary Shares Issuable on Exercise of Option |  | Per Share Exercise Price in US$ |                  | Exercisable Date/Period
|Sam Linz       |  | 27,43838,41215,00020,200                                 |  | $$$$                            | 2.543.024.676.38 |                         | July 1, 2002 to June 30, 2012July 1, 2002 to June 30, 2012July
1, 2004 to June 30, 2014April 11, 2005 to April 10, 2015
|               |  |                                                          | 
|Robert Gavshon |  | 27,43838,41215,00020,200                                 |  | $$$$                            | 2.543.024.676.38 |                         | July 1, 2002 to June 30, 2012July 1, 2002 to June 30, 2012July 1, 2004 to June 30, 2014April 11, 2005 to April 10, 2015
|               |  |                                                          | 
|John Price     |  | 9,06712,8833,7506,425                                    |  | $$$$                            | 2.543.024.676.38 |                         | July 1, 2002 to June 30, 2012July 1, 2002 to June 30, 2012July 1, 2004 to June 30,
2014April 11, 2005 to April 10, 2015
|               |  |                                                          | 
|Sydney Selati  |  | 13,82919,0967,5003,400                                   |  | $$$$                            | 2.543.024.676.38 |                         | July 1, 2002 to June 30, 2012July 1, 2002 to June 30, 2012July 1, 2004 to June 30,
2014April 11, 2005 to April 10, 2015
|               |  |                                                          | 
|Gordon Howlett |  | 2,5002,500625                                            |  | $$$                             | 4.104.676.38     |                         | January 1, 2003 to December 31, 2012July 1, 2004 to June 30, 2014April 11, 2005 to April 10, 2015                      



Options to Purchase Securities from
Registrant or Subsidiaries



As of July 15, 2005 there were
outstanding options to purchase a total of 497,640 Ordinary Shares granted by us, of which our directors and senior management held 365,523. These outstanding options were granted under our 1997 Plan. There were no other warrants or rights to
purchase our Ordinary Shares outstanding as of July 15, 2005. The following table sets forth information concerning outstanding options which our directors and senior management held as of July 15, 2005:



|                                              |  |                                        |  |                          |      |                        |                   
|--------------------------------------------- |  | -------------------------------------- |  | ------------------------ | ---- | ---------------------- | ------------------
|                                              |  | Number Of Ordinary Shares Under Option |  | Price Per Ordinary Share |      | Option Expiration Date
|1997 Plan(1)                                  |  | 17,500                                 |  | US$                      | 4.26 |                        | April 10, 2008    
|1997 Plan(1)                                  |  | 84,686                                 |  | US$                      | 2.54 |                        | June 30, 2012     
|1997 Plan(1)                                  |  | 118,352                                |  | US$                      | 3.02 |                        | June 30, 2012     
|1997 Plan(1)                                  |  | 22,600                                 |  | US$                      | 4.10 |                        | December 31, 2012 
|1997 Plan(1)                                  |  | 133,950                                |  | US$                      | 4.67 |                        | June 30, 2014     
|1997 Plan(1)                                  |  | 16,000                                 |  | US$                      | 5.10 |                        | August 31, 2014   
|1997 Plan(1)                                  |  | 79,552                                 |  | US$                      | 6.38 |                        | April 10, 2015    
|1997 Plan(1)                                  |  | 25,000                                 |  | US$                      | 4.74 |                        | September 14, 2015
|Directors and senior management as a group(2) |  | 365,523                                |  |                          |     |                        |                  

---

|(1) |  | Options under the 1997 Plan will generally expire on the earlier of the Expiration Date or
three months after the cessation of employment of the optionee. For more information, see the 1997 Share Option Plan description below.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Directors and senior management as a group received options under our 1997 Plan. For more
information, see the 1997 Share Option Plan description below.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



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1997 Share Option Plan



Our 1997 Plan was adopted by the Board of Directors on October 1, 1997, and approved by shareholders as of October 7, 1997. As of January 31, 2005, a
total of 1,131,457 Ordinary Shares have been authorized for issuance under the 1997 Plan. The number of Ordinary Shares reserved for issuance under the 1997 Plan will automatically increase on the first trading day of each calendar year, beginning
with the 1999 calendar year, during the term of the 1997 Plan by an amount equal to one percent (1%) of the Ordinary Shares outstanding on December 31 of the immediately preceding calendar year. Pursuant to a resolution of shareholders passed at our
Annual General Meeting on June 14, 2002, the maximum number of options which may be granted to any single individual in the 1997 Plan, was increased to 200,000 Ordinary Shares per fiscal year.



The 1997 Plan consists of the Option Grant Program, under which eligible
individuals in our employ or service (including our officers and other employees, non-employee Board members, consultants and other independent advisors) may, at the discretion of the Plan Administrator, be granted stock options to purchase Ordinary
Shares at an exercise price not less than eighty-five percent (85%) of their fair market value on the option grant date. All options issued under the 1997 Plan have been issued at not less than fair market value of the Companys underlying
common stock on the option grant date.



The Board of Directors
has determined that the Compensation Committee shall be the Plan Administrator charged with administering the 1997 Plan. The Plan Administrator has complete discretion, within the scope of its administrative jurisdiction under the 1997 Plan, to
determine which eligible individuals are to receive stock option grants, the time or times when such grants are to be made, the number of shares subject to each such grant, the exercise and vesting schedule to be in effect for the grant, the maximum
term for which any granted stock option is to remain outstanding and the status of any granted stock option as either an incentive stock option or a non-statutory stock option under the U.S. Federal tax laws.



Options granted under the 1997 Plan will generally become exercisable either
in three equal annual installments measured from the option grant date or in full, on or after a specified date. The exercise price for options granted under the 1997 Plan may be paid in cash or in mature Ordinary Shares valued at fair market value
on the exercise date.



In the event we are acquired via a
merger or an asset sale, each outstanding stock option under the 1997 Plan will immediately accelerate and become fully exercisable for all of the shares subject to such outstanding options, unless such stock options are to be assumed or replaced by
the successor corporation (or parent thereof). Any stock options that do not automatically accelerate upon the occurrence of a merger or asset sale, will immediately accelerate and such repurchase rights will accordingly lapse, upon the involuntary
termination of the optionee within 18 months after the effective date of the merger or asset sale. Stock options accelerated in connection with such involuntary termination will be exercisable as fully-vested shares until the earlier of (i) the
expiration of the stock option term or (ii) a one (1)-year period measured from the effective date of the involuntary termination.



The Plan Administrator has the authority to effect, with the consent of the affected option holders, the cancelation of outstanding stock options under
the 1997 Plan in return for the grant of new stock options for the same or a different number of shares with an exercise price per share based upon the fair market value of the Ordinary Shares on the new grant date.



The Board of Directors pursuant to a meeting on September 1, 1998, granted
options to a non-executive director to purchase up to an aggregate of 17,646 Ordinary Shares at a price of US$8.50 per Ordinary Share under the 1997 Plan, exercisable in three equal installments on September 1, 2001, September 1, 2002 and August 1,
2003. These options were subsequently canceled pursuant to a circulating resolution of directors on January 7, 2000 and replaced with options granted to the same non-executive director, to purchase up to an aggregate of 17,646 Ordinary Shares at a
price of US$6.38 per Ordinary Share under the 1997 Plan, exercisable



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in three equal installments on January 7, 2003 and January 7, 2004, (none of which were exercised) and December 7, 2004. All 17,646 options outstanding and
exercisable at US$6.38 per Ordinary Share, were exercised during the fiscal year ended January 31, 2005.



Pursuant to the aforementioned circulating resolution of directors, further options were granted to executive directors, senior management and employees
to purchase up to an aggregate of 143,820 Ordinary Shares at a price of US$6.38 per Ordinary Share under the 1997 Plan and exercisable in three equal installments on January 7, 2003 and January 7, 2004, (none of which were exercised) and December 7,
2004. During the fiscal year ended January 31, 2005, a total of 4,750 options, exercisable at US$6.38 per Ordinary Share, were forfeited, 26,393 options, exercisable at US$6.38 per Ordinary Share, were exercised and the remaining 82,552 options
outstanding, exercisable at US$6.38 per Ordinary Share, lapsed.



The Board of Directors pursuant to a meeting on March 19, 2002, granted options to executive directors and senior management to purchase up to an aggregate of 84,686 Ordinary Shares at a price of US$2.54 per Ordinary Share under the 1997
Plan, exercisable in full at any time on or after July 1, 2002 until expiration on June 30, 2012. None of the aforementioned options have either been forfeited or exercised, to-date.



The Board of Directors pursuant to a meeting on April 16, 2002 granted options to non-executive directors and certain
employees to purchase up to an aggregate of 68,850 Ordinary Shares at a price of US$4.10 per Ordinary Share under the 1997 Plan, exercisable in full at any time on or after January 1, 2003 until expiration on December 31, 2012. During the fiscal
year ended January 31, 2005, a total of 35,500 options, exercisable at US$4.10 per Ordinary Share, were exercised.



Pursuant to a circulating resolution of directors on June 20, 2002, options were granted to directors and senior management to purchase up to an aggregate
of 118,352 Ordinary Shares at a price of US$3.02 per Ordinary Share under the 1997 Plan, exercisable in full at any time on or after July 1, 2002 until expiration on June 30, 2012. None of the aforementioned options have either been forfeited or
exercised, to-date.



The Board of Directors pursuant to a
meeting on August 28, 2003, granted options to a member of senior management in the United States to purchase up to an aggregate of 25,000 Ordinary Shares at a price of US$4.74 per Ordinary Share under the 1997 Plan, exercisable in full at any time
on or after September 15, 2005 until expiration on September 14, 2015. None of the aforementioned options have been forfeited to-date.



The Board of Directors pursuant to a meeting on December 2, 2003, granted options as at that date, to executive directors, a non-executive director,
senior management and employees to purchase up to an aggregate of 184,550 Ordinary Shares at a price of US$4.67 per Ordinary Share and granted options as at December 15, 2003 to a key Australian employee to purchase up to an aggregate of 10,000
Ordinary Shares at a price of US$4.50 per Ordinary Share under the 1997 Plan, exercisable in full at any time on or after July 1, 2004 and December 15, 2005 respectively, until expiration on June 30, 2014 and December 14, 2015 respectively. During
the fiscal year ended January 31, 2005, a total of 500 options, exercisable at US$4.67 per Ordinary Share, were forfeited and 49,100 options, exercisable at US$4.67 per Ordinary Share, were exercised.



The Board of Directors pursuant to a meeting on March 10, 2004, granted
options to certain key employees and a member of senior management in the United States to purchase up to an aggregate of 16,000 Ordinary Shares at a price of US$5.10 per Ordinary Share under the 1997 Plan, exercisable in full at any time on or
after September 1, 2004 until expiration on August, 31, 2014. None of the aforementioned options have been forfeited to-date.



Pursuant to the authority and delegation of certain powers granted to the Plan Administrator by the Board of Directors at a meeting on June 3, 2004, the
Board, pursuant to a meeting on June 9, 2005, ratified the granting of 97,052 options by the Plan Administrator, as of April 11, 2005. These options were granted to executive directors, a non-executive director, certain members of senior management
and certain employees to purchase up



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to an aggregate of 79,552 Ordinary Shares at a price of US$6.38 per Ordinary Share under the 1997 Plan, exercisable in full at any time on or after April 11,
2005 and, to a key Australian employee and another Australian employee, to purchase up to an aggregate of 17,500 Ordinary Shares at a price of US$4.26 per Ordinary Share under the 1997 Plan, exercisable in three equal installments on April 11, 2005,
April 11, 2006 and April 11, 2007.



The Board of Directors may
amend or modify the 1997 Plan at any time. However, no such amendment or modification shall adversely affect the rights of any optionee without his or her consent. The 1997 Plan will terminate on October 1, 2007, unless sooner terminated by the
Board of Directors.



|ITEM |  | 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|---- |  | -------------------------------------------------------



|A. |  | MAJOR SHAREHOLDERS
|-- |  | ------------------



The following table sets forth certain information with respect to each person or group of affiliated persons who is known by us to beneficially own 5% or
more of our Ordinary Shares including Ordinary Shares held directly or in the form of ADSs as of July 15, 2005, based on an aggregate of 4,246,091 Ordinary Shares outstanding as of such date:



|                                                                                                                                    |  |                                          |  |      
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- |  | -----
|                                                                                                                                    |  | Ordinary Shares(1)(2) Beneficially Owned
|Name of beneficial holder                                                                                                           |  | Number                                   |  | %    
|Sam Linz(3)                                                                                                                         |  | 1,298,582                                |  | 29.87
|Wells Fargo & Company on its own behalf and on behalf of Wells Capital Management Incorporated and Well Fargo Funds Management,
LLC |  | 581,147                                  |  | 13.90
|Robert Gavshon                                                                                                                      |  | 445,994                                  |  | 10.26
|Peter S. Lynch                                                                                                                      |  | 314,100                                  |  | 7.40 

---

|(1) |  | The number of Ordinary Shares listed in this table includes Ordinary Shares held directly or
in the form of ADSs.
|--- |  | -----------------------------------------------------------------------------------------------------------------

|(2) |  | Applicable percentage of ownership for each shareholder is based on 4,246,091 Ordinary Shares
outstanding as of July 15, 2005, together with applicable options for such shareholders. There are an additional 504,378 authorized and unissued Ordinary Shares reserved for the grant of stock options under the 1997 Plan. Ordinary Shares
subject to options exercisable within 60 days of July 15, 2005 are deemed outstanding for computing the percentage of the person holding such options but are not deemed outstanding for computing the percentage of any other person. Beneficial
ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to Ordinary Shares. Unless otherwise indicated, the persons named in the table have sole voting and investment control with respect
to all Ordinary Shares shown as beneficially owned by them.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes 9,548 Ordinary Shares registered in the name of ANZ Nominees Limited.
|--- |  | ------------------------------------------------------------------------------



We are not, to our knowledge, directly owned or
controlled by any other corporation, foreign government or other person or group of persons, severally or jointly and are not aware of any voting arrangements which may, at any subsequent date, result in a change of control. We are not aware of any
arrangements which may at a subsequent date result in a change in control in us. Our major shareholders do not have voting rights different from other shareholders.



As of July 7, 2005, there were 20 holders of record of ADSs and 19 additional holders of record of our Ordinary Shares. Of
the Ordinary Shares, to our knowledge, four holders of record reside in the United States. Of the ADSs, to our knowledge, nine holders of record reside in the United States. We are unable to determine the number of beneficial owners of the ADSs
residing in the United States.



|B. |  | RELATED PARTY TRANSACTIONS
|-- |  | --------------------------



Company Policy Concerning Transactions with Affiliates



Under the Australian Corporations Law, directors are prohibited from entering into transactions with us that confer a benefit on any director if the
transaction is not on arms-length commercial terms except where limited



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exemptions apply or detailed approval procedures are first observed. We have adopted a more stringent policy based on the Australian Corporations Act 2001
that requires all transactions with directors, senior management and other affiliates be on terms that are believed to be at least as favorable to us as could be obtained from unaffiliated third parties and that such transactions must be approved by
a majority of our disinterested directors.



We believe that the
following transactions with directors, senior management and other affiliates were completed on terms as favorable to it as could have been obtained from unaffiliated third parties.



Transactions with Affiliates



We held a one-third equity interest in each of Bromic and Supagas which was sold on the terms and conditions set out on page 33.



Transactions Involving Principal Shareholders, Directors and Senior Management



Messrs. Linz, Gavshon, Selati and Price beneficially own
29.87%, 10.26%, 4.91% and 1.53%, respectively, of the Companys outstanding Ordinary Shares. Accordingly, these individuals may exert substantial influence over our business and affairs, including the election of our directors and the outcome
of corporate actions requiring shareholder approval.



From time
to time in the past, Messrs. Linz, Gavshon and Selati and certain members of their respective families have advanced funds, repayable on demand to us, to be used for general corporate purposes. Through these advances, we have been able to obtain
funds at relatively attractive short-term borrowing rates of approximately 2% per annum below the overdraft rate charged to us by our bankers. Prior to the Initial Public Offering, we had repaid all amounts owing on such advances and terminated
these borrowing arrangements. We have reinstated similar arrangements which the Board of Directors has determined are in our best interests.



We lease cars for the use of Messrs. Linz, Gavshon and Price at a rate of approximately A$3,294, A$3,472 and A$1,581, respectively, per month per car. Mr.
Selatis car was leased at a monthly rate of approximately US$1,531 prior to our purchasing a car for his use in July 2003.



Mr. Linzs sister, together with her husband and son, owns four entities (Related Franchisors), each of which operates one franchised
Barbeques Galore store in Orange County, California. The Related Franchisors franchise agreements provide the Related Franchisors with the exclusive right to open, upon our approval, additional Barbeques Galore stores within a specified
territory in Orange County.



Mr. Selatis daughter,
practising under the name of Romy Selati Loseke, Special Counsel, currently provides legal services to us in connection with leasing and real estate issues. During the fiscal years ended January 31, 2005, 2004 and 2003, we paid fees of US$5,061,
US$10,234 and US$2,470 for the aforementioned services.



Mr.
Linzs wife and daughter-in-law currently provide editorial and consulting services to us in connection with our quarterly internal newsletter, Inside Galore. During the fiscal year ended January 31, 2005, we paid fees of A$6,000
and A$6,400, respectively, for the aforementioned services. During the fiscal years ended January 31, 2004 and 2003, editorial and consulting services were provided by Mr. Linzs wife, to whom we paid fees of A$6,000 and A$7,250, respectively.



Pursuant to his appointment as a non-executive director on
September 1, 1998, we granted options to purchase up to an aggregate of 17,646 Ordinary Shares at a price of US$8.50 per Ordinary Share to Mr. Edgar Berner under the 1997 Plan, exercisable in three equal installments on September 1, 2001, September
1, 2002 and August 1, 2003. These options were subsequently canceled pursuant to a circulating resolution of directors on January 10, 2000 and replaced with options to Mr. Berner, to purchase up to an aggregate of 17,646 Ordinary



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Shares at a price of US$6.38 per Ordinary Share under the 1997 Plan, exercisable in three equal installments on January 7, 2003 and January 7, 2004 (none of
which were exercised) and December 7, 2004. See Item 6. Directors, Senior Management and Employees - E. Share Ownership for Directors and Senior Management - 1997 Share Option Plan. All 17,646 options outstanding and exercisable at
US$6.38 per Ordinary Share, were exercised during the fiscal year ended January 31, 2005.



On November 9, 1998, we granted options to purchase up to an aggregate of 46,250 Ordinary Shares at a price of US$5.20 per Ordinary Share to directors and a member of senior management under the 1997 Plan, exercisable
in three equal installments on November 9, 2001, November 9, 2002 and October 9, 2003. Mr. Sam Linz and Mr. Robert Gavshon each received a grant of 15,000 Ordinary Shares, Mr. Sydney Selati received a grant of 7,500 Ordinary Shares, Mr. John Price
received a grant of 3,750 Ordinary Shares and Mr. Gordon Howlett and Mr. David James each received a grant of 2,500 Ordinary Shares. None of the aforementioned 46,250 options outstanding were exercised, all of which lapsed on October 9, 2003.



Pursuant to the aforementioned circulating resolution of
directors, options to purchase up to an aggregate of 71,195 Ordinary Shares at a price of US$6.38 per Ordinary Share were granted to directors and senior management under the 1997 Plan, exercisable in three equal installments on January 7, 2003 and
January 7, 2004 (none of which were exercised) and December 7, 2004. Mr. Sam Linz and Mr. Robert Gavshon each received a grant of 20,200 Ordinary Shares, Mr. Sydney Selati received a grant of 10,100 Ordinary Shares, Mr. John Price received a grant
of 6,425 Ordinary Shares, Mr. David James received a grant of 5,300 Ordinary Shares, Mr. Edgar Berner received a grant of 4,410 Ordinary Shares, Mr. Kevin Ralphs received a grant of 3,185 Ordinary Shares, Mr. David Glaser received a grant of 750
Ordinary Shares and Mr. Gordon Howlett received a grant of 625 Ordinary Shares. During the fiscal year ended January 31, 2005, a total of 13,210 options exercisable at US$6.38 per Ordinary Share, were exercised and the remaining 57,985 options
outstanding, exercisable at US$6.38 per Ordinary Share, lapsed. See Item 6. Directors, Senior Management and Employees - E. Share Ownership for Directors and Senior Management - 1997 Share Option Plan.



On March 19, 2002, we granted options to purchase up to an aggregate of
84,686 Ordinary Shares at a price of US$2.54 per Ordinary Share to executive directors and senior management under the 1997 Plan, exercisable in full at any time on or after July 1, 2002. Mr. Sam Linz and Mr. Robert Gavshon each received a grant of
27,438 Ordinary Shares, Mr. Sydney Selati received a grant of 13,829 Ordinary Shares, Mr. John Price received a grant of 9,067 Ordinary Shares, Mr. David James received a grant of 5,762 Ordinary Shares and Mr. Kevin Ralphs received a grant of 1,152
Ordinary Shares. None of the aforementioned options have been forfeited to-date. See Item 6. Directors, Senior Management and Employees - E. Share Ownership for Directors and Senior Management - 1997 Share Option Plan.



On April 16, 2002, we granted options to purchase up to an aggregate of
16,750 Ordinary Shares at a price of US$4.10 per Ordinary Share to non-executive directors and senior management under the 1997 Plan, exercisable in full at any time on or after January 1, 2003. Mr. Gordon Howlett and Mr. Edgar Berner each received
a grant of 2,500 Ordinary Shares, Mr. David James received a grant of 6,500 Ordinary Shares, Mr. Kevin Ralphs received a grant of 4,000 Ordinary Shares and Mr. David Glaser received a grant of 1,250 Ordinary Shares. During the fiscal year ended
January 31, 2005, a total of 6,500 options, exercisable at US$4.10 per Ordinary Share, were exercised. See Item 6. Directors, Senior Management and Employees - E. Share Ownership for Directors and Senior Management - 1997 Share Option
Plan.



Pursuant to a circulating resolution of directors
on June 20, 2002, we granted options to purchase up to an aggregate of 118,352 Ordinary Shares at a price of US$3.02 per Ordinary Share to executive directors and senior management under the 1997 Plan, exercisable in full at any time on or after
July 1, 2002. Mr. Sam Linz and Mr. Robert Gavshon each received a grant of 38,412 Ordinary Shares, Mr. Sydney Selati received a grant of 19,096 Ordinary Shares, Mr. John Price received a grant of 12,883 Ordinary Shares, Mr. David James received a
grant of 7,957 Ordinary Shares and Mr. Kevin Ralphs received a grant of 1,592 Ordinary Shares. None of the aforementioned options have been forfeited to-date. See Item 6. Directors, Senior Management and Employees - E. Share Ownership for
Directors and Senior Management - 1997 Share Option Plan.



