U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

[X] Quarterly Report Pursuant To Section 13 or 15(d) of The Securities Exchange
    Act of 1934

                For the quarterly period ended December 31, 2006

                                       or

[_] Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange
    Act of 1934

                    For the transition period from N/A to N/A

                         COMMISSION FILE NUMBER: 0-32013

                              SPEAR & JACKSON, INC.
                              ---------------------
             (Exact name of registrant as specified in its charter)

                 Nevada                                    91-2037081
                 ------                                    ----------
      (State or other jurisdiction)                     (I.R.S. Employer
    of incorporation  or organization                  Identification No.)


        12012 Southshore Boulevard, Suite 103, Wellington, Florida 33414
        ----------------------------------------------------------------
          (Address of principal executive offices, including Zip Code)

                                 (561) 793 7233
                                 --------------
               Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Exchange Act:   NONE.

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

                    COMMON STOCK, PAR VALUE $0.001 PER SHARE.
                    -----------------------------------------
                                (TITLE OF CLASS)

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 past 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 whether the registrant is a well-known seasoned user (as
defined in Rule 405 of the Securities Act). Yes [ ] No [X]

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 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. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer [ ]   Accelerated filer [ ]   Non-accelerated filer [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The number of shares of registrant's common stock outstanding as of February 14,
2007 was 5,735,561.

<PAGE>

                                TABLE OF CONTENTS


PART I.  FINANCIAL INFORMATION


ITEM 1.  Financial Statements  (Unaudited) ................................    1

         Condensed Consolidated Statements of Operations -
         Three Months ended December 31, 2006 and 2005 ....................    1

         Condensed Consolidated Balance Sheets -
         December 31, 2006 And September 30, 2006 (audited) ...............    2

         Condensed Consolidated Statement of Cash flows -
         Three Months ended December 31, 2006 and 2005 ....................    3

         Notes to Condensed Consolidated Financial Statements .............    4


ITEM 2.  Management's Discussion and Analysis of Financial Condition
         And Results of Operations ........................................   23


ITEM 3.  Quantitative and Qualitative Disclosure about Market Risk ........   54


ITEM 4.  Controls and Procedures ..........................................   55


PART II. OTHER INFORMATION


ITEM 1.  Legal Proceedings ................................................   55


ITEM 6.  Exhibits .........................................................   58


SIGNATURES ................................................................   59


Certification of Principal Executive Officer and
  Chief Financial Officer pursuant to Section 302 .........................EX 31


Certification of Principal Executive Officer and
   Chief Financial Officer pursuant to Section 906 ........................EX 32


<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                     (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

                                                      FOR THE THREE MONTHS ENDED
                                                      DECEMBER 31,  DECEMBER 31,
                                                          2006          2005
                                                      -----------   -----------

Net sales ..........................................  $    24,813   $    22,926
Cost of goods sold .................................       16,471        15,897
                                                      -----------   -----------
Gross profit .......................................        8,342         7,029

Operating costs and expenses:
   Selling, general and administrative expenses ....        9,766         9,118
                                                      -----------   -----------
Operating loss .....................................       (1,424)       (2,089)

Other income (expense)
   Rental and other income .........................           40            37
   Interest (net) ..................................            7           (29)
                                                      -----------   -----------
Loss from continuing operations before unusual or
 infrequent items ..................................       (1,377)       (2,081)

   Gain on sale of land and buildings ..............           88             -
   Manufacturing and other reorganization costs ....          (10)            -
                                                      -----------   -----------
Loss from continuing operations before income taxes        (1,299)       (2,081)

Income tax (provision) benefit .....................          (50)          416
                                                      -----------   -----------

Loss from continuing operations ....................       (1,349)       (1,665)
                                                      -----------   -----------

Discontinued operations:
   Loss from discontinued operations ...............            -           (21)
   Losses and adjustments to previously recorded
    losses on disposal of discontinued operations ..            -             7
                                                      -----------   -----------
Loss from discontinued operations ..................            -           (14)
                                                      -----------   -----------

Net loss ...........................................  $    (1,349)  $    (1,679)
                                                      ===========   ===========

Basic and diluted loss per share:
From continuing operations .........................  $     (0.24)  $     (0.29)
From discontinued operations .......................         0.00          0.00
                                                      -----------   -----------
                                                      $     (0.24)  $     (0.29)
                                                      ===========   ===========

Weighted average shares outstanding ................    5,735,561     5,735,561
                                                      ===========   ===========

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

                                        1
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                          (IN THOUSANDS EXCEPT SHARES)

