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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
 
                               ----------------
                                  
                               FORM 20-F/A     
 
   FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
(MARK ONE)
 
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
    EXCHANGE ACT OF 1934 OR
   
[X] AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934     

    For the fiscal year ended January 31, 1998

                                      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 333-37259
 
                           BARBEQUES GALORE LIMITED
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
    AUSTRALIAN CAPITAL TERRITORY,          327 CHISHOLM ROAD, AUBURN, SYDNEY,
              AUSTRALIA                            NSW 2144 AUSTRALIA
   (STATE OR OTHER JURISDICTION OF           (ADDRESS OF PRINCIPAL EXECUTIVE
   INCORPORATION OR ORGANIZATION)                       OFFICES)
 
  Securities registered or to be registered pursuant to Section 12(b) of the
                                     Act:
 
                                                        (NAME OF EACH EXCHANGE
           (TITLE OF EACH CLASS)                         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)
 
  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:
 
                                   4,541,652
 
  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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<PAGE>
 
                               
                            TABLE OF CONTENTS     
 
<TABLE>   
<S>                                                                         <C>
PART I.....................................................................   1
 Item  1. DESCRIPTION OF BUSINESS..........................................   1
 Item  2. DESCRIPTION OF PROPERTY..........................................  13
 Item  3. LEGAL PROCEEDINGS................................................  14
 Item  4. CONTROL OF REGISTRANT............................................  14

PART II....................................................................  15
 Item  5. NATURE OF TRADING MARKET.........................................  15
 Item  6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING
          SECURITYHOLDERS..................................................  16
 Item  7. TAXATION.........................................................  18
 Item  8. SELECTED FINANCIAL DATA..........................................  20
 Item  9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS............................................  22
 Item 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......  28
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............  29
 Item 11. COMPENSATION OF DIRECTORS AND OFFICERS...........................  31
 Item 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES...  32
 Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS...................  34

PART III...................................................................  36
 Item 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.......................  36

PART IV....................................................................  36
 Item 15. DEFAULTS UPON SENIOR SECURITIES..................................  36
 Item 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
          SECURITIES AND USE OF PROCEEDS...................................  36
 Item 17. FINANCIAL STATEMENTS.............................................  37
 Item 18. FINANCIAL STATEMENTS.............................................  37
 Item 19. FINANCIAL STATEMENTS AND EXHIBITS................................  62

SIGNATURES.................................................................  64
</TABLE>    
                                   
                                TRADEMARKS     
   
  BARBEQUES GALORE(R), TURBO(R), CAPT N COOK(R), COOK-ON(R) and BAR-B-CHEF(R)
are federally registered trademarks and/or service marks in the United States.
The Company also uses the phrase AMERICA'S LARGEST CHAIN OF BARBEQUE STORES(TM)
as a common-law trademark in the United States. BARBEQUES GALORE and COOK-ON
are also registered with the State of California. In Australia, the Company or
its subsidiaries have registered, among others, the names NORSEMAN and KENT,
and additionally use the phrase YOUR OUTDOOR COOKING AND CAMPING STORE as a
common-law trademark. This Amendment contains other trade names, trademarks and
service marks of the Company and other organizations.     
<PAGE>
 
This Amendment to the Annual Report on Form 20-F ("Annual Report"), as filed
with the Securities and Exchange Commission on April 30, 1998 ("Amendment"),
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. Readers are cautioned that such statements are
only predictions and that actual events or results may differ materially. In
evaluating such statements, readers should specifically consider the various
factors identified in this report, including the matters set forth under the
caption "Item 9--Management's Discussion and Analysis of Financial Conditions
and Results of Operations--Factors that May Affect Quarterly or Annual
Operating Results," which could cause events or actual results to differ
materially from those indicated by such forward-looking statements. In
addition, readers should carefully review other information contained in this
Amendment and in the Company's periodic reports and other documents filed with
the Securities and Exchange Commission ("SEC").
 
                                    PART I
 
ITEM 1. DESCRIPTION OF BUSINESS
 
  Barbeques Galore believes that it is the leading specialty retail chain of
barbecue and barbecue accessory stores in Australia and the United States,
based on number of stores and sales volume. The Company's belief is based on
its years of experience in the barbecue retail industry as well as its
contacts with other industry retailers, suppliers and trade associations.
Organized as an Australian corporation in 1982, the Company opened its first
store in Sydney, Australia in 1977 and opened its first U.S. store in Los
Angeles in 1980. Barbeques Galore stores carry a wide assortment of barbecues
and related accessories which are displayed in a store format that emphasizes
social activities and healthy outdoor lifestyles. Its stores also carry a
comprehensive line of fireplace products and, in Australia, home heating
products, camping equipment and outdoor furniture. As of January 31, 1998, the
Company owned and operated 32 stores in all six states in Australia and 37
stores (including three U.S. Navy concession stores) in six states in the
United States. In addition, as of such date, there were 46 licensed stores in
Australia and seven franchised stores in the United States, all of which
operate under the "Barbeques Galore" name.
 
  The Company's unique retailing concept differentiates Barbeques Galore from
its competitors by (i) offering an extensive selection of barbecues and
related accessories to suit all consumer lifestyles, preferences and price
points, (ii) showcasing these products at convenient store locations with a
shopping environment that promotes the total barbecuing experience and (iii)
providing exceptional customer service through well-trained sales associates
who have in-depth knowledge of the products and understanding of customer
needs. These competitive strengths are enhanced by the Company's barbecue and
home heater manufacturing operations, which enable the Company to realize
higher margins, control product development and improve inventory flexibility
and supply.
 
  The Company's growth strategy is to continue expansion of its U.S. store
base and to continue refurbishing (through relocating or remodeling) existing
stores in Australia. From January 31, 1997 to January 31, 1998, the Company
grew from 27 to 37 Company-owned stores (including three U.S. Navy concession
stores), representing a 37% increase in the number of owned stores in the
United States. The Company currently plans to open approximately 15 new stores
in the United States in calendar year 1998 of which one has opened, six are
under construction, two are to commence construction shortly with occupancy
due in November 1998 and the remaining six are in lease negotiation. The
Company also currently intends to open 15 new stores in the United States in
calendar year 1999. In addition, the Company has initiated a major
refurbishment plan for its Australian store base to enhance store
productivity. From January 31, 1997 to January 31, 1998, four stores have been
refurbished in Australia with an average increase in sales of approximately
41.6% during that period for those stores.
 
                                       1
<PAGE>
 
COMPANY HISTORY
 
  Barbeques Galore opened its first store in Sydney, Australia in 1977 to
serve an unfilled niche in the retail market for versatile, well-designed
barbecues. Since then, the Company has become the leading barbecue retailer in
Australia, with an estimated 90% consumer awareness level and an approximately
30% retail market share. In 1980, the Company opened its first U.S. store in
Los Angeles.
 
  During the 1980s, the Company vertically integrated its 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. In Australia, the Company further
diversified its product line through the addition of camping equipment and
outdoor furniture, both of which complement the Company's main barbecue line.
   
  In April 1987, the Company listed its Ordinary Shares on the Australian
Stock Exchange (the "ASE"). In October 1996, as part of its plans to
accelerate new store expansion in the United States, the Company announced its
intention to repurchase shares from the public and delist from the ASE
(pursuant to a transaction which was consummated as of December 31, 1996) and
to seek capital in the United States. The Company consummated its initial
public offering (the "Offering") in the United States in November 1997.     
 
SEASONALITY; WEATHER; FLUCTUATIONS IN RESULTS
 
  The Company's business is subject to substantial seasonal variations which
have caused, and are expected to continue to cause, its quarterly results of
operations to fluctuate significantly. Historically, the Company has realized
a major portion of its net sales and a substantial portion of its net income
for the year during summer months and holiday seasons when consumers are more
likely to purchase barbecue products, camping equipment and outdoor furniture.
In anticipation of its peak selling seasons (late spring and early summer),
the Company substantially increases its inventory levels and hires a
significant number of part-time and temporary employees. In non-peak periods,
such as late winter and early fall, the Company has regularly experienced
monthly losses. Since the Company has historically derived a greater portion
of its sales from its larger Australian store base, these seasonal trends have
generally resulted in increased sales and income during the Australian summer
months of November through January and substantially lower-than-average sales
and income during the months of February, March, May and July. The Company
believes this is the general pattern associated with its segment of the
Australian retail industry and expects this pattern will continue in the
future. Partially offsetting the effects of seasonality, the Company operates
in both the Southern and Northern hemispheres, which have opposite seasons,
and offers fireplace products and (in Australia) home heaters in the fall and
winter months. However, sales of any of the Company's major product lines (in
particular, home heaters) may vary widely in peak seasons depending on, among
other things, prevailing weather patterns, local climate conditions, actions
by competitors and shifts in timing of holidays. The Company's quarterly and
annual 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 and changes in merchandise mix throughout the year. The
Company has in the past experienced quarterly losses, particularly in its
fiscal first quarter, and expects that it will experience such losses in the
future. Because of these fluctuations in operating results, the results of
operations in any quarter are not necessarily indicative of the results that
may be achieved for a full fiscal year or any future quarter. If for any
reason the Company's sales or gross margins during peak seasons or periods
were substantially below expectations, the Company's quarterly and annual
results would be adversely affected.
 
MANUFACTURING
 
  In its Australian factory facilities, the Company manufactures barbecues
under its proprietary Turbo, Capt N Cook, Cook-On and Bar-B-Chef brands and
certain private label brands, as well as home heaters under its proprietary
Norseman and Kent brands. During the twelve months ended January 31, 1998,
approximately 32% of the Company's net sales in the United States, and
approximately 32% of the Company's net sales in Australia, were represented by
barbecues manufactured by the Company. The Company believes that controlling
its own
 
                                       2
<PAGE>
 
manufacturing operations allows it to realize higher margins, control product
development and improve inventory flexibility and supply, without affecting
its relationships with third party vendors. The Company's manufacturing
operations are closely coordinated with its research and development
activities. The Company has a research and development team which is dedicated
to barbecue market analysis and product development. The ten members of this
research and development team have an average of over 10 years of industry
experience. The team continuously studies sales data, customer feedback,
consumer trends and product designs, working closely with the Company's other
departments (in both the United States and Australia) and suppliers to develop
the annual Barbeques Galore product line. The Company expended approximately
A$0.9 million during the twelve-month period ended January 31, 1998, on
research and development activities.
 
  In the manufacturing process, metal barbecue frames are constructed at the
Company's factory, located at its headquarters in Sydney, Australia, before
being shipped off-site to its enameling operations or third party painting
facilities, where they are coated and finished or painted before being
redelivered to the factory floor. Gas barbecue manifolds are assembled by hand
and tested individually at the factory for compliance with Australian Gas
Association and American Gas Association standards. Barbecues are then
assembled in the factory's automated production line from the completed
frames, burners and other parts (or, in certain cases, shipped to the
Company's U.S. distribution center for assembly). While keeping the same
breadth of product line in 1997, the Company rationalized the number of frames
it manufactures from 19 to 12 to extend production runs, improve inventory
control and promote efficiency. Barbeques Galore maintains strict quality
control standards and its barbecues are under limited warranty for one to ten
years from the date of retail purchase, depending on the part being warranted.
 
  Management believes that the Company's existing manufacturing and enameling
operations are sufficient to meet anticipated production increases that may
arise from its current store expansion and refurbishment programs. The Company
estimates that its plants currently have the capacity to increase barbecue
output by approximately 30% without any material capital expenditures, and
believes this is sufficient to meet its expansion needs through 1999. The
Company further believes it could approximately double current output through
the addition of six new steel presses (at an aggregate cost of A$1.5 million
to A$2.0 million) and extra worker shifts.
 
  In order to streamline its manufacturing operations to enhance production
efficiencies, in July 1996, the Company relocated its barbecue manufacturing
operations to the location of its corporate headquarters and distribution
center in Sydney, Australia. The Company is currently in the process of
relocating its enameling operations to the same facilities, adding an in-line
powder coating operation and rearranging the assembly, warehouse and
distribution operations to improve production flow, inventory control and
distribution management. These changes are scheduled to be completed in June
1998 and will cost an estimated A$454,000 (against which A$369,000 has already
been accrued) and will require capital expenditures of approximately A$2.8
million.
 
PURCHASING
 
  The Company believes that it has good relationships with its merchandise
vendors and suppliers of parts and raw materials and does not anticipate that,
as the number of its stores or its manufacturing volume increases, there will
be any significant difficulty in obtaining adequate sources of supply in a
timely manner and on satisfactory economic terms.
 
  Retail. The Company deals with its merchandise vendors principally on an
order-by-order basis and does not maintain any long-term purchase contracts
with any vendor. Merchandise mix is purchased for its U.S. and Australian
stores by the Company's central buying staffs in its respective headquarters.
In selecting merchandise, the buying staffs obtain input from a variety of
sources, including the Company's research and development team, store
employees, focus groups, customer surveys, industry conventions and trade
shows. During the twelve months ended January 31, 1998, the Company purchased
its inventory from over 400 vendors in the United States, Australia and Asia.
No single vendor accounted for more than 5% of merchandise purchases during
this period, although the Company considers certain brands to be significant
to its business, especially in the United
 
                                       3
<PAGE>
 
States. The Company does not believe that the loss of any single brand,
including those made by Weber-Stephen Products Co., Onward Multi-Corp or
Fiesta Gas Grills Inc., would have a material adverse effect on its operating
results. Approximately 25% of the Company's merchandise purchases were
obtained in such period from the Company's ten largest vendors.
 
  Manufacturing. The Company also purchases parts and raw materials for use in
its manufacturing and enameling operations. During the twelve months ended
January 31, 1998, the Company's buying staffs purchased barbecue and home
heater parts from over 50 suppliers in Asia, Australia and North America. No
single supplier accounted for more than 5% of factory parts and raw material
purchases during this period, other than Horan's Steel Pty Ltd ("Horan's
Steel"), an Australian steel distributor, and Bromic Pty Ltd ("Bromic"), an
Australian gas components importer, which accounted for approximately 20% and
21% of these purchases, respectively. There is currently no formal supply
contract between the Company and Horan's Steel. In December 1997, the Company
appointed Sheet Metal Supplies Pty Ltd as its steel supplier with full effect
from May 1998. Other major suppliers of barbecue components include G.L.G.
Trading Pte. Ltd. ("GLG Taiwan"), a Taiwanese company that purchases grills,
burners and other products directly from factories in China and Taiwan. The
Company has a 50% ownership interest in GLG Taiwan and a one-third ownership
interest in Bromic. Approximately 80% of the Company's factory parts and raw
material purchases were obtained in such twelve-month period from the
Company's ten largest suppliers. In order to set production budgets, the price
of certain parts and raw materials such as steel is negotiated and fixed well
in advance of production usage. The Company uses back-up suppliers to ensure
competitive pricing. In addition, some of the Company's key suppliers
currently provide the Company with certain purchasing incentives, such as
volume rebates and trade discounts.
 
DISTRIBUTION
 
  The Company maintains a 44,000 square foot distribution center at its U.S.
headquarters in Irvine, California and 126,000 square foot distribution
facilities at, and nearby its Australian headquarters. The Company also uses
smaller warehouses in Perth (operated by an independent distributor) and
Brisbane, Australia, for its wholesale and licensee distribution operations
and leases additional public warehouse space in Sydney, Los Angeles and Texas
as necessary.
 
  Merchandise is delivered by vendors and suppliers to the Company's
distribution facilities and, in certain instances, directly to stores, where
it is inspected and logged into the Company's centralized inventory management
systems. Merchandise is then shipped by Company trucks or third party surface
freight weekly or twice weekly, providing stores with a steady flow of
merchandise. Shipments by the Company's Australian operations to its Irvine
distribution center are made by third party sea freight, so that its Irvine
distribution center can maintain about two to three months of Company-
manufactured inventory at all times, which the Company believes is sufficient
to meet expected U.S. store requirements for such products.
 
  The Company maintains separate inventory management systems in Australia and
the United States which allow it 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 its inventory. The
Company estimates that its inventory shrinkage represents no more than 0.5% of
its aggregate retail sales. The Company and its advisors are not aware of any
barbecue industry source from which an industry average shrinkage rate can be
derived. However, the Company believes that the general shrinkage rate for
retailers is approximately 1.5% to 2.0%, and that the Company's rate compares
favorably to that of other retailers.
 
  As the Company expands into new regions or accelerates the rate of its U.S.
store expansion, it may eventually need additional warehouse capacity. In
order to meet such needs and to minimize the impact of freight costs, the
Company intends to secure another distribution center, expand its current
warehouse facilities in the United States or utilize public warehousing space.
Management believes that there is an ample supply of warehousing space
available at commercially reasonable rates. Wherever possible, the Company
also solicits the cooperation of its vendors, through drop shipments to public
warehouses and/or stores, in order to reduce its
 
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<PAGE>
 
freight and handling costs. The Company believes that its existing Australian
distribution arrangements, together with public warehousing space as needed,
are sufficient to meet its current needs.
 
WHOLESALE OPERATIONS
 
  In Australia, the Company distributes proprietary and private brand name
products and other imported merchandise, on a wholesale basis, through a
wholly-owned Australian subsidiary, Pricotech Leisure Brands Pty Ltd.
("Pricotech"). Wholesale products offered by Pricotech include Cook-On
barbecues, Companion gas camping equipment, Igloo coolers and Kent home
heaters. Pricotech distributes these products primarily to Australian mass
merchants, chains and buying groups. Customers typically buy these products
based on price. In the twelve months ended January 31, 1998, the five largest
customers of Pricotech accounted for approximately 60% of its net sales of
A$23.2 million. The Company's wholesale operations, in which its investment
consists primarily of inventory and receivables, currently fill excess
production capacity at the Company's manufacturing and enameling plants. The
Company currently has no plans to operate a wholesale distribution business in
the United States.
 
LICENSING AND FRANCHISING
 
  As of January 31, 1998, the Company licensed 46 Barbeques Galore stores,
generally in rural areas of Australia, and franchised seven Barbeques Galore
stores in the United States. The Company receives annual licensing fees and
franchising royalties, and benefits 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. Most of the Australian licensing agreements
have an indefinite term but 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 twelve months ended
January 31, 1998, total net sales to licensee and franchisee stores was A$15.6
million and US$5.3 million, respectively. The Company estimates that the
retail sales of Barbeques Galore products alone by licensees and franchisees
was approximately A$24.5 million and US$2.8 million, respectively, in the same
period. A number of the Company's existing licensees have refurbished their
stores in accordance with the Company's established criteria (although no
licensee is required to do so), and the Company maintains an assistance
program to provide advice relating to these enhancements. The Company may
license additional Barbeques Galore stores in Australia on a selective basis,
although it does not intend to franchise any additional stores in the United
States (except within geographical territories as required under existing
franchising agreements).
 
COMPETITION
 
  The retail and distribution markets for barbecues and the Company's other
product offerings are highly competitive in both the United States and
Australia. The Company's 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 and mail order companies. The Company's
manufacturing and wholesale operations compete with many other manufacturers
and distributors throughout the world, including high-volume manufacturers of
barbecues and home heaters. Many of the Company's competitors have greater
financial, marketing, distribution and other resources than the Company, and
particularly in the United States, may have greater name recognition than the
Company. Furthermore, the lack of significant barriers to entry into the
retail market which the Company services may also result in new competition in
the future. Barbeques Galore competes for retail customers primarily based on
its broad assortment of competitively priced, quality products (including
proprietary and exclusive products), convenience, customer service and the
attractive presentation of merchandise within its stores. The Company believes
that the following business strengths have contributed significantly to its
past success and intends to further capitalize on those strengths in executing
its growth strategy.
 
                                       5
<PAGE>
 
  Selection of Merchandise. Barbeques Galore offers an extensive selection of
quality barbecues and barbecue accessories designed to suit consumer
lifestyles, preferences and price points. Its stores offer a variety of
barbecues, with a range of styles, finishes and special features, including
the Company's proprietary brands as well as more than 60 other barbecues under
different brand names. Accompanying these barbecues are an assortment of
barbecue replacement parts and accessories which generate high margins. As the
leading retail chain specializing in barbecues and related merchandise,
Barbeques Galore offers consumers one-stop shopping convenience for virtually
all of their barbecue cooking needs.
 
  Store Environment. The Company's stores offer a shopping environment which
is consistent with its outdoor lifestyle image and promotes the total
barbecuing experience. The Company's newer stores generally have high
ceilings, wide aisles and extensively use natural materials such as wood and
stone. Merchandise is displayed to convey the breadth and depth of the
Company's product lines. An array of barbecues are displayed on the selling
floor complete with accessories to provide the consumer the opportunity to
compare and contrast different models. Store presentation is based on a
detailed and comprehensive store plan regarding visual merchandising to assure
that all stores provide a consistent portrayal of the Barbeques Galore image.
Average store retail selling area is approximately 3,300 square feet in the
United States and 8,400 square feet in Australia.
 
  Customer Service. The Company recognizes that customer service is
fundamental to its success. The Company has a "satisfaction guaranteed" return
policy and honors all manufacturer warranties for products sold at its stores.
Store managers and sales associates undergo product and sales training
programs which enable them to recommend merchandise that satisfies each
customer's lifestyle and needs. The Company monitors each store's service
performance and rewards high quality customer service both on a team and
individual level. The Company believes that its employees' knowledge of its
product offerings and the overall barbecue market, and their understanding of
customer needs, are critical components of providing customer service and
distinguish it from its competitors.
 
  Convenient Store Locations. The Company positions its 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 its site selection criteria, the Company believes it has been effective in
identifying successful new store locations.
 
  Integrated Manufacturing Operation; New Product Development. Through its
vertically integrated operations, the Company manufactures a proprietary line
of barbecues and home heaters for its retail stores. In addition, the Company
has an experienced in-house research and development team dedicated to
barbecue and home heater market analysis and product development that can
identify and respond to changing consumer trends. The Company believes that
controlling its own manufacturing operations allows it to realize higher
margins, control product development and improve inventory flexibility and
supply.
 
  Experienced Management Team. The Company's senior management team has an
average of more than 28 years of retail industry experience. Since the current
executive management team assumed responsibility in 1982, the number of
Barbeques Galore stores has grown from 12 stores (including one licensed
store) as of June 30, 1982 to 122 stores (including 53 licensed or franchised
stores) as of January 31, 1998. The Company believes that management's
experience positions it to execute its business and growth strategies. The
directors and executive officers of the Company beneficially own approximately
39.1% of the Company's outstanding Ordinary Shares.
 
EMPLOYEES
 
  As of January 31, 1998, the Company employed a total of 1,029 persons, on a
permanent, part-time or temporary basis. The number of temporary employees
fluctuates depending on seasonal needs. None of the
 
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<PAGE>
 
Company's employees is covered by a collective bargaining agreement, although
to the Company's knowledge, nine workers in its enameling plant belong to a
labor union.
 
TRADEMARKS AND PATENTS
 
  "Barbeques Galore," "Turbo," "Capt N Cook," "Bar-B-Chef" and "Cook-On" are
federally registered trademarks and/or service marks in the United States. In
addition, the Company owns a federal trademark registration for the
distinctive configuration of its Turbo grill. The Company also uses the phrase
"America's Largest Chain of Barbecue Stores" as a common-law trademark in the
United States. "Barbeques Galore" and "Cook-On" are registered trademarks with
the State of California. In Australia only, the Company uses the phrase "Your
Outdoor Cooking and Camping Store" as a common-law trademark and, among
others, the names "Norseman" and "Kent" as registered trademarks. The Company
further utilizes a number of different trademarks relating to various
barbecues, barbecue accessories, home heaters, camping equipment and outdoor
furniture manufactured or offered by the Company. The Company is not presently
aware of any claims of infringement or other challenges to the Company's right
to use its marks and the Company's name in the United States.
 