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On December 2, 2003, we granted options to purchase up to an aggregate of 64,250 Ordinary Shares at a
price of US$4.67 per Ordinary Share to executive directors, a non-executive director and senior management under the 1997 Plan, exercisable in full at any time on or after July 1, 2004. Mr. Sam Linz and Mr. Robert Gavshon each received a grant of
15,000 Ordinary Shares, Mr. Selati received a grant of 7,500 Ordinary Shares, Mr. John Price received a grant of 3,750 Ordinary Shares, Mr. Gordon Howlett received a grant of 2,500 Ordinary Shares, Mr. David James received a grant of 7,500 Ordinary
Shares, Mr. Kevin Ralphs received a grant of 10,000 Ordinary Shares and Mr. David Glaser received a grant of 3,000 Ordinary Shares. None of the aforementioned options have been forfeited to-date. See Item 6. Directors, Senior Management and
Employees - E. Share Ownership for Directors and Senior Management - 1997 Share Option Plan.



On March 10, 2004, we granted options to purchase up to an aggregate of 5,000 Ordinary Shares at a price of US$5.10 per Ordinary Share to a member of
senior management under the 1997 Plan, exercisable in full at any time on or after September 1, 2004. Mr. Kevin Ralphs received a grant of 5,000 Ordinary Shares. None of the aforementioned options have been forfeited to-date. See Item 6.
Directors, Senior Management and Employees - E. Share Ownership for Directors and Senior Management - 1997 Share Option Plan.



On April 11, 2005, we granted options to purchase up to an aggregate of 57,985 Ordinary Shares at a price of US$6.38 per Ordinary Share to executive
directors and senior management under the 1997 Plan, exercisable in full at any time on or after April 11, 2005. Mr. Sam Linz and Mr. Robert Gavshon each received a grant of 20,200 Ordinary Shares, Mr. Sydney Selati received a grant of 3,400
Ordinary Shares, Mr. John Price received a grant of 6,425 Ordinary Shares, Mr. David James received a grant of 5,300 Ordinary Shares, Mr. Kevin Ralphs received a grant of 1,085 Ordinary Shares and Mr. David Glaser received a grant of 750 Ordinary
Shares. None of the aforementioned options have been forfeited to-date. See Item 6. Directors, Senior Management and Employees - E. Share Ownership for Directors and Senior Management - 1997 Share Option Plan.



|C. |  | INTEREST OF EXPERTS AND COUNSEL
|-- |  | -------------------------------



Not applicable.



|ITEM |  | 8.    FINANCIAL INFORMATION
|---- |  | ---------------------------



|A. |  | CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
|-- |  | -------------------------------------------------------



Please see Item 18 for a list of the financial statements filed as part of this Annual Report.



Dividend Policy



We have previously paid dividends on the Ordinary Shares and ADSs and may continue to do so in the future. In addition, we
are subject to restrictions on the declaration or payment of dividends under the ANZ Facility as well as the UBC Facility as defined. See Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources.



Legal Proceedings



There are no material legal proceedings pending against us. We are involved
in various product liability claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our business, results of operations
or financial condition.



We placed a major portion of our
insurances with HIH during the twelve months ended June 30, 2001 and earlier periods. The HIH Group was placed into liquidation on August 27, 2001. We have replaced these insurance policies with other insurers and currently have one claim against us
on foot in relation to the period during which we were covered by HIH. Although this claim was the subject of a successful court appeal by the



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Company, the opposing party has recently been granted leave to make a further appeal to the High Court of Australia. Furthermore, to the best of our
knowledge and belief, we are unaware of any further material claims which may arise against us in relation to any events during the period we were covered with HIH. It is also unknown at this stage when and what amounts, if any, would be recoverable
from the Liquidators of the HIH Group, were such claims to arise.



During fiscal 2004, Barbeques Galore, Inc. was served with proposed assessments of additional General Excise Tax, including penalties and interest, from the Department of Taxation  State of Hawaii, amounting in aggregate to US$264,570
in relation to a store operated on a Military Naval Base on Hawaii. The matter was initially referred to Counsel and finally settled in full, during the second quarter of fiscal 2005, for US$71,724.



|B. |  | SIGNIFICANT CHANGES
|-- |  | -------------------



There have been no significant subsequent events following the close of the last financial year up to the date of this Annual Report that are known to us
and which require disclosure in this Annual Report and for which we have not provided disclosure in this Annual Report.



|ITEM |  | 9.    THE OFFER AND LISTING
|---- |  | ---------------------------



Price Range of our ADSs on the Nasdaq Stock Market® (Nasdaq)



Our Ordinary Shares, as represented by ADSs, are traded on Nasdaq under the symbol BBQZ. The ADSs are in turn represented by American Depositary Receipts
(ADRs) issued by the Depositary. Each ADS represents one Ordinary Share. Our ADRs were first traded on Nasdaq in November 1997.



From April 1987 through December 1996, we listed our Ordinary Shares for trading on the ASE. In December 1996, we voluntarily delisted from the ASE and
since then, there has been no established foreign public market for the Ordinary Shares or ADSs.



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The following table sets forth the range of high and low closing sale prices of the ADSs on Nasdaq for
the fiscal periods indicated:



|                                         |  |                         |       |     |     |     
|---------------------------------------- |  | ----------------------- | ----- | --- | --- | ----
|                                         |  | Price Per ADS on Nasdaq
|                                         |  | High                    |       | Low
|(a) Annual high and low market prices    |  |                         |       |     |     |     
|                                         |  |                        
|February 1, 2004 to January 31, 2005     |  | US$                     | 9.03  |     | US$ | 4.32
|February 1, 2003 to January 31, 2004     |  |                         | 5.00  |     |     | 2.45
|February 1, 2002 to January 31, 2003     |  |                         | 4.50  |     |     | 2.10
|February 1, 2001 to January 31, 2002     |  |                         | 4.75  |     |     | 1.73
|February 1, 2000 to January 31, 2001     |  |                         | 11.50 |     |     | 3.00
|                                         |  |                        
|(b) Quarterly high and low market prices |  |                         |       |     |     |     
|                                         |  |                        
|Fiscal Year ended January 31, 2005       |  |                         |       |     |     |     
|First Quarter                            |  | US$                     | 9.03  |     | US$ | 4.32
|Second Quarter                           |  |                         | 9.00  |     |     | 7.16
|Third Quarter                            |  |                         | 8.23  |     |     | 7.00
|Fourth Quarter                           |  |                         | 7.87  |     |     | 4.99
|                                         |  |                        
|Fiscal Year ended January 31, 2004       |  |                         |       |     |     |     
|First Quarter                            |  | US$                     | 3.18  |     | US$ | 2.45
|Second Quarter                           |  |                         | 3.06  |     |     | 2.58
|Third Quarter                            |  |                         | 5.00  |     |     | 3.06
|Fourth Quarter                           |  |                         | 4.97  |     |     | 4.23
|                                         |  |                        
|(c) Monthly high and low market prices   |  |                         |       |     |     |     
|                                         |  |                        
|June 2005                                |  | US$                     | 4.71  |     | US$ | 3.95
|May 2005                                 |  |                         | 4.19  |     |     | 3.53
|April 2005                               |  |                         | 4.45  |     |     | 4.05
|March 2005                               |  |                         | 5.66  |     |     | 3.75
|February 2005                            |  |                         | 5.80  |     |     | 4.93
|January 2005                             |  |                         | 6.21  |     |     | 4.99
|                                         |  |                        
|(d) Pre-emptive issues. Not applicable.  |  |                         |       |     |     |     



As of July 7, 2005,
there were 20 holders of record of ADSs and 19 additional holders of record of our Ordinary Shares. Of the Ordinary Shares, to our knowledge, four holders of record reside in the United States. Of the ADSs, to our knowledge, nine holders of record
reside in the United States. We are unable to determine the number of beneficial owners of the ADSs residing in the United States.



|ITEM |  | 10.    ADDITIONAL INFORMATION
|---- |  | -----------------------------



|A. |  | SHARE CAPITAL
|-- |  | -------------



Not applicable.



|B. |  | MEMORANDUM AND ARTICLES OF ASSOCIATION
|-- |  | --------------------------------------



Previously filed as exhibit 3.1 in our Registration Statement on Form F-1 (Registration No. 333-56805), filed with the Commission on June 12, 1998 and
incorporated by reference herein. The description of our Memorandum and Articles of Association set forth in such Registration Statement on Form F-1 is likewise incorporated by reference herein.



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Under our Articles of Association and the Australian Corporations Act, the quorum required for an
ordinary meeting of shareholders consists of at least two shareholders, represented in person or by proxy and a quorum must be present at all times during the meeting. Under the Nasdaq Marketplace Rule 4350(f), a Nasdaq-listed company must provide
for a quorum that in no case shall be less than 331/3% of the outstanding shares of the Companys common
voting stock. In November 1997, however, Nasdaq granted us an exemption from such Nasdaq rule. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as
the directors designate in a notice to the shareholders.



|C. |  | MATERIAL CONTRACTS
|-- |  | ------------------



With respect to our 1997 Share Option Plan, see Item 6. Directors, Senior Management and Employees - E. Share Ownership for Directors and
Senior Management. With respect to our ANZ Facility and our UBC Facility, see Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital Resources.



On December 29, 2004, we entered into a lease agreement with DBI Retail Ventures, LLC., a California limited liability
company. The agreement is for the lease of our warehouse and distribution facility located at 1401 Tar Heel Road, Charlotte, North Carolina 28208. The property occupies 80,000 square feet of a single tenant industrial building located on
approximately 5,476 acres. The ten-year and two-month lease with an option to renew for an additional ten years, commenced on January 15, 2005 and expires on February 28, 2015. The monthly rent for the first five years, payable with effect from
March 1, 2005, is US$16,133.34, after which the monthly rent increases to US$17,747 for the remainder of the lease term.



On November 11, 2004, we entered into an Agreement for Lease with Trust Company of Australia Limited as trustee for Tallina Pty Limited. The agreement is
for the lease of our Australian corporate headquarters located at Building A2, Campus Business Park, 350-374 Parramatta Road, Homebush NSW 2140. The building occupies 17,968 square feet of an industrial building complex located on approximately
721,000 square feet. The five-year lease with an option to renew for an additional five years, commenced on February 1, 2005 and expires on January 31, 2010. The current monthly rent for the first year, is A$29,921.67 plus 10% Goods and Services Tax
with fixed annual increases of 3.5% during the initial term, a market review in the event of our exercising the option to renew and fixed annual increases of 3.5% thereafter.



All the foregoing contracts are listed as exhibits hereto.



|D. |  | EXCHANGE CONTROL
|-- |  | ----------------



Restrictions on Foreign Ownership; Antitakeover Restrictions



Under Australian law, foreign persons are prohibited from acquiring more than a limited percentage of the shares in an Australian company without approval
from the Australian Treasurer (the Treasurer) or in certain other limited circumstances. These limitations are set forth in the Australian Foreign Acquisitions and Takeovers Act (the Takeovers Act). Under the Takeovers Act,
as currently in effect, any foreign person, together with associates, is prohibited from acquiring 15% or more of our outstanding shares (or else the Treasurer may make an order requiring the acquiror to dispose of those shares within a specified
period of time). In addition, if a foreign person acquires our shares and as a result the total holdings of all foreign persons and their associates exceeds 40% in the aggregate without the approval of the Treasurer, then the Treasurer may make an
order requiring the acquiror to dispose of those shares within a specified time if the Treasurer finds that the acquisition is contrary to the national interest. The same rule applies if the total holdings of all foreign persons and their associates
already exceeds 40% and a foreign person (or our associate) acquires any further shares, including in the course of trading, shares acquired in the secondary market of the ADSs. In addition, if the level of foreign ownership exceeds 40% at any time,
we would be considered a foreign person under the Takeovers Act. In such event, we would be required to obtain the approval of the Treasurer for us, together with our associates, to acquire (i) more than 15% of an Australian company or business with
assets totaling over A$50 million or (ii) any direct or indirect ownership interest in Australian urban real estate. In addition, the percentage of foreign



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ownership of Barbeques Galore would also be included in determining the foreign ownership of any Australian company or business in which we may choose to
invest. Since we have no current plans for any such acquisitions and only own commercial property, any such approvals that we may be required to obtain as a foreign person under the Takeovers Act will not affect our current or planned future
ownership or lease of property in Australia. There would, however, be no material tax consequence to our shareholders (including holders of ADSs) resulting from our being deemed a foreign person under the Takeovers Act. If foreign persons or their
associates were to own all of the ADSs, then the level of foreign ownership of our equity securities would be approximately 66%. The level of foreign ownership could also increase in the future if existing Australian investors decide to sell their
shares into the U.S. market or if we were to sell additional Ordinary Shares or ADSs in the future.



We have additionally provided that all stock options outstanding under our 1997 Plan at such time as we are acquired by merger or asset sale, pursuant to
which such stock options are not assumed or replaced by the successor corporation, shall become immediately exercisable for a period of one (1) year (or until the expiration of the stock option term, if earlier). There are 497,640 Ordinary Shares
underlying stock options granted under our 1997 Plan, which barring acceleration, became/will become exercisable as to 84,686 in full at a price of US$2.54 per Ordinary Share at any time on or after July 1, 2002, as to 118,352 in full at a price of
US$3.02 per Ordinary Share at any time on or after July 1, 2002, as to 22,600 in full at a price of US$4.10 per Ordinary Share at any time on or after January 1, 2003, as to 133,950 in full at a price of US$4.67 per Ordinary Share at any time on or
after July 1, 2004, as to 16,000 in full at a price of US$5.10 per Ordinary Share at any time on or after September 1, 2004, as to 79,552 in full at a price of US$6.38 per Ordinary Share at any time on or after April 11, 2005, as to 25,000 in full
at a price of US$4.74 per Ordinary Share at any time on or after September 15, 2005, and as to 17,500 in three equal installments at a price of US$4.26 per Ordinary Share on April 11, 2006, April 11, 2007 and April 11, 2008, according to the terms
of the 1997 Plan. Such investment restrictions and dilutive acceleration events discussed above could have a material adverse effect on our ability to raise capital as needed and could make more difficult or render impossible, attempts by certain
entities (especially foreign entities, in the case of the Takeovers Act), to acquire us, including attempts that might result in a premium over market price to holders of ADSs. See Item 6. Directors, Senior Management and Employees - E. Share
Ownership for Directors and Senior Management  - 1997 Share Option Plan.



Our Constitution contains certain provisions that could impede any merger, consolidation, takeover or other business combination involving us or discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us. Provisions contained in the Constitution, among other things:



| |  |  | in effect, divide the Board of Directors into three classes, which serve for staggered three-year terms;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | provide that the shareholders may amend or repeal special resolutions, including changes to the Constitution and extraordinary transactions, only by a vote of at least 75% of the
votes cast at a meeting at which a quorum is present;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | require extended notice (of up to 28 days) for special resolutions considered by the Board of Directors; and
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | authorize the Board of Directors, without any vote or action by our shareholders, to issue, out of our authorized and unissued capital shares, shares in different classes, or with
special, preferred or deferred rights which may relate to voting, dividend, return of capital or any other matter.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Although we currently have no plans to issue any preferred shares, the rights of the holders of Ordinary Shares or ADSs will be subject to and may be
adversely affected by, the rights of the holders of any preferred or senior shares that may be issued in the future. The issuance of any preferred or senior shares and the other provisions of the Constitution referred to above, could have the effect
of making it more difficult for a third-party to acquire control of us.



In certain circumstances, non-residents of Australia may be subject to Australian tax on capital gains made on the disposal of Ordinary Shares or ADSs. The rate of Australian tax on capital gains realized by non-residents of Australia



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is 30% for companies for the 2005 income year (which for most taxpayers is the year ended June 30, 2005). For individuals, the rate of tax increases from 29%
to a maximum of 47%. If the Ordinary Shares or ADSs, however, are held for twelve months or more, an individual should be entitled to an exemption of 50% of the otherwise taxable capital gain. These circumstances are described in Item 10.
Additional Information - E. Taxation.



There are no legal
or economic restrictions on the ability of our U.S.A. subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. We are subject to restrictions on the declaration or payment of dividends under the ANZ Facility as well as
the UBC Facility as defined on pages 31 and 39, respectively.



|E. |  | TAXATION
|-- |  | --------



The following is a general description of the Australian taxation consequences for U.S. residents in respect of the holding and sale of ADSs and Ordinary
Shares. It is not intended to be advice and investors should consult their own tax advisers in respect of the taxation consequences relevant to their particular circumstances.



Protocol to the U.S./Australia Tax Treaty.    On September 27, 2001, the Governments of the
United States and Australia signed a Protocol (the Protocol) amending the bilateral Double Taxation Agreement between the two nations (the Treaty). The Protocol came into force on May 12, 2003 and applies to:



| | (i) |  | dividends paid by an Australian company to a U.S. resident on or after July 1, 2003; and
| | --- |  | ----------------------------------------------------------------------------------------



| | (ii) |  | income or gains (which are subject to Australian income tax) derived by a U.S. resident in any Australian income year starting on or after July 1, 2003.
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



Dividends.    Fully franked dividends (ie,
dividends paid out of the companys profits which have been subject to Australian income tax at the corporate tax rate) which are paid to shareholders who are U.S. residents will not be subject to Australian income or Australian withholding
taxes. Unfranked dividends (ie dividends that are paid out of profits that have not been subject to Australian income tax) may be subject to Australian withholding tax when paid to U.S. resident shareholders. In the event the company pays partially
franked dividends, shareholders may be subject to withholding tax on the unfranked portion.



Subject to two exceptions mentioned below, withholding tax is imposed on unfranked dividends which are not FDA dividends (see below) at the rate of 15%. The two exceptions are:



(i) no withholding tax is imposed on unfranked dividends
paid to a U.S. resident company which is beneficially entitled to 80% of the voting power (for a twelve month period prior to the date the dividend is declared) of the company and the U.S. resident company satisfies a public listing requirement; and



(ii) a withholding tax limit of 5% applies to
unfranked dividends paid to a U.S. resident company that holds at least 10% of voting power in the company but does not meet the 80% test mentioned above.



Dividends which are paid to the company by a U.S. subsidiary out of the trading profits of that subsidiary will give rise to a credit in the
companys foreign dividend account (FDA). Where the company has a credit balance in its FDA and makes a written FDA declaration specifying that all or a portion of an unfranked dividend to be paid by the company is an
FDA dividend, the amount so specified will be exempt from Australian withholding tax. The payment of an FDA dividend gives rise to a debit in the companys FDA account. In 2003, the Australian Government announced that it will extend the
dividend withholding tax exemption for FDA dividends to all types of foreign income derived by an Australian company. This announcement has not yet become law. On June 17, 2005, however, the Australian Government released an Exposure Draft of the
amendments for public consultation. The Exposure Draft provides that the amendment will apply to distribution of foreign income made after the date of enactment of the amending legislation.



Sales of ADS or Ordinary Shares.    U.S. residents
who do not hold and have not at any time in the five years preceding the date of disposal held (for their own account or together with associates) 10% or more of the issued share capital of a public Australian company are not liable for Australian
capital gains tax on the disposal of shares or ADSs of such company.



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U.S. residents are subject to Australian capital gains tax on the disposal of shares or ADSs of a private
Australian company where the disposal consideration exceeds the cost base unless such a gain is exempt from Australian tax under the Treaty. The rate of Australian tax on taxable capital gains realized by U.S. residents is 30% for companies for the
2005 income year (for most taxpayers, the year ended June 30, 2005). For individuals, the rate of tax increases from 29% to a maximum of 47%. If the Ordinary Shares or ADSs are held for 12 months or more, however, an individual should be entitled to
an exemption of 50% of the otherwise taxable capital gain. U.S. residents who are subject to Australian tax on capital gains made on the disposal of Shares or ADSs are required to file an Australian income tax return for the year in which the
disposal occurs.



A company listed on a stock exchange (a
Listed company) will be treated as a private company in respect of an income year for Australian tax purposes if it is closely held (ie at any time during that income year, not less than 75% of the paid up capital of the company, voting
power or dividend rights of such company, or the right to acquire any one of these, is held by 20 or fewer persons), unless the Australian Commissioner of Taxation (the Commissioner), pursuant to the discretion granted to him, rules that
such company will be treated as a public company for such income year. As the ADSs are listed for quotation on Nasdaq, the company will be deemed a Listed company. The company currently qualifies as a public Australian company; however, because the
ownership of the company must be continuously monitored, we cannot assure you that the company will not become closely held, thereby losing its public company status. If the company were to lose its public company status, it would become a private
Australian company and the paragraph immediately preceding this one, would apply to the company.



Non-residents of Australia in whose hands a profit on disposal of ADSs or Ordinary Shares is regarded as ordinary income and not as a capital gain (eg.
securities dealers) will be subject to Australian income tax on Australian source profits arising on the disposal of the ADSs or Ordinary Shares, unless such profits are exempt from Australian tax under the Treaty. Prospective investors should
consult their own tax advisors in determining whether a profit on disposal of ADSs or Ordinary Shares is ordinary income because such a conclusion depends on the particular facts and circumstances of the individual investor.



Pursuant to Article 7 of the Treaty, profits (other than capital gains)
arising on the disposal of ADSs or Ordinary Shares which constitute business profits of an enterprise carried on by a U.S. resident who does not carry on business in Australia through a permanent establishment to which such profits are
attributable are, subject to the following exception, exempt from Australian tax. The exception is where such profits are dealt with separately in another article of the Treaty, in which case, the provisions of that other Article are not affected by
Article 7. Relevantly, an example of another article of the Treaty which could deal separately with profits that might be otherwise exempt under Article 7 is Article 13. Article 13 preserves Australias right to tax:



| | (i) |  | capital gains; and
| | --- |  | ------------------



| | (ii) |  | a profit on the sale of shares in a company, the assets of which consist wholly or predominantly of real property in Australia.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------



The term business profits is not defined in the Treaty and thus
its meaning in the present context is that which the term has under Australian tax law. The Australian Courts have held that the term business profits is not confined to profits derived from the carrying on of a business but must embrace any profit
of a business nature or commercial character. The term permanent establishment is defined in the Treaty to mean a fixed place of business through which an enterprise is carried on and includes an Australian branch of the U.S. resident
and an agent (other than an agent of independent status) who is authorized to conclude contracts on behalf of the U.S. resident and habitually exercises that authority in Australia. Profits derived by a U.S. resident from the disposal of ADSs or
Ordinary Shares which were acquired for the purpose of sale or exchange in the ordinary course of a business should constitute business profits under the Treaty and thus be exempt from Australian tax, provided that:



| | (i) |  | such holder does not carry on business in Australia through a permanent establishment to which such profits are attributable; and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | the assets of the company do not consist wholly or predominantly of real property in Australia.
| | ---- |  | -----------------------------------------------------------------------------------------------



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Currently, the assets of the company do not consist wholly or predominantly of real property in
Australia. We cannot assure you, however, that the assets of the company will not become, wholly or predominantly, real property in Australia.



