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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the quarter ended April 30, 1998
BARBEQUES GALORE LIMITED
ACN 008 577 759
327 Chisholm Road, Auburn, New South Wales, 2144, Australia
Registrant's telephone number, including area code 61-2-9704-4177
[Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.]
Form 20-F X Form 40-F
----------------
[Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.]
Yes No X
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FORM 6-K
FOR THE QUARTER ENDED APRIL 30, 1998
INDEX
PAGE NO.
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PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Balance Sheets as of April 30,
1998 and January 31, 1998................................ 3
Condensed Consolidated Statements of Operations for the
Three Months Ended April 30, 1998 and 1997............... 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended April 30, 1998 and 1997............... 5
Notes to Condensed Consolidated Interim Financial
Statements............................................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................ 20
ITEM 2. Changes in Securities.................................... 20
ITEM 3. Defaults Upon Senior Securities.......................... 20
ITEM 4. Submission of Matters to a Vote of Security Holders...... 20
ITEM 5. Other Information........................................ 20
ITEM 6. Exhibits and Current Reports on Form 6-K................. 21
SIGNATURES........................................................ 22
2
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
JANUARY 31, APRIL 30,
1998 1998
----------- -----------
(UNAUDITED)
In A$ thousands, except share and per share data
ASSETS
Current assets:
Cash and cash equivalents............................ $ 166 $ 31
Accounts receivable, net of allowance of $387 at
April 30, 1998 and $497 at January 31, 1998......... 9,862 7,962
Receivables from affiliates.......................... 143 250
Inventories.......................................... 43,030 47,302
Deferred income taxes................................ 2,031 2,393
Prepaid expenses and other current assets............ 1,079 1,577
------- -------
Total current assets............................... $56,311 $59,515
Non-current assets:
Receivables from affiliates.......................... 642 480
Property, plant and equipment, net of accumulated
depreciation of $17,736 at April 30, 1998 and
$16,741 at January 31, 1998......................... 21,038 24,967
Goodwill, net of accumulated amortization of $314 at
April 30, 1998 and $293 at January 31, 1998......... 1,507 1,486
Deferred income taxes................................ 1,194 1,405
Other non-current assets............................. 1,382 1,462
------- -------
Total assets....................................... $82,074 $89,315
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft....................................... -- 2,610
Accounts payable and accrued liabilities............. 16,648 17,835
Current maturities of long-term debt................. 198 147
Current portion of obligations under capital leases.. 1,729 1,312
Income taxes payable................................. 819 457
------- -------
Total current liabilities.......................... $19,394 $22,361
Non-current liabilities:
Long-term debt....................................... 14,716 18,975
Obligations under capital leases, excluding current
portion............................................. 3,405 3,388
Other long-term liabilities.......................... 632 1,016
------- -------
Total liabilities.................................. $38,147 $45,740
------- -------
Shareholders' equity: Ordinary Shares, $3.64 par value;
27,437,853 authorized shares; 4,541,652 shares issued
and outstanding....................................... 16,532 16,532
Additional paid-in capital............................. 24,554 24,554
Foreign currency translation adjustment................ 1,177 1,612
Retained earnings...................................... 1,664 877
------- -------
Total shareholders' equity......................... $43,927 $43,575
======= =======
Total liabilities and shareholders' equity......... $82,074 $89,315
======= =======
3
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 30, APRIL 30,
1997 1998
------------ ------------
(UNAUDITED)
In A$ thousands, except share and per share data
Net sales............................................ $30,366 $36,744
Cost of goods sold, warehouse, distribution and
occupancy costs..................................... 20,891 25,117
------- -------
Gross profit......................................... 9,475 11,627
Selling, general and administrative expenses......... 9,798 12,462
Store pre-opening costs.............................. 114 147
Relocation and closure costs......................... -- 15
------- -------
Operating (loss)..................................... (437) (997)
Equity in income of affiliates, net of tax........... 50 96
Interest expense..................................... 879 388
------- -------
(Loss) before income taxes........................... (1,266) (1,289)
Income tax (benefit)................................. (566) (502)
------- -------
Net (loss)........................................... (700) (787)
======= =======
Basic earnings per share............................. $ (0.38) $ (0.17)
======= =======
Diluted earnings per share........................... $ (0.38) $ (0.17)
======= =======
Weighted average shares outstanding (in thousands)... 1,844 4,541
======= =======
4
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 30, APRIL 30,
1997 1998
------------ ------------
(UNAUDITED)
In A$ thousands
Cash flows from operating activities:
Net (loss)......................................... $ (700) $ (787)
Non-cash charges, net.............................. 237 925
Changes in operating assets and liabilities:
Receivables and prepaid expenses................... (380) 1,580
Inventories........................................ (3,688) (4,247)
Other assets....................................... (126) (590)
Accounts payable and accrued liabilities........... 1,141 1,754
------ ------
Net cash used in operating activities............ (3,516) (1,365)
------ ------
Cash flows from investing activities:
Proceeds from sale of property, plant and
equipment......................................... -- 11
Capital expenditures............................... (104) (4,969)
Loan repayments received/(paid).................... 50 (38)
------ ------
Net cash used in investing activities............ (54) (4,996)
------ ------
Cash flows from financing activities:
Repayment of long-term debt........................ (1,212) (7,792)
Proceeds from long-term debt....................... 5,365 12,000
Initial public offering costs...................... -- (156)
Bank overdraft proceeds............................ 276 2,610
Principal payments under capital leases............ (357) (436)
Dividends paid..................................... (499) --
------ ------
Net cash provided by financing activities........ 3,573 6,226
------ ------
Net increase (decrease) in cash and cash
equivalents..................................... 3 (135)
Cash and cash equivalents at beginning of period. 30 166
------ ------
Cash and cash equivalents at end of period....... $ 33 $ 31
====== ======
5
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in conformity with generally accepted accounting principles in
the United States for interim financial information and Rule 10-01 of
Regulation S-K.
As a result, the information contained in these unaudited consolidated
financial statements and footnotes is condensed from that which would appear
in annual consolidated financial statements and does not contain all of the
information and footnotes required by United States generally accepted
accounting principles for complete financial statements. Accordingly, these
condensed consolidated financial statements should be reviewed in conjunction
with the audited consolidated financial statements and related notes contained
in Amendment No. 1 to the Annual Report on Form 20-F/A (File No. 333-37259)
for the fiscal year ended January 31, 1998, filed by Barbeques Galore Limited
(the "Company") with the Securities and Exchange Commission (the "Commission")
on May 20, 1998. The unaudited condensed consolidated financial statements as
of April 30, 1998 and for the three months ended April 30, 1998 and 1997
include all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for
interim periods are not necessarily indicative of the results that may be
expected for the entire year. The preparation of financial statements in
conformity with United States generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ materially from those estimates.
