<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-K
(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                    For the Fiscal Year Ended June 30, 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 1-10062
                            -------

                                INTERTAN, Inc.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Delaware                                         75-2130875
-----------------------------------------                -----------------------
   (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                          Identification No.)
 
201 Main Street, Suite 1805
Fort Worth, Texas                                                76102
-----------------------------------------                -----------------------
 (Address of principal executive offices)                      (Zip Code)
 
Registrant's telephone number, including area code:          817-348-9701
                                                         -----------------------

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class                    Name of each exchange on which registered
-------------------                    -----------------------------------------
Common Stock, par value                         New York Stock Exchange
$1.00 per share*  
(*Includes related preferred 
stock purchase rights)

Securities registered pursuant of Section 12(g) of the Act:  None

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 14, 1998 was $48,123,823 based on the New York Stock
Exchange closing price on such date.

As of September 14, 1998 there were 12,622,642 shares of the registrant's Common
Stock outstanding.

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<PAGE>
 
                      DOCUMENTS INCORPORATED BY REFERENCE
                                        
Portions of the definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders are incorporated by reference into Part III.  With the exception of
those portions which are incorporated by reference in this Annual Report on Form
10-K, the definitive 1998 Proxy Statement is not to be deemed incorporated into
or filed as part of this Report.

                                       2
<PAGE>
 
                                 INTERTAN, INC.
                   FORM 10-K FOR THE YEAR ENDED JUNE 30, 1998

                               TABLE OF CONTENTS
                               -----------------
 
PART I                                                                  PAGE NO.
------                                                                  --------
Item 1.     Business
             Description of Business                                          4
             Employees                                                        5
             Products and Distribution                                        5
             Management Information Systems                                   7
             Suppliers                                                        7
             Geographic Analysis                                              7
             Strategic Alliances                                             10 
             Merchandise, License and Advertising Agreements                 11
             Seasonality                                                     12
             Competition                                                     12
             Factors That Could Affect Future Performance                    12
Item 2.     Properties                                                       16
Item 3      Legal Proceedings                                                17
Item 4.     Submission of Matters to a Vote of Security Holders              17
            
PART II
-------
Item 5.     Market for the Registrant's Common Equity and
             Related Stockholder Matters                                     17
Item 6.     Selected Financial Data                                          18
Item 7.     Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                       19
Item 7A.    Quantitative and Qualitative Disclosures About Market Risk       34
Item 8.     Financial Statements
             Report of Independent Accountants                               38
             Consolidated Statements of Operations                           39
             Consolidated Balance Sheets                                     40
             Consolidated Statements of Cash Flows                           41
             Consolidated Statements of Stockholders' Equity 
             Notes to Consolidated Financial Statements                      43
Item 9.     Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure                          65
 
PART III
--------
Item 10.    Directors and Executive Officers of the Registrant               65
Item 11.    Executive Compensation                                           65
Item 12.    Security Ownership of Certain Beneficial Owners and Management   65
Item 13.    Certain Relationships and Related Transactions                   65
 
PART IV
-------
Item 14.    Exhibits, Financial Statement Schedules and Reports on Form 8-K  66
            Signatures                                                       73

                                       3
<PAGE>
 
                                     PART I
Item 1.        BUSINESS.

DESCRIPTION OF BUSINESS

InterTAN, Inc. ("InterTAN" or the "Company") was incorporated in the State of
Delaware in June 1986 in order to receive from Tandy Corporation ("Tandy") the
assets and businesses of its foreign retail operations, conducted in Canada
under the "RadioShack" trade name, in Australia under the "Tandy Electronics"
trade name and in the United Kingdom and Europe under the "Tandy" trade name.
Following the transfer of assets, on January 16, 1987 Tandy distributed shares
of InterTAN common stock to the Tandy stockholders in a tax-free distribution on
the basis of one InterTAN share for every ten Tandy shares held.  Thus Tandy
effected a spin-off and divestiture of these foreign retail operations and its
then ownership interest in InterTAN and its operations, thereby constituting
InterTAN as an independent public corporation.  The Company's operations in
continental Europe were closed during fiscal year 1994.

InterTAN is engaged principally in the sale of consumer electronics products and
services through company-operated retail stores and dealer outlets in Canada,
the United Kingdom and Australia. In Canada, the Company also operates cellular
telecommunications stores (the "Cantel Stores") on behalf of Rogers Cantel Inc.
("Cantel").  See "Geographic Analysis  Canada".  The Company also sells product
to direct resellers and end users in certain European countries where the
Company has no company-operated stores or licensed dealers.  InterTAN's ongoing
retail operations are conducted through three wholly-owned subsidiaries:
InterTAN Australia Ltd. ("InterTAN Australia"), a New South Wales corporation
which operates in Australia under the trade name "Tandy Electronics"; InterTAN
Canada Ltd. ("InterTAN Canada"), an Alberta corporation which operates in Canada
under the trade name "RadioShack"; and InterTAN U.K. Limited ("InterTAN U.K."),
an England/Wales corporation which operates in the United Kingdom under the
"Tandy" trade name.  As used herein, "InterTAN" or "Company" sometimes
collectively refers to InterTAN,  InterTAN Australia, InterTAN Canada and
InterTAN U.K., according to the context.

As at June 30, 1998, InterTAN's company-operated retail stores and dealers
totaled 1,517 consisting of 456 company-operated and 340 dealer stores in
Canada, 271 company-operated and 108 dealer stores in the  U.K., and 217
company-operated and 125 dealer stores in Australia.  In addition, at June 30,
1998, the Company operated 54 Cantel Stores in Canada.  During fiscal year 1998,
the Company closed 69 consistently underperforming stores in the United Kingdom.
See "Geographic Analysis  United Kingdom".

The format for InterTAN's company-operated stores typically incorporates the
concept of small, strategically located stores in malls in Canada, malls and
city center or "High Street" locations in the United Kingdom and malls and
street locations in Australia, each providing the customer with convenience and
readily available products and services to meet a wide range of consumer
electronic needs.  The Company also operates a limited number of express stores
in Canada and the United Kingdom.  These express stores feature a targeted range
of merchandise in a more compact floor plan and are established in high traffic
areas that do not presently have a company-operated store or which could support
a second location.  In the United Kingdom, the Company is testing the extension
of the express store concept to include locations in high-traffic motorway
service centers.  In Canada, a "store-in-store" test is currently underway under
which the Company operates the consumer electronics department in certain
selected store 

                                       4
<PAGE>
 
formats of Canada's largest chain of department stores. See "Strategic
Alliances". A limited number of clearance stores are also operated in both
Canada and the United Kingdom. InterTAN emphasizes product knowledge and
customer service. The Company believes that its sales associates are noted for
their helpfulness and product knowledge and that customers look to the Company's
stores to find the answers to their technology questions.

The "dealers" included in the above totals are independent retail businesses
which operate under their own trade names but are permitted, under dealer
agreements, to purchase any of the products sold by company-operated stores.
The dealer agreements contain a sub-license permitting such dealer to designate
its consumer electronics department or business as a "RadioShack Dealer", a
"Tandy Dealer", or a "Tandy Electronics Dealer", as applicable.  InterTAN's
dealer network enables the Company to penetrate smaller markets which do not
have a population base large enough to support a company-operated store.

InterTAN also provides after-sale service for all the products it sells during
warranty periods and beyond.  The Company has adapted RadioShack USA's "Repair
Shop at RadioShack" program in each of its three markets.  Under this program,
the Company offers out-of-warranty repair service to customers for a wide range
of nationally branded electronic products.  The Company's service centers
provide repair capability within a satisfactory turnaround period.  The Company
also offers extended warranty plans to its customers.  Under these plans, the
Company will either repair or replace defective product, depending on the nature
of the contract, for a specified number of years beyond the normal warranty
period.  The Company has also introduced RadioShack USA's "RadioShack Unlimited"
program in each of its markets.  Through an in-store catalog, customers are
offered thousands of unusual and hard to find items.

EMPLOYEES

As at June 30, 1998 InterTAN employed approximately 4,100 persons. Approximately
130 of InterTAN Canada's employees are represented by unions. Of this total,
approximately 70 employees are engaged in InterTAN Canada's warehousing and
distribution operations. The remaining 60 unionized employees were based in the
Company's stores in the Province of Manitoba. This bargaining unit was
decertified in September, 1998. Approximately 42 of InterTAN Australia's
employees are represented by three separate unions. Approximately 28 of those
individuals are employed in warehousing operations while the balance, who are
repair technicians and security monitoring staff, are represented by separate
unions. The Company considers its relationships with its employees to be good.

PRODUCTS AND DISTRIBUTION

InterTAN's strategy focuses on a product plan dedicated to profitable sales
growth by improving operating margins while at the same time increasing sales.
Fundamental to this plan are a product offering which includes a high
concentration of private label goods, emphasis on strategically selected core
categories which yield attractive margins, and in which management believes the
Company has a strong position in all of its markets, and managing the percentage
of lower margin product in the overall sales mix.  This strategy has been
complemented by the introduction of certain service initiatives designed not
only to produce revenue in their own right, but also to increase traffic in the
Company's stores.  Many of these service initiatives include residual revenues
which serve to improve gross margins.

InterTAN's stores carry a broad range of private label and brand name,
moderately priced, quality consumer electronics products.  The selection of
products offered for sale is comprehensive, ranging from, 

                                       5
<PAGE>
 
among other things, small parts and accessories to large ticket items such as
computers and stereo systems. Types of product include: telephony products,
including both land-line and cellular telephones, pagers, answering machines and
fax machines, personal electronics products, personal computer hardware and
software, batteries, parts and accessories, communications products, audio and
video products, and other small electronic items. The product line in InterTAN
stores varies from country to country due to product availability, local laws,
regulations and consumer preferences. It is management's view that the range of
products offered by InterTAN, in particular its parts and accessories, is
broader than that typically offered by others in the retail consumer electronics
industry. However, products substantially similar to those sold through
InterTAN's retail outlets are sold by many other retail stores, including
department stores, consumer electronics chains and computer outlets.

The Company's private label products are similar, and in many instances
identical, to those sold through Tandy's RadioShack retail stores in the United
States.  Certain of these products carry the trade-marks RadioShack and Optimus,
among others, which are used under license from Tandy.  See "Merchandise,
License and Advertising Agreements - License Agreements."  Other products carry
the Company's trade-marked brands, including Techcessories.  During fiscal year
1998, private label products accounted for approximately 52% of the Company's
sales.

InterTAN also offers its customers a selection of brand name products including,
among others, Panasonic, AT&T, Compaq, IBM, Sony, Lexmark, Sharp, Star Choice,
ExpressVu and Sanyo (the lack of a (R), TM or SM is not intended, regarding
all of the names referred to herein above, to indicate a lack of registration
therefor). These brand name products have been selected to complement InterTAN's
own private label lines either as extensions or to offer consumers a choice
against which they may compare the relative capability and value of InterTAN's
private label products. Brand name goods are also used to test new products.
 
Management believes that its private label products offer value to the customer
and also produce above average margins for the Company.  For this reason,
InterTAN stresses the sale of private label goods. As part of this strategy, the
Company works closely with Tandy's purchasing and export agent, A&A
International, Inc. ("A&A") in an effort to expand the range of private label
products and to leverage Tandy's sourcing capabilities to negotiate favorable
prices and product offerings with Far East vendors.  See "Suppliers" and
"Merchandise, License and Advertising Agreements  Merchandise Agreements".
However, the positive benefits of this private label strategy may be offset by
the effect of other initiatives taken to emphasize certain product lines which
have high consumer demand and fit the Company's market niche.  These products
include, among others, innovative digital and wireless technology, including
cellular and direct-to-home satellite, other telephony products, and computers.
Private label offers of these products are not always available and, in
addition, stocking these products in branded format reduces inventory risks.
While these products have sales growth potential, they also typically carry
margins which are below the Company's average.

The following table summarizes the product categories which represented more
than 10% of the Company's sales during the past three years:

                                       6
<PAGE>
 
1998 SALES BY PRODUCT GROUP
(Rounded to nearest 1%)
 
          (percentages are of total sales)    1998   1997   1996
          ------------------------------------------------------
          Parts & Accessories                  28%    29%    29%
          Telephony, including cellular        23%    16%    14%
          Audio/Video                          15%    17%    18%
          Computers                            12%    13%    14%
          ------------------------------------------------------
 

MANAGEMENT INFORMATION SYSTEMS

The Company's information systems are used to process inventory, accounting,
payroll, communications and other operating information for all aspects of the
Company's operations.  In addition, each of the Company's stores has one or more
computers which serve as point-of-sale terminals and are linked to operations
headquarters in the particular country.  This information network, referred to
as EPOS, provides detailed sales and margin information on a daily basis,
updates InterTAN's customer database and provides improved financial controls,
as well as acting as a monitor of individual store performance.  The EPOS
systems are also linked directly to a system used to automatically replenish a
store's stock as inventory is sold.

SUPPLIERS

InterTAN acquires approximately 30% of its inventory pursuant to a merchandise
agreement with Tandy and acquires the balance from numerous other manufacturers
located in the United States and in the countries in which InterTAN has
operations.  InterTAN uses A&A as its exclusive purchasing agent and exporter in
the Far East.  See "Merchandise, License and Advertising Agreements -
Merchandise Agreement."

InterTAN purchased approximately $82,000,000 of products through Tandy in fiscal
year 1998.  Under its merchandise arrangements with Tandy, InterTAN may purchase
any private label products which Tandy has available for sale in the United
States in its then current RadioShack catalog, or those products which may
otherwise be reasonably available from Tandy or through A&A.  Through its
ongoing relationship with Tandy, InterTAN is able to take advantage of Tandy's
sourcing strength to obtain products which management believes generate gross
margins which are higher than industry averages and which offer enhanced
customer value.  While the Company from time to time enters into exclusivity
arrangements with certain suppliers (see "Business Strategy - Strategic
Alliances"), InterTAN is not materially dependent on any one supplier other than
Tandy.  See "Merchandise, License and Advertising Agreements."

GEOGRAPHIC ANALYSIS

The principal geographic areas of operations for InterTAN are Canada, Australia
and the United Kingdom.  InterTAN closed all company-operated outlets in
continental Europe during fiscal year 1994. InterTAN has broader market coverage
than most of its competitors due to the large number of stores in each country
in which it operates.  Market coverage is further enhanced by the Company's
dealer networks.

                                       7
<PAGE>
 
A table appears in Note 14 to the Consolidated Financial Statements which
appears on page 62 of this Annual Report on Form 10-K which shows net sales,
operating profit and identifiable assets of the Company by geographic area for
the three years ended June 30, 1998.  This table is incorporated herein by
reference.

CANADA.
As at June 30, 1998, InterTAN Canada operated a total of 456 RadioShack stores
in Canada.  In  addition, a network of dealers accounted for a further 340
retail locations.  InterTAN Canada uses a form of contract management program,
similar to that used in Australia, in a small number of its company-operated
stores.  See "Geographic Analysis  Australia".  The Company also operated 54
Cantel Stores at June 30, 1998.  See "Strategic Alliances".

The consumer electronics industry in Canada is highly competitive.  The influx
of "big box" retailers into the Canadian market has added additional pressure to
an already competitive marketplace.  However, management believes that InterTAN
Canada's range of products and service orientation differentiate the Company
from other consumer electronics  retailers in Canada.   The Company has also
established a dominant market position in important growth categories, including
telephony and direct-to-home satellite systems.

InterTAN Canada's RadioShack stores are very similar to those operated by Tandy
in the United States.  Because of its geographic proximity to the United States,
InterTAN Canada enjoys the benefit of name recognition, and advertising in
general, as many of Tandy's advertising programs penetrate the border through
media such as cable television and print media.  The Company is the market
leader in Canada in the number of retail locations and offers the broadest
geographic coverage.  InterTAN Canada also maintains a strong presence in
secondary retail markets through its dealer network.

Based on publicly available material, InterTAN believes that the largest
retailers in Canada in fiscal year 1998 (other than department stores) which
have a product line similar to, or competitive with, products offered for sale
by InterTAN Canada were:

                                  Approximate No. of Stores:
                                  --------------------------

Future Shop                                  76
Adventure Electronique                      157

InterTAN's other main competitors in Canada are department stores, computer and
business product specialty retailers, general retailers and other consumer
electronics retailers.

UNITED KINGDOM.
As at June 30, 1998, InterTAN had 271 company-operated stores, all operating
under the Tandy name, and 108 dealer stores in the United Kingdom.  Management
has identified InterTAN U.K.'s primary competitors as:

                                       8
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                            Approximate No. of Stores:
                            --------------------------
 
Dixons Group*                          915
Comet (Kingfisher Group)               258
Argos                                  407

*  Includes stores trading under the banners Dixons, Currys, PC World and The
   Link.

Unlike Canada and Australia, certain of the Company's competitors in the United
Kingdom have a broad market share which results in aggressive price and
promotion.  Other competitors include regional electricity boards, specialist
electrical retailers, department stores and, most recently, supermarkets.

Consumer electronics retailing continues to undergo significant changes in the
United Kingdom.  Although the pace of growth has slowed because of government
restrictions, out-of-town superstores are still being built, attracting shoppers
from the more traditional city center or "High Street" locations.  While many of
these out-of-town stores offer a full range of electrical goods, their major
attraction to consumers appears to be for larger purchases such as white goods,
computers and home entertainment.  There has also been a continued
rationalization in the High Street, with certain retailers downsizing or
withdrawing completely from the High Street.  As part of this rationalization
process, the Company reviewed its entire portfolio of retail locations during
fiscal year 1998 and closed 69 consistently underperforming stores.  Management
believes that the closure of these stores will improve operations in the United
Kingdom.  Management will also continue to evaluate a variety of operational and
strategic initiatives in the United Kingdom in an effort to further improve
consolidated results.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations  United Kingdom Restructuring Plan".  The
shift to out-of-town locations, combined with the rationalization described
above, has left basically four competitors in the High Street - InterTAN U.K.,
Dixons, Argos  and independents.  It is management's view that  Dixons is
InterTAN's most direct competitor in the United Kingdom.

Management believes that the shift towards out-of-town retailing will provide
the Company with several strategic opportunities to fill the retail gap left in
the High Street.  Management believes that certain customer profiles will
continue to shop in High Street locations and there will be continuing customer
demand for products such as cellular and telephony, portable electronics and
accessories from recognized retailers in those locations.

AUSTRALIA.
As at June 30, 1998, InterTAN Australia had 217 company-operated stores and 125
dealer stores.  Of the 217 company-operated retail stores, 142 are operated
under "contract management" arrangements.  Under the contract management
arrangement, the store manager is not employed by InterTAN Australia.  InterTAN
Australia supplies the store inventory.  The store manager is generally obliged
to build up a cash deposit to InterTAN Australia amounting to up to 50% of the
average stock value at the store.  The gross profit attained by the store is
split between InterTAN Australia and the contract manager, who is responsible
for paying normal operating expenses such as labor and utility costs out of
his/her share of the gross profits.  Out of its share of the gross profits,
InterTAN Australia is responsible for all occupancy related payments under the
relevant store lease and other fixed operating expenses.  InterTAN Australia is
committed to providing warranty and service back-up, including advertising and
training.  Management believes that the contract management program is
successful in improving margins and reducing costs by better aligning Company
and contract managers profit goals.

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<PAGE>
 
The economy in Australia has been growing stronger in the last few years.  This
steady improvement had been reflected in improvement in retail sales in general,
in particular in leisure products.  The recent Asian crisis has had a negative
impact on such economic improvement, as the Australian economy is dependent on
both exports into Asian markets and tourism.  It is unclear whether this
pressure on the economy will have an adverse effect on consumer confidence and
spending.

Management believes that InterTAN's primary competitors in Australia are:
 
                 Approximate No. of Stores:
                 --------------------------
 
Vox                        170
Dick Smith                  85
Harvey Norman               92

One of the Company's other competitors, Brash, which had 84 stores during fiscal
year 1997, went into receivership and closed during fiscal year 1998. Other
competitors in Australia include department stores and a big box chain
specializing in business-related products. There are few fully independent
consumer electronics retailers in Australia since many of the independently
owned electronics retailers are members of large buying groups, such as Betta
and Retravision, each having several hundred members.

STRATEGIC ALLIANCES

InterTAN has the largest number of sales outlets among consumer electronics
retailers in both Canada and Australia and is among the top four in the United
Kingdom.  The Company has 25 years of retail experience in all of its markets
and is known for its knowledgeable and friendly sales associates.  Management
believes that there are opportunities to leverage on this strength by forming
strategic alliances with other businesses which are also leaders in their
respective fields.

An example of such an alliance is the retail association announced in the fourth
quarter of fiscal year 1996 between RadioShack Canada and Cantel, Canada's only
nationally-licensed wireless communications company.  At June 30, 1998 the
Company operated 54 Cantel Stores in major malls across Canada.  These stores
predominantly carry Cantel's cellular communications products and accessories.
Additionally, most of RadioShack Canada's 456 company-operated stores
exclusively feature Cantel wireless communications products and services.
Cantel funded the fixturing of "Cantel Express" sections in those stores for the
exclusive offering of Cantel cellular products (including digital), paging  and
other services.  This relationship aligns the Company's consumer electronics
retail expertise with Cantel's technological strength.  In addition to the
Cantel alliance, the Company has an agreement with AT&T Canada Long Distance
Services Company ("AT&T Canada") under which the Company markets AT&T Canada's
telecommunications services in all of its company-operated stores.  AT&T Canada
also funded the construction of AT&T Canada store-in-store facilities in
selected Company retail locations.  The Company has also recently concluded an
agreement with Hudson's Bay Company (the "Bay"), Canada's largest department
store.  Under this agreement, the Company will operate the consumer electronics
departments in certain of the Bay's retail formats on a "store-in-store" basis.
This concept is currently being tested in selected locations.

In Australia, the Company has entered into an arrangement with Optus
Communications Pty Limited ("Optus") to offer its cellular products exclusively
in Tandy Electronics' 217 company-operated stores.  

                                       10
<PAGE>
 
As a part of this arrangement, the Company receives training programs, marketing
support and a share of future air time revenues. In addition, new products and
end services to be released by Optus, such as fiber optic television cable
services and video communication, should become marketable in the future.