                                               AT DECEMBER 31,  AT SEPTEMBER 30,
                                                    2006               2006
                                               ---------------  ----------------
                                                 (UNAUDITED)
                    ASSETS
Current assets:
  Cash and cash equivalents ...................   $ 11,081          $  9,930
  Trade receivables, net  of allowances for
   doubtful debts of $1,663 and $1,635 ........     15,912            15,983
  Inventories .................................     23,862            22,853
  Foreign taxes recoverable ...................        217               215
  Deferred income tax asset, current portion ..      2,284             2,182
  Other current assets ........................      1,705             1,425
                                                  --------          --------
    Total current assets ......................     55,061            52,588

Property, plant and equipment, net ............     16,052            15,594
Deferred income tax asset .....................     15,253            14,570
Investments ...................................        532               508
                                                  --------          --------
    Total assets ..............................   $ 86,898          $ 83,260
                                                  ========          ========

     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Trade accounts payable ......................   $  9,319          $  7,766
  Accrued expenses and other liabilities ......     11,450            12,234
  Foreign taxes payable .......................        145               155
                                                  --------          --------
    Total current liabilities .................     20,914            20,155
Other liabilities .............................        856               699
Pension liability .............................     43,595            40,565
                                                  --------          --------
Total liabilities .............................     65,365            61,419
                                                  --------          --------

Stockholders' equity:
  Common stock, 25,000,000 shares authorised
  $0.001 par value; 12,011,122 issued
  and 5,735,561 shares outstanding ............         12                12
Additional paid in capital ....................     51,590            51,590
Accumulated other comprehensive income (loss):
  Minimum pension liability adjsutment,
   net of tax .................................    (46,560)          (44,447)
  Foreign currency translation adjustment,
   net of tax of $nil .........................     17,748            14,581
  Unrealized  loss on derivative instruments ..        (23)              (10)
Retained earnings .............................       (694)              655
Less: 6,275,561 common stock held in treasury,
 at cost ......................................       (540)             (540)
                                                  --------          --------
    Total stockholders' equity ................     21,533            21,841
                                                  --------          --------
    Total liabilities and stockholders' equity    $ 86,898          $ 83,260
                                                  ========          ========

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

                                        2
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

                                                      FOR THE THREE MONTHS ENDED
                                                      DECEMBER 31,  DECEMBER 31,
                                                          2006          2005
                                                      ------------  ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ...........................................  $ (1,349)     $ (1,679)
  Adjustments to reconcile net loss to net cash used
   in operating activities:
    Depreciation .....................................       536           594
    Amortization of asset held for sale ..............         -             -
    Gain on sale of land and buildings ...............       (88)            -
    (Profit) loss on sale of plant, property and
     equipment .......................................        (4)            2
    Deferred income taxes ............................         -          (566)
  Changes in operating assets and liabilities:
    Decrease in trade receivables ....................       955         1,125
    Decrease increase in inventories .................        27           693
    (Increase) decrease in other current assets ......      (425)           40
    Contributions paid to pension plan ...............      (934)         (884)
    Increase in other non-current liabilities ........     2,013         2,027
    Increase in trade accounts payable ...............     1,148           911
    Decrease in accrued expenses and other liabilities    (1,411)         (896)
    Increase (decrease)  in foreign taxes payable ....         4           (30)
    Increase in other liabilities ....................       122            68
                                                        --------      --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............       594         1,405
                                                        --------      --------

INVESTING ACTIVITIES:
  Purchases of property, plant and equipment .........       (87)         (260)
  Proceeds from sale of property, plant and equipment         90             -
                                                        --------      --------
NET CASH PROVIDED BY  (USED IN)  INVESTING ACTIVITIES          3          (260)
                                                        --------      --------

FINANCING ACTIVITIES:
  Decrease in overdraft ..............................         -          (730)
                                                        --------      --------
NET CASH  USED IN FINANCING ACTIVITIES ...............         -          (730)
                                                        --------      --------

Effect of exchange rate changes on cash and cash
 equivalents .........................................       554          (110)
                                                        --------      --------

CHANGE IN CASH AND CASH EQUIVALENTS ..................     1,151           305

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .....     9,930         7,289
                                                        --------      --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD ...........  $ 11,081      $  7,594
                                                        ========      ========

SUPPLEMENTAL CASH FLOW INFORMATION
  Cash paid for interest .............................  $      7      $     29
                                                        ========      ========
  Cash paid for taxes ................................  $     46      $    180
                                                        ========      ========

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

                                        3
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 1 - BASIS OF PRESENTATION