2 INVENTORIES
The major classes of inventories are as follows:
JANUARY 31, APRIL 30,
1998 1998
----------- -----------
(UNAUDITED)
In A$ thousands
Finished goods.................................... $37,999 $42,160
Work in progress.................................. 1,328 1,325
Raw materials..................................... 4,222 4,311
------- -------
43,549 47,796
Less: Reserve for obsolescence.................... (519) (494)
------- -------
$43,030 $47,302
======= =======
3 EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are computed by dividing net income (loss)
by the weighted average number of Ordinary Shares. Diluted earnings (loss) per
share are computed by dividing net income (loss) available to holders of
Ordinary Shares by the weighted average of Ordinary Shares and dilutive
Ordinary Share equivalents for the period.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which specifies the computation, presentation and
disclosure requirements for earnings per share. This statement is effective
for both interim and annual reporting periods ending after December 15, 1997.
6
4 SUBSEQUENT EVENTS
On June 12, 1998, pursuant to an agreement with certain holders of
convertible notes (all of which were converted into Ordinary Shares in
connection with the Company's initial public offering in the United States
(the "IPO") in November 1997), the Company filed a shelf Registration
Statement on Form F-1 (the "Resale F-1") relating to a public offering, which
was not underwritten, of up to 1,044,845 Ordinary Shares, each having a par
value of A$3.64, and each represented by one American Depository Share (each,
a "Resale ADS"). All of the resale ADSs are to be sold by certain shareholders
of the Company. 997,926 of these Ordinary Shares were received upon the
conversion of the convertible notes. The remainder of these Ordinary Shares
are being registered voluntarily by the Company and are presently held by
long-term shareholders of the Company who wish to divest all or portion of
their holdings in the Company.
Subsequent to April 30, 1998, the Company acquired a 60,000 square foot
property near its Australian headquarters for its warehousing and distribution
operations at a cost of approximately A$1.75 million, with an additional
approximately A$1.0 million capital expenditure required to upgrade the
facility before use. Purchase of this property is scheduled to close between
June and August 1998.
7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" at the end of this
section and elsewhere in (i) Amendment No. 1 to the Company's Annual Report on
Form 20-F/A (File No. 333-37259) for the fiscal year ended January 31, 1998,
filed with the Commission on May 20, 1998 and (ii) the Company's Registration
Statement on Form F-1 filed with the Commission on June 12, 1998. Factors that
could cause or contribute to such differences include those discussed herein
as well as those included in the documents that the Company files from time to
time with the Commission.
OVERVIEW
Barbeques Galore believes that it is the leading specialty retail chain of
barbecue and barbecue accessory stores in Australia and the United States,
based on number of stores and sales volume. The Company's belief is based on
its years of experience in the barbecue retail industry as well as its
contacts with other industry retailers, suppliers and trade associations. The
Company opened its first store in Sydney, Australia in 1977 and opened its
first U.S. store in Los Angeles in 1980. Barbeques Galore stores carry a wide
assortment of barbecues and related accessories, a comprehensive line of
fireplace products and, in Australia, home heating products, camping equipment
and outdoor furniture. As of April 30, 1998, the Company owned and operated 33
stores in all six states in Australia and 38 stores (including three U.S. Navy
concession stores) in seven states in the United States. In addition, as of
such date, there were 46 licensed stores in Australia and seven franchised
stores in the United States, all of which operate under the "Barbeques Galore"
name.
The Company derives its revenue primarily from four categories: Australian
retail, United States retail (including royalties and sales to franchisees),
Australian licensing (including license fees and sales to licensees) and
Australian wholesale. For the three months ended April 30, 1998, these
categories represented 38.3%, 46.2%, 6.9% and 7.9% respectively, of the
Company's net sales for such period, representing a 10.5%, 50.5%, (6.4)% and
(8.8)% increase (decrease) over their respective net sales levels for the
three months ended April 30, 1997.
The Company believes the majority of its future growth will result from the
continuing expansion of its U.S. retail business, primarily through the
opening of new stores, and the refurbishment of its Australian store base.
Through its vertically integrated operations, the Company manufactures a
proprietary line of barbecues and home heaters for its retail stores and
licensees as well as other barbecue and home heater products for its wholesale
customers.
8
RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated operating results of
the Company as a percentage of net sales for the quarters ended April 30, 1998
and 1997. Given the degree of seasonality to which the Company's business is
subject, the Company's quarterly results and comparisons of such quarterly
results to prior years' quarters are not necessarily indicative of future
results.
THREE MONTHS THREE MONTHS
ENDED ENDED
APRIL 30, APRIL 30,
1997 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
In A$ thousands
Net sales...................................... 100.0% 100.0%
Cost of goods sold, warehouse, distribution and
occupancy costs............................... 68.8 68.4
----- -----
Gross profit................................... 31.2 31.6
Selling, general and administrative expenses... 32.3 33.9
Store pre-opening costs........................ 0.4 0.4
Relocation--closure costs...................... 0.0 0.0
----- -----
Operating (loss)............................... (1.5) (2.7)
Equity in income of affiliates, net of tax..... 0.2 0.3
Interest expense............................... 2.9 1.1
----- -----
(Loss) before income tax....................... (4.2) (3.5)
Income tax (benefit)........................... (1.9) (1.4)
----- -----
Net (loss)..................................... (2.3)% (2.1)%
===== =====
Three Months Ended April 30, 1998 (Unaudited) Compared to Three Months Ended
April 30, 1997 (Unaudited)
Net sales increased by approximately A$6.3 million, or 21.0%, to A$36.7
million for the three months ended April 30, 1998 from A$30.4 million for the
three months ended April 30, 1997. One new store was opened in the United
States during the three months ended April 30, 1998. In Australia one new
store was opened and no stores were refurbished during this period. Comparable
store sales increased 7.1% and contributed A$3.3 million to the increase in
net sales. Comparable store sales increased 7.7% in the United States and 6.6%
in Australia. Increased sales of A$2.7 million also resulted from eight new
stores which opened in the United States in the previous nine months and which
did not form part of the comparative store sales.
Gross profit increased approximately A$2.1 million, or 22.7% to A$11.6
million for the three months ended April 30, 1998 from A$9.5 million for the
three months ended April 30, 1997. Gross margin (gross profit as a percentage
of sales) increased to 31.6% during the three months ended April 30, 1998 from
31.2% during the comparable period in 1997. The increase in gross margin was
primarily due to sales mix.
Selling, general and administrative expenses (which exclude store pre-
opening expenses) increased approximately A$2.7 million, or 27.2%, to A$12.5
million for the three months ended April 30, 1998 from A$9.8 million for the
three months ended April 30, 1997. As a percentage of net sales, selling,
general and administrative expenses increased to 33.9% during the three months
ended April 30, 1998 from 32.3% during the comparable period in 1997.