In the United Kingdom, the Company has also established a non-exclusive alliance
with a major cellular provider, Vodafone Limited.  Financial support from this
relationship as well as from certain handset vendors enabled the Company to
construct Communications Centers in all of its 271 company-operated stores in
the United Kingdom.  In addition to cellular products, these Centers feature the
full range of the Company's communications products including, land-line
telephones, answering machines, scanners, CB radios and accessories for these
products.  The Company has also reached agreements in the United Kingdom with
Cable & Wireless plc to sell long distance services and with Yorkshire
Electricity Group PLC to sell gas and electrical connections following the
deregulating of these industries.  The Company's significant High Street
presence is ideally suited to market these services.

The Company will continue to pursue additional alliance opportunities, to the
extent practical, in other areas of its business in all three countries.

MERCHANDISE, LICENSE AND ADVERTISING AGREEMENTS

MERCHANDISE AGREEMENT.
The Company and Tandy are parties to a Merchandise Agreement which requires the
Company to use A&A as its exclusive purchasing agent for products from the Far
East during the term thereof.  Consequently, the Company must pay A&A an annual
purchasing agent/exporter fee equal to $1 million plus 0.2% of the Company's
consolidated sales in excess of $500 million less certain credits the Company
earns by purchasing products from A&A.

The terms of the various commissions and fees payable by InterTAN to Tandy under
the Merchandise Agreement are to be reviewed by the parties during the six-month
periods ending June 30, 2000 and June 30, 2005.  In the event that satisfactory
agreement regarding such terms is not reached, following such reviews, the
Merchandise Agreement may be canceled by either party following 180 days' prior
written notice.

LICENSE AGREEMENTS.
The Company has license agreements with Tandy which permit InterTAN to use the
"RadioShack" trade name in Canada, the "Tandy" trade name in the United Kingdom
and the "Tandy Electronics" trade name in Australia and New Zealand. The expiry
dates of these license agreements are June 30, 2006, with automatic annual
extensions to June 30, 2010.  The license agreements may be terminated with five
years' prior written notice by either party.  Each of the license agreements
also provides for a license to use certain of Tandy's trademarks.  In addition,
InterTAN has the right to sub-license to its dealers.  In consideration for
these rights, the Company is obliged to pay a sales-based royalty, which in
fiscal year 1999 will reach its maximum level of up to 1% of consolidated sales.
Both the Merchandise Agreement and the license agreements may be revoked by
Tandy in the event of a change in control of InterTAN or a breach of the terms
of these agreements.

The rights to use the trade names licensed by Tandy are currently, and in
varying degrees (depending on the country of business), an integral part of
InterTAN's marketing strategy. The loss of the licenses would have a material
adverse impact on the business of InterTAN.

                                       11
<PAGE>
 
ADVERTISING AGREEMENT.
Pursuant to an advertising agreement with Tandy, the Company is entitled to the
limited use of certain marketing materials, research and marks developed by or
for Tandy since January 1, 1994, including the service marks "The Repair Shop at
RadioShack", "RadioShack Unlimited"  and "You've got questions.  We've got
answers."  The right to use any marks covered by the agreement are vested in the
Company by being added to the license agreements described above.

SEASONALITY

Like other retailers, InterTAN's business is seasonal, with sales peaking in the
November - December Christmas selling  season.  Cash flow requirements are also
seasonal since inventories build prior to the Christmas selling season.
Significant inventory growth for all  operations typically begins to build in
late summer and peaks in mid-November.

COMPETITION

InterTAN is a specialty consumer electronics retailer and management is not
aware of any direct  competitors in the niche market in which the Company
operates in most of InterTAN's markets.  However, products substantially similar
to many of those sold through InterTAN's retail outlets are sold by many other
retail stores, including department and discount stores, consumer electronics
chains and computer outlets.  See "Geographic Analysis."  Some of these
competitors have greater resources, financial or otherwise, than InterTAN.

FACTORS THAT COULD AFFECT FUTURE PERFORMANCE

This report contains certain forward-looking statements about the business and
financial condition of InterTAN, including various statements contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below.   The forward-looking statements are reasonably based on
current assumptions regarding important risk factors.  Accordingly, actual
results may vary significantly from those expressed in the forward-looking
statements, and the inclusion of such statements should not be regarded as a
representation by the Company or any other person that the anticipated results
expressed therein will be achieved.  The following information sets forth
certain factors that could cause the actual results to differ materially from
those contained in the forward-looking statements.

RELIANCE ON TANDY RELATIONSHIP.
Tandy, including certain of its affiliates, is the Company's principal supplier
and is the licensor of the Company's principal trade names.  Maintaining its
contractual relationships, particularly the supply and license arrangements,
with Tandy is critical to the Company.  The loss of such relationships with
Tandy would have a material adverse effect on the Company.  See "Business -
Suppliers", "- Merchandise, License and Advertising Agreements" and Note 4 to
the Notes to Consolidated Financial Statements.

QUARTERLY VARIATIONS; SEASONALITY.
The Company's quarterly results of operations may fluctuate significantly as the
result of the timing of the opening of, and the amount of net sales contributed
by, new stores and the timing of costs associated with the selection, leasing,
construction and opening of new stores, as well as seasonal factors, product
introductions and changes in product mix.  In addition, sales can be affected as
a result of store closures.  The Company's business is seasonal, with sales and
earnings being relatively lower during the fiscal 

                                       12
<PAGE>
 
quarters other than the second fiscal quarter which includes the Christmas
selling season. Adverse business and economic conditions during this period may
adversely affect results of operations. In addition, excluding the effects of
new store openings, the Company's inventories and related short-term financing
needs are seasonal, with the greatest requirements occurring during its second
fiscal quarter. The Company's financial results for a particular quarter may not
be indicative of results for an entire year and the Company's revenues and/or
expenses will vary from quarter to quarter. The Company's operating results may
also be affected by changes in global economic conditions in the markets where
its stores are located, as well as by weather and other natural conditions. See
"Business -Seasonality" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

COMPETITION.
The retailing industry in which the Company operates is highly competitive.
Products substantially similar to those sold through the Company's retail
outlets are sold by many other retail stores, including department and discount
stores, consumer electronics chains, cellular specialists and computer outlets.
The nature and extent of competition differs from store to store and also from
product line to product line.  Certain of the Company's competitors are larger,
have a higher degree of market recognition and have greater resources, financial
or otherwise, than the Company.

The Company believes that the major competitive factors in its businesses
include customer service, store location, product availability and selection,
price, technical support, and marketing and sales capabilities.  The Company's
utilization of trained personnel and the ability to use national and local
advertising media in each country in which it operates are important to the
Company's ability to compete in its businesses.  Given the highly competitive
nature of the retail industry, no assurances can be given that the Company will
continue to compete successfully with respect to the above-referenced factors.
See "Business - Geographic Analysis."

PRODUCT SUPPLY.
The Company's merchandise strategy places heavy emphasis on private label
products.  These products are typically sourced for the Company in the Far East
and manufactured to the Company's order and specification.  Consequently,
private label products require larger minimum order quantities and longer lead
times than nationally branded product which is generally available locally on
reasonably short notice.  There can be no assurance that the Company will be
able to arrange for the production of private label goods to the level required
to meet its merchandising and profit objectives.  The private label goods being
sourced by the Company in the Far East are also typically purchased by Tandy and
are, therefore, manufactured to North American standards.  These products are,
with minor, and in many cases no, modifications, suitable for sale in Canada.
However, the Company's Australian and U.K. operations require products using
voltage and other specifications which differ from North American standards.
There can be no assurance that vendors will agree to manufacture products to
these specifications in quantities that are affordable to the Company.  Delays
in the timing of arrival of goods from the Far East could also have an adverse
impact on the Company's business, particularly delays during the Christmas
selling season.  See "Business  Products and Distribution" and "- Suppliers"

DEPENDENCE ON PRODUCT DEVELOPMENT.
The Company's operating results are, and will continue to be, subject in part to
the introduction and acceptance of new products in the consumer electronics
industry.  Fluctuations in consumer demand, which could be caused by lack of
successful product development, delays in product introductions, product related
difficulties or lack of consumer acceptance, could adversely affect the growth
rate of sales of products and services and could adversely affect the Company's
operating results.  The Company's 

                                       13
<PAGE>
 
operating results are also affected by its ability to anticipate and quickly
respond to the changes taking place in its markets as consumers' needs,
interests and preferences alter with time. There can be no assurance that the
Company will be successful in this regard. See "Business - Products and
Distribution" and " - Strategic Alliances."

OFFERING ADDITIONAL PRODUCTS AND SERVICES.
The Company's strategy, particularly through certain of its strategic alliances,
includes offering direct-to-home satellite and additional communications
products and services, which may include, among others, paging, cable
television, home security monitoring and communication, cellular phone service,
local and long-distance phone service, and Internet access.  Entry into new
markets entails risks associated with the state of development of the market,
intense competition from companies already operating in those markets, potential
competition from companies that may have greater financial resources and
experience than the Company, and increased selling and marketing expenses.
There can be no assurance that the Company's products or services will receive
market acceptance in a timely manner, or at all, or that prices and demand in
new markets will be at a level sufficient to provide profitable operations.  See
"Business - Products and Distribution" and "-Strategic Alliances."

RELIANCE ON STORE LOCATIONS.
The Company's success is dependent in part upon its ability to open and operate
new stores on a profitable basis and to increase sales at existing stores.  The
Company's performance is also dependent to a significant degree upon its ability
to hire, train and integrate qualified employees into its operations.  Excluding
the new formats being tested in Canada and the United Kingdom, the Company plans
to open approximately 10 new stores in fiscal year 1999.  There can be no
assurances that the Company will be able to locate and obtain favorable store
sites to meet its goals, attract and retain competent personnel, open new stores
on a timely and cost-efficient basis or operate the new and existing stores on a
profitable basis.  The Company plans to open new stores in existing markets,
which may result in the diversion of sales from existing stores and thus some
reduction in comparable store sales.  See "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations - Net
Sales and Operating Revenues."

NEED FOR ADDITIONAL FINANCING.
The Company requires substantial capital to fund its inventory purchases and
store openings and renovations.  Consequently, the Company's ability to grow
sales and the future of its operations will be affected by the availability of
financing and the terms thereof.  There can be no assurance that the Company
will have access to the financing necessary to meet its sales growth plans or
that such financing will be available to the Company on favorable terms.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."

POSSIBLE INCOME TAX REASSESSMENTS.
The Company is in discussion with Revenue Canada regarding several issues
relating to the Company's spin-off from Tandy and the Company's former
operations in continental Europe.  Depending on the level of reassessments
received, the Company may need to seek additional financing to post deposits
necessary to pursue its rights of appeal.  There can be no assurance that such
additional financing would be available.  See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Income Taxes" and "-
Liquidity and Capital Resources."

                                       14
<PAGE>
 
MANAGEMENT INFORMATION SYSTEMS.
The Company's success is dependent to a significant degree upon the accuracy and
proper utilization of its management information systems.  For example, the
Company's ability to manage its inventories, accounts receivable, accounts
payable and to price its products appropriately, depends upon the quality and
utilization of the information generated by its management information systems.
In addition, the success of the Company's operations is dependent to a
significant degree upon its management information systems.  The failure of the
Company's management information systems to adapt to business needs resulting
from, among other things, expansion of its store base and the further
development of its various businesses, could have a material adverse effect on
the Company.  See "Business - Management Information Systems."

 
YEAR 2000.
Many of the world's computer systems currently cannot properly recognize or
process date-sensative information relating to the Year 2000 and beyond.  The
Company depends upon its computer systems, as well as those of various vendors
and service providers, for its day-to-day operations.  Inadequate remediation of
the Year 2000 problem by the Company or its vendors, service providers and
others with whom they interact could have an adverse effect on the Company's
operations.  The Company has in each country of operation assembled a management
team to take steps to address Year 2000 issues with respect to its own computers
and systems and to obtain satisfactory assurances that comparable steps are
taken by the Company's major service providers and vendors.  In light of the
remediation efforts currently being undertaken, the Company does not anticipate
a material adverse impact on its business or operations.  However, there can be
no assurances that the remediation plan will be sufficient and timely or that
interaction with other noncomplying computer systems will not have a material
adverse effect on the Company's business, operations or financial conditions.
The Company currently estimates that the total cost to resolve its Year 2000
issues will be approximately $1 million; however, there can be no assurance that
the actual cost incurred will not be higher than this estimate.  See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations  Year 2000 Issues".

VOLATILITY OF STOCK PRICE.
The price of the Common Stock may be subject to significant fluctuations in
response to the Company's operating results, developments in the consumer
electronics industry, general market movements, economic conditions, and other
factors.  For example, announcements of fluctuations in the Company's, its
vendors' or its competitors' operating results, and market conditions for growth
stocks or retail industry stocks in general, could have a significant impact on
the price of the Common Stock.  In addition, the U.S. stock market in recent
years has experienced price and volume fluctuations in general that may have
been unrelated or disproportionate to the operating performance of individual
companies.  These fluctuations, as well as general economic and market
conditions, may adversely affect the market price of the Common Stock and the
ability of the Company to access the capital markets, if necessary, to finance
its future operations.  See "Market for the Registrant's Common Equity and
Related Stockholder Matters" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."

CURRENCY FLUCTUATION AND GLOBAL ECONOMIC RISKS.
The Company's financial results are reported in U.S. Dollars.  Due to the
structure of the Company's operations, possible periodic fluctuation of local
currencies against the U.S. dollar will have an impact on the Company's
financial results.  The Company's subsidiaries conduct business in several
foreign 

                                       15
<PAGE>
 
currencies; accordingly, depreciation in the value of those currencies against
the U.S. dollar reduces earnings as reported by the Company in its financial
statements. The Company and its subsidiaries purchased approximately 30% of
their inventory through Tandy in fiscal 1998. These purchases were all made in
U.S. dollars and the products purchased were sold in Canada, the United Kingdom
and Australia in local currencies. Accordingly, exchange rate fluctuations could
have a significant effect on the Company's gross margins. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Results of Operations." Additionally, the Company's convertible subordinated
debentures are not denominated in the functional currency of the borrower. "See
Management Discussion and Analysis of Financial Condition and Results of
Operations Foreign Currency Transaction (Gains)/Losses".

Currency exchange rates may fluctuate significantly over short periods of time.
Such rates generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of investments in different
countries, actual or perceived changes in interest rates, and other complex
factors, as seen from an international perspective.  Currency exchange rates
also can be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad.

Furthermore, due to the nature of the Company's operations, the operating
results of the Company may, from time to time, be generally affected by global
economic and political conditions and such conditions in each particular country
in which the Company operates.


ITEM 2.  PROPERTIES.

InterTAN owns three facilities consisting of a 412,000 square-foot building
(owned by InterTAN Canada) containing office and warehouse space in Barrie,
Ontario, Canada, where the headquarters of InterTAN Canada are located, two
buildings aggregating 152,000 square-feet (owned by InterTAN Australia)
containing office and warehouse space in Mount Druitt, New South Wales,
Australia, where the headquarters of InterTAN Australia are located, and a
43,000 square-foot building (owned by InterTAN U.K.) located near Birmingham,
England, where the headquarters for InterTAN U.K. and a properties warehouse are
located.

InterTAN U.K. leases three facilities totaling 133,000 square feet near
Birmingham, England in which the Company's distribution center and repair
facilities are located.  InterTAN's head office is located in a leased 6,675
square-foot facility in Fort Worth, Texas.  With the exception of a retail store
being located in each of InterTAN's three owned properties discussed above,
InterTAN's retailing operations are primarily conducted in leased facilities.
The average store size is between 1,200 and 1,800 square feet.
 
Additional information on the Company's properties is found in "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and in
the "Notes to Consolidated Financial Statements" and is incorporated herein by
reference. The following items are discussed further in the referenced pages of
this Form 10-K.
                                                Pages
                                                -----
          Rent Expense                            26
          Retail Square Feet                      18
          Sales Outlets                           21

                                       16
<PAGE>
 
ITEM 3.   LEGAL PROCEEDINGS.

With the exception of the matters discussed in Notes 2 and 8 of the "Notes to
Consolidated Financial Statements" on pages 46 and 51, respectively, of this
Form 10-K, such Notes being incorporated herein by reference, there are no
material pending legal proceedings, other than ordinary routine litigation
incidental to InterTAN's business, to which InterTAN or any of its subsidiaries
is a party or to which any of their property is subject.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS.

The principal United States market in which InterTAN's common stock trades is
the New York Stock Exchange.  The common stock also trades in Canada on the
Toronto Stock Exchange.

The high and low closing sales prices (in U.S. dollars), as reported by the New
York Stock Exchange, of InterTAN's common stock for each full quarterly period
within the two most recent fiscal years are set out below:
 
          Quarter Ended        High      Low
          -------------        ----      ---
          June, 1998          $7 5/8    $5
          March, 1998          5 5/8     4 3/4 
          December, 1997       5 15/16   5
          September, 1997      5 3/4     3 5/8 
          June, 1997           4         3 3/8 
          March, 1997          4 3/4     3 7/8 
          December, 1996       6 3/8     4 5/8 
          September, 1996      6 5/8     5 5/8 
 

As of September 14, 1998, there were approximately 11,400 recordholders of
InterTAN's common stock.

InterTAN has never declared cash dividends.  Based upon InterTAN's long-term
growth opportunities, in the opinion of management, the stockholders are best
served by InterTAN pursuing a strategy of reinvesting all profits.

                                       17
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA.

 
FINANCIAL HIGHLIGHTS

<TABLE> 
<CAPTION> 
(In thousands, except percent, per share data,                            Year ended June 30
number of sales outlets and number of employees)         1998         1997       1996       1995        1994
 
---------------------------------------------------------------------------------------------------------------- 
OPERATING RESULTS:
<S>                                                    <C>        <C>          <C>         <C>       <C>
 Net sales                                             $541,374   $  519,318    $506,445   $491,751   $465,766
 Gross profit percent                                      43.1         44.8        44.3       43.2       44.3
 Operating income (loss)                                  2,360/1/    (3,801)/3/  11,629     13,861/4/  16,851/4/
 Net income (loss)                                      (12,773)     (16,609)     (2,241)     8,123     19,649
 Basic net income (loss) per average common share         (1.05)       (1.45)      (0.21)      0.82       2.09
 Diluted net income (loss) per average common share       (1.05)       (1.45)      (0.21)      0.65       1.17
 ................................................................................................................
FINANCIAL POSITION AT YEAR END:
 Total assets                                           223,547      254,307     261,633    262,039    258,591
 Net working capital                                    103,701      138,532     145,471    157,582    148,108
 Long-term debt                                          38,706       57,558      64,730     83,555     89,831
 Stockholders' equity                                    85,990      106,234     119,512    113,326    101,513
 ................................................................................................................
OTHER INFORMATION AT YEAR END:
 Number of sales outlets                                  1,517/2/     1,683/2/    1,780      1,839      1,817
 Retail square feet (company-operated stores)             1,354        1,479       1,424      1,468      1,508
 Number of employees                                      4,105        4,366       4,343      4,217      4,220
---------------------------------------------------------------------------------------------------------------- 
</TABLE>

/1/  Fiscal year 1998 includes a provision for business restructuring in the
     United Kingdom of $12,712,000. In addition, inventory writedowns of
     $2,325,000 were charged directly to gross profit.

/2/  In fiscal 1998, the decline in the number of sales outlets is due primarily
     to the closure of stores under the United Kingdom restructuring plan and
     the planned reduction in the number of low volume dealers in all countries.
     The latter also affected the number of outlets in fiscal 1997.

/3/  Fiscal year 1997 includes an asset impairment charge of $10,042,000 in the
     United Kingdom.

/4/  Fiscal years 1995 and 1994 include credits of $1,600,000 and $3,612,000,
     respectively, related to business restructuring of the Company's former
     operations in continental Europe.

                                       18
<PAGE>
 
Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

 INTRODUCTORY NOTE REGARDING FORWARD-LOOKING INFORMATION

WITH THE EXCEPTION OF HISTORICAL INFORMATION, THE MATTERS DISCUSSED HEREIN ARE
FORWARD-LOOKING STATEMENTS ABOUT THE BUSINESS, FINANCIAL CONDITION AND PROSPECTS
OF INTERTAN, INC. (THE "COMPANY" OR "INTERTAN").  THE ACTUAL RESULTS OF THE
COMPANY COULD DIFFER MATERIALLY FROM THOSE INDICATED BY THE FORWARD-LOOKING
STATEMENTS BECAUSE OF VARIOUS RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED
TO, INTERNATIONAL ECONOMIC CONDITIONS, INTEREST AND FOREIGN EXCHANGE RATE
FLUCTUATIONS, VARIOUS TAX ISSUES, INCLUDING POSSIBLE REASSESSMENTS, CHANGES IN
PRODUCT DEMAND, COMPETITIVE PRODUCTS AND PRICING, AVAILABILITY OF PRODUCTS,
INVENTORY RISKS DUE TO SHIFTS IN MARKET CONDITIONS, DEPENDENCE ON MANUFACTURERS'
PRODUCT DEVELOPMENT, THE REGULATORY AND TRADE ENVIRONMENT, REAL ESTATE MARKET
FLUCTUATIONS, CERTAIN ASPECTS OF YEAR 2000 COMPLIANCE  AND OTHER RISKS INDICATED
IN THE COMPANY'S PREVIOUS FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE RISKS AND UNCERTAINTIES ARE BEYOND THE ABILITY OF THE COMPANY TO CONTROL,
AND IN MANY CASES THE COMPANY CANNOT PREDICT THE RISKS AND UNCERTAINTIES THAT
COULD CAUSE ITS ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY THE
FORWARD-LOOKING STATEMENTS.

                             RESULTS OF OPERATIONS

OVERVIEW

InterTAN is engaged in the sale of consumer electronics products primarily
through company-operated retail stores and dealer outlets in Canada, the United
Kingdom and Australia.  The Company's retail operations are conducted through
three wholly-owned subsidiaries: InterTAN Australia Ltd., which operates in
Australia under the trade name "Tandy Electronics"; InterTAN Canada Ltd., which
operates in Canada under the trade name "RadioShack"; and InterTAN U.K. Limited,
which operates in the United Kingdom under the "Tandy" trade name.  All of these
trade names are used under license from Tandy Corporation ("Tandy") of Fort
Worth, Texas.