         These condensed consolidated financial statements are expressed in U.S.
dollars and have been prepared in accordance with accounting principles
generally accepted in the United States. The condensed consolidated financial
statements include the accounts of Spear & Jackson Inc. (the Company) and its
wholly owned subsidiaries, Mega Tools Ltd., Mega Tools USA, Inc., Megapro Tools,
Inc., S and J Acquisition Corp., Spear & Jackson plc and Bowers Group plc. Both
Spear & Jackson plc and Bowers Group plc are sub-holding companies and their
business is carried out by the following directly and indirectly owned
subsidiaries: Bowers Metrology Limited, Bowers Metrology UK Limited, Coventry
Gauge Limited, CV Instruments Limited, Eclipse Magnetics Limited, Spear &
Jackson (New Zealand) Limited, James Neill Canada Inc., James Neill Holdings
Limited, James Neill U.S.A. Inc., Spear & Jackson (Australia) Pty Ltd., Magnacut
Limited, Neill Tools Limited, Spear & Jackson Garden Products Limited, Spear &
Jackson Holdings Limited, Spear & Jackson France S.A., Societe Neill France
S.A., CV Instruments Europe BV and Bowers Eclipse Equipment Shanghai Co.
Limited.

         As further explained in note 4, below, the purchase of Spear & Jackson
plc and Bowers Group plc by Megapro Tools, Inc. (now Spear & Jackson, Inc.),
which was completed on September 6, 2002, was treated as a reverse acquisition.
The results and assets of discontinued operations are presented in accordance
with Statement of Financial Accounting Standards ("SFAS") 144.

         All significant intercompany accounts and transactions have been
eliminated on consolidation.

         The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial statements pursuant to both the rules and regulations of the
Securities and Exchange Commission and with instructions to Form 10-Q.
Accordingly, certain information and footnote disclosures required for annual
financial statements have been condensed or omitted. The Company's management
believes that all adjustments necessary to present fairly the Company's
financial position as of December 31, 2006 and September 30, 2006, and the
results of operations for the three month periods ended December 31, 2006 and
December 31, 2005 and cash flows for the three month periods ended December 31,
2006 and December 31, 2005 have been included and that the disclosures are
adequate to make the information presented not misleading. The balance sheet at
September 30, 2006 has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's and Subsidiaries' annual report on
Form 10-K for the year ended September 30, 2006.

         It is suggested that these financial statements be read in conjunction
with the audited consolidated financial statements and related footnotes of the
Company for the year ended September 30, 2006 included in the Company's annual
report filed on Form 10-K for the period then ended.

         The condensed consolidated financial statements of Spear & Jackson,
Inc. are denominated in US dollars. Changes in exchange rates between UK
sterling, the Euro, the Australian dollar, the New Zealand dollar, the Chinese
Yuan and the US dollar will affect the translation of the Company's UK, French,
Dutch, Chinese, New Zealand and Australian subsidiaries' financial results into
US dollars for the purposes of reporting the consolidated financial results. The
process by which each foreign subsidiary's financial results are translated into
US dollars is as follows: income statement accounts are translated at average
exchange rates for the period; balance sheet asset and liability accounts are
translated at end of period exchange rates; and equity accounts are translated
at historical exchange rates. Translation of the balance sheet in this manner
affects the stockholders' equity account, referred to as the accumulated other
comprehensive income account. Management has decided not to hedge against the
impact of exposures giving rise to these translation adjustments as such hedges
may impact upon the Company's cash flow compared to the translation adjustments
which do not affect cash flow in the medium term.

                                        4
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 1 - BASIS OF PRESENTATION - CONTINUED

         The results of operations for any interim periods are not necessarily
indicative of the results to be expected for the full year, or any subsequent
periods.

         Certain reclassifications have been made to prior period amounts to
conform to current period presentation.

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS

         In March 2005, the Financial Accounting Standards Board ("FASB") issued
Interpretation ("FIN") No. 47, "Accounting for Conditional Asset Retirement
Obligations--an Interpretation of FASB Statement No. 143." This Interpretation
clarifies the timing of liability recognition for legal obligations associated
with an asset retirement when the timing and (or) method of settling the
obligation are conditional on a future event that may or may not be within the
control of the entity. FIN No. 47 is effective no later than the end of fiscal
years ending after December 15, 2005. The implementation of this statement will
has not had a material impact on the Company's consolidated results of operation
and financial condition.

         In March 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107
regarding the Staff's interpretation of SFAS No. 123(R). This interpretation
provides the Staff's views regarding interactions between SFAS No. 123(R) and
certain SEC rules and regulations and provides interpretations of the valuation
of share-based payments for public companies. The interpretive guidance is
intended to assist companies in applying the provisions of SFAS No. 123(R) and
investors and users of the financial statements in analyzing the information
provided. The adoption of this Statement has not had a material impact on our
financial position or results of operations.