The increase was primarily due to lower operating leverage from the greater
number of stores open in the United States and Australia in the first quarter
of 1998 during a period when sales are at their seasonal low, additional
expenditure incurred in the United States on the build-up of the
infrastructure subsequent to the first quarter of 1997 and increased
Australian retail advertising expenditure prior to the Easter selling season
in 1998.
9
Store pre-opening expenses increased by A$33,000 to A$147,000 due to the
number and timing of United States' store opening expenditure.
Operating loss increased by $560,000 to A$997,000 for the three months ended
April 30, 1998 from A$437,000 for the three months ended April 30, 1997.
Income from affiliates increased by A$46,000 to A$96,000 in the three months
ended April 30, 1998 from A$50,000 for the three months ended April 30, 1997.
This increase resulted mainly from an increase in profitability of the
Company's Taiwanese affiliate.
Interest expense decreased by A$491,000 to A$388,000 in the three months
ended April 30, 1998 from A$879,000 for the three months ended April 30, 1997.
The decrease reflects the reduced debt requirements of the Company subsequent
to the capital raising as a result of its IPO in November 1997.
The Company's effective tax rate was 38.9% in the three months ended April
30, 1998 and 44.7% in the three months ended April 30, 1997. The higher
effective tax rate (a benefit) in the comparable period in 1997 reflects an
over-provision in the prior period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through cash flow from
operations and bank borrowings. In November 1997, the Company completed its
IPO, raising net proceeds of approximately US$13.8 million (approximately
A$19.7 million). A portion of these funds have been used to fund (i) the
repayment of approximately A$12 million (approximately US$8.4 million) of
indebtedness incurred under the credit facility between the Company and the
Australian and New Zealand Banking Group Limited ("ANZ"), and (ii) the
repayment of approximately US$1.8 million, being all indebtedness outstanding
as of the completion of the IPO in November 1997 under a term loan and
revolving line of credit facility with Merrill Lynch Business Financial
Services, Inc. ("Merrill Lynch"). The remaining US$3.6 million (approximately
A$5.1 million) will be used to fund a portion of the Company's operations and
investing activities and to continue the expansion of the Company's operations
in the United States.
The Company has used cash flows from operations in the three months ended
April 30, 1998 and 1997 of A$1.4 million and A$3.5 million, respectively. The
cash used by operations primarily reflects the increase in inventory levels
related to the Company's build-up of inventories and the increased number of
stores in the United States.
Net cash flows used in investing activities in the three months ended April
30, 1998 and 1997 were A$5.0 million and A$0.05 million respectively. The cash
flows used in investing activities have resulted primarily from capital
expenditures related to new store openings in the United States, store
refurbishments in Australia and the acquisition of a 45,000 square foot
property for approximately A$3.5 million to relocate the Company's enameling
operations to the same facilities as its barbecue and home heater
manufacturing operations adjacent to the Company's Australian headquarters.
The Company anticipates that it will continue to incur significant capital
commitments in connection with further expansion. The actual costs that the
Company will incur in connection with the opening and refurbishment of future
stores cannot be predicted with precision because such costs will vary based
upon, among other things, geographic location, the size of the stores and the
extent of remodeling required at the selected sites.
The cash flows used in operations and investing activities have been largely
sourced from long term borrowings under the ANZ and Merrill Lynch Facilities
(defined below) and from the Company's IPO.
At April 30, 1998 the Company had working capital of A$37.2 million. At
April 30, 1998 the Company maintained minimal amounts in cash and cash
equivalents, relying instead on undrawn facilities under its borrowing
arrangements with ANZ and Merrill Lynch the (the "ANZ Facility" and the
"Merrill Lynch
10
Facility," respectively). The ANZ Facility is subject to annual review and
modification, in accordance with standard Australian practice, and is
currently undergoing modification as a consequence of changes in the Company
resulting from the Company's IPO. The Company expects that its new credit
facility with ANZ will be finalized in June 1998. Under the ANZ Facility as in
effect immediately prior to the Company's IPO, the Company and its
subsidiaries had credit facilities aggregating up to A$53.7 million, including
a real property loan in principal amount of A$2.2 million, a multi-purpose
facility in principal amount of A$30.0 million and a trade finance facility in
principal amount of A$10.0 million. Indebtedness under the property loan bore
interest at 9.35% per annum and was subject to a variable prepayment penalty
depending on the term of the loan. The Company also utilized a standby credit
facility in principal amount of A$12.0 million in order to fund the a
repurchase of certain of its Ordinary Shares in preparation for its IPO, all
of such standby credit facility having been repaid upon consummation of the
Company's IPO in November 1997 and will not be renewed. The majority of the
remainder of the Company's borrowings under the ANZ Facility were usually in
the form of 90- to 180-day bills, which typically bore interest at a market
rate plus an additional percentage fee to ANZ of approximately 1.25%. No
significant prepayment penalties were associated with these loans. The ANZ
Facility was secured by a first security interest in all present and future
assets of the Company located in Australia and a second security interest
being taken (subordinate to a lien under the Merrill Lynch Facility) in all
assets of the Company located in the United States. In addition, the ANZ
Facility was guaranteed by each subsidiary of the Company, including The
Galore Group (USA), Inc. and Barbeques Galore, Inc. (referred to collectively
as "Galore USA"). Although the Company generally maintains a good working
relationship with ANZ, the Company can provide no assurance that the terms of
the revised ANZ Facility will be as favorable to the Company as the terms of
the ANZ Facility in place immediately prior to the consummation of the
Company's IPO.
In February 1995, Barbeques Galore Inc., the Company's U.S. operating
subsidiary, entered into a five year credit facility with Merrill Lynch. As of
April 30, 1998, such facility includes a term loan in aggregate principal
amount of US$300,000 (the "Term Loan") and a revolving line of credit in
aggregate principal amount of US$300,000 (the "Revolving Line," and
collectively with the Term Loan, the "Merrill Lynch Facility"). Indebtedness
under the Revolving Line and Term Loan accrues interest at the 30-day
commercial paper rates plus 2.65%, and is payable monthly. The Merrill Lynch
Facility is secured by a first security interest in all Galore USA present and
future assets. The Merrill Lynch Facility is guaranteed by the Company and The
Galore Group (USA), Inc., the parent of Barbeques Galore, Inc.
The Company believes the proceeds raised from the IPO and the remaining ANZ
and Merrill Lynch Facilities are sufficient to meet its presently anticipated
working capital and capital expenditure requirements for at least the next
twelve months.
RISK FACTORS
The following are certain factors that should be considered in evaluating
the business, financial conditions and results of operations of the Company.
However, these factors should not be considered to be exclusive, and readers
are urged to consider the statements made elsewhere herein.