  The Company owns an Australian patent with respect to a weighing stand
apparatus for gas containers. The Company has a patent application pending in
Australia for its "Flamethrower" gas grill ignition system. The Company also
owns a number of copyrighted works, including brochures and other literature
about its products and many drawings and designs that it uses in marketing
those products.
 
GOVERNMENTAL REGULATION
 
  Many of the Company's products use gas 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, the
Company's barbecue and home heater manufacturing and enameling 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. The Company believes that it is in substantial compliance
with such regulations. The Company's 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 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.
 
In addition, if the Company's level of foreign ownership exceeds 40%, the
Company would be considered a foreign person and would require certain
governmental approvals in connection with certain acquisitions in Australia.
See "Item 6--Exchange Controls and other Limitations Affecting
Securityholders."
 
FACTORS THAT MAY AFFECT QUARTERLY OR ANNUAL OPERATING RESULTS
 
  The following are certain factors that should be considered in evaluating
the business, financial conditions and results of operations of the Company.
However, these factors should not be considered to be exclusive, and readers
are urged to consider the statements made elsewhere in this Annual Report on
Form 20-F.
 
  Implementation of Growth Strategy. The growth of the Company is dependent,
in large part, upon the Company's ability to successfully execute its Company-
owned store expansion program in the United States and its store refurbishment
plan in Australia. Pursuant to the U.S. store expansion program, the Company
opened 10 new stores in calendar 1997. The Company also currently intends to
open approximately 15 new stores in the United States in each of calendar 1998
and 1999. The Company incurred capital expenditures relating to this program
in the United States of approximately US$1.8 million in 1997 and expects to
incur approximately US$3.2 million in each of calendar 1998 and 1999. Pursuant
to the Company's Australian store refurbishment program, in calendar 1997, the
Company remodeled five existing stores, opened one new store, relocated one
 
                                       7
<PAGE>
 
store and closed one store. The Company further intends to refurbish four
stores and open one new store in calendar 1998, and refurbish two stores and
open two new stores in calendar 1999. The Company incurred capital
expenditures relating to this program in Australia of approximately A$2.5
million in 1997 and expects to incur approximately A$1.5 million to A$2.5
million in each of calendar 1998 and 1999. The proposed expansion is
substantially more rapid than the Company's historical growth. The success of
these store expansion and refurbishment efforts will be dependent upon, among
other things, 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, obtaining additional financing for those sites. In
addition, the Company must be able to hire, train and retain competent
managers and personnel and manage the systems and operational components of
its growth. There can be no assurance that the Company will be able to locate
suitable store sites or enter into suitable lease agreements. In addition,
there can be no assurance that, as the Company opens new stores in existing
markets, these new stores will not have an adverse effect on comparable store
net sales at existing stores in these markets. The failure of the Company to
open new stores or relocate or remodel existing stores on a timely basis,
obtain acceptance in markets in which it currently has limited or no presence,
attract qualified management and personnel or appropriately adjust operational
systems and procedures would adversely affect the Company's future operating
results.
 
  The success of the Company's growth strategy may also depend upon factors
beyond its immediate control. The Company has retained outside real estate
consultants to assist in site selection and lease negotiations, and may
depend, to an increasing extent, on the services of such consultants and other
real estate experts as it accelerates the rate of new store expansion. The
failure of any such consultants or experts to render needed services on a
timely basis could adversely affect the Company's new store expansion.
Similarly, changes in national, regional or local real estate and market
conditions could limit the ability of the Company to expand into target
markets or sites.
 
  As part of its growth strategy, the Company intends to open stores in new
markets where it 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 its store networks in existing markets. Expansion into new markets may
present operating and marketing challenges that are different from those
encountered in the past by the Company in its existing markets. As a result of
its expansion program and its entry into new markets, primarily in the United
States, and its refurbishment program in Australia, the Company has
experienced, and expects to continue to experience, an increase in store pre-
opening costs and refurbishment-related expenses. There can be no assurance
that the Company will anticipate all of the challenges and changing demands
that its expansion will impose on its management or operations, and the
failure to adapt thereto would adversely affect the Company's implementation
of its growth strategy.
 
  If the Company determined to, or was required to, close a Barbeques Galore
store, the Company would attempt to sublet the vacated store space in order to
cover ongoing lease costs. Even if the Company were able to sublet such store,
the Company may incur significant costs in writing off leasehold improvements.
 
  In addition, the Company's proposed expansion plans will result in increased
demand on the Company's managerial, operational and administrative resources.
As a result of the foregoing, there can be no assurance that the Company will
be able to successfully implement its growth strategies, continue to open new
stores or maintain or increase its current growth levels. The Company's
failure to achieve its expansion plan could have a material adverse effect on
its future business, operating results and financial condition.
 
  Effect of Economic Conditions and Consumer Trends. The success of the
Company's 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 the Company's business and results of
operations. Such effects may be exacerbated by the significant current
regional concentration of the Company's business in Australia and the Pacific
West and Southwestern U.S. markets.
 
 
                                       8
<PAGE>
 
  The success of the Company depends on its ability to anticipate and respond
to changing merchandise trends and consumer demands in a timely manner. The
Company believes it has benefited from a lifestyle trend toward consumers
spending more quality time together in outdoor family gatherings and social
activities. Any change in such trend could adversely affect consumer interest
in the Company's major product lines. Moreover, the Company's 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 the Company
misjudges either the market for its merchandise or its customers' purchasing
habits, it may experience a material decline in sales or be required to sell
inventory at reduced margins. The Company could also suffer a loss of customer
goodwill if its manufacturing operations or stores do not adhere to its
quality control or service procedures or otherwise fail to ensure satisfactory
quality of the Company's products. These outcomes may have a material adverse
effect on the Company's business, operating results and financial condition.
 
  Management of Operational Changes. The Company has identified a number of
areas for improvement in its operations which will have a significant impact
on the implementation of its growth strategy. The Company has, in recent
years, replaced or upgraded its management information systems and integrated
its central inventory management systems with point-of-sale terminals in
Barbeques Galore stores, and currently plans to introduce automated
replenishment of store inventory in Australia in the near term. In the United
States, the Company is currently upgrading to the latest version of the JDA
software and is using both outside consultants and the vendor to assist with
the process. The total expected capital expenditure for such project is not
expected to be significant (less than A$50,000). In addition, the Company
intends to transfer its general ledger and accounts payable functions from its
existing computer system to the above-mentioned JDA software system in the
near future. The Company is currently in the process of relocating its
enameling operations (which are located 10 miles away) to the same facilities
as its barbecue and home heater manufacturing operations adjacent to its
Australian headquarters, adding an in-line powder coating operation and
rearranging the assembly, warehouse and Australian distribution operations to
further improve its production flow, inventory control and distribution
management. These changes are scheduled to be completed in June 1998. The
relocation of the Company's enameling operations and related changes will cost
approximately A$454,000 (of which A$369,000 has already been accrued), will
require additional capital expenditures of approximately A$2.8 million and
will require the Company to obtain a number of building, environmental and
other governmental permits. In addition, as the Company expands into new
regions or accelerates the rate of its U.S. store expansion, the Company may
need additional warehouse capacity. In order to meet such needs, the Company
intends to secure another distribution center or expand its current warehouse
facilities in the United States or utilize public warehousing space, in each
case depending on availability and cost at such time. There can be no
assurance as to whether or when the Company will be able to effect its systems
upgrades, enameling plant relocation plans, any expansion or replacement of
distribution facilities, or any other necessary operational changes that may
arise, or that the Company will not incur cost overruns or disruptions in its
operations in connection therewith. The failure of the Company to effect these
and any other necessary operational changes on a timely basis would adversely
affect the ability of the Company to implement its growth strategy and,
therefore, its business, financial condition and operating results.
 
  Competition. The retail and distribution markets for barbecues and the
Company's other product offerings are highly competitive in both the United
States and Australia. The Company's 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 and mail order companies. The
Company's manufacturing and wholesale operations compete with many other
manufacturers and distributors throughout the world, including high-volume
manufacturers of barbecues and home heaters. Barbeques Galore competes for
retail customers primarily based on its broad assortment of competitively
priced, quality products (including proprietary and exclusive products),
convenience, customer service and the attractive presentation of merchandise
within its stores. Many of the Company's competitors have greater financial,
marketing, distribution and other resources than the Company, and particularly
in the United States, may have greater name recognition than the Company.
Furthermore, the lack of significant barriers to entry into the Company's
segment of the retail industry may also result in new competition in the
future.
 
                                       9
<PAGE>
 
  Seasonality; Weather; Fluctuations in Results. The Company's business is
subject to substantial seasonal variations which have caused, and are expected
to continue to cause, its quarterly results of operations to fluctuate
significantly. Historically, the Company has realized a major portion of its
net sales and a substantial portion of its net income for the year during
summer months and holiday seasons when consumers are more likely to purchase
barbecue products, camping equipment and outdoor furniture. In anticipation of
its peak selling seasons (late spring and early summer), the Company
substantially increases its inventory levels and hires a significant number of
part-time and temporary employees. In non-peak periods, such as late winter
and early fall, the Company has regularly experienced monthly losses. Since
the Company has historically derived a greater portion of its sales from its
larger Australian store base, these seasonal trends have generally resulted in
increased sales and income during the Australian summer months of November
through January and substantially lower-than-average sales and income during
the months of February, March, May and July. The Company believes this is the
general pattern associated with its segment of the Australian retail industry
and expects this pattern will continue in the future. Partially offsetting the
effects of seasonality, the Company operates in both the Southern and Northern
hemispheres, which have opposite seasons, and offers fireplace products and
(in Australia) home heaters in the fall and winter months. However, sales of
any of the Company's major product lines (in particular, home heaters) may
vary widely in peak seasons depending on, among other things, prevailing
weather patterns, local climate conditions, actions by competitors and shifts
in timing of holidays. The Company's quarterly and annual 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
and changes in merchandise mix throughout the year. The Company has in the
past experienced quarterly losses, particularly in its fiscal first quarter,
and expects that it will experience such losses in the future. Because of
these fluctuations in operating results, the results of operations in any
quarter are not necessarily indicative of the results that may be achieved for
a full fiscal year or any future quarter. If for any reason the Company's
sales or gross margins during peak seasons or periods were substantially below
expectations, the Company's quarterly and annual results would be adversely
affected.
   
  Reliance on Systems. In the United States, the Company has installed a JDA
Software Group Inc. ("JDA") system on an IBM AS400 platform, which allows it
to manage distribution, inventory control, purchasing, sales analysis,
warehousing and financial applications. The Company currently runs its general
ledger and accounts payable applications on its pre-existing computer system,
but intends to transfer these functions to the more powerful JDA system in the
near future. At the store level, the Company has installed POS computer
terminals as its cash registers in all stores. Each POS terminal is equipped
with a bar code scanner for ease of product input and validation. Each store's
transaction data is captured by its 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, margin 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.     
   
  In Australia, Barbeques Galore has installed a system which runs on a
proprietary Wang VS software environment, together with a Novell network
utilizing Microsoft applications. This software processes all distribution,
warehouse management, inventory control, purchasing, merchandising, financial
and office automation applications. As in the United States, each store in
Australia is equipped with POS terminals that receive pricing and inventory
information and permit the Company to poll sales transaction data daily. The
Australian system provides a range of reporting and inquiry capability at both
the store and corporate levels similar to that in the United States. The
Company relies upon its existing management information systems in operating
and monitoring all major aspects of the Company's business, including sales,
gross margins, warehousing, distribution, purchasing, inventory control,
financial, accounting and human resources. The Company's reliance upon such
systems will likely increase upon the anticipated introduction of automated
store replenishment in Australia. Any disruption in the operation of the
Company's management information systems, or the Company's failure to continue
to upgrade, integrate or expend capital on such systems as its business
expands, could have a material adverse effect upon the Company's business,
operating results and financial condition.     
 
 
                                      10
<PAGE>
 
   
  Like many computer systems, the Company's Wang computer system in Australia
uses two digit data fields which recognize dates using the assumption that the
first two digits are "19" (i.e., the number 97 is recognized as the year
1997). Therefore, in the Australian system, the Company's date critical
functions relating to the year 2000 and beyond, such as sales, distribution,
purchasing, inventory control, financial and human resource systems, may be
adversely affected unless changes are made to this computer system. The
Company expects to resolve these issues in a timely manner and is currently
engaged in a review of all existing computer systems in order to implement the
required changes, which may entail replacing the existing system. The Company
expects that upgrades to its computer systems with respect to the year 2000
problem will require capital expenditures of approximately A$0.75 million.
However, no assurance can be given that these issues can be resolved in a
cost-effective or timely manner or that the Company will not incur significant
expense in resolving these issues. The Company's newly installed computer
system in the United States has been designed to avoid the occurrence of such
problems with the year 2000.     
 
  Dependence on Key Employees. The Company's success is largely dependent on
the efforts and abilities of its executive officers, particularly, Sam Linz,
Chairman of the Board, Robert Gavshon, Deputy Chairman of the Board, John
Price, Head of Research and Product Development and Director, and Sydney
Selati, President of The Galore Group (USA), Inc. and Director. These
individuals have an average of 15 years of experience with the Company and
have chief responsibility for the development of the Company's current
business and growth strategies. The Company does not have employment contracts
with any of its executive officers. The loss of the services of these
individuals or other key employees could have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
success is also dependent upon its ability to continue to attract and retain
qualified employees to meet the Company's needs for its new store expansion
program in the United States and its store refurbishment plans in Australia.
In August 1997, the Company appointed a Chief Operating Officer for its U.S.
operations to manage daily operations in the United States, permitting Mr.
Selati to concentrate on the Company's U.S. growth strategy.
 
  Risks Associated with International Operations; Dependence on Significant
Vendors and Suppliers. Barbeques Galore, with its headquarters, manufacturing,
enameling, wholesale and non-U.S. store operations in Australia, transacts a
majority of its business in Australia and obtains a significant portion of its
merchandise, parts and raw materials from China, Taiwan, Indonesia, Thailand,
Italy and other markets outside of the United States and Australia. 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, delays from customs
brokers or government agencies, seasonal reductions in business activity,
subjection to multiple taxation regimes and potentially adverse tax
consequences, any of which could materially adversely affect the Company's
business, operating results and financial condition.
 
  The Company purchases certain of its finished inventory and manufacturing
parts and all of its raw materials from numerous vendors and suppliers and
generally has no long-term purchase contracts with any vendor or supplier.
During the twelve months ended January 31, 1998, the Company purchased
inventory from over 400 vendors in the United States, Australia and Asia. In
such period, approximately 25% of the Company's merchandise purchases were
obtained from the Company's ten largest vendors. Although no vendor accounted
for more than 5% of the Company's merchandise purchases in such period (other
than Horan's Steel and Bromic), the Company considers certain barbecue brands
to be significant to its business, especially in the United States. Also
during such period, the Company purchased barbecue and home heater parts from
over 50 suppliers in Asia, Australia and North America. Horan's Steel and
Bromic supplied the Company with approximately 20% and 21%, respectively, of
the Company's factory parts and raw material purchases, and approximately 80%
of the Company's factory parts and raw material purchases were obtained from
the Company's ten largest suppliers. The Company's results of operations could
be adversely affected by a disruption in purchases from any of these key
vendors or suppliers or from volatility in the prices of such parts or raw
materials, especially the price of steel, which has fluctuated in the past. In
addition, some of the Company's key suppliers currently provide the Company
with certain incentives, such as volume and trade discounts as well as other
purchasing incentives. A
 
                                      11
<PAGE>
 
reduction or discontinuance of these incentives could have an adverse effect
on the Company. Although the Company believes that its relationships with its
vendors and suppliers are good, any vendor or supplier could discontinue
selling to the Company at any time.
 
  Product Liability and Governmental and Other Regulation. Many of the
Company's products use gas 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, the Company's
products and the 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 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. Compliance with such regulations has not in the past
had, and is not anticipated to have, a material adverse effect on the
Company's business, operating results and financial condition. Nonetheless,
such regulations have had, and can be expected to have, an increasing
influence on product claims, manufacturing, contents, packaging and heater
usage. In addition, 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 a Company product. 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. Even if such
circumstances were beyond the Company's control, the Company's business,
operating results and financial condition could be materially adversely
affected. In the event of such an occurrence, the Company could incur
substantial litigation expense, receive adverse publicity, suffer a loss of
sales or all or any of the foregoing. Although the Company maintains liability
insurance in both Australia and the United States, there can be no assurance
that such insurance will provide sufficient coverage in any particular case.
In Australia, the limit of the Company's product liability coverage is A$50
million. In the United States, the Company's U.S. operating subsidiary is
covered by a policy having general liability coverage limited at US$12 million
and third party liability coverage limited at US$11 million. There is no
assurance that certain jurisdictions in which the Company operates will not
impose additional restrictions on the sale or use of the Company's products.
 
  In addition, the Company's barbecue and home heater manufacturing and
enameling 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. The Company's distribution facilities
are also subject to workplace safety and labor relations regulations. The
Company believes that it is in substantial compliance with such regulations.
The sale of certain products by the Company may result in technical violations
of certain of the Company's leases which prohibit the sale of flammable
materials in or on the leased premises. As a barbecue and barbecue accessories
store, the Company sells lighter fluid, lighters, matches and similar products
which may be considered flammable when in contact with open flame or
activated. The Company does not store containers of gas for barbecue grills in
its stores. The Company stores matches, lighters and the like in closed
containers or in displays where the chance of activation is remote, and does
not store such items near open flames. Over the Company's operating history,
the Company's landlords have been made aware that the Company sells such
products. To date, no landlord has terminated or threatened termination of any
lease due to such sales.
 
  The foregoing regulations and restrictions could have a material adverse
effect on the Company's business, operating results or financial condition.
 
  Uncertainties Regarding Manufacturing and Distribution of Merchandise. The
Company manufactures a substantial portion of the barbecues and home heaters
sold in its stores and distributes merchandise to Barbeques Galore stores
primarily from its distribution centers located at its headquarters in
Australia and Irvine, California. Throughout the manufacturing process, the
Company utilizes heavy machinery and equipment to produce and assemble
barbecues and home heaters from parts and raw materials supplied from numerous
third party suppliers. In distributing merchandise, the Company relies upon
third party sea carriers to ship its manufactured products from Australia to
the United States, as well as third party surface freight carriers to
transport all its merchandise from its distribution centers and warehouses to
stores. Accordingly, the Company is subject to numerous risks associated with
the manufacturing and distribution of its merchandise, including supply
interruptions, mechanical
 
                                      12
<PAGE>
 
risks, labor stoppages or strikes, inclement weather, import regulation,
changes in fuel prices, changes in the prices of parts and raw materials,
economic dislocations and geopolitical trends. In addition, the Company
believes that, while its distribution facilities are sufficient to meet
Barbeques Galore's current needs, the Company may need another distribution
center or larger facilities in the United States or Australia to support the
further growth and expansion of stores.
 
  Risks Related to Franchised and Licensed Stores. As of January 31, 1998,
there were 46 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 who purchase proprietary and other store
products, and receive support services, from the Company. 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. The Company monitors its licensed and franchised stores to assure
their conformity to Barbeques Galore's standards and image and requires the
licensees and franchisees to comply with Barbeques Galore's merchandising and
advertising guidelines. Although the Company believes that its licensees and
franchisees are presently in substantial compliance with Company guidelines
and that its license and franchise arrangements have not been problematic in
any material respect in the past, serious or protracted failures by licensees
or franchisees to adhere to Company standards could adversely affect customer
loyalty and diminish the Company's brand name or reputation for quality
products and services, and could require the Company to devote significant
management attention and resources to enforcing its rights under such
agreements. Conversely, if the Company fails to provide adequate support
services or otherwise breaches its 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 thereunder. The licensing agreements in
Australia are terminable at will (absent fraud) by the licensees only,
generally upon sixty days' notice.
 
  Currency Fluctuations. The Company prepares its consolidated financial
statements in Australian dollars, but a substantial portion of the Company's
revenues and expenses are denominated in U.S. dollars and, to a lesser extent,
other foreign currencies. Accordingly, the Company is 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 the Company
transacts its business. This currency imbalance has resulted in, and may
continue to result in, foreign currency transaction gains and losses. In the
past, the Company's Australian operations have hedged a major portion of its
imports against exchange rate fluctuations with respect to the Australian
dollar. However, in its U.S. operations, the Company has not, and it currently
does not, actively hedge against exchange rate fluctuations, although it may
elect to do so in the future. Accordingly, changes in exchange rates may have
a material adverse effect on the Company's net sales, cost of goods sold,
gross margin and net income, any of which alone or in the aggregate may in
turn have a material adverse effect on the Company's business, operating
results and financial condition.
 
ITEM 2. DESCRIPTION OF PROPERTY.
 
  The Company currently leases all of its stores and expects that its policy
of leasing, rather than owning, store properties will continue as it expands.
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 ten years at increased rents. Certain of the leases provide for
scheduled rent increases or for contingent rent (based upon store sales
exceeding stipulated amounts). The Company guarantees two franchised store
leases, one of which is secured by the franchisee's rights in its Barbeques
Galore franchise.
 
  In Sydney, Australia, the Company owns its headquarters and a 76,000 square
foot portion of its distribution center. The Company leases the remaining
50,000 square feet of its distribution facilities, the adjacent 75,000 square
foot barbecue and home heater factory (under a five-year lease with four
successive five-year renewal options for a total maximum lease term of 25
years) and a 20,000 square foot wholesale and licensee store distribution
center in Brisbane (under a five-year lease with one five-year renewal
option). In addition, the Company leases its enameling plant premises. This
lease will expire in June 1998 and, prior to expiration, the
 
                                      13
<PAGE>
 
Company intends to move its enameling operations to its main factory and has,
since January 31, 1998, purchased for A$3.5 million, a 45,000 square foot
facility to house its assembly operations and certain administrative
facilities. The Company is also able to, and periodically does, lease space
for short terms in public warehouses in Australia. In Irvine, California, the
Company leases its home office and 44,000 square foot U.S. distribution center
under leases scheduled to expire in 2000 (subject to a two-year renewal
option). As in Australia, additional public warehouse space is leased for
short terms.
 
  The Company's ownership interest in its Sydney headquarters and all of its
leasehold interests in real property are subject to a mortgage interest of
Australia and New Zealand Banking Group Limited ("ANZ") under a Deed of Charge
and related documents between ANZ (successor-in-interest to Westpac Banking
Corporation) and the Company. See Exhibit No. 10.4 in "Item 19--Financial
Statements and Exhibits."
 
ITEM 3. LEGAL PROCEEDINGS.
 
  There are no material pending legal proceedings against the Company. The
Company is involved in various 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
business, results of operations or financial condition of the Company.
 
ITEM 4. CONTROL OF REGISTRANT.
 
  The Company is not, to its knowledge, directly owned or controlled by any
other corporation or foreign government.
 
  The Company is not aware of any voting arrangements which may, at any
subsequent date, result in a change of control of the Company.
 