On May 10, 2005, the Australian Government announced its intention to amend the law relating to the taxation of capital gains of non-residents. Based on
the announcement, once the law is amended, non-residents of Australia will not be subject to Australian tax on a capital gain resulting from a sale of ADSs or Ordinary Shares unless the non-resident has a 10% or greater interest in the Company and
the assets of the Company consist wholly or predominantly of real property in Australia. The amendment will apply to the sale of ADSs or Ordinary Shares occurring after the date of enactment of the amending legislation.



U.S. residents with no taxable capital gains or income (or deductible losses)
from sources in Australia other than dividends with respect to the Ordinary Shares or ADSs are not required to file an Australian income tax return.



Stamp Duty



Under the law as it currently stands, stamp duty is imposed in the Australian Capital Territory on any transfer of shares in a company incorporated under
the Corporations Act that is taken to be registered in the Australian Capital Territory and will be payable on the transfer of Ordinary Shares in the company. In the absence of a relevant exemption, duty will be payable on the transfer of Ordinary
Shares in the company at the rate of A$0.60 for each A$100.00 of the higher of the consideration paid or payable to acquire the Ordinary Shares and the unencumbered value of the Ordinary Shares. This duty is payable by the transferee.



Duty is chargeable on a dutiable transaction relating to ADRs that create an
interest in an Ordinary Share whether or not that transaction is effected in writing. Dutiable transactions include a transfer, an agreement for sale or transfer and a declaration of trust. The term ADR is specifically defined in the legislation and
requires the Depositary to hold the underlying Ordinary Shares as trustee for the ADR holder.



There are a number of exemptions from duty on the transfer of Ordinary Shares. The availability of exemptions depends upon the particular circumstances surrounding each transaction. These include exemptions relating
to deceased estates, transfers between trustees and beneficiaries, bankrupt estates, divorces and reconstructions of corporate groups. You should consult a legal adviser in relation to the precise terms and availability of any exemption.



Gift, Estate and Inheritance Taxes



There are no specific gift, estate or inheritance taxes in Australia. The
transfer by a U.S. resident of Ordinary Shares or ADSs by way of gift or upon death, however, may have Australian income tax and stamp duty implications.



|F. |  | DIVIDENDS AND PAYING AGENTS
|-- |  | ---------------------------



Not applicable.



|G. |  | STATEMENTS BY EXPERTS
|-- |  | ---------------------



Not applicable.



|H. |  | DOCUMENTS ON DISPLAY
|-- |  | --------------------



All documents relating to us and which we have referred to in this Annual Report, are available at our principal executive and registered offices at
Building A2, Campus Business Park, 350-374 Parramatta Road, Homebush NSW 2140, Australia. Certain of our documents are also filed with the SEC and may be inspected on its website at www.sec.gov.



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|I. |  | SUBSIDIARY INFORMATION
|-- |  | ----------------------



Not applicable.



|ITEM |  | 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|---- |  | -----------------------------------------------------------------



Market risks relating to our operations result primarily from changes in interest rates and changes in foreign exchange
rates.



Foreign Currency Market Risk



Our functional currency is the Australian dollar, although we transact a
portion of our business in foreign currencies and accordingly have foreign currency exposure through our sales in the United States and purchases from overseas suppliers, in U.S. dollars. We also have foreign currency exposure through our sales in
the United Kingdom in Pounds sterling.



Our Australian
operations generally economically hedge a major portion of their imports against exchange rate fluctuations with respect to the Australian dollar. These economic hedges do not qualify for hedge accounting under Statement of Financial Accounting
Standard No. 133, Accounting for Derivative Instruments and Hedging Activities. In our U.S. operations, however, we have not and currently do not actively economically hedge against exchange rate fluctuations, as the vast majority
of the U.S. operations purchases are transacted in U.S. dollars, although we may elect to do so in the future. Changes in exchange rates may have a material adverse effect on our net sales, cost of goods sold, gross profit and net income
(loss), any of which alone or in the aggregate may in turn have a material adverse effect on our business, operating results and financial condition.



We utilize foreign currency forward contracts as a means of offsetting fluctuations in the dollar value of foreign currency accounts payable. The
counter-parties to the contracts are major financial institutions and the risk of loss to us in the event of non-performance by a counter-party, is not significant. The notional amount of foreign currency forward contracts and the weighted average
rates, are as follows:



|                        |  |                             |  |                                      |  |                             |       |                                      |   |      
|----------------------- |  | --------------------------- |  | ------------------------------------ |  | --------------------------- | ----- | ------------------------------------ | - | -----
|                        |  | Year ended January 31, 2005 |  | Year ended January 31, 2004 Restated |  | Year ended January 31, 2005 |       | Year ended January 31, 2004 Restated
|                        |  | (weighted average rate)     |  | (In A$ thousands)                   
|Buy U.S. dollars        |  |                             |  |                                      |  |                             |       |                                      |   |      
|Not later than one year |  | 0.7694                      |  |                                     |  | $                           | 4,549 |                                      |   |     
|                        |  |                             |  |                                      |  |                             |       |                                      |   |      
|Sell Pounds sterling    |  |                             |  |                                      |  |                             |       |                                      |   |      
|Not later than one year |  | 0.4052                      |  | 0.4141                               |  | $                           | 5,429 |                                      | $ | 3,018
|                        |  |                             |  |                                      |  |                             |       |                                      |   |      



Based upon the rates
at January 31, 2005, the cost to buy/sell the equivalent U.S dollars and Pounds sterling detailed above, was approximately A$4,520,000 and A$5,353,000, respectively. The fair value of foreign currency forward contracts as of January 31, 2005 and
2004, is approximately A$59,000 and A$47,000, respectively, recorded as an asset in other current assets.



Interest Rate Risk



Because we have short-term bank borrowings under the UBC Facility and ANZ Facility, (2004: long-term debt under the ANZ Facility), we are exposed to
changes in interest rates.



We have historically financed our
operations through cash flow from operations and bank borrowings. During the quarter ended October 31, 2004 and as part of a re-arrangement of our credit lines between the U.S.A.



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and Australia, our U.S.A. operating subsidiaries, Barbeques Galore, Inc. and Barbeques Galore Online, Inc. entered into an agreement for the establishment of
the UBC Facility, as defined on page 31, in the amount of US$15.0 million. As part of this arrangement the previous credit facility with Merrill Lynch Business Financial Services, Inc. was repaid.



Borrowings under the UBC Facility include both a subjective acceleration
clause and a requirement to maintain a lock-box arrangement whereby remittances from the Companys customers reduce the debt outstanding. Pursuant to EITF95-22, Balance Sheet Classification of Borrowings Outstanding under Revolving
Credit Agreements that Include both a Subjective Acceleration Clause and a Lock-Box Arrangement, borrowings which reflect the aforementioned characteristics, are considered short-term obligations and have accordingly been classified as a
current liability.



Indebtedness under the UBC Facility accrues
interest at the UBCs Reference Rate as defined in the aforementioned agreement or, the London Inter-bank Offered Rate (LIBOR)plus 1.65%, is secured by a first security interest in certain assets of Barbeques Galore,
Inc. and Barbeques Galore Online, Inc. and guaranteed by The Galore Group (U.S.A.), Inc., the parent of Barbeques Galore, Inc. The UBC Facility matures on November 23, 2007, being three years from the date of the initial advance. The UBC Facility is
subject to financial covenants including minimum loan balance and maximum capital expenditures.



As of January 31, 2005 and 2004, the weighted average interest rates accruing on the revolving line of credit under the UBC Facility and the bank bills
utilized under the ANZ Facility were as follows:



|                            |  |                   |       |                           |   |                  |  |                           |  |             |  
|--------------------------- |  | ----------------- | ----- | ------------------------- | - | ---------------- |  | ------------------------- |  | ----------- | -
|                            |  | January 31, 2005  |       | January 31, 2004 Restated |   | January 31, 2005 |  | January 31, 2004 Restated | 
|                            |  | (In A$ thousands) |       | (Interest rate per annum) |  
|Revolving line of credit(1) |  | $                 | 7,406 |                           | $ |                 |  | 5.3%                      |  |            |  
|Bank bills(2)               |  |                   | 9,000 |                           |   | 14,312           |  | 6.0%                      |  | 6.2         | %
|Property loans(2)           |  |                   | 3,800 |                           |   | 7,650            |  | 6.9% to 7.5%              |  | 6.9% to 7.5 | %

---

|(1) |  | Forms part of the UBC Facility.
|--- |  | -------------------------------

|(2) |  | Forms part of the ANZ Facility.
|--- |  | -------------------------------



The difference between the carrying value and fair value of long-term debt is not significant.

ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



Not applicable.



PART II



|ITEM |  | 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|---- |  | ------------------------------------------------------



We do not have any events of default under any of our existing credit facilities described in this Annual Report. We are not
in arrears with regard to the payment of any dividends and have not issued any preferred stock.



|ITEM  14.    MATERIAL |  | MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|--------------------- |  | -------------------------------------------------------------------



Changes in Securities



On December 3, 1999 we announced that our Board of Directors had authorized the repurchase of up to 450,000 ADRs of Barbeques Galore Limited as market
conditions become favorable. The repurchase program



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will expire upon reaching an aggregate purchase quantity of 450,000 ADRs. Commencing March 23, 2001 and thereafter, we repurchased, at a cost of US$1,122,063
and from available resources, 425,000 ADRs on the open market, pursuant to the repurchase program.



|ITEM |  | 15.    CONTROLS AND PROCEDURES
|---- |  | ------------------------------



(a) Disclosure controls and procedures. Under the supervision and with the participation of our management, including our chief executive officer and
chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the Exchange Act) as of
January 31, 2005, the end of the period covered by report, as required by paragraph (b) of 17 CFR 240.13a-15 or 240.15d-15. Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and
procedures were effective as of that date.



(b)
Managements Annual Report on Internal Controls over Financial Reporting. The Board of Directors has overall responsibility for reviewing the disclosure in our public filings to ensure that we provide full and plain disclosure to our
securityholders. The Board discharges its responsibilities through its committees, specifically, with respect to financial disclosure to the Audit Committee which is responsible for reviewing our financial reporting procedures and internal controls
to ensure full and accurate disclosure of the Companys financial position.



At the end of fiscal 2005, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have commenced documenting our internal controls
over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). As a foreign private issuer, pursuant to SEC release 33-8389 dated February 24, 2004, we need not comply with the requirements of Item 15(b) of Form 20-F until our
fiscal year ending on or after July 15, 2005. Additionally, we are not yet required to apply the criteria set forth by the Committee of Sponsoring Organisations in Internal Control  Integated Framework, for the purpose of
evaluating the effectiveness of the design and operation of our disclosure controls.



We re-evaluated our lease accounting practices and corrected the way we accounted for our leases, specifically the accounting for operating leases with scheduled rent increases and tenant allowance and restated our
consolidated financial statements as of and for the years ended January 31, 2004, 2003, 2002 and 2001. Management concluded that this restatement does not reflect upon the effectiveness of our internal controls over financial reporting.



(c) Not applicable.



(d) Changes in internal control over financial reporting. Our management,
including our Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the Companys fiscal year ended January 31, 2005 that has materially affected, or is
reasonably likely to materially affect, the effectiveness of our internal control over financial reporting. Management carefully considered the facts and circumstances surrounding the restatement of our previously issued financial statements and
concluded that, as at the end of fiscal 2005, our internal controls over financial reporting is effective and that the restatement does not reflect upon the effectiveness of our internal control over financial reporting.



ITEM 16.



Audit Committee Financial Expert



Dr. Martin Bloom serves as our financial expert on our
Audit Committee. He is independent as that term is defined in the Nasdaq listing standards.



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Code of Ethics



We have for many years, maintained a set of corporate business principles which incorporates our code of ethics applicable to all our employees and
officers, as well as our independent directors who are not employees of the company, with regard to their activities related to our business. We have now codified those principles into a Code of Business Conduct and Ethics (the Code).



The Code incorporates our guidelines and is designed to deter
wrongdoing and promote honest and ethical conduct and compliance with applicable laws and regulations. The Code also incorporates our expectations of our employees to enable us to provide accurate and timely disclosure in our filings with the SEC
and facilitates our other public communications. The full text of our Code is published on our website at www.bbqgalore.comand www.barbequesgalore.com.au.



Principal Accountant Fees and Services



Audit fees billed for the fiscal years ended January 31, 2005 and 2004 amounted to A$227,461 and A$234,213, respectively.



Audit-related fees billed for the fiscal years ended January 31, 2005 and
2004 amounted to A$nil and A$22,320, respectively and comprised professional services rendered in connection with the review of our quarterly filing on Form 6-K.



Tax fees billed for the fiscal years ended January 31, 2005 and 2004 amounted to A$50,545 and A$62,102, respectively and
comprised professional services rendered in connection with our taxation compliance obligations.



Nasdaq Exemption to Foreign Private Issuers



Nasdaq requires that listed companies have a Board of Directors, a majority of whom are independent and an Audit Committee of at least three independent members. Our Board currently consists of six directors, only two
of whom are independent and our Audit Committee which consists of our two independent directors. Nasdaq, however, provides an exemption to foreign private issuers with respect to such governance requirements if the foreign private issuer meets
corresponding governance requirements of its home country. We qualify for this exemption and have completed the prescribed process to receive the exemption from Nasdaq.



Purchases of Equity Securities by the Issuer and Affiliated Purchasers



None.



Pre-Approval Policies And Procedures of the Audit Committee



Pursuant to our Audit Committee Charter and where the Sarbanes-Oxley Act of 2002 so provides, non-audit services require the pre-approval of the Audit
Committee prior to commencement.



PART III



|ITEM |  | 17.    FINANCIAL STATEMENTS
|---- |  | ---------------------------



See Item 18 for a list of the Financial Statements filed as part of this Annual Report.



|ITEM |  | 18.    FINANCIAL STATEMENTS
|---- |  | ---------------------------



The following financial statements are filed as part of this Annual Report, together with the report of the independent registered public accounting firm.
As discussed in Note 1.B of Notes to Consolidated Financial



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Statements, the Company has restated its consolidated financial statements as of January 31, 2004 and for the years ended January 31, 2004 and 2003,
primarily for certain lease accounting matters and out-of-period adjustments:



Report of Independent Registered Public Accounting Firm.



Consolidated Balance Sheets as of January 31, 2005 and 2004.



Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended January 31, 2005, 2004 and 2003.



Consolidated Statements of Shareholders Equity for the years ended January 31, 2005, 2004 and 2003.



Consolidated Statements of Cash Flows for the years ended January 31, 2005,
2004 and 2003.



Notes to Consolidated Financial Statements.



Schedule II  Valuation and Qualifying Accounts and
Reserves.



|ITEM |  | 19.    EXHIBITS
|---- |  | ---------------



The following exhibits are filed as part of this Annual Report:



|               |  |                                                                                                                                                                                                                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |                                                                                                                                                                                                                                                                                           
|               | 
|3.1            |  | Memorandum and Articles of Association.(1)                                                                                                                                                                                                                                                
|               | 
|4.1            |  | Form of Specimen of American Depositary Receipt.(1)                                                                                                                                                                                                                                       
|               | 
|4.2            |  | Form of Deposit Agreement among the Registrant, Morgan Guaranty Trust Company of New York, as Depositary, and holders from time to time of
ADSs issued thereunder.(1)                                                                                                                     
|               | 
|10.1           |  | Executive Share Option Plan.(1)                                                                                                                                                                                                                                                           
|               | 
|10.2           |  | 1997 Share Option Plan.(1)                                                                                                                                                                                                                                                                
|               | 
|10.3           |  | Major Agreements relating to the Registrants credit facility with Australia and New Zealand Banking Corporation Group Limited
(ANZ), including the formal Letter of Offer from ANZ to Directors of the Company, dated May 25, 1998, and the Variation Letter dated October 21, 2004.(2)
|               | 
|10.4           |  | Loan and Security relating to the Registrants U.S. operating subsidiarys credit facility with Union Bank of California, N.A.,
dated November 23, 2004.                                                                                                                                  
|               | 
|10.5           |  | Lease Agreement between the Company and Arrowood Investments, Inc., dated January 18, 2002 for the lease of real property located at 3355
East Cedar Street, Ontario, California 91761.(3)                                                                                                
|               | 
|10.6           |  | Lease Agreement between the Company and Bake Orchard Partners, LLC, dated March 27, 2002 for the lease of real property located at 10
Orchard Road, Suite 200, Lake Forest, California 92630.(3)                                                                                          
|               | 
|10.7           |  | Agreement for Lease between the Company and Trust Company of Australia Limited, dated November 11, 2004 for the lease of real property
located at Building A2, Campus Business Park, 350 Parramatta Road, Homebush, NSW.                                                                  
|               | 
|10.8           |  | Lease Agreement between the Company and DBI Retail Ventures, LLC, dated December 29, 2004 for the lease of real property located at 1401
Tar Heel Road, Charlotte, North Carolina.                                                                                                        
|               | 
|23.1           |  | Consent of KPMG.                                                                                                                                                                                                                                                                          
|               | 
|31.1           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Sam Ruben Linz.                                                                                                                                                                                               
|               | 
|31.2           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for David Andrew James.                                                                                                                                                                                           
|               | 
|32.1           |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Sam Ruben
Linz.                                                                                                                                                



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|               |  |                                                                                                                                               
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  |                                                                                                                                               
|               | 
|32.2           |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for David Andrew
James.
|               | 
|99.3           |  | Amended Audit Committee Charter as of March 25, 2003.(4)                                                                                      

---

|(1) |  | Previously filed in the Registrants Registration Statement on Form F-1 (Registration No. 333-56805), filed with the Commission on June 12, 1998, and
incorporated herein by reference.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Previously filed in the Registrants Post-Effective Amendment No. 1 to the Registration Statement on Form F-1 (Registration No. 333-56805), filed with the
Commission on September 21, 1998, and incorporated herein by reference, except for the Variation Letter dated October 21, 2004 which is filed herewith.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Previously filed in the Registrants Annual Report on Form 20-F, filed with the Commission on May 1, 2002, and incorporated herein by reference.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Previously filed in the Registrants Annual Report on Form 20-F, filed with the Commission on May 1, 2003, and incorporated herein by reference.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES



The registrant hereby
certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf



|                |  |                          |  |                                                              
|--------------- |  | ------------------------ |  | -------------------------------------------------------------
|                |  | BARBEQUES GALORE LIMITED
|                |  |                         
|August 10, 2005 |  | By                       |  | /s/    ROBERT
GAVSHON                                        
|                |  |                          |  | Robert Gavshon                                               
|                |  |                          |  | Deputy Chairman of the Board of Directors and General Counsel



70



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##### Table of Contents

FINANCIAL STATEMENTS INDEX



|                                                                      |  |              
|--------------------------------------------------------------------- |  | -------------
|                                                                      |  | Pages Numbers
|Report of Independent Registered Public Accounting Firm               |  | F-2          
|                                                                      | 
|Consolidated Balance Sheets                                           |  | F-3          
|                                                                      | 
|Consolidated Statements of Operations and Comprehensive Income (Loss) |  | F-4          
|                                                                      | 
|Consolidated Statements of Shareholders Equity                       |  | F-5          
|                                                                      | 
|Consolidated Statements of Cash Flows                                 |  | F-6          
|                                                                      | 
|Notes to Consolidated Financial Statements                            |  | F-7          
|                                                                      | 
|Schedule II  Valuation and Qualifying Accounts and Reserves          |  | F-37         



F-1



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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Shareholders

Barbeques Galore Limited:



We
have audited the accompanying consolidated balance sheets of Barbeques Galore Limited and subsidiaries as of January 31, 2005 and 2004 and the related consolidated statements of operations and comprehensive income (loss), shareholders equity
and cash flows for each of the years in the three-year period ended January 31, 2005, all expressed in Australian dollars. In connection with our audit of the consolidated financial statements, we have also audited financial statement Schedule II.
These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement
schedule, based on our audits.



We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Barbeques
Galore Limited and subsidiaries as of January 31, 2005 and 2004 and the results of their operations and their cash flows for each of the years in the three-year period ended January 31, 2005, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.



As discussed in Note 1.B to the consolidated financial
statements, the Company has restated its consolidated financial statements as of January 31, 2004 and for the years ended January 31, 2004 and 2003.