IMPLEMENTATION OF GROWTH STRATEGY
The growth of the Company is dependent, in large part, upon the Company's
ability to successfully execute its Company-owned store expansion program in
the United States and its store refurbishment plan in Australia. Pursuant to
the U.S. store expansion program, the Company opened 10 new stores in calendar
1997. The Company also currently intends to open approximately 15 new stores
in the United States in calendar 1998, of which four have opened, six are
under construction and the remaining five are in lease negotiation. The
Company also currently intends to open 15 new stores in the United States in
calendar 1999. The Company incurred capital expenditures relating to this
program in the United States of approximately US$1.8 million in 1997 and
expects to incur approximately US$2.5 million in each of calendar 1998 and
1999. Pursuant to the Company's Australian store refurbishment program, in
calendar 1997, the Company remodelled five existing stores, opened one new
store, relocated one store and closed one store. The Company further intends
to refurbish four stores and, in
11
March, opened its one planned new store in calendar 1998, and intends to
refurbish two stores and open two new stores in calendar 1999. The Company
incurred capital expenditures relating to this program in Australia of
approximately A$2.5 million in 1997 and expects to incur approximately A$1.5
million to A$2.5 million in each of calendar 1998 and 1999. The proposed
expansion is substantially more rapid than the Company's historical growth.
The success of these store expansion and refurbishment efforts will be
dependent upon, among other things, the identification of suitable markets and
sites for new stores, negotiation of leases on acceptable terms, construction
or renovation of sites, receipt of all necessary permits and governmental
approvals therefor, and, if necessary, obtaining additional financing for
those sites. In addition, the Company must be able to hire, train and retain
competent managers and personnel and manage the systems and operational
components of its growth. There can be no assurance that the Company will be
able to locate suitable store sites or enter into suitable lease agreements.
In addition, there can be no assurance that, as the Company opens new stores
in existing markets, these new stores will not have an adverse effect on
comparable store net sales at existing stores in these markets. The failure of
the Company to open new stores or relocate or remodel existing stores on a
timely basis, obtain acceptance in markets in which it currently has limited
or no presence, attract qualified management and personnel or appropriately
adjust operational systems and procedures would adversely affect the Company's
future operating results.
The success of the Company's growth strategy may also depend upon factors
beyond its immediate control. The Company has retained outside real estate
consultants to assist in site selection and lease negotiations, and may
depend, to an increasing extent, on the services of such consultants and other
real estate experts as it accelerates the rate of new store expansion. The
failure of any such consultants or experts to render needed services on a
timely basis could adversely affect the Company's new store expansion.
Similarly, changes in national, regional or local real estate and market
conditions could limit the ability of the Company to expand into target
markets or sites.
As part of its growth strategy, the Company intends to open stores in new
markets where it will not initially benefit from knowledge of local market
conditions, pre-existing retail brand name recognition or marketing,
advertising, distribution and regional management efficiencies made possible
by its store networks in existing markets. Expansion into new markets may
present operating and marketing challenges that are different from those
encountered in the past by the Company in its existing markets. As a result of
its expansion program and its entry into new markets, primarily in the United
States, and its refurbishment program in Australia, the Company has
experienced, and expects to continue to experience, an increase in store pre-
opening costs and refurbishment-related expenses. There can be no assurance
that the Company will anticipate all of the challenges and changing demands
that its expansion will impose on its management or operations, and the
failure to adapt thereto would adversely affect the Company's implementation
of its growth strategy.
If the Company determined to, or was required to, close a Barbeques Galore
store, the Company would attempt to sublet the vacated store space in order to
cover ongoing lease costs. Even if the Company were able to sublet such store,
the Company may incur significant costs in writing off leasehold improvements.
In addition, the Company's proposed expansion plans will result in increased
demand on the Company's managerial, operational and administrative resources.
As a result of the foregoing, there can be no assurance that the Company will
be able to successfully implement its growth strategies, continue to open new
stores or maintain or increase its current growth levels. The Company's
failure to achieve its expansion plan could have a material adverse effect on
its future business, operating results and financial condition.
EFFECT OF ECONOMIC CONDITIONS AND CONSUMER TRENDS
The success of the Company's operations depends upon a number of factors
related to consumer spending, including future economic conditions affecting
disposable consumer income such as employment, business conditions, interest
rates and taxation. If existing economic conditions were to deteriorate,
consumer spending may decline, thereby adversely affecting the Company's
business and results of operations. Such effects may be exacerbated by the
significant current regional concentration of the Company's business in
Australia and the Pacific West and Southwestern U.S. markets.
12
The success of the Company depends on its ability to anticipate and respond
to changing merchandise trends and consumer demands in a timely manner. The
Company believes it has benefitted from a lifestyle trend toward consumers
spending more quality time together in outdoor family gatherings and social
activities. Any change in such trend could adversely affect consumer interest
in the Company's major product lines. Moreover, the Company's products must
appeal to a broad cross-section of consumers whose preferences (as to product
features such as colors, styles, finishes and fuel types) cannot always be
predicted with certainty and may change between sales seasons. If the Company
misjudges either the market for its merchandise or its customers' purchasing
habits, it may experience a material decline in sales or be required to sell
inventory at reduced margins. The Company could also suffer a loss of customer
goodwill if its manufacturing operations or stores do not adhere to its
quality control or service procedures or otherwise fail to ensure satisfactory
quality of the Company's products. These outcomes may have a material adverse
effect on the Company's business, operating results and financial condition.
MANAGEMENT OF OPERATIONAL CHANGES
The Company has identified a number of areas for improvement in its
operations which will have a significant impact on the implementation of its
growth strategy. The Company has, in recent years, replaced or upgraded its
management information systems and integrated its central inventory management
systems with point-of-sale terminals in Barbeques Galore stores, and currently
plans to introduce automated replenishment of store inventory in Australia in
the near term. In the United States, the Company is currently upgrading to the
latest version of software by JDA Software Group Inc. ("JDA") and is using
both outside consultants and the vendor to assist with the process. The total
expected capital expenditure for such project is not expected to be
significant. In addition, the Company intends to transfer its general ledger
and accounts payable functions from its existing computer system to the above-
mentioned JDA software system in the near future. The Company is currently in
the process of relocating its enamelling operations (which are located 10
miles away) to the same facilities as its barbecue and home heater
manufacturing operations adjacent to its Australian headquarters, adding an
in-line powder coating operation and rearranging the assembly, warehouse and
Australian distribution operations to further improve its production flow,
inventory control and distribution management. These changes are scheduled to
be completed in June 1998. The relocation of the Company's enamelling
operations and related changes will cost approximately A$454,000 (of which
A$369,000 has already been accrued), will require additional capital
expenditures of approximately A$2.8 million and will require the Company to
obtain a number of building, environmental and other governmental permits. In
addition, as the Company expands into new regions or accelerates the rate of
its U.S. store expansion, the Company may need additional warehouse capacity.