  The following table sets forth certain information regarding the beneficial
ownership of the Ordinary Shares as of April 20, 1998 by (i) each person or
entity known to the Company to own beneficially 10% or more of the outstanding
Ordinary Shares, and (ii) all directors and executive officers of the Company
as a group:
 
 
<TABLE>
<CAPTION>
                                                          AMOUNT AND NATURE
TITLE OF CLASS   NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP/1/ PERCENT OF CLASS
--------------   ------------------------------------ -------------------------- ----------------
<S>              <C>                                  <C>                        <C>
Ordinary Shares  Sam Linz............................         1,293,8952(2)            28.5%
                 All directors and executive officers
                  as a group (9 persons)................       1,773,595               39.1%
</TABLE>
 
(1) Applicable percentage of ownership for each shareholder is based on
    4,541,652 Ordinary Shares outstanding as of April 20, 1998, together with
    applicable options for such shareholders. Excludes 203,038 Ordinary Shares
    issuable upon the exercise of stock options granted under the Executive
    Share Option Plan and 199,400 Ordinary Shares issuable upon the exercise
    of stock options to be granted under the 1997 Share Option Plan
    concurrently with the Initial Public Offering (the "Offering"). There are
    an additional 129,854 authorized and unissued Ordinary Shares reserved for
    the grant of stock options under the 1997 Share Option Plan. Beneficial
    ownership is determined in accordance with the rules of the Securities and
    Exchange Commission and generally includes voting or investment power with
    respect to securities. Ordinary shares subject to options exercisable
    within sixty (60) days of the date hereof, 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.
    Except as indicated by footnote, the persons named in the table have sole
    voting and investment power with respect to all Ordinary Shares shown as
    beneficially owned by them.
 
(2) Includes 162,210 Ordinary Shares held by Wispjune Pty Limited
    ("Wispjune"), a company in which Mr. Linz owns a 72.5% interest, with Mr.
    Robert Gavshon and Mr. John Price, each a director of the Company, owning
    the remaining 22.5% and 5.0%, respectively, and 167,402 Ordinary Shares
    held by Geblon Pty Limited ("Geblon"), a company in which Mr. Linz and Mr.
    Gavshon each have a 50% ownership interest, with Mr. Linz retaining voting
    control of the company. Excludes 88,459 Ordinary Shares held by ANZ
    Nominees Limited on behalf of members of Mr. Linz's immediate family, and
    14,322 Ordinary Shares held by Bosmana Pty Limited ("Bosmana"), a trustee
    of one of the Company's Superannuation Funds, of which Mr. Linz is one of
    the three directors. Mr. Linz disclaims beneficial ownership of the
    foregoing Ordinary Shares held by ANZ Nominees Limited and Bosmana, except
    to the extent of his pecuniary interest therein.
 
                                      14
<PAGE>
 
                           EXCHANGE RATE INFORMATION
 
  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, 1998, the
Noon Buying Rate was US$0.6693 = A$1.00. The following table sets forth, for
the periods indicated, certain information concerning Noon Buying Rates for
Australian dollars.
 
  Fluctuations in the exchange rate between the Australian dollar and the U.S.
dollar may affect the Company's earnings, the book value of its assets and its
shareholders' equity as expressed in Australian and U.S. dollars, and
consequently may affect the market price for the ADSs. Such fluctuations will
also affect the conversion into U.S. dollars by the Depositary of cash
dividends, if any, paid in Australian dollars on the Ordinary Shares
represented by the ADSs. See "Item 5--Nature of Trading Market" and "Item 6--
Exchange Controls and Other Limitations Affecting Securityholders."
 
<TABLE>
<CAPTION>
                                                                          PERIOD
TWELVE MONTHS ENDED JANUARY 31,                  AVERAGE(1)  HIGH   LOW    END
-------------------------------                  ---------- ------ ------ ------
<S>                                              <C>        <C>    <C>    <C>
1994
 First Quarter..................................   0.7020   0.7217 0.6692 0.7073
 Second Quarter.................................   0.6837   0.7095 0.6655 0.6900
 Third Quarter..................................   0.6639   0.6916 0.6450 0.6665
 Fourth Quarter.................................   0.6782   0.7108 0.6569 0.7086
1995
 First Quarter..................................   0.7143   0.7248 0.7016 0.7155
 Second Quarter.................................   0.7312   0.7452 0.7041 0.7395
 Third Quarter..................................   0.7400   0.7458 0.7303 0.7425
 Fourth Quarter.................................   0.7649   0.7780 0.7404 0.7566
1996
 First Quarter..................................   0.7383   0.7590 0.7229 0.7282
 Second Quarter.................................   0.7248   0.7442 0.7088 0.7385
 Third Quarter..................................   0.7508   0.7704 0.7312 0.7595
 Fourth Quarter.................................   0.7427   0.7607 0.7339 0.7463
1997
 First Quarter..................................   0.7717   0.7915 0.7483 0.7875
 Second Quarter.................................   0.7926   0.8025 0.7727 0.7727
 Third Quarter..................................   0.7895   0.7998 0.7731 0.7917
 Fourth Quarter.................................   0.7908   0.8162 0.7623 0.7623
1998
 First Quarter..................................   0.7786   0.7982 0.7574 0.7806
 Second Quarter.................................   0.7572   0.7866 0.7349 0.7478
 Third Quarter..................................   0.7279   0.7508 0.6866 0.7011
 Fourth Quarter.................................   0.6709   0.7126 0.6357 0.6845
</TABLE>
--------
(1) Determined by averaging the closing price for each date in the period.
 
                                    PART II
 
ITEM 5. NATURE OF TRADING MARKET.
 
MARKET INFORMATION
   
  The Company's Ordinary Shares are traded on the Nasdaq National Market
("NASDAQ") under the symbol BBQZY, as represented by American Depositary
Shares ("ADSs"). The ADSs are represented by American Depositary Receipts
issued by Morgan Guaranty Trust Company as Depositary. Each American
Depositary Share represents one Ordinary Share of the Company.     
 
                                      15
<PAGE>
 
  From April 1987 through December 1996, the Company listed its Ordinary
Shares for trading on the ASE. In December 1996, the Company voluntarily
delisted from the ASE and since such time, there had been no established
foreign public market for the Ordinary Shares or ADSs.
   
  The following table sets forth the high and low closing sales prices of the
Ordinary Shares on the ASE from January 1, 1996 through the period ending
January 31, 1998:     
 
<TABLE>   
<CAPTION>
   FISCAL PERIOD                                                  HIGH     LOW
   -------------                                                 ------- -------
   <S>                                                           <C>     <C>
   Fiscal Year ended January 31, 1997
     First Quarter.............................................. A$0.35  A$0.29
     Second Quarter.............................................   0.35    0.27
     Third Quarter..............................................   0.385   0.28
     Fourth Quarter.............................................   0.39    0.385
   Fiscal Year ended January 31, 1998
     First Quarter..............................................     N/A     N/A
     Second Quarter.............................................     N/A     N/A
     Third Quarter..............................................     N/A     N/A
     Fourth Quarter.............................................     N/A     N/A
</TABLE>    
 
  The following table sets forth the range of high and low closing sale prices
of the American Depositary Shares on the Nasdaq National Market for the fiscal
periods indicated:
 
<TABLE>   
<CAPTION>
   FISCAL PERIOD                                               HIGH     LOW
   -------------                                             -------- --------
   <S>                                                       <C>      <C>
   Fiscal Year ended January 31, 1997
     First Quarter..........................................      N/A      N/A
     Second Quarter.........................................      N/A      N/A
     Third Quarter..........................................      N/A      N/A
     Fourth Quarter.........................................      N/A      N/A
   Fiscal Year ended January 31, 1998
     First Quarter..........................................      N/A      N/A
     Second Quarter.........................................      N/A      N/A
     Third Quarter..........................................      N/A      N/A
     Fourth Quarter (November 7, 1997 through January 31,
      1998)................................................. US$9.375 US$5.750
</TABLE>    
 
  As of April 15, 1998, there were three holders of record of American
Depositary Shares and 90 additional holders of record of the Company's
Ordinary Shares. Of the Ordinary Shares, to the Company's knowledge, three
holders of record reside in the United States. The Company is unable to
determine how many holders of record of American Depositary Shares reside in
the U.S.
 
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITYHOLDERS.
 
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 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 the outstanding shares of the Company
(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 shares in the Company and as a result the total holdings of
all foreign persons and their associates exceeds 40% in the aggregate without
the approval of the Australian Treasurer, then the Treasurer may make an order
requiring the acquiror to dispose of those shares within a specified time. The
Company has been advised by its Australian counsel, Freehill, Hollingdale &
Page, that under current foreign investment policy, however, it is unlikely
that the Treasurer would make such an order where the level of foreign
ownership exceeds 40% in the ordinary course of trading, unless the Treasurer
finds that the acquisition is contrary to the
 
                                      16
<PAGE>
 
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 its
associate) acquires any further shares, including in the course of trading in
the secondary market of the American Depository Receipts. In addition, if the
level of foreign ownership exceeds 40% at any time, the Company would be
considered a foreign person under the Takeovers Act. In such event, the
Company would be required to obtain the approval of the Treasurer for the
Company, together with its associates, to acquire (i) more than 15% of an
Australian company or business with assets totaling over A$5 million or (ii)
any direct or indirect ownership interest in Australian residential real
estate. In addition, the percentage of foreign ownership of the Company would
also be included in determining the foreign ownership of any Australian
company or business in which it may choose to invest. Since the Company has no
current plans for any such acquisitions and only owns commercial property, any
such approvals required to be obtained by the Company as a foreign person
under the Takeovers Act will not affect the Company's current or future
ownership or lease of property in Australia. However, there would be no
material tax consequence to shareholders of the Company (including holders of
ADSs) resulting from the Company being deemed a foreign person under the
Takeovers Act. If all of the ADSs are owned by foreign persons or their
associates then the level of foreign ownership of the Company's equity
securities is approximately 42.2%. 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 the Company were to sell additional Ordinary
Shares or ADSs in the future.
 
  The Company has additionally provided that all stock options outstanding
under the Company's Executive Share Option Plan at such time as the Company
becomes subject to a takeover bid pursuant to which the offeror acquires at
least thirty percent (30%) of the outstanding Ordinary Shares of the Company
shall become immediately exercisable for a period of up to 120 days, measured
from the date the Board notifies the optionee of the takeover bid. Similarly,
the Company has provided that all stock options outstanding under the
Company's 1997 Share Option Plan at such time as the Company is 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 203,038 Ordinary Shares underlying stock options
outstanding pursuant to the Executive Share Option Plan, which, barring
acceleration, will become exercisable on February 1, 1999 and 199,400 Ordinary
Shares underlying stock options which were granted concurrently with the
Offering under the 1997 Share Option Plan, which, barring acceleration, will
become exercisable according to the terms of the 1997 Share Option Plan. Such
investment restrictions and dilutive acceleration events could have a material
adverse effect on the Company's 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 the
Company, including attempts that might result in a premium over market price
to holders of ADSs.
 
  The Memorandum and Articles of Association of the Company (collectively, the
"Articles") contain certain provisions that could impede any merger,
consolidation, takeover or other business combination involving the Company or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the Company. Provisions contained in the
Articles, among other things, (i) in effect divide the Board of Directors of
the Company into three classes, which serve for staggered three-year terms,
(ii) provide that the shareholders may amend or repeal special resolutions,
including changes to the Articles and extraordinary transactions, only by a
vote of at least 75% of the votes cast at a meeting at which a quorum is
present, (iii) require extended notice (of up to 21 days) for special
resolutions considered by the Board of Directors, and (iv) authorize the Board
of Directors, without any vote or action by shareholders of the Company, to
issue, out of the Company's 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
the Company currently has 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
share that may be issued in the future. The issuance of any preferred or
senior shares, and the other provisions of the Articles referred to above,
could have the effect of making it more difficult for a third party to acquire
control of the Company.
 
                                      17
<PAGE>
 
  Australian law requires the transfer of shares in the Company to be made in
writing, and stamp duty at the rate of 0.6% is payable in relation to any
transfer of shares. No stamp duty will be payable in Australia on the transfer
of ADSs provided that any instrument by which the ADSs are transferred is
executed outside Australia.
 
  In certain circumstances, nonresidents of Australia may be subject to
Australian tax on capital gains made on the disposal of shares or ADSs. The
rate of Australian tax on taxable gains realized by non-residents of Australia
is 36% for companies. For individuals, the rate of tax increases from 29% to a
maximum of 47%. These circumstances are described in "Taxation."
 
ITEM 7. TAXATION.
 
TAXATION
 
  Dividends. Fully franked dividends (i.e., dividends paid out of the
Company's profits which have been subject to Australian income tax at the
maximum 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 (i.e., dividends that are paid out of profits that
have not been subject to Australian income tax) are subject to Australian
withholding tax when paid to U.S. resident shareholders. In the event the
Company pays partially franked dividends, shareholders will be subject to
withholding tax on the unfranked portion. Pursuant to the bilateral taxation
convention between Australia and the United States (the "Treaty"), the
withholding tax imposed on dividends paid by the Company to a U.S. resident is
limited to 15%.
 
  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.
 
  Sales of ADSs 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.
 
  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 (indexed for inflation where the shares or
ADSs are held for 12 months or more) 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 36% for companies. For individuals, the
rate of tax increases from 29% to a maximum of 47%. 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 a fiscal year for Australian tax purposes if
it is closely held (i.e. at any time during that fiscal year, not less than
75% of the paid up capital of the Company, voting power or dividend rights 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 fiscal year. As the
ADSs are listed for quotation on the Nasdaq National Market, the Company will
be deemed a Listed Company.
 
  On July 9, 1997, the Commissioner ruled that the Company will be treated as
a public company for Australian tax purposes for the year ending January 31,
1998. Such ruling is based on the Company's expectation that it will not be
closely held at any time after the Offering. However, because the ownership of
the Company must be continuously monitored, there can be no assurance that the
Company will not become closely held, thereby losing its public company
status.
 
  U.S. residents who are securities dealers or in whose hands a profit on
disposal of ADSs or Ordinary Shares is regarded as Ordinary income and not as
a capital gain (such ADSs and Ordinary Shares are referred to as "revenue
assets") will be subject to Australian income tax on Australian source profits
arising on the disposal
 
                                      18
<PAGE>
 
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 the ADSs or Ordinary Shares are revenue assets
because such a conclusion depends on the particular facts and circumstances of
the individual investor.
 
  Pursuant to the Treaty, capital gains or profits 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 gains or profits are
attributable are exempt from Australian tax. 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. Any capital gains or profits derived by a U.S.
resident from the disposal of the ADSs or Ordinary Shares held as revenue
assets (including gains derived by a securities dealer) will constitute
business profits under the Treaty and, thus be exempt from Australian tax,
provided that such holder does not carry on business in Australia through a
permanent establishment to which such gains or profits are attributable.
 
  U.S. residents with no taxable capital gains or income 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 New South
Wales on any transfer of shares (or rights to shares) in a company
incorporated in New South Wales. 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 or unencumbered value of the Ordinary Shares.
The availability of exemptions depends upon the particular circumstances of
each transaction.
 
  Where the consideration is not less than the unencumbered value of the
Ordinary Shares, duty will be payable by the person acquiring those shares.
Where the consideration is less than the unencumbered value of the Ordinary
Shares, or there is no consideration, the transferor and transferee are
jointly and severally liable for the stamp duty.
 
  No stamp duty is currently payable in Australia on the transfer of ADSs or
ADRs relating to Ordinary Shares in the Company provided that the transfer
takes place without any written instrument.
 
  The current New South Wales stamp duty legislation will not apply to a
transaction entered into on or after July 1, 1998. On that date, new stamp
duty legislation is due to commence operation. That new legislation imposes
stamp duty upon a dutiable transaction relating to "ADRs", whether or not that
transaction is effected in writing. The term "ADR" is specifically defined in
the new legislation. Durable transactions include a transfer, or an agreement
for the sale or transfer, of "ADRs". It is unclear whether the ADSs or ADRs
the subject of this Form 20-F fall within the definition of "ADR" in the new
stamp duty legislation.
 
  The new stamp duty legislation contains a number of exemptions from ad
valorem duty, including an exemption from duty for certain transfers to
foreign residents of "ADRs" which are listed on a "recognised stock exchange".
NASDAQ is such on exchange. The term "foreign resident" is specifically
defined in the new stamp duty legislation. The availability of any one of the
exemptions from stamp duty depends upon the particular circumstances of each
transaction.
 
GIFT, ESTATE AND INHERITANCE TAXES
 
  There are no specific gift, estate or inheritance taxes in Australia.
However, the transfer by a U.S. resident of Ordinary Shares or ADSs by way of
gift or upon death may have Australian income tax and stamp duty implications.
 
                                      19
<PAGE>
 
ITEM 8. SELECTED FINANCIAL DATA
 
                      SELECTED CONSOLIDATED FINANCIAL DATA
 
<TABLE>   
<CAPTION>
                                                                    SEVEN MONTHS ENDED    TWELVE MONTHS ENDED
                                FISCAL YEAR ENDED JUNE 30,            JANUARY 31, (1)        JANUARY 31,(1)
                          ----------------------------------------  --------------------  ---------------------
                            1993      1994      1995       1996        1996       1997       1997       1998
                          --------- --------- ---------  ---------  ----------  --------  ----------  ---------
                                                                    (UNAUDITED)           (UNAUDITED)
                                                IN THOUSANDS, EXCEPT PER SHARE DATA
<S>                       <C>       <C>       <C>        <C>        <C>         <C>       <C>         <C>
STATEMENT OF OPERATIONS
 DATA:
Net sales...............  A$114,973 A$124,635 A$138,057  A$141,691   A$92,074   A$98,752  A$148,369   A$179,325
Cost of goods sold(2)...     82,630    84,104    92,290     98,158     62,789     67,955    103,324     122,072
                          --------- --------- ---------  ---------   --------   --------  ---------   ---------
Gross profit............     32,343    40,531    45,767     43,533     29,285     30,797     45,045      57,253
Selling, general
 andadministrative ex-
 penses.................     27,992    35,462    40,058     39,339     24,328     25,740     40,751      48,992
Store pre-opening
 costs..................        205       135        64        153        114        200        239         435
Relocation and closure
 costs(3)...............        --        --        --         875        --         461      1,336          20
                          --------- --------- ---------  ---------   --------   --------  ---------   ---------
Operating income........      4,146     4,934     5,645      3,166      4,843      4,396      2,719       7,806
Equity in income of af-
 filiates, net of tax...        412       660       963        836        709        252        379         547
Interest expense........      2,526     1,999     2,230      2,262      1,619      1,593      2,236       3,334
Other expense (in-
 come)(4)...............        --        --        --      (2,303)    (2,303)     1,132      1,132          -
                          --------- --------- ---------  ---------   --------   --------  ---------   ---------
Income (loss) before in-
 come tax...............      2,032     3,595     4,378      4,043      6,236      1,923       (270)      5,019
Income tax expense (ben-
 efit)..................        176     1,278       573         98      1,286        366       (822)      1,488
                          --------- --------- ---------  ---------   --------   --------  ---------   ---------
Net income..............  A$  1,856 A$  2,317 A$  3,805  A$  3,945   A$ 4,950   A$ 1,557  A$    552   A$  3,531
                          --------- --------- ---------  ---------   --------   --------  ---------   ---------
Earnings per share (A$
 per share).............  A$   0.46 A$   0.53 A$   0.86  A$   0.89   A$  1.11   A$  0.38  A$   0.13   A$   1.43
                          ========= ========= =========  =========   ========   ========  =========   =========
Basic earnings per
 share(5)...............
Diluted earnings per
 share(5)...............  A$   0.46 A$   0.53 A$   0.86  A$   0.89   A$  1.11   A$  0.38  A$   0.13   A$   1.18
                          ========= ========= =========  =========   ========   ========  =========   =========
Weighted average shares
 outstanding(5).........      4,047     4,358     4,450      4,450      4,450      4,073      4,228       2,473
                          ========= ========= =========  =========   ========   ========  =========   =========
IN THOUSANDS
BALANCE SHEET DATA:
Working capital.........  A$ 16,600 A$ 25,400 A$ 26,856  A$ 24,710   A$25,139   A$22,552  A$ 22,552   A$ 36,917
Total assets............     55,400    60,538    67,624     66,562     67,544     67,970     67,970      82,074
Total long-term debt....     10,223    16,988    17,690     15,819     11,631     34,276     34,276      18,121
Shareholders' equity....     21,316    24,385    26,326     27,817     30,349     10,165     10,165      43,927
SELECTED U.S. OPERATING
 DATA:
Stores open at period-
 end....................                   17        17         21         19         25         25          34
Average net sales per
 store (in
 thousands)(6)..........            A$  1,389 A$  1,630  A$  1,572   A$   862   A$   822  A$  1,579   A$  1,731
Comparable store sales
 increase(7)............                  --       21.2%      10.0%      10.0%       4.1%       6.5%       18.9%
Selling square feet (in
 thousands).............                 49.3      51.3       59.5       55.7       72.7       70.2        96.6
Sales per selling square
 foot...................            A$    437 A$    519  A$    489   A$   279   A$   251  A$    469   A$    538
SELECTED AUSTRALIAN
 OPERATING DATA:
Stores open at period-
 end....................                   32        31         31         32         32         32          32
Average net sales per
 store (in
 thousands)(6)..........            A$  1,719 A$  1,844  A$  2,081   A$ 1,446   A$ 1,658  A$  2,222   A$  2,411
Comparable store sales
 increase(8)............                  --        4.3%       8.1%       6.0%      10.6%      11.6%        5.0%
Selling square feet (in
 thousands).............                275.3     273.9      279.9      272.3      281.2      276.6       291.2
Sales per selling square
 foot...................            A$    206 A$    216  A$    230   A$   165   A$   182  A$    256   A$    265
</TABLE>    
--------
(1) As of April 9, 1997, the Company changed its fiscal year end from June 30
    to January 31 (effective January 31, 1997).
 
(2) Cost of goods sold includes the cost of merchandise sold during the
    periods, distribution and store-level occupancy costs.
 
                                       20
<PAGE>
 
(3) Includes A$262,000 incurred during the year ended June 30, 1996 in
    connection with the restructuring of the Company's Australian licensing
    division, A$613,000 incurred in June 1996 in connection with the
    relocation of the Company's barbecue manufacturing operations and a
    A$369,000 provision accrued in January 1997 in connection with the planned
    relocation of the Company's enameling facilities.
 
(4) Includes a A$2.3 million gain during the year ended June 30, 1996, related
    to the Company's sale of its equity interest in GLG New Zealand and a
    A$1.1 million charge incurred in December 1996 in connection with the
    Capital Reduction and delisting.
 
(5) Basic earnings per share are computed by dividing net income by the
    weighted average number of ordinary shares. Diluted earnings per share are
    computed by dividing net earnings available to ordinary shareholders, as
    adjusted for the effect of the elimination of after-tax interest expense
    related to assumed conversion of the convertible notes, by the weighted
    average number of Ordinary Shares and dilutive ordinary share equivalents
    for the period.
 
(6) For stores open at beginning of period indicated.
 
(7) The number of comparable stores used to compute such percentages was 17
    for each of fiscal 1995 and 1996, 16 and 19 for the seven-month periods
    ended January 31, 1996 and 1997, respectively, and 19 and 25 for the
    fiscal years ended January 31, 1997 and 1998, respectively.
 
(8) The number of comparable stores used to compute such percentages was 32
    and 31 for fiscal 1995 and 1996, respectively, 31 and 33 for the seven-
    month periods ended January 31, 1996 and 1997, respectively, and 33 and 32
    for the fiscal years ended January 31, 1997 and 1998, respectively.
 