/s/    KPMGKPMG




July 21, 2005

Sydney, Australia



F-2



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ------------------------- | - | ------- | -
|                                                                                                                                                                                                                                    |  | January 31, 2005                    |         |   | January 31, 2004 Restated |  
|                                                                                                                                                                                                                                    |  | (In A$ thousands except share data) |        
|ASSETS                                                                                                                                                                                                                              |  |                                     |         |   |                           |   |         |  
|Current assets:                                                                                                                                                                                                                     |  |                                     |         |   |                           |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                           |  |                                     | 1,095   |   |                           |   | 3,521   |  
|Accounts receivable, net                                                                                                                                                                                                            |  |                                     | 7,666   |   |                           |   | 8,966   |  
|Other receivables                                                                                                                                                                                                                   |  |                                     | 6,050   |   |                           |   | 5,175   |  
|Receivables from affiliates                                                                                                                                                                                                         |  |                                     |        |   |                           |   | 1,880   |  
|Inventories                                                                                                                                                                                                                         |  |                                     | 58,401  |   |                           |   | 55,444  |  
|Deferred income taxes                                                                                                                                                                                                               |  |                                     | 3,076   |   |                           |   | 2,510   |  
|Prepaid expenses and other current assets                                                                                                                                                                                           |  |                                     | 1,873   |   |                           |   | 994     |  
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|Total current assets                                                                                                                                                                                                                |  |                                     | 78,161  |   |                           |   | 78,490  |  
|Non-current assets:                                                                                                                                                                                                                 |  |                                     |         |   |                           |   |         |  
|Receivables from affiliates                                                                                                                                                                                                         |  |                                     |        |   |                           |   | 1,250   |  
|Property, plant and equipment, net                                                                                                                                                                                                  |  |                                     | 21,376  |   |                           |   | 23,221  |  
|Goodwill                                                                                                                                                                                                                            |  |                                     | 1,393   |   |                           |   | 1,096   |  
|Deferred income taxes                                                                                                                                                                                                               |  |                                     | 3,498   |   |                           |   | 4,032   |  
|Other non-current assets                                                                                                                                                                                                            |  |                                     | 845     |   |                           |   | 255     |  
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|Total assets                                                                                                                                                                                                                        |  | $                                   | 105,273 |   |                           | $ | 108,344 |  
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                                                |  |                                     |         |   |                           |   |         |  
|Current liabilities:                                                                                                                                                                                                                |  |                                     |         |   |                           |   |         |  
|Accounts payable and accrued liabilities                                                                                                                                                                                            |  | $                                   | 29,425  |   |                           | $ | 29,751  |  
|Payables to related parties                                                                                                                                                                                                         |  |                                     | 4       |   |                           |   | 90      |  
|Short-term bank borrowings                                                                                                                                                                                                          |  |                                     | 20,206  |   |                           |   |        |  
|Current portion of obligations under capital leases                                                                                                                                                                                 |  |                                     | 1,264   |   |                           |   | 1,782   |  
|Income tax payable                                                                                                                                                                                                                  |  |                                     | 3       |   |                           |   | 288     |  
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|Total current liabilities                                                                                                                                                                                                           |  |                                     | 50,902  |   |                           |   | 31,911  |  
|Non-current liabilities:                                                                                                                                                                                                            |  |                                     |         |   |                           |   |         |  
|Long-term debt                                                                                                                                                                                                                      |  |                                     |        |   |                           |   | 21,962  |  
|Obligations under capital leases, excluding current portion                                                                                                                                                                         |  |                                     | 2,333   |   |                           |   | 2,151   |  
|Other long-term liabilities                                                                                                                                                                                                         |  |                                     | 3,730   |   |                           |   | 3,718   |  
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|Total liabilities                                                                                                                                                                                                                   |  |                                     | 56,965  |   |                           |   | 59,742  |  
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|Shareholders equity:                                                                                                                                                                                                               |  |                                     |         |   |                           |   |         |  
|Ordinary shares, no par value27,437,853 shares authorized; 4,670,291 and 4,541,652 shares issued at January 31, 2005 and 2004,
respectively; 4,245,291 and 4,116,652 shares outstanding at January 31, 2005 and 2004, respectively |  |                                     | 41,667  |   |                           |   | 40,733  |  
|Accumulated other comprehensive (loss)                                                                                                                                                                                              |  |                                     | (5,084  | ) |                           |   | (4,872  | )
|Retained earnings                                                                                                                                                                                                                   |  |                                     | 13,921  |   |                           |   | 14,937  |  
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|                                                                                                                                                                                                                                    |  |                                     | 50,504  |   |                           |   | 50,798  |  
|Less: Treasury stock at cost425,000 ordinary shares                                                                                                                                                                                |  |                                     | (2,196  | ) |                           |   | (2,196  | )
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|Total shareholders equity                                                                                                                                                                                                          |  |                                     | 48,308  |   |                           |   | 48,602  |  
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                                                          |  | $                                   | 105,273 |   |                           | $ | 108,344 |  
|                                                                                                                                                                                                                                    |  |                                     |         |   |                           |   |         |  



See accompanying notes
to Consolidated Financial Statements.



F-3



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)



|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|--------------------------------------------------------------- |  | -------------------------------------------------- | ------- | - | ------------------------- | - | ------- | ------------------------- |  | - | ------- | -
|                                                                |  | January 31, 2005                                   |         |   | January 31, 2004 Restated |   |         | January 31, 2003 Restated | 
|                                                                |  | (In A$ thousands, except share and per share data) |        
|Net sales                                                       |  | $                                                  | 287,092 |   |                           | $ | 294,029 |                           |  | $ | 325,551 |  
|Cost of goods sold, warehouse, distribution and occupancy costs |  |                                                    | 198,480 |   |                           |   | 207,451 |                           |  |   | 230,335 |  
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Gross profit                                                    |  |                                                    | 88,612  |   |                           |   | 86,578  |                           |  |   | 95,216  |  
|Selling, general and administrative expenses                    |  |                                                    | 86,882  |   |                           |   | 85,923  |                           |  |   | 89,670  |  
|Store pre-opening costs                                         |  |                                                    | 200     |   |                           |   | 14      |                           |  |   | 139     |  
|Relocation and closure (gains) costs                            |  |                                                    | (170    | ) |                           |   | 3,427   |                           |  |   | (3,552  | )
|Other (income)                                                  |  |                                                    | (959    | ) |                           |   | (3,004  | )                         |  |   |        |  
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Operating income                                                |  |                                                    | 2,659   |   |                           |   | 218     |                           |  |   | 8,959   |  
|Equity in (loss) income of affiliates                           |  |                                                    |        |   |                           |   | (218    | )                         |  |   | 462     |  
|Interest expense                                                |  |                                                    | 2,091   |   |                           |   | 2,044   |                           |  |   | 2,259   |  
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Income (loss) before income tax expense (benefit)               |  |                                                    | 568     |   |                           |   | (2,044  | )                         |  |   | 7,162   |  
|Income tax expense (benefit)                                    |  |                                                    | 280     |   |                           |   | (1,267  | )                         |  |   | 2,274   |  
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Net income (loss)                                               |  |                                                    | 288     |   |                           |   | (777    | )                         |  |   | 4,888   |  
|Other comprehensive (loss)                                      |  |                                                    | (212    | ) |                           |   | (7,814  | )                         |  |   | (5,685  | )
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Comprehensive income (loss)                                     |  | $                                                  | 76      |   |                           | $ | (8,591  | )                         |  | $ | (797    | )
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Earnings (loss) per share                                       |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Basic                                                           |  | $                                                  | 0.07    |   |                           | $ | (0.19   | )                         |  | $ | 1.19    |  
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Diluted                                                         |  | $                                                  | 0.07    |   |                           | $ | (0.19   | )                         |  | $ | 1.18    |  
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Weighted average shares outstanding (in thousands)              |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Basic                                                           |  |                                                    | 4,182   |   |                           |   | 4,117   |                           |  |   | 4,117   |  
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  
|Diluted                                                         |  |                                                    | 4,385   |   |                           |   | 4,117   |                           |  |   | 4,150   |  
|                                                                |  |                                                    |         |   |                           |   |         |                           |  |   |         |  





See accompanying notes to Consolidated Financial Statements.



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY



|                                                                                  |  |                    |  |                                                    |        |                                                             |   |        |                   |  |   |                |   |  |                            |        |   |  |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------ |  | -------------------------------------------------- | ------ | ----------------------------------------------------------- | - | ------ | ----------------- |  | - | -------------- | - |  | -------------------------- | ------ | - |  | - | ------ | -
|                                                                                  |  | Shares Outstanding |  | Ordinary Shares                                    |        | Accumulated Other Comprehensive Income (Loss)Net of Nil Tax |   |        | Retained Earnings |  |   | Treasury Stock |   |  | Total Shareholders Equity |       
|                                                                                  |  | (000)             |  | (In A$ thousands, except share and per share data) |       
|Balances at January 31, 2002 (as previously reported)                             |  | 4,117              |  | $                                                  | 40,733 |                                                             | $ | 8,725  |                   |  | $ | 15,030         |   |  | $                          | (2,196 | ) |  | $ | 62,292 |  
|Effect of restatement adjustment on beginning shareholders equity (see Note 1.B) |  |                   |  |                                                    |       |                                                             |   | (98    | )                 |  |   | (1,832         | ) |  |                            |       |   |  |   | (1,930 | )
|                                                                                  |  |                    |  |                                                    |        |                                                             |   |        |                   |  |   |                |   |  |                            |        |   |  |   |        |  
|Balances at January 31, 2002 (as restated)                                        |  | 4,117              |  |                                                    | 40,733 |                                                             |   | 8,627  |                   |  |   | 13,198         |   |  |                            | (2,196 | ) |  |   | 60,362 |  
|Net income (as restated)                                                          |  |                   |  |                                                    |       |                                                             |   |       |                   |  |   | 4,888          |   |  |                            |       |   |  |   | 4,888  |  
|Dividend of A$0.2734 per share                                                    |  |                   |  |                                                    |       |                                                             |   |       |                   |  |   | (1,139         | ) |  |                            |       |   |  |   | (1,139 | )
|Foreign currency translation adjustment (as restated)                             |  |                   |  |                                                    |       |                                                             |   | (5,685 | )                 |  |   |               |   |  |                            |       |   |  |   | (5,685 | )
|                                                                                  |  |                    |  |                                                    |        |                                                             |   |        |                   |  |   |                |   |  |                            |        |   |  |   |        |  
|Balances at January 31, 2003 (as restated)                                        |  | 4,117              |  |                                                    | 40,733 |                                                             |   | 2,942  |                   |  |   | 16,947         |   |  |                            | (2,196 | ) |  |   | 58,426 |  
|Net (loss) (as restated)                                                          |  |                   |  |                                                    |       |                                                             |   |       |                   |  |   | (777           | ) |  |                            |       |   |  |   | (777   | )
|Dividend of A$0.2994 per share                                                    |  |                   |  |                                                    |       |                                                             |   |       |                   |  |   | (1,233         | ) |  |                            |       |   |  |   | (1,233 | )
|Foreign currency translation adjustment (as restated)                             |  |                   |  |                                                    |       |                                                             |   | (7,814 | )                 |  |   |               |   |  |                            |       |   |  |   | (7,814 | )
|                                                                                  |  |                    |  |                                                    |        |                                                             |   |        |                   |  |   |                |   |  |                            |        |   |  |   |        |  
|Balances at January 31, 2004 (as restated)                                        |  | 4,117              |  |                                                    | 40,733 |                                                             |   | (4,872 | )                 |  |   | 14,937         |   |  |                            | (2,196 | ) |  |   | 48,602 |  
|Net income                                                                        |  |                   |  |                                                    |       |                                                             |   |       |                   |  |   | 288            |   |  |                            |       |   |  |   | 288    |  
|Dividend of A$0.3149 per share                                                    |  |                   |  |                                                    |       |                                                             |   |       |                   |  |   | (1,304         | ) |  |                            |       |   |  |   | (1,304 | )
|Exercise of stock options                                                         |  | 128                |  |                                                    | 934    |                                                             |   |       |                   |  |   |               |   |  |                            |       |   |  |   | 934    |  
|Foreign currency translation adjustment                                           |  |                   |  |                                                    |       |                                                             |   | (212   | )                 |  |   |               |   |  |                            |       |   |  |   | (212   | )
|                                                                                  |  |                    |  |                                                    |        |                                                             |   |        |                   |  |   |                |   |  |                            |        |   |  |   |        |  
|Balances at January 31, 2005                                                      |  | 4,245              |  | $                                                  | 41,667 |                                                             | $ | (5,084 | )                 |  | $ | 13,921         |   |  | $                          | (2,196 | ) |  | $ | 48,308 |  
|                                                                                  |  |                    |  |                                                    |        |                                                             |   |        |                   |  |   |                |   |  |                            |        |   |  |   |        |  



See accompanying notes
to Consolidated Financial Statements.



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                         |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|---------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ------------------------------------ | - | ------- | ------------------------------------ |  | - | ------- | -
|                                                                                         |  | Year Ended January 31, 2005 |         |   | Year Ended January 31, 2004 Restated |   |         | Year Ended January 31, 2003 Restated | 
|                                                                                         |  | (In A$ thousands)           |        
|Cash flows from operating activities:                                                    |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Net income (loss)                                                                        |  | $                           | 288     |   |                                      | $ | (777    | )                                    |  | $ | 4,888   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Depreciation and amortization                                                            |  |                             | 5,528   |   |                                      |   | 6,159   |                                      |  |   | 7,029   |  
|Deferred income taxes                                                                    |  |                             | (44     | ) |                                      |   | (1,785  | )                                    |  |   | (263    | )
|Undistributed loss (income) of affiliates                                                |  |                             |        |   |                                      |   | 216     |                                      |  |   | (31     | )
|(Gain) loss on sale of property, plant and equipment                                     |  |                             | (408    | ) |                                      |   | (3,301  | )                                    |  |   | 83      |  
|(Gain) on sale of intangible assets                                                      |  |                             |        |   |                                      |   | (119    | )                                    |  |   |        |  
|Changes in operating assets and liabilities:                                             |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Receivables, prepaid expenses and other current assets                                   |  |                             | 1,041   |   |                                      |   | (6,234  | )                                    |  |   | 4,241   |  
|Inventories                                                                              |  |                             | (2,251  | ) |                                      |   | 1,008   |                                      |  |   | 484     |  
|Other assets                                                                             |  |                             | (118    | ) |                                      |   | 47      |                                      |  |   | 54      |  
|Accounts payable, accrued liabilities and other liabilities                              |  |                             | (2,112  | ) |                                      |   | 6,976   |                                      |  |   | (5,351  | )
|                                                                                         |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Net cash provided by operating activities                                                |  |                             | 1,924   |   |                                      |   | 2,190   |                                      |  |   | 11,134  |  
|                                                                                         |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Cash flows from investing activities:                                                    |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Proceeds from sale of property, plant and equipment                                      |  |                             | 4,139   |   |                                      |   | 6,712   |                                      |  |   | 95      |  
|Proceeds from sale of investments in affiliated companies                                |  |                             | 1,130   |   |                                      |   |        |                                      |  |   |        |  
|Acquisition of U.S.A. franchised stores                                                  |  |                             | (532    | ) |                                      |   |        |                                      |  |   |        |  
|Proceeds from sale of intangible assets                                                  |  |                             |        |   |                                      |   | 150     |                                      |  |   |        |  
|Capital expenditures                                                                     |  |                             | (5,910  | ) |                                      |   | (3,428  | )                                    |  |   | (2,811  | )
|                                                                                         |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Net cash (used in) provided by investing activities                                      |  |                             | (1,173  | ) |                                      |   | 3,434   |                                      |  |   | (2,716  | )
|                                                                                         |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Cash flows from financing activities:                                                    |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Repayment of borrowings                                                                  |  |                             | (42,792 | ) |                                      |   | (29,900 | )                                    |  |   | (30,548 | )
|Proceeds from borrowings                                                                 |  |                             | 41,297  |   |                                      |   | 32,561  |                                      |  |   | 25,556  |  
|Principal payments under capital leases                                                  |  |                             | (1,829  | ) |                                      |   | (2,876  | )                                    |  |   | (2,284  | )
|Dividend paid                                                                            |  |                             | (1,304  | ) |                                      |   | (1,233  | )                                    |  |   | (1,139  | )
|Proceeds from exercise of options                                                        |  |                             | 934     |   |                                      |   |        |                                      |  |   |        |  
|                                                                                         |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Net cash (used in) financing activities                                                  |  |                             | (3,694  | ) |                                      |   | (1,448  | )                                    |  |   | (8,415  | )
|                                                                                         |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Net (decrease) increase in cash and cash equivalents                                     |  |                             | (2,943  | ) |                                      |   | 4,176   |                                      |  |   | 3       |  
|Cash and cash equivalents at beginning of period                                         |  |                             | 3,521   |   |                                      |   | 38      |                                      |  |   | 35      |  
|Effects of exchange rate fluctuations                                                    |  |                             | 517     |   |                                      |   | (693    | )                                    |  |   |        |  
|                                                                                         |  |                             |         |   |                                      |   |         |                                      |  |   |         |  
|Cash and cash equivalents at end of period                                               |  | $                           | 1,095   |   |                                      | $ | 3,521   |                                      |  | $ | 38      |  
|                                                                                         |  |                             |         |   |                                      |   |         |                                      |  |   |         |  



See accompanying notes
to Consolidated Financial Statements.



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.A    Description of Business and Summary of Significant Accounting Policies



(a)   Description of business



Barbeques Galore Limited (Barbeques Galore or the Company) is an Australian resident company which is primarily engaged in the
business of selling barbecues, other backyard products and heating products, operating from two countries, U.S.A. and Australia.



In the U.S.A., the Company is involved in the retailing, through company-owned and franchised stores, of barbecues and related accessories, fireplace
equipment and backyard products.



In Australia, the Company is
involved in the retailing of barbecues and related accessories, home heaters, outdoor furniture and backyard products through company-owned and licensed stores and, to a lesser extent, in the manufacture of home heaters, the wholesaling of home
heaters and barbecues and the exporting of barbecues.



(b)  Principles of consolidation



The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation.



(c)  Inventories



Inventories are comprised of raw materials, work in progress and finished
goods. Inventories are valued at the lower of cost or market using the first-in, first-out method.



(d)  Derivative instruments



The Company follows Financial Accounting Standards Board (FASB) Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities(Statement 133). As amended, Statement 133 requires derivative instruments be recorded in the balance sheet at their fair values with changes in fair values being recognized in earnings unless specific hedge
accounting criteria are met. The Companys foreign exchange contracts do not qualify for hedge accounting treatment.



(e)  Investments in affiliated companies



Investments in non-controlled affiliates, where the Company exerts significant influence (i.e. voting common stock interest between 20% and 50%), are
accounted for by the equity method and are included in the balance sheet as other current assets at January 31, 2004 due to the anticipated sale of such investments in 2005. The Company had no investments in affiliates at January 31,
2005.



(f)  Property, plant and equipment



Property, plant and equipment are stated at cost net
of accumulated depreciation and amortization. Plant and equipment under capital leases are initially recorded at the present value of minimum lease payments. Plant and equipment held under capital leases and leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or estimated useful life of the asset. The method of depreciation and the estimable useful lives over which property, plant and equipment are depreciated, is as follows:



|                           |  |               |  |      
|-------------------------- |  | ------------- |  | -----
|                           |  | Method        |  | Years
|Buildings                  |  | Straight line |  | 40   
|Machinery and equipment    |  | Straight line |  | 8-12 
|Leasehold improvements     |  | Straight line |  | 5-20 
|Leased plant and equipment |  | Straight line |  | 3-5  



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(g)  Goodwill



Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill determined to have
an indefinite useful life is not amortized but tested instead for impairment at least annually, pursuant to FASB Statement No. 142, Goodwill and Intangible Assets.



Goodwill is tested annually, at the end of each fourth quarter, for impairment and is tested for impairment more frequently
if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the assets fair value. This determination is made at the reporting unit level and consists
of two steps. First, the Company determines the fair value of a reporting unit and compares it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the
carrying amount of the reporting units goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price
allocation. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.



(h)  Product management and development, and advertising



Product management and development, and advertising costs are expensed as incurred. Amounts expensed were as follows:



|                                   |  |                             |        |                                      |   |                                      |  |   |       
|---------------------------------- |  | --------------------------- | ------ | ------------------------------------ | - | ------------------------------------ |  | - | ------
|                                   |  | Year Ended January 31, 2005 |        | Year Ended January 31, 2004 Restated |   | Year Ended January 31, 2003 Restated
|                                   |  | (In A$ thousands)          
|Product management and development |  | $                           | 786    |                                      | $ | 978                                  |  | $ | 1,003 
|Advertising                        |  |                             | 12,828 |                                      |   | 13,929                               |  |   | 13,629
|                                   |  |                             |        |                                      |   |                                      |  |   |       



(i)  Income taxes



Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases as well as operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.



(j)  Share option plan



The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (Opinion 25) and related interpretations including FASB Interpretation No.44, Accounting for Certain Transactions involving
Stock Compensation, an interpretation of APB Opinion No. 25, to account for its stock options. Under this method, compensation expense is recorded on the date of grant if the then current market price of the underlying common stock exceeded the
exercise price. FASB Statement No. 123, Accounting for Stock-Based Compensation, (Statement 123) and FASB Statement No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure, an amendment of FASB
Statement No. 123,(Statement 148) established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As permitted by



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



existing accounting standards, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above and has adopted
only the disclosure requirements of Statement 123, as amended. The following table illustrates the effect on the net income (loss) if the fair-value-based method had been applied to all outstanding and unvested awards in each period.



|                                                                                                                              |  |                                         |       |   |                                      |   |        |                                      |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ----- | - | ------------------------------------ | - | ------ | ------------------------------------ |  | - | ------ | -
|                                                                                                                              |  | Year Ended January 31, 2005             |       |   | Year Ended January 31, 2004 Restated |   |        | Year Ended January 31, 2003 Restated | 
|                                                                                                                              |  | (In A$ thousands except per share data) |      
|Net income (loss)                                                                                                             |  |                                         |       |   |                                      |   |        |                                      |  |   |        |  
|As reported                                                                                                                   |  | $                                       | 288   |   |                                      | $ | (777   | )                                    |  | $ | 4,888  |  
|Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects |  |                                         | (582  | ) |                                      |   | (230   | )                                    |  |   | (1,522 | )
|                                                                                                                              |  |                                         |       |   |                                      |   |        |                                      |  |   |        |  
|Pro forma                                                                                                                     |  | $                                       | (294  | ) |                                      | $ | (1,007 | )                                    |  | $ | 3,366  |  
|                                                                                                                              |  |                                         |       |   |                                      |   |        |                                      |  |   |        |  
|Basic earnings (loss) per share                                                                                               |  |                                         |       |   |                                      |   |        |                                      |  |   |        |  
|As reported                                                                                                                   |  | $                                       | 0.07  |   |                                      | $ | (0.19  | )                                    |  | $ | 1.19   |  
|Pro forma                                                                                                                     |  | $                                       | (0.07 | ) |                                      | $ | (0.24  | )                                    |  | $ | 0.82   |  
|Diluted earnings (loss) per share                                                                                             |  |                                         |       |   |                                      |   |        |                                      |  |   |        |  
|As reported                                                                                                                   |  | $                                       | 0.07  |   |                                      | $ | (0.19  | )                                    |  | $ | 1.18   |  
|Pro forma                                                                                                                     |  | $                                       | (0.07 | ) |                                      | $ | (0.24  | )                                    |  | $ | 0.81   |  



(k)  Commitments and contingencies



Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably
estimated.



(l)  Use of estimates



Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses to prepare these financial statements in conformity with U.S.
generally accepted accounting principles. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment, goodwill, valuation allowances for receivables, inventories and deferred income tax
assets. Actual results could differ from those estimates.



(m)  Impairment of long-lived assets



Long lived assets such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs
to sell and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale are presented separately in the appropriate asset and liability sections of the balance sheet.



(n)  Rent expense, surplus leased space and lease incentives



The Company leases certain store locations under
operating leases which provide for annual payments that increase over the lives of the leases. Total payments under the leases are expensed on a straight-line basis over



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



the lease term. Contingent rentals are generally based on sales levels in excess of stipulated amounts and are not considered minimum lease payments.
Contingent rentals are included in rent expense as they accrue.



Where premises under a non-cancelable operating lease are vacated upon the giving of the required notice to the landlord during the lease term, a charge is recognized on that date equal to the present value of the expected future lease
payments less any expected future sub-lease income.



If the
Company receives incentives provided by a lessor to enter into an operating lease agreement, these incentives are brought to account as reductions in rent expense over the term of the lease on a straight-line basis.



(o)  Revenue recognition



Revenue (net of returns and allowances), is recognized when the customer
takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sale price is fixed or determinable. This occurs at the point of shipment for wholesale sales to
external customers and at the point of sale for retail goods.