In order to meet such needs, the Company intends to secure another
distribution center or expand its current warehouse facilities in the United
States or utilize public warehousing space, in each case depending on
availability and cost at such time. There can be no assurance as to whether or
when the Company will be able to effect its systems upgrades, enamelling plant
relocation plans, any expansion or replacement of distribution facilities, or
any other necessary operational changes that may arise, or that the Company
will not incur cost overruns or disruptions in its operations in connection
therewith. The failure of the Company to effect these and any other necessary
operational changes on a timely basis would adversely affect the ability of
the Company to implement its growth strategy and, therefore, its business,
financial condition and operating results.
COMPETITION
The retail and distribution markets for barbecues and the Company's other
product offerings are highly competitive in both the United States and
Australia. The Company's retail operations compete against a wide variety of
retailers, including mass merchandisers, discount or outlet stores, department
stores, hardware stores, home improvement centers, specialty patio, fireplace
or cooking stores, warehouse clubs and mail order companies. The Company's
manufacturing and wholesale operations compete with many other manufacturers
and distributors throughout the world, including high-volume manufacturers of
barbecues and home heaters. Barbeques Galore competes for retail customers
primarily based on its broad assortment of competitively priced, quality
products (including proprietary and exclusive products), convenience, customer
service and the attractive
13
presentation of merchandise within its stores. Many of the Company's
competitors have greater financial, marketing, distribution and other
resources than the Company, and particularly in the United States, may have
greater name recognition than the Company. Furthermore, the lack of
significant barriers to entry into the Company's segment of the retail
industry may also result in new competition in the future.
SEASONALITY; WEATHER; FLUCTUATIONS IN RESULTS
The Company's business is subject to substantial seasonal variations which
have caused, and are expected to continue to cause, its quarterly results of
operations to fluctuate significantly. Historically, the Company has realized
a major portion of its net sales and a substantial portion of its net income
for the year during summer months and holiday seasons when consumers are more
likely to purchase barbecue products, camping equipment and outdoor furniture.
In anticipation of its peak selling seasons (late spring and early summer),
the Company substantially increases its inventory levels and hires a
significant number of part-time and temporary employees. In non-peak periods,
such as late winter and early fall, the Company has regularly experienced
monthly losses. Since the Company has historically derived a greater portion
of its sales from its larger Australian store base, these seasonal trends have
generally resulted in increased sales and income during the Australian summer
months of November through January and substantially lower-than-average sales
and income during the months of February, March, May and July. The Company
believes this is the general pattern associated with its segment of the
Australian retail industry and expects this pattern will continue in the
future. Partially offsetting the effects of seasonality, the Company operates
in both the Southern and Northern hemispheres, which have opposite seasons,
and offers fireplace products and (in Australia) home heaters in the fall and
winter months. However, sales of any of the Company's major product lines (in
particular, home heaters) may vary widely in peak seasons depending on, among
other things, prevailing weather patterns, local climate conditions, actions
by competitors and shifts in timing of holidays. The Company's quarterly and
annual results of operations may also fluctuate significantly as a result of a
variety of other factors, including the timing of new store openings, releases
of new products and changes in merchandise mix throughout the year. The
Company has in the past experienced quarterly losses, particularly in its
fiscal first quarter, and expects that it will experience such losses in the
future. Because of these fluctuations in operating results, the results of
operations in any quarter are not necessarily indicative of the results that
may be achieved for a full fiscal year or any future quarter. If for any
reason the Company's sales or gross margins during peak seasons or periods
were substantially below expectations, the Company's quarterly and annual
results would be adversely affected.
RELIANCE ON SYSTEMS
In the United States, the Company has installed a JDA Software Group Inc.
("JDA") system on an IBM AS400 platform, which allows it to manage
distribution, inventory control, purchasing, sales analysis, warehousing and
financial applications. The Company currently runs its general ledger and
accounts payable applications on its pre-existing computer system, but intends
to transfer these functions to the more powerful JDA system in the near
future. At the store level, the Company has installed POS computer terminals
as its cash registers in all stores. Each POS terminal is equipped with a bar
code scanner for ease of product input and validation. Each store's
transaction data is captured by its POS terminals and transferred into the
main JDA system daily. The JDA system provides extensive reporting and inquiry
capability at both the store and corporate levels, including daily transaction
data, margin information, exception analysis and stock levels. Additionally,
the system permits inventory and pricing updates to be electronically
transmitted to the stores on a daily basis.
In Australia, Barbeques Galore currently uses a system which runs on a
proprietary Wang VS software environment, together with a Novell network
utilizing Microsoft applications. This software processes all distribution,
warehouse management, inventory control, purchasing, merchandising, financial
and office automation applications. As in the United States, each store in
Australia is equipped with POS terminals that receive pricing and inventory
information and permit the Company to poll sales transaction data daily. The
Australian system provides a range of reporting and inquiry capability at both
the store and corporate levels similar to that in the United States. The
Company relies upon its existing management information systems in
14
operating and monitoring all major aspects of the Company's business,
including sales, gross margins, warehousing, distribution, purchasing,
inventory control, financial, accounting and human resources. The Company's
reliance upon such systems will likely increase upon the anticipated
introduction of automated store replenishment in Australia. Any disruption in
the operation of the Company's management information systems, or the
Company's failure to continue to upgrade, integrate or expend capital on such
systems as its business expands, could have a material adverse effect upon the
Company's business, operating results and financial condition.
Like many computer systems, the Company's Wang computer system in Australia
uses two digit data fields which recognize dates using the assumption that the
first two digits are "19" (i.e., the number 97 is recognized as the year
1997), such condition being referred to as the "year 2000 problem." Therefore,
in the Australian system, the Company's date critical functions relating to
the year 2000 and beyond, such as sales, distribution, purchasing, inventory
control, financial and human resource systems, may be adversely affected
unless changes are made to this computer system. The Company has appointed a
computer consultant to upgrade its systems in Australia and currently intends
to purchase a new UNIX server and certain additional hardware and software
which, because of their more recent design, should not be subject to the year
2000 problem. The Company expects that upgrades to its computer systems with
respect to the year 2000 problem will require capital expenditures of
approximately A$0.75 million and will be completed by April 1999. However, no
assurance can be given that these issues can be resolved in a cost-effective
or timely manner or that the Company will not incur significant expense in
resolving these issues. The Company's newly installed computer system in the
United States has been designed to avoid the occurrence of such problems with
the year 2000.