 
  Unaudited Additional Quarterly Consolidated Financial Data. The following
table sets forth, for the periods indicated, certain selected statement of
operations and operating data for each of the Company's last eight fiscal
quarters. The quarterly statement of operations data and selected operating
data set forth below were derived from unaudited financial statements of the
Company, which in the opinion of management of the Company contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation thereof.
 
<TABLE>   
<CAPTION>
                                                       QUARTER ENDED
                          ---------------------------------------------------------------------------
                          APR 30,   JUL 31,   OCT 31,  JAN 31,  APR 30,   JUL 31,   OCT 31,  JAN 31,
                            1996      1996      1996     1997     1997      1997      1997     1998
                          --------  --------  -------- -------- --------  --------  -------- --------
                                            IN THOUSANDS, EXCEPT PER SHARE DATA
<S>                       <C>       <C>       <C>      <C>      <C>       <C>       <C>      <C>
STATEMENT OF OPERATIONS
 DATA
Net sales...............  A$27,653  A$31,967  A$35,255 A$53,494 A$30,366  A$40,028  A$43,539 A$65,392
Cost of goods sold,
warehouse,
distribution and occu-
pancy costs.............    20,207    22,879    24,249   35,989   20,891    27,529    29,815   43,836
                          --------  --------  -------- -------- --------  --------  -------- --------
Gross profit ...........     7,446     9,088    11,006   17,505    9,475    12,499    13,724   21,556
Selling, general and
administrative
expenses................     8,736     9,576    10,088   12,351    9,798    11,930    12,384   14,874
Store pre-opening
 costs..................       --         64        79       96      114        95        37      189
Relocation and closure
 costs..................       --        875       --       461      --        --        --        20
                          --------  --------  -------- -------- --------  --------  -------- --------
Operating income
 (loss).................    (1,290)   (1,427)      839    4,597     (437)      474     1,303    6,473
Equity in income of af-
 filiates...............        80        87       103      109       50       138       153      206
Interest expense........       410       438       678      710      879       881     1,111      463
Other expense (income)..       --        --         36    1,096      --        --        --       --
                          --------  --------  -------- -------- --------  --------  -------- --------
Income (loss) before in-
 come tax...............    (1,620)   (1,778)      228    2,900   (1,266)     (269)      345    6,216
Income tax expense (ben-
 efit)..................      (437)   (1,330)       98      847     (566)      (83)      143    1,996
                          --------  --------  -------- -------- --------  --------  -------- --------
Net income (loss).......  A$ 1,183  A$  (448) A$   130 A$ 2,053 A$  (700) A$  (186) A$   202 A$ 4,220
                          ========  ========  ======== ======== ========  ========  ======== ========
Earnings per share (A$
 per share)
Basic earnings per
share...................  A$  0.27  A$ (0.10) A$  0.03 A$  0.58 A$ (0.38) A$ (0.10) A$  0.11 A$  0.97
                          ========  ========  ======== ======== ========  ========  ======== ========
Diluted earnings per
share...................  A$  0.26  A$ (0.10) A$  0.03 A$  0.52 A$ (0.38) A$ (0.10) A$  0.11 A$  0.96
                          ========  ========  ======== ======== ========  ========  ======== ========
Weighted average shares
 outstanding............     4,450     4,450     4,450    3,569    1,844     1,844     1,844    4,336
                          ========  ========  ======== ======== ========  ========  ======== ========
</TABLE>    
 
 
                                      21
<PAGE>
 
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.
   
  The Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "--Factors That May Affect Quarterly
or Annual Operating Results" contained in "Item 1--Description of Business"
and elsewhere in the Annual Report.     
 
OVERVIEW
 
  Barbeques Galore believes that it is the leading specialty retail chain of
barbecue and barbecue accessory stores in Australia and the United States,
based on number of stores and sales volume. The Company's belief is based on
its years of experience in the barbecue retail industry as well as its
contacts with other industry retailers, suppliers and trade associations. The
Company opened its first store in Sydney, Australia in 1977 and opened its
first U.S. store in Los Angeles in 1980. Barbeques Galore stores carry a wide
assortment of barbecues and related accessories, a comprehensive line of
fireplace products and, in Australia, home heating products, camping equipment
and outdoor furniture. As of January 31, 1998, the Company owned and operated
32 stores in all six states in Australia and 37 stores (including three U.S.
Navy concession stores) in six states in the United States. In addition, as of
such date, there were 46 licensed stores in Australia and seven franchised
stores in the United States, all of which operate under the "Barbeques Galore"
name.
 
  The Company derives its revenue primarily from four categories: Australian
retail, United States retail (including royalties and sales to franchisees),
Australian licensing (including license fees and sales to licensees) and
Australian wholesale. These categories represented 43.1%, 34.4%, 8.9% and
12.9%, respectively, of the Company's net sales for the twelve months ended
January 31, 1998, representing a 9.1%, 52.9%, (3.8)% and 19.6% increase
(decrease) over their respective net sales levels for the twelve months ended
January 31, 1997.
 
  The Company believes the majority of its future growth will result from the
continuing expansion of its U.S. retail business, primarily through the
opening of new stores, and the refurbishment of its Australian store base.
Through its vertically integrated operations, the Company manufactures a
proprietary line of barbecues and home heaters for its retail stores and
licensees as well as other barbecue and home heater products for its wholesale
customers.
 
RESULTS OF OPERATIONS
 
  The following table sets forth consolidated operating results of the Company
as a percentage of net sales:
 
<TABLE>
<CAPTION>
                                       TWELVE         SEVEN        TWELVE
                                       MONTHS        MONTHS        MONTHS
                                     ENDED JUNE    ENDED JAN.    ENDED JAN.
                                         30,           31,           31,
                                     ------------  ------------  ------------
                                     1995   1996   1996   1997   1997   1998
                                     -----  -----  -----  -----  -----  -----
<S>                                  <C>    <C>    <C>    <C>    <C>    <C>
Net Sales........................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, warehouse, dis-
 tribution and occupancy costs......  66.8   69.3   68.2   68.8   69.6   68.1
                                     -----  -----  -----  -----  -----  -----
Gross profit........................  33.2   30.7   31.8   31.2   30.4   31.9
Selling, general and administrative
 expenses...........................  29.0   27.8   26.4   26.1   27.5   27.3
Store pre-opening costs.............   0.0    0.1    0.1    0.2    0.2    0.2
Relocation--closure costs...........   0.0    0.6    0.0    0.5    0.9    0.0
                                     -----  -----  -----  -----  -----  -----
Operating income....................   4.2    2.2    5.3    4.4    1.8    4.4
Equity in income of affiliates, net
 of tax.............................   0.7    0.6    0.8    0.3    0.3    0.3
Interest expense....................   1.6    1.6    1.8    1.6    1.5    1.9
Other expense (income)..............   0.0   (1.6)  (2.5)   1.1    0.8    0.0
                                     -----  -----  -----  -----  -----  -----
Income (loss) before income tax.....   3.3    2.8    6.8    2.0   (0.2)   2.8
Income tax expense (benefit)........   0.4    0.1    1.4    0.4   (0.6)   0.8
                                     -----  -----  -----  -----  -----  -----
Net income (loss)...................   2.9%   2.7%   5.4%   1.6%   0.4%   2.0%
                                     =====  =====  =====  =====  =====  =====
</TABLE>
 
 
                                      22
<PAGE>
 
TWELVE MONTHS ENDED JANUARY 31, 1998 COMPARED TO TWELVE MONTHS ENDED JANUARY
31, 1997 (UNAUDITED)
   
  Net sales increased by approximately A$30.9 million, or 20.9%, to A$179.3
million for the fiscal year ended January 31, 1998 from A$148.4 million for
the twelve months ended January 31, 1997. Eleven new stores were opened in the
United States during the twelve months ended January 31, 1998 of which eight
were in existing markets, including one franchise store in Atlanta, and the
remaining three in San Antonio, Texas, Mandarin, Florida and Pearl Harbor,
Hawaii (a U.S. Navy concession store). In Australia, one new store was opened
and four refurbished or relocated. Comparable store sales increased 13% and
contributed A$13.1 million to the increase in net sales. Comparable store
sales increased 18.9% in the United States and 5.0% in Australia. Increased
sales also resulted from stores not forming part of the comparative store
sales, including new stores opened in the U.S. in the previous twelve months.
The balance of the increased sales was primarily attributable to an A$3.8
million increase in Australian wholesale sales, mainly to mass merchandisers.
       
  Gross profit increased approximately A$12.3 million, or 27.1%, to A$57.3
million for the fiscal year ended January 31, 1998 from A$45.0 million for the
twelve months ended January 31, 1997. Gross margin (gross profit as a
percentage of sales) increased to 31.9% during the fiscal year ended January
31, 1998 from 30.4% during the comparable period in 1997. The increase in
gross margin was primarily due to production efficiencies gained in the
Australian manufacturing operation. The increase was partially offset by a
reduction in gross margin in the United States as a result mainly of a change
in product mix and newer stores with a typically lower gross margin in their
first year of operation and additional distribution costs incurred to support
the store expansion program.     
   
  Selling, general and administrative expenses (which exclude store pre-
opening expenses) increased approximately A$8.2 million, or 20.2%, to A$49.0
million for the fiscal year ended January 31, 1998 from A$40.8 million for the
twelve months ended January 31, 1997. As a percentage of net sales, selling,
general and administrative expenses decreased to 27.3% during the twelve
months ended January 31, 1998 from 27.5% during the comparable period in 1997.
    
  Store pre-opening expenses increased A$196,000 to A$435,000 due to three
more company-owned stores opening in the fiscal year ended January 31, 1998
than in the comparable period in 1997.
 
  Relocation and closure costs decreased by $1.3 million to A$20,000 for the
fiscal year ended January 31, 1998. These costs mainly relate to the
restructuring of the Licensee and Wholesale Divisions and the relocation of
manufacturing operations.
 
  Operating income (excluding relocation and closure costs) increased by A$3.8
million to A$7.8 million for the fiscal year ended January 31, 1998 from A$4.1
million for the twelve months ended January 31, 1997. As a percentage of net
sales, operating income (excluding relocation and closure costs) increased to
4.4% in the fiscal year ended January 31, 1998 from 2.7% in the comparable
period in 1997.
   
  Income from affiliates increased by A$168,000 to A$547,000 in the fiscal
year ended January 31, 1998 from A$379,000 in the twelve months ended January
31, 1997. This increase resulted mainly from an increase in profitability of
the Company's Taiwanese affiliate.     
   
  Interest expense increased by A$1.1 million to A$3.3 million in the twelve
months ended January 31, 1998 from A$2.2 million in the twelve months ended
January 31, 1997. The increase resulted from the interest at 10.25% per annum
payable on convertible notes of A$10.0 million that were issued on December
31, 1996 and converted to Ordinary Shares concurrent with the Offering on
November 7, 1997.     
   
  The Company's effective tax rate was 29.6% in the twelve months ended
January 31, 1998 and 304.4% during the comparable period in 1997 due,
primarily, to a reduction in the valuation allowance in relation to the net
deferred tax asset of the United States operation. The valuation allowance was
fully written back during the twelve months ended January 31, 1997, as the
Company believed it would recoup the benefit of the tax losses and temporary
differences which gave rise to the net deferred tax asset.     
 
                                      23
<PAGE>
 
SEVEN MONTHS ENDED JANUARY 31, 1997 COMPARED TO SEVEN MONTHS ENDED JANUARY 31,
1996 (UNAUDITED)
 
  Net sales increased approximately A$6.7 million, or 7.3%, to A$98.8 million
for the seven months ended January 31, 1997, from A$92.1 million for the seven
months ended January 31, 1996. Four new stores were opened in the United
States and one new store was opened in Australia during the seven months ended
January 31, 1997, contributing approximately A$941,000 and A$610,000,
respectively, to the increase in net sales. In addition, refurbishment was
completed on two stores in Australia during the same period with these stores
adding a further A$1.1 million to the increase in net sales. Comparable store
sales increased 7.2% and contributed A$4.3 million of the increase in net
sales for the seven months ended January 31, 1997. Comparable store sales
increased 4.1% in the United States and 10.6% in Australia. A generally poor
U.S. retail environment during the 1996 Olympic season impacted U.S.
comparable store sales. The remaining portion of the increase in sales was
attributable to sales resulting from two new stores opened in the United
States in the preceding two quarters, a one-time close-out sale of wood
heaters to Australian licensees and an increase in barbecue sales to
Australian licensees. This increase in sales was partially offset by the loss
of a major Australian wholesale customer and the Company's decision to
discontinue third party enameling work.
 
  Gross profit increased approximately A$1.5 million, or 5.2%, to A$30.8
million for the seven months ended January 31, 1997 from A$29.3 million for
the seven months ended January 31, 1996. Gross margin decreased to 31.2%
during the seven months ended January 31, 1997 from 31.8% during the
comparable period in 1996. The decrease in gross margin was primarily due to
the Company's pursuit of increased market share in the high-volume, low-margin
end of the Australian barbecue market. In addition, sales by new U.S. stores
include a large portion of lower-margin sales during initial periods of
operation. This, combined with increased freight costs for new stores located
outside of California, also contributed to the decrease in gross margin.
 
  Selling, general and administrative expenses increased approximately A$1.4
million, or 5.8%, to A$25.7 million for the seven months ended January 31,
1997 from A$24.3 million for the seven months ended January 31, 1996. As a
percentage of net sales, selling, general and administrative expenses
decreased to 26.1% for the seven months ended January 31, 1997 from 26.4% for
the seven months ended January 31, 1996. The decrease was primarily due to
improved operating leverage in the Australian store base and cost savings in
the Australian licensee and wholesale divisions brought about by the
restructuring of the licensee division. This decrease was partially offset by
increased infrastructure spending in the United States related to Company
expansion.
 
  Store pre-opening expenses increased A$86,000 to A$200,000 for the seven
months ended January 31, 1997 from A$114,000 for the seven months ended
January 31, 1996, primarily due to the opening of four new stores in the
United States.
 
  Relocation and closure costs increased to A$461,000 for the seven months
ended January 31, 1997 from A$0 for the seven months ended January 31, 1996 in
connection with the organizational restructuring of the licensee and wholesale
divisions and the provision for certain costs for the planned relocation of
its enameling plant in 1998.
 
  Operating income (excluding relocation and closure costs) increased by
A$14,000 to A$4,857,000 for the seven months ended January 31, 1997 from
A$4,843,000 for the seven months ended January 31, 1996. As a percentage of
net sales, operating income (excluding relocation and closure costs) decreased
to 4.9% in the seven months ended January 31, 1997 from 5.3% in the comparable
period in 1996.
 
  Income from affiliates decreased by A$457,000 to A$252,000 in the seven
months ended January 31, 1997 from A$709,000 in the seven months ended January
31, 1996. This decrease resulted from the Company's sale of its equity
interest in its New Zealand affiliate in December 1995.
 
  Interest expense remained constant at approximately A$1.6 million for the
seven months ended January 31, 1997 and the seven months ended January 31,
1996.
 
                                      24
<PAGE>
 
  Other expense (income) increased to an expense of A$1.1 million for the
seven months ended January 31, 1997 from income of A$2.3 million for the seven
months ended January 31, 1996. In the 1997 period, the Company incurred
expenses of approximately A$1.1 million related to the Capital Reduction,
while in the 1996 period, the Company recognized a gain of A$2.3 million from
the sale of its equity interest in its New Zealand affiliate, as described
above.
 
  The Company's effective tax rate was 19.0% in the seven months ended January
31, 1997 and 20.6% in the seven months ended January 31, 1996. The difference
in rates compared to the expected rate of 36% is a result of the exclusion
from Australian taxation of equity in income from affiliates, the gain on sale
of its equity in a New Zealand affiliate and a reduction in the valuation
allowance in relation to the net deferred tax asset of the United States
operation. The valuation allowance was fully written back in the seven months
ended January 31, 1997 as the Company believed that it would recoup the
benefit of the tax losses and temporary differences which gave rise to the net
deferred tax asset. Excluding the effect of these items, the effective tax
rate would have been 43.9% in the seven months ended January 31, 1997 and
37.1% in the seven months ended January 31, 1996. The difference is mainly
attributable to increased state taxes in the United States for the seven
months ended January 31, 1997.
 
TWELVE MONTHS ENDED JUNE 30, 1996 COMPARED TO TWELVE MONTHS ENDED JUNE 30,
1995
 
  Net sales increased approximately A$3.6 million, or 2.6%, to A$141.7 million
for the fiscal year ended June 30, 1996 from A$138.1 million for the fiscal
year ended June 30, 1995. Comparable store sales increased 5.0% and
contributed approximately A$4.1 million of the increase in net sales for the
1996 fiscal year. Comparable store sales increased 10.0% in the United States
and 8.1% in Australia. The combined comparable store sales increase was
impacted by a decrease in the US$/A$ exchange rate of approximately 13.0% in
that period. Sales during fiscal 1996 also increased as a result of the
opening of four new Company-owned stores and two franchised stores in the
United States, the opening of one new store in Australia and increases in
other stores not included in the comparable store calculation. The combined
sales increases were partially offset by decreases in the Australian licensee
and wholesale divisions, primarily due to the declining wood heating market
and overall softness in the Australian rural economy.
 
  Gross profit decreased approximately A$2.3 million, or 4.9%, to A$43.5
million for fiscal 1996 from A$45.8 million for fiscal 1995. As a percentage
of net sales, gross margin decreased to 30.7% during fiscal 1996 from 33.2%
during fiscal 1995. The decrease in gross margin in the 1996 period was
primarily due to an increase in the cost of the Company's manufactured
products as a result of the factory relocation, the one-time close-out sales
of the Company's wood heating inventory and general pressure on margins in the
Australian retail sector. In the United States, gross margin increased as a
result of a change in sales mix towards higher margin proprietary products.
 
  Selling, general and administrative expenses decreased approximately
A$719,000, or 1.8%, to A$39.3 million for fiscal 1996 from A$40.1 million for
fiscal 1995. As a percentage of net sales, selling, general and administrative
expenses decreased to 27.8% during fiscal 1996 from 29.0% during fiscal 1995.
The decrease was primarily due to increased operating leverage in its
Australian store base resulting from store refurbishment and the restructuring
of the Australian licensee division. This decrease was partially offset by
infrastructure spending related to the opening of five new U.S. stores,
including new hiring and staff training expenses.
 
  Store pre-opening expenses increased A$89,000 to A$153,000 during fiscal
1996 from A$64,000 for fiscal 1995, primarily due to the opening of four new
stores in the United States.
 
  Relocation and closure costs increased to A$875,000 for fiscal 1996 from A$0
for fiscal 1995, primarily due to the relocation of the Company's
manufacturing operation and the restructuring of the Company's Australian
licensing division.
 
                                      25
<PAGE>
 
  Operating income (excluding relocation and closure costs) decreased A$1.6
million to A$4.0 million for fiscal 1996 from A$5.6 million for fiscal 1995.
As a percentage of net sales, operating income (excluding relocation and
closure costs) decreased to 2.8% in fiscal 1996 from 4.2% in fiscal 1995.
Approximately A$2.3 million of the decrease was due to an increase in the cost
of the Company's manufactured products following the factory relocation, the
one-time close-out sales of the Company's wood heating inventory and general
pressure on margins in the Australian retail sector. This decrease in gross
profits was partially offset by a decrease in selling, general and
administrative expenses of approximately A$719,000.
 
  Income from affiliates decreased A$127,000 to A$836,000 in fiscal 1996 from
A$963,000 in fiscal 1995, due to the loss of income from the GLG New Zealand
after the Company sold its equity interest therein in December 1995.
 
  Interest expense increased by A$32,000 to A$2,262,000 in fiscal 1996 from
A$2,230,000 in fiscal 1995.
 
  Other income increased to A$2.3 million in fiscal 1996 from A$0 in fiscal
1995, due to the gain on the sale of the Company's New Zealand affiliate.
 
  The Company's effective tax rate was 2.4% in fiscal 1996 and 13.1% in fiscal
1995. The difference in rates is primarily the result of the exclusion from
Australian taxation of both equity in income from affiliates and gain on the
sale of its New Zealand affiliate, as well as a reduction in the valuation
allowance for deferred tax assets due to the realization of net operating loss
carryforwards against U.S. taxes. Excluding these items, the effective tax
rate would have been 46.8% for the year ended June 30, 1996 and 31.2% for the
year ended June 30, 1995.
 
LIQUIDITY AND CAPITAL RESOURCES
 
  The Company has historically financed its operations through cash flow from
operations and bank borrowings. In November 1997, the Company completed the
Offering, raising net proceeds of approximately US$13.8 million (approximately
A$19.7 million). These funds have been used as set forth in this Annual Report
in the section titled "Item 16-Changes in Securities, Changes in Security for
Registered Securities and Use of Proceeds."
   
  In July 1994, the Company and ANZ entered into a credit facility (the "ANZ
Facility") by and between the Company and the Australian and New Zealand
Banking Group Limited ("ANZ"). The ANZ Facility is subject to annual review
and modification, in accordance with standard Australian practice, and is
currently undergoing modification as a consequence of changes in the Company
resulting from the Offering in the United States. The Company expects that its
new credit facility with ANZ will be finalized in June 1998. Under the ANZ
Facility, as in effect immediately prior to the Offering, the Company and its
subsidiaries had credit facilities aggregating up to A$53.7 million, including
a real property loan in principal amount of A$2.2 million, a multi-purpose
facility in principal amount of A$30.0 million, and a trade finance facility
in principal amount of A$10.0 million. Indebtedness under the property loan
bore interest at 9.35% per annum and was subject to a variable prepayment
penalty depending on the term of the loan. The Company also utilized a standby
credit facility in principal amount of A$12.0 million in order to fund a
capital reduction transaction, all of such standby credit facility having been
repaid upon consummation of the Offering in November 1997. The majority of the
remainder of the Company's borrowings under the ANZ Facility were usually in
the form of 90- to 180-day bills, which typically bore interest at a market
rate plus an additional percentage fee to ANZ of approximately 1.25%. No
significant prepayment penalties were associated with these loans. The ANZ
Facility was secured by a first security interest in all present and future
assets of the Company located in Australia and a second security interest
being taken (subordinate to a lien under the Merrill Lynch Facility) in all
assets of the Company located in the United States. In addition, the ANZ
Facility was guaranteed by each subsidiary of the Company, including The
Galore Group (USA), Inc. ("Galore USA"). Although the Company generally
maintains a good working relationship with ANZ, the Company can provide no
assurance that the terms of the revised ANZ Facility will be as favorable to
the Company as the terms of the ANZ Facility in place immediately prior to the
consummation of the Offering.     
 
                                      26
<PAGE>
 
   
  In February 1995, Barbeques Galore Inc., the Company's U.S. operating
subsidiary, entered into a five year credit facility with Merrill Lynch
Business Financial Services ("Merrill Lynch"). As currently in effect, such
facility includes a term loan in aggregate principal amount of US$600,000 (the
"Term Loan") and a revolving line of credit in aggregate principal amount of
US$1,250,000 (the "Revolving Line," and collectively with the Term Loan, the
"Merrill Lynch Facility"). Indebtedness under the Revolving Line and Term Loan
accrues interest at the 30-day commercial paper rates plus 2.65% or 2.70%,
respectively, and is payable monthly. The Merrill Lynch Facility is secured by
a first security interest in all Galore USA present and future assets. The
Merrill Lynch Facility is guaranteed by the Company and Galore USA, the parent
of Barbeques Galore, Inc.     
   