In Australia, the amount of the annual licensee fees is billed to Licensees during December of the preceding year. This is initially deferred and subsequently recognized as revenue in twelve equal installments over the following calendar
year as this is the period during which the annual licensee fees are earned.



In the U.S.A., franchise royalties are recognized each month, at rates varying from 2.5% to 5% of actual monthly retail revenues derived by the Franchisee. The percentage rates are subject to variation based on the
retail revenue levels achieved and the rates applicable at the time of signing each new franchise.



Licensee training fees are recognized as revenue when the training is performed.



Details of annual licensee fees, franchise royalties and training fees earned were as follows:



|                            |  |                             |       |                                      |   |                                      |  |   |      
|--------------------------- |  | --------------------------- | ----- | ------------------------------------ | - | ------------------------------------ |  | - | -----
|                            |  | Year Ended January 31, 2005 |       | Year Ended January 31, 2004 Restated |   | Year Ended January 31, 2003 Restated
|                            |  | (In A$ thousands)          
|Licensee fees earned        |  | $                           | 480   |                                      | $ | 424                                  |  | $ | 413  
|Franchisee royalties earned |  |                             | 1,183 |                                      |   | 1,325                                |  |   | 1,454
|Training fees earned        |  |                             | Nil   |                                      |   | 5                                    |  |   | Nil  



(p)  Cash and cash equivalents



Cash includes cash on hand and at bank. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.



(q)  Store pre-opening costs



Store pre-opening costs (which include legal, organizational or other
non-tangible asset-related costs associated with the opening of retail stores), are expensed when incurred.



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(r)  Earnings (loss) per share



Basic earnings (loss) per share is computed by dividing net income (loss)
available to ordinary shareholders by the weighted average number of ordinary shares. Diluted earnings (loss) per share is computed by dividing net income (loss) available to ordinary shareholders by the sum of the weighted average number of
ordinary shares and dilutive ordinary share equivalents for the period. In calculating the dilutive effect of share options, the Company uses the treasury stock method.



(s)  Foreign currency translation



Foreign currency transactions are converted to Australian currency at the rates of exchange applicable at the dates of the
transactions. Amounts receivable and payable in foreign currencies at balance date are converted at the year end rates. Gains and losses from conversion of monetary assets and liabilities, whether realized or unrealized, are included in income
(loss) before income tax expense (benefit) as they arise.



The
Companys reporting currency is the Australian dollar. The functional currency of the U.S.A. subsidiaries is the U.S. dollar. Assets and liabilities of the U.S.A. subsidiaries are translated at year-end rates and operating results at the
average rates ruling during the year.



(t)  Comprehensive income (loss)



The Companys comprehensive income (loss) includes net income (loss) and the foreign currency translation adjustments pursuant to the translation of the assets and liabilities of the Companys overseas subsidiaries.



(u)  Goods and Services Tax (GST)



Revenues, expenses and assets are recognized net of
the amount of GST except where the amount of GST incurred is not recoverable from the Australian Tax Office (ATO). In these circumstances, the GST is recognized as part of the cost of acquisition of the asset or as part of an item of the
expense.



Receivables and payables are stated inclusive of GST.
The net amount of GST recoverable from, or payable to, the ATO, is included as a current asset or current liability in the consolidated balance sheet.



Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities
which are recoverable from or payable to, the ATO, are classified as operating cash flows.



(v)  Trade accounts receivable



Trade accounts receivable are recorded at the invoiced amount. The allowance for doubtful accounts is the Companys best estimate of the amount of probable credit losses in the Companys existing accounts
receivable and is determined monthly based on historical write-off experience. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all
means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.



(w)  Recently adopted accounting standard



In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities - an interpretation of ARB No. 51,(FIN 46) and which was subsequently revised in December 2003. FIN 46



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements and requires companies to evaluate
whether they have controlling financial interests in entities through means other than voting rights and accordingly should consolidate the entities. FIN 46 is immediately applicable for variable interest entities created after January 31, 2003 and
applies for periods ended April 30, 2004 for variable interest entities acquired prior to February 1, 2003. The Company has evaluated the conditions relating to the application of FIN 46 and is satisfied that it is not the primary beneficiary in any
variable interest entities. Accordingly, the adoption of FIN 46 had no impact on the Companys financial position or results of operations.



(x)  Recently issued accounting standards



In December 2004, the FASB issued Statement No. 151, Inventory Costs, (Statement 151) which
clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage). Under Statement 151, such items will be recognized as current-period charges. In addition, Statement 151 requires that
allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Any costs outside the normal range would be considered a period expense instead of an inventoried cost. This standard
is effective for the Company for the fiscal year beginning February 1, 2006. The adoption of Statement 151 is not expected to have a material impact on the Companys financial position or net earnings.



In December 2004, the FASB issued Statement No. 153, Exchanges of
Non-Monetary Assets  An Amendment of APB Opinion No. 29, (Statement 153). The amendments made by Statement 153 are based on the principle that exchanges of non-monetary assets should be measured based on the fair value of
the assets exchanged. Further, the amendments eliminate the narrow exception for non-monetary exchanges of similar productive assets and replace it with a broader exception for exchanges of non-monetary assets that do not have commercial substance.
Previously, APB Opinion No. 29 required that the accounting for an exchange of a similar productive asset should be based on the recorded amount of the asset relinquished. This standard is effective for the Company for the fiscal year beginning
February 1, 2006. The adoption of Statement 153 is not expected to have a material impact on the Companys financial position or net earnings.



In December 2004, the FASB issued Statement No. 123 (Revised 2004), Share-Based Payment, (Statement 123R). The new FASB
rule requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The Company will be
required to apply Statement 123R as of February 1, 2006 and intends to use the modified-prospective-transition method, as defined therein. The scope of Statement 123R includes a wide range of share-based compensation arrangements including share
options. Statement 123R replaces Statement 123 and supersedes Opinion 25. The pro-forma disclosures previously permitted under Statement 123 will no longer be an alternative to financial statement recognition. The Company is evaluating the
requirements of Statement 123R and expects that the adoption may have a material impact on its future consolidated statements of operations.



(y)  Asset retirement obligations



FASB Statement No. 143, Accounting for Asset Retirement Obligations, (SFAS 143), addresses the financial accounting and
reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs.



The Company has legal obligations to dismantle and remove leasehold improvements from certain locations occupied under operating leases upon exiting the
lease which are within the scope of SFAS 143. The Companys past experience is that these provisions have resulted in little if any costs to the Company, and the Company



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



expects these trends to continue. Accordingly, no liability has been recorded for these asset retirement obligations because of the low probability of
actually settling these asset retirement obligations and the uncertainty about whether the obligation will be enforced by the lessor.



(z)  Allowances from vendors



The Company receives various incentives in the form of discounts and allowances from its vendors based on the volume of purchases or for services that the
Company provides to the vendors. These incentives received from vendors include rebates and co-operative advertising. Typically, these funds are dependent on purchase volumes and advertising activities. The amounts received are subject to changes in
market conditions, vendor marketing strategies and changes in the profitability or sell-through of the related merchandise for the Company. The Company accounts for allowances from vendors in accordance with Emerging Issues Task Force Issue No.
02-16, Accounting by a Customer (Including a Reseller) for Cash Consideration Received from a Vendor. Rebates are earned based on purchases or product sales. These rebates are treated as a reduction of inventories and recognized
as a reduction to cost of sales as the inventories are sold. Co-operative advertising is used exclusively for advertising on behalf of vendors and offsets the Companys advertising expense.



Vendor rebates and co-operative advertising amounted to A$843,000 and
A$591,000, respectively for fiscal 2005, A$809,000 and A$784,000, respectively for fiscal 2004 and A$796,000 and A$775,000, respectively for fiscal 2003.



1.B    Restatement of Financial Statements



The Company has re-evaluated its lease accounting practices and has corrected the way it accounts for its leases, specifically the accounting for
operating leases with scheduled rent increases and tenant allowances.



Under the requirements of FASB Technical Bulletin 85-3, Accounting for Operating Leases with Scheduled Rent Increases, rent expense should be amortized on a straight-line basis over the term of the lease. In prior
periods, the Company had incorrectly determined that the term of the lease begins on the commencement date of the lease which generally coincides with the store opening date, instead of at the time it took physical possession of the property to
start construction of leasehold improvements. This had the effect of excluding the construction period of the stores from the calculation of the period over which rent is expensed.



In addition, under FASB Technical Bulletin 88-1, Issues Relating to Accounting for Leases, lease
incentives such as tenant allowances received from the landlord to cover construction costs incurred by the Company should be reflected as a deferred liability, amortized over the term of the lease and reflected as a reduction to rent expense. The
Company had previously incorrectly classified a portion of the tenant allowances as a reduction to store build out costs capitalized instead of as deferred lease liability on the consolidated balance sheet. As a result, the Company incorrectly
amortized the deferred lease liability over the capitalized asset life as a reduction to depreciation expense instead of over the lease term as a reduction to rent expense.



The Company has restated its previously reported consolidated financial statements as of January 31, 2004 and for the fiscal
years ended January 31, 2004 and 2003 to correct its accounting for leases. The lease accounting restatement adjustments resulted in a decrease to opening retained earnings of A$1,529,000 as of February 1, 2002, an increase in net loss of A$73,000
in fiscal 2004 (inclusive of an increase in deferred income tax benefit of A$38,000) and a decrease in net income of A$138,000 in fiscal 2003 (inclusive of an increase in deferred income tax benefit of A$82,000). In total, the lease accounting
restatement adjustments resulted in a decrease to retained earnings of A$1,740,000 as of January 31, 2004.



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The restated financial statements also reflect certain adjustments for out-of-period adjustments
previously recorded in the period the Company identified the error that were otherwise considered at the time immaterial individually and in aggregate to the reporting periods presented. These adjustments include:



| | (i) |  | recording A$571,008 of in-transit inventory and the related payable while in-transit as of January 31, 2004, rather than when received as previously reported; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | a change in the timing of expense and income items previously recognized.
| | ---- |  | -------------------------------------------------------------------------



The out-of-period restatement adjustments resulted in a decrease to opening retained earnings of A$303,000 as of February 1, 2002, an increase in net loss
of A$168,000 in fiscal 2004 (inclusive of an increase in deferred income tax benefit of $177,000) and an increase in net income of A$505,000 in fiscal 2003 (inclusive of an increase in deferred income tax benefit of $170,000). In total, the
out-of-period restatement adjustments resulted in an increase to retained earnings of A$34,000 as at January 31, 2004.



The Company restated its total shareholders equity as of January 31, 2004 by decreasing the balance by A$1,241,000 from the amount previously
reported. The components of this decrease include:



| | (i) |  | the restatement adjustments discussed above relating to lease accounting and out-of-period adjustments in the combined amount of A$1,706,000, net decrease; and
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (ii) |  | the effects of currency translation on the consolidation of the U.S.A. subsidiaries and related U.S.A. restatement adjustments in the amount of A$465,000, net increase.
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The fiscal 2004 consolidated statement of cash
flows was restated to correctly classify interest on capital leases in net cash provided by operating activities instead of net cash (used in) financing activities. The restatement adjustments did not have any further effect on the consolidated
statements of cash flows.



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following is a summary of the effect of these adjustments on the Companys consolidated
financial statements:



|                                                                |  |                                                                     |         |   |             |   |       |             |  |   |         |  
|--------------------------------------------------------------- |  | ------------------------------------------------------------------- | ------- | - | ----------- | - | ----- | ----------- |  | - | ------- | -
|                                                                |  | Consolidated Statements of Operations andOther Comprehensive (Loss) |        
|                                                                |  | As previouslyreported                                               |         |   | Adjustments |   |       | As restated | 
|                                                                |  | (In A$ thousands except per share data)                             |        
|Year ended January 31, 2004                                     |  |                                                                     |         |   |             |   |       |             |  |   |         |  
|Net sales                                                       |  | $                                                                   | 294,029 |   |             | $ |      |             |  | $ | 294,029 |  
|Cost of goods sold, warehouse, distribution and occupancy costs |  |                                                                     | 207,514 |   |             |   | (63   | )           |  |   | 207,451 |  
|Gross profit                                                    |  |                                                                     | 86,515  |   |             |   | 63    |             |  |   | 86,578  |  
|Operating income                                                |  |                                                                     | 674     |   |             |   | (456  | )           |  |   | 218     |  
|(Loss) before income tax (benefit)                              |  |                                                                     | (1,588  | ) |             |   | (456  | )           |  |   | (2,044  | )
|Income tax (benefit)                                            |  |                                                                     | (1,052  | ) |             |   | (215  | )           |  |   | (1,267  | )
|Net (loss)                                                      |  |                                                                     | (536    | ) |             |   | (241  | )           |  |   | (777    | )
|Other comprehensive (loss)                                      |  |                                                                     | (8,141  | ) |             |   | 327   |             |  |   | (7,814  | )
|Comprehensive (loss)                                            |  |                                                                     | (8,677  | ) |             |   | 86    |             |  |   | (8,591  | )
|Loss per share  basic                                          |  | $                                                                   | (0.13   | ) |             | $ | (0.06 | )           |  | $ | (0.19   | )
|Loss per share  diluted                                        |  | $                                                                   | (0.13   | ) |             | $ | (0.06 | )           |  | $ | (0.19   | )
|                                                                |  |                                                                     |        
|Year ended January 31, 2003                                     |  |                                                                     |         |   |             |   |       |             |  |   |         |  
|Net sales                                                       |  | $                                                                   | 325,551 |   |             | $ |      |             |  | $ | 325,551 |  
|Cost of goods sold, warehouse, distribution and occupancy costs |  |                                                                     | 230,441 |   |             |   | (106  | )           |  |   | 230,335 |  
|Gross profit                                                    |  |                                                                     | 95,110  |   |             |   | 106   |             |  |   | 95,216  |  
|Operating income                                                |  |                                                                     | 8,844   |   |             |   | 115   |             |  |   | 8,959   |  
|Income before income tax expense                                |  |                                                                     | 7,047   |   |             |   | 115   |             |  |   | 7,162   |  
|Income tax expense                                              |  |                                                                     | 2,526   |   |             |   | (252  | )           |  |   | 2,274   |  
|Net income                                                      |  |                                                                     | 4,521   |   |             |   | 367   |             |  |   | 4,888   |  
|Other comprehensive (loss)                                      |  |                                                                     | (5,921  | ) |             |   | 236   |             |  |   | (5,685  | )
|Comprehensive (loss)                                            |  |                                                                     | (1,400  | ) |             |   | 603   |             |  |   | (797    | )
|Earnings per share  basic                                      |  | $                                                                   | 1.10    |   |             | $ | 0.09  |             |  | $ | 1.19    |  
|Earnings per share  diluted                                    |  | $                                                                   | 1.09    |   |             | $ | 0.09  |             |  | $ | 1.18    |  



|                                           |  |                             |         |   |             |   |        |             |  |   |         |  
|------------------------------------------ |  | --------------------------- | ------- | - | ----------- | - | ------ | ----------- |  | - | ------- | -
|                                           |  | Consolidated Balance Sheets |        
|                                           |  | As previouslyreported       |         |   | Adjustments |   |        | As restated | 
|                                           |  | (In A$ thousands)           |        
|As of January 31, 2004                     |  |                             |         |   |             |   |        |             |  |   |         |  
|Total current assets                       |  | $                           | 77,807  |   |             | $ | 683    |             |  | $ | 78,490  |  
|Property, plant and equipment, net         |  |                             | 22,577  |   |             |   | 644    |             |  |   | 23,221  |  
|Deferred income taxes, non-current         |  |                             | 3,176   |   |             |   | 856    |             |  |   | 4,032   |  
|Total assets                               |  |                             | 106,161 |   |             |   | 2,183  |             |  |   | 108,344 |  
|Accounts payable and accrued liabilities   |  |                             | 29,910  |   |             |   | (159   | )           |  |   | 29,751  |  
|Total current liabilities                  |  |                             | 32,092  |   |             |   | (181   | )           |  |   | 31,911  |  
|Total long-term liabilities                |  |                             | 24,226  |   |             |   | 3,605  |             |  |   | 27,831  |  
|Retained earnings                          |  |                             | 16,643  |   |             |   | (1,706 | )           |  |   | 14,937  |  
|Accumulated other comprehensive (loss)     |  |                             | (5,337  | ) |             |   | 465    |             |  |   | (4,872  | )
|Total shareholders equity                 |  |                             | 49,843  |   |             |   | (1,241 | )           |  |   | 48,602  |  
|Total liabilities and shareholders equity |  |                             | 106,161 |   |             |   | 2,183  |             |  |   | 108,344 |  



F-15



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                          |  |                                       |   |  |             |   |  |             |  
|----------------------------------------- |  | ------------------------------------- | - |  | ----------- | - |  | ----------- | -
|                                          |  | Consolidated Statements of Cash Flows |  
|                                          |  | As previouslyreported                 |   |  | Adjustments |   |  | As restated |  
|                                          |  | (In A$ thousands)                     |  
|Year ended January 31, 2004               |  |                                       |   |  |             |   |  |             |  
|Net cash provided by operating activities |  | 2,537                                 |   |  | (347        | ) |  | 2,190       |  
|Net cash (used in) financing activities   |  | (1,795                                | ) |  | 347         |   |  | (1,448      | )



|2. |  | Derivative Financial Instruments
|-- |  | --------------------------------



The Company utilizes foreign currency forward contracts as a means of offsetting fluctuations in the dollar value of foreign currency accounts payable.
The counter-parties to the contracts are major financial institutions and the risk of loss to the Company in the event of non-performance by a counter-party is not significant. The notional amount of foreign currency forward contracts and the
weighted average rates, are as follows:



|                        |  |                             |  |                                      |  |                             |       |                                      |   |      
|----------------------- |  | --------------------------- |  | ------------------------------------ |  | --------------------------- | ----- | ------------------------------------ | - | -----
|                        |  | Year ended January 31, 2005 |  | Year ended January 31, 2004 Restated |  | Year ended January 31, 2005 |       | Year ended January 31, 2004 Restated
|                        |  | (weighted average rate)     |  | (In A$ thousands)                   
|Buy U.S. dollars        |  |                             |  |                                      |  |                             |       |                                      |   |      
|Not later than one year |  | 0.7694                      |  |                                     |  | $                           | 4,549 |                                      |   |     
|                        |  |                             |  |                                      |  |                             |       |                                      |   |      
|Sell Pounds sterling    |  |                             |  |                                      |  |                             |       |                                      |   |      
|Not later than one year |  | 0.4052                      |  | 0.4141                               |  | $                           | 5,429 |                                      | $ | 3,018
|                        |  |                             |  |                                      |  |                             |       |                                      |   |      



The fair value of
foreign currency forward contracts outstanding as of January 31, 2005 and 2004, is approximately A$59,000 and A$47,000, respectively, recorded as an asset in other current assets. The Companys foreign exchange contracts do not
qualify for hedge accounting treatment under Statement 133.



|3. |  | Accounts Receivable
|-- |  | -------------------



Accounts receivable consists of the following:



|                                    |  |                   |       |   |                           |   |       |  
|----------------------------------- |  | ----------------- | ----- | - | ------------------------- | - | ----- | -
|                                    |  | January 31, 2005  |       |   | January 31, 2004 Restated |  
|                                    |  | (In A$ thousands) |      
|Trade accounts receivable           |  | $                 | 7,866 |   |                           | $ | 9,216 |  
|Less: Reserve for doubtful accounts |  |                   | (200  | ) |                           |   | (250  | )
|                                    |  |                   |       |   |                           |   |       |  
|                                    |  | $                 | 7,666 |   |                           | $ | 8,966 |  
|                                    |  |                   |       |   |                           |   |       |  



|4. |  | Inventories
|-- |  | -----------



The major classes of inventories are as follows:



|                 |  |                   |        |                           |   |       
|---------------- |  | ----------------- | ------ | ------------------------- | - | ------
|                 |  | January 31, 2005  |        | January 31, 2004 Restated
|                 |  | (In A$ thousands)
|Finished goods   |  | $                 | 56,349 |                           | $ | 52,020
|Work in progress |  |                   | 740    |                           |   | 1,356 
|Raw materials    |  |                   | 1,312  |                           |   | 2,068 
|                 |  |                   |        |                           |   |       
|                 |  | $                 | 58,401 |                           | $ | 55,444
|                 |  |                   |        |                           |   |       



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|5. |  | Investments in Affiliated Companies
|-- |  | -----------------------------------



Investments in affiliated companies consisted of a one-third ownership of the ordinary shares in each of Bromic Pty Limited (Bromic) which
imports and distributes componentry to the gas and appliance industries and Renegade Pty Limited trading as Supagas (Supagas), an Australian industrial and gas distributor.



Bromic provides liquid petroleum gas cylinders and related products such as manifolds, bundy tubes, glass and barbecue
ignitions to the Company. Supagas supplies the L.P. gas which is used to power the gas-operated forklifts at the Companys manufacturing and distribution sites. Sales to affiliated companies are not significant. Interest is also charged on
amounts owing by affiliates at commercial rates but is not significant. Amounts owing by affiliates are in relation to cash advances.



During 2005, the Company disposed of its equity interest in both Bromic and Supagas. The carrying value of A$959,000 representing the cost of the
Companys interest in both entities plus its share of the undistributed profits in Bromic and Supagas was adjusted by the write-down of approximately A$444,000 during the year ended January 31, 2004 to reflect the re-assessed recoverable amount
determined pursuant to the consideration to be received in respect of the disposal to existing shareholders, of the Companys aforementioned equity interest. Accordingly, there was no gain or loss recognized upon sale of the two affiliated
companies.



The consideration for Bromic amounted to
A$1,130,080 in addition to a dividend of A$515,280 with payment in cash (both of which were received during fiscal 2005) upon the execution of a formal agreement. In the case of Supagas, the consideration amounted to A$2,000,000 payable as to
A$750,000 on January 1, 2005, (and received during fiscal 2005), A$750,000 on January 1, 2006 and A$500,000 on January 1, 2007, subject to acceleration of the full balance in the case of default. The unpaid balance accrues interest at an annual rate
of 6%, payable in arrears, calculated from April 1, 2004 and payable with effect from January 1, 2005. As security for the performance of all the purchasers obligations, the Company has charged the pledge to it, over all the shares and loan
account in Bromic and the shares in Supagas, being sold.