UNITED KINGDOM RESTRUCTURING PLAN

As part of its ongoing efforts to improve the financial performance of its
United Kingdom operation, the Company carried out a review of the performance of
all of its stores in the United Kingdom.  As a consequence of that review, in
January, 1998, a plan to close 69 consistently under-performing stores was
approved.  In connection with this restructuring plan, a provision of
$12,712,000 was recorded during the third quarter of fiscal year 1998,
reflecting lease disposal costs, severance costs, and other closure costs,
including fixture removal and contract termination costs.

As a result of the store closure plan, the Company implemented an inventory
clearance program designed to liquidate, in a relatively short time frame, a
significant portion of the inventory from the 69 stores to be closed.  The
clearance program was conducted through 18 clearance stores selected from the
list of stores to be closed.  These clearance stores were open for varying
lengths of time during the third and fourth quarters.  As a consequence of this
program, a provision of $2,325,000 was recorded to write down the 

                                       19
<PAGE>
 
inventory in the clearance centers to estimated net realizable value. This
amount has been included in cost of products sold and is in addition to the
restructuring provision discussed above.

As of June 30, 1998, all 69 stores, including the clearance stores, had closed
and substantially all inventory identified for clearance had been sold.  All
employees affected had either been reassigned within the Company or terminated.
A total of eight of the stores identified for closure had leases which expired
prior to June 30, 1998.  The remaining 61 stores have lease terms remaining of
varying periods up to 15 years.  A national firm of real estate brokers has been
engaged to assist in arranging for the sublet or assignment of these leases to
other parties.  Provision has been made for management's best estimate of the
costs of disposing of these leases.  The overall economy and other factors
affecting the property market in the United Kingdom could cause the actual lease
disposal costs to differ from management's estimates and result in future
adjustments.

Management originally estimated that approximately 230 jobs would be lost as a
result of this store closure program.  As of June 30, 1998, approximately 183
individuals had been terminated.  The difference results from unforeseen
attrition.

Sales from the 69 closed stores during the 1998, 1997 and 1996 fiscal years were
$21,198,000, $24,987,000 and $24,992,000, respectively.  The operating losses
during the same three years were $6,380,000, $7,201,000 and $3,009,000,
respectively.   Management believes that the closure of these underperforming
stores will improve operations in the United Kingdom.  Management will continue
to evaluate a variety of operational and strategic initiatives in an effort to
mitigate demands placed on consolidated cash resources and improve the return on
consolidated stockholders' equity.  However, there can be no assurance that such
action will result in an operating profit in the United Kingdom.

                                       20
<PAGE>
 
SALES OUTLETS

The geographic distribution of the Company's sales outlets is summarized in the
following table:

                              FISCAL YEAR 1998         June 30
                           ENDING  OPENED  CLOSED    1997   1996
------------------------------------------------------------------- 
 
CANADA
 Company-operated           456*     14      10       452*   450
 Dealer                     340      14      75       401    402
 ...................................................................
                            796      28      85       853    852
------------------------------------------------------------------- 
AUSTRALIA
 Company-operated           217       4       2       215    210
 Dealer                     125       5      24       144    202

 ..................................................................

                            342       9      26       359    412
------------------------------------------------------------------- 

United Kingdom
 Company-operated           271       1      71       341    345
 Dealer                     108      11      33       130    171
 ...................................................................
                                      
                            379      12     104       471    516
                                      
------------------------------------------------------------------- 
                                      
Total                                 
 Company-operated           944      19      83     1,008  1,005
 Dealer                     573      30     132       675    775
 ..................................................................
                          1,517      49     215     1,683  1,780

------------------------------------------------------------------- 
 

*  In addition, the Company operated 54 and 56 stores on behalf of Rogers Cantel
   Inc. during fiscal years 1998 and 1997, respectively.

The dealers included in the preceding table are independent retail businesses
which operate under their own trade names but are permitted, under dealer
agreements, to purchase any of the products sold by InterTAN company stores.
The dealer agreements contain a license permitting the dealer to designate the
consumer electronics department of the dealer's business as a "RadioShack
Dealer," a "Tandy Dealer," or a "Tandy Electronics Dealer," as applicable.
Sales to dealers accounted for approximately 8%, 9% and 9% of total sales during
fiscal years 1998, 1997 and 1996, respectively.  The decrease in the number of
dealers in all three countries is primarily attributable to programs designed to
eliminate dealers that were not purchasing product in sufficient quantities to
make them profitable to the Company.  The reduction in the number of dealers is
not expected to have a material effect on sales.  The Company intends to
continue to explore opportunities to expand its dealer base to produce sales
from communities too small to support company-operated stores.

During fiscal year 1996, the Company entered into an agreement in Canada with
Rogers Cantel Inc. ("Cantel") to operate telecommunications stores  ("Cantel
stores") on its behalf.  The first of these stores was opened in August, 1996
and at June 30, 1998, 54 stores were in operation.  Under the terms of this
agreement, Cantel leases the store and is responsible for fixed costs, including
rent and realty taxes.  The Company purchases certain inventory from Cantel and
receives a commission on certain sales.  Since these locations are not company-
owned, they are not included in the above table.

                                       21
<PAGE>
 
InterTAN's business is seasonal; sales peak in the November-December Christmas
selling season.  The Company's cash flow requirements are also seasonal since
inventories build prior to the Christmas selling season.  Significant inventory
growth for all operations typically begins to build in late summer and peaks in
November.

Since the impact of the fluctuations of local country currencies against the
U.S. dollar can be significant, the following analysis of the income and expense
categories is based both on amounts expressed in U.S. dollars and as a percent
of sales.  Profit and loss accounts, including sales, are translated from local
currency values to U.S. dollars at the monthly average exchange rates.

During fiscal year 1998, the U.S. dollar strengthened against the Canadian and
Australian dollars.  As a result, the same local currency amounts translate into
fewer U.S. dollars as compared with the prior year.  For example, if local
currency sales of the Australian operation in fiscal 1998 were equal to those in
fiscal 1997, the fiscal 1998 income statement would reflect a 13.5% decrease in
sales when reported in U.S. dollars.  On the other hand, during fiscal year 1998
the U.S. dollar weakened modestly against the U.K. pound sterling.
Consequently, in the United Kingdom, the same local currency amounts translated
into more U.S. dollars in fiscal year 1998 as compared with fiscal year 1997.

The following table outlines the percentage change in the weighted average
exchange rates of the currencies of the countries in which the Company operates
relative to the U.S. dollar as compared to the prior year:

                     1998      1997     1996
 
----------------------------------------------- 

Canada              (3.7)      (0.3)     1.4
Australia          (13.5)       3.5      2.1
United Kingdom       1.7        4.8     (1.9)

----------------------------------------------- 
 

NET SALES AND OPERATING REVENUES

Net sales and operating revenues ("sales") in U.S. dollars increased by
$22,056,000 in fiscal year 1998, an increase of 4.2% over fiscal year 1997.  The
impact on sales of weaker Australian and Canadian dollars had a significant
effect on this comparison.  With all currency rate effects eliminated, including
the effects of a stronger pound sterling, sales increased by 8.5%.  This sales
increase was driven by a comparative store sales gain, as the Company closed a
net of 64 company-operated stores, primarily as a result of the store closure
program in the United Kingdom.  See "United Kingdom Restructuring Plan".

The following table illustrates the total percentage sales increase (decrease)
by geographic area as measured in U.S. dollars and local currencies:

                                       22
<PAGE>
 
SALES INCREASE (DECREASE)

                              U.S. dollars
                           Year ended June 30
(Percentage change)      1998     1997     1996
 
-------------------------------------------------- 

Canada                    7.5      1.0      2.2
Australia                (4.3)     9.3     12.1
United Kingdom            4.7      1.0     (0.6)

-------------------------------------------------- 
 
                            Local Currencies
                           Year ended June 30
                         1998     1997     1996
 
-------------------------------------------------- 
 
Canada                   11.6      1.3      1.0
Australia                10.4      5.6     10.3
United Kingdom            3.0     (3.7)     1.3

-------------------------------------------------- 
 

The following table illustrates comparative company-operated store sales
measured at comparable exchange rates:

COMPARATIVE COMPANY-OPERATED STORE SALES/1/

 
                           Year ended June 30
(Percentage change)      1998     1997     1996
 
-------------------------------------------------- 
Canada                    9.2    (1.8)      0.6
Australia                 8.1     2.9      10.7
United Kingdom            8.9    (4.0)     (0.7)
 ..................................................
 Consolidated             8.9    (1.6)      2.0
-------------------------------------------------- 
 
 /1/ Derived from the accumulation of each store's monthly sales in local
     currency for those months in which it was open both in the current and
     preceding year.

Comparative store sales increased during fiscal year 1998 as a whole by 8.9%,
with increases being experienced in all four quarters.  The year finished
strongly with double-digit comparative store sales gains being achieved in all
three of the Company's markets during both the third and fourth quarters.  The
Company's strategy for building sales throughout fiscal year 1998 was to
actively pursue the growth opportunities presented by certain key categories
with high consumer demand and which fit the Company's market niche.  Targeted
product categories included cellular, telephones and accessories, in particular
cordless models, computers, personal electronics and, in Canada, direct-to-home
satellite 

                                       23
<PAGE>
 
systems. The success of this strategy was particularly evident in Canada and
Australia where these promotional efforts produced gains in a wide range of
product categories. The Company's operations in each of these locations have
established significant market share in the telephone and related product
categories. The Company has become a leader in the sale of fax machines and
direct-to-home satellite systems in Australia and Canada, respectively. The
Company's Cantel relationship in Canada continues to give it a significant
cellular presence. In the United Kingdom, sales growth came primarily from the
sale of cellular products. In that market, the Company's conveniently located
chain of stores, together with its customer profile, proved to be a major retail
outlet for the newer prepaid airtime models. The ongoing sale of renewal airtime
cards not only increased sales, but also contributed to improved store traffic.
Similar cellular product offerings have recently been introduced in Canada and
Australia and are proving to be popular in those countries as well. Sales
efforts also continued to focus on the important parts and accessories category
in all three of the Company's markets.

Sales in U.S. dollars increased by $12,873,000 in fiscal year 1997, an increase
of 2.5% over fiscal year 1996.  During that year, the effects of a stronger
Australian dollar and pound sterling were partially offset by a weaker Canadian
dollar.  Measured at the same exchange rates, sales increased by 0.4%.  This
increase was more than explained by a net increase in the store count of three
stores and by the opening of 56 Cantel stores in Canada.  Comparative store
sales declined by 1.6% during fiscal year 1997.  There were a number of factors
contributing to this soft sales performance.  In Canada, there were indications
of consumer resistance to the pricing of computers.  The cellular market, for
varying reasons, was also soft in all three of the Company's markets.

Sales in U.S. dollars increased by $14,694,000 in fiscal year 1996, an increase
of 3.0% over fiscal year 1995.  The impact on sales of stronger Australian and
Canadian dollars was partially offset by a weaker pound sterling.  Measured at
the same exchange rates, sales increased by 2.7%.  An increase of 19 company-
operated stores was an important factor in this improved performance.
Comparative store sales increased by 2.0% during fiscal year 1996.

Management does not believe that inflation or price changes have had a material
effect on sales during fiscal years 1998, 1997 or 1996.

GROSS PROFIT

The effect of higher sales during fiscal year 1998 was partially offset by a
decline in the gross margin percentage and foreign currency rate effects.  The
following analysis summarizes the components of the increase in gross profit
over that experienced in fiscal year 1997 (in thousands):

-------------------------------------------
 
Higher sales                      $ 18,887
Lower gross margin percentage       (8,326)
Foreign currency rate effects       (9,604)
 ...........................................
                                  $    957
 
-------------------------------------------


                                       24
<PAGE>
 
The following table illustrates gross profit as a percentage of sales, by
geographic area:

(As a percentage of sales)     1998    1997    1996

---------------------------------------------------- 
 
Canada                         44.1    45.3    45.6
Australia                      47.2    47.7    45.5
United Kingdom                 39.2    42.1    41.6
 ....................................................
 Consolidated                  43.1    44.8    44.3
 
---------------------------------------------------- 

The gross profit percentage for fiscal year 1998 declined from 44.8% a year ago
to 43.1%, a reduction of 1.7 percentage points.  As discussed under "Net Sales
and Operating Revenues", the Company experienced strong sales improvement during
fiscal 1998 by aggressively pursuing strategic growth opportunities.  However,
with the exception of batteries and parts and accessories, the categories which
presented sales growth potential tended to carry less than the Company's average
margins. This is true in particular of cellular products in all three countries
and direct-to-home satellite systems in Canada.  In addition, the write-down of
inventories of $2,325,000 associated with the store closure program in the
United Kingdom accounted for almost one-half of the decline in the gross margin
percentage in that country.  See "United Kingdom Restructuring Plan".

Management continues to actively pursue a number of initiatives intended to have
a positive impact on the gross margin percentage.  These include an ongoing
emphasis on the sale of parts and accessories and broadening the range in this
important category, developing strategic relationships with suppliers offering a
stream of residual income associated with the sale of a particular product or
service and aggressively pursuing opportunities to grow sales of extended
warranty programs.  However, management believes that future sales growth
opportunities will continue to come primarily from categories with lower than
the Company's average margins.  This trend will continue to put pressure on the
Company's margins.

During fiscal year 1997, the gross margin percentage increased by 50 basis
points to 44.8%.  This improvement was reflective of a merchandising strategy
which placed greater emphasis on the Company's higher margin core categories,
including parts and accessories and private label goods.  Growth in the sale of
extended warranty contracts and improved control over inventories were also
factors that contributed to this improvement.

Gross profit in fiscal year 1996 was $12,078,000 higher than in fiscal 1995,
primarily due to an increase in sales and an improvement in the gross margin
percentage, which increased by 1.1 percentage points to 44.3% of sales.  This
increase resulted primarily from the implementation of the new merchandising
strategy described above.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

In U.S. dollars, selling, general and administrative expenses ("SG&A") decreased
during fiscal year 1998 by $5,753,000 or 2.6%.  This reduction, together with a
sales increase of 4.2%, combined to produce a reduction in the SG&A percentage
of 2.7 percentage points, with reductions being experienced in all three
countries.

                                       25
<PAGE>
 
The following chart illustrates SG&A expense as a percentage of sales by
geographic area:

SG&A EXPENSE BY GEOGRAPHIC AREA

(As a percentage of sales)  1998    1997    1996
 
------------------------------------------------- 

Canada                      33.8    35.9    35.6
Australia                   40.5    42.1    41.6
United Kingdom              43.7    48.2    45.0
 ................................................. 
   Consolidated             39.1    41.8    40.6
 
------------------------------------------------- 

The following table provides a breakdown of SG&A expense by major category (in
thousands):


SG&A Expense by Category
<TABLE> 
<CAPTION> 
                                           1998                      1997                      1996
                                  Dollars     % OF SALES     Dollars    % of Sales     Dollars    % of Sales
------------------------------------------------------------------------------------------------------------
<S>                              <C>          <C>          <C>          <C>          <C>          <C> 
Payroll                          $  87,622       16.2      $  87,774       16.9      $  83,507       16.5
Advertising                         24,770        4.6         27,792        5.4         26,045        5.1
Rent                                42,028        7.8         43,578        8.4         40,918        8.1
Taxes (other than income taxes)     17,775        3.3         18,105        3.5         16,942        3.3
Telephone and utilities              6,855        1.3          7,333        1.4          6,865        1.4
Other                               32,408        5.9         32,629        6.2         31,417        6.2
 ............................................................................................................
                                 $ 211,458       39.1      $ 217,211       41.8      $ 205,694       40.6
------------------------------------------------------------------------------------------------------------
</TABLE> 
 

Foreign exchange rate effects more than explained the apparent reduction in SG&A
spending during fiscal year 1998.  Measured at the same exchange rates, SG&A
expenses increased by approximately 0.8%.  Spending increased in Canada and
Australia, primarily on sales-driven expenditures such as payroll.  Increases in
the overall store count in both countries and the completion of the roll out of
the Cantel program in Canada also accounted for increases in rent.  The
scheduled increase in the royalty payable to Tandy as well as higher sales
contributed to an overall increase in royalty expense of over $1,500,000, with
increases being experienced in all three countries.  This royalty will increase
from 0.75% of sales to 1.0% of sales effective July 1, 1998.  Had this rate been
effective during fiscal year 1998, SG&A expense would have been approximately
$1,300,000 higher than reported.  The impact of these increases in consolidated
SG&A expense was partially offset by a reduction in SG&A spending in the United
Kingdom.  Savings from the store closure program and a planned reduction in
advertising expense accounted for a significant portion of the reduced SG&A
expense in the United Kingdom.  The effects of the store closure program on SG&A
expense comparisons in the United Kingdom will continue to be felt until the
stores have been closed for a full 12 months.

During fiscal year 1997, SG&A expense increased by $11,517,000.  Foreign
exchange rate effects and the scheduled increase in the Tandy royalty explained
about one-half of this increase.  Sales growth in 

                                       26
<PAGE>
 
Australia, the roll out of the Cantel program in Canada and advertising to
increase brand awareness in Australia and the United Kingdom also contributed to
higher costs.

In fiscal year 1996, SG&A expense increased $11,927,000, primarily as a result
of implementing a strategy to grow the business by refocusing the Company in its
niche market, introducing new service and other initiatives and expanding in
selected markets.  The increase in the number of stores resulted in higher rent
and increased store payroll costs.  Payroll costs also increased as a result of
the strengthening of the management teams in all three countries.  Management
information systems were also improved, particularly in the United Kingdom.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization decreased by $2,250,000 during fiscal year 1998,
falling from $9,671,000 to $7,421,000.  This reduction primarily results from
lower depreciation charges in the United Kingdom following an asset impairment
charge recorded in the fourth quarter of fiscal year 1997 to write-down the
store assets in that country to their estimated fair value.  See "Impairment of
Long-Lived Assets".  Depreciation expense is likely to increase in the United
Kingdom in each of the next two fiscal years as a consequence, among other
things, of ongoing store renovations.  Depreciation expense in Canada and
Australia is not expected to change by a material amount over the same period.

Depreciation and amortization increased by $1,669,000 in fiscal year 1997.  This
increase was attributable to an increase in the level of capital spending,
primarily on new stores, store renovations and enhanced management information
systems.  In fiscal year 1996, depreciation and amortization expense increased
by $468,000, primarily as a result of increased capital spending on store
renovations, new stores and investments in management information systems.

IMPAIRMENT OF LONG-LIVED ASSETS

Because of the continued and higher than expected operating losses in the United
Kingdom in fiscal year 1997, the Company conducted an impairment evaluation of
its fixed assets in the United Kingdom.  As a result of this evaluation, during
the fourth quarter of fiscal year 1997, the Company recognized a non-cash
impairment charge of $10,042,000 which represents the difference between the
estimated market value and the book value of the Company's investment in
property and equipment in the United Kingdom, primarily in its retail store
locations, including lease premiums, leasehold improvements and store fittings
and fixtures.  Estimated fair market value was principally determined based upon
estimated future discounted cash flows.

FOREIGN CURRENCY TRANSACTION (GAINS)/LOSSES

Foreign currency transaction gains of $761,000, $610,000 and $338,000 arose
during fiscal years 1998, 1997 and 1996, respectively.  These gains resulted
from a variety of factors, including the effect of fluctuating foreign currency
values on certain inter-company debt and trade payables denominated in
currencies other than the functional currency of the debtor.  The Company's
major exposures to foreign currency risks were the Canadian-dollar-denominated
subordinated convertible debentures (the "Debentures") carried on the books of
the Company and the U.S.-dollar-denominated note due to Tandy which had been
recorded in the Canadian subsidiary.  Historically, these two debts provided a
natural hedge, as the related foreign currency risks were largely offsetting.
Upon the repayment of the 

                                       27
<PAGE>
 
note due to Tandy in December, 1997, the Debentures were designated as a hedge
against the Company's net investment in its Canadian subsidiary. Future foreign
exchange gains and losses on the Debentures will be included in other
comprehensive income.

NET INTEREST EXPENSE

Interest expense, net of interest income, was $5,464,000, $6,663,000, and
$6,709,000 for fiscal years 1998, 1997 and 1996, respectively.  The reduction in
net interest expense in fiscal year 1998 results from the effects of the
repayment of the note payable to Tandy (the "Secured Loan Agreement") in
December, 1997 and the benefits of the Company's new revolving credit facility.
See "Liquidity and Capital Resources".  Management also expects these benefits
to be evident in the comparison with the prior year during the first two
quarters of fiscal year 1999.   In fiscal 1997, the effect of scheduled
principal repayments to Tandy was partially offset by an increase in short-term
borrowings in the United Kingdom.  Principal repayments to Tandy, as well as the
voluntary conversion of a portion of the Debentures by the holders thereof,
contributed to lower net interest expense in fiscal year 1996 compared to fiscal
1995.

INCOME TAXES

The Company's unusually high effective tax rate is primarily due to the fact
that the Company recognizes income tax expense on the profits generated by
InterTAN Canada and InterTAN Australia, but does not recognize income tax
benefits on the losses incurred by InterTAN U.K. Limited.  The Company expects
its tax rate to continue to be unusually high until the United Kingdom operation
becomes profitable.  The provision for taxes in fiscal year 1998 of $10,430,000
primarily represents a provision for Canadian federal and provincial and
Australian taxes on the profits of the Company earned in those countries.   The
provision for taxes in fiscal years 1997 and 1996 of $6,755,000 and $7,499,000,
respectively, primarily represents a provision for Canadian federal and
provincial taxes on the profits of the Canadian subsidiary.

At June 30, 1998, the Company had deferred tax assets aggregating $43,619,000
against which a valuation allowance has been recorded in the amount of
$43,250,000, primarily relating to loss carryforwards and other timing
differences in the United States and the United Kingdom.  The potential for
future realization of the deferred tax assets will be reviewed on a regular
basis.

An audit of the Canadian income tax returns of the Canadian subsidiary for the
1987 to 1989 taxation years was completed during fiscal year 1994, resulting in
additional tax being levied against the Canadian subsidiary.  The Company has
appealed these reassessments and, pending the outcome of these matters, the
Company, by Canadian law, was required to pay one-half of the tax in dispute.
The tax levied by Revenue Canada in reassessing those years was offset by
refunds arising from the carryback of losses incurred in subsequent years.
Depending on the ultimate resolution of these issues, the Company could
potentially have an additional liability in the range of $0 to $11,700,000.  The
Company believes it has meritorious arguments in defense of the issues raised by
Revenue Canada and it is in the process of vigorously defending its position.
It is management's determination that no additional provision need be recorded
for these reassessments.  In order for the Company to succeed in appealing
certain aspects of these reassessments, it must succeed in defending the
possible reassessments discussed in the paragraph immediately below.