         In June 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Corrections". SFAS 154 replaces APB Opinion No. 20, "Accounting Changes",
and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements".
SFAS 154 requires that a voluntary change in accounting principle be applied
retrospectively with all prior period financial statements presented on the new
accounting principle. SFAS 154 also requires that a change in method of
depreciating or amortizing a long-lived non-financial asset be accounted for
prospectively as a change in estimate, and correction of errors in previously
issued financial statements should be termed a restatement. SFAS 154 applies to
accounting changes and correction of errors made in fiscal years beginning after
December 15, 2005 and was effective for the first time in the Company's
financial statements for quarter one of fiscal 2007. The adoption of this
pronouncement has not had a material effect on our consolidated financial
position, results of operations or cash flows.

         In June 2005, the Emerging Issues Task Force ("EITF") reached consensus
on Issue No. 05-6, Determining the Amortization Period for Leasehold
Improvements ("EITF 05-6.") EITF 05-6 provides guidance on determining the
amortization period for leasehold improvements acquired in a business
combination or acquired subsequent to lease inception. The guidance in EITF 05-6
is effective for periods beginning after June 29, 2005. Adoption of this
standard has not had a material impact on our consolidated financial position or
results of operations.

         In October 2005, the FASB issued Staff Position No. 13-1, "Accounting
for Rental Costs Incurred During a Construction Period" ("FSP No. 13-1"). FSP
No. 13-1 is effective for the first reporting period beginning after December
15, 2005 and requires that rental costs associated with ground or building
operating leases that are incurred during a construction period be recognized as
rental expense. The adoption of FSP No. 13-1 has not had a material impact on
our financial statements.

                                        5
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS - CONTINUED

         In November 2005, FASB issued FSP No. 123(R)-3, "Transition Election
Related to Accounting for the Tax Effects of Share-Based Payment Awards." This
pronouncement provides an alternative method of calculating the excess tax
benefits available to absorb any tax deficiencies recognized subsequent to the
adoption of SFAS No. 123(R). The company has not made any payments of this
nature.

         In February 2006, FASB announced No. 155, Accounting for Certain Hybrid
Financial Instruments, as an amendment to Statement No. 133, Accounting for
Derivatives Instruments and Hedging Activities, and Statement No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. Statement No. 155 amends Statement No. 133 to narrow the scope
exception for interest-only and principal-only strips on debt instruments to
include only such strips representing rights to receive a specified portion of
the contractual interest or principle cash flows. Statement No. 155 amends
Statement No. 140 to allow qualifying special purpose entities to hold a passive
derivative financial instrument pertaining to beneficial interests that itself
is a derivative instrument. Statement No. 155 is effective for all financial
instruments acquired or issued in fiscal years beginning after September 15,
2006. The adoption of Statement No. 155 has not had a material impact on the
Company's condensed consolidated financial statements.

         In March 2006, the FASB issued Statement No. 156, Accounting for
Servicing of Financial Assets as an amendment to Statement No. 140. Statement
No. 156 requires that all separately recognized servicing rights be initially
measured at fair value, if practicable. In addition, this statement permits an
entity to choose between two measurement methods (amortization method or fair
value measurement method) for each class of separately recognized servicing
assets and liabilities. This new accounting standard is effective for reporting
periods beginning after September 15, 2006.The adoption of SFAS 156 has not had
a material impact on our results of operations or financial condition.

         In June 2006, the FASB ratified the consensus reached by the EITF on
EITF Issue No. 05-01, Accounting for the Conversion of an Instrument That
Becomes Convertible Upon the Issuer's Exercise of a Call Option ("EITF 05-01").
The EITF consensus applies to the issuance of equity securities to settle a debt
instrument that was not otherwise currently convertible but became convertible
upon the issuer's exercise of call option when the issuance of equity securities
is pursuant to the instrument's original conversion terms. The adoption of EITF
05-01 is not expected to have a material impact on our results of operations or
financial condition.

         In July 2006, FASB issued FIN 48, "Accounting for Uncertainty in Income
Taxes" as an interpretation of Statement No. 109. This interpretation clarifies
the application of Statement No. 109 by defining a criterion than an individual
tax position must meet for any part of the benefit of that position to be
recognized in an enterprise's financial statements and also provides guidance on
measurement, derecognition, classification, interest and penalties, accounting
in interim periods and disclosure. FIN 48 is effective for our fiscal years
beginning after December 15, 2006. At this time, we have not completed our
review and assessment of the impact of adoption of FIN 48. In September 2006,
the SEC staff issued SAB 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements ("SAB 108"). SAB 108 was issued in order to eliminate the diversity
in practice surrounding how public companies quantify financial statement
misstatements. SAB 108 requires that registrants quantify errors using both a
balance sheet and income statement approach and evaluate whether either approach
results in a misstated amount that, when all relevant quantitative and
qualitative factors are considered, is material. SAB 108 must be implemented by
the end of the Company's fiscal 2007. The Company is currently assessing the
potential effect of SAB 108 on its financial statements.