Prices charged between the Company and its affiliates are set at the level of prices that are charged to unrelated parties. Trading with affiliates for each period and amounts outstanding at each period end, are as follows:



|                                                          |  |                             |       |                             |   |      
|--------------------------------------------------------- |  | --------------------------- | ----- | --------------------------- | - | -----
|                                                          |  | Year ended January 31, 2004 |       | Year ended January 31, 2003
|                                                          |  | (In A$ thousands)          
|Purchases from affiliates:                                |  |                             |       |                             |   |      
|Bromic                                                   |  | $                           | 1,314 |                             | $ | 2,248
|Supagas                                                  |  |                             | 30    |                             |   | 23   
|                                                          |  |                             |       |                             |   |      
|                                                          |  | $                           | 1,344 |                             | $ | 2,271
|                                                          |  |                             |       |                             |   |      
|Dividends received or due and receivable from affiliates: |  |                             |       |                             |   |      
|Bromic                                                   |  | $                           |      |                             | $ | 330  
|GLG Trading Pte Limited                                  |  |                             |      |                             |   | 100  
|                                                          |  |                             |       |                             |   |      
|                                                          |  | $                           |      |                             | $ | 430  
|                                                          |  |                             |       |                             |   |      



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                              |  |                   |        |   |  | 
|--------------------------------------------- |  | ----------------- | ------ | - |  | 
|                                              |  | January 31, 2004  |        |   | 
|                                              |  | (In A$ thousands) |        |   | 
|Receivables from affiliates:                  |  |                   |        |   |  | 
|Bromic                                       |  | $                 | 1,130  |   |  | 
|Supagas                                      |  |                   | 2,000  |   |  | 
|                                              |  |                   |        |   |  | 
|                                              |  | $                 | 3,130  |   |  | 
|Less: Current receivables from affiliates     |  |                   | (1,880 | ) |  | 
|                                              |  |                   |        |   |  | 
|                                              |  | $                 | 1,250  |   |  | 
|                                              |  |                   |        |   |  | 
|Investments in affiliates:                    |  |                   |        |   |  | 
|at cost plus share of undistributed profits  |  | $                 | 959    |   |  | 
|write-down to re-assessed recoverable amount |  |                   | (444   | ) |  | 
|                                              |  |                   |        |   |  | 
|Re-assessed recoverable amount                |  | $                 | 515    |   |  | 
|                                              |  |                   |        |   |  | 



Investments in
affiliates are included in the balance sheet as other current assets. The investments in these companies are carried at the equity accounted value representing cost plus the Companys share of undistributed profits, less dividends
and impairment charge. Combined summarized financial data of affiliates as of and for the years ended January 31, 2004 and 2003, is as follows:



|                                   |  |                   |        |   |                  |   |        |  
|---------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------ | -
|                                   |  | January 31, 2004  |        |   | January 31, 2003 |  
|                                   |  | (In A$ thousands) |       
|Current assets                     |  | $                 | 11,708 |   |                  | $ | 12,279 |  
|Current liabilities                |  |                   | (6,634 | ) |                  |   | (9,098 | )
|                                   |  |                   |        |   |                  |   |        |  
|Working capital                    |  |                   | 5,074  |   |                  |   | 3,181  |  
|Property, plant and equipment, net |  |                   | 9,395  |   |                  |   | 7,591  |  
|Other assets                       |  |                   | 791    |   |                  |   | 1,015  |  
|Long-term debt                     |  |                   | (8,790 | ) |                  |   | (6,061 | )
|                                   |  |                   |        |   |                  |   |        |  
|Shareholders equity               |  | $                 | 6,470  |   |                  | $ | 5,726  |  
|                                   |  |                   |        |   |                  |   |        |  
|Sales                              |  | $                 | 29,349 |   |                  | $ | 31,996 |  
|                                   |  |                   |        |   |                  |   |        |  
|Gross profit                       |  | $                 | 8,415  |   |                  | $ | 8,069  |  
|                                   |  |                   |        |   |                  |   |        |  
|Net income                         |  | $                 | 649    |   |                  | $ | 1,188  |  
|                                   |  |                   |        |   |                  |   |        |  



|6. |  | Property, Plant and Equipment
|-- |  | -----------------------------



|                                            |  |                   |         |   |                           |   |         |  
|------------------------------------------- |  | ----------------- | ------- | - | ------------------------- | - | ------- | -
|                                            |  | January 31, 2005  |         |   | January 31, 2004 Restated |  
|                                            |  | (In A$ thousands) |        
|Land and buildings                          |  | $                 | 2,573   |   |                           | $ | 6,325   |  
|Machinery and equipment                     |  |                   | 31,491  |   |                           |   | 28,779  |  
|Leasehold improvements                      |  |                   | 16,068  |   |                           |   | 14,494  |  
|Assets under capital leases                 |  |                   | 8,541   |   |                           |   | 9,131   |  
|                                            |  |                   |         |   |                           |   |         |  
|                                            |  |                   | 58,673  |   |                           |   | 58,729  |  
|Less: Accumulated depreciation/amortization |  |                   | (37,297 | ) |                           |   | (35,508 | )
|                                            |  |                   |         |   |                           |   |         |  
|                                            |  | $                 | 21,376  |   |                           | $ | 23,221  |  
|                                            |  |                   |         |   |                           |   |         |  



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|7. |  | Goodwill and Acquisition
|-- |  | ------------------------



|                               |  |                   |       |   |                           |   |       |  
|------------------------------ |  | ----------------- | ----- | - | ------------------------- | - | ----- | -
|                               |  | January 31, 2005  |       |   | January 31, 2004 Restated |  
|                               |  | (In A$ thousands) |      
|Goodwill                       |  | $                 | 1,871 |   |                           | $ | 1,574 |  
|Less: Accumulated amortization |  |                   | (478  | ) |                           |   | (478  | )
|                               |  |                   |       |   |                           |   |       |  
|                               |  | $                 | 1,393 |   |                           | $ | 1,096 |  
|                               |  |                   |       |   |                           |   |       |  



During the year ended
January 31, 2005, the Company acquired two U.S.A. franchisee stores in the amount of approximately A$532,000 and recorded goodwill in excess of the fair value of the assets acquired in the amount of approximately A$297,000. The following table
summarizes the estimated fair value of the assets acquired at the date of acquisition:



|                              |  |                   |     |  | 
|----------------------------- |  | ----------------- | --- |  | 
|                              |  | January 31, 2005  |     | 
|                              |  | (In A$ thousands) |     | 
|Inventory                     |  | $                 | 146 |  | 
|Property, plant and equipment |  |                   | 90  |  | 
|Goodwill                      |  |                   | 296 |  | 
|                              |  |                   |     |  | 
|Total assets acquired         |  | $                 | 532 |  | 
|                              |  |                   |     |  | 



Had the operating
results of these U.S.A. franchisee stores been included as if the transaction had been consummated on February 1, 2003 and the stores were owned instead of franchised, the Companys pro forma operating results for the year ended January 31,
2004 and 2005 would not have been materially different from the actual reported results.



|8. |  | Leases
|-- |  | ------



The Company is obligated under various capital leases for store improvements and certain machinery and equipment that expire primarily at various dates
during the next five years. The capital leases for store improvements relate to the purchase of furniture and fixtures installed in retail stores, with all retail stores managed under operating leases. Machinery and equipment under capital leases
include leased machinery, office furniture and fixtures and certain motor vehicles. All capital lease liabilities are secured by the asset to which the lease relates. The gross amount of store improvements and machinery and equipment and related
accumulated amortization recorded under capital leases and classified in property, plant and equipment in the balance sheet, is as follows:



|                               |  |                   |        |   |                           |   |        |  
|------------------------------ |  | ----------------- | ------ | - | ------------------------- | - | ------ | -
|                               |  | January 31, 2005  |        |   | January 31, 2004 Restated |  
|                               |  | (In A$ thousands) |       
|Store improvements             |  | $                 | 5,052  |   |                           | $ | 5,109  |  
|Machinery and equipment        |  |                   | 3,489  |   |                           |   | 4,022  |  
|                               |  |                   |        |   |                           |   |        |  
|                               |  |                   | 8,541  |   |                           |   | 9,131  |  
|Less: Accumulated amortization |  |                   | (4,976 | ) |                           |   | (5,272 | )
|                               |  |                   |        |   |                           |   |        |  
|                               |  | $                 | 3,565  |   |                           | $ | 3,859  |  
|                               |  |                   |        |   |                           |   |        |  



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company also has entered into non-cancelable operating leases, primarily for retail stores. These
leases generally contain renewal options for periods ranging primarily from three to five years and require the Company to pay all executory costs such as maintenance and insurance. Certain of the leases provide for scheduled rent increases or for
contingent rent (based upon store sales exceeding stipulated amounts). Rental expense for operating leases consisted of the following:



|                     |  |                   |        |                           |   |                           |  |   |       
|-------------------- |  | ----------------- | ------ | ------------------------- | - | ------------------------- |  | - | ------
|                     |  | January 31, 2005  |        | January 31, 2004 Restated |   | January 31, 2003 Restated
|                     |  | (In A$ thousands)
|Minimum rentals      |  | $                 | 23,841 |                           | $ | 22,908                    |  | $ | 26,134
|Contingent rent      |  |                   | 52     |                           |   | 216                       |  |   | 48    
|                     |  |                   |        |                           |   |                           |  |   |       
|Total rental expense |  | $                 | 23,893 |                           | $ | 23,124                    |  | $ | 26,182
|                     |  |                   |        |                           |   |                           |  |   |       



Future minimum capital
lease payments and future minimum lease payments under non-cancelable operating leases as of January 31, 2005 are:



|                                                            |  |                   |        |   |                  |   |       
|----------------------------------------------------------- |  | ----------------- | ------ | - | ---------------- | - | ------
|                                                            |  | Capital leases    |        |   | Operating leases
|                                                            |  | (in A$ thousands)
|Year ending January 31,                                     |  |                   |        |   |                  |   |       
|2006                                                        |  | $                 | 1,555  |   |                  | $ | 20,195
|2007                                                        |  |                   | 1,058  |   |                  |   | 18,332
|2008                                                        |  |                   | 766    |   |                  |   | 15,456
|2009                                                        |  |                   | 502    |   |                  |   | 11,537
|2010                                                        |  |                   | 361    |   |                  |   | 8,318 
|Years subsequent to 2010                                    |  |                   |       |   |                  |   | 18,393
|                                                            |  |                   |        |   |                  |   |       
|Total minimum lease payments                                |  |                   | 4,242  |   |                  | $ | 92,231
|                                                            |  |                   |        |   |                  |   |       
|Less: Amounts representing interest                         |  |                   | (645   | ) |                  |   |       
|                                                            |  |                   |        |   |                  |   |       
|Present value of net minimum capital lease payments         |  |                   | 3,597  |   |                  |   |       
|Less: Current portion of obligations under capital leases   |  |                   | (1,264 | ) |                  |   |       
|                                                            |  |                   |        |   |                  |   |       
|Obligations under capital leases, excluding current portion |  | $                 | 2,333  |   |                  |   |       
|                                                            |  |                   |        |   |                  |   |       



|9. |  | Accounts Payable and Accrued Liabilities
|-- |  | ----------------------------------------



Accounts payable and accrued liabilities consist of the following:



|                                                    |  |                   |        |                           |   |       
|--------------------------------------------------- |  | ----------------- | ------ | ------------------------- | - | ------
|                                                    |  | January 31, 2005  |        | January 31, 2004 Restated
|                                                    |  | (In A$ thousands)
|Trade accounts payable                              |  | $                 | 13,037 |                           | $ | 13,029
|Accrued liabilities                                 |  |                   | 10,710 |                           |   | 10,846
|Employee benefits                                   |  |                   | 2,624  |                           |   | 2,634 
|Deposits received from customers for lay-away sales |  |                   | 2,626  |                           |   | 2,328 
|Other                                               |  |                   | 428    |                           |   | 914   
|                                                    |  |                   |        |                           |   |       
|                                                    |  | $                 | 29,425 |                           | $ | 29,751
|                                                    |  |                   |        |                           |   |       



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|10. |  | Short-Term Bank Borrowings
|--- |  | --------------------------



Short-term bank borrowings consists of the following:



|                            |  |                   |        |                           |   |  
|--------------------------- |  | ----------------- | ------ | ------------------------- | - | -
|                            |  | January 31, 2005  |        | January 31, 2004 Restated
|                            |  | (In A$ thousands)
|Revolving line of credit(1) |  | $                 | 7,406  |                           |   | 
|Bank bills(2)               |  |                   | 9,000  |                           |   | 
|Property loans(2)           |  |                   | 3,800  |                           |   | 
|                            |  |                   |        |                           |   |  
|                            |  | $                 | 20,206 |                           | $ | 
|                            |  |                   |        |                           |   |  

---

|(1) |  | Forms part of the UBC Facility.
|--- |  | -------------------------------

|(2) |  | Forms part of the ANZ Facility.
|--- |  | -------------------------------



The Company has historically financed its operations through cash flow from
operations and bank borrowings. During the quarter ended October 31, 2004 and as part of a re-arrangement of our credit lines between the U.S.A. and Australia, the Companys U.S.A. operating subsidiaries, Barbeques Galore, Inc. and Barbeques
Galore Online, Inc. entered into an agreement for the establishment of a US$15.0 million revolving line of credit facility with the Union Bank of California, N.A. (UBC) (the UBC Facility). The unutilized portion of the
facility is available for immediate borrowings in the U.S.A., subject to borrowing base limitations defined in the debt agreement. As part of this arrangement the previous credit facility with Merrill Lynch Business Financial Services, Inc. was
repaid (see Note 11).



Borrowings under the UBC Facility
include both a subjective acceleration clause and a requirement to maintain a lock-box arrangement whereby remittances from the Companys customers reduce the debt outstanding. Pursuant to EITF 95-22, Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements that Include both a Subjective Acceleration Clause and a Lock-Box Arrangement, borrowings which reflect the aforementioned characteristics, are considered short-term obligations and
have accordingly been classified as a current liability.



Indebtedness under the UBC Facility accrues interest at the UBCs Reference Rate as defined in the aforementioned agreement or, the London Inter-bank Offered Rate (LIBOR)plus 1.65%, is secured by a first
security interest in certain assets of Barbeques Galore, Inc. and Barbeques Galore Online, Inc. and guaranteed by The Galore Group (U.S.A.), Inc., the parent of Barbeques Galore, Inc. The UBC Facility matures on November 23, 2007, being three years
from the date of the initial advance. The UBC Facility is subject to financial covenants including minimum loan balance and maximum capital expenditures.



In Australia as of January 31, 2005, the Company and its subsidiaries had access to a facility with the Australian and New Zealand Banking Group Limited
(ANZ), (the ANZ Facility), up to A$28.6 million (reduced on July 21, 2005 to A$23.8 million), comprising real property loans, overdraft, leasing, interchangeable commercial bill acceptance discount facilities, foreign
currency and other facilities. As of January 31, 2005 the Company had not utilized A$13.9 million of the total facility which is available for immediate borrowings in Australia, subject to borrowing base limitations defined in the debt agreement.
The ANZ Facility is secured by a first security interest over the Companys present and future Australian assets and a second security interest (subordinate to a lien under the UBC Facility), in all its assets in the United States. The ANZ
Facility is further guaranteed by each of the Companys wholly-owned subsidiaries, including The Galore Group (U.S.A.), Inc. and Barbeques Galore, Inc. (referred to collectively as Galore U.S.A.).



F-21



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



All Australian committed facilities are provided subject to regular periodic review of required
limits, the Companys performance and the normal terms and conditions, including financial covenants, (relating to gearing ratios, fixed charge cover ratio, working capital ratio and restrictions on the level of shareholder funds, dividends
paid and capital expenditures), applicable to bank lending. The next ANZ Facility review is anticipated to take place on October 31, 2005 when ANZ may, in its absolute discretion, change some or all of the terms and conditions of the ANZ Facility
which may include changing the interest rate, varying the type and level of assets secured and covenants imposed, varying the level of the facility including its withdrawal or other matters. Any change by ANZ will require 30 days notice. As of
January 31, 2005, the Company was in compliance with the financial covenants imposed under the ANZ Facility.



As of January 31, 2005 and 2004, the weighted average interest rates accruing on the revolving line of credit under the UBC Facility and the bank bills
utilized under the ANZ Facility were as follows:



|                            |  |                   |       |                           |   |                  |  |                           |  |  
|--------------------------- |  | ----------------- | ----- | ------------------------- | - | ---------------- |  | ------------------------- |  | -
|                            |  | January 31, 2005  |       | January 31, 2004 Restated |   | January 31, 2005 |  | January 31, 2004 Restated
|                            |  | (In A$ thousands) |       | (Interest rate per annum)
|Revolving line of credit(1) |  | $                 | 7,406 |                           | $ |                 |  | 5.3%                      |  | 
|Bank bills(2)               |  |                   | 9,000 |                           |   |                 |  | 6.0%                      |  | 
|Property loans(2)           |  |                   | 3,800 |                           |   |                 |  | 6.9% to 7.5%              |  | 

---

|(1) |  | Forms part of the UBC Facility.
|--- |  | -------------------------------

|(2) |  | Forms part of the ANZ Facility.
|--- |  | -------------------------------



Details of the facility in place at January 31, 2004 are disclosed in Note
11.



|11. |  | Long-term debt
|--- |  | --------------



Long-term debt consists of the following:



|               |  |                   |   |                           |   |       
|-------------- |  | ----------------- | - | ------------------------- | - | ------
|               |  | January 31, 2005  |   | January 31, 2004 Restated
|               |  | (In A$ thousands)
|Non-current:   |  |                   |   |                           |   |       
|Bank bills     |  | $                 |  |                           | $ | 14,312
|Property loans |  |                   |  |                           |   | 7,650 
|               |  |                   |   |                           |   |       
|               |  | $                 |  |                           | $ | 21,962
|               |  |                   |   |                           |   |       



In Australia, as of
January 31, 2004, the Company and its subsidiaries had access to a facility with ANZ of up to A$53,380,000, comprising real property loans in principal amount of A$7,650,000 (secured by registered first mortgages over the respective freehold
properties of the Company), overdraft, leasing, interchangeable and commercial bill acceptance discount facilities in principal amount of A$39,600,000 and foreign currency and other facilities in principal amount of A$7,750,000. As of January 31,
2004 the Company had not utilized A$32,188,754 of the total facility. The ANZ Facility was secured by a first security interest over the Companys present and future Australian assets and a second security interest (subordinate to a lien under
the Merrill Lynch Facility, as defined below and which was repaid during fiscal 2005  see Note 10), in all the Companys assets in the United States. The ANZ Facility was further guaranteed by each subsidiary of the Company as well as
Galore U.S.A..



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The ANZ facility included bank bills generally taken out for periods varying from approximately 30 to
90 days and rolled over at the end of their respective terms. Overseas purchases are generally refinanced for periods varying up to 134 days. As of January 31, 2004, the weighted average interest rates accruing on the bank bills utilized under the
ANZ Facility were as follows:



|               |  |                   |   |                           |   |                  |  |                           |  |             
|-------------- |  | ----------------- | - | ------------------------- | - | ---------------- |  | ------------------------- |  | ------------
|               |  | January 31, 2005  |   | January 31, 2004 Restated |   | January 31, 2005 |  | January 31, 2004 Restated
|               |  | (In A$ thousands) |   | (Interest rate per annum)
|Bank bills     |  | $                 |  |                           | $ | 14,312           |  |                          |  | 6.2%        
|Property loans |  |                   |  |                           |   | 7,650            |  |                          |  | 6.9% to 7.5%



Details of the
facilities in place at January 31, 2005 are disclosed in Note 10.



All committed facilities are provided subject to the standard Australian practice of regular annual review of required limits, the Companys performance and the normal terms and conditions, including financial covenants, applicable to
bank lending. Historically, the Company has renegotiated its credit facilities on similar terms and conditions and, as the Company is able to roll-over bank bills (generally taken out for periods varying from approximately 30 to 90 days), the
outstanding balance relating to bank bills and property loans was classified as a non-current liability in fiscal 2004.