                                       28
<PAGE>
 
The Company was advised in August, 1995 that Revenue Canada intended to extend
the scope of its 1987 to 1989 reassessments to raise certain issues flowing from
the spin-off of the Company from Tandy in fiscal year 1987.  Management
disagrees with Revenue Canada's views on these issues and will vigorously defend
the Company's position should Revenue Canada pursue these issues.  Management
believes it has meritorious arguments supporting its stance and, accordingly, no
additional provision has been recorded for these possible reassessments.
Depending on the ultimate resolution of these issues, the Company could
potentially have an additional liability in the range of $0 to $21,000,000.  As
required by Canadian law, the Company would likely be required to post a deposit
of one-half of the tax in dispute, including interest, in order to appeal any
reassessment.

An audit of the Canadian income tax returns of the Canadian subsidiary for the
1990 to 1993 taxation years was commenced during the 1995 fiscal year.  The
Company has been advised that Revenue Canada is challenging certain interest
deductions relating to the Canadian subsidiary's former operations in
continental Europe and is proposing to tax certain foreign exchange gains
related to such operations.  Depending on the ultimate resolution of these
issues, the Company could potentially have an additional liability in the range
of $0 to $25,000,000.  Assuming Revenue Canada pursues these issues, in order
for the Company to proceed with such appeals, the Company would likely be
required to post a cash deposit or letters of credit equal to one-half of the
1990-1993 tax in dispute, together with interest.  Notwithstanding that the
Company is still in discussions with Revenue Canada regarding these issues,
Revenue Canada and certain provincial jurisdictions were required to issue
protective reassessments for one of the years because the time period during
which such reassessment could legally be issued was about to expire.  The amount
of the reassessment, including interest, is approximately $15,300,000.  This
amount relates to the 1992 taxation year only and is reflected in the range
described immediately above.  The Company has appealed this reassessment and, as
indicated above, would normally be required to post a cash deposit equal to one-
half of the reassessment, pending the outcome of such appeal.  However, Revenue
Canada has agreed to defer the posting of such deposit pending the outcome of
ongoing discussions on this particular issue.  Revenue Canada has further agreed
to accept a letter of credit in lieu of a cash deposit should it be necessary
for the Company to actively proceed with its appeal.  The Company has requested
a similar deferral from the provincial authorities and reasonably expects that
such deferral will be approved.  The Company believes that reassessment of the
remaining years under review could be received during fiscal year 1999.
Management believes it has meritorious arguments in support of the deductibility
of such interest and in support of its treatment of the foreign exchange gains
and is prepared to vigorously defend its position should the Canadian tax
authorities proceed with such a challenge.  Accordingly, it is management's
assessment that no provision need be recorded for these possible claims.

NET INCOME PER AVERAGE COMMON SHARE

Effective December, 1997, the Company adopted Financial Accounting Standards No.
128, "Earnings Per Share" ("FAS 128"), which establishes new standards for
computing and presenting earnings per share ("EPS").  FAS 128 requires dual
presentation of basic and diluted EPS on the face of the income statement for
companies with complex capital structures.  Basic EPS is calculated by dividing
the net income or loss for a period by the weighted average number of common
shares outstanding for the period.  Diluted EPS reflects the potential dilution
which would occur if securities or other contracts to issue common stock were
exercised or converted.  FAS 128 also requires that EPS for prior periods be
recomputed using the new rules.

                                       29
<PAGE>
 
For fiscal years 1998, 1997 and 1996, basic and diluted losses per common share
were $1.05, $1.45 and $0.21, respectively, as the effects of the Company's
potentially dilutive instruments were anti-dilutive in all three years.  The
Company's potentially dilutive instruments include the Debentures.  Under their
terms of issuance, the Debentures are convertible into common stock at the rate
of 118.731 shares for each Cdn$1,000 face amount of Debentures held, equivalent
to about 6,750,000 shares in the aggregate.  However, if the Company were to
redeem the Debentures after February 28, 2000 by issuing common shares to the
holders thereof in accordance with the terms of the Debentures, the dilutive
effect of the Debentures would be increased if the fair value of the Company's
common stock at the time of redemption were less than the conversion price.
Based on the fair market value of the Company's common stock on June 30, 1998,
1997 and 1996, this would have resulted in the issuance of 7,580,000, 11,745,000
and 7,627,000 shares, respectively on assumed conversion on those dates.  FAS
128 requires that these higher amounts be used in calculating diluted EPS.  Had
conversion taken place, the net loss for fiscal years 1998, 1997 and 1996 would
have been reduced by $2,400,000, $4,400,000 and $3,900,000, respectively, for
assumed net reduction in expenses.  Also, in fiscal years 1998, 1997 and 1996,
the Company's directors and employees held options to purchase 1,014,499,
785,500 and 650,833 common shares, respectively, at prices ranging from $3.50 to
$8.1875, $3.50 to $8.1875 and $5.31 to $8.1875, respectively.

                        LIQUIDITY AND CAPITAL RESOURCES
                                        
Operating activities generated $27,706,000 in cash during fiscal year 1998.  Net
income, adjusted to reconcile net income to cash, produced $8,249,000 in cash.
A reduction in inventory levels contributed a further $11,879,000 in cash.   In
Canada, inventory reductions resulted from better management of the level of
computer inventories and monitoring of the flow of merchandise through the
product cycle.  In the United Kingdom, the store closure program was a factor in
reduced inventory levels.  The Company increased inventories in Australia to
support higher sales.  The deferral of income tax installments conserved a
further $9,361,000 in cash during fiscal year 1998.  During fiscal year 1997,
operating activities generated $5,570,000 in cash.  Net income, adjusted to
reconcile net income to cash, generated $10,566,000 in cash, which was partially
offset by $7,592,000 in cash consumed in building inventories.  The increase in
inventories in fiscal 1997 was due primarily to the requirements of the newly
opened Cantel stores in Canada and the need to build inventories in response to
higher sales in Australia.  Operating activities generated $12,185,000 in cash
during fiscal year 1996.  Net income, adjusted to reconcile net income to cash,
generated $15,418,000 in cash, while increases in inventories consumed
$13,698,000 in cash during that year.  The increase in the Company's inventory
levels in fiscal year 1996 resulted from implementing a merchandising strategy
which places greater emphasis on higher-margin private label goods, an
improvement in the Company's in-stock position and a wider product assortment.

Investing activities consumed $4,520,000 in cash during fiscal year 1998
compared with $7,981,000 and $9,961,000 in cash in fiscal years 1997 and 1996,
respectively.  These cash outflows result for the most part from additions to
property and equipment, primarily relating to opening new stores, renovating
existing stores and upgrading information systems.  These capital expenditures
were higher in fiscal year 1996, primarily because of the large number of new
stores opened in that period.  During fiscal year 1996, the Company opened 32
new stores, while in fiscal years 1998 and 1997, 19 and 23 new stores,
respectively, were opened.

During fiscal year 1998, financing activities consumed $23,176,000 in cash.
Repayment in full of the Secured Loan Agreement with Tandy comprised the major
component of the cash outflow.  A decrease 

                                       30
<PAGE>
 
in the level of short-term borrowings in the United Kingdom was also a
contributing factor. The effect of these reductions in cash resources was
partially offset by the proceeds from the issuance of common stock to employee
plans. In fiscal year 1997, financing activities generated $3,555,000 in cash.
The effects of an increase in short-term borrowings in the United Kingdom
combined with proceeds from the issuance of stock to employee plans were
partially offset by scheduled repayments on a note payable under the Company's
Secured Loan Agreement with Tandy. In fiscal year 1996, financing activities
consumed $13,895,000 in cash. In that year, the amount of cash consumed by
scheduled repayments on one of the notes payable to Tandy was augmented by the
effect of the early retirement of another note payable to Tandy. The effect on
cash of these repayments was partially offset by short-term borrowings and cash
generated from the sale of stock to employee plans.

The Company's principal sources of liquidity during fiscal year 1999 will be its
cash and short-term investments, its cash flow from operations and its banking
facilities.

In May, 1994, InterTAN Canada Ltd., InterTAN, Inc. and InterTAN U.K. Limited
entered into a credit agreement with a syndicate of banks.  This agreement
established a revolving facility in an amount which was determined using an
inventory level calculation not to exceed Cdn$60,000,000 ($40,878,000 at June
30, 1998 exchange rates).   In December, 1997, this credit agreement was
replaced with a three-year revolving facility with a syndicate of three new
lenders (the "Syndicated Loan Agreement") in an amount not to exceed $75,000,000
in the aggregate.  The amount of credit actually available at any particular
time is dependent on a variety of factors, including the level of eligible
inventories and accounts receivable of InterTAN Canada and InterTAN U.K. Limited
(the "Borrowers").  The amount of available credit is then reduced by the amount
of trade accounts payable of the Borrowers then outstanding as well as certain
other reserves.

The Syndicated Loan Agreement and the previous credit facility are used
primarily to provide letters of credit in support of purchase orders and, from
time to time, to finance inventory purchases.  At June 30, 1998, there were
borrowings against the Syndicated Loan Agreement aggregating $9,172,000 and
$5,290,000 was committed in support of letters of credit.  There was $14,100,000
of credit available for use at June 30, 1998.  In September 1997, the Company's
Merchandise Agreement with Tandy was amended to permit the Company to support
purchase orders with a surety bond or bonds as well as letters of credit.  The
Company has entered into an agreement with a major insurer to provide surety
bond coverage (the "Bond") in an amount not to exceed $15,000,000.  Use of the
Bond will give the Company greater flexibility in placing orders with Far
Eastern suppliers by releasing a portion of the credit available under the
Syndicated Loan Agreement for other purposes.

In fiscal year 1997, the Company's Australian subsidiaries, InterTAN Australia
Ltd. and Technotron Sales Corp. Pty, Ltd., entered into a credit agreement with
an Australian bank (the "Australian Facility").  This agreement established a
credit facility in the amount of A$12,000,000 ($7,433,000 at June 30, 1998
exchange rates).  The Australian Facility has no fixed term and may be
terminated at any time upon five days' prior written notice by the lender.  All
or any part of the facility may be used to provide letters of credit in support
of purchase orders.  A maximum amount of A$5,000,000 ($3,097,000 at June 30,
1998 exchange rates) may be used in support of short-term borrowings.  At June
30, 1998, there were no borrowings outstanding against the Australian Facility;
A$6,458,000 ($4,000,000 at June 30, 1998 exchange rates) was committed in
support of letters of credit as described above and $3,433,000 of credit was
available for use.

                                       31
<PAGE>
 
In addition to the credit facilities described above, the Company's principal
sources of outside financing have been from the borrowings from Tandy under the
Secured Loan Agreement and from the Debentures.  In order to obtain a release of
its security interests so that security could be given under the Syndicated Loan
Agreement, all amounts payable to Tandy under the Secured Loan Agreement were
repaid in full in December, 1997.  For the sole consideration  of the early
repayment of this loan, warrants to purchase 1,449,007 shares of the common
stock of the Company held by Tandy were surrendered for cancellation.

The Company's primary uses of liquidity during fiscal year 1999 will include the
building of inventories for the 1998 Christmas selling season, the funding of
capital expenditures, the servicing of debt and, possibly, the payment of tax
deposits.  The Company anticipates that capital additions will approximate
$8,000,000 during fiscal year 1999, mainly related to store expansion,
remodeling and upgrading.  The Company's debt servicing requirements in fiscal
year 1999 are estimated to be approximately $5,000,000 and include interest
payments on the Debentures and under the Syndicated Loan Agreement.  In
addition, management expects to receive additional reassessments during fiscal
year 1999 relating to its dispute with Revenue Canada in respect of the 1990-
1993 taxation years.  The Company plans to appeal such reassessments; however,
in order to do so it will be required to post a cash deposit or letters or
credit in an amount equal to one-half of the amount reassessed.  While the exact
amount of such deposits will not be known until discussions with Revenue Canada,
the Company and its advisors have been concluded, management anticipates that
the deposit required will be approximately $4,000,000 to $13,000,000.

Management believes that the Company's cash and short-term investments on hand
and its cash flow from operations combined with the Syndicated Loan Agreement,
the Australian Facility and the Bond will provide the Company with sufficient
liquidity to meet its planned requirements through fiscal year 1999, including
any tax deposits pursuant to the possible reassessments relating to the 1990-
1993 taxation years.  The Company has additional tax issues in dispute with
Revenue Canada.  See "Income Taxes".  If reassessments are issued relating to
these issues in amounts at the upper end of the ranges described under "Income
Taxes", the Company would be required to seek additional sources of liquidity.
Management is currently in the process of studying additional funding
alternatives.  However, there can be no assurance that additional funding would
be available, if required, on terms acceptable to the Company.


                                YEAR 2000 ISSUES

Management recognizes that many of the Company's information systems and related
hardware were designed and developed without considering the impact of the
upcoming change in the century ("Year 2000") and that a significant number of
InterTAN's computer applications, systems and hardware will require modification
or replacement to make them Year 2000 compliant.

                                       32
<PAGE>
 
The Company's critical systems include the following:

       .  Its store operating systems;
       .  Its so-called "back end" merchandising and inventory systems,
          including purchasing, receiving and warehousing, perpetual inventories
          and store replenishment; and,
       .  Its primary accounting systems, including general ledger, accounts
          receivable, accounts payable and payroll.

The Company's information systems include both internally developed systems and
systems purchased from third-party vendors.  In Canada, with the exception of
the primary accounting system, the Company employs primarily internally
developed systems.  In Australia, the Company has gradually shifted from
internally developed systems to third-party systems.  The primary accounting
system and the warehouse distribution system are the only significant internally
developed systems remaining in Australia.  In the United Kingdom a
comprehensive, integrated suite of systems purchased from a third-party has
replaced virtually all internally developed systems.

The Company is employing a variety of internal and external resources to assess
and make changes necessitated by Year 2000 issues to its many different systems
and equipment.  Many of these changes were contemplated in any event as upgrades
or replacement of outdated systems and hardware.  The Company has determined
that its mainframe hardware is Year 2000 compliant in all three countries.  In
Canada, during fiscal years 1996 and 1997, point-of-sale hardware was replaced
with equipment that is Year 2000 compliant.  The store operating system was
replaced in the third and fourth quarters of fiscal year 1998.  Year 2000
related upgrades to back end inventory systems are in various stages of
development, with completion targeted for later in calendar year 1998.  The
Company's third-party sourced accounting and payroll systems in Canada have been
certified as being Year 2000 compliant and are currently in testing.  In
Australia, the store hardware and operating systems were replaced with systems
that are Year 2000 compliant during the fourth quarter of fiscal year 1998.  The
Company is currently evaluating various options to replace the existing back end
inventory and accounting systems.  It is anticipated that new systems will be in
place by the end of fiscal year 1999.  In the United Kingdom, the current store
hardware and operating systems are in the process of being replaced, with
completion targeted to be in advance of the 1998 Christmas selling season. The
Company plans to migrate to a version of its integrated back end inventory and
accounting systems which is Year 2000 compliant by the end of the third quarter
fiscal year 1999.  The payroll system used in the United Kingdom will be
replaced prior to the end of calendar year 1998.

Management is still in the process of identifying and quantifying costs incurred
to date as well as future anticipated costs associated with the Year 2000 issue.
The Company's current projection is that these costs will not exceed $1,000,000.

In the most reasonably likely worst case scenario, the Company's store operating
and back end inventory management systems could fail.  The consequence of such
failure could include the inability to record sales transactions in the
Company's stores and a breakdown in the supply chain.  Such an occurrence would
likely result in a loss of revenue; it is not possible to quantify the possible
range of such loss.  This would necessitate reverting to a number of manual
systems for recording sales, ordering product and replenishing the Company's
stores.  Management does not currently have a formal documented contingency plan
to deal with this scenario.  Management anticipates that such a contingency plan
will be in place by June 30, 1999.

                                       33
<PAGE>
 
The Company has communicated with its suppliers and other organizations with
which it does business to coordinate Year 2000 issues and to ensure the
continuity of supply of product and services. In a most reasonably likely worst
case scenario, one or more significant suppliers could be unable to continue to
adequately supply the Company after 1999.  The Company's fallback position would
be to seek an alternative source of supply.  However, there can be no assurance
that such alternative sources of supply would be available.  The Company does
not yet have a list of alternative suppliers should some suppliers be unable to
continue to provide product or services beyond the end of calendar year 1999.
Such a contingency plan will be in place by the end of fiscal year 1999.  It is
not practical for management to estimate the range of financial loss, if any,
which could result from the negative effect that a disruption in supply would
have on the Company's business.

The Company is currently in the process of assessing its obligations, if any,
arising from the sale of warranted product which proves not to be Year 2000
compliant in one or more aspects.  It is not possible at this time to reasonably
estimate the range of loss, if any, which could arise from such obligation.

Management is closely monitoring the Company's advancements towards Year 2000
conversion and progress reports are presented regularly to the Company's Board
of Directors. Although there can be no assurance that the Company will be able
to complete all of the modifications in the required time frame, or that the
Company will be able to identify all Year 2000 issues before problems manifest
themselves, in management's opinion, the Company is taking adequate action to
address Year 2000 issues and does not expect the financial impact of being Year
2000 compliant to be material to the Company's consolidated financial position,
results of operations or cash flows.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to a variety of market risks arising primarily from the
impact of changes in interest rates on its short-term credit facilities and from
the impact of foreign currency fluctuations as they relate to its investment,
debt and activities in Canada, Australia and the United Kingdom.

FOREIGN CURRENCY FLUCTUATIONS

With the exception of the corporate offices, the Company's activities are
carried on in foreign jurisdictions--Canada, Australia and the United Kingdom.
The Company is exposed to foreign currency risks in three broad areas:

         .   Its inventory purchases,
         .   Translation of its financial results, and
         .   Its net investment in foreign jurisdictions.

INVENTORY PURCHASES
The Company's operating entities purchase approximately 30% of their inventories
in the Far East.  These purchases are made in U.S. dollars and, under the terms
of its agreement with its suppliers, payment must be made at the time of
shipment.  These orders often require long lead times.  Accordingly, there is
risk that the value of the Canadian and Australian dollars and the United
Kingdom pound sterling, as the case may be, could fluctuate relative to the U.S.
dollar from the time the goods are ordered until shipment is made.

                                       34
<PAGE>
 
Management monitors the foreign exchange risk associated with its U.S. dollar
open orders on a regular basis by reviewing the amount of such open orders,
exchange rates, including forecasts from major financial institutions, local
news and other economic factors, all on a country specific basis.  Based on this
input, management decides whether or not to lock in the cost of a portion of
those orders in advance of delivery by purchasing forward exchange rate
contracts to be settled on or near the estimated date of inventory delivery.

The table below shows the amount of open orders and forward exchange contracts
on hand at June 30, 1998 and the financial impact which would result if the
functional currency of the purchasing entities were to decline in value by 10%
relative to the U.S. dollar from June 30, 1998 to the date of delivery:
 
============================================================= 

Open orders at June 30, 1998                         $29,976
------------------------------------------------------------- 

Impact of a 10% decline in local
  currency values                                    $ 2,998
------------------------------------------------------------- 
 
Foreign exchange contracts on hand at
  June 30, 1998                                      $ 6,221
------------------------------------------------------------- 
 
Impact of a 10% decline in local
  currency values                                    $  (622)
------------------------------------------------------------- 
 
Net impact of a 10% decline in local
  currency values                                    $ 2,376
============================================================= 

The incremental cost of such a decline in currency values, if incurred, would
be reflected in higher cost of sales in future periods. In these circumstances, 
management would take product pricing action, where appropriate.

TRANSLATION OF FINANCIAL RESULTS
The functional currencies of the Company's operating entities in Canada,
Australia and the United Kingdom are the respective local currencies.  However,
the reporting currency of the Company on a consolidated basis is the U.S.
dollar.  Consequently, fluctuations in the value of the Canadian and Australian
dollars and the pound sterling have a direct effect on reported consolidated
results. It is not possible for management to effectively hedge against the
possible impact of this risk.

The following table shows the consolidated sales and operating income (loss) for
fiscal year 1998 and the effect that a 10% decline in local currency values
would have had on those results.

                                       35
<PAGE>
 
==========================================================
                                               Effect of a
                                               10% Decline
                                               in Currency
(U.S. dollars, in thousands)   As Reported        Values
----------------------------------------------------------
SALES
Canada                         $   270,675     $  (27,068)
Australia                           98,171         (9,817)
United Kingdom                     172,528        (17,253)
----------------------------------------------------------
                               $   541,374     $  (54,138)
==========================================================
                                                
OPERATING INCOME (LOSS)                         
Canada                         $    23,233     $   (2,323)
Australia                            5,710           (571)
United Kingdom                     (21,804)         2,180
Corporate Expenses                   4,779             --
----------------------------------------------------------
                               $    2,360      $     (714)
==========================================================

NET INVESTMENT IN FOREIGN JURISDICTIONS
The Company's net investments in Canada, Australia and the United Kingdom are
recorded in U.S. dollars at the respective period-end rates.  Changes in these
rates will have a direct effect on the carrying value of these investments.  The
cummulative effect of such currency fluctuations is recorded in a separate
account in equity.  The Company's convertible subordinated debenture is
denominated in U.S. dollars and is recorded in the books of the parent.  This
instrument is designated as a partial hedge against the risk associated with the
Company's investment in its Canadian subsidiary.  The Company has not, to date,
attempted to hedge its investment in Australia and the United Kingdom.

The following table shows the Company's net investment in each of its operating
entities and its Canadian dollar denominated convertible debenture, all
expressed in U.S. dollars at June 30, 1998.  The table also shows the effect on
those amounts if each local currency were to lose 10% of its value against the
U.S. dollar:

==========================================================================
                                                          Effect of a 10% 
                                                            Decline in 
                                                             Currency
(U.S. dollars, in thousands)              June 30, 1998       Values
--------------------------------------------------------------------------
Net investment in Canada                  $      64,871   $       (6,488)
Canadian dollar denominated debenture           (38,706)           3,871
--------------------------------------------------------------------------
                                                 26,165           (2,617)
Net investment in Australia                      32,263           (3,226)
Net investment in United Kingdom                 26,201           (2,620)
--------------------------------------------------------------------------
                                          $      84,629   $       (8,463)
==========================================================================

                                       36
<PAGE>
 
SHORT-TERM INTEREST RATES

The Company's credit facilities include syndicated banking facilities in Canada
and the United Kingdom, and a separate facility in Australia. These banking
arrangements, which are used primarily to finance inventory purchases, provide
for interest on any short-term borrowings at rates determined with reference to
the local "prime" or "base rates". These rates are, therefore, subject to change
for a variety of reasons which are beyond the Company's control. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources".