         In September 2006, the FASB issued SFAS 157, Fair Value Measurements
(SFAS 157). SFAS 157 provides a common definition of fair value and establishes
a framework to make the measurement of fair value in generally accepted
accounting principles more consistent and comparable. SFAS 157 also requires
expanded disclosures to provide information about the extent to which fair value
is used to measure assets and liabilities, the methods and assumptions used to
measure fair value, and the effect of fair value measures on earnings. SFAS 157
is effective for the Company's 2009 fiscal year, although early adoption is
permitted. The Company is currently assessing the potential effect of SFAS 157
on its financial statements.

                                        6
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS - CONTINUED

         In September 2006, the FASB issued SFAS No. 158, Employers' Accounting
for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106, and 132(R) ("SFAS 158"). This statement requires
recognition of the overfunded or underfunded status of defined benefit pension
and other postretirement plans as an asset or liability in the statement of
financial position and also requires in the funded status to be recognized in
comprehensive income in the year in which such changes occur. SFAS 158 also
requires measurement of the funded status of a plan as of the date of the
statement of financial position. The recognition and disclosure provisions of
SFAS 158 are effective as of the end of the fiscal year ending after December
16, 2006, while the measurement date provisions are effective for fiscal years
ending after December 15, 2008. If SFAS 158 were applied as at December 31,
2006, using the Company's September 30, 2006 actuarial valuation and rolling
this forward, we would have recorded an additional pre-tax charge to accumulated
other comprehensive income totalling $8.2 million ($5.7 million after tax)
representing the difference between the funded status of the plans based on the
project benefit obligation and the amounts recorded on our balance sheet at
December 31, 2006.

NOTE 3 - CRITICAL ACCOUNTING POLICIES

         A summary of our critical accounting policies is included in Note 2 to
the audited consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended September 30, 2006. Management believes
that the application of these policies on a consistent basis enables the Company
to provide useful and reliable financial information about the Company's
operating results and financial condition.

         As disclosed in the annual report on Form 10-K for the fiscal year
ended September 30, 2006, the discussion and analysis of our financial condition
and results of operations are based upon our consolidated financial statements.
These have been prepared in conformity with accounting principles generally
accepted in the United States. The preparation of the financial statements
requires us to make estimates and assumptions and adopt accounting policies that
affect the reported amounts of assets, liabilities, revenues and expenses as
disclosed in those financial statements. These judgments can be subjective and
complex, and consequently actual results could differ from those estimates. Our
most critical accounting policies relate to revenue recognition; foreign
exchange risk; inventory, the computation of deferred income taxes, the
recognition of deferred income tax assets and pension and other post retirement
benefit costs. Since September 30, 2006, there have been no changes in our
critical accounting policies and no significant changes to the assumptions and
estimates related to them.

NOTE 4 - NATURE OF BUSINESS

         The Company was incorporated in the State of Nevada on December 17,
1998 and was inactive until the acquisition of Mega Tools Ltd. and Mega Tools
USA, Inc. via reverse acquisition on September 30, 1999. The Company was engaged
in the manufacture and sale of a patented multi-bit screwdriver. The Company
entered into an exclusive North American license agreement with the patent
holder of a retracting cartridge type screwdriver. This license agreement gave
the Company unrestricted use of the patent in Canada and the United States until
November 8, 2005. The Company's wholly owned subsidiaries, Mega Tools USA, Inc.
and Mega Tools Ltd. manufactured and marketed the drivers to customers in the
United States and Canada. With effect from September 30, 2003 the Company exited
its screwdriver operations following the sale of the trade and net assets of
Mega Tools USA, Inc. and Mega Tools Ltd. The historical results of operations
for this business have been reclassified to earnings (loss) from discontinued
operations on the Company's Consolidated Statements of Operations.

                                        7
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 4 - NATURE OF BUSINESS - CONTINUED

         On September 6, 2002 the Company acquired the entire issued share
capital of Spear & Jackson plc and Bowers Group plc. These companies, through
their principal operating entities, as disclosed in note 1, manufacture and
distribute a broad line of hand tools, lawn and garden tools, industrial magnets
and metrology tools primarily in the United Kingdom, Europe, Australia, North
and South America, Asia and the Far East.