DEPENDENCE ON KEY EMPLOYEES
The Company's success is largely dependent on the efforts and abilities of
its executive officers, particularly, Sam Linz, Chairman of the Board, Robert
Gavshon, Deputy Chairman of the Board, John Price, Head of Research and
Product Development and Director, and Sydney Selati, President of Barbeques
Galore, Inc., the Company's U.S. operating subsidiary, and Director. These
individuals have an average of 15 years of experience with the Company and
have chief responsibility for the development of the Company's current
business and growth strategies. In addition, in August 1997, the Company
appointed L.D. "Chip" Brown as Chief Operating Officer for its U.S. operations
to manage daily operations in the United States, permitting Mr. Selati to
concentrate on the Company's U.S. growth strategy. The Company does not have
employment contracts with any of its executive officers. The loss of the
services of these individuals or other key employees could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's success is also dependent upon its ability to
continue to attract and retain qualified employees to meet the Company's needs
for its new store expansion program in the United States and its store
refurbishment plans in Australia.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS; DEPENDENCE ON SIGNIFICANT
VENDORS AND SUPPLIERS
Barbeques Galore, with its headquarters, manufacturing, enamelling,
wholesale and non-U.S. store operations in Australia, transacts a majority of
its business in Australia and obtains a significant portion of its
merchandise, parts and raw materials from China, Taiwan, Indonesia, Thailand,
Italy and other markets outside of the United States and Australia. There are
risks inherent in doing business in international markets, including tariffs,
customs, duties and other trade barriers, difficulties in staffing and
managing foreign operations, political instability, expropriation,
nationalization and other political risks, foreign exchange controls,
technology export and import restrictions or prohibitions, delays from customs
brokers or government agencies, seasonal reductions in business activity,
subjection to multiple taxation regimes and potentially adverse tax
consequences, any of which could materially adversely affect the Company's
business, operating results and financial condition.
The Company purchases certain of its finished inventory and manufacturing
parts and all of its raw materials from numerous vendors and suppliers and
generally has no long-term purchase contracts with any vendor or supplier.
During the twelve months ended January 31, 1998, the Company purchased
inventory from over 400
15
vendors in the United States, Australia and Asia. In such period,
approximately 25% of the Company's merchandise purchases were obtained from
the Company's ten largest vendors. Although no vendor accounted for more than
5% of the Company's merchandise purchases in such period (other than Horan's
Steel Pty Ltd., an Australian steel distributor ("Horan's Steel"), and Bromic
Pty Ltd., an Australian gas components importer ("Bromic")), the Company
considers certain barbecue brands to be significant to its business,
especially in the United States. Also during such period, the Company
purchased barbecue and home heater parts from over 50 suppliers in Asia,
Australia and North America. Horan's Steel and Bromic supplied the Company
with approximately 20% and 21%, respectively, of the Company's factory parts
and raw material purchases and approximately 80% of the Company's factory
parts and raw material purchases were obtained from the Company's ten largest
suppliers. The Company's results of operations could be adversely affected by
a disruption in purchases from any of these key vendors or suppliers or from
volatility in the prices of such parts or raw materials, especially the price
of steel, which has fluctuated in the past. In addition, some of the Company's
key suppliers currently provide the Company with certain incentives, such as
volume and trade discounts as well as other purchasing incentives. A reduction
or discontinuance of these incentives could have an adverse effect on the
Company. Although the Company believes that its relationships with its vendors
and suppliers are good, any vendor or supplier could discontinue selling to
the Company at any time.
PRODUCT LIABILITY AND GOVERNMENTAL AND OTHER REGULATION
Many of the Company's products use gas and flame and, consequently, are
subject to regulation by authorities in both the United States and Australia
in order to protect consumers, property and the environment. For example, the
Company's products and the personal use thereof are subject to regulations
relating to, among other things, the use of fire in certain locations
(particularly restrictions relating to the availability or frequency of use of
wood heating in homes and barbecues in apartments), restrictions on the sale
or use of products that enhance burning potential such as lighter fluid,
restrictions on the use of gas in specified locations (particularly
restrictions relating to the use of gas containers in confined spaces) and
restrictions on the use of wood burning heaters. Compliance with such
regulations has not in the past had, and is not anticipated to have, a
material adverse effect on the Company's business, operating results and
financial condition. Nonetheless, such regulations have had, and can be
expected to have, an increasing influence on product claims, manufacturing,
contents, packaging and heater usage. In addition, failure of a product could
give rise to product liability claims if customers, employees or third parties
are injured or any of their property is damaged while using a Company product.
Such injury could be caused, for example, by a gas valve malfunction, gas leak
or an unanticipated flame-up resulting in injury to persons and/or property.
Even if such circumstances were beyond the Company's control, the Company's
business, operating results and financial condition could be materially
adversely affected. In the event of such an occurrence, the Company could
incur substantial litigation expense, receive adverse publicity, suffer a loss
of sales or all or any of the foregoing. Although the Company maintains
liability insurance in both Australia and the United States, there can be no
assurance that such insurance will provide sufficient coverage in any
particular case. In Australia, the limit of the Company's product liability
coverage is A$50 million. In the United States, the Company's U.S. operating
subsidiary is covered by a policy having general liability coverage limited at
US$12 million and third party liability coverage limited at US$11 million.
There is no assurance that certain jurisdictions in which the Company operates
will not impose additional restrictions on the sale or use of the Company's
products.
In addition, the Company's barbecue and home heater manufacturing and
enamelling operations are subject to regulations governing product safety and
quality, the discharge of materials hazardous to the environment, water usage,
workplace safety and labor relations. The Company's distribution facilities
are also subject to workplace safety and labor relations regulations. The
Company believes that it is in substantial compliance with such regulations.
The sale of certain products by the Company may result in technical violations
of certain of the Company's leases which prohibit the sale of flammable
materials in or on the leased premises. As a barbecue and barbecue accessories
store, the Company sells lighter fluid, lighters, matches and similar products
which may be considered flammable when in contact with open flame or
activated. The Company does not store containers of gas for barbecue grills in
its stores. The Company stores matches, lighters and the like in closed
containers or
16
in displays where the chance of activation is remote, and does not store such
items near open flames. Over the Company's operating history, the Company's
landlords have been made aware that the Company sells such products. To date,
no landlord has terminated or threatened termination of any lease due to such
sales.
The foregoing regulations and restrictions could have a material adverse
effect on the Company's business, operating results or financial condition.
UNCERTAINTIES REGARDING MANUFACTURING AND DISTRIBUTION OF MERCHANDISE
The Company manufactures a substantial portion of the barbecues and home
heaters sold in its stores and distributes merchandise to Barbeques Galore
stores primarily from its distribution centers located at its headquarters in
Australia and Irvine, California. Throughout the manufacturing process, the
Company utilizes heavy machinery and equipment to produce and assemble
barbecues and home heaters from parts and raw materials supplied from numerous
third party suppliers. In distributing merchandise, the Company relies upon
third party sea carriers to ship its manufactured products from Australia to
the United States, as well as third party surface freight carriers to
transport all its merchandise from its distribution centers and warehouses to
stores. Accordingly, the Company is subject to numerous risks associated with
the manufacturing and distribution of its merchandise, including supply
interruptions, mechanical risks, labor stoppages or strikes, inclement
weather, import regulation, changes in fuel prices, changes in the prices of
parts and raw materials, economic dislocations and geopolitical trends. In
addition, the Company believes that, while its distribution facilities are
sufficient to meet Barbeques Galore's current needs, the Company may need
another distribution center or larger facilities in the United States or
Australia to support the further growth and expansion of stores.