The Company's borrowings under these facilities, primarily in the United
Kingdom, averaged approximately $9,000,000 during fiscal year 1998 and interest
paid on such advances was approximately $1,000,000.  For the period July 1 to
December 31, 1997, interest on these U.K. borrowings was payable at the U.K.
base rate plus 2%.  For the period January 1 to June 30, 1998, interest was
completed at the London Inter Bank Offered Rate ("LIBOR") plus 2.5%.  Had the
U.K. base rate and LIBOR rate been 10% higher in each of the respective periods,
management estimates that interest expense for the year would have increased by
approximately $80,000.

It has not been the Company's policy to hedge against the risk presented by
possible fluctuations in short-term interest rates.

                                       37
<PAGE>
 
ITEM 8.   FINANCIAL STATEMENTS


                       REPORT OF INDEPENDENT ACCOUNTANTS


TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF INTERTAN, INC.

          In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
InterTAN, Inc. and its subsidiaries at June 30, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1998, in conformity with generally accepted accounting
principles.  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 of these statements in
accordance with generally accepted auditing standards which required 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for the opinion expressed above.


/s/ PricewaterhouseCoopers LLP



Fort Worth, Texas
August 19, 1998

                                       38
<PAGE>
 
CONSOLIDATED STATEMENTS OF OPERATIONS


                                                      Year ended June 30
(In thousands, except per share data)            1998        1997        1996
------------------------------------------------------------------------------- 

Net sales and operating revenues                $541,374   $519,318   $506,445
Other income                                         511        640        902

 ...............................................................................
                                                 541,885    519,958    507,347
 
Operating costs and expenses:
 Cost of products sold                           307,934    286,835    282,052
 Selling, general and administrative expenses    211,458    217,211    205,694
 Depreciation and amortization                     7,421      9,671      7,972
 Impairment of long-lived assets                      --     10,042         --
 Provision for business restructuring             12,712         --         --
 ...............................................................................
                                                 539,525    523,759    495,718

 ...............................................................................

Operating income (loss)                            2,360     (3,801)    11,629
 
Foreign currency transaction gains                  (761)      (610)      (338)
Interest expense, net                              5,464      6,663      6,709

 ...............................................................................

Income (loss) before income taxes                 (2,343)    (9,854)     5,258
Provision for income taxes                        10,430      6,755      7,499

 ...............................................................................

Net loss                                        $(12,773)  $(16,609)  $( 2,241)

------------------------------------------------------------------------------- 

Basic and diluted net loss 
 per average common share                       $  (1.05)  $  (1.45)  $  (0.21)

 ...............................................................................

Average common shares outstanding                 12,138     11,459     10,901

------------------------------------------------------------------------------- 
 

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

                                       39
<PAGE>
 
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                  JUNE 30     June 30
(In thousands, except share amounts)                               1998        1997
--------------------------------------------------------------------------------------
<S>                                                            <C>          <C>        
ASSETS
 
Current Assets:
 Cash and short-term investments                               $  32,811    $  34,726
 Accounts receivable, less allowance for doubtful
  accounts                                                         8,539        9,655  
 Inventories                                                     148,198      170,594  
 Other currrent assets                                             6,690        7,271  
 Deferred income taxes                                               369          634
 ......................................................................................
   Total current assets                                          196,607      222,880
 
Property and equipment, less accumulated depreciation 
  and amortization                                                26,228       28,812
Other assets                                                         712        2,615
 ......................................................................................
                                                               $ 223,547    $ 254,307
-------------------------------------------------------------------------------------- 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities:
 Short-term bank borrowings                                    $   9,172    $   9,821
 Current maturities of note payable to Tandy Corporation              --        6,958  
 Accounts payable                                                 24,274       27,804
 Accrued expenses                                                 38,505       27,031
 Income taxes payable                                             20,955       12,734
 ......................................................................................
   Total current liabilities                                      92,906       84,348

Long-term note payable to Tandy Corporation, 
  less current maturities                                             --       16,420
9% convertible subordinated debentures                            38,706       41,138
Other liabilities                                                  5,945        6,167
 ......................................................................................
                                                                 137,557      148,073
 ......................................................................................
Stockholders' Equity:
 Preferred stock, no par value, 1,000,000 shares authorized,
  none issued or outstanding                                          --           --
 Common stock, $1 par value, 40,000,000 shares authorized,
  12,474,077 and 11,873,437 issued and outstanding                12,474       11,873
 Additional paid-in capital                                      115,980      114,350
 Retained earnings (deficit)                                     (10,250)       2,523
 Foreign currency translation effects                            (32,214)     (22,512)
 ......................................................................................
   Total stockholders' equity                                     85,990      106,234
 ......................................................................................
   Commitments and contingent liabilities                      
                                                               $ 223,547    $ 254,307
-------------------------------------------------------------------------------------- 
</TABLE> 

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

                                       40
<PAGE>
 
Consolidated Statements of Cash Flows
<TABLE> 
<CAPTION> 
                                                                       Year ended June 30
(In thousands)                                                   1998         1997         1996
----------------------------------------------------------------------------------------------------- 
<S>                                                             <C>          <C>          <C>       
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                        $ (12,773)   $ (16,609)   $ (2,241)
 Adjustments to reconcile net loss to cash
 provided by operating activities:
  Depreciation and amortization                                     7,421        9,671       7,972
  Deferred income taxes                                               166        5,589       7,172   
  Foreign currency transaction gains, unrealized                   (1,653)        (612)       (100)  
  Impairment of long-lived assets                                      --       10,042          --
  Provision for business restructuring                             12,712           --          --
  Other                                                             2,346        2,485       2,615

 Cash provided by (used in) current assets and liabilities:
  Accounts receivable                                                 450         (164)       (674)  
  Inventories                                                      11,879       (7,592)    (13,698)  
  Other current assets                                               (617)        (126)      1,298 
  Accounts payable                                                 (2,231)       1,984      10,409
  Accrued expenses                                                    645          970         452   
  Income taxes payable                                              9,361          (68)     (1,020)
 .....................................................................................................
   Net cash provided by operating activities                       27,706        5,570      12,185
 .....................................................................................................
CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to property and equipment                               (7,165)      (9,244)    (12,119)
 Proceeds from sales of property and equipment                         97          271         331
 Other investment activities                                        2,548          992       1,827
 .....................................................................................................
   Net cash used in investing activities                           (4,520)      (7,981)     (9,961)
 .....................................................................................................

CASH FLOWS FROM FINANCING ACTIVITIES:
  Changes in short-term borrowings, net                              (661)       8,554         972    
  Proceeds from issuance of common stock to employee plans          1,838        1,959       1,484    
  Proceeds from exercise of stock options                              --           --         760    
  Principal repayments on long-term borrowings                    (24,353)      (6,958)    (17,111)
 .....................................................................................................
   Net cash provided by (used in) financing activities            (23,176)       3,555     (13,895)
 .....................................................................................................
Effect of exchange rate changes on cash                            (1,925)        (514)        507
 .....................................................................................................

NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS         (1,915)         630     (11,164)
Cash and short-term investments, beginning of year                 34,726       34,096      45,260
 .....................................................................................................
Cash and short-term investments, end of year                    $  32,811    $  34,726   $  34,096

----------------------------------------------------------------------------------------------------- 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
 Interest                                                       $   5,547    $   7,213    $  7,976
 Income taxes                                                   $     715    $   1,299    $    967
----------------------------------------------------------------------------------------------------- 
</TABLE>

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

                                       41
<PAGE>
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE> 
<CAPTION> 
                                                                                                  Foreign
                                                                          Additional              Currency
                                                       Common Stock        Paid-in     Retained  Translation
(In thousands)                                       Shares     Amount     Capital     Earnings    Effects     Total
-----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>     <C>      <C>       <C>       <C>        <C>
Balance at June 30, 1995                             10,193    $ 10,193    $106,376    $ 21,373   $(24,616)   $113,326
Net foreign currency translation adjustments             --          --          --          --      2,145       2,145
Issuance of common stock to employee plans              483         483       2,805          --         --       3,288
Issuance of common stock under stock option plans       118         118         642          --         --         760
Conversion of subordinated debentures to                   
        common stock                                    379         379       1,855          --         --       2,234
Net loss                                                 --          --          --      (2,241)        --      (2,241)
 .......................................................................................................................

Balance at June 30, 1996                             11,173      11,173     111,678      19,132    (22,471)    119,512
Net foreign currency translation adjustments             --          --          --          --        (41)        (41)
Issuance of common stock to employee plans              700         700       2,672          --         --       3,372
Net loss                                                 --          --          --     (16,609)        --     (16,609)
 .......................................................................................................................

Balance at June 30, 1997                             11,873      11,873     114,350       2,523    (22,512)    106,234
Net foreign currency translation adjustments             --          --          --          --     (9,702)     (9,702)
Issuance of common stock to employee plans              601         601       2,528          --         --       3,129
Retirement of warrants held by Tandy Corporation         --          --        (898)         --         --        (898)
Net loss                                                 --          --          --     (12,773)        --     (12,773)
 .......................................................................................................................

Balance at June 30, 1998                             12,474    $ 12,474    $115,980    $(10,250)  $(32,214)   $ 85,990
-----------------------------------------------------------------------------------------------------------------------
</TABLE> 

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

                                       42
<PAGE>
 
NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS
The Company is engaged in the sale of consumer electronics products primarily
through company-operated retail stores and dealer outlets in Canada, Australia
and the United Kingdom.  These retail operations are conducted through wholly-
owned subsidiaries in each of those countries operating under the trade names
"RadioShack", "Tandy Electronics" and "Tandy", respectively.  All of these trade
names are used under exclusive license from Tandy Corporation ("Tandy").  The
consolidated financial statements include the accounts of the Company and its
subsidiaries.  All material intercompany transactions, balances and profits have
been eliminated.  The Company's fiscal year ends June 30.

CASH AND SHORT-TERM INVESTMENTS
Cash in stores, deposits in banks and short-term investments with original
maturities of three months or less are considered as cash and cash equivalents.

INVENTORY
Inventories are comprised primarily of finished merchandise and are stated at
the lower of cost, based on the average cost method, or market value.

PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets using the straight-line method.  Estimated useful
lives range from 25 to 40 years for buildings and 3 to 8 years for fixtures and
equipment.  Leasehold improvements are amortized over the life of the lease or
the useful life of the asset, whichever is shorter.

Maintenance and repairs are charged to expense as incurred.  Renewals and
betterments which materially prolong the useful lives of the assets are
capitalized.  The cost and related accumulated depreciation of property retired
or sold are removed from the accounts, and gains or losses are recognized in the
income statement.

The Company reviews all long-lived assets (i.e. property and equipment) held and
used in its business for impairment whenever events or changes in circumstances
indicate that the net book value of the assets may not be recoverable.  An
impairment loss would be recognized if the sum of the expected future cash flows
(undiscounted and before interest) from the use of the assets is less than the
net book value of the assets.  The amount of the impairment loss would generally
be measured as the difference between the net book value of the assets and their
estimated fair value.  See Note 6 for a discussion of an impairment charge
recorded in fiscal year 1997.

NET SALES AND OPERATING REVENUES
Net sales and operating revenues include items related to normal business
operations, including service contract and repair income.  Service contract
revenue, net of direct selling expenses, is recognized over the life of the
contract.

TRANSLATION OF FOREIGN CURRENCIES
The local currencies of the Company's foreign entities are the functional
currencies of those entities.  For reporting purposes, assets and liabilities
are translated to U.S. dollars using the exchange rates in effect at the balance
sheet date; income and expense items are translated using monthly average

                                       43
<PAGE>
 
exchange rates.  The effects of exchange rate changes on net assets located
outside the United States are recorded in a separate account in equity.  Gains
and losses from foreign currency transactions are included in the operations of
each period.

CONTRACT MANAGEMENT
At June 30, 1998, the Company had 944 company-operated stores, of which 182,
primarily located in Australia, were operated under "contract management"
arrangements.  Under the typical contract management arrangement, the store
manager is not employed by the Company, but is under contract to operate the
store on its behalf.  The Company selects and supplies the store location
(including lease payments and other fixed location charges) and also supplies
leasehold improvements, fixtures and store inventory.  The Company is also
committed to provide supporting services, including advertising and training.
The contract manager is responsible for the labor and overhead necessary to
operate the store (i.e., the contract manager is responsible for paying the
employees and store utility and other operating costs).  The contract manager is
also required to provide a cash deposit.  In return for the service of operating
the store, the contract manager receives compensation equal to approximately
one-half of the store's gross profit.

The revenue, as well as the expenses paid by the Company, related to contract
management stores are included in the consolidated statement of operations.  The
contract manager's compensation is included in selling, general and
administrative expenses.  Contract managers' deposits are included in the "Other
liabilities" section of the consolidated balance sheet and amounted to
$4,547,000 and $4,579,000 at June 30, 1998 and June 30, 1997, respectively.

CAPITALIZED FINANCING COSTS
Costs incurred in connection with the issuance of debt and renewal fees are
capitalized and are amortized over the term of the respective debt.
Amortization of these costs, which include underwriting, bank, legal and
accounting fees, for fiscal years 1998, 1997 and 1996 was $781,000, $684,000 and
$608,000, respectively.   Unamortized balances at June 30, 1998 and June 30,
1997 were $1,389,000 and $1,317,000, respectively.

ADVERTISING COSTS
Advertising costs are expensed the first time the related advertising occurs.
During fiscal years 1998, 1997 and 1996, advertising expense was $24,770,000,
$27,792,000 and $26,045,000, respectively.

INCOME TAXES
Income taxes are accounted for using the asset and liability method.  The asset
and liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the book amounts and tax basis of assets and liabilities.  However, a deferred
tax asset may only be recognized to the extent that it is more likely than not
that the Company will realize the benefits of that deferred tax asset.

InterTAN generally considers the earnings of its foreign subsidiaries to be
permanently reinvested for use in those operations and, consequently, deferred
federal income taxes, net of applicable foreign tax credits, are not provided on
the undistributed earnings of foreign subsidiaries which are to be so
reinvested.  If the earnings of those subsidiaries as of June 30, 1998 were
remitted to the parent, approximately $94,000,000, subject to adjustment for
deemed foreign taxes paid, would be included in the taxable income of the
parent.  By operations of tax statutes currently in effect, the Company would
incur certain U.S. income taxes, including alternative minimum tax.  Such
remittances may also be 

                                       44
<PAGE>
 
subject to certain foreign withholding taxes (presently rates range from 0% to
15%) for which there would likely be no U.S. tax relief.

FORWARD EXCHANGE CONTRACTS
Gains and losses on contracts entered to hedge open inventory purchase orders
are included in the cost of the merchandise purchased.  Gains and losses on
contracts intended to mitigate the effects of exchange rate fluctuations on
payables and debt denominated in currencies other than the functional currency
of the debtor are included in income in the periods the exchange rates change.

In June, 1998, the Financial Accounting Standards Board (the "FASB") issued
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133").  This new accounting standard will require
that derivative instruments be measured at fair value and recognized in the
balance sheet as either assets or liabilities, as the case may be.  The
treatment of changes in the fair value of a derivative (i.e., gains and losses)
will depend on its intended use and designation.  Gains and losses on
derivatives designated as hedges against the cash flow effect of a forecasted
transaction will initially be reported as a component of comprehensive income
and, subsequently, reclassified into earnings when the forecasted transaction
affects earnings.  Gains and losses on derivatives designated as hedges against
the foreign exchange exposure of a net investment in a foreign operation will
form part of the cumulative translation adjustment.  Gains and losses on all
other forms or derivatives will be recognized in earnings in the period of
change.

The Company will adopt FAS 133 effective July 1, 1999.  Upon adoption, FAS 133
is not expected to have a material effect on the Company's financial statements.

EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted Financial Accounting Standards
No. 128, "Earnings per Share" ("FAS 128"), which establishes new standards for
computing and presenting earnings per share ("EPS").  FAS 128 requires dual
presentation of basic and diluted EPS on the face of the income statement for
entities with complex capital structures.

Basic EPS is calculated by dividing the net income or loss by the actual
weighted average number of shares outstanding for the period.  Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted. The Company's
potentially dilutive instruments include its convertible subordinated debentures
(the "Debentures").  Under their terms of issuance, the Debentures are
convertible into common stock at the rate of 118.731 shares for each Cdn$1,000
face amount of Debentures held, equivalent to about 6,750,000 shares in the
aggregate.  However, if the Company were to redeem the Debentures after February
28, 2000 by issuing common shares to the holders thereof in accordance with the
terms of the Debentures, the dilutive effect of the Debentures would be
increased if the fair value of the Company's common stock at the time of
redemption were less than the conversion price.  Based on the fair market value
of the company's common stock on June 30, 1998, 1997 and 1996, this would have
resulted in the issuance of 7,580,000, 11,745,000 and 7,627,000 shares,
respectively on assumed conversion on those dates.  FAS 128 requires that these
higher amounts be used in calculating diluted EPS.  Had conversion taken place,
the net loss for fiscal years 1998, 1997 and 1996 would have been reduced by
$2,400,000, $4,400,000 and $3,900,000, respectively, for assumed net reduction
in expenses.  Also, in fiscal years 1998, 1997 and 1996, the Company's directors
and officers held options to purchase 1,014,499, 785,500 and 650,833 common
shares, respectively, at prices ranging from $3.50 to $8.1875, $3.50 to $8.1875
and $5.31 to $8.1875, respectively.

                                       45
<PAGE>
 
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company measures the expense associated with its stock-based compensation
using the intrinsic value method.  Application of this method generally results
in compensation expense equal to the quoted price of the shares granted under
option less the amount, if any, the director or employee is required to pay for
the underlying shares.  See Note 12.

NEW ACCOUNTING STANDARDS
In June, 1997, the FASB issued Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130") and Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"), which are effective for fiscal years beginning after December 15,
1997. The Company will adopt both FAS 130 and FAS 131 in the first quarter of
fiscal year 1999. In addition, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). This
statement is effective for fiscal years beginning after December 15, 1998 and
requires that the direct costs of certain internally developed software be
capitalized and amortized over a reasonable period. The Company will adopt SOP
98-1 in the first quarter of fiscal year 2000; such adoption is not expected to
have a material effect on the Company's financial statements.

PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and related revenues and
expenses, and disclosure of gain and loss contingencies at the date of the
financial statements.  Actual results could differ from those estimates.

CLASSIFICATION
Certain prior year balances have been reclassified to conform with the current
year presentation.

NOTE 2    UNITED KINGDOM RESTRUCTURING PLAN

As part of its ongoing efforts to improve the financial performance of its
United Kingdom operation, in January 1998 a plan to close 69 consistently under-
performing stores was approved.  Revenue and operating losses associated with
these stores are shown below (in thousands):

                           Year ended June 30
                     1998          1997        1996
 
-------------------------------------------------------

Revenues           $ 21,198      $ 24,987    $ 24,992
 
-------------------------------------------------------

Operating loss     $ (6,380)/1/  $ (7,201)   $ (3,009)
 
-------------------------------------------------------

/1/ Includes inventory write-downs of $2,325,000 associated with the
    restructuring.

In connection with this restructuring plan, a provision of $12,712,000 was
recorded during the third quarter of fiscal year 1998, reflecting lease disposal
costs, severance costs and other closure costs, including fixture removal and
contract termination costs.

                                       46
<PAGE>
 
The following is a summary of the activity within this reserve during the year
(in thousands):
 
                                                       Foreign
                                  Original             Currency     Balance
                                 Provision    Paid     Effects   June 30, 1998
-------------------------------------------------------------------------------
Lease disposal costs             $  11,120  $ (2,684)   $ 203        $8,639
Severance costs                        748      (506)       8           250
Other exit costs                       844      (332)      15           527
 ...............................................................................
                                 $  12,712  $ (3,522)   $ 226        $9,416
-------------------------------------------------------------------------------

As a result of the store closure plan, the Company implemented an inventory
clearance program designed to liquidate, in a relatively short time frame, a
significant portion of the inventory from the 69 stores to be closed.  The
clearance program was conducted through 18 clearance stores selected from the
list of stores to be closed.  These clearance stores were open for varying
lengths of time during the third and fourth quarters.  As a consequence of this
program, a provision of $2,325,000 was recorded to write-down the inventory in
the clearance centers to estimated net realizable value.  This amount has been
included in cost of products sold and is in addition to the restructuring
reserve shown above.  As of June 30, 1998, all stores, including the clearance
stores, had closed and substantially all inventory identified for clearance had
been sold.  A total of eight of the stores identified for closure had leases
which expired prior to June 30, 1998.  The remaining 61 stores have lease terms
remaining of varying periods up to 15 years.  A national firm of real estate
brokers has been engaged to assist in arranging for the sublet or assignment of
these leases to other parties.  Provision has been made for management's best
estimate of the costs of disposing of these leases.  The overall economy and
other factors affecting the property market in the United Kingdom could cause
the actual lease disposal costs to differ from management's estimates and result
in future adjustments.

Management originally estimated that approximately 230 jobs would be lost as a
result of this store closure program.  As of June 30, 1998, approximately
183 individuals had been terminated.  The difference results from unforeseen
attrition.

Management believes that the closure of these under-performing stores will
improve operations in the United Kingdom.  Management will continue to evaluate
a variety of operational and strategic initiatives in an effort to mitigate
demands placed on consolidated cash resources. However, there can be no
assurance that such action will result in an operating profit in the United
Kingdom.

NOTE 3    BANK DEBT

In May, 1994, InterTAN Canada Ltd., InterTAN, Inc. and InterTAN U.K. Limited
entered into a credit agreement with a syndicate of banks.  The interest rate
under the credit facility was the Canadian prime rate plus 1.0% on loans to
InterTAN Canada Ltd. and the U.K. base rate plus 2.0% for loans to InterTAN U.K.
Limited.  In addition, a standby fee of 0.25% per annum was payable on the
unused portion of the credit facility.