Barbeques Galore, Inc., the Companys U.S. operating subsidiary, had access to a credit facility with Merrill Lynch Business Financial Services, Inc.
(Merrill Lynch) comprising a revolving line of credit in aggregate principal amount of US$1.0 million (the Merrill Lynch Facility). Indebtedness under the revolving line of credit accrued interest at the 30-day commercial
paper rate plus 2.70% and was payable monthly. The Merrill Lynch Facility was secured by a first security interest in all Galore U.S.A. present and future assets and guaranteed by the Company and The Galore Group (U.S.A.), Inc., the parent of
Barbeques Galore, Inc. As at January 31, 2004, there were no drawings against this facility which was canceled in fiscal 2005.



|12. |  | Income Taxes
|--- |  | ------------



Income (loss) before income tax expense (benefit) is taxed under the following jurisdictions:



|              |  |                   |       |   |                           |   |        |                           |  |   |        |  
|------------- |  | ----------------- | ----- | - | ------------------------- | - | ------ | ------------------------- |  | - | ------ | -
|              |  | January 31, 2005  |       |   | January 31, 2004 Restated |   |        | January 31, 2003 Restated | 
|              |  | (In A$ thousands) |      
|United States |  | $                 | 1,206 |   |                           | $ | 914    |                           |  | $ | (1,600 | )
|Australia     |  |                   | (638  | ) |                           |   | (2,958 | )                         |  |   | 8,762  |  
|              |  |                   |       |   |                           |   |        |                           |  |   |        |  
|              |  | $                 | 568   |   |                           | $ | (2,044 | )                         |  | $ | 7,162  |  
|              |  |                   |       |   |                           |   |        |                           |  |   |        |  



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The income tax expense (benefit) is presented below:



|              |  |                   |      |   |                           |   |        |                           |  |   |       |  
|------------- |  | ----------------- | ---- | - | ------------------------- | - | ------ | ------------------------- |  | - | ----- | -
|              |  | January 31, 2005  |      |   | January 31, 2004 Restated |   |        | January 31, 2003 Restated | 
|              |  | (In A$ thousands) |     
|Current:      |  |                   |      |   |                           |   |        |                           |  |   |       |  
|United States |  | $                 | 406  |   |                           | $ | 1,020  |                           |  | $ | 1,296 |  
|Australia     |  |                   | (53  | ) |                           |   | (408   | )                         |  |   | 1,569 |  
|              |  |                   |      |   |                           |   |        |                           |  |   |       |  
|              |  |                   | 353  |   |                           |   | 612    |                           |  |   | 2,865 |  
|              |  |                   |      |   |                           |   |        |                           |  |   |       |  
|Deferred:     |  |                   |      |   |                           |   |        |                           |  |   |       |  
|United States |  | $                 | 178  |   |                           | $ | (599   | )                         |  | $ | (650  | )
|Australia     |  |                   | (251 | ) |                           |   | (1,280 | )                         |  |   | 59    |  
|              |  |                   |      |   |                           |   |        |                           |  |   |       |  
|              |  |                   | (73  | ) |                           |   | (1,879 | )                         |  |   | (591  | )
|              |  |                   |      |   |                           |   |        |                           |  |   |       |  
|              |  | $                 | 280  |   |                           | $ | (1,267 | )                         |  | $ | 2,274 |  
|              |  |                   |      |   |                           |   |        |                           |  |   |       |  



Income tax expense
(benefit) differed from the amounts computed by applying the Australian federal income tax rate of 30% to pretax income (loss) as a result of the following:



|                                                                         |  |                             |      |   |                                      |   |        |                                      |  |   |       |  
|------------------------------------------------------------------------ |  | --------------------------- | ---- | - | ------------------------------------ | - | ------ | ------------------------------------ |  | - | ----- | -
|                                                                         |  | Year ended January 31, 2005 |      |   | Year ended January 31, 2004 Restated |   |        | Year ended January 31, 2003 Restated | 
|                                                                         |  | (In A$ thousands)           |     
|Computed expected tax expense (benefit)                                |  | $                           | 170  |   |                                      | $ | (613   | )                                    |  | $ | 2,149 |  
|Increase (reduction) in income taxes resulting from:                     |  |                             |      |   |                                      |   |        |                                      |  |   |       |  
|Capital gain on disposal of propertynot taxable due to indexation rules |  |                             | (136 | ) |                                      |   | (1,020 | )                                    |  |   |      |  
|Foreign rate differential                                                |  |                             | 105  |   |                                      |   | 82     |                                      |  |   | (170  | )
|Equity in (loss) income of affiliates not subject to taxation            |  |                             |     |   |                                      |   | 65     |                                      |  |   | (139  | )
|Prior year adjustment                                                    |  |                             |     |   |                                      |   |       |                                      |  |   | 299   |  
|Non-deductible expenses                                                  |  |                             | 141  |   |                                      |   | 87     |                                      |  |   | 90    |  
|Other, net                                                               |  |                             |     |   |                                      |   | 132    |                                      |  |   | 45    |  
|                                                                         |  |                             |      |   |                                      |   |        |                                      |  |   |       |  
|                                                                         |  | $                           | 280  |   |                                      | $ | (1,267 | )                                    |  | $ | 2,274 |  
|                                                                         |  |                             |      |   |                                      |   |        |                                      |  |   |       |  



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities are presented below:



|                                                                                 |  |                   |       |                           |   |      
|-------------------------------------------------------------------------------- |  | ----------------- | ----- | ------------------------- | - | -----
|                                                                                 |  | January 31, 2005  |       | January 31, 2004 Restated
|                                                                                 |  | (In A$ thousands)
|Deferred tax assets:                                                             |  |                   |       |                           |   |      
|Accrued liabilities not presently deductible for tax purposes                    |  | $                 | 2,329 |                           | $ | 2,896
|Plant and equipment, due to differences in depreciation                          |  |                   | 1,792 |                           |   | 1,618
|Inventories, due to capitalized costs                                            |  |                   | 850   |                           |   | 840  
|Leases, due to differences in lease payments, interest and amortization          |  |                   | 27    |                           |   | 47   
|Net operating loss carry forward                                                 |  |                   | 1,597 |                           |   | 1,171
|Other                                                                            |  |                   | 85    |                           |   | 30   
|                                                                                 |  |                   |       |                           |   |      
|Total deferred tax assets                                                        |  | $                 | 6,680 |                           | $ | 6,602
|                                                                                 |  |                   |       |                           |   |      
|Deferred tax liabilities:                                                        |  |                   |       |                           |   |      
|Prepayments                                                                      |  | $                 |      |                           | $ | 25   
|Other                                                                            |  |                   | 106   |                           |   | 35   
|                                                                                 |  |                   |       |                           |   |      
|Total deferred tax liabilities                                                   |  |                   | 106   |                           |   | 60   
|                                                                                 |  |                   |       |                           |   |      
|Net deferred tax asset:                                                          |  | $                 | 6,574 |                           | $ | 6,542
|                                                                                 |  |                   |       |                           |   |      
|The net deferred tax asset is classified as follows in the financial statements: |  |                   |       |                           |   |      
|Current                                                                         |  | $                 | 3,076 |                           | $ | 2,510
|Non-current                                                                     |  |                   | 3,498 |                           |   | 4,032
|                                                                                 |  |                   |       |                           |   |      
|                                                                                 |  | $                 | 6,574 |                           | $ | 6,542
|                                                                                 |  |                   |       |                           |   |      



In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. At January 31, 2005, the Company has net operating loss carry forwards for Australian tax purposes of A$5.3 million available to offset future taxable income, if any, without expiration. Based upon projections for future taxable income
over the periods during which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.



|13. |  | 1997 Share Option Plan (the 1997 Plan)
|--- |  | ----------------------------------------



The 1997 Plan was adopted by the Board of Directors on October 1, 1997 and approved by shareholders as of October 7, 1997. As of January 31, 2005, a total
of 1,131,457 Ordinary Shares have been authorized for issuance.



The number of Ordinary Shares reserved for issuance under the 1997 Plan will automatically increase on the first trading day of each calendar year, beginning with the 1999 calendar year, during the term of the 1997 Plan by an amount equal
to one per cent (1%) of the Ordinary Shares outstanding on December 31 of the immediately



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



preceding calendar year. Pursuant to a resolution of shareholders passed at the Companys Annual General Meeting on June 14, 2002, the maximum number of
options which may be granted to any single individual in the 1997 Plan, was increased to 200,000 Ordinary Shares per fiscal year.



The 1997 Plan consists of the Option Grant Program, under which eligible individuals in the Companys employ or service (including its officers and
other employees, non-employee Board members, consultants and other independent advisers) may, at the discretion of the Plan Administrator, be granted stock options to purchase Ordinary Shares at an exercise price not less than eighty-five per cent
(85%) of their fair market value on the option grant date. All options issued under the 1997 Plan have been issued at not less than fair market value of the Companys underlying common stock on the option grant date.



The Board of Directors has determined that the Compensation Committee shall
be the Plan Administrator charged with administering the 1997 Plan. The Plan Administrator has complete discretion, within the scope of its administrative jurisdiction under the 1997 Plan, to determine which eligible individuals are to receive stock
option grants, the time or times when such grants are to be made, the number of shares subject to each such grant, the exercise and vesting schedule to be in effect for the grant, the maximum term for which any granted stock option is to remain
outstanding and the status of any granted stock option as either an incentive stock option or a non-statutory stock option under the U.S. Federal tax laws.



Options granted under the 1997 Plan will generally become exercisable either in three equal annual installments measured from the option grant date or in
full, on or after a specified date. The exercise price for options granted under the 1997 Plan may be paid in cash or in mature Ordinary Shares valued at fair market value on the exercise date.



In the event the Company is acquired via a merger or an asset sale, each
outstanding stock option under the 1997 Plan will immediately accelerate and become fully exercisable for all of the shares subject to such outstanding options, unless such stock options are to be assumed or replaced by the successor corporation (or
parent thereof). Any stock options that do not automatically accelerate upon the occurrence of a merger or asset sale, will immediately accelerate and such repurchase rights will accordingly lapse, upon the involuntary termination of the optionee
within 18 months after the effective date of the merger or asset sale. Stock options accelerated in connection with such involuntary termination will be exercisable as fully-vested shares until the earlier of (i) the expiration of the stock option
term or (ii) a one (1)-year period measured from the effective date of the involuntary termination.



The Plan Administrator has the authority to effect, with the consent of the affected option holders, the cancelation of outstanding stock options under
the 1997 Plan in return for the grant of new stock options for the same or a different number of shares with an exercise price per share based upon the fair market value of the Ordinary Shares on the new grant date.



The Board of Directors, pursuant to a meeting on September 1, 1998, granted
options to a non-executive director to purchase up to an aggregate of 17,646 Ordinary Shares at a price of US$8.50 per Ordinary Share under the 1997 Plan, exercisable in three equal installments on September 1, 2001, September 1, 2002 and August 1,
2003. These options were subsequently canceled pursuant to a circulating resolution of the directors on January 10, 2000 and replaced with options granted to the same non-executive director, to purchase up to an aggregate of 17,646 Ordinary Shares
at a price of US$6.38 per Ordinary Share under the 1997 Plan, exercisable in three equal installments on January 7, 2003 and January 7, 2004, (none of which were exercised) and December 7, 2004. All 17,646 options outstanding and exercisable at
US$6.38 per Ordinary Share, were exercised during the fiscal year ended January 31, 2005.



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Pursuant to the aforementioned circulating resolution of directors, further options were granted to
executive directors, senior management and employees to purchase up to an aggregate of 143,820 Ordinary Shares at a price of US$6.38 per Ordinary Share under the 1997 Plan and exercisable in three equal installments on January 7, 2003 and January 7,
2004, (none of which were exercised) and December 7, 2004. During the fiscal year ended January 31, 2005, a total of 4,750 options, exercisable at US$6.38 per Ordinary Share, were forfeited, 26,393 options, exercisable at US$6.38 per Ordinary Share,
were exercised and the remaining 82,552 options outstanding, exercisable at US$6.38 per Ordinary Share, lapsed.



The Board of Directors pursuant to a meeting on March 19, 2002, granted options to executive directors and senior management to purchase up to an
aggregate of 84,686 Ordinary Shares at a price of US$2.54 per Ordinary Share under the 1997 Plan, exercisable in full at any time on or after July 1, 2002 until expiration on June 30, 2012. None of the aforementioned options have been forfeited or
exercised, to-date.



The Board of Directors pursuant to a
meeting on April 16, 2002 granted options to non-executive directors and certain employees to purchase up to an aggregate of 68,850 Ordinary Shares at a price of US$4.10 per Ordinary Share under the 1997 Plan, exercisable in full at any time on or
after January 1, 2003 until expiration on December 31, 2012. During the fiscal year ended January 31, 2005, a total of 35,500 options, exercisable at US$4.10 per Ordinary Share, were exercised.



Pursuant to a circulating resolution of directors on June 20, 2002, options
were granted to directors and senior management to purchase up to an aggregate of 118,352 Ordinary Shares at a price of US$3.02 per Ordinary Share under the 1997 Plan, exercisable in full at any time on or after July 1, 2002 until expiration on June
30, 2012. None of the aforementioned options have been forfeited or exercised, to-date.



The Board of Directors pursuant to a meeting on August 28, 2003, granted options to a member of senior management in the United States to purchase up to an aggregate of 25,000 Ordinary Shares at a price of US$4.74 per
Ordinary Share under the 1997 Plan, exercisable in full at any time on or after September 15, 2005 until expiration on September 14, 2015. None of the aforementioned options have been forfeited to-date.



The Board of Directors pursuant to a meeting on December 2, 2003, granted
options as at that date, to executive directors, a non-executive director, senior management and employees to purchase up to an aggregate of 184,550 Ordinary Shares at a price of US$4.67 per Ordinary Share and granted options as at December 15, 2003
to a key Australian employee to purchase up to an aggregate of 10,000 Ordinary Shares at a price of US$4.50 per Ordinary Share under the 1997 Plan, exercisable in full at any time on or after July 1, 2004 and December 15, 2005 respectively, until
expiration on June 30, 2014 and December 14, 2015, respectively. During the fiscal year ended January 31, 2005, a total of 500 options, exercisable at US$4.67 per Ordinary Share, were forfeited and 49,100 options, exercisable at US$4.67 per Ordinary
Share, were exercised.



The Board of Directors pursuant to a
meeting on March 10, 2004, granted options to certain key employees and a member of senior management in the United States to purchase up to an aggregate of 16,000 Ordinary Shares at a price of US$5.10 per Ordinary Share under the 1997 Plan,
exercisable in full at any time on or after September 1, 2004 until expiration on August, 31, 2014. None of the aforementioned options have been forfeited or exercised, to-date.



The fair value of the share option grants during the fiscal year ended January 31, 2003, was estimated on the date of the
grant using the Black-Scholes option-pricing model with the following assumptions:



| |  |  | 84,686 share options  weighted average risk-free interest rate of 5.29%, no dividend yield, volatility of 65% and expected life of ten years.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



| |  |  | 68,850 share options  weighted average risk-free interest rate of 5.19%, no dividend yield, volatility of 70% and expected life of ten years.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 118,352 share options  weighted average risk-free interest rate of 4.79%, no dividend yield, volatility of 70% and expected life of ten years.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



The fair value of the share option grants during the fiscal year ended
January 31, 2004, was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:



| |  |  | 25,000 share options  weighted average risk-free interest rate of 4.27%, dividend yield of 2.73%, volatility of 60% and expected life of ten years.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 184,550 share options  weighted average risk-free interest rate of 4.38%, dividend yield of 2.73%, volatility of 55% and expected life of ten years.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 10,000 share options  weighted average risk-free interest rate of 4.26%, dividend yield of 2.73%, volatility of 55% and expected life of ten years.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



The fair value of the share option grants during the fiscal year ended
January 31, 2005, was estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:



| |  |  | 16,000 share options - weighted average risk-free interest rate of 3.73%, dividend yield of 0%, volatility of 55% and expected life of ten years.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



A summary of the status of the Companys 1997 Plan as of January 31,
2005, 2004 and 2003 and changes during the periods ended on those dates is presented below:



|                                        |  |          |   |  |                                 |      |                                 |         |    
|--------------------------------------- |  | -------- | - |  | ------------------------------- | ---- | ------------------------------- | ------- | ---
|                                        |  | Options  |   |  | Weighted-average exercise price |      | Options exercisable at year end |        
|Outstanding balance at January 31, 2002 |  | 527,754  |   |  | A$                              | 8.71 |                                 | 203,038 | (1)
|                                        |  |          |   |  |                                 |      |                                 |         |    
|Lapsed(Executive Plan)                 |  | (203,038 | ) |  |                                 |      |                                 |         |    
|Granted                                 |  | 271,888  |   |  |                                 |      |                                 |         |    
|Forfeited                               |  | (33,500  | ) |  |                                 |      |                                 |         |    
|                                        |  |          |   |  |                                 |      |                                 |         |    
|Outstanding balance at January 31, 2003 |  | 563,104  |   |  |                                 | 7.43 |                                 | 267,138 |    
|                                        |  |          |   |  |                                 |      |                                 |         |    
|Granted                                 |  | 219,550  |   |  |                                 |      |                                 |         |    
|Lapsed                                  |  | (155,450 | ) |  |                                 |      |                                 |         |    
|Forfeited                               |  | (19,875  | ) |  |                                 |      |                                 |         |    
|                                        |  |          |   |  |                                 |      |                                 |         |    
|Outstanding balance at January 31, 2004 |  | 607,329  |   |  |                                 | 6.83 |                                 | 259,138 |    
|                                        |  |          |   |  |                                 |      |                                 |         |    
|Granted                                 |  | 16,000   |   |  |                                 |      |                                 |         |    
|Lapsed                                  |  | (77,552  | ) |  |                                 |      |                                 |         |    
|Forfeited                               |  | (5,250   | ) |  |                                 |      |                                 |         |    
|Exercised                               |  | (128,639 | ) |  |                                 |      |                                 |         |    
|                                        |  |          |   |  |                                 |      |                                 |         |    
|Outstanding balance at January 31, 2005 |  | 411,888  |   |  | A$                              | 5.90 |                                 | 376,888 |    
|                                        |  |          |   |  |                                 |      |                                 |         |    

---

|(1) |  | Relates to the Executive Plan which lapsed on February 1, 2002.
|--- |  | ---------------------------------------------------------------



The weighted average fair value of options granted during the years ended January 31, 2005, 2004 and 2003 was A$3.56, A$3.39
and A$4.51, respectively.



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes information about share options outstanding at January 31, 2005:



|                                        |  |                                                     |  |                                 |  |                                        
|--------------------------------------- |  | --------------------------------------------------- |  | ------------------------------- |  | ---------------------------------------
|Options outstanding at January 31, 2005 |  | Weighted-average remaining contractual life
(years) |  | Weighted-average exercise price |  | Options exercisable at January 31, 2005
|22,900                                  |  | 2.7                                                 |  | A$7.72                          |  | 22,900                                 
|84,686                                  |  | 2.7                                                 |  | 4.85                            |  | 84,686                                 
|118,352                                 |  | 2.7                                                 |  | 5.34                            |  | 118,352                                
|25,000                                  |  | 9.0                                                 |  | 7.16                            |  |                                       
|134,950                                 |  | 9.0                                                 |  | 6.40                            |  | 134,950                                
|10,000                                  |  | 9.0                                                 |  | 6.09                            |  |                                       
|16,000                                  |  | 10.0                                                |  | 6.74                            |  | 16,000                                 
|                                        |  |                                                     |  |                                 |  |                                        
|411,888                                 |  | 5.6                                                 |  | A$5.90                          |  | 376,888                                
|                                        |  |                                                     |  |                                 |  |                                        



The Company applies
APB Opinion No. 25 in accounting for its share option plans and, as all options granted have exercise prices no less than the fair market value of the underlying common stock of the Company on the date of grant, no compensation cost has been
recognized for its share options in the years ended January 31, 2005, 2004 and 2003, respectively.



|14. |  | Commitments and Contingencies
|--- |  | -----------------------------



There are no material legal proceedings pending against the Company. The Company is involved in various product liability claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Companys business, results of operations or financial condition.



The Company placed a major portion of its insurances with HIH Casualty and
General Insurance Limited (HIH) during the twelve months ended June 30, 2001 and earlier periods. HIH Insurance Limited and 17 of its subsidiaries (HIH Group) were placed into liquidation on August 27, 2001. The Company has
replaced these insurance policies with other insurers and currently has one claim of A$265,000, excluding legal costs, against it on foot in relation to the period during which it was covered by HIH, the outcome of which, in the opinion of
management, is not likely to have a material adverse effect on the Companys business, results of options or financial condition. Although this claim was the subject of a successful court appeal by the Company, the opposing party has recently
been granted leave to make a further appeal to the High Court of Australia. The Company is unaware of any further material claims which may arise against it in relation to any events during the period of cover with HIH. It is also unknown at this
stage when and what amounts, if any, would be recoverable from the Liquidators of the HIH Group, were such claims to arise.



During fiscal 2004, Barbeques Galore, Inc. was served with proposed assessments of additional general excise tax, including penalties and interest, from
the Department of Taxation  State of Hawaii, in relation to a store operated on a military naval base on Hawaii. The matter was settled in full, during 2005, for US$71,724 and recorded in selling, general and administrative expenses.



|15. |  | Segments and Related Information
|--- |  | --------------------------------



The Company is engaged in the retail industry and operates through retail stores located in two geographic segments, Australia and the United States. Both
segments generate revenue from the sale of barbecues, other backyard products and heating products.



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company identifies its operating segments based on the presentation of the information that the
Chief Operating Decision Maker reviews to make decisions about the allocation of resources. For the purpose of applying SFAS 131, Disclosure About Segments of An Enterprise and Relation Information, the Company has aggregated
segments based upon geographical similarities and has aggregated all reportable segments into either United States or Australia operations.



The accounting policies of the reportable segments are the same as those described in Note 1.A of Notes to Consolidated Financial Statements. The Company
measures the performance of its operating segments based on gross profit and operating income, which is defined as income before equity income of affiliates, net of tax, interest expense and income taxes. In addition, the operating income of the
United States does not include all the income (loss) attributable to it for product manufactured and purchased for the United States by the Australian subsidiaries.



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Summarized financial information concerning the Companys reportable segments is as follows:



|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|------------------------------------------------ |  | ----------------- | ------- | - | ------------- | - | ------- | ---------------------- |  | - | ------- | -
|                                                 |  | Australia         |         |   | United States |   |         | Enterprise- Wide Total | 
|                                                 |  | (In A$ thousands) |        
|12 months to January 31, 2005                    |  |                   |         |   |               |   |         |                        |  |   |         |  
|Revenues from external customers                 |  | $                 | 130,920 |   |               | $ | 156,172 |                        |  | $ | 287,092 |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Gross profit                                     |  | $                 | 39,205  |   |               | $ | 49,407  |                        |  | $ | 88,612  |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Operating income                                 |  | $                 | 1,328   |   |               | $ | 1,331   |                        |  | $ | 2,659   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Depreciation and amortization                    |  | $                 | 3,161   |   |               | $ | 2,367   |                        |  | $ | 5,528   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Income tax (benefit) expense                     |  | $                 | (275    | ) |               | $ | 555     |                        |  | $ | 280     |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Capital expenditures                             |  | $                 | 2,151   |   |               | $ | 3,759   |                        |  | $ | 5,910   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Property, plant and equipment, net               |  | $                 | 11,460  |   |               | $ | 9,916   |                        |  | $ | 21,376  |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Goodwill                                         |  | $                 | 1,096   |   |               | $ | 297     |                        |  | $ | 1,393   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Total assets                                     |  | $                 | 63,393  |   |               | $ | 41,880  |                        |  | $ | 105,273 |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|12 months to January 31, 2004                    |  |                   |         |   |               |   |         |                        |  |   |         |  
|Revenues from external customers                 |  | $                 | 133,340 |   |               | $ | 160,689 |                        |  | $ | 294,029 |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Gross profit (as restated)                       |  | $                 | 38,437  |   |               | $ | 48,141  |                        |  | $ | 86,578  |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Operating (loss) income (as restated)            |  | $                 | (769    | ) |               | $ | 987     |                        |  | $ | 218     |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Depreciation and amortization (as restated)      |  | $                 | 3,458   |   |               | $ | 2,701   |                        |  | $ | 6,159   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Income tax (benefit) expense (as restated)       |  | $                 | (1,635  | ) |               | $ | 368     |                        |  | $ | (1,267  | )
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Capital expenditures                             |  | $                 | 1,755   |   |               | $ | 1,673   |                        |  | $ | 3,428   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Property, plant and equipment, net (as restated) |  | $                 | 14,740  |   |               | $ | 8,481   |                        |  | $ | 23,221  |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Goodwill                                         |  | $                 | 1,096   |   |               | $ |        |                        |  | $ | 1,096   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Total assets (as restated)                       |  | $                 | 66,153  |   |               | $ | 42,191  |                        |  | $ | 108,344 |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|12 months to January 31, 2003                    |  |                   |         |   |               |   |         |                        |  |   |         |  
|Revenues from external customers                 |  | $                 | 139,731 |   |               | $ | 185,820 |                        |  | $ | 325,551 |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Gross profit (as restated)                       |  | $                 | 42,734  |   |               | $ | 52,482  |                        |  | $ | 95,216  |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Operating income (loss) (as restated)            |  | $                 | 10,477  |   |               | $ | (1,518  | )                      |  | $ | 8,959   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Depreciation and amortization (as restated)      |  | $                 | 3,777   |   |               | $ | 3,252   |                        |  | $ | 7,029   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Income tax expense (as restated)                 |  | $                 | 1,628   |   |               | $ | 646     |                        |  | $ | 2,274   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Capital expenditures                             |  | $                 | 1,730   |   |               | $ | 1,081   |                        |  | $ | 2,811   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Property, plant and equipment, net (as restated) |  | $                 | 20,853  |   |               | $ | 12,508  |                        |  | $ | 33,361  |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  
|Goodwill                                         |  | $                 | 1,126   |   |               | $ |        |                        |  | $ | 1,126   |  
|                                                 |  |                   |         |   |               |   |         |                        |  |   |         |  



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|16. |  | Related Party Transactions
|--- |  | --------------------------



Messrs Linz, Gavshon and Selati as directors of the Company and certain members of their respective families, have advanced funds repayable on demand, to
the Company, to be used for general corporate purposes at rates approximately 2% per annum below the overdraft rate charged to the Company by its bankers.



|                                                                                                 |  |                        |   |      |   |      |  |   |   
|------------------------------------------------------------------------------------------------ |  | ---------------------- | - | ---- | - | ---- |  | - | --
|                                                                                                 |  | Year ended January 31,
|                                                                                                 |  | 2005                   |   | 2004 |   | 2003
|                                                                                                 |  | (In A$ thousands)     
|Interest costs incurred in respect of amounts advanced by directors or director related entities |  | $                      | 1 |      | $ | 5    |  | $ | 3 
|                                                                                                 |  |                        |   |      |   |      |  |   |   
|Payables to related parties                                                                      |  | $                      | 4 |      | $ | 90   |  | $ | 18
|                                                                                                 |  |                        |   |      |   |      |  |   |   



The Company believes
that the following transactions with directors, senior management and other affiliates were completed on terms as favorable to it as could have been obtained from unaffiliated third parties.