  In October 1996, the Company, SBC Warburg Dillon Read Australia Limited
("SBC Warburg Australia"), as representative of the holders of convertible
notes of the Company, and certain principal shareholders of the Company
entered into certain debt instruments, pursuant to which the Company issued
and sold A$10.0 million in aggregate principal amount of convertible notes
(the "Convertible Notes" or "Notes") in December 1996. All of the Convertible
Notes were converted into 1,197,926 Ordinary Shares of the Company in
connection with the consummation of the Offering in the United States in
November 1997. Certain holders of Ordinary Shares acquired upon conversion of
the Convertible Notes were Selling Shareholders in the Offering, selling an
aggregate of 200,000 Ordinary Shares acquired upon conversion of the
Convertible Notes. The remainder of the Ordinary Shares received upon such
conversion are subject to certain registration rights under which the holders
may require the Company to register such Ordinary Shares.     
   
  For the fiscal year ended January 31, 1998, the seven months ended January
31, 1997 and the twelve-month period ended June 30, 1996, cash flow (used in)
provided by operating activities was A$(1.1) million, A$7.2 million and A$4.6
million, respectively. The cash used by operations primarily reflects the
increase in inventory levels related to the Company's pre-season build-up of
inventories in Australia and the increased number of stores in the United
States.     
   
  Net cash flows used in investing activities for the fiscal year ended
January 31, 1998, the seven months ended January 31, 1997, and the twelve-
month period ended June 30, 1996 were A$4.5 million, A$2.8 million and A$0.06
million, respectively. The cash flows used in investing activities have
resulted primarily from capital expenditures related to new store openings in
the United States and store refurbishments in Australia. The Company
anticipates that it will continue to incur significant capital commitments in
connection with further expansion.     
 
  The cash flows used in operations and investing activities have been largely
sourced from long term borrowings under the ANZ and Merrill Lynch facilities
and from the net proceeds from the Offering.
 
  At January 31, 1998 the Company had working capital of A$36.9 million. At
January 31, 1998 the Company maintained minimal amounts in cash and cash
equivalents, relying instead on undrawn facilities under its borrowing
arrangements with ANZ and Merrill Lynch. As a consequence of the Offering, the
Company is currently finalizing its funding and lines of credit arrangements
with ANZ.
 
  The Company believes the proceeds raised from the Offering and the remaining
ANZ and Merrill Lynch facilities are sufficient to meet its presently
anticipated working capital and capital expenditure requirements for at least
the next twelve months.
 
NEW PRONOUNCEMENTS BY FINANCIAL ACCOUNTING STANDARDS BOARD
 
  In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS No. 130 is effective for financial statements issued for
periods beginning after December 15, 1997.
 
                                      27
<PAGE>
 
  In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS No. 131 is
effective for financial statements issued for periods beginning after December
15, 1997.
 
  The impact of these new pronouncements will be to increase the level of
disclosure in subsequent financial statements.
 
UNAUDITED QUARTERLY RESULTS AND SEASONALITY
 
  The Company's quarterly results of operations have fluctuated, and are
expected to continue to fluctuate materially, primarily because of the
seasonality associated with the barbecue and fireplace industries and related
item sales. The timing of new store openings and related pre-opening and other
startup expenses, net sales contributed by new stores, increases or decreases
in comparable store sales, changes in the Company's merchandise mix and
overall economic conditions also contribute to fluctuations in the Company's
quarterly results. The Company believes this is the general pattern associated
with its segment of the retail industry and expects this pattern will continue
in the future. The Company operates in both the Southern and Northern
hemispheres, in order to partially offset the effects of seasonality, and
offers fireplace products and (in Australia) home heaters in the fall and
winter months. In anticipation of its peak selling season, the Company
substantially increases its inventory levels and hires a significant number of
part-time and temporary employees. In non-peak periods, such as late winter
and early fall, the Company has regularly experienced monthly losses. Because
of these fluctuations in net sales and net income (loss), the results of
operations of any quarter are not necessarily indicative of the results that
may be achieved for a full fiscal year or any future quarter. See "Item 1--
Business--Factors That May Affect Quarterly or Annual Operating Results."
       
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
  Not applicable for the fiscal year ended January 31, 1998.
 
                                      28
<PAGE>
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
  The executive officers, directors and key employees of the Company are as
follows:
 
<TABLE>
<CAPTION>
          NAME            AGE                           POSITION
          ----            ---                           --------
<S>                       <C> <C>
DIRECTORS AND EXECUTIVE
 OFFICERS OF THE COMPANY
Sam Linz................   58 Chairman of the Board
Robert Gavshon(1).......   50 Deputy Chairman of the Board and General Counsel
John Price..............   48 Head of Research and Product Development and Director
Sydney Selati...........   59 President-Galore USA and Director
Philip Gardiner(1)(2)...   51 Director
Gordon Howlett(1)(2)....   56 Director
David Glaser............   49 Company Secretary
David James.............   37 Chief Financial Officer
Kevin Ralphs............   44 Chief Financial Officer--Galore USA

KEY EMPLOYEES--AUSTRALIA
William Lyons...........   56 Managing Director of Manufacturing--Park-Tec
                              Engineering Pty Limited and Australian Enamellers Pty Limited
Ian Redmile.............   46 General Manager-Pricotech Leisure Brands Pty Limited
Peter Spring............   39 General Manager of Retail/Licensees--Barbeques Galore
                              Australia Pty Limited
Gary Whitehouse.........   48 General Manager of Logistics

KEY EMPLOYEES--UNITED
 STATES
L.D. "Chip" Brown.......   37 Chief Operating Officer--Galore USA
Michael Varley..........   50 Vice President of Purchasing, Distribution and Product
                              Development
Austin Yeh..............   50 Vice President and Director of Operations
</TABLE>
--------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
 
  SAM LINZ has served as Chairman of the Board since joining the Company 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 was a major
shareholder until he sold his interest in July 1997. Prior to joining the
Company, 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 31
years of experience in the retail industry.
 
  ROBERT GAVSHON joined the Company 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. Mr. Gavshon was
one of the founders of Rebel and was a shareholder until he sold his interest
in July 1997. Prior to joining the Company, 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 16 years of experience in the
retail industry.
 
  JOHN PRICE joined the Company in 1981 as General Manager of Wholesale and
has served as Head of Research and Product Development since June 1989, and as
Director of the Company since November 1989. Prior to joining the Company, Mr.
Price helped found and was Managing Director of Cook-On-Gas Products Pty
Limited, a developer and manufacturer of consumer gas products which was
acquired by the Company in 1981. Mr. Price has over 25 years of experience in
the development and marketing of consumer gas products.
 
                                      29
<PAGE>
 
  SYDNEY SELATI has served as Director of the Company since July 1997 and
President of Galore USA 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 31 years of
experience in the retail industry.
 
  PHILIP GARDINER has served as a non-executive Director of the Company since
April 1987. Mr. Gardiner also serves as a director for several other
Australian companies related to agriculture and mining and has, since 1994,
been a Member and Chairman of the Western Australian Ministers for Primary
Industry and Fisheries Wool Strategy Group (a state-government-appointed
position). In addition, from 1979 to 1994, Mr. Gardiner served both as an
executive and non-executive director for Macquarie Bank Limited, a prominent
Australian banking institution. Currently, Mr. Gardiner is the full-time
manager of his farm in Western Australia.
 
  GORDON HOWLETT has served as a non-executive Director of the Company since
August 1991. Since April 1997, Mr. Howlett has served as Managing Director of
Adshel Street Furniture Pty Ltd., specializing in advertising-related outdoor
furniture such as bus shelters. Prior to that, from March 1994 to February
1997, Mr. Howlett served as the Executive General Manager of national and
international operations at Qantas Airways Limited. From 1981 to 1994, Mr.
Howlett was Managing Director of Avis Australia and Vice President of Avis
throughout the Asia-Pacific region.
 
  DAVID GLASER has served as Company Secretary since March 1994. Mr. Glaser
has also provided retail management accounting services for the retail
subsidiary of the Company from February 1996 to April 1998 and, from July 1988
to February 1994, was the financial administrator to certain other of the
Company's subsidiaries. Prior to joining the Company, Mr. Glaser was a partner
at Arthur Andersen in South Africa. Mr. Glaser has extensive commercial
experience in retail, manufacturing and service industries both locally and
overseas.
 
  DAVID JAMES joined the Company in January 1992, serving the Company in
several group financial roles, ultimately as General Manager-Finance &
Administration until his departure in September 1996. From September 1996 to
July 1997, Mr. James was employed by HMV Australia Pty Ltd., a subsidiary of
EMI plc, as Finance Director. He rejoined the Company in July 1997 as Chief
Financial Officer of the Company. Prior to 1992, Mr. James served as a Senior
Audit Manager for KPMG in Australia.
 
  KEVIN RALPHS has served as Chief Financial Officer of Galore USA since
February 1989. From May 1988 to February 1989, Mr. Ralphs served as Controller
of Galore USA. Mr. Ralphs has also served as controller for American Digital
Products, Inc., a distributor of computer peripherals in the Northeast United
States, treasurer for Hosken Intermediaries, Inc., a New York reinsurance
brokerage firm, and financial manager for Royal Beech-Nut (Pty) Ltd., a
foreign subsidiary of Nabisco.
 
  WILLIAM LYONS has served as Managing Director of Manufacturing for Park-Tec
Engineering Pty Limited, an operating subsidiary of the Company since
September 1987. Prior to joining the Company, Mr. Lyons served as the Manager
of Quintrex Marine, a division of Alcan, and as the Manager of Vass Electrical
Engineering. Prior to managing Quintrex Marine and Vass Electrical
Engineering, Mr. Lyons was involved in Design, Production and Factory
Management of Cope Allman for 17 years.
 
  IAN REDMILE joined the Company in August 1992 as a State Manager for an
Australian state and has served as General Manager of Pricotech, the Company's
wholesaling subsidiary, since February 1997. Prior to joining the Company, Mr.
Redmile has served as Key Account/Sales Manager for Unilever Australia for
12 years.
 
  PETER SPRING has served as General Manager of Retail/Licensees for Barbeques
Galore Australian Pty Limited, an operating subsidiary of the Company since
October 1995. Prior to that, Mr. Spring served as General Manager of the
Operations of Pricotech and has served the Company since its inception in
1977.
 
 
                                      30
<PAGE>
 
  GARY WHITEHOUSE joined the Company in May 1990 as National Warehouse Manager
and has served as General Manager of Logistics for the Company since July
1996. Prior to joining the Company, Mr. Whitehouse served as Financial Systems
Accountant for Qantas Airways. Prior to that, Mr. Whitehouse held managerial
positions, including commercial manager, state branch manager and
warehousing/distribution manager.
 
  L.D. "CHIP" BROWN joined the Company in August 1997 as Chief Operating
Officer of Galore USA. Prior to joining the Company, from September 1993 to
July 1997, Mr. Brown served in a variety of operations including retail and
technology-related positions at PepsiCo, Inc., in the capacities of Senior
Director/Product Manager from November 1995 to July 1997, Process Team Leader
from March 1995 to November 1995 and Market Manager from September 1993 to
March 1995. Mr. Brown was a Division President with DeLoitte & Touche from
1991 to July 1993 and, prior to that, held a variety of positions at Ford
Motor Company and General Electric Company.
 
  MICHAEL VARLEY joined the Company 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, Distribution and Product Development since May 1994.
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.
 
  AUSTIN YEH has served as Vice President and Director of Operations for
Galore USA since May 1994. Prior to joining Galore USA, Mr. Yeh served for 15
years as Director of Operations for C&R Clothiers, a major menswear retailer.
 
  At least one-third of the Board of Directors of the Company 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. The Board of
Directors has a Compensation Committee comprised of Messrs. Gardiner and
Howlett that reviews and makes recommendations for remuneration packages for
executive directors and senior executives, and an Audit Committee presently
comprised of Messrs. Gardiner, Gavshon and Howlett that advises on the
establishment and maintenance of internal controls and ethical standards as
well as on the quality and reliability of financial information provided by
the Company's independent auditors.
 
  The Company is currently reviewing candidates for an additional independent
director, residing in the United States. When such new director is designated,
he or she may serve on the Audit Committee, and may replace one of the current
members of the Audit Committee.
 
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
 
  The aggregate annual compensation, including bonuses under the incentive
program described below, paid by the Company to all directors and executive
officers of the Company (nine persons) as a group for services (i) for the
twelve-month period ended June 30, 1996 was A$1,258,896, (ii) for the twelve-
month period ended January 31, 1997 was A$1,277,085 and (iii) for the twelve-
month period ended January 31, 1998 was A$1,462,568. However, this aggregate
compensation amount does not include any stock options granted to such
individuals as more fully described below in the section titled "Item 12--
Options to Purchase Securities".
 
  The total amount set aside by the Company and its subsidiaries to provide
superannuation benefits for such officers and directors for the twelve-month
period ended January 31, 1998 was A$92,125.
 
  On February 1, 1997, the Company instituted an incentive program whereby
certain executives will receive a bonus if certain budget objectives are
attained during fiscal year 1998. Under this program, Mr. Linz, Mr. Gavshon,
Mr. Price, and Mr. James will each receive a bonus of 20%, and Mr. Selati, Mr.
Lyons, Mr. Spring, Mr. Redmile and Mr. Whitehouse will each receive a bonus of
10%, of their respective base salaries if the Company achieves its budgeted
pre-tax profit before trading contingencies for the fiscal year ended January
31, 1998. Mr. Selati, Mr. Lyons, Mr. Spring and Mr. Redmile will each receive
an additional bonus of 10% of his
 
                                      31
<PAGE>
 
base salary if his division achieves its budgeted operating contribution,
regardless of whether or not the Company's budget is achieved. Additionally,
Mr. Whitehouse will receive a bonus of 10% of his base salary if the Company's
inventory level budget for fiscal 1998 is attained.
 
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
 
  As of April 20, 1998, there were outstanding options to purchase a total of
402,438 Ordinary Shares granted by the Company, of which 221,038 were held by
directors and officers of the Company. These outstanding options were granted
under both the Company's Executive Share Option Plan and the 1997 Share Option
Plan. There were no other warrants or rights to purchase the Company's
Ordinary Shares outstanding as of April 20, 1998. The following table sets
forth information concerning outstanding options as of April 20, 1998:
 
<TABLE>   
<CAPTION>
                                  NUMBER OF
                               ORDINARY SHARES   PRICE PER         OPTION
                                UNDER OPTION   ORDINARY SHARE EXPIRATION DATE
                               --------------- -------------- ----------------
<S>                            <C>             <C>            <C>
Executive Share Option
 Plan(1)......................     203,038        A$  8.38    February 1, 2002
1997 Share Option Plan(2).....     199,400        US$11.00    November 6, 2002
Directors and Officers as a
 Group(3).....................     221,038             --            --
</TABLE>    
--------
(1) Options under the Executive Share Option Plan will generally expire on the
    earlier of the Expiration Date or thirty days after the cessation of
    employment of the optionee or the executive controlling the optionee if
    the optionee is an entity (an "Entity Optionee"). For more information,
    see the "Executive Share Option Plan" description below.
(2) Options under the 1997 Share Option 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.
   
(3) Directors and Officers as a group received options under both the
    company's Executive Share Option Plan and the 1997 Share Option Plan. For
    more information on these plans, please see the "Executive Share Option
    Plan" and the "1997 Share Option Plan" descriptions below.     
 
EXECUTIVE SHARE OPTION PLAN
 
  On January 31, 1997, the Company adopted the Executive Share Option Plan
(the "Executive Plan"). Under the Executive Plan, a total of 203,038 Ordinary
Shares were reserved for issuance. On January 31, 1997, the Board granted
stock options comprising the entire share reserve under the Executive Plan.
Each such stock option has an exercise price of A$8.38 per Ordinary Share. The
Executive Plan terminated on December 31, 1997. Accordingly, no additional
stock options will be granted under the Executive Share Option Plan. However,
all options granted prior to the termination date of the Executive Plan are
subject to the terms and conditions of the documents evidencing each such
option.
 
  All stock options granted under the Executive Plan will become exercisable
on February 1, 1999. The stock options will generally lapse thirty days after
the cessation of the employment of the optionee (or Entity Optionee), whether
or not exercisable. In addition, the stock options will automatically lapse
(i) if the optionee or Entity Optionee transfers, assigns, or encumbers any
right or interest in the options without the Company's consent (except for a
one-time exemption for a transfer by a director or Entity Optionee controlled
by a director to an employee of the Company or its related entities) or (ii)
for Entity Optionees, if the Entity Optionee ceases to be controlled by the
employee or director of the Company who controlled the Entity Optionee on the
date of grant. Each stock option will terminate five years after the grant
date (the "Expiration Date"), if such options do not lapse or are not
exercised prior to the Expiration Date. The stock options will automatically
accelerate and become immediately exercisable, for the thirty days prior to
their lapse, in the event the optionee (or executive controlling the Entity
Optionee) ceases to be employed by the Company or a related entity due to
death, permanent disability or ill health. In addition, the Board, in its sole
discretion, may accelerate any outstanding stock option or extend the period
until lapse, even if expired (but in no event to a date later than the
 
                                      32
<PAGE>
 
Expiration Date), upon any other event terminating the employment of the
optionee or the executive controlling the Entity Optionee. In the event the
Company is subject to a takeover bid pursuant to which the offeror acquires at
least thirty percent of the outstanding Ordinary Shares of the Company, the
Board may accelerate stock options outstanding at that time for a period of up
to 120 days measured from the date the Board notifies the optionee of the
takeover bid. Any stock option exercised under the Executive Plan must be for
a minimum of twenty percent of the stock options included in the relevant
grant.
 
  In the event of changes to the Company's capital structure, appropriate
adjustments will be made to the stock option exercise price and the number of
shares subject to each outstanding stock option.
 
1997 SHARE OPTION PLAN
 
  The Company's 1997 Share Option Plan (the "1997 Plan") was adopted by the
Board of Directors on October 1, 1997, and was approved by the shareholders as
of October 7, 1997. A total of 329,254 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 31st of the immediately preceding calendar
year. In no event may any one participant in the 1997 Plan receive stock
option grants for more than 27,438 Ordinary Shares per calendar year.
 
  The 1997 Plan consists of the Option Grant Program, under which eligible
individuals in the Company's employ or service (including officers and other
employees, non-employee Board members, consultants and other independent
advisors of the Company, or any parent or subsidiary) 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.
 
  The 1997 Plan will be administered by the Compensation Committee. The Plan
Administrator will have 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 in
three equal annual installments measured from the option grant date. The
exercise price for options granted under the 1997 Plan may be paid in cash or
in Ordinary Shares valued at fair market value on the exercise date. The
Company is in the process of establishing a procedure pursuant to which
options under the 1997 Plan may be exercised through a same-day sale program
without any cash outlay by the optionee. In addition, the Plan Administrator
may provide financial assistance to one or more optionees in the exercise of
their outstanding stock options by allowing such individuals to deliver a
full-recourse, interest-bearing promissory note in payment of the exercise
price and any associated withholding taxes incurred in connection with such
exercise.
 
  In the event that the Company is acquired by merger or 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 of the
Company, 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
 
                                      33
<PAGE>
 
the effective date of the involuntary termination. The Plan Administrator has
the authority to effect, with the consent of the affected option holders, the
cancellation 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 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.
       
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
 
DELISTING TRANSACTION AND NOTE CONVERSION
   
  In December 1996, the Company delisted from the ASE after repurchasing
Ordinary Shares pursuant to a "Capital Reduction" program for a total
consideration of A$20.1 million, exclusive of transaction costs, financed
through the issuance and sale of A$10.0 million in aggregate principal amount
of Convertible Notes and the borrowing of A$11.2 million under the ANZ
Facility. In connection with the Offering, the Company converted all of the
Notes into 1,197,926 Ordinary Shares, 200,000 of which were sold in the
Offering by the holders thereof. Certain holders of the Notes, including
Fagume Pty Ltd., an affiliate of Gordon Howlett, a director of the Company,
National Australia Trustees Ltd., on behalf of Philip Gardiner, a director of
the Company, Michael Varley, Don and Mary McLeod, employees (and family) of
the Company, Sarah Gavshon, the mother of Robert Gavshon, a director and
executive officer of the Company, and Mildred Pogorelsky, the mother-in-law of
Sam Linz, a director and executive officer of the Company, received Ordinary
Shares pursuant to such conversion on the same terms as all other Noteholders.
Upon conversion of the Notes, all debt instruments relating to the Notes by
and among the Company, SBC Warburg Australia, as representative of the holders
of the Notes, and Sam Linz, Robert Gavshon, Sydney Selati, John Price and
affiliates of such individuals were terminated.     
 
  SBC Warburg Australia, a financial advisor to a group of shareholders
holding, in the aggregate, more than five percent of the outstanding Ordinary
Shares of the Company, received underwriting and advising fees of A$750,000 in
connection with the Offering and a one-time fee of A$15,000 in connection with
the original issuance of the Notes.
 
  In connection with the issuance and sale of the Notes, the Company granted
stock options to purchase up to an aggregate of 203,038 Ordinary Shares under
the Executive Share Option Plan to Messrs. Sam Linz, Robert Gavshon, Sydney
Selati and John Price, who are directors and executive officers of the Company
and to David James and Kevin Ralphs who are executive officers of the Company.
See "Item 12--Options to Purchase Securities from Registrant or Subsidiaries."
 
TRANSACTIONS WITH AFFILIATES
 
  The Company holds a one-third ownership interest in Bromic, which supplies
gas valves and related products to the Company. Bromic receives approximately
28% of its revenues from sales to the Company, which in turn is Bromic's
largest customer. In the year ended January 31, 1998, the Company purchased
approximately A$4.0 million of products from Bromic. The Company guaranteed
A$900,000 indebtedness of Bromic to ANZ, which was repaid in full in February
1997, releasing the guarantee.
 
  In addition, the Company holds a 50% equity interest in GLG Taiwan, which
supplies the Company with grills, burners and other products. GLG Taiwan
receives approximately 80% of its revenues from sales to the Company, which in
turn is GLG Taiwan's largest customer. In the year ended January 31, 1998, the
Company purchased approximately A$7.1 million of products from GLG Taiwan.
 
                                      34
<PAGE>
 
TRANSACTIONS INVOLVING PRINCIPAL SHAREHOLDERS
 
  Messrs. Linz, Gavshon, Selati and Price beneficially own 28.5%, 4.9%, 3.2%
and 1.6%, respectively, of the outstanding Ordinary Shares of the Company.
Accordingly, these individuals may exert substantial influence over the
business and affairs of the Corporation, 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, re-payable on
demand, to the Company to be used for general corporate purposes. As of
January 31, 1997, the aggregate balance of these advances was A$1,231,000.
Through these advances, the Company has been able to obtain funds at
relatively attractive short-term borrowing rates of approximately 2% per annum
below the overdraft rate received by the Company. As of July 31, 1997, the
Company had repaid all amounts owing on such advances and terminated these
borrowing arrangements. The Company may reinstate these or similar
arrangements in the future if its Board of Directors determines that to do so
would be in the best interests of the Company.
 
  The Company purchases labels for certain of its products from a relative
(now deceased) of Mr. Price's wife. On an average yearly basis, the Company
purchases approximately A$346,000 of such labels. Mr. and Mrs. Price receive
no monetary benefit from this relationship.
 
  The Company leases cars for the use of Messrs. Linz, Gavshon, Price and
Selati, at a rate of approximately A$3,909, A$3,910, A$1,620 and US$650,
respectively, per month per car.
 
  The Company pays the premiums on a disability insurance policy naming Mr.
Selati as the insured. If benefits were paid to Mr. Selati under this policy,
he would receive approximately US$7,900 per month until he reaches age 65.
 