In December, 1997 this credit agreement was replaced with a three-year revolving
facility with a syndicate of three new lenders (the "Syndicated Loan Agreement")
in an amount not to exceed 

                                       47
<PAGE>
 
$75,000,000 in the aggregate. The amount of credit actually available at any
particular time is dependent on a variety of factors including the level of
eligible inventories and accounts receivable of InterTAN Canada and InterTAN
U.K. (the "Borrowers"). The amount of available credit is then reduced by the
amount of trade accounts payable of the Borrowers then outstanding as well as
certain other reserves. The interest rate under the credit facility is the
Canadian prime rate plus 1.0% on loans to InterTAN Canada Ltd. and the London
Inter Bank Offered Rate plus 2.5% for loans to InterTAN U.K. Limited. Letters of
credit are charged at the rate of 1.5% per annum. In addition, a standby fee is
payable on the unused portion of the credit facility. The amount of this fee is
subject to certain thresholds, and ranges from 0.375% to 0.50% of the unused
credit line. The Syndicated Loan Agreement is secured by a first priority lien
over all of the assets of the Borrowers and is guaranteed by InterTAN, Inc. This
facility will be used primarily to provide letters of credit in support of
purchase orders, to finance inventory purchases and for general corporate
purposes. At June 30, 1998, the maximum borrowing base under the Syndicated Loan
Agreement was $28,562,000 of which $5,290,000 was committed in support of
letters of credit. There were loans outstanding against the facility at June 30,
1998 of $9,172,000. Approximately $14,100,000 was available for use at June 30,
1998.

In fiscal year 1997, the Company's Australian subsidiaries, InterTAN Australia
Ltd. and Technotron Sales Corp. Pty. Ltd., entered into a credit agreement with
an Australian bank (the "Australian Facility").  This agreement established a
credit facility in the amount of A$12,000,000 ($7,433,000 at June 30, 1998
exchange rates).  The Australian Facility has no fixed term and may be
terminated at any time upon five days prior written notice by the lender.  All
or any part of the facility may be used to provide letters of credit in support
of purchase orders.  A maximum amount of A$5,000,000 ($3,097,000 at June 30,
1998 exchange rates) may be used in support of short-term borrowings.  At June
30, 1998, there were no borrowings outstanding against the Australian Facility;
A$6,458,000 ($4,000,000 at June 30, 1998 exchange rates) was committed in
support of letters of credit.  The terms of the Australian Facility limit the
Australian subsidiary with respect to certain distributions to InterTAN, Inc.

NOTE 4  DEBT AND MERCHANDISE AGREEMENT WITH TANDY

On August 5, 1993, Tandy, through its wholly-owned subsidiary, Trans World
Electronics, Inc., provided the Company with a term loan facility ("Series A
Note") in the amount of $41,748,000 bearing interest at 8.64%.  It was payable
semi-annually over a six-year period commencing February 25, 1995.  In addition,
Tandy provided the Company with a $10,113,000 three-year loan ("Series B Note")
which bore interest at 8.11% and was due on August 25, 1996.  The Series B Note
was repaid in May, 1996.  In order to obtain a release of its security interests
so that security could be given under the Syndicated Loan Agreement, the Series
A note was repaid in full in December, 1997.

In consideration for Tandy's extension of credit, InterTAN issued to Tandy five-
year warrants to purchase 1,449,007 shares of the Company's common stock
exercisable beginning August 5, 1993 at an exercise price of $6.618 which was
the market price of the Company's common stock at the date of issuance.  For the
sole consideration of the early repayment of the Series A Note, these warrants
were surrendered and cancelled.  The warrants were valued on issuance at
$2,155,000 and this amount was recorded as a discount against the Series A and B
Notes.  The discount was being amortized over the term of the Series A Note;
remaining unamortized costs associated with this debt were expensed on its
repayment.  Total amortization recorded during fiscal years 1998, 1997 and 1996
was $154,000, $308,000 and $308,000, respectively.

                                       48
<PAGE>
 
The Company and Tandy have entered into a Merchandise Agreement and a series of
license agreements.  These agreements permit InterTAN to use, in designated
countries, the "Tandy", "Tandy Electronics" and "RadioShack" trade names until
June 30, 2006, with automatic annual extensions to June 30, 2010.  The license
agreements may be terminated with five years' prior written notice by either
party.  In the event a change in control of InterTAN, Inc. or any of its
subsidiaries occurs, Tandy may revoke the Merchandise Agreement and the license
agreements.  In consideration for these rights, the Company was obliged to pay a
royalty of 0.25% of consolidated sales beginning in fiscal year 1996.  This
royalty increases by 0.25 percentage points each fiscal year until it reaches a
maximum of up to 1.0% in fiscal 1999.  During fiscal years 1998, 1997 and 1996,
the Company paid Tandy royalties totaling $3,929,000, $2,538,000 and $1,260,000,
respectively.  The Company is obliged to use Tandy's export unit, A & A
International, Inc. ("A & A"), as its exclusive exporter of products from the
Far East through the term of the Merchandise Agreement.  In such connection, the
Company must pay a purchasing agent/exporter fee to A & A calculated by adding
0.2% of consolidated sales in excess of $500,000,000 to the base amount of
$1,000,000 and deducting from this certain credits the Company earns by
purchasing products from Tandy and A & A.  The Company paid Tandy fees totaling
$885,000, $815,000 and $785,000 in fiscal years 1998, 1997 and 1996,
respectively, under this arrangement.  During fiscal years 1998, 1997 and 1996,
the Company purchased approximately 30%, 32% and 31%, respectively, of its
merchandise from A & A and Tandy.  The Company's purchase orders with Tandy are
supported, based on a formula agreed with Tandy, by letters of credit issued by
banks on behalf of InterTAN or backed by cash deposits.  In September, 1997, the
Merchandise Agreement was amended to permit the Company to support purchase
orders with a surety bond or bonds as well as letters of credit.  The Company
has secured surety bond coverage from a major insurer in an amount not to exceed
$15,000,000.

The Company has also entered into an advertising agreement with Tandy giving the
Company rights to advertising initiatives developed by Tandy for its RadioShack
stores in the United States.  During fiscal years 1998, 1997 and 1996, the
Company incurred expenses of $209,000, $211,000 and $410,000, respectively,
under this agreement.

NOTE 5    DEBENTURES

During fiscal year 1994, the Company closed a private placement of
Cdn$60,000,000 of 9% subordinated convertible debentures which will mature on
August 30, 2000.  At June 30, 1998, Cdn$56,812,000 of Debentures ($38,706,000 at
June 30, 1998 exchange rates) were outstanding.  The Debentures are convertible
at any time at a conversion rate of 118.731 common shares for each Cdn$1,000
face amount of Debentures, equivalent to a conversion price of approximately
Cdn$8.42 ($5.74 per share at the June 30, 1998 exchange rate).  The Debentures
are subordinated to all senior indebtedness of the Company, including the
Syndicated Loan Agreement and the Australian Facility.

The Debentures are redeemable, in whole or in part, on a pro rata basis, upon 30
business days' notice at a redemption price equal to the principal amount
thereof, plus accrued and unpaid interest, if any, provided that the current
market price of the Company's common shares as of the date of such notice is not
less than 125% of the conversion price.  After August 30, 1999, the Debentures
will be redeemable upon 30 trading days' notice at a redemption price equal to
the principal amount thereof plus accrued and unpaid interest, if any,
regardless of the current market price of the Company's common shares.  After
February 28, 2000, the Company may redeem the Debentures by issuing and
delivering to the 

                                       49
<PAGE>
 
holders that number of the Company's common shares obtained by dividing the
principal amount of the Debentures by 95% of the market price of the Company's
common stock at the date of redemption.

NOTE 6  PROPERTY AND EQUIPMENT

Property and equipment at June 30, 1998 and 1997 are summarized as follows (in
thousands):

                                           1998           1997

----------------------------------------------------------------

Land                                     $   965        $  1,134
Buildings                                  9,147          10,072
Equipment, furniture and fixtures         40,804          44,143
Leasehold improvements                    39,349          42,638
Lease premiums                             7,057           9,139
 ................................................................
                                          97,322         107,126
                                            
Less accumulated depreciation               
  and amortization                        71,094          78,314
 ................................................................
Property and equipment, net              $26,228        $ 28,812

----------------------------------------------------------------
 
Because of the continued and higher than expected operating losses in the United
Kingdom during fiscal year 1997, the Company conducted an impairment evaluation
of its property and equipment in the United Kingdom.  As a result of this
evaluation, during the fourth quarter of fiscal year 1997, the Company
recognized a non-cash impairment loss of $10,042,000 which represents the
difference between the estimated market value and the book value of the
Company's investment in property and equipment in the United Kingdom, primarily
in its retail store locations, including lease premiums, leasehold improvements
and store fittings and fixtures.  Fair market value was principally determined
based upon estimated future discounted cash flows.

                                       50
<PAGE>
 
NOTE 7    ACCRUED EXPENSES

The following is a summary of accrued expenses at June 30, 1998 and 1997 (in
thousands):
 
                                       1998          1997
-----------------------------------------------------------
Payroll and bonuses                   $ 9,292     $  7,383
Deferred service contract income        6,510        6,156
United Kingdom restructuring costs      9,416           --
Other                                  13,287       13,492
 ...........................................................
                                      $38,505     $ 27,031
-----------------------------------------------------------
 
For a discussion of the United Kingdom restructuring provision, see Note 2.
 
NOTE 8    INCOME TAXES
 
The components of the provisions for domestic and foreign income taxes are shown
below (in thousands):
 
                                      Year ended June 30
                                1998         1997         1996
-----------------------------------------------------------------
Current:                     
 United States                $   111       $  148       $ (374)
 Foreign                       10,153        1,018          701
 .................................................................
                                                       
                               10,264        1,166          327
                                                       
Deferred foreign                  166        5,589        7,172
 .................................................................
Total income tax                                       
 expense                      $10,430       $6,755       $7,499

-----------------------------------------------------------------
 
The Company's income tax expense primarily represents Canadian and Australian
income tax on the profits earned by its subsidiaries in those countries.  No tax
is currently payable in the United Kingdom.

                                       51
<PAGE>
 
Components of the difference between income tax expense and the amount
calculated by applying the U.S. statutory rate of 35% to income before income
taxes are as follows (in thousands):
 
                                    Year ended June 30
                                 1998      1997      1996

------------------------------------------------------------
Components of
pre-tax income (loss):
 United States                 $(2,223)  $  (901)  $(1,872)
 Foreign                          (120)   (8,953)    7,130
 ............................................................
Income (loss) before
 income taxes                   (2,343)   (9,854)    5,258
Statutory U.S. tax rate            35%       35%       35%
 ............................................................
Federal income tax
expense (benefit) at
 statutory rate                   (820)   (3,449)    1,840
Foreign tax rate
 differentials                   1,463     1,177       887
Provincial income taxes,
 less foreign federal
 income tax benefit              1,441     1,202     1,433
Book losses for which no
 tax benefit was recognized      8,883     9,367     3,610
Adjustment to valuation
 allowance for deferred
 tax assets                       (666)   (1,656)     (329)
Other, net                         129       114        58
 ............................................................
Total income tax
 Expense                       $10,430   $ 6,755   $ 7,499
 
------------------------------------------------------------

                                       52
<PAGE>
 
Deferred tax assets are comprised of the following at June 30 (in thousands):
 
                               1998             1997

-------------------------------------------------------
 
Depreciation                 $  3,907        $  5,410
Deferred service contracts      2,869           2,029
Reserves for business                
 restructuring                  3,544             633
Loss carryforwards             28,646          26,363
Other                           4,653           5,537
 .......................................................
                               43,619          39,972
Valuation allowance           (43,250)        (39,338)
 .......................................................
Deferred tax asset           $    369        $    634
 
-------------------------------------------------------

Since the adoption of the asset and liability method, the Company has regularly
assessed the future benefit which might be derived from the Company's deferred
tax assets.  In assessing the future benefit which might be derived from these
deferred tax assets, the Company considers its recent operating history and
financial condition.

During fiscal year 1997, based on the improved operating performance of the
Australian subsidiary during the last two fiscal years, management concluded
that the valuation allowance against the deferred tax assets of that subsidiary
should be reduced by $634,000 and the Company recorded a deferred tax benefit of
that amount.  During fiscal year 1998, management reviewed the realization of
the remaining deferred tax assets in Australia.  Based on the continued
improvements in the operating performance of the Australian subsidiary,
management concluded that the valuation allowance should be further reduced by
$666,000 and the Company recognized a deferred benefit of that amount.

The Company's net operating loss carryforwards in Canada and Australia have been
fully utilized.  In the United Kingdom and the United States, the Company has
net operating loss carryforwards for tax purposes of approximately $81,000,000
and $4,000,000, respectively.   In the United Kingdom these losses can be
carried forward indefinitely; the loss carryforwards in the United States will
expire in 2012 and 2013.  Certain restrictions may apply to the use of these
loss carryforwards in the event of a change in control of the Company.

An audit of the Canadian income tax returns of the Canadian subsidiary for the
1987 to 1989 taxation years was completed during fiscal year 1994, resulting in
additional tax being levied against the Canadian subsidiary.  The Company has
appealed these reassessments and, pending the outcome of these matters, the
Company, by Canadian law, was required to pay one-half of the tax in dispute.
The tax levied by Revenue Canada in reassessing those years was offset by
refunds arising from the carryback of losses incurred in subsequent years.
Depending on the ultimate resolution of these issues, the Company could
potentially have an additional liability in the range of $0 to $11,700,000.  The
Company believes it has meritorious arguments in defense of the issues raised by
Revenue Canada and it is in the process of vigorously defending its position.
It is management's determination that no additional provision need be recorded
for these reassessments.  In order for the Company to succeed in 

                                       53
<PAGE>
 
appealing certain aspects of these reassessments, it must succeed in defending
the possible reassessments discussed in the paragraph immediately below.

The Company was advised in August, 1995 that Revenue Canada intended to extend
the scope of its 1987 to 1989 reassessments to raise certain issues flowing from
the spin-off of the Company from Tandy in fiscal year 1987.  Management
disagrees with Revenue Canada's views on these issues and will vigorously defend
the Company's position should Revenue Canada pursue these issues.  Management
believes it has meritorious arguments supporting its stance and, accordingly, no
additional provision has been recorded for these possible reassessments.
Depending on the ultimate resolution of these issues, the Company could
potentially have an additional liability in the range of $0 to $21,000,000.  As
required by Canadian law, the Company would likely be required to post a deposit
of one-half of the tax in dispute, including interest, in order to appeal any
reassessment.

An audit of the Canadian income tax returns of the Canadian subsidiary for the
1990 to 1993 taxation years was commenced during the 1995 fiscal year.  The
Company has been advised that Revenue Canada is challenging certain interest
deductions relating to the Canadian subsidiary's former operations in
continental Europe and is proposing to tax certain foreign exchange gains
related to such operations. Depending on the ultimate resolution of these
issues, the Company could potentially have an additional liability in the range
of $0 to $25,000,000.  Assuming Revenue Canada pursues these issues, in order
for the Company to proceed with such appeals, the Company would likely be
required to post a cash deposit or letters of credit equal to one-half of the
1990-1993 tax in dispute, together with interest.  Notwithstanding that the
Company is still in discussions with Revenue Canada regarding these issues,
Revenue Canada and certain provincial jurisdictions were required to issue
protective reassessments for one of the years because the time period during
which such reassessment could legally be issued was about to expire.  The amount
of these reassessments, including interest, is approximately $15,300,000.  These
amounts relate to the 1992 taxation year only and are reflected in the range
described immediately above.  The Company has appealed these reassessments and,
as indicated above, would normally be required to post a cash deposit equal to
one-half of the reassessments, pending the outcome of such appeal.  However,
Revenue Canada has agreed to defer the posting of such deposit pending the
outcome of ongoing discussions on this particular issue.  Revenue Canada has
further agreed to accept a letter of credit in lieu of a cash deposit should it
be necessary for the Company to actively proceed with its appeal. The Company
has requested a similar deferral from the relevant provincial authorities and
reasonably expects that such deferral will be approved.  The Company believes
that reassessments of the remaining years under review could be received during
fiscal year 1999.  Management believes it has meritorious arguments in support
of the deductibility of such interest and in support of its treatment of the
foreign exchange gains and is prepared to vigorously defend its position should
the Canadian tax authorities proceed with such a challenge.  Accordingly, it is
management's assessment that no additional provision need be recorded for these
possible claims.

It is not practical for management to make any reasonable determination of when
any of the above issues will ultimately be resolved.

An audit of the French branch of the Canadian subsidiary by the French Tax
authorities had previously been completed, resulting in an assessment of
approximately $2 million.  The Company appealed this assessment and this matter
was resolved during fiscal year 1998 at no cost to the Company.

                                       54
<PAGE>
 
An audit of the Company's United States income tax returns by the Internal
Revenue Service for the 1990-1993 taxation years is in process.

NOTE 9  COMMITMENTS AND CONTINGENCIES

The Company leases virtually all of its retail space under operating leases with
terms ranging from three to twenty-five years.  Canadian leases are normally
based on a minimum rental plus a percentage of store sales in excess of a
stipulated base.  The remainder of InterTAN's store leases generally provide for
fixed monthly rent adjusted periodically using inflation indices and rent
reviews.

In fiscal years 1998, 1997 and 1996 minimum rents, including immaterial
contingent rents and sublease rental income, were $38,297,000, $36,365,000 and
$34,033,000, respectively.  Future minimum rent commitments at June 30, 1998 for
all long-term non-cancelable leases (net of immaterial sublease rent income) are
as follows (in thousands):
 
---------------------------------------------------- 
1999    $31,772     2002                 20,062
2000     28,499     2003                 16,300
2001     24,160     2004 and thereafter  78,106
 
----------------------------------------------------

Apart from the matters described in Notes 2 and 8, there are no material pending
legal proceedings or claims other than routine litigation incidental to the
Company's business to which the Company or any of its subsidiaries is a party or
to which any of their property is subject.

NOTE 10     FINANCIAL INSTRUMENTS

Other than debt instruments, management believes that the book value of the
Company's financial instruments recorded on the balance sheet approximates their
estimated fair value based on their nature and generally short maturity; such
instruments include cash and short-term investments, accounts receivable and
short-term bank borrowings.  The estimated fair values of the Company's long-
term debt instruments are shown in the table below (in thousands):

                                       55
<PAGE>
 
                              JUNE 30, 1998           June 30, 1997
                          BOOK       ESTIMATED      Book     Estimated
                          VALUE      FAIR VALUE     value    fair value 
                        
------------------------------------------------------------------------
Note payable            
 to Tandy               $     --     $     --     $ 24,353    $ 24,274
Discount on             
 Tandy note                   --           --         (975)         --
 ........................................................................
                        
Carrying value of       
 note payable           
 to Tandy               $     --     $     --     $ 23,378    $ 24,274

------------------------------------------------------------------------
 
9% convertible
 subordinated
 debentures             $ 38,706     $ 41,415     $ 41,138    $ 39,492
 
------------------------------------------------------------------------

The estimated fair value of the note payable to Tandy at June 30, 1997 has been
determined by discounting the related cash flows using management's estimate of
the Company's incremental borrowing rate for similar issues.  This note was paid
in full during the year.  See Note 4.  The estimated fair value of the
Debentures is based on market price.

The Company enters into foreign exchange contracts to hedge against exchange
rate fluctuations on certain debts, payables and open inventory purchase orders
denominated in currencies other than the functional currency of the issuing
entity.  All foreign exchange contracts are written with major international
financial institutions.  Except for the opportunity cost of future currency
values being more favorable than anticipated, the Company's risk in those
transactions is limited to the cost of replacing the contracts at current market
rates in the event of nonperformance by the counterparties.  The Company
believes its risk of counterparty nonperformance is remote, and any losses
incurred would not be material.  At June 30, 1998 and 1997, the Company had
approximately $6,750,000 and  $10,280,000, respectively, of foreign exchange
contracts outstanding with a market value of approximately $(54,000) and
$190,000, respectively.  Maturity on these contracts outstanding at June 30,
1998 ranged from one to five months from fiscal year-end.

NOTE 11  EMPLOYEE BENEFIT PLANS

The Company's Stock Purchase Program is available to most employees.  Each
participant may contribute from 1% to 10% of annual compensation.  The Company
matches from 40% to 80% of the employee's contribution depending on the length
of the employee's participation in the program.  Shares are provided to the plan
either by periodic purchases on the open market or by the Company issuing new
shares.

Under the InterTAN Canada Ltd. Employee Savings Plan (the "Savings Plan"), a
participating employee may contribute 5% of annual compensation into the plan.
The Company matches 80% of the 

                                       56
<PAGE>
 
employee's contribution. The Savings Plan is available to most Canadian
employees who have been employed at least two years. An employee may also elect
to contribute an additional 5% of annual compensation to the plan which is not
matched by the employer. The Company's contributions are fully vested at the end
of each calendar quarter. An Administrative Committee appointed by the Company's
Board of Directors directs the investment of the plan's assets, a significant
portion of which are invested in InterTAN, Inc. common stock.

The InterTAN, Inc. 401(k) Plan is available to all U.S. employees who have
completed at least two months service with the Company.  Eligible employees may
contribute, subject to statutory limits, up to 14% of their salary to the plan.
The Company matches the employee contributions to a maximum of 4% of salary.
Fifty percent of the Company's contributions vest in the first year with full
vesting after an employee has completed two years of service with the Company.
Employees have a number of investment options available to them within the plan,
one of which is InterTAN, Inc. common stock.

The aggregate cost of these plans included in other selling, general and
administration expense totaled $1,640,000, $1,701,000 and  $1,811,000 in 1998,
1997 and 1996, respectively.

InterTAN U.K. Limited maintains a defined benefit pension plan that covers
substantially all the Company's employees in the United Kingdom.  Pension
benefits are based on each employee's compensation level and length of service.
The Company's policy is to fund its pension obligations in conformity with the
funding requirements of applicable laws and governmental regulations. The
pension plan's assets are primarily invested in equity, fixed income and
property funds, the values of which are subject to fluctuations in the
securities markets in the United Kingdom and elsewhere.