         Following recommendations by the SEC, the acquisition of Spear &
Jackson plc and Bowers Group plc ("S&J") by Megapro Tools, Inc. was accounted
for as a reverse acquisition for financial reporting purposes. The reverse
acquisition is deemed a capital transaction and the net assets of S&J (the
accounting acquirer) were carried forward to Megapro Tools, Inc. (the legal
acquirer and the reporting entity) at their carrying value before the
combination. Although S&J was deemed to be the acquiring corporation for
financial accounting and reporting purposes, the legal status of Megapro Tools,
Inc. as the surviving corporation does not change. The relevant acquisition
process utilizes the capital structure of Megapro Tools, Inc. and the assets and
liabilities of S&J are recorded at historical cost.

         In these financial statements, S&J is the operating entity for
financial reporting purposes and the financial statements for all periods
presented represent S&J's financial position and results of operations. The
equity of Megapro Tools Inc. is the historical equity of S&J retroactively
restated to reflect the number of shares issued in the S&J acquisition.

         On November 7, 2002 the Company changed its name from Megapro Tools,
Inc. to Spear & Jackson, Inc.

         Following formal approval by the SEC and the U.S. District Court for
the Southern district of Florida of the settlement of the litigation captioned
SEC v. Dennis Crowley, Spear & Jackson, Inc., International Media Solutions,
Inc., Yolanda Velazquez and Kermit Silva (Case No: 04-80354-civ-Middlebrooks),
the Company entered into a Stock Purchase Agreement with PNC Tool Holdings LLC
("PNC") and Dennis Crowley, the sole member of PNC and former Chief Executive
Officer and Chairman of the Company. The Stock Purchase Agreement was effected
on April 8, 2005.

         Under the Stock Purchase Agreement, the Company acquired, for $100, and
other good and valuable consideration, 6,005,561 common shares of the Company
held by PNC which represented approximately 51.1% of the outstanding common
shares of the Company at December 31, 2004, and which constituted 100% of the
common stock held by such entity. The parties also executed general releases in
favor of each other subject to the fulfillment of the conditions of the Stock
Purchase Agreement.

         As a result of the stock purchase, the stockholders of the Company had
their percentage stock interest increase correspondingly. Jacuzzi Brands, Inc.
("Jacuzzi"), which, at that time was a beneficial owner of 3,543,281 shares of
common stock, had its interest in the Company increase to approximately 61.8% of
the outstanding common stock.

         On April 21, 2005, Jacuzzi adopted a plan of disposition of the
Company's common stock. On March 23, 2006, "Jacuzzi" and its subsidiary
undertaking, USI American Holdings, Inc. ("USI" and, together with Jacuzzi, the
"Seller") entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") with United Pacific Industries Limited ("UPI"), a Bermuda
Corporation, to sell its entire holding of 3,543,281 shares of the common stock
(the "Shares") of Spear & Jackson, Inc. ("SJI") to UPI for $1.40 per share for
an aggregate purchase price of $4,960,593. Such shares constituted all of the
shares of SJI owned by the Seller.

         The representations, warranties and covenants made by Jacuzzi and UPI
were typical for this type of transaction. UPI agreed that it or any of its
affiliates would not purchase any additional Common Stock during the period from
the signing date of the Stock Purchase Agreement through one year following the
closing at a price less than $1.40 per share.

                                        8
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 4 - NATURE OF BUSINESS - CONTINUED

         The Seller and UPI then announced that they had entered into Amendment
No. 1 dated 4 May 2006, ("Amendment No. 1 to the Stock Purchase Agreement") to
extend the date by which the Seller and UPI were required to lodge the clearance
application with the UK Pensions Regulator. The Seller and UPI subsequently
received a comfort letter, dated July 5, 2006, issued by the UK Pensions
Regulator (the "Comfort Letter").

         The trustees of Spear & Jackson, Inc.'s UK Pension Plan confirmed by a
letter dated July 6, 2006 their acceptance of the UK Pensions Regulator's
determination. The Seller and UPI then entered into Amendment No. 2 dated July
10, 2006, ("Amendment No. 2 to the Stock Purchase Agreement") to waive their
respective requirements for a clearance from the UK Pensions Regulator and to
accept in its place the Comfort Letter which states the UK Pensions Regulator is
of the view, based on the information supplied to him in connection with the
clearance application, that the change of control as a result of the sale by the
Seller of all of its shares of Spear & Jackson, Inc. to UPI is not detrimental
to the UK pension plan and the UK Pensions Regulator believes that a clearance
is not necessary for the transaction.