  In connection with the Capital Reduction, the Company acquired from Mr.
Selati, who is the President of Galore USA and a Director of the Company, his
15% interest in that company, in exchange for the issuance to Mr. Selati of
137,189 Ordinary Shares, valued at A$1,000,000. The Company elected Mr. Selati
to its Board of Directors on July 21, 1997.
 
  Mr. Linz's sister, together with her husband in one instance and her husband
and son in the other instance, owns two 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.
 
  A portion of the Ordinary Shares and stock options repurchased or cancelled
in connection with the Capital Reduction were repurchased from or cancelled in
exchange for payment to principal shareholders of the Company. The Company
repurchased or cancelled stock options, as applicable: 8,231 Ordinary Shares
beneficially owned by Gordon Howlett, a director of the Company, for an
aggregate of A$60,000; 37,107 Ordinary Shares beneficially owned by Philip
Gardiner, a director of the Company, for an aggregate of A$270,482; stock
options granted to Mr. Price for the purchase of 27,438 Ordinary Shares in
exchange for A$10,000; and stock options granted to David Glaser, the
Secretary of the Company, and Kevin Ralphs, the Chief Financial Officer of
Galore USA, each for the purchase of 2,743 Ordinary Shares in exchange for
A$2,500 each. These transactions were on terms the same as or less favorable
than those provided to other shareholders or option holders whose interests
were repurchased or cancelled.
 
  Upon consummation of the Offering, the Company granted options to purchase
up to an aggregate of 18,000 Ordinary Shares to directors and executive
officers of the Company at the Offering price. Mr. Kevin Ralphs received a
grant of 10,000 Ordinary Shares, Mr. David James received a grant of 5,000
Ordinary Shares and Mr. David Glaser received a grant of 3,000 Ordinary
Shares. These options become exercisable in equal installments on the third,
fourth and fifth anniversaries of the Offering. See "Item 12-Options to
Purchase Securities from Registrant or Subsidiaries."
 
                                      35
<PAGE>
 
  The Company leases certain retail facilities to Rebel Sport Ltd. ("Rebel")
under an arms-length landlord-tenant relationship. For the seven months ended
January 31, 1997 and the twelve months ended January 31, 1998, Rebel
reimbursed the Company A$352,000 and A$260,000 for these leases. Until July
10, 1997, Messrs. Linz and Gavshon were directors and significant shareholders
of Rebel.
 
COMPANY POLICY CONCERNING TRANSACTIONS WITH AFFILIATES
 
  Under the Australian Corporations Law, directors are prohibited from
entering into transactions with the Company conferring a benefit on any
director which are not on "arms-length" commercial terms, except where limited
exemptions apply or detailed approval procedures are first observed. The
Company has adopted a more stringent policy based on the Australian
Corporations Law that requires that all transactions with directors, executive
officers and other affiliates will be on terms that are believed to be at
least as favorable to the Company as could be obtained from unaffiliated third
parties and that such transactions must be approved by a majority of the
Company's disinterested directors.
 
  The Company believes that the foregoing transactions with directors,
executive officers and other affiliates were completed on terms as favorable
to the Company as could have been obtained from unaffiliated third parties.
 
                                   PART III
 
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
 
  Not Applicable.
 
                                    PART IV
 
ITEM 15. DEFAULTS UPON SENIOR SECURITIES.
 
  Not Applicable.
 
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES
         AND USE OF PROCEEDS.
 
DIVIDENDS
   
  Since the Ordinary Shares were delisted from the ASE on December 31, 1996,
the Company has not declared or paid any cash dividends on its Ordinary Shares
other than a dividend in an aggregate amount equal to A$500,000 paid on April
21, 1997. The Company does not anticipate paying any regular dividends on the
Ordinary Shares or ADSs in the foreseeable future. In addition, the Company is
subject to certain restrictions on the declaration or payment of dividends
under the ANZ Facility, as well as the Merrill Lynch Facility. The ANZ and
Merrill Lynch Facilities contain restrictions on the declaration or payment of
dividends by the Company.     
 
CHANGES IN SECURITIES
 
  The Company convened a duly noticed special meeting of shareholders on
October 7, 1997, at which a quorum was present. The shareholders voted to
authorize the effectiveness of a reverse share split of Ordinary Shares of the
Company to take effect immediately before consummation of the Offering; and to
authorize the Pricing Committee of the Board of Directors to determine the
final ratio of such reverse share split. As a result,
 
                                      36
<PAGE>
 
every 18.223 Ordinary Shares were exchanged for one Ordinary Share immediately
prior to the Offering in November 1997.
 
  In addition, at the same meeting, the shareholders approved the 1997 Share
Option Plan, to serve as the successor to its previous equity incentive plan.
Immediately prior to the Offering, all holders of Notes of the Company
converted such Notes into Ordinary Shares. Thereafter, all agreements defining
the terms and conditions of the Notes were terminated.
 
USE OF PROCEEDS
   
  In November 1997, the Company registered, issued and sold 1,700,000 American
Depositary Shares (each representing one Ordinary Share of the Company) at a
price of US$11.00 per share, for an aggregate offering amount of
US$18,700,000, including 1,500,000 ADSs sold by the Company for an aggregate
offering amount of US$16.5 million and 200,000 ADSs registered for the selling
security holders, at $11.00 per share for an aggregate offering amount of
US$2.2 million. The ADSs were registered on a Form F-1 registration statement,
Commission file number 333-37259 with the Securities and Exchange Commission,
which registration statement became effective on November 3, 1997. The
managing underwriters were J.P. Morgan & Co. and SBC Warburg Dillon Read Inc.
The Company did not receive any of the proceeds from the offering of ADSs on
behalf of the selling securityholders.     
 
  In connection with the offering, the Company incurred approximately
A$493,580 in registration expenses, approximately A$1,652,597 for underwriting
expenses and A$1,749,506 for other related expenses. Approximately A$83,703 of
other related expenses' consisted of direct or indirect reimbursements to
directors or officers of the Company for expenses in connection with the
offering. The net proceeds of the offering, after deducting the foregoing
expenses, were approximately A$19.7 million.
 
  The Company has used a portion of the net proceeds of the offering as
follows:
 
  Approximately A$12.0 million (approximately US$8.4 million) was used to
repay indebtedness incurred under the ANZ Facility. Approximately US$1.8
million was used to repay all outstanding indebtedness under the Merrill Lynch
Facility. The remaining A$5.1 million of the funds will be used to fund the
expansion of the Company's operations in the United States.
 
ITEM 17. FINANCIAL STATEMENTS.
 
  The Company has elected to provide financial statements pursuant to Item 18
of Form 20-F.
 
ITEM 18. FINANCIAL STATEMENTS.
 
  The Company has elected to provide financial statements pursuant to Item 18
of Form 20-F. Such financial statements have been prepared in accordance with
U.S. generally accepted accounting principles.
   
  The financial statements and independent auditors' reports are included on
pages 38 to 61 of this Amendment.     
 
                                      37
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
The Board of Directors and Shareholders
 Barbeques Galore Limited
 
  We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of Barbeques Galore Limited and
subsidiaries for each of the two years in the period ended June 30, 1996. We
have also previously audited, the consolidated balance sheets of Barbeques
Galore Limited and subsidiaries as of June 30, 1996 and June 30, 1995, not
presented herein. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
  We conducted our audits in accordance with auditing standards generally
accepted in Australia, that are substantially equivalent to auditing standards
generally accepted in the 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 the 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 June 30, 1996 and June 30, 1995, and the
results of their operations and their cash flows for each of the two years in
the period ended June 30, 1996 in conformity with generally accepted
accounting principles in the United States.
 
/s/ Horwath Sydney Partnership
Horwath Sydney Partnership
August 8, 1997
Sydney, Australia
 
                                      38
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT
 
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, 1998 and 1997 and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year ended January 31, 1998 and the seven months ended January
31, 1997. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
  We conducted our audits in accordance with auditing standards generally
accepted in Australia, the registrant's local standards, which are
substantially equivalent to auditing standards generally accepted in the
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 the 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, 1998 and January 31, 1997
and the results of their operations and their cash flows for the years ended
January 31, 1998 and the seven months ended January 31, 1997, in conformity
with generally accepted accounting principles in the United States.
 
/s/ KPMG
KPMG
April 10, 1998
Sydney, Australia
 
                                      39
<PAGE>
 
                            BARBEQUES GALORE LIMITED
 
                       CONSOLIDATED FINANCIAL STATEMENTS
 
                          CONSOLIDATED BALANCE SHEETS
 
<TABLE>   
<CAPTION>
                                         JANUARY 31,    JANUARY 31, JANUARY 31,
                                            1997           1998     1998 (US$)
                                      ----------------- ----------- -----------
                                      (IN A$ THOUSANDS,
                                      EXCEPT SHARE AND
                                       PER SHARE DATA)
<S>                                   <C>               <C>         <C>
ASSETS
Current assets:
Cash and cash equivalents...........       $    30        $   166     $   111
Accounts receivable, net............         7,350          9,862       6,601
Receivables from affiliates.........           362            143          96
Inventories.........................        33,928         43,030      28,800
Deferred income taxes...............         2,472          2,031       1,359
Prepaid expenses and other current
 assets.............................         1,131          1,079         722
                                           -------        -------     -------
Total current assets................        45,273         56,311      37,689
Non-current assets:
Receivables from affiliates.........           696            642         430
Property, plant and equipment, net..        18,348         21,038      14,081
Goodwill, net.......................         1,476          1,507       1,009
Deferred income taxes...............           871          1,194         799
Other non-current assets............         1,306          1,382         925
                                           -------        -------     -------
Total assets........................       $67,970        $82,074     $54,933
                                           =======        =======     =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft......................       $ 1,826        $   --      $   --
Accounts payable and accrued liabil-
 ities..............................        13,693         16,648      11,143
Payables to related parties.........         1,231            --          --
Current maturities of long-term
 debt...............................         2,964            198         133
Current portion of obligations under
 capital leases.....................         1,395          1,729       1,157
Income taxes payable................         1,612            819         548
                                           -------        -------     -------
Total current liabilities...........        22,721         19,394      12,981
Non-current liabilities:
Long-term debt......................        20,718         14,716       9,849
Convertible notes...................        10,042            --          --
Obligations under capital leases,
 excluding current portion..........         3,516          3,405       2,279
Other long-term liabilities.........           808            632         423
                                           -------        -------     -------
Total liabilities...................        57,805         38,147      25,532
                                           -------        -------     -------
Shareholders' equity:
Ordinary shares, A$3.64 par value;
 authorized 27,437,853 shares.......         6,720         16,532      11,065
Additional paid-in capital..........         4,613         24,554      16,434
Foreign currency translation adjust-
 ment...............................           200          1,177         788
Retained earnings (deficit).........        (1,368)         1,664       1,114
                                           -------        -------     -------
Total shareholders' equity..........        10,165         43,927      29,401
                                           -------        -------     -------
Total liabilities and shareholders'
 equity.............................       $67,970        $82,074     $54,933
                                           =======        =======     =======
</TABLE>    
 
          See accompanying notes to Consolidated Financial Statements.
 
                                       40
<PAGE>
 
                            BARBEQUES GALORE LIMITED
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                          YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED   YEAR ENDED  YEAR ENDED
                           JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31,  JANUARY 31, JANUARY 31,
                             1995       1996       1997        1997         1998        1998
                          ---------- ---------- ----------- -----------  ----------- -----------
                                                            (UNAUDITED)                 (US$)
                                   (IN A$ THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                       <C>        <C>        <C>         <C>          <C>         <C>
Net sales...............   $138,057   $141,691    $98,752    $148,369     $179,325    $131,266
Cost of goods sold,
 warehouse, distribution
 and occupancy costs....     92,290     98,158     67,955     103,324      122,072      89,357
                           --------   --------    -------    --------     --------    --------
Gross profit............     45,767     43,533     30,797      45,045       57,253      41,909
Selling, general, and
 administrative ex-
 penses.................     40,058     39,339     25,740      40,751       48,992      35,862
Store pre-opening
 costs..................         64        153        200         239          435         318
Relocation and closure
 costs..................        --         875        461       1,336           20          15
                           --------   --------    -------    --------     --------    --------
Operating income........   $  5,645   $  3,166    $ 4,396    $  2,719     $  7,806    $  5,714
                           --------   --------    -------    --------     --------    --------
Equity in income of af-
 filiates, net of tax...        963        836        252         379          547         400
Interest expense........      2,230      2,262      1,593       2,236        3,334       2,440
Other expenses (in-
 come)..................        --      (2,303)     1,132       1,132          --          --
                           --------   --------    -------    --------     --------    --------
Income (loss) before in-
 come taxes.............      4,378      4,043      1,923        (270)       5,019       3,674
Income tax expense (ben-
 efit)..................        573         98        366        (822)       1,488       1,089
                           --------   --------    -------    --------     --------    --------
Net income..............   $  3,805   $  3,945    $ 1,557    $    552     $  3,531    $  2,585
                           ========   ========    =======    ========     ========    ========
Earnings per share (A$
 per share):
Basic earnings per
 share..................   $   0.86   $   0.89    $  0.38    $   0.13     $   1.43    $   1.05
                           ========   ========    =======    ========     ========    ========
Diluted earnings per
 share..................   $   0.86   $   0.89    $  0.38    $   0.13     $   1.18    $   0.86
                           ========   ========    =======    ========     ========    ========
Weighted average shares
 outstanding
 (in thousands).........      4,450      4,450      4,073       4,228        2,473       2,473
                           ========   ========    =======    ========     ========    ========
</TABLE>
 
 
 
 
 
          See accompanying notes to consolidated financial statements.
 
                                       41
<PAGE>
 
                            BARBEQUES GALORE LIMITED
 
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                            FOREIGN
                                               ADDITIONAL  CURRENCY   RETAINED      TOTAL
                           SHARES    ORDINARY   PAID-IN   TRANSLATION EARNINGS  SHAREHOLDERS'
                         OUTSTANDING  SHARES    CAPITAL   ADJUSTMENT  (DEFICIT)    EQUITY
                         ----------- --------  ---------- ----------- --------  -------------
                           ('000)      (IN A$ THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                      <C>         <C>       <C>        <C>         <C>       <C>
Balances at June 30,
 1994...................    4,450    $ 16,220   $ 14,113    $  468    $(6,416)    $ 24,385
Net income..............      --          --         --        --       3,805        3,805
Dividend of $0.4560 per
 share..................      --          --         --        --      (2,028)      (2,028)
Foreign currency trans-
 lation
 adjustment.............      --          --         --        164        --           164
                           ------    --------   --------    ------    -------     --------
Balances at June 30,
 1995...................    4,450      16,220     14,113       632     (4,639)      26,326
Net income..............      --          --         --        --       3,945        3,945
Dividend of $0.1367 per
 share..................      --          --         --        --        (608)        (608)
Dividend of $0.2733 per
 share..................      --          --         --        --      (1,217)      (1,217)
Foreign currency trans-
 lation
 adjustment.............      --          --         --       (629)       --          (629)
                           ------    --------   --------    ------    -------     --------
Balances at June 30,
 1996...................    4,450      16,220     14,113         3     (2,519)      27,817
Net income..............      --          --         --        --       1,557        1,557
Dividend of $0.0911 per
 share..................      --          --         --        --        (406)        (406)
Foreign currency trans-
 lation
 adjustment.............      --          --         --        197        --           197
Repurchase of ordinary
 shares.................   (2,744)    (10,000)   (10,000)      --         --       (20,000)
Issuance of ordinary
 shares.................      137         500        500       --         --         1,000
                           ------    --------   --------    ------    -------     --------
Balances at January 31,
 1997...................    1,843       6,720      4,613       200     (1,368)      10,165
Net income..............      --          --         --        --       3,531        3,531
Dividend of $0.2715 per
 share..................      --          --         --        --        (499)        (499)
Foreign currency trans-
 lation
 adjustment.............      --          --         --        977        --           977
Issuance of ordinary
 shares.................    1,500       5,460     18,149       --         --        23,609
Conversion of convert-
 ible notes.............    1,198       4,360      5,682       --         --        10,042
Initial public offering
 (the "Offering")
 costs..................      --          --      (3,898)      --         --        (3,898)
Other...................      --           (8)         8       --         --           --
                           ------    --------   --------    ------    -------     --------
Balances at January 31,
 1998...................    4,541    $ 16,532   $ 24,554    $1,177    $ 1,664     $ 43,927
                           ======    ========   ========    ======    =======     ========
</TABLE>
 
 
 
          See accompanying notes to consolidated financial statements.
 
                                       42
<PAGE>
 
                            BARBEQUES GALORE LIMITED
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>   
<CAPTION>
                            YEAR      YEAR
                           ENDED     ENDED    7 MONTHS TO YEAR ENDED  YEAR ENDED
                          JUNE 30,  JUNE 30,  JANUARY 31, JANUARY 31, JANUARY 31,
                            1995      1996       1997        1997        1998
                          --------  --------  ----------- ----------- -----------
                                                          (UNAUDITED)
                                                       (IN A$ THOUSANDS)
<S>                       <C>       <C>       <C>         <C>         <C>
CASH FLOWS FROM OPERAT-
 ING ACTIVITIES:
 Net income.............  $  3,805  $  3,945   $  1,557    $    552    $  3,531
 Adjustments to recon-
  cile net income to net
  cash
  provided by operating
  activities:
 Depreciation and amor-
  tization..............     2,755     3,080      2,633       4,031       4,236
 Deferred income taxes..      (365)     (536)    (1,389)     (1,794)        118
 Amounts set aside to
  provisions............        70       270       (269)       (703)       (925)
 Gain on sale of affili-
  ate...................       --     (2,303)       --          --          --
 Undistributed income of
  affiliates............         4       124       (252)         (6)       (219)
 Loss (gain) on sale of
  property, plant and
  equipment.............       250        76        663         707         (52)
 Debt issue costs.......       --        --       1,132       1,132         --
 Changes in operating
  assets and liabili-
  ties:
 Receivables and prepaid
  expenses..............    (1,959)      275       (421)      1,292      (2,316)
 Inventories............    (4,942)    1,547      3,219       3,039      (9,185)
 Other assets...........      (203)       (6)        (1)        (45)        (81)
 Accounts payable and
  accrued liabilities...     2,326    (1,901)       332        2425       3,755
                          --------  --------   --------    --------    --------
Net cash provided by
 (used in) operating ac-
 tivities...............     1,741     4,571      7,204      10,630      (1,138)
                          --------  --------   --------    --------    --------
CASH FLOWS FROM INVEST-
 ING ACTIVITIES:
 Proceeds from sale of
  affiliate.............       --      2,222        173         173         --
 Proceeds from sale of
  property, plant and
  equipment.............       189        63         51          84         322
 Capital expenditures...    (2,242)   (4,609)    (3,201)     (6,602)     (5,000)
 Loan repayments re-
  ceived................       181     2,270        140         320         181
                          --------  --------   --------    --------    --------
Net cash provided by
 (used in) investing ac-
 tivities...............    (1,872)      (54)    (2,837)     (6,025)     (4,497)
                          --------  --------   --------    --------    --------
CASH FLOWS FROM FINANC-
 ING ACTIVITIES:
 Repayment of long-term
  debt..................   (19,305)  (12,661)    (4,304)     (4,711)    (34,111)
 Proceeds from long-term
  debt..................    21,135     9,429     21,534      19,522      24,274
 Debt issue costs.......       --        --      (1,132)     (1,132)        --
 Bank overdraft proceeds
  (repayments)..........       --      1,445        381       1,826      (1,826)
 Principal payments un-
  der capital leases....      (670)     (827)      (443)       (874)     (1,782)
 Dividends paid.........    (2,028)   (1,825)      (406)     (1,623)       (499)
 Repurchase of ordinary
  shares................       --        --     (20,000)    (20,000)        --
 Proceeds from issuance
  of ordinary shares....       --        --         --          --       23,609
 Offering costs.........       --        --         --          --       (3,898)
                          --------  --------   --------    --------    --------
 Net cash provided by
  (used in) financing
  activities............      (868)   (4,439)    (4,370)     (6,992)      5,767
                          --------  --------   --------    --------    --------
Effects of exchange rate
 fluctuations...........       (26)      (60)         7         (24)          4
                          --------  --------   --------    --------    --------
Net increase (decrease)
 in cash and cash equiv-
 alents.................    (1,025)       18          4      (2,411)        136
Cash and cash equiva-
 lents at beginning of
 period.................     1,544       519         26       2,441          30
Adjustment to opening
 cash balance arising
 from
 deconsolidation of
 former subsidiary......       --       (511)       --          --          --
                          --------  --------   --------    --------    --------
Cash and cash equiva-
 lents at end of peri-
 od.....................  $    519  $     26   $     30    $     30    $    166
                          ========  ========   ========    ========    ========
</TABLE>    
 
          See accompanying notes to consolidated financial statements.
 
                                       43
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(A) DESCRIPTION OF BUSINESS
 
  Barbeques Galore Limited ("Barbeques Galore" or "the Company") is an
Australian resident company which is involved in the manufacture of barbecues
and heaters, and wholesale and retail sales of barbecues, heaters, camping
equipment, outdoor furniture, leisure products and related accessories through
company-owned and licensed stores in Australia. The Company is also involved
in the retailing, through Company-owned and franchised stores, of barbecues,
fireplace equipment and accessories in the United States of America. The
Company's manufacturing operations are located in Australia.
 
(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 and stores, work in progress and
finished goods. Inventories are valued at the lower of cost or market using
the first-in, first-out ("FIFO") method.
 
(D) DERIVATIVE FINANCIAL INSTRUMENTS
 
  The Company uses foreign currency forward contracts to offset earnings
fluctuations from anticipated foreign currency cash flows. These instruments
are marked to market and the results recognized immediately as income or
expense.
 
(E) INVESTMENTS IN AFFILIATED COMPANIES
 
  Investments in the ordinary shares of 20% to 50% owned companies are
accounted for by the equity method.
 
(F) PROPERTY, PLANT AND EQUIPMENT
 
  Property, plant and equipment are stated at cost. Plant and equipment under
capital leases are initially recorded at the present value of minimum lease
payments. The method of depreciation and estimable useful lives over which
property, plant and equipment are depreciated are as follows:
<TABLE>
<CAPTION>
                                  METHOD     YEARS
                               ------------- -----
   <S>                         <C>           <C>
   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
</TABLE>
 
  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.
 
(G) GOODWILL
 
  Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized on a straight line basis over the
expected periods to be benefited, generally 20 years.
 
 
                                      44
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
(H) RESEARCH AND DEVELOPMENT, AND ADVERTISING
 
  Research and development, and advertising costs are expensed as incurred.
Amounts expensed were as follows:
 
<TABLE>
<CAPTION>
                            YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED   YEAR ENDED
                             JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31,  JANUARY 31,
                               1995       1996       1997        1997         1998
                            ---------- ---------- ----------- -----------  -----------
                                                              (UNAUDITED)
                                                (IN A$ THOUSANDS)
   <S>                      <C>        <C>        <C>         <C>          <C>
   Research and develop-
    ment...................   $  996     $1,260     $  541      $1,070       $  924
   Advertising.............    7,161      7,478      5,319       7,547        8,397
                              ======     ======     ======      ======       ======
</TABLE>
 
(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 carry forwards. 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 (loss) in the period that includes
the enactment date.
 
(J) SHARE OPTION PLAN
 
  The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
123, Accounting for Stock-Based Compensation, in 1996, under which the Company
elected to continue following the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations for its share option plan. As such, compensation expense would
be recorded on the date of grant only if the current market price of the
underlying share exceeded the exercise price.
 