The funded status of the InterTAN U.K. Limited pension plan and the related
amounts recognized in the Company's consolidated financial statements are as
follows:
 
                                                              1998      1997
------------------------------------------------------------------------------
Accumulated benefit obligation, vested                      $ 8,642   $ 6,298
Effects of projected compensation increases                   1,294       942
 ..............................................................................
Projected benefit obligation                                  9,936     7,240
Fair value of plan assets                                     9,913     8,417
 ..............................................................................
Plan assets in excess of projected benefit obligation           (23)    1,177
Net actuarial (gains) losses not yet recognized in the    
  balance sheet                                              (1,057)      533
 ..............................................................................
Prepaid pension costs at June 30                            $ 1,034   $   644
------------------------------------------------------------------------------ 

                                       57
<PAGE>
 
Net pension expense and the related assumptions used consists of the following
(in thousands):

                                             1998         1997         1996
-----------------------------------------------------------------------------

Service cost                                 $ 393        $ 341        $ 330
  benefits earned during the year                                 
Interest accrued on projected                  630          508          426
  benefit obligation                                              
Assumed return on plan assets                 (902)        (844)        (669)
Net actuarial loss amortization                (64)         (63)         (45)
 .............................................................................
Net pension expense                          $  57        $ (58)       $  42
-----------------------------------------------------------------------------


                                           1998       1997      1996
----------------------------------------------------------------------
                                                             
Assumptions used:                                            
Discount rate                              6.5%       8.5%       9.0%
Compensation increase rate                 4.5%       5.5%       6.0%
Long-term rate of return on plan assets    8.5%      10.5%      11.0%
----------------------------------------------------------------------

NOTE 12    STOCK OPTION PLANS

In 1986 and 1996 the Company adopted employee stock option plans (the "1986
Stock Option Plan" and the "1996 Stock Option Plan") under which the
Organization and Compensation Committee of the Board of Directors may grant
options to key management employees to purchase up to an aggregate of 800,000
and 1,500,000 shares, respectively, of the Company's common stock.  Incentive
options granted under these plans are exercisable on a cumulative basis equal to
one-third for each year outstanding; unless otherwise specified by the
Committee, nonstatutory options issued under the plans are exercisable on a
cumulative basis equal to 20% for each year outstanding.  Upon death or
disability of an optionee, all options then held become immediately exercisable
for one year, and upon retirement, at age 50 or older, the Committee may
accelerate the dates at which the outstanding options may be exercised.  Options
under these plans generally expire ten years after the date of grant.  The
exercise price of the options granted is determined by the Committee, but cannot
be less than 100% of the market price of the common stock at the date of grant.

At June 30, 1998, options to purchase 391,699 shares were outstanding under the
1986 Stock Option Plan. While options outstanding under this plan will remain in
force until they are exercised, canceled or expire, no further options may be
granted.  At June 30, 1998, options to purchase 447,800 shares were outstanding
under the 1996 Stock Option Plan and 1,052,200 options were available for future
grant.

In 1991, the Company adopted the Non-Employee Director Stock Option Plan (the
"Director Plan") under which each non-employee director was granted an option,
exercisable immediately, to purchase 25,000 shares of the Company's common
stock.  Upon election, all new non-employee directors are granted an option to
purchase 25,000 shares of the Company's common stock.  Options granted under the
Director Plan are exercisable at a price equal to 100% of the market price of
the common stock at the date of grant.  The options generally expire ten years
after the date of grant unless the optionee ceases to be a non-employee
director, in which case the options expire one year after the date of 

                                       58
<PAGE>
 
cessation. Common stock issued under the Director Plan cannot exceed 200,000
shares. At June 30, 1998, options to purchase 175,000 shares were outstanding
under the Director Plan and 25,000 options were available for future grant.

A summary of transactions relating to these stock option plans is summarized in
the following tables:

Summary of Stock Option Transactions
 
<TABLE>
<CAPTION>
                                           1998                     1997                       1996
-------------------------------------------------------------------------------------------------------------
                                                WEIGHTED-                Weighted-                  Weighted-  
                                                AVERAGE                  Average                    Average   
                                                EXERCISE                 Exercise                   Exercise   
                                     OPTIONS     PRICE        Options     Price         Options      Price     
-------------------------------------------------------------------------------------------------------------
<S>                                <C>          <C>           <C>        <C>            <C>         <C>      
Outstanding at beginning of year     785,500    $ 6.94        650,833    $ 7.27          650,000    $ 6.97
Grants                               277,000    $ 5.31        209,500    $ 5.94          210,000    $ 7.55
Exercised                                --        --             --        --          (118,000)   $ 6.44
Forfeited                            (48,001)   $ 6.95        (74,833)   $ 7.01          (91,167)   $ 6.83
 .............................................................................................................
Outstanding at end of year         1,014,499    $ 6.49        785,500    $ 6.94          650,833    $ 7.27
-------------------------------------------------------------------------------------------------------------
                                                                                                   
Exercisable at end of year           585,496    $ 6.96        439,331    $ 7.10          303,167    $ 7.01
-------------------------------------------------------------------------------------------------------------
                                                                                                   
Weighted-average fair value                                                                        
  of options granted                 $3.30                     $3.71                      $4.67    
  during the year                                                                                  
-------------------------------------------------------------------------------------------------------------
</TABLE>

FIXED PRICE STOCK OPTIONS

<TABLE>
<CAPTION>
                              OPTIONS       WEIGHTED-     WEIGHTED-      OPTIONS      WEIGHTED-
                            OUTSTANDING      AVERAGE       AVERAGE     EXERCISABLE     AVERAGE
                                AT           REMAING       EXERCISE        AT          EXERCISE
 RANGE OF EXERCISE         JUNE 30, 1998   LIFE (YEARS)     PRICE     JUNE 30, 1998     PRICE
     PRICES                                                                           
-----------------------------------------------------------------------------------------------
<S>                        <C>             <C>            <C>         <C>             <C>
$3.50  -  $5.94               329,000         9.00         $ 5.33         73,666        $ 4.94
$6.00  -  $8.19               685,499         6.96         $ 7.07        511,830        $ 7.25
 ...............................................................................................
                            1,014,499         7.62         $ 6.51        585,496        $ 6.96
-----------------------------------------------------------------------------------------------
</TABLE>

As discussed in Note 1, the Company measures the expense associated with stock-
based compensation using the intrinsic value method.  Accordingly, because the
exercise price of the stock options granted is equal to the market price of the
common stock on the date of grant, no compensation expense has been recognized
with respect to stock options granted during fiscal years 1998, 1997 or 1996.
Had the Company adopted the fair value method of recognizing stock-based
compensation, the estimated fair value of the options granted would have been
amortized to compensation expense over the vesting period.  Pro forma
information is presented below as if the Company had adopted the fair value
method.

                                       59
<PAGE>
 
<TABLE>
<CAPTION>
                                       1998                            1997                            1996
---------------------------------------------------------------------------------------------------------------------
(In thousands, except            AS           PRO                 As           Pro                As           Pro
   per share amounts)         REPORTED       Forma             Reported       Forma            Reported       Forma
---------------------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>                <C>           <C>                <C>           <C>
Net loss                     $(12,773)     $(13,513)          $(16,609)     $(17,172)          $(2,241)     $( 2,417)
                                                                                                          
Basic and diluted net                                                                                     
  loss per average                                                                                        
  common share               $  (1.05)     $  (1.11)          $  (1.45)     $  (1.50)          $ (0.21)     $  (0.22)
---------------------------------------------------------------------------------------------------------------------
</TABLE>

For purposes of the pro forma information above, the fair value of each option
granted for each year was estimated using the Black-Scholes option pricing model
with the following weighted-average assumptions for fiscal years 1998, 1997 and
1996, respectively: expected volatility of 54.1%, 53.9% and 54.1%, risk free
interest rates of 5.9%, 6.2% and 5.6%, expected lives of seven years for all
three years and expected dividend yields of 0.0% for all three years.

The above pro forma information is not indicative of future amounts as the pro
forma amounts do not include the impact of stock options granted prior to fiscal
year 1996 and additional awards are anticipated in the future.

NOTE 13  PREFERRED STOCK PURCHASE RIGHTS

In December, 1986, the Board of Directors adopted a shareholder rights plan,
which expires in September, 1999, and declared a dividend of one right for each
outstanding share of InterTAN common stock.  The plan was amended in October,
1987 and September, 1989.  The rights are represented by the Company's common
stock certificates; and if they become exercisable, will entitle holders to
purchase one one-hundredth of a share of InterTAN Series A Junior Participating
Preferred Stock for a purchase price of $175 (subject to adjustment).  The
rights become exercisable and will trade separately from the common stock only
upon the date of a public announcement that a person, entity or group ("person")
has acquired 20% or more of InterTAN's outstanding common stock without the
prior approval of the Company ("Acquiring Person"), or 10 days after the
commencement or the public announcement of an offer which would result in any
person becoming an Acquiring Person.  In the event that an Acquiring Person
becomes the beneficial owner of 20% or more of the common stock of the Company,
the rights will be exercisable for InterTAN equity securities with a fair market
value (as determined under the rights plan) equal to $350.  In accordance with
the terms of the rights plan, the rights are redeemable at a price of $0.03 per
right.

NOTE 14  GEOGRAPHIC AREAS

The Company operates in one industry segment:  consumer electronics retailing.
The principal geographic areas of InterTAN's operations are Canada, Australia
and the United Kingdom.

As previously discussed in Notes 2 and 6, the operating losses in the United
Kingdom for fiscal years 1998 and 1997 include a restructuring charge and a non-
cash impairment charge of $12,712,000 and $10,042,000, respectively.  The
operating loss for 1998 also included an inventory writedown of $2,325,000
associated with the restructuring plan.

                                       60
<PAGE>
 
The following table shows net sales, operating profit and identifiable assets by
geographic area for fiscal years 1998, 1997 and 1996 (in thousands). Transfers
between geographic areas were immaterial.

                                       61
<PAGE>
 
                                       United
                                       Canada   Australia Kingdom    Total
=============================================================================
JUNE 30, 1998
Net sales and operating revenues      $270,675  $ 98,171  $172,528  $541,374
Other income (loss)                        (30)      340       201       511
 .............................................................................
 Net sales and other income           $270,645  $ 98,511  $172,729  $541,885
 
-----------------------------------------------------------------------------
Operating profit (loss)               $ 23,233  $  5,710  $(21,804) $  7,139
General corporate expenses                                            (4,779)
Foreign currency transaction gains                                       761
Interest expense, net                                                 (5,464)
 .............................................................................
 Loss before income taxes                                           $ (2,343)
 
-----------------------------------------------------------------------------
Identifiable assets                   $111,496  $ 45,675  $ 64,246  $221,417
Corporate assets                                                       2,130
 .............................................................................
 Total assets                                                       $223,547
 
-----------------------------------------------------------------------------
June 30, 1997
Net sales and operating revenues      $251,907  $102,628  $164,783  $519,318
Other income                                 9       363       268       640
 .............................................................................
 Net sales and other income           $251,916  $102,991  $165,051  $519,958
 
-----------------------------------------------------------------------------
Operating profit (loss)               $ 18,826  $  4,721  $(23,147) $    400
General corporate expenses                                            (4,201)
Foreign currency transaction gains                                       610
Interest expense, net                                                 (6,663)
 .............................................................................
 Loss before income taxes                                           $ (9,854)
 
-----------------------------------------------------------------------------
Identifiable assets                   $123,244  $ 51,640  $ 69,959  $244,843
Corporate assets                                                       9,464
 .............................................................................
 Total assets                                                       $254,307
 
-----------------------------------------------------------------------------
June 30, 1996
Net sales and operating revenues      $249,413  $ 93,896  $163,136  $506,445
Other income                                41       426       435       902
 .............................................................................
 Net sales and other income           $249,454  $ 94,322  $163,571  $507,347
 
-----------------------------------------------------------------------------
Operating profit (loss)               $ 21,274  $  2,777  $ (7,807) $ 16,244
General corporate expenses                                            (4,615)
Foreign currency transaction gains                                       338
Interest expense, net                                                 (6,709)
 .............................................................................
 Income before income taxes                                         $  5,258

-----------------------------------------------------------------------------
Identifiable assets                   $126,515  $ 48,839  $ 75,948  $251,302
Corporate assets                                                      10,331
 .............................................................................
 Total assets                                                       $261,633
-----------------------------------------------------------------------------

                                       62
<PAGE>
 
NOTE 15  QUARTERLY DATA (UNAUDITED)
                                                     Quarter ended
                                                      September 30
(In thousands, except per share data)               1997       1996

========================================================================= 

Net sales and operating revenues                 $121,709    $112,287
Other income                                           92         141
 .........................................................................
                                                 121, 801     112,428
Operating costs and expenses:
  Cost of products sold                            67,819      61,557    
  Selling, general and administrative expenses     51,360      50,847
  Depreciation and amortization                     1,919       2,217
  Impairment of long-lived assets                      --          --
  Provision for business restructuring                 --          --
 .........................................................................
                                                  121,098     114,621
 .........................................................................

Operating income (loss)                               703      (2,193)
Foreign currency transaction (gains) losses           (80)       (195)
Interest expense, net                               1,643       1,597
 .........................................................................

Income (loss) before income taxes                    (860)     (3,595)
Provision for income taxes                          2,049       1,012
 .........................................................................
                                                  $(2,909)    $(4,607)

-------------------------------------------------------------------------
 
Basic net income (loss) per average 
   common share                                   $ (0.24)    $ (0.41)

Diluted net income (loss) per average 
   common share/1/                                $ (0.24)    $ (0.41)
 .........................................................................

Average common shares outstanding                  11,924      11,231

Average common shares outstanding 
   assuming dilution                               11,924      11,231

-------------------------------------------------------------------------

/1/ The sum of diluted earnings per share for the four quarters ended June 30,
    1998 and 1997 does not equal the diluted earnings per share as reported for
    the respective years, primarily because the Company's convertible debentures
    were dilutive in the second quarter, but anti-dilutive in all other quarters
    and for each year as a whole.

                                       63
<PAGE>
 
   Quarter ended          Quarter ended           Quarter ended
    December 31              March 31                June 30
 1997        1996        1998        1997        1998        1997

------------------------------------------------------------------------ 
$192,559    $190,934    $117,117    $109,555    $109,989    $106,542
     259         115          66         289          94          95

 ........................................................................
 192,818     191,049     117,183     109,844     110,083     106,637

 110,586     108,976      68,510      58,802      61,019      57,500
  62,701      64,895      49,425      50,766      47,972      50,703
   1,873       2,379       1,789       2,566       1,840       2,509
      --          --          --          --          --      10,042
      --          --      12,712          --          --          --
 .........................................................................
 175,160     176,250     132,436     112,134     110,831     120,754

 .........................................................................
  17,658      14,799     (15,253)     (2,290)       (748)    (14,117)
    (658)       (731)        158         124        (181)        192
   1,893       1,908         923       1,503       1,005       1,655

 .........................................................................

  16,423      13,622     (16,334)     (3,917)     (1,572)    (15,964)
   5,076       4,145       1,438       1,216       1,867         382

 .........................................................................

$ 11,347    $  9,477    $(17,772)   $ (5,133)   $ (3,439)   $(16,346)
 
-------------------------------------------------------------------------
$   0.94    $   0.83    $  (1.46)   $  (0.45)   $  (0.28)   $  (1.40)

$   0.55    $   0.50    $  (1.46)   $  (0.45)   $  (0.28)   $  (1.40)

 .........................................................................

  12,024      11,366      12,208      11,527      12,358      11,706

  19,814      20,317      12,208      11,527      12,358      11,706
 
-------------------------------------------------------------------------

                                       64
<PAGE>
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

There has been no change in independent accountants and no disagreement with any
independent  accountant on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure during the period
since the end of fiscal year 1997.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information called for by this Item with respect to directors and executive
officers has been omitted pursuant to General Instruction G(3) to Form 10-K.
This information is incorporated by reference from the 1998 definitive proxy
statement filed with the Securities and Exchange Commission pursuant to
Regulation 14A.

ITEM 11. EXECUTIVE COMPENSATION.

The information called for by this Item with respect to executive compensation
has been omitted pursuant to General Instruction G(3) to Form 10-K.  The
information is incorporated herein by reference from the 1998 definitive proxy
statement filed with the Securities and Exchange Commission pursuant to
Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information called for by this Item with respect to security ownership of
certain beneficial owners and management has been omitted pursuant to General
Instruction G(3) to Form 10-K.  This information is incorporated by reference
from the 1998 definitive proxy statement filed with the Securities and Exchange
Commission pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information called for by this Item with respect to certain relationships
and transactions with management and others has been omitted pursuant to General
Instruction G(3) to Form 10-K.  This information is incorporated by reference
from the 1998 definitive proxy statement filed with the Securities and Exchange
Commission pursuant to Regulation 14A.

                                       65
<PAGE>
 
                                    PART IV
                                        
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     (a) Documents filed as part of this report:

         (1) Financial Statement Schedules:

             Financial Statement Schedule II is filed herewith.
 
             All other financial statement schedules are omitted because they
             are not applicable or the required information is included in the
             Consolidated Financial Statements or Management's Discussion and
             Analysis of Financial Condition and Results of Operations.

         (2) Exhibits required by Item 601 of Regulation S-K:


               Exhibit No.   Description
               -----------   -----------

                  3(a)       Restated Certificate of Incorporation (Filed as
                             Exhibit 3(a) to InterTAN's Registration Statement
                             on Form 10 and incorporated herein by reference).

                  3(a)(i)    Certificate of Amendment of Restated Certificate of
                             Incorporation (Filed as Exhibit 3(a)(i) to
                             InterTAN's Annual Report on Form 10-K for fiscal
                             year ended June 30, 1995 and incorporated herein by
                             reference).

                  3(a)(ii)   Certificate of Designation, Preferences and Rights
                             of Series A Junior Participating Preferred Stock
                             (Filed as Exhibit 3(a)(i) to InterTAN's
                             Registration Statement on Form 10 and incorporated
                             herein by reference).

                  3(b)       Bylaws (Filed as Exhibit 3(b) to InterTAN's
                             Registration Statement on Form 10 and incorporated
                             herein by reference).

 

                                       66
<PAGE>
 
                  3(b)(i)    Amendments to Bylaws through August 3, 1990 (Filed
                             as Exhibit 3(b)(i) to InterTAN's Annual Report on
                             Form 10-K for fiscal year ended June 30, 1990 and
                             incorporated herein by reference).

                  3(b)(ii)   Amendments to Bylaws through May 15, 1995 (Filed as
                             Exhibit 3(b)(ii) to InterTAN's Annual Report on
                             Form 10-K for fiscal year ended June 30, 1995 and
                             incorporated herein by reference).

                  3(b)(iii)  Amended and Restated Bylaws (Filed as Exhibit
                             3(b)(iii) to InterTAN's Annual Report on Form 10-K
                             for fiscal year ended June 30, 1996 and
                             incorporated herein by reference) .

                  4(a)       Articles Fifth and Tenth of the Restated
                             Certificate of Incorporation (included in Exhibit
                             3(a)).

                  4(b)       Amended and Restated Rights Agreement between
                             InterTAN, Inc. and The First National Bank of
                             Boston (Filed as Exhibit 4(b) to InterTAN's Report
                             on Form 8-K dated September 25, 1989 and
                             incorporated herein by reference).
 
                  4(c)       Trust Indenture securing the issue of 9%
                             Convertible Subordinated Debentures due August 30,
                             2000 (Filed as Exhibit 4(c) to InterTAN's Annual
                             Report on Form 10-K for fiscal year ended June 30,
                             1993 and incorporated herein by reference).

                  10(a)      InterTAN, Inc. Restated 1986 Stock Option Plan (as
                             amended as of February 22, 1994 and April 18, 1995)
                             (Filed as exhibit 10(a) to InterTAN's Annual Report
                             on Form 10-K for fiscal year ended June 30, 1995
                             and incorporated herein by reference).

                  10(b)      InterTAN, Inc. Restated 1991 Non-Employee Director
                             Stock Option Plan (as amended through February 21,
                             1994) (Filed as Exhibit 10(b) to InterTAN's Annual
                             Report on Form 10-K for fiscal year ended June 30,
                             1995 and incorporated herein by reference).

                  10(c)      Retirement Agreement dated March 3, 1997 between
                             InterTAN, Inc. and James Michael Wood (Filed as
                             Exhibit 10(c) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1997 and
                             incorporated herein by reference).


                                       67
<PAGE>
 
                  10(d)      Employment Agreement between InterTAN, Inc. and
                             James T. Nichols dated January 1, 1995 (Filed as
                             Exhibit 10(ii) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).

                  10(e)      Employment Agreement dated November 29, 1997
                             between InterTAN, Inc. and Brian E. Levy (Filed as
                             Exhibit 10(a) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1997 and
                             incorporated herein by reference).

                  10(f)      Employment Agreement between InterTAN, Inc. and
                             David S. Goldberg dated February 3, 1995 (Filed as
                             Exhibit 10(iii) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).

                  10(g)      Employment Agreement between InterTAN, Inc. and
                             John A. Capstick dated February 20, 1995 (Filed as
                             Exhibit 10(iv) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).

                  10(g)(i)   Letter dated December 6, 1995 extending term of
                             employment agreement for John A. Capstick (Filed as
                             Exhibit 10(b) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1995 and
                             incorporated herein by reference).

                  10(h)      Employment Agreement between InterTAN, Inc. and
                             James G. Gingerich dated March 1, 1995 (Filed as
                             Exhibit 10(v) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).

                  10(i)      Employment Agreement between InterTAN, Inc. and
                             Douglas C. Saunders dated March 10, 1995 (Filed as
                             Exhibit 10(vi) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).

                  10(j)      Minutes of Settlement dated April 13, 1995 between
                             InterTAN, Inc. and James B. Williams (Filed as
                             Exhibit 10(k) to InterTAN's Annual Report on Form
                             10-K for fiscal year ended June 30, 1995 and
                             incorporated herein by reference).

                                       68
<PAGE>
 
                  10(k)      Retirement and Severance Agreement dated July 31,
                             1994 between InterTAN, Inc. and Louis G. Neumann
                             (Filed as Exhibit 10(l) to InterTAN's Annual Report
                             on Form 10-K for fiscal year ended June 30, 1995
                             and incorporated herein by reference).

                  10(l)      Merchandise Agreement dated October 15, 1993
                             between InterTAN, Inc., InterTAN Canada Ltd.,
                             InterTAN U.K. Limited, InterTAN Australia Ltd.,
                             Technotron Sales Corp. Pty. Limited, Tandy
                             Corporation and A&A International, Inc. (Filed as
                             Exhibit 10(m) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1993 and
                             incorporated herein by reference).