Transactions with Affiliates



The Company held a one-third ownership interest in each of Bromic and
Supagas which was sold on the terms and conditions set out in Note 5.



Transactions Involving Principal Shareholders, Directors and Senior Management



Messrs. Linz, Gavshon, Selati and Price beneficially own 29.87%, 10.26%, 4.91% and 1.53%, respectively, of the Companys outstanding Ordinary Shares.
Accordingly, these individuals may exert substantial influence over the Companys business and affairs, including the election of the Companys directors and the outcome of corporate actions requiring shareholder approval.



From time to time in the past, Messrs. Linz, Gavshon and Selati and certain
members of their respective families have advanced funds, repayable on demand by the Company, to be used for general corporate purposes. Through these advances, the Company has been able to obtain funds at short-term borrowing rates of approximately
2% per annum below the overdraft rate charged to the Company by its bankers. Prior to the Companys initial public offering, it had repaid all amounts owing on such advances and terminated these borrowing arrangements. The Company has
reinstated similar arrangements which the Board of Directors has determined are in its best interests.



The Company leases cars for the use of Messrs. Linz, Gavshon and Price at a rate of approximately A$3,294, A$3,472 and A$1,581, respectively, per month
per car. Mr. Selatis car was leased at a monthly rate of approximately US$1,531 prior to the Company purchasing a car for his use in July 2003.



Mr. Linzs sister, together with her husband and son, owns four entities (Related Franchisors), each of which operates one franchised
Barbeques Galore store in Orange County, California. The Related Franchisors franchise agreements provide the Related Franchisors with the exclusive right to open, upon Company approval, additional Barbeques Galore stores within a specified
territory in Orange County.



Mr. Selatis daughter,
practising under the name of Romy Selati Loseke, Special Counsel, currently provides legal services to the Company in connection with leasing and real estate issues. During the fiscal years ended January 31, 2005, 2004 and 2003, the Company paid
fees of US$5,061, US$10,234 and US$2,470 for the aforementioned services.



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Mr. Linzs wife and daughter-in-law currently provide editorial and consulting services to the
Company in connection with its quarterly internal newsletter, Inside Galore. During the fiscal year ended January 31, 2005, the Company paid fees of A$6,000 and A$6,400, respectively, for the aforementioned services. During the fiscal
years ended January 31, 2004 and 2003, editorial and consulting services were provided by Mr. Linzs wife, to whom the Company paid fees of A$6,000 and A$7,250, respectively.



Pursuant to his appointment as on September 1, 1998, the Company granted options to purchase up to an aggregate of 17,646
Ordinary Shares at a price of US$8.50 per Ordinary Share to Mr. Edgar Berner, (non-executive director  resigned on June 25, 2004), under the 1997 Plan, exercisable in three equal installments on September 1, 2001, September 1, 2002 and August
1, 2003. These options were subsequently canceled pursuant to a circulating resolution of directors on and replaced with options to Mr. Berner, to purchase up to an aggregate of 17,646 Ordinary Shares at a price of US$6.38 per Ordinary Share under
the 1997 Plan, exercisable in three equal installments on January 7, 2003 and January 7, 2004 (none of which were exercised) and December 7, 2004. All 17,646 options outstanding and exercisable at US$6.38 per Ordinary Share, were exercised during
the fiscal year ended January 31, 2005.



Pursuant to a
circulating resolution of directors on January 7, 2000, options to purchase up to an aggregate of 88,841 Ordinary Shares at a price of US$6.38 per Ordinary Share were granted to directors, a non-executive director and senior management under the
1997 Plan, exercisable in three equal installments on January 7, 2003 and January 7, 2004 (none of which were exercised) and December 7, 2004. Mr. Sam Linz and Mr. Robert Gavshon each received a grant of 20,200 Ordinary Shares, Mr. Sydney Selati
received a grant of 10,100 Ordinary Shares, Mr. John Price, (director), received a grant of 6,425 Ordinary Shares, Mr. David James, (senior management), received a grant of 5,300 Ordinary Shares, Mr. Edgar Berner received a grant of 22,056 Ordinary
Shares, Mr. Kevin Ralphs, (senior management), received a grant of 3,185 Ordinary Shares, Mr. David Glaser, (senior management), received a grant of 750 Ordinary Shares and Mr. Gordon Howlett, (non-executive director), received a grant of 625
Ordinary Shares. During the fiscal year ended January 31, 2005, 30,856 options, exercisable at US$6.38 per Ordinary Share, were exercised and the remaining 57,985 options outstanding, exercisable at US$6.38 per Ordinary Share, lapsed.



On March 19, 2002, the Company granted options to purchase up to an aggregate
of 84,686 Ordinary Shares at a price of US$2.54 per Ordinary Share to executive directors and senior management under the 1997 Plan, exercisable in full at any time on or after July 1, 2002 until expiration on June 30, 2012. Mr. Sam Linz and Mr.
Robert Gavshon each received a grant of 27,438 Ordinary Shares, Mr. Sydney Selati received a grant of 13,829 Ordinary Shares, Mr. John Price received a grant of 9,067 Ordinary Shares, Mr. David James received a grant of 5,762 Ordinary Shares and Mr.
Kevin Ralphs received a grant of 1,152 Ordinary Shares. None of the aforementioned options have either been forfeited or exercised, to-date.



On April 16, 2002, the Company granted options to purchase up to an aggregate of 16,750 Ordinary Shares at a price of US$4.10 per Ordinary Share to
non-executive directors and senior management under the 1997 Plan, exercisable in full at any time on or after January 1, 2003 until expiration on December 31, 2012. Mr. Gordon Howlett and Mr. Edgar Berner each received a grant of 2,500 Ordinary
Shares, Mr. David James received a grant of 6,500 Ordinary Shares, Mr. Kevin Ralphs received a grant of 4,000 Ordinary Shares and Mr. David Glaser received a grant of 1,250 Ordinary Shares. During the fiscal year ended January 31, 2005, a total of
6,500 options, exercisable at US$4.10 per Ordinary Share, were exercised.



Pursuant to a circulating resolution of directors on June 20, 2002, the Company granted options to purchase up to an aggregate of 118,352 Ordinary Shares at a price of US$3.02 per Ordinary Share to executive directors
and senior management under the 1997 Plan, exercisable in full at any time on or after July 1, 2002 until expiration on June 30, 2012. Mr. Sam Linz and Mr. Robert Gavshon each received a grant of 38,412 Ordinary Shares,



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Mr. Sydney Selati received a grant of 19,096 Ordinary Shares, Mr. John Price received a grant of 12,883 Ordinary Shares, Mr. David James received a
grant of 7,957 Ordinary Shares and Mr. Kevin Ralphs received a grant of 1,592 Ordinary Shares. None of the aforementioned options have either been forfeited or exercised, to-date.



On December 2, 2003, the Company granted options to purchase up to an aggregate of 64,250 Ordinary Shares at a price of
US$4.67 per Ordinary Share to executive directors, a non-executive director and senior management under the 1997 Plan, exercisable in full at any time on or after July 1, 2004 until expiration on June 30, 2014. Mr. Sam Linz and Mr. Robert Gavshon
each received a grant of 15,000 Ordinary Shares, Mr. Selati received a grant of 7,500 Ordinary Shares, Mr. John Price received a grant of 3,750 Ordinary Shares, Mr. Gordon Howlett received a grant of 2,500 Ordinary Shares, Mr. David James received a
grant of 7,500 Ordinary Shares, Mr. Kevin Ralphs received a grant of 10,000 Ordinary Shares and Mr. David Glaser received a grant of 3,000 Ordinary Shares. None of the aforementioned options have either been forfeited or exercised, to-date.



|17. |  | Supplemental Disclosure of Cash Flow Information
|--- |  | ------------------------------------------------



|                                 |  |                        |       |               |   |               |  |   |      
|-------------------------------- |  | ---------------------- | ----- | ------------- | - | ------------- |  | - | -----
|                                 |  | Year ended January 31,
|                                 |  | 2005                   |       | 2004 Restated |   | 2003 Restated
|                                 |  | (In A$ thousands)     
|Cash paid during the period for: |  |                        |       |               |   |               |  |   |      
|Interest                         |  | $                      | 1,976 |               | $ | 1,897         |  | $ | 2,056
|Income taxes                     |  |                        | 1,499 |               |   | 592           |  |   | 1,837
|                                 |  |                        |       |               |   |               |  |   |      



The Company acquired
plant and equipment by means of capital leases, which are not reflected in the consolidated statements of cash flows with an aggregate fair value of:



|                                        |  |                        |       |               |   |               |  |   |      
|--------------------------------------- |  | ---------------------- | ----- | ------------- | - | ------------- |  | - | -----
|                                        |  | Year ended January 31,
|                                        |  | 2005                   |       | 2004 Restated |   | 2003 Restated
|                                        |  | (In A$ thousands)     
|Equipment acquired under capital leases |  | $                      | 1,442 |               | $ | 1,003         |  | $ | 1,709
|                                        |  |                        |       |               |   |               |  |   |      



|18. |  | Pension Plans
|--- |  | -------------



The Company has two superannuation funds, Barbeques Galore CustomSuper Plan (for all Australia-based permanent full time and part time employees) and
Barbeques Galore SuperLeader Plan (for all Australia-based casual employees) which are managed under the AMP CustomSuper and SuperLeader Master Trust Deeds respectively. Both funds are successors to the defined contribution pension plans established
by the Company and its Australian subsidiaries for the provision of benefits to its Australian employees on retirement, death or disability.



The Company also sponsors a defined contribution plan in the United States covering substantially all employees who meet specified age and service
requirements. Company contributions are discretionary.



Contributions expensed under these plans were as follows:



|                     |  |                        |       |               |   |               |  |   |      
|-------------------- |  | ---------------------- | ----- | ------------- | - | ------------- |  | - | -----
|                     |  | Year ended January 31,
|                     |  | 2005                   |       | 2004 Restated |   | 2003 Restated
|                     |  | (In A$ thousands)     
|Contribution expense |  | $                      | 1,857 |               | $ | 1,929         |  | $ | 1,954
|                     |  |                        |       |               |   |               |  |   |      



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|19. |  | Earnings (Loss) Per Share
|--- |  | -------------------------



|                                                                            |  |                                                    |     |                                      |       |                  |                                      |        |  |   |        |   |                  |       |  |        |       |        |  |                  |       |  |       |  |   |     
|--------------------------------------------------------------------------- |  | -------------------------------------------------- | --- | ------------------------------------ | ----- | ---------------- | ------------------------------------ | ------ |  | - | ------ | - | ---------------- | ----- |  | ------ | ----- | ------ |  | ---------------- | ----- |  | ----- |  | - | ----
|                                                                            |  | Year ended January 31, 2005                        |     | Year ended January 31, 2004 Restated |       |                  | Year ended January 31, 2003 Restated
|                                                                            |  | Income                                             |     | Shares                               |       | Per share amount |                                      | (Loss) |  |   | Shares |   | Per share amount |       |  | Income |       | Shares |  | Per share amount
|                                                                            |  | (In A$ thousands, except share and per share data)
|Net income (loss)                                                           |  | $                                                  | 288 |                                      |       |                  |                                      |        |  | $ | (777   | ) |                  |       |  |        |       |        |  | $                | 4,888 |  |       |  |   |     
|                                                                            |  |                                                    |     |                                      |       |                  |                                      |        |  |   |        |   |                  |       |  |        |       |        |  |                  |       |  |       |  |   |     
|Basic earnings (loss) per share:                                            |  |                                                    |     |                                      |       |                  |                                      |        |  |   |        |   |                  |       |  |        |       |        |  |                  |       |  |       |  |   |     
|Net income (loss) available to common shareholders                          |  |                                                    | 288 |                                      | 4,182 |                  | $                                    | 0.07   |  |   | (777   | ) |                  | 4,117 |  | $      | (0.19 | )      |  |                  | 4,888 |  | 4,117 |  | $ | 1.19
|                                                                            |  |                                                    |     |                                      |       |                  |                                      |        |  |   |        |   |                  |       |  |        |       |        |  |                  |       |  |       |  |   |     
|Effect of dilutive securities:                                              |  |                                                    |     |                                      |       |                  |                                      |        |  |   |        |   |                  |       |  |        |       |        |  |                  |       |  |       |  |   |     
|Options deemed exercised                                                    |  |                                                    |     |                                      | 203   |                  |                                      |        |  |   |        |   |                  |      |  |        |       |        |  |                  |       |  | 33    |  |   |     
|                                                                            |  |                                                    |     |                                      |       |                  |                                      |        |  |   |        |   |                  |       |  |        |       |        |  |                  |       |  |       |  |   |     
|Diluted earnings (loss) per share:                                          |  |                                                    |     |                                      |       |                  |                                      |        |  |   |        |   |                  |       |  |        |       |        |  |                  |       |  |       |  |   |     
|Net income (loss) available to common shareholders plus assumed conversions |  | $                                                  | 288 |                                      | 4,385 |                  | $                                    | 0.07   |  | $ | (777   | ) |                  | 4,117 |  | $      | (0.19 | )      |  | $                | 4,888 |  | 4,150 |  | $ | 1.18
|                                                                            |  |                                                    |     |                                      |       |                  |                                      |        |  |   |        |   |                  |       |  |        |       |        |  |                  |       |  |       |  |   |     



|20. |  | Relocation and Closure (Gains) Costs
|--- |  | ------------------------------------



The provision for store closure costs reflected in accrued liabilities as of January 31, 2005 and 2004 has been arrived at as follows:



|                                    |  |                   |     |   |            |    |     |       |  |    |      |  
|----------------------------------- |  | ----------------- | --- | - | ---------- | -- | --- | ----- |  | -- | ---- | -
|                                    |  | Rent              |     |   | Commission |    |     | Total | 
|                                    |  | (In A$ thousands) |    
|Opening balance at February 1, 2003 |  | $                 | 315 |   |            | $  | 181 |       |  | $  | 496  |  
|Utilized during the year            |  |                   | (75 | ) |            |    | (91 | )     |  |    | (166 | )
|Reversed, no longer required        |  |                   | (17 | ) |            |    | (21 | )     |  |    | (38  | )
|Foreign exchange impact             |  |                   | (86 | ) |            |    | (43 | )     |  |    | (129 | )
|                                    |  |                   |     |   |            |    |     |       |  |    |      |  
|Closing balance at January 31, 2004 |  |                   | 137 |   |            |    | 26  |       |  |    | 163  |  
|Utilized during the year            |  |                   | (16 | ) |            |    |    |       |  |    | (16  | )
|Foreign exchange impact             |  |                   | (1  | ) |            |    | (1  | )     |  |    | (2   | )
|                                    |  |                   |     |   |            |    |     |       |  |    |      |  
|Closing balance at January 31, 2005 |  | A$                | 120 |   |            | A$ | 25  |       |  | A$ | 145  |  
|                                    |  |                   |     |   |            |    |     |       |  |    |      |  



During the year ended
January 31, 2004, two of the five stores in total which had been identified for closure, were closed and the amounts reserved for two stores were reversed, following a decision to continue trading pursuant to an improvement in performance. The
provision for store closure costs at January 31, 2005 has been recorded for the lease obligation costs for the remaining one store being closed.



During the year ended January 31, 2004, the Company recognized a gain of A$733,000 pursuant to an insurance payment received for the fixed assets
destroyed in the Keswick, Australia store fire on April 5, 2003.



During the year ended January 31, 2003, the Company received A$4.1 million from the State Rail Authority in relation to the expropriation of leasehold property occupied by the Chatswood, Australia store. This was offset by A$0.2 million of
professional fees, advertising expenses and asset write-offs relating to the Chatswood store and, an additional A$0.4 million in connection with a further amount required in relation to a store identified for closure during fiscal 2003 pursuant to
historical underperformance and one U.S. store identified for closure in fiscal 2004 for similar reasons.



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BARBEQUES GALORE LIMITED AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



During the year ended January 31, 2003, the Company provided for an amount of A$3,980,000 in respect
of the downsizing of its manufacturing operations in Sydney. Details thereof, including movements for the twelve months ended January 31, 2004 are as follows:



|                                       |  |                   |        |   |            |    |        |           |  |    |       |   |  |    |        |  
|-------------------------------------- |  | ----------------- | ------ | - | ---------- | -- | ------ | --------- |  | -- | ----- | - |  | -- | ------ | -
|                                       |  | Fixed Assets      |        |   | Redundancy |    |        | Inventory |  |    | Total |  
|                                       |  | (In A$ thousands) |       
|Opening balance as at February 1, 2003 |  | A$                |       |   |            | A$ |       |           |  | A$ |      |   |  | A$ |       |  
|Amount provided during the year        |  |                   | 2,337  |   |            |    | 1,443  |           |  |    | 200   |   |  |    | 3,980  |  
|Utilized during the year               |  |                   | (2,337 | ) |            |    | (1,443 | )         |  |    | (200  | ) |  |    | (3,980 | )
|                                       |  |                   |        |   |            |    |        |           |  |    |       |   |  |    |        |  
|Closing balance as at January 31, 2004 |  | A$                |       |   |            | A$ |       |           |  | A$ |      |   |  | A$ |       |  
|                                       |  |                   |        |   |            |    |        |           |  |    |       |   |  |    |        |  



|21. |  | Fair Value of Financial Instruments
|--- |  | -----------------------------------



The following table presents the carrying amounts and estimated fair values of the Companys financial instruments at January 31, 2005 and 2004. The
fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties.



|                                                    |  |                   |        |                          |    |                |  |            |        |  |    |       
|--------------------------------------------------- |  | ----------------- | ------ | ------------------------ | -- | -------------- |  | ---------- | ------ |  | -- | ------
|                                                    |  | January 31, 2005  |        | January 31, 2004Restated
|                                                    |  | Carryingamount    |        | Fair value               |    | Carryingamount |  | Fair value
|                                                    |  | (In A$ thousands)
|Financial assets:                                   |  |                   |        |                          |    |                |  |            |        |  |    |       
|Cash and cash equivalents                           |  | A$                | 1,095  |                          | A$ | 1,095          |  | A$         | 3,521  |  | A$ | 3,521 
|Trade accounts receivable                           |  |                   | 7,866  |                          |    | 7,866          |  |            | 9,216  |  |    | 9,216 
|Other receivables                                   |  |                   | 6,050  |                          |    | 6,050          |  |            | 5,175  |  |    | 5,175 
|Foreign currency forward contracts                  |  |                   | 59     |                          |    | 59             |  |            | 47     |  |    | 47    
|Financial liabilities:                              |  |                   |        |                          |    |                |  |            |        |  |    |       
|Trade accounts payable                              |  | A$                | 13,037 |                          | A$ | 13,037         |  | A$         | 13,029 |  | A$ | 13,029
|Accrued expenses                                    |  |                   | 10,710 |                          |    | 10,700         |  |            | 10,846 |  |    | 10,846
|Deposits received from customers for lay-away sales |  |                   | 2,626  |                          |    | 2,626          |  |            | 2,328  |  |    | 2,328 
|Short-term bank borrowings                          |  |                   | 20,206 |                          |    | 20,206         |  |            |       |  |    |      
|Long-term debt                                      |  |                   |       |                          |    |               |  |            | 21,962 |  |    | 21,962



The following methods
and assumptions were used to estimate the fair value of each class of financial instruments:



Cash and cash equivalents, trade accounts receivable, other receivables, foreign currency exchange contracts, trade accounts payable, accrued expenses and deposits received from customers for lay-away sales: The
carrying amounts approximate fair value because of the short maturity of these instruments.



Short-term bank borrowings and long-term debt: The carrying amount approximates fair value, as the applicable interest rates approximate market rates currently available to the Company.



|22. |  | Concentration Risk
|--- |  | ------------------



During the twelve months ended January 31, 2005, approximately 58% of the Companys merchandise purchases in such period were obtained from its ten
largest vendors. The Company considers certain barbecue brands to be significant to its business, especially in the United States. No single vendor accounted for more than 5% of the Companys merchandise purchases other than Grand Hall
Enterprises Limited, Chant (Far East) Limited, Honfeld Limited, Dimension Industries Company Limited and the Weber group of companies which supplied the Company with approximately 13.73%, 12.68%, 7.60%, 6.66% and 5.87% respectively, of its
merchandise purchases during the fiscal year ended January 31, 2005. The Companys results of operations could be adversely affected by a disruption in purchases from any of these key vendors or suppliers.



F-36



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##### Table of Contents

BARBEQUES GALORE LIMITED AND SUBSIDIARIES



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES



|                                       |  |                              |     |                                      |   |      |                          |  |   |                         |   |  |   |    
|-------------------------------------- |  | ---------------------------- | --- | ------------------------------------ | - | ---- | ------------------------ |  | - | ----------------------- | - |  | - | ---
|                                       |  | Balance atBeginning ofPeriod |     | AdditionsCharged toCosts andExpenses |   |      | Deductionsand Write-offs |  |   | Balance atEnd of Period
|                                       |  | (In A$ thousands)           
|Reserve for Doubtful Accounts:         |  |                              |     |                                      |   |      |                          |  |   |                         |   |  |   |    
|Year ended January 31, 2005            |  | $                            | 250 |                                      | $ | (50  | )                        |  | $ |                        |   |  | $ | 200
|Year ended January 31, 2004  Restated |  |                              | 370 |                                      |   | (120 | )                        |  |   |                        |   |  |   | 250
|Year ended January 31, 2003  Restated |  |                              | 270 |                                      |   | 258  |                          |  |   | (158                    | ) |  |   | 370



F-37