RISKS RELATED TO FRANCHISED AND LICENSED STORES
As of April 30, 1998, there were 46 licensed stores in Australia and seven
franchised stores in the United States, all of which are operated under the
"Barbeques Galore" name by independent licensees or franchisees who purchase
proprietary and other store products, and receive support services, from the
Company. The licensees and franchisees operate such stores pursuant to
agreements which typically permit licensees and franchisees to assign the
agreements to their immediate family and provide the licensees and franchisees
with exclusive geographical sales territories. The Company monitors its
licensed and franchised stores to assure their conformity to Barbeques
Galore's standards and image and requires the licensees and franchisees to
comply with Barbeques Galore's merchandising and advertising guidelines.
Although the Company believes that its licensees and franchisees are presently
in substantial compliance with Company guidelines and that its license and
franchise arrangements have not been problematic in any material respect in
the past, serious or protracted failures by licensees or franchisees to adhere
to Company standards could adversely affect customer loyalty and diminish the
Company's brand name or reputation for quality products and services, and
could require the Company to devote significant management attention and
resources to enforcing its rights under such agreements. Conversely, if the
Company fails to provide adequate support services or otherwise breaches its
contractual obligations to any licensee or franchisee, such failure or breach
could result in termination of, or litigation relating to, the relevant
licensing or franchise agreement and the loss of fees and sales revenue
thereunder. The licensing agreements in Australia are terminable at will
(absent fraud) by the licensees only, generally upon sixty days' notice.
CURRENCY FLUCTUATIONS
The Company prepares its consolidated financial statements in Australian
dollars, but a substantial portion of the Company's revenues and expenses are
denominated in U.S. dollars and, to a lesser extent, other foreign currencies.
Accordingly, the Company is subject to risks of currency exchange to the
extent of currency fluctuations between the Australian dollar and the U.S.
dollar or other currencies in which the Company transacts its business. This
currency imbalance has resulted in, and may continue to result in, foreign
currency transaction gains and losses. In the past, the Company's Australian
operations have hedged a major portion of its imports against exchange rate
fluctuations with respect to the Australian dollar. However, in its U.S.
operations, the
17
Company has not, and it currently does not, actively hedge against exchange
rate fluctuations, although it may elect to do so in the future. Accordingly,
changes in exchange rates may have a material adverse effect on the Company's
net sales, cost of goods sold, gross margin and net income, any of which alone
or in the aggregate may in turn have a material adverse effect on the
Company's business, operating results and financial condition. Such currency
issues could, thus, affect the market price for the ADSs. Although the Company
does not anticipate paying any regular cash dividends on the Ordinary Shares
or the ADSs in the foreseeable future, the above exchange rate fluctuations
would affect the conversion into US dollars (for payment to holders of ADSs)
by the Depositary of any cash dividends paid in Australian dollars on the
Ordinary Shares represented by the ADSs.
RESTRICTIONS ON FOREIGN OWNERSHIP; ANTITAKEOVER RESTRICTIONS
Under Australian law, foreign persons are prohibited from acquiring more
than a limited percentage of the shares in an Australian company without
approval from the Australian Treasurer or in certain other limited
circumstances. These limitations are set forth in the Australian Foreign
Acquisitions and Takeovers Act (the "Takeovers Act"). Under the Takeovers Act,
as currently in effect, any foreign person, together with associates, is
prohibited from acquiring 15% or more of the outstanding shares of the Company
(or else the Treasurer may make an order requiring the acquiror to dispose of
those shares within a specified period of time). In addition, if a foreign
person acquires shares in the Company and as a result the total holdings of
all foreign persons and their associates exceeds 40% in the aggregate without
the approval of the Australian Treasurer, then the Treasurer may make an order
requiring the acquiror to dispose of those shares within a specified time. The
Company has been advised by its Australian counsel, Freehill, Hollingdale &
Page, that under current foreign investment policy, however, it is unlikely
that the Treasurer would make such an order where the level of foreign
ownership exceeds 40% in the ordinary course of trading, unless the Treasurer
finds that the acquisition is contrary to the national interest. The same rule
applies if the total holdings of all foreign persons and their associates
already exceeds 40% and a foreign person (or its associate) acquires any
further shares, including in the course of trading in the secondary market of
the ADSs. In addition, if the level of foreign ownership exceeds 40% at any
time, the Company would be considered a foreign person under the Takeovers
Act. In such event, the Company would be required to obtain the approval of
the Treasurer for the Company, together with its associates, to acquire (i)
more than 15% of an Australian company or business with assets totaling over
A$5 million or (ii) any direct or indirect ownership interest in Australian
residential real estate. In addition, the percentage of foreign ownership of
the Company would also be included in determining the foreign ownership of any
Australian company or business in which it may choose to invest. Since the
Company has no current plans for any such acquisitions and only owns
commercial property, any such approvals required to be obtained by the Company
as a foreign person under the Takeovers Act will not affect the Company's
current or future ownership or lease of property in Australia. However, there
would be no material tax consequence to shareholders of the Company (including
holders of ADSs) resulting from the Company being deemed a foreign person
under the Takeovers Act. If all of the ADSs offered hereby are acquired by
foreign persons or their associates, then the level of foreign ownership of
the Company's equity securities will be approximately 63.8%. The level of
foreign ownership could also increase in the future if additional existing
Australian investors decide to sell their shares into the U.S. market or if
the Company were to sell additional Ordinary Shares or ADSs in the future.
The Company has additionally provided that all stock options outstanding
under the Company's Executive Share Option Plan at such time as the Company
becomes subject to a takeover bid pursuant to which the offeror acquires at
least thirty percent (30%) of the outstanding Ordinary Shares of the Company
shall become immediately exercisable for a period of up to 120 days, measured
from the date the Board notifies the optionee of the takeover bid. Similarly,
the Company has provided that all stock options outstanding under the
Company's 1997 Share Option Plan at such time as the Company is acquired by
merger or asset sale pursuant to which such stock options are not assumed or
replaced by the successor corporation shall become immediately exercisable for
a period of one (1) year (or until the expiration of the stock option term, if
earlier). There are 203,038 Ordinary Shares underlying stock options
outstanding pursuant to the Executive Share Option Plan, which, barring
acceleration, will become exercisable on February 1, 1999 and 199,400 Ordinary
Shares underlying stock
18
options granted concurrently with the Company's IPO, consummated on November
7, 1998, under the 1997 Share Option Plan, which, barring acceleration, will
become exercisable in three equal installments on November 7, 2000, November
7, 2001 and October 7, 2002 according to the terms of the 1997 Share Option
Plan. Such investment restrictions and dilutive acceleration events could have
a material adverse effect on the Company's ability to raise capital as needed
and could make more difficult or render impossible attempts by certain
entities (especially foreign entities, in the case of the Takeovers Act) to
acquire the Company, including attempts that might result in a premium over
market price to holders of ADSs.