                  10(l)(i)   First Amendment to Merchandise Agreement dated
                             November 1, 1993 (Filed as Exhibit 10(m)(i) to
                             InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended March 31, 1994 and incorporated
                             herein by reference).

                  10(l)(ii)  Second Amendment to Merchandise Agreement dated
                             October 2, 1995 (Filed as Exhibit 10 to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             September 30, 1995 and incorporated herein by
                             reference).

                  10(l)(iii) Third Amendment to Merchandise Agreement dated
                             February 1, 1996 (Filed as Exhibit 10(b) to
                             InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended March 31, 1996 and incorporated
                             herein by reference).

                  10(l)(iv)  Fourth Amendment to Merchandise Agreement dated
                             July 1, 1996 (Filed as Exhibit 10(b) to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             September 30, 1996 and incorporated herein by
                             reference).

                  10(l)(v)   Fifth Amendment to Merchandise Agreement dated
                             September 2, 1997 (Filed as Exhibit 10(b) to
                             InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended September 30, 1997 and incorporated
                             herein by reference).

                  10(m)      License Agreement dated November 4, 1993 between
                             Tandy Corporation and InterTAN Australia Ltd.
                             (Filed as Exhibit 10(n) to InterTAN's Quarterly
                             Report on Form 10-Q for quarter ended December 31,
                             1993 and incorporated herein by reference).

                                       69
<PAGE>
 
                  10(n)      License Agreement dated November 4, 1993 between
                             Tandy Corporation and InterTAN U.K. Limited (Filed
                             as Exhibit 10(o) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1993 and
                             incorporated herein by reference).

                  10(n)(i)   First Amendment to License Agreement (United
                             Kingdom) between InterTAN U.K. Limited and Tandy
                             Corporation dated April 21, 1995 (Filed as Exhibit
                             10(o)(i) to InterTAN's Annual Report on Form 10-K
                             for fiscal year ended June 30, 1995 and
                             incorporated herein by reference).

                  10(o)      License Agreement dated November 4, 1993 between
                             Tandy Corporation and InterTAN Canada Ltd. (Filed
                             as Exhibit 10(p) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1993 and
                             incorporated herein by reference).

                  10(o)(i)   First Amendment to License Agreement (Canada)
                             between InterTAN Canada Ltd. and Tandy Corporation
                             dated March 24, 1995 (Filed as Exhibit 10(i) to
                             InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended March 31, 1995 and incorporated
                             herein by reference).

                  10(o)(ii)  Second Amendment to License Agreement (Canada),
                             Second Amendment to License Agreement (United
                             Kingdom), and First Amendment to License Agreement
                             (Australia and New Zealand), each dated November 9,
                             1995 (Filed as Exhibit 10(a) to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             December 31, 1995 and incorporated herein by
                             reference).

                  10(o)(iii) Third Amendment to License Agreement (Canada),
                             Third Amendment to License Agreement (United
                             Kingdom), and Second Amendment to License Agreement
                             (Australia and New Zealand), each dated June 26,
                             1996 (Filed as Exhibit 10(p)(iii) to InterTAN's
                             Annual Report on Form 10-K for fiscal year ended
                             June 30, 1996 and incorporated herein by
                             reference).

                  10(p)      Loan Agreement dated to be effective December 22,
                             1997 among InterTAN, Inc., InterTAN Canada Ltd.,
                             InterTAN U.K. Limited, Bank of America Canada, Bank
                             of America N.T. & S.A. (London England Branch
                             Office) and certain other Lenders as identified
                             therein (Filed as Exhibit 10(c) to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             December 31, 1997 and incorporated herein by
                             reference).

                                       70
<PAGE>
 
                  10(p)(i)   Form of Rectification and Amendment No.1 to Loan
                             Agreement dated to be effective February 24, 1998
                             (Filed as Exhibit 10(a) to InterTAN's Quarterly
                             Report on Form 10-Q for quarter ended March 31,
                             1998 and incorporated herein by reference).

                  10(q)      Form of Omnibus Termination Agreement dated
                             December 30, 1997 between, among others, InterTAN,
                             Inc. and Tandy Corporation (Filed as Exhibit 10(b)
                             to InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended December 31, 1997 and incorporated
                             herein by reference).

                  10(r)      InterTAN Advertising Agreement and first amendment
                             thereto (Filed as Exhibit 10(s) to InterTAN's
                             Annual Report on Form 10-K for fiscal year ended
                             June 30, 1995 and incorporated herein by
                             reference).

                  10(r)(i)   Second Amendment to InterTAN Advertising Agreement
                             dated to be effective as of January 1, 1996 (Filed
                             as Exhibit 10(a) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1996 and
                             incorporated herein by reference).

                  10(r)(ii)  Third Amendment to InterTAN Advertising Agreement
                             dated to be effective as of January 1, 1997 (Filed
                             as Exhibit 10(b) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1997 and
                             incorporated herein by reference).

                  10(s)      Master Sales Agreement (United Kingdom) dated to be
                             effective as of December 31, 1995, among InterTAN,
                             Inc., InterTAN U.K. Limited, and Tandy Corporation
                             (Filed as Exhibit 10(c) to InterTAN's Quarterly
                             Report on Form 10-Q for quarter ended December 31,
                             1995 and incorporated herein by reference).

                  10(t)      InterTAN, Inc. 1996 Stock Option Plan and Forms of
                             Stock Option Agreement (Filed as Exhibits 4.6 and
                             4.7, respectively, to InterTAN's Registration
                             Statement on Form S-8, SEC file number 333-16105,
                             filed on November 14, 1996 and incorporated herein
                             by reference).

                  21         Subsidiaries of InterTAN, Inc. (Filed as Exhibit 21
                             to InterTAN's Annual Report on Form 10-K for fiscal
                             year ended June 30, 1995 and incorporated herein by
                             reference).

                 *23         Consent of Independent Accountants.

                                       71
<PAGE>
 
                 *27         Article 5 Financial Data Schedule.

                  99         Form of Multi-Option Switch Facility Agreement
                             between InterTAN Australia Ltd. and Westpac Banking
                             Corporation (Filed as Exhibit 99 to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             December 31, 1996 and incorporated herein by
                             reference).

                  99(a)      Letter Agreement dated September 30, 1997 amending
                             Multi-Option Switch Facility (Filed as Exhibit 99
                             to InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended September 30, 1997 and incorporated
                             herein by reference).

--------------------
* Filed herewith

     (b)  No reports on Form 8-K were filed during the fourth quarter of the
          fiscal year ended June 30, 1998.

                                       72
<PAGE>
 
                                   SIGNATURES
                                        
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                     InterTAN, Inc.

September 25, 1998                   /s/James T. Nichols
                                     -----------------------------------------
                                     James T. Nichols,
                                     Vice-Chairman and Chief Executive Officer
                                     (Principal Executive Officer)

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 25th day of September 1998 by the following
persons on behalf of InterTAN, Inc. and in the capacities indicated.

Signature                            Title
---------                            -----

/s/James G. Gingerich                Senior Vice President and
-------------------------            Chief Financial Officer
James G. Gingerich                   (Principal Financial Officer) 
                                     

/s/Douglas C. Saunders               Vice President and
-------------------------            Corporate Controller
Douglas C. Saunders                  (Principal Accounting Officer) 
                                     

/s/Ron G. Stegall                    Director and
-------------------------            Chairman of the Board 
Ron G. Stegall                       

/s/William C. Bousquette             Director 
-------------------------                                               
William C. Bousquette                

/s/John A. Capstick                  Director 
-------------------------                                               
John A. Capstick                     

                                     Director 
-------------------------                                               
Clark A. Johnson                     

/s/Walter F. Loeb                    Director 
-------------------------                                               
Walter F. Loeb                       

/s/John H. McDaniel                  Director 
-------------------------                                               
John H. McDaniel                     

/s/W. Darcy McKeough                 Director 
-------------------------                                               
W. Darcy McKeough                    

/s/James T. Nichols                  Director 
-------------------------                                               
James T. Nichols                     

                                       73
<PAGE>

                      REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULES



To the Board of Directors of 
InterTAN, Inc.


Our audits of the consolidated financial statements referred to in our report
dated August 19, 1998, appearing in Item 8 of this Annual Report on Form 10-K,
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.



/s/PricewaterhouseCoopers LLP






Fort Worth, Texas
August 19, 1998
<PAGE>
 
                                                                     Schedule II


                                INTERTAN, INC.
                VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE> 
<CAPTION> 

(In thousands)                                                            YEAR ENDED JUNE 30
                                                             ---------------------------------------------
                                                                 1998            1997             1996
                                                             ------------    ------------    -------------
<S>                                                          <C>             <C>             <C> 
ALLOWANCE FOR DOUBTFUL ACCOUNTS

              Balance, beginning of year                     $      1,539    $      1,746    $       1,175

              Additions charged to profit and loss                     23              52              599

              Accounts receivable charged off,
                   net of recoveries                                 (334)           (259)             (28)
                                                             ------------    ------------    -------------

              Balance, end of year                           $      1,228    $      1,539    $       1,746
                                                             ============    ============    =============

EUROPEAN BUSINESS RESTRUCTURING RESERVE

              Balance, beginning of year                     $      1,449    $      2,630    $       2,610

              Credited to cost and expense                           -               -                -

              Payments and other dispositions, net                   (568)         (1,181)              20
                                                             ------------    ------------    -------------

              Balance, end of year                           $        881    $      1,449    $       2,630
                                                             ============    ============    =============

UNITED KINGDOM BUSINESS RESTRUCTURING RESERVE

              Balance, beginning of year                     $       -       $       -       $        -

              Credited to cost and expense                         12,712            -                -

              Payments and other dispositions, net                 (3,296)           -                -
                                                             ------------    ------------    -------------

              Balance, end of year                           $      9,416    $       -       $        -   
                                                             ============    ============    =============

DEFERRED TAX VALUATION ALLOWANCE

              Balance, beginning of year                     $     39,338    $     30,461    $      28,107

              Additions to valuation allowance                      7,865           8,828            3,610

              Adjustments to valuation allowance                     (666)         (1,656)            (329)

              Reduction in deferred tax assets                     (2,941)           -                (749)

              Foreign exchange rate effects                          (346)          1,705             (178)
                                                             ------------    ------------    -------------

              Balance, end of year                           $     43,250    $     39,338    $      30,461
                                                             ============    ============    =============
</TABLE> 
<PAGE>
 
                               INDEX TO EXHIBITS
                               -----------------

               Exhibit No.   Description
               -----------   -----------

                  3(a)       Restated Certificate of Incorporation (Filed as
                             Exhibit 3(a) to InterTAN's Registration Statement
                             on Form 10 and incorporated herein by reference).

                  3(a)(i)    Certificate of Amendment of Restated Certificate of
                             Incorporation (Filed as Exhibit 3(a)(i) to
                             InterTAN's Annual Report on Form 10-K for fiscal
                             year ended June 30, 1995 and incorporated herein by
                             reference).

                  3(a)(ii)   Certificate of Designation, Preferences and Rights
                             of Series A Junior Participating Preferred Stock
                             (Filed as Exhibit 3(a)(i) to InterTAN's
                             Registration Statement on Form 10 and incorporated
                             herein by reference).

                  3(b)       Bylaws (Filed as Exhibit 3(b) to InterTAN's
                             Registration Statement on Form 10 and incorporated
                             herein by reference).
 
                  3(b)(i)    Amendments to Bylaws through August 3, 1990 (Filed
                             as Exhibit 3(b)(i) to InterTAN's Annual Report on
                             Form 10-K for fiscal year ended June 30, 1990 and
                             incorporated herein by reference).

                  3(b)(ii)   Amendments to Bylaws through May 15, 1995 (Filed as
                             Exhibit 3(b)(ii) to InterTAN's Annual Report on
                             Form 10-K for fiscal year ended June 30, 1995 and
                             incorporated herein by reference).

                  3(b)(iii)  Amended and Restated Bylaws (Filed as Exhibit
                             3(b)(iii) to InterTAN's Annual Report on Form 10-K
                             for fiscal year ended June 30, 1996 and
                             incorporated herein by reference) .

                  4(a)       Articles Fifth and Tenth of the Restated
                             Certificate of Incorporation (included in Exhibit
                             3(a)).

                  4(b)       Amended and Restated Rights Agreement between
                             InterTAN, Inc. and The First National Bank of
                             Boston (Filed as Exhibit 4(b) to InterTAN's Report
                             on Form 8-K dated September 25, 1989 and
                             incorporated herein by reference).
<PAGE>
 
                  4(c)       Trust Indenture securing the issue of 9%
                             Convertible Subordinated Debentures due August 30,
                             2000 (Filed as Exhibit 4(c) to InterTAN's Annual
                             Report on Form 10-K for fiscal year ended June 30,
                             1993 and incorporated herein by reference).

                  10(a)      InterTAN, Inc. Restated 1986 Stock Option Plan (as
                             amended as of February 22, 1994 and April 18, 1995)
                             (Filed as exhibit 10(a) to InterTAN's Annual Report
                             on Form 10-K for fiscal year ended June 30, 1995
                             and incorporated herein by reference).

                  10(b)      InterTAN, Inc. Restated 1991 Non-Employee Director
                             Stock Option Plan (as amended through February 21,
                             1994) (Filed as Exhibit 10(b) to InterTAN's Annual
                             Report on Form 10-K for fiscal year ended June 30,
                             1995 and incorporated herein by reference).

                  10(c)      Retirement Agreement dated March 3, 1997 between
                             InterTAN, Inc. and James Michael Wood (Filed as
                             Exhibit 10(c) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1997 and
                             incorporated herein by reference).

                  10(d)      Employment Agreement between InterTAN, Inc. and
                             James T. Nichols dated January 1, 1995 (Filed as
                             Exhibit 10(ii) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).

                  10(e)      Employment Agreement dated November 29, 1997
                             between InterTAN, Inc. and Brian E. Levy (Filed as
                             Exhibit 10(a) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1997 and
                             incorporated herein by reference).

                  10(f)      Employment Agreement between InterTAN, Inc. and
                             David S. Goldberg dated February 3, 1995 (Filed as
                             Exhibit 10(iii) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).
<PAGE>
 
                  10(g)      Employment Agreement between InterTAN, Inc. and
                             John A. Capstick dated February 20, 1995 (Filed as
                             Exhibit 10(iv) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).

                  10(g)(i)   Letter dated December 6, 1995 extending term of
                             employment agreement for John A. Capstick (Filed as
                             Exhibit 10(b) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1995 and
                             incorporated herein by reference).

                  10(h)      Employment Agreement between InterTAN, Inc. and
                             James G. Gingerich dated March 1, 1995 (Filed as
                             Exhibit 10(v) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).

                  10(i)      Employment Agreement between InterTAN, Inc. and
                             Douglas C. Saunders dated March 10, 1995 (Filed as
                             Exhibit 10(vi) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1995 and
                             incorporated herein by reference).

                  10(j)      Minutes of Settlement dated April 13, 1995 between
                             InterTAN, Inc. and James B. Williams (Filed as
                             Exhibit 10(k) to InterTAN's Annual Report on Form
                             10-K for fiscal year ended June 30, 1995 and
                             incorporated herein by reference).

                  10(k)      Retirement and Severance Agreement dated July 31,
                             1994 between InterTAN, Inc. and Louis G. Neumann
                             (Filed as Exhibit 10(l) to InterTAN's Annual Report
                             on Form 10-K for fiscal year ended June 30, 1995
                             and incorporated herein by reference).

                  10(l)      Merchandise Agreement dated October 15, 1993
                             between InterTAN, Inc., InterTAN Canada Ltd.,
                             InterTAN U.K. Limited, InterTAN Australia Ltd.,
                             Technotron Sales Corp. Pty. Limited, Tandy
                             Corporation and A&A International, Inc. (Filed as
                             Exhibit 10(m) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1993 and
                             incorporated herein by reference).
<PAGE>
 
                  10(l)(i)   First Amendment to Merchandise Agreement dated
                             November 1, 1993 (Filed as Exhibit 10(m)(i) to
                             InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended March 31, 1994 and incorporated
                             herein by reference).

                  10(l)(ii)  Second Amendment to Merchandise Agreement dated
                             October 2, 1995 (Filed as Exhibit 10 to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             September 30, 1995 and incorporated herein by
                             reference).

                  10(l)(iii) Third Amendment to Merchandise Agreement dated
                             February 1, 1996 (Filed as Exhibit 10(b) to
                             InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended March 31, 1996 and incorporated
                             herein by reference).

                  10(l)(iv)  Fourth Amendment to Merchandise Agreement dated
                             July 1, 1996 (Filed as Exhibit 10(b) to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             September 30, 1996 and incorporated herein by
                             reference).

                  10(l)(v)   Fifth Amendment to Merchandise Agreement dated
                             September 2, 1997 (Filed as Exhibit 10(b) to
                             InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended September 30, 1997 and incorporated
                             herein by reference).

                  10(m)      License Agreement dated November 4, 1993 between
                             Tandy Corporation and InterTAN Australia Ltd.
                             (Filed as Exhibit 10(n) to InterTAN's Quarterly
                             Report on Form 10-Q for quarter ended December 31,
                             1993 and incorporated herein by reference).

                  10(n)      License Agreement dated November 4, 1993 between
                             Tandy Corporation and InterTAN U.K. Limited (Filed
                             as Exhibit 10(o) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1993 and
                             incorporated herein by reference).

                  10(n)(i)   First Amendment to License Agreement (United
                             Kingdom) between InterTAN U.K. Limited and Tandy
                             Corporation dated April 21, 1995 (Filed as Exhibit
                             10(o)(i) to InterTAN's Annual Report on Form 10-K
                             for fiscal year ended June 30, 1995 and
                             incorporated herein by reference).
<PAGE>
 
                  10(o)      License Agreement dated November 4, 1993 between
                             Tandy Corporation and InterTAN Canada Ltd. (Filed
                             as Exhibit 10(p) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended December 31, 1993 and
                             incorporated herein by reference).

                  10(o)(i)   First Amendment to License Agreement (Canada)
                             between InterTAN Canada Ltd. and Tandy Corporation
                             dated March 24, 1995 (Filed as Exhibit 10(i) to
                             InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended March 31, 1995 and incorporated
                             herein by reference).

                  10(o)(ii)  Second Amendment to License Agreement (Canada),
                             Second Amendment to License Agreement (United
                             Kingdom), and First Amendment to License Agreement
                             (Australia and New Zealand), each dated November 9,
                             1995 (Filed as Exhibit 10(a) to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             December 31, 1995 and incorporated herein by
                             reference).

                  10(o)(iii) Third Amendment to License Agreement (Canada),
                             Third Amendment to License Agreement (United
                             Kingdom), and Second Amendment to License Agreement
                             (Australia and New Zealand), each dated June 26,
                             1996 (Filed as Exhibit 10(p)(iii) to InterTAN's
                             Annual Report on Form 10-K for fiscal year ended
                             June 30, 1996 and incorporated herein by
                             reference).

                  10(p)      Loan Agreement dated to be effective December 22,
                             1997 among InterTAN, Inc., InterTAN Canada Ltd.,
                             InterTAN U.K. Limited, Bank of America Canada, Bank
                             of America N.T. & S.A. (London England Branch
                             Office) and certain other Lenders as identified
                             therein (Filed as Exhibit 10(c) to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             December 31, 1997 and incorporated herein by
                             reference).

                  10(p)(i)   Form of Rectification and Amendment No.1 to Loan
                             Agreement dated to be effective February 24, 1998
                             (Filed as Exhibit 10(a) to InterTAN's Quarterly
                             Report on Form 10-Q for quarter ended March 31,
                             1998 and incorporated herein by reference).
<PAGE>
 
                  10(q)      Form of Omnibus Termination Agreement dated
                             December 30, 1997 between, among others, InterTAN,
                             Inc. and Tandy Corporation (Filed as Exhibit 10(b)
                             to InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended December 31, 1997 and incorporated
                             herein by reference).

                  10(r)      InterTAN Advertising Agreement and first amendment
                             thereto (Filed as Exhibit 10(s) to InterTAN's
                             Annual Report on Form 10-K for fiscal year ended
                             June 30, 1995 and incorporated herein by
                             reference).

                  10(r)(i)   Second Amendment to InterTAN Advertising Agreement
                             dated to be effective as of January 1, 1996 (Filed
                             as Exhibit 10(a) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1996 and
                             incorporated herein by reference).

                  10(r)(ii)  Third Amendment to InterTAN Advertising Agreement
                             dated to be effective as of January 1, 1997 (Filed
                             as Exhibit 10(b) to InterTAN's Quarterly Report on
                             Form 10-Q for quarter ended March 31, 1997 and
                             incorporated herein by reference).

                  10(s)      Master Sales Agreement (United Kingdom) dated to be
                             effective as of December 31, 1995, among InterTAN,
                             Inc., InterTAN U.K. Limited, and Tandy Corporation
                             (Filed as Exhibit 10(c) to InterTAN's Quarterly
                             Report on Form 10-Q for quarter ended December 31,
                             1995 and incorporated herein by reference).

                  10(t)      InterTAN, Inc. 1996 Stock Option Plan and Forms of
                             Stock Option Agreement (Filed as Exhibits 4.6 and
                             4.7, respectively, to InterTAN's Registration
                             Statement on Form S-8, SEC file number 333-16105,
                             filed on November 14, 1996 and incorporated herein
                             by reference).

                  21         Subsidiaries of InterTAN, Inc. (Filed as Exhibit 21
                             to InterTAN's Annual Report on Form 10-K for fiscal
                             year ended June 30, 1995 and incorporated herein by
                             reference).

                 *23         Consent of Independent Accountants.

                 *27         Article 5 Financial Data Schedule.
<PAGE>
 
                  99         Form of Multi-Option Switch Facility Agreement
                             between InterTAN Australia Ltd. and Westpac Banking
                             Corporation (Filed as Exhibit 99 to InterTAN's
                             Quarterly Report on Form 10-Q for quarter ended
                             December 31, 1996 and incorporated herein by
                             reference).

                  99(a)      Letter Agreement dated September 30, 1997 amending
                             Multi-Option Switch Facility (Filed as Exhibit 99
                             to InterTAN's Quarterly Report on Form 10-Q for
                             quarter ended September 30, 1997 and incorporated
                             herein by reference).

--------------------
* Filed herewith