         In addition, pursuant to Amendment No. 2 to the Stock Purchase
Agreement UPI agreed, subject to the Closing having occurred, to indemnify the
Seller and JBI Holdings Limited (the "Jacuzzi Indemnified Parties") should the
UK Pensions Regulator, regardless of the Comfort Letter, require any of the
Jacuzzi Indemnified Parties to make a contribution or provide financial support
in relation to the potential pension plan liabilities of SJI or its
subsidiaries. In addition, UPI has also agreed that for a period of twelve
months from the Closing Date, UPI will not, and will use its best efforts to
ensure that neither SJI nor any of its subsidiaries will, take any action or
omit to take any action that causes the UK Pensions Regulator, as a result of
such action or omission, to issue a contribution notice against the Jacuzzi
Indemnified Parties in relation to any UK pension plan in which SJI or any
subsidiary of SJI is an employer. Further, UPI agreed that for a period of
twelve months from the Closing Date, that it will not (and will use its best
efforts to ensure that neither SJI nor any subsidiary of SJI will) engage in any
action or inaction which in relation to any such UK pension plan would fall
within the UK Pension Regulation clearance guidance note dated April 2005 as a
'Type A' event unless UPI procures that clearance is issued by the UK Pensions
Regulator in relation to such event in terms which confirm that no Jacuzzi
Indemnified Party shall be linked to a financial support direction or
contribution notice in respect of such event.

         Closing occurred on July 28, 2006.

                                        9
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 5 - DISCONTINUED OPERATIONS

         The following table presents the results of the Company's operations
that have been reclassified as discontinued and the (loss) income that has been
recorded in connection with the disposal of these businesses:
<TABLE>
<CAPTION>
                                                                 FOR THE THREE MONTHS ENDED
                                                                DECEMBER 31,     DECEMBER 31,
                                                                    2006              2005
                                                               -------------    -------------
                                                        NOTE   (IN THOUSANDS)   (IN THOUSANDS)
<S>                                                     <C>    <C>              <C>
Revenues reclassified to discontinued operations:
  Thread gauge measuring division ...................   (a)    $           -    $         355
                                                               -------------    -------------
                                                               $           -    $         355
                                                               =============    =============

Loss from discontinued operations:
  Loss from operations of thread gauge measuring ....   (a)    $           -    $         (21)
                                                               -------------    -------------
                                                               $           -    $         (21)
                                                               =============    =============

Adjustment to previously recorded loss on disposal of
 discontinued operations:
  Megapro screwdrivers division .....................   (b)    $           -    $           7
                                                               -------------    -------------
                                                               $           -    $           7
                                                               =============    =============

                                                               -------------    -------------
Loss from discontinued operations, net of taxes .....          $           -    $         (14)
                                                               =============    =============
</TABLE>

         Pursuant to SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", the Company's previously issued financial statements and
notes have been reclassified to reflect the discontinued components detailed
above. Accordingly, the assets, liabilities, net operations, and net cash flows
of these business segments have been reported as "Discontinued Operations" in
the accompanying condensed consolidated financial statements.

         (a) During the fourth quarter of fiscal 2005, the Company began
marketing for sale certain assets associated with its Coventry Gauge thread
gauge measuring business that is located in the United Kingdom. On February 28,
2006, the Company concluded the sale of these assets for a nominal
consideration. The assets sold comprised plant and equipment, inventories and
goodwill. The acquirer paid (pound)1 and assumed certain liabilities in respect
of the leased premises from which the trade operates. The carrying values of the
assets relating to this entity were written down to the lower of depreciated
cost or estimated fair value after consideration of selling costs in the
quarters ended March 31, 2005 and September 30, 2005. No further losses or gain
on disposal are required to be recognized in the current period. The assets and
liabilities of discontinued operations held for sale have not been reported
separately in the consolidated balance sheets of the Company as the net book
amounts involved are not considered material.

         (b) During the year ending September 30, 2003, the directors of Spear &
Jackson, Inc. carried out a strategic review of the Company's loss making
Megapro screwdriver division ("Megapro"). It was determined that the division
was no longer a core activity of the group and various divestment strategies
were considered. With effect from September 30, 2003, the trade and assets of
the division's principal operating companies, Mega Tool USA, Inc. and Mega Tools
Limited, were transferred by prior subsidiary management, and without prior
authorization, at their net book value of $384 to the division's former managing
director. The transfer proceeds were in the form of $284 of loan notes and other
receivables and the discharge of a loan of $100 owed by the company to the
Megapro managing director.