The Memorandum and Articles of Association of the Company (collectively, the
"Articles") contain certain provisions that could impede any merger,
consolidation, takeover or other business combination involving the Company or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of the Company. Provisions contained in the
Articles, among other things, (i) in effect divide the Board of Directors of
the Company into three classes, which serve for staggered three-year terms,
(ii) provide that the shareholders may amend or repeal special resolutions,
including changes to the Articles and extraordinary transactions, only by a
vote of at least 75% of the votes cast at a meeting at which a quorum is
present, (iii) require extended notice (of up to 21 days) for special
resolutions considered by the Board of Directors, and (iv) authorize the Board
of Directors, without any vote or action by shareholders of the Company, to
issue, out of the Company's authorized and unissued capital shares, shares in
different classes, or with special, preferred or deferred rights, which may
relate to voting, dividend, return of capital or any other matter. Although
the Company currently has no plans to issue any preferred shares, the rights
of the holders of Ordinary Shares or ADSs will be subject to, and may be
adversely affected by, the rights of the holders of any preferred or senior
share that may be issued in the future. The issuance of any preferred or
senior shares, and the other provisions of the Articles referred to above,
could have the effect of making it more difficult for a third party to acquire
control of the Company.
Australian law requires the transfer of shares in the Company to be made in
writing, and stamp duty at the rate of 0.6% is payable in relation to any
transfer of shares. No stamp duty will be payable in Australia on the transfer
of ADSs provided that any instrument by which the ADSs are transferred is
executed outside Australia.
In certain circumstances, nonresidents of Australia may be subject to
Australian tax on capital gains made on the disposal of shares or ADSs. The
rate of Australian tax on taxable gains realized by non-residents of Australia
is 36% for companies. For individuals, the rate of tax increases from 29% to a
maximum of 47%.
19
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 3, 1997, the Company's Registration Statement on Form F-1 (File
No. 333-37259) for its initial public offering became effective and on
November 7, 1998, the Company began trading under this Registration Statement,
selling 1,500,000 Ordinary Shares at $11.00 per share. Except for
approximately US$165,000 of expenses relating to the demand registration of
1,044,845 Ordinary Shares on Form F-1, filed with the Commission on June 12,
1998, all registration expenses, underwriting expenses and other related
expenses relating to the IPO were incurred prior to the period to which this
quarterly report on Form 6-K applies. The Company's net proceeds from the IPO
were approximately A$19.7 million (approximately US$13.8 million). Certain
selling shareholders also sold 200,000 Ordinary Shares at $11.00 per share
thereunder, and none of such proceeds were retained by the Company. The IPO
was underwritten, with J.P. Morgan & Co. and SBC Warburg Dillon Read Inc.
acting as co-managers. The Company's use of proceeds from its IPO in November
1997 is set forth in Part 2 Liquidity and Capital Resources and incorporated
by reference into Part II. See "Item II--Item 5--Other Information."
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
ITEM 5. OTHER INFORMATION
On June 12, 1998, pursuant to an agreement with certain holders of
convertible notes (all of which were converted into Ordinary Shares in
connection with the Company's IPO), the Company filed a shelf Registration
Statement on Form F-1 (the "Resale F-1") relating to a public offering, which
was not underwritten, of up to 1,044,845 Ordinary Shares, each having a par
value of A$3.64, and each represented by one American Depository Share (each,
a "Resale ADS"). All of the resale ADSs are to be sold by certain shareholders
of the Company. 997,926 of these Ordinary Shares were received upon the
conversion of the convertible notes. The remainder of these Ordinary Shares
are being registered voluntarily by the Company and are presently held by
long-term shareholders of the Company who wish to divest all or portion of
their holdings in the Company.
Prior to June 10, 1998, the Company distributed to its shareholders
materials relating to the Annual General Meeting of the Company, to be held on
June 26, 1998 at 9:30 a.m. (Sydney, Australia time), consisting of (i) a
Notice of Annual General Meeting, (ii) a form of proxy for holders of ADRs,
which represent ADSs, which in turn, represent Ordinary Shares, (iii) a form
of proxy for holders of Ordinary Shares, (iv) a letter dated May 27, 1998 from
Mr. Sam Linz, Chairman of the Board, and Mr. Sydney Selati, President of the
Company's U.S. operating subsidiary and (v) a copy of the Company's Annual
Report on Form 20-F/A (File No. 333-37259) for the fiscal year ended January
31, 1998, filed with the Commission on May 20, 1998. Except for the Annual
Report on Form 20-F/A, which has previously been filed with the Commission,
these materials are attached hereto as Exhibit 22.1. At its Annual General
Meeting, the Company intends (i) to present the financial statements of the
Company and of the economic entity for the year ended January 31, 1998 and the
reports of the directors and auditors thereon and (ii) to elect two directors.
Mr. Sam Linz and Mr. John Price are to retire by rotation in accordance with
the provisions of Article 63 of the Company's Articles of Association and, as
20
they are eligible, will offer themselves for re-election. In addition, any
business which may be lawfully brought forward at the Annual General Meeting
may also be transacted. This summary is qualified in its entirety by reference
to the materials filed in Exhibit 22.1.
ITEM 6. EXHIBITS AND CURRENT REPORTS ON FORM 6-K
(a) Exhibits
EXHIBIT
NUMBER
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10.1(1) WCMA Note, Loan and Security Agreement No. 231-07T10, as amended.
10.2(2) Deeds of purchase of Registrant's headquarters facility and assembly
operations facility, as amended.
22.1 Materials distributed to shareholders with respect to the Company's Annual
General Meeting to be held on June 26, 1998 at 9:30 a.m. (Sydney,
Australia time), including (i) Notice of Annual General Meeting, (ii) form
of proxy for holders of ADRs, which represent ADSs, which in turn,
represent Ordinary Shares, (iii) form of proxy for holders of Ordinary
Shares, (iv) letter dated May 27, 1998 from Mr. Sam Linz, Chairman of the
Board, and Mr. Sydney Selati, President of the Company's U.S. operating
subsidiary.
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(1) Previously filed as a part of Exhibit 10.4 to the Company's Registration
Statement on Form F-1 (Registration No. 333-56805) filed with the
Commission on June 12, 1998, and incorporated by reference herein.
(2) Previously filed as a part of Exhibit 10.5 to the Company's Registration
Statement on Form F-1 (Registration No. 333-56805) filed with the
Commission on June 12, 1998, and incorporated by reference herein.
(b) There were no current reports on Form 6-K filed during the quarter ended
April 30, 1998.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS 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.
REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF THE SECURITIES
EXCHANGE ACT OF 1934
Barbeques Galore Limited
(Registrant)
/s/ Robert B. Gavshon
By __________________________________
Robert B. Gavshon, Executive
Deputy Chairman
(Signature)
Date
June 15, 1998
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