(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 to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
 
(M) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
 
  The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on July 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be 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 a
comparison of the carrying amount of an asset to future undiscounted operating
net cash flows expected to be generated by the asset. If such assets are
considered to be impaired,
 
                                      45
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value
less costs to sell. Adoption of this Statement did not have a material impact
on the Company's financial position, results of operations, or liquidity.
 
(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 as incurred over the lease terms.
 
  Where premises under a non-cancelable operating lease become vacant 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 at the point of
shipment for wholesale sales to external customers and the point of sale for
retail goods.
 
(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 are expensed when incurred.
 
(R) EARNINGS PER SHARE
 
  Basic earnings per share are computed by dividing net earnings available to
ordinary shareholders by the weighted average number of ordinary shares.
Diluted earnings per share are computed by dividing net earnings available to
ordinary shareholders as adjusted for the effect of the elimination of after-
tax interest expense related to assumed conversion of the convertible notes,
by the weighted average number of ordinary shares and dilutive ordinary share
equivalents for the period.
 
(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 or loss
before income taxes as they arise.
 
  Assets and liabilities of overseas subsidiaries are translated at year end
rates and operating results at the average rates ruling during the year.
 
  The information in US dollars in the consolidated balance sheets and
consolidated statements of operations is presented solely for the convenience
of the reader and has been translated at the Noon Buying Rate on January
 
                                      46
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
31, 1998 of US$0.6693 per A$1.00 and at the average rate for the fiscal year
ended January 31, 1998 of US$0.7320 per $A1.00 respectively. These
translations should not be construed as representations that the Australian
dollar amounts actually represent such US dollar amounts or could be converted
into US dollars at the rate indicated or at any other rate.
       
2. DERIVATIVE FINANCIAL INSTRUMENTS
 
  The notional amount of foreign currency forward contracts used as a means of
offsetting fluctuations in the dollar value of foreign currency accounts
payable totaled:
<TABLE>
<CAPTION>
                                                         JANUARY 31, JANUARY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                            (IN A$ THOUSANDS)
   <S>                                                   <C>         <C>
   Foreign exchange contracts...........................   $4,232       $--
                                                           ======       ====
</TABLE>
 
  The fair value of these contracts at each period end is not significant. All
of the currency derivatives expire within one year and are for United States
dollars. The counterparties to the contracts are major financial institutions.
The risk of loss to the Company in the event of non-performance by a
counterparty is not significant.
 
3. ACCOUNTS RECEIVABLE
 
  Accounts receivable consists of the following:
<TABLE>
<CAPTION>
                                                         JANUARY 31, JANUARY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                            (IN A$ THOUSANDS)
   <S>                                                   <C>         <C>
   Trade accounts receivable............................   $6,903      $9,929
   Less: Reserve for doubtful accounts..................     (377)       (497)
                                                           ------      ------
                                                            6,526       9,432
   Receivables from related parties.....................      125          88
   Other receivables....................................      699         342
                                                           ------      ------
                                                           $7,350      $9,862
                                                           ======      ======
</TABLE>
 
4. INVENTORIES
 
  The major classes of inventories are as follows:
<TABLE>
<CAPTION>
                                                         JANUARY 31, JANUARY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                            (IN A$ THOUSANDS)
   <S>                                                   <C>         <C>
   Finished goods.......................................   $29,470     $37,999
   Work in progress.....................................     1,778       1,328
   Raw materials........................................     3,116       4,222
                                                           -------     -------
                                                            34,364      43,549
   Less: Reserve for obsolescence.......................      (436)       (519)
                                                           -------     -------
                                                           $33,928     $43,030
                                                           =======     =======
</TABLE>
 
 
                                      47
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
5. INVESTMENTS IN AFFILIATED COMPANIES
 
  Investments in affiliated companies consist of 33 1/3 percent of the
ordinary shares of Bromic Pty Limited and subsidiaries ("Bromic"), an
Australian Group which imports and distributes componentry to the gas and
appliance industries, and 50 percent of the ordinary shares of GLG Trading Pte
Limited ("GLG"), a Singapore company which acts as a buying office for
Barbeques Galore and other third parties. The shareholding in this company was
originally 100 percent but was reduced to 50 percent on July 1, 1995 by
issuing shares in that company to a Director of GLG who is also the General
Manager of that company.
 
  The Company also previously held a 50 percent interest in GLG (NZ) Limited
("GLG NZ"). This investment was sold in December 1995 for total consideration
of A$2,395,000. A gain on sale of A$2,303,000 has been recognized in the
income statement and is included in other expenses (income).
 
  Bromic provides liquid petroleum gas cylinders and related products such as
manifolds, bundy tubes, glass and barbecue ignitions to the Company. GLG
supplies cast iron used in the manufacture of burners, hot plates and grills,
small assembled barbecues and certain accessories such as tongs and warming
racks. Purchasing from GLG NZ consisted mainly of cowls, flue kits, spare
parts and other heating equipment.
 
  Sales to affiliated companies are not significant. Interest is also charged
on amounts owing from affiliates at commercial rates but is not significant.
Amounts owing from affiliates are in relation to cash advances.
 
  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:
 
<TABLE>
<CAPTION>
                             YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED   YEAR ENDED
                              JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31,  JANUARY 31,
                                1995       1996       1997        1997         1998
                             ---------- ---------- ----------- -----------  -----------
                                                               (UNAUDITED)
                                                 (IN A$ THOUSANDS)
   <S>                       <C>        <C>        <C>         <C>          <C>
   Purchases from affili-
    ates:
   --Bromic................    $3,953     $3,769     $2,320      $3,476       $ 4,019
   --GLG NZ................       197        188        --          188           --
   --GLG Pte Ltd...........       --       5,446      3,336       3,840         7,148
                               ------     ------     ------      ------       -------
                               $4,150     $9,403     $5,656      $7,504       $11,167
                               ======     ======     ======      ======       =======
   Dividends received or
    due and receivable from
    affiliates
   --Bromic................    $  250     $  175     $  --       $  175       $   250
   --GLG NZ................       717        495        --          --            --
   --GLG Pte Ltd...........       --         198        --          198            83
                               ------     ------     ------      ------       -------
                                $ 967     $  868     $  --       $  373       $   333
                               ======     ======     ======      ======       =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                         JANUARY 31, JANUARY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                            (IN A$ THOUSANDS)
   <S>                                                   <C>         <C>
   Receivable from affiliates:
   --Bromic.............................................   $  863       $592
   --GLG NZ.............................................      195        --
   --GLG Pte Ltd........................................      --         193
                                                           ------       ----
                                                           $1,058       $785
                                                           ======       ====
   Investment in affiliates.............................   $  491       $710
                                                           ======       ====
</TABLE>
 
                                      48
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  Investments in affiliates are included in the balance sheet as other non-
current assets. As the shares of these entities are not traded, the investment
in these companies is carried at the equity accounted value representing cost
plus the Company's share of undistributed profits. Income statement
information has been presented for the respective twelve month periods. The
balance date of all affiliates is June 30. Combined summarized financial data
at their most recent balance dates and January 31, 1998 are as follows:
 
<TABLE>   
<CAPTION>
                                     JUNE 30,  JUNE 30,  JUNE 30,  JANUARY 31,
                                       1995      1996      1997       1998
                                     --------  --------  --------  -----------
                                               (IN A$ THOUSANDS)
   <S>                               <C>       <C>       <C>       <C>
   Current assets................... $13,974   $ 7,229   $ 6,925     $ 7,414
   Current liabilities..............  13,734     4,778     3,666       4,038
                                     -------   -------   -------     -------
   Working capital..................     240     2,451     3,259       3,376
   Property, plant and equipment,
    net.............................   6,131     1,307     1,215       1,224
   Other assets.....................     389       549       408         223
   Long-term debt...................  (4,261)   (2,498)   (2,412)     (2,417)
                                     -------   -------   -------     -------
   Shareholders' equity............. $ 2,499   $ 1,809   $ 2,470     $ 2,406
                                     =======   =======   =======     =======
   Sales............................ $37,049   $22,926   $18,034     $18,460
                                     =======   =======   =======     =======
   Gross profit..................... $11,983   $ 9,025   $ 4,637     $ 4,571
                                     =======   =======   =======     =======
   Net income....................... $ 2,131   $ 1,484   $   963     $ 1,176
                                     =======   =======   =======     =======
</TABLE>    
 
6. PROPERTY, PLANT AND EQUIPMENT
 
<TABLE>
<CAPTION>
                                                         JANUARY 31, JANUARY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                            (IN A$ THOUSANDS)
   <S>                                                   <C>         <C>
   Land and buildings...................................   $ 3,198     $ 3,218
   Machinery and equipment..............................    15,453      18,001
   Leasehold improvements...............................     6,110       8,262
   Assets under capital leases..........................     6,912       8,298
                                                           -------     -------
                                                            31,673      37,779
   Less: Accumulated depreciation/amortization             (13,325)    (16,741)
                                                           -------     -------
                                                           $18,348     $21,038
                                                           =======     =======
</TABLE>
 
7. GOODWILL
 
<TABLE>
<CAPTION>
                                                         JANUARY 31, JANUARY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                            (IN A$ THOUSANDS)
   <S>                                                   <C>         <C>
   Goodwill.............................................   $1,704      $1,800
   Less: Accumulated amortization.......................     (228)       (293)
                                                           ------      ------
                                                           $1,476      $1,507
                                                           ======      ======
</TABLE>
 
8. LEASES
 
  The Company is obligated under various capital leases for store improvements
and certain machinery and equipment that expire 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. These retail
stores are all managed under
 
                                      49
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
operating leases. Machinery and equipment under capital leases includes 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 are as follows:
 
<TABLE>
<CAPTION>
                                                         JANUARY 31, JANUARY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                            (IN A$ THOUSANDS)
   <S>                                                   <C>         <C>
   Store improvements...................................   $3,119      $4,966
   Machinery and equipment..............................    3,793       3,332
                                                           ------      ------
                                                            6,912       8,298
   Less: Accumulated amortization.......................   (2,216)     (3,473)
                                                           ------      ------
                                                           $4,696      $4,825
                                                           ======      ======
</TABLE>
 
  The Company also has entered into non-cancelable operating leases, primarily
for retail stores. These leases generally contain renewal options for periods
ranging from three to five years and require the Company to pay all executory
costs such as maintenance and insurance. Rental expense for operating leases
(except those with lease terms of a month or less that were not renewed)
consisted of the following:
 
<TABLE>
<CAPTION>
                      YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED   YEAR ENDED
                       JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31,  JANUARY 31,
                         1995       1996       1997        1997         1998
                      ---------- ---------- ----------- -----------  -----------
                                                        (UNAUDITED)
                                          (IN A$ THOUSANDS)
   <S>                <C>        <C>        <C>         <C>          <C>
   Rental expense....   $9,609     $9,867     $6,181      $10,153      $11,948
                        ======     ======     ======      =======      =======
</TABLE>
 
  Future minimum lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of January 31, 1998 are:
 
<TABLE>
<CAPTION>
                                                             CAPITAL  OPERATING
                                                             LEASES    LEASES
                                                             -------  ---------
                                                             (IN A$ THOUSANDS)
   <S>                                                       <C>      <C>
   Year ending January 31,
   1999....................................................  $2,203    $11,819
   2000....................................................   1,670     10,248
   2001....................................................   1,429      8,348
   2002....................................................     594      6,870
   2003....................................................     211      4,971
   Years subsequent to 2003................................     --      16,041
                                                             ------    -------
   Total minimum lease payments............................   6,107    $58,297
                                                                       =======
   Less: Amount representing interest (at rates ranging
    from 7.3% to 13.5%)....................................    (973)
                                                             ------
   Present value of net minimum capital lease payments.....   5,134
                                                             ------
   Less: Current portion of obligations under capital
    leases.................................................  (1,729)
                                                             ------
   Obligations under capital leases, excluding current por-
    tion...................................................  $3,405
                                                             ======
</TABLE>
 
                                      50
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
  Accounts payable and accrued liabilities consist of the following:
 
<TABLE>
<CAPTION>
                                                       JANUARY 31, JANUARY 31,
                                                          1997        1998
                                                       ----------- -----------
                                                          (IN A$ THOUSANDS)
   <S>                                                 <C>         <C>
   Trade accounts payable.............................   $ 4,968     $ 6,477
   Accrued liabilities................................     5,887       7,416
   Employee benefits..................................     1,745       1,976
   Other..............................................     1,093         779
                                                         -------     -------
                                                         $13,693     $16,648
                                                         =======     =======
</TABLE>
 
  Included in other liabilities at January 31, 1998 is an amount of $369,000
in respect of the planned relocation of the enameling facilities. The accrual
relates to future lease costs on the vacated premises, the writedown of plant
that will be scrapped (allowing for future depreciation charges until the
planned exit date) and costs to make good the premises. An exit plan was
established and approved by the Board of Directors prior to January 31, 1997.
The expected completion is June 1998.
 
10. LONG-TERM DEBT
 
  Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                         JANUARY 31, JANUARY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                            (IN A$ THOUSANDS)
   <S>                                                   <C>         <C>
   Current:
   Bank bills...........................................   $ 2,964     $   198
                                                           -------     -------
                                                           $ 2,964     $   198
                                                           =======     =======
   Non-current:
   Bank bills...........................................   $18,568     $12,566
   Property loan........................................     2,150       2,150
                                                           -------     -------
                                                           $20,718     $14,716
                                                           =======     =======
</TABLE>
 
  The Company and its subsidiaries have access to a facility with the
Australia and New Zealand Banking Group Limited ("ANZ") (the "ANZ Facility")
with credit facilities aggregating up to A$41,700,000, comprising a multi-
purpose facility of A$31,700,000 and a trade finance facility of A$10,000,000.
As at January 31, 1998 the Company had not utilized A$25,890,000 of the total
facility. The ANZ Facility is secured by a first security interest over the
assets of the Company's present and future Australian assets. The Company has
agreed to grant to ANZ, and ANZ is in the process of creating, a second
security interest (subordinate to a lien under the Merrill Lynch Facility
detailed below) in all the Company's assets in the United States. The ANZ
Facility is further guaranteed by each subsidiary of the Company.
 
  Bank bills are generally taken out over a 90 day period and rolled over at
the end of their respective terms. As at January 31, 1998, the weighted
average interest rate accruing on the bank bills utilized under the ANZ
Facility was 6.2% per annum.
 
  The property loan is accruing interest at a rate of 9.6% per annum and is
secured by a registered first mortgage over the freehold property of the
Company.
 
                                      51
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  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. The Company was in compliance with the
financial covenants set out in the ANZ Facility agreement as at January 31,
1998.
   
  The Company has historically renegotiated its credit facilities on similar
terms and conditions. Negotiations with ANZ with respect to an extension of
the existing facility are well advanced and ANZ has formally indicated its
willingness to extend the facility. For this reason, the majority of the
outstanding balance relating to bank bills and term loans is classified as a
non-current liability.     
   
  In February 1995, Barbeques Galore Inc., the Company's U.S. operating
subsidiary, entered into a five year credit facility with Merrill Lynch
Business Financial Services ("Merrill Lynch"). As currently in effect, such
facility includes a term loan in aggregate principal amount of US$600,000 (the
"Term Loan") and a revolving line of credit in aggregate principal amount of
US$1,250,000 (the "Revolving Line," and collectively with the Term Loan, the
"Merrill Lynch Facility"). Indebtedness under the Revolving Line and Term Loan
accrues interest at the 30-day commercial paper rates plus 2.65% or 2.70%,
respectively, and is payable monthly. The Merrill Lynch Facility is secured by
a first security interest in all Galore USA present and future assets. The
Merrill Lynch Facility is guaranteed by the Company and Galore USA, the parent
of Barbeques Galore, Inc. Pursuant to the Offering on November 7, 1997, the
Company utilised a portion of the net proceeds to repay all outstanding
indebtedness under the aforementioned term loan and revolving line of credit
facility. As of January 31, 1998 Galore USA had not utilised US$1,845,000 of
this facility.     
 
  The Company's total long-term debt matures as follows:
 
<TABLE>
<CAPTION>
         YEAR ENDING JANUARY, 31                 (IN A$ THOUSANDS)
         -----------------------                 -----------------
         <S>                                     <C>
         1999...................................      $   198
         2000...................................       14,716
                                                      -------
                                                      $14,914
                                                      =======
</TABLE>
 
  In conjunction with the Capital Reduction in December 1996 (detailed in Note
12 to the consolidated financial statements), the Company issued unsecured
convertible notes with a face value of A$8.38 amounting to A$10,041,952. The
notes carried an interest rate of 10.25% per annum, included financial
covenants and conferred rights to the noteholders as creditors and not as
shareholders. Immediately prior to the consummation of the Offering, all
outstanding convertible notes of the Company were converted into 1,197,926
ordinary shares of A$3.64 each.
 
11. INCOME TAXES
 
  Income (loss) before income taxes was taxed under the following
jurisdictions:
 
<TABLE>
<CAPTION>
                      YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED   YEAR ENDED
                       JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31,  JANUARY 31,
                         1995       1996       1997        1997         1998
                      ---------- ---------- ----------- -----------  -----------
                                                        (UNAUDITED)
                                          (IN A$ THOUSANDS)
   <S>                <C>        <C>        <C>         <C>          <C>
   Australia.........   $2,905     $2,730     $ 3,091      $(755)      $4,614
   United States.....    1,473      1,313      (1,168)       485          405
                        ------     ------     -------      -----       ------
                        $4,378     $4,043     $ 1,923      $(270)      $5,019
                        ======     ======     =======      =====       ======
</TABLE>
 
                                      52
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The expense (benefit) for income taxes is presented below:
 
<TABLE>   
<CAPTION>
                      YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED   YEAR ENDED
                       JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31,  JANUARY 31,
                         1995       1996       1997        1997         1998
                      ---------- ---------- ----------- -----------  -----------
                                                        (UNAUDITED)
                                          (IN A$ THOUSANDS)
   <S>                <C>        <C>        <C>         <C>          <C>
   Current:
   Australia.........   $ 906      $ 477      $1,670       $ 738       $1,107
   United States.....      32        157          85         234          263
                        -----      -----      ------       -----       ------
                          938        634       1,755         972        1,370
                        -----      -----      ------       -----       ------
   Deferred:
   Australia.........    (365)      (536)       (499)       (904)         286
   United States.....     --         --         (890)       (890)        (168)
                        -----      -----      ------       -----       ------
                        $ 573      $  98      $  366       $(822)      $1,488
                        =====      =====      ======       =====       ======
</TABLE>    
 
  Income tax expense (benefit) attributable to income from continuing
operations differed from the amounts computed by applying the Australian
federal income tax rate to pretax income (loss) from continuing operations as
a result of the following:
 
<TABLE>   
<CAPTION>
                             YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED  YEAR ENDED
                              JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31, JANUARY 31,
                                1995       1996       1997        1997        1998
                             ---------- ---------- ----------- ----------- -----------
                                                               (UNAUDITED)
                                (IN A$ THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
   <S>                       <C>        <C>        <C>         <C>         <C>
   Computed "expected" tax
    expense (benefit)......    $1,445     $1,455      $ 692      $   (97)    $1,807
   Increase (reduction) in
    income
    taxes resulting from:
   State taxes, net of fed-
    eral tax benefit.......        32        157         56          208         29
   Change in the valuation
    allowance..............      (474)      (663)      (388)      (1,109)       (79)
   Equity in earnings of
    affiliates not
    subject to taxation....      (318)      (301)       (91)        (136)       (79)
   Capital profit on sale
    of affiliate...........       --        (829)       --           --         --
   Other, net..............      (112)       279         97          312       (190)
                               ------     ------      -----      -------     ------
                               $  573     $   98      $ 366      $  (822)    $1,488
                               ======     ======      =====      =======     ======
</TABLE>    
 
  The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
 
<TABLE>
<CAPTION>
                                                        JANUARY 31, JANUARY 31,
                                                           1997        1998
                                                        ----------- -----------
                                                           (IN A$ THOUSANDS)
   <S>                                                  <C>         <C>
   Deferred tax assets:
   Provisions not presently deductible................    $1,482      $1,521
   Plant and equipment, due to differences in depreci-
    ation.............................................       424         637
   Inventories, due to capitalized costs..............       195         263
   Borrowing expenses capitalized for tax purposes....       302          12
   Leases, due to differences in lease payments, in-
    terest and amortization...........................       136         113
   Unearned income....................................       116         --
   Net operating loss carryforward....................       562         299
   Other..............................................       432         573
                                                          ------      ------
   Total gross deferred tax assets....................    $3,649      $3,418
                                                          ======      ======
</TABLE>
 
 
                                      53
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
<TABLE>
<CAPTION>
                                                         JANUARY 31, JANUARY 31,
                                                            1997        1998
                                                         ----------- -----------
                                                            (IN A$ THOUSANDS)
   <S>                                                   <C>         <C>
   Deferred tax liabilities:
   Prepayments..........................................   $  178      $  193
   Rebates receivable...................................      128         --
                                                           ------      ------
   Total gross deferred tax liabilities.................      306         193
                                                           ------      ------
   Net deferred tax asset...............................   $3,343      $3,225
                                                           ======      ======
</TABLE>
   
  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. In
order to fully realize the deferred tax asset, the company will need to
generate future taxable income of approximately A$808,307 prior to the
expiration of the net operating loss carryforwards in 2012. Based upon
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carry forward
period are reduced.     
 
12. SHAREHOLDERS' EQUITY
 
  On December 31, 1996, the Company consummated a series of transactions to
effect a reduction in the ordinary shares of the Company (the "Capital
Reduction"). Pursuant to the Capital Reduction, the Company repurchased and
cancelled 2,743,878 fully paid ordinary shares and 101,520 options to purchase
ordinary shares, for a total consideration of A$20,078,000. The Company
financed the Capital Reduction through:
 
  (i) issuance and sale of A$10,041,952 in convertible notes; and
     
  (ii) provision of an additional standby facility of A$12,000,000 from ANZ.
       Pursuant to the Offering on November 7, 1997, the Company utilised a
       portion of the net proceeds to repay the aforementioned indebtedness
       incurred under the standby facility.     
 
  The effect of the Capital Reduction was to reduce the ordinary shares of the
Company to A$6,219,661 (comprising 1,706,542 fully paid ordinary shares of
A$3.64 each) from A$16,220,000 (comprising 4,450,420 fully paid ordinary
shares of A$3.64 each). Subsequent to the consummation of the Capital
Reduction, all outstanding ordinary shares were owned by the executive
directors of the Company and their related interests and the Company's pension
plan. The Company was delisted from the Australian Stock Exchange following
the Capital Reduction.
 
  The Company incurred costs in connection with the Capital Reduction of
approximately $1,132,000. These amounts have been expensed and are included in
other expenses (income) in the consolidated statements of operations for the
period to January 31, 1997.
   
  Additionally, in connection with the Capital Reduction, the Company also
acquired the remaining 15% interest in Galore USA from Mr. Sydney Selati,
President of Galore USA, for consideration of A$1,000,000. The transaction was
effected by the issuance of 137,189 ordinary shares ($7.29 per share) of the
Company. Mr. Sydney Selati was subsequently appointed a director of Barbeques
Galore on July 21, 1997.     
 
                                      54
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  On November 7, 1997 the Company completed the Offering. As a part of the
offer process the following changes in securities occurred:
 
  .  Immediately prior to the consummation of the Offering, all outstanding
     issued share capital of the Company was subject to a 18.223-for-1
     reverse share split; as a result, the issued and outstanding capital of
     the Company was reduced to 1,843,726 ordinary shares with a par value of
     A$3.64 each.
 
  .  Immediately prior to the consummation of the Offering, all outstanding
     convertible notes of the Company were converted into 1,197,926 ordinary
     shares.
 
  .  Pursuant to the Offering, the Company sold 1,500,000 American Depositary
     Shares (ADSs) at a price of US$11.00 per share.
 
  .  Pursuant to the Offering, a further 200,000 ADSs were sold by certain
     shareholders of the Company at a price of US$11.00 per share.
 
13. SHARE OPTION PLANS
 
EXECUTIVE SHARE OPTION PLAN
 
  Effective January 31, 1997, the Company adopted an executive share option
plan (the "Executive Plan") under which the Board of Directors granted certain
members of management options to purchase ordinary shares in the Company. A
total of 203,038 options were issued under the Executive Plan with an exercise
price of A$8.38 per share. The options do not vest until February 1, 1999
after which each Optionholder is entitled to subscribe for one fully paid
ordinary share. The options are not quoted and are due to expire on the
earlier of the 5th anniversary from the issue date or, subject to certain
conditions, on cessation of employment.
 
  The fair value of each share option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
weighted average risk-free interest rate of 5.93%; no dividend yield; expected
lives of 1.5 years and volatility of 80.28%. The fair value of the options as
at January 31, 1998 has been calculated to be A$462,931.
   
1997 SHARE OPTION PLAN     
 
  Under the terms of the Company's 1997 share option plan (the "1997 Plan"), a
total of 329,254 ordinary shares have been authorized for issuance. The 1997
Plan received approval from the Board of Directors of the Company on October
1, 1997 and was approved by the shareholders as of October 7, 1997. Options to
purchase 199,400 ordinary shares with an exercise price of US$11.00 per share
were granted concurrently with the Offering including 18,000 ordinary shares
to executive officers of the Company. Each of the options granted concurrently
with the Offering will generally become exercisable in three equal
installments on the third, fourth and fifth anniversaries of the Offering. 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. In no event may any
one participant in the 1997 Plan receive option grants for more than 27,438
ordinary shares per calendar year.
 
  The 1997 Plan consists of the Option Grant Program, under which eligible
individuals in the Company's employ or service (including officers and other
employees, non-employee Board members and independent consultants) may, at the
discretion of the Plan Administrator, be granted options to purchase ordinary
shares at an exercise price not less than eighty-five percent (85%) of their
fair market value on the grant date.
 
 
                                      55
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
  The Plan Administrator will have complete discretion, within the scope of
its administrative jurisdiction under the 1997 Plan, to determine which
eligible individuals are to receive option grants, the time or times when such
option grants are to be made, the number of shares subject to each such grant,
the vesting schedule to be in effect for the option grant, the maximum term
for which any granted option is to remain outstanding and the status of any
granted option as either an incentive stock option or a non-statutory stock
option under the Federal tax laws.
 
  The fair value of each share option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
weighted average risk-free interest rate of 5.93%; no dividend yield; expected
lives of 5 years and volatility of 80.28%. The fair value of the options as at
January 31, 1998 has been calculated to be A$794,134.
 
TERMINATED PLAN
 
  On November 25, 1993, the Company adopted a share option plan ("the 1993
Plan") pursuant to which the Company's Board of Directors could grant share
options to officers and key employees. 128,958 options were granted with an
exercise price of A$5.83 on November 25, 1993. On November 28, 1995, the
Company granted a further 27,438 options with an exercise price of A$5.65.
 
  On December 31, 1996 and in connection with the Capital Reduction, all
outstanding options were repurchased by the Company from the optionholders.
Compensation for the cancellation of the 101,520 options amounted to A$78,000.
 
  The total compensation paid by the Company to cancel the options has been
expensed during the 7 months to January 31, 1997 and is included in selling,
general and administrative expenses.
 
  The Company applies APB Opinion No. 25 in accounting for its share option
plans and, accordingly, no compensation cost has been recognized for its share
options in the seven-month period to 31 January 1997 and the year ended 31
January 1997 and 1998, respectively. Had the Company determined compensation
cost based on the fair value at the grant date for its share options under
SFAS 123 the Company's net income would have been reduced to the pro forma
amounts indicated below:
 
<TABLE>
<CAPTION>
                              7 MONTHS TO       YEAR ENDED       YEAR ENDED
                            JANUARY 31, 1997 JANUARY 31, 1997 JANUARY 31, 1998
                            ---------------- ---------------- ----------------
                                 (IN A$ THOUSANDS, EXCEPT PER SHARE DATA)
   <S>                      <C>              <C>              <C>
   Net income
    As reported............      $1,557           $ 552            $3,531
    Pro forma..............       1,557             552             3,239
   Net income per common
   and common equivalent
   share
    As reported............      $ 0.38           $0.13            $ 1.43
    Pro forma..............      $ 0.38           $0.13            $ 1.31
</TABLE>
 
                                      56
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
SUMMARY
 
  A summary of the status of the Company's Executive, 1997 and 1993 share
option plans as of June 30, 1995 and 1996, and January 31, 1997 and 1998, and
changes during the years ended on those dates is presented below:
 
<TABLE>
<CAPTION>
                                                    WEIGHTED--      OPTIONS
                                                     AVERAGE     EXERCISABLE AT
                                        OPTIONS   EXERCISE PRICE    YEAR END
                                        --------  -------------- --------------
   <S>                                  <C>       <C>            <C>
   Outstanding balance at July 1, 1994   117,982     A$ 5.83
   Forfeited..........................   (10,975)       5.83
                                        --------     -------        -------
   Outstanding balance at June 30,
    1995..............................   107,007        5.83        107,007
                                        --------     -------        -------
   Granted............................    27,438        5.65
   Forfeited..........................   (32,925)       5.83
                                        --------     -------        -------
   Outstanding balance at June 30,
    1996..............................   101,520        5.78        101,520
                                        --------     -------        -------
   Granted............................   203,038        8.38
   Cancelled..........................  (101,520)       5.78
                                        --------     -------        -------
   Outstanding balance at January 31,
    1997..............................   203,038        8.38            --
                                        --------     -------        -------
   Granted............................   199,400       16.44
                                        --------     -------        -------
   Outstanding balance at January 31,
    1998..............................   402,438     A$12.37            --
                                        ========     =======        =======
</TABLE>
 
  The options exercisable at June 30, 1995 and 1996 were in relation to the
1993 share option plan. The 1993 share option plan was terminated during the
period ended January 31, 1997. The weighted average fair value of options
granted during the years ended January 31, 1997 and 1998 were $2.28 and $4.01,
respectively.
 
  The following table summarizes information about share options outstanding
at January 31, 1998:
 
<TABLE>   
<CAPTION>
            NUMBER                 WEIGHTED-AVERAGE
        OUTSTANDING AT                REMAINING                       WEIGHTED- AVERAGE
       JANUARY 31, 1998            CONTRACTUAL LIFE                    EXERCISE PRICE
       ----------------            ----------------                   -----------------
       <S>                         <C>                                <C>
           203,038                    1.5 years                            A$ 8.38
           199,400                    5.0 years                              16.44
           -------
           402,438                    3.2 years                            A$12.37
           =======
</TABLE>    
 
14. COMMITMENTS AND CONTINGENCIES
 
  Product liability claims have been made against certain companies in the
group which are not expected to result in any material loss to the Company.
 
  The Company entered into a joint and several guarantee together with the
directors of Bromic Pty Limited in favour of ANZ in respect of a A$900,000
facility. On February 25, 1997, ANZ released the Company from this guarantee.
 
                                      57
<PAGE>
 
                            BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
15. GEOGRAPHIC SEGMENT INFORMATION
   
  Financial information by geographic region is summarized below on the basis
that the Operating income of the United States does not include all the income
attributable to it for product manufactured and purchased for the United States
by the Australian subsidiaries:     
 
<TABLE>   
<CAPTION>
                                                              UNITED
                                                    AUSTRALIA STATES    TOTAL
                                                    --------- -------  --------
                                                        (IN A$ THOUSANDS)
   <S>                                              <C>       <C>      <C>
   12 MONTHS TO JANUARY 31, 1998
   Net revenues...................................  $117,613  $61,712  $179,325
                                                    ========  =======  ========
   Operating income...............................  $  7,309  $   497  $  7,806
                                                    ========  =======  ========
   Identifiable assets............................  $ 59,560  $22,514  $ 82,074
                                                    ========  =======  ========
   12 MONTHS TO JANUARY 31, 1997
   Net revenues...................................  $108,003  $40,366  $148,369
                                                    ========  =======  ========
   Operating income...............................  $  2,076  $   643  $  2,719
                                                    ========  =======  ========
   Identifiable assets............................  $ 53,162  $14,808  $ 67,970
                                                    ========  =======  ========
   7 MONTHS TO JANUARY 31, 1997
   Net revenues...................................  $ 75,997  $22,755  $ 98,752
                                                    ========  =======  ========
   Operating income (loss)........................  $  5,537  $(1,141) $  4,396
                                                    ========  =======  ========
   Identifiable assets............................  $ 53,162  $14,808  $ 67,970
                                                    ========  =======  ========
   12 MONTHS TO JUNE 30, 1996
   Net revenues...................................  $104,737  $36,954  $141,691
                                                    ========  =======  ========
   Operating income...............................  $  1,828  $ 1,338  $  3,166
                                                    ========  =======  ========
   Identifiable assets............................  $ 53,225  $13,337  $ 66,562
                                                    ========  =======  ========
   12 MONTHS TO JUNE 30, 1995
   Net revenues...................................  $104,051  $34,006  $138,057
                                                    ========  =======  ========
   Operating income...............................  $  4,206  $ 1,439  $  5,645
                                                    ========  =======  ========
   Identifiable assets............................  $ 55,337  $12,287  $ 67,624
                                                    ========  =======  ========
</TABLE>    
 
16. RELATED PARTY TRANSACTIONS
 
  The directors of the Company believe that transactions with related parties
are on normal terms and conditions no more favourable than those available to
other third parties unless otherwise stated.
 
  Amounts are advanced to the Company by the directors at a commercial rate of
interest.
 
  The company shares premises and incurs rent and operating expenses on behalf
of Rebel Sport Limited. Mr. Linz and Mr. Gavshon were directors and significant
shareholders of Rebel Sport Limited up until July 10, 1997. These amounts are
payable to the Company on 30 day terms.
 
                                       58
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
The above related party transactions and amounts outstanding at each period
end are as follows:
 
<TABLE>
<CAPTION>
                                                       JANUARY 31, JANUARY 31,
                                                          1997        1998
                                                       ----------- -----------
                                                          (IN A$ THOUSANDS)
   <S>                                                 <C>         <C>
   Amounts owing to directors or director related en-
    tities...........................................    $1,231       $ --
                                                         ======       =====
</TABLE>
 
<TABLE>
<CAPTION>
                             YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED   YEAR ENDED
                              JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31,  JANUARY 31,
                                1995       1996       1997        1997         1998
                             ---------- ---------- ----------- -----------  -----------
                                                               (UNAUDITED)
                                                 (IN A$ THOUSANDS)
   <S>                       <C>        <C>        <C>         <C>          <C>
   Interest costs incurred
    in respect of amounts
    advanced by directors
    or
    director related enti-
    ties...................    $  222     $   97     $   50      $   96       $   44
   Amounts advanced to
    Rebel Sport
    Limited................       683        678        410         713          320
   Amounts reimbursed by
    Rebel Sport Limited....       597        703        352        (641)         260
                               ======     ======     ======      ======       ======
 
17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
 
   Cash paid during the pe-
    riod for:
   Interest................    $2,418     $2,327     $1,528      $2,432       $3,362
   Income taxes............       559        968        423         812        2,163
                               ======     ======     ======      ======       ======
</TABLE>
 
  During the period ended January 31, 1997 the Company acquired Mr. Sydney
Selati's 15% interest in Galore USA for consideration of A$1,000,000. The
transaction was effected by the issuance of 137,189 ordinary shares (A$7.29
per share) of the Company.
 
  During the periods, 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:
 
<TABLE>
<CAPTION>
                             YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED   YEAR ENDED
                              JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31,  JANUARY 31,
                                1995       1996       1997        1997         1998
                             ---------- ---------- ----------- -----------  -----------
                                                               (UNAUDITED)
                                                 (IN A$ THOUSANDS)
   <S>                       <C>        <C>        <C>         <C>          <C>
   Equipment acquired under
    capital leases.........    $1,883     $1,682     $1,471      $1,893       $1,729
                               ======     ======     ======      ======       ======
</TABLE>
 
  On July 1, 1995, the company's interest in GLG Trading Pte Limited was
reduced from 100% to 50% by the issue of additional shares in GLG Trading Pte
Limited. The deconsolidation of GLG Trading Pte Limited has resulted in the
reversal of the opening cash balance of GLG Trading Pte Limited in the
Statement of Cash Flows as the Company has accounted for its investment on an
equity basis from July 1, 1995.
 
18. PENSION PLANS
   
  The Company and its Australian subsidiaries have established defined
contribution pension plans for the provision of benefits to their Australian
employees on retirement, death or disability. Benefits provided under the
plans are based on contributions for each employee. Company contributions are
6% of gross salary for all employees except for certain executives for whom
the Company contributes 10%.     
 
                                      59
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
  The Company and employees contribute various percentages of gross income.
The plans are of an accumulation type and as such, the Company has:
 
  .  no commitment to fund retirement benefits other than the percentage of
     each employee's salary as prescribed by the relevant trust deed; and
 
  .  no legal obligation to cover any shortfall in the funds' obligations to
     provide benefits to employees on retirement.
 
  The pension plans comply with Australian regulatory provisions set by the
Insurance and Superannuation Commission. The Company has complied with the
provisions of the Superannuation Guarantee Charge Act.
 
  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:
 
<TABLE>
<CAPTION>
                            YEAR ENDED YEAR ENDED 7 MONTHS TO YEAR ENDED   YEAR ENDED
                             JUNE 30,   JUNE 30,  JANUARY 31, JANUARY 31,  JANUARY 31,
                               1995       1996       1997        1997         1998
                            ---------- ---------- ----------- -----------  -----------
                                                              (UNAUDITED)
                                                (IN A$ THOUSANDS)
   <S>                      <C>        <C>        <C>         <C>          <C>
   Contribution expense....    $919      $1,015      $600        $996        $1,113
                               ====      ======      ====        ====        ======
</TABLE>
 
19. EARNINGS PER SHARE
 
<TABLE>
<CAPTION>
                                  YEAR ENDED              YEAR ENDED              7 MONTHS TO
                                 JUNE 30, 1995           JUNE 30, 1996         JANUARY 31, 1997
                            ----------------------- ----------------------- -----------------------
                                          PER SHARE               PER SHARE               PER SHARE
                            INCOME SHARES  AMOUNT   INCOME SHARES  AMOUNT   INCOME SHARES  AMOUNT
                            ------ ------ --------- ------ ------ --------- ------ ------ ---------
                                      (IN A$ THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
   <S>                      <C>    <C>    <C>       <C>    <C>    <C>       <C>    <C>    <C>
   Income.................. $3,805                  $3,945                  $1,557
                            ------                  ------                  ------
   BASIC EPS
   Income available to
    common shareholders....  3,805 4,450    $0.86    3,945 4,450    $0.89    1,557 4,073    $0.38
                                            =====                   =====                   =====
   EFFECT OF DILUTIVE
    SECURITIES
   Convertible shares net
    of tax.................    --    --                --    --                 56    79
   Options demand
    exercised..............    --    --                --    --                --     93
                            ------ -----    -----   ------ -----    -----   ------ -----    -----
   DILUTED EPS
   Income available to
    common shareholders
    plus assumed
    conversions............ $3,805 4,450    $0.86   $3,945 4,450    $0.89   $1,613 4,245    $0.38
                            ====== =====    =====   ====== =====    =====   ====== =====    =====
</TABLE>
 
                                      60
<PAGE>
 
                           BARBEQUES GALORE LIMITED
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
 
 
<TABLE>
<CAPTION>
                                     YEAR ENDED              YEAR ENDED
                                     JANUARY 31,             JANUARY 31,
                                        1997                    1998
                               ----------------------- -----------------------
                                             PER SHARE               PER SHARE
                               INCOME SHARES  AMOUNT   INCOME SHARES  AMOUNT
                               ------ ------ --------- ------ ------ ---------
                                     (UNAUDITED)
                                (IN A$ THOUSANDS, EXCEPT SHARE AND PER SHARE
                                                    DATA)
   <S>                         <C>    <C>    <C>       <C>    <C>    <C>
   Income.....................  $552                   $3,531
                                ----                   ------
   BASIC EPS
   Income available to common
    shareholders..............   552  4,228    $0.13    3,531 2,473    $1.43
                                               =====                   =====
   EFFECT OF DILUTIVE
    SECURITIES
   Convertible shares net of
    tax.......................   --     --                504   919
   Options demand exercised...   --     --                --     41
                                ----  -----    -----   ------ -----    -----
   DILUTED EPS
   Income available to common
    shareholders plus assumed
    conversions...............  $552  4,228    $0.13   $4,035 3,433    $1.18
                                ====  =====    =====   ====== =====    =====
</TABLE>
 
  Options to purchase 199,400 shares of A$16.44 per share were outstanding at
January 31, 1998 but were not included in the computation of diluted EPS as
the options exercise price was greater than the average market price of the
common shares. These options expire on October 1, 2007.
 
20. SUBSEQUENT EVENT
 
  The Company purchased a property for approximately A$3.5 million pursuant to
a decision to relocate its enameling operations to the same facilities as its
barbecue and home heater manufacturing operations adjacent to its Australian
headquarters.
 
                                      61
<PAGE>
 
  ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
   
(a)  The following documents are filed as part of this Amendment:     
 
<TABLE>   
<CAPTION>
                                                                           PAGE
                                                                          NUMBER
                                                                          ------
   <S>                                                                    <C>
   Independent Auditor's Reports.........................................   38
   Consolidated Balanced Sheets..........................................   40
   Consolidated Statements of Operations.................................   41
   Consolidated Statements of Shareholders' Equity.......................   42
   Consolidated Statements of Cash Flows.................................   43
   Notes to Consolidated Financial Statements............................   44
</TABLE>    
 
(b)  Exhibits
 
<TABLE>   
<CAPTION>
   EXHIBIT
   NUMBER
   -------
   <C>     <S>
   *10.5   Major Agreements relating to the Registrant's U.S. Operating
           Subsidiary's Credit Facility with Merrill Lynch Business Financial
           Services Inc. ("Merrill Lynch"), including Term WCMA Loan and
           Security Agreement No. 9502340701, dated as of February 23, 1995 by
           and between Galore USA and Merrill Lynch; WCMA Note, Loan and
           Security Agreement No. 231-07T10, dated as of February 23, 1995 by
           and between Galore USA and Merrill Lynch; Unconditional Guaranty by
           the Registrant relating to Term WCMA Loan and Security Agreement No.
           9502340701; Unconditional Guaranty by the Registrant relating to
           WCMA Note, Loan and Security Agreement No. 231-07710; Term WCMA Note
           No. 9502340701; Letter dated November 27, 1996 from Merrill Lynch to
           Galore USA re: WCMA line of credit variation; Letter and Letter
           Agreement dated August 27, 1997 from Merrill Lynch to Galore U.S.A.
           re: WCMA line of credit variation. Letter Agreement dated January
           20, 1998 from Merrill Lynch to Galore USA re: amendment to WCMA
           Note, Loan and Security Agreement No. 231-07T10, modifying locations
           of collateral and change in maturity date to February 28, 1998.
   23.1    Consent of Horwath Sydney Partnership.
   23.2    Consent of KPMG.
   24.1    Powers of Attorney (see page 64).
  --------
   *       Incorporated herein by reference to the Registrant's Registration
           Statement on Form F-1 (Registration No. 333-37259); and the Annual
           Report previously filed with the Commission on April 30, 1998,
           pursuant to Rule 12b-32 of the Exchange Act.
</TABLE>    
 
                                       62
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>   
 <C>    <S>
 *10.5  Major Agreements relating to the Registrant's U.S. Operating
        Subsidiary's Credit Facility with Merrill Lynch Business Financial
        Services Inc. ("Merrill Lynch"), including Term WCMA Loan and Security
        Agreement No. 9502340701, dated as of February 23, 1995 by and between
        Galore USA and Merrill Lynch; WCMA Note, Loan and Security Agreement
        No. 231-07T10, dated as of February 23, 1995 by and between Galore USA
        and Merrill Lynch; Unconditional Guaranty by the Registrant relating to
        Term WCMA Loan and Security Agreement No. 9502340701; Unconditional
        Guaranty by the Registrant relating to WCMA Note, Loan and Security
        Agreement No. 231-07710; Term WCMA Note No. 9502340701; Letter dated
        November 27, 1996 from Merrill Lynch to Galore USA re: WCMA line of
        credit variation; Letter and Letter Agreement dated August 27, 1997
        from Merrill Lynch to Galore U.S.A. re: WCMA line of credit variation.
        Letter Agreement dated January 20, 1998 from Merrill Lynch to Galore
        USA re: amendment to WCMA Note, Loan and Security Agreement No. 231-
        07T10, modifying locations of collateral and change in maturity date to
        February 28, 1998.
   23.1 Consent of Horwath Sydney Partnership.
   23.2 Consent of KPMG.
   24.1 Powers of Attorney (see page 64).
</TABLE>    
   
*  Incorporated herein by reference to the Registrant's Registration Statement
   on Form F-1 (Registration No. 333-37259); and the Annual Report previously
   filed with the Commission on April 30, 1998, pursuant to Rule 12b-32 of the
   Exchange Act.     
 
                                       63
<PAGE>
 
                                  SIGNATURES
   
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Barbeques Galore, a corporation
organized and existing under the laws of the Commonwealth of Australia, has
duly caused this Amendment No. 1 to the Annual Report on Form 20-F to be
signed on its behalf by the undersigned, thereunto duly authorized on May 20,
1998.     
 
                                          BARBEQUES GALORE
 
                                                    /s/ Robert Gavshon
                                          By __________________________________
                                                      Robert Gavshon
                                              Deputy Chairman of the Board of
                                                       Directors and
                                                      General Counsel
 
                               POWER OF ATTORNEY
 
  KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert Gavshon and Sydney Selati and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Annual Report on Form 20-F, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
   
  PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
AMENDMENT NO. 1 TO THE REPORT ON FORM 20-F HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:     

<TABLE>    
<S>                                    <C>                        <C> 
 
                                       Chairman of the               
               *                        Board and Director        May 20, 1998
-------------------------------------   (Principal                        
            Sam Linz                    Executive Officer)
 
                                       (Principal Financial           
               *                        Officer and               May 20, 1998
-------------------------------------   Accounting Officer)           
           David James
 
                                       Deputy Chairman of        
               *                        the Board and             May 20, 1998
-------------------------------------   Director                 
         Robert Gavshon
 
                                       
               *                       Director                   May 20, 1998
-------------------------------------  
           John Price
 
                                       
               *                       Director                   May 20, 1998
-------------------------------------                             
         Philip Gardiner
 
                                       
               *                       Director                   May 20, 1998
-------------------------------------                             
         Gordon Howlett
 
                                       Director and               
               *                        Authorized U.S.           May 20, 1998
-------------------------------------   Representative            
         Sydney Selati
</TABLE>      
   
* Pursuant to Power of Attorney previously filed with the Commission.     
 
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