         Having considered the future financial position of Megapro, the
directors of Spear & Jackson, Inc. provided $97 against the recoverability of
the balance of the sales proceeds which was outstanding at September 30, 2003. A
further $187 was provided against this debt in the year ended September 30,
2004. It was then agreed with Megapro that it would pay Canadian $54
(approximately $41) in settlement of those debts and this has been repaid in
monthly installments of Canadian $5 (approximately $4).

                                       10
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 6 - RETIREMENT BENEFIT PLAN

         The Company operates a contributory defined benefit pension plan
covering certain of its employees in the United Kingdom based subsidiaries of
Spear & Jackson plc. The benefits covered by the Plan are based on years of
service and compensation history. Plan assets are primarily invested in
equities, fixed income securities and Government Stocks.

         Pension costs amounted to $2,013 for the quarter ending December 31,
2006 and $2,027 for the same quarter last year. The net periodic costs include
the following components:

                                                  FOR THE THREE MONTHS ENDED
                                                DECEMBER 31,       DECEMBER 31,
                                                    2006               2005
                                               --------------     --------------
                                               (IN THOUSANDS)     (IN THOUSANDS)

Sevice cost ...........................           $   405            $   525
Interest cost .........................             2,971              2,600
Expected return on plan assets ........            (2,773)            (2,459)
Recognition of actuarial loss .........             1,410              1,361
                                                  -------            -------
Total Benefit cost ....................           $ 2,013            $ 2,027
                                                  =======            =======

         The Company's funding policy with respect to the Plan is to contribute
annually not less than the minimum required by applicable UK law and pension
regulations. Amounts payable are determined on the advice of the Plan's
actuaries and in agreement with the Plan's Trustees. The Company has contributed
$934 to the Plan in the quarter to December 31, 2006 (2005 $884). In the year
ended September 30, 2006 the Company paid $3.4 million into the Plan. In the ten
month period to July 31, 2007 the level of contributions will be approximately
$3.1 million. Contributions after that date will be determined after
consultation between the Company, the actuary and the Plan trustees. Following
the introduction of new UK pension legislation it is anticipated that, post July
31, 2007, Company contributions will increase to approximately $5.9 million per
annum.

         Accounting standards require a minimum pension liability be recorded
when the value of pension assets is less than the accumulated benefit obligation
("ABO") at the annual measurement date. As of September 30, 2006, our most
recent measurement date for pension accounting, the value of the ABO exceeded
the market value of investments held by the pension plan by approximately $40.56
million. In accordance with accounting standards, the charge against
stockholders' equity will be adjusted in the fourth quarter to reflect the value
of pension assets compared to the ABO as of the end of September 2007. If the
level of pension assets exceeds the ABO as of a future measurement date, the
full charge against stockholders' equity would be reversed.

                                       11
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT, NET

                                               AT DECEMBER 31,  AT SEPTEMBER 30,
                                                    2006             2006
                                               --------------   ---------------
                                               (IN THOUSANDS)    (IN THOUSANDS)

Assets held and used:
Land and buildings, at cost ...............       $ 15,994          $ 15,269
Machinery, equipment and vehicles, at cost          25,224            29,299
Furniture and fixtures, at cost ...........            908               867
Computer hardware, at cost ................          1,921             1,834
Computer software, at cost ................            378               361
Assets held under finance leases, at cost .  (a)     2,396             2,433
                                                  --------          --------
                                                    46,821            50,063
Accumulated Depreciation ..................        (30,769)          (34,469)
                                                  --------          --------
 Net ......................................       $ 16,052          $ 15,594
                                                  ========          ========

(a) Included in property, plant and equipment at December 31, 2006 are capital
leases with a net book value of $1.02 million (September 30, 2006 $0.86
million). The cost of these assets held under capital leases was $2.4 million
(September 30, 2006 $2.43 million) and the accumulated depreciation relating to
these assets was $1.38 million (September 30, 2006 $1.57 million).

NOTE 8 - INVENTORIES

                                               AT DECEMBER 31,  AT SEPTEMBER 30,
                                                    2006             2006
                                               --------------   ---------------
                                               (IN THOUSANDS)    (IN THOUSANDS)

Finished products .........................       $ 21,493          $ 19,329
In-process products .......................          4,176             4,443
Raw materials .............................          5,618             6,191
Less: allowance for slow moving and
 obsolete inventories .....................         (7,425)           (7,110)
                                                  --------          --------
                                                  $ 23,862          $ 22,853
                                                  ========          ========

NOTE 9 - UNUSUAL OR INFREQUENT ITEMS

   (a)   GAIN ON SALE OF LAND AND BUILDINGS

         On July 27, 2006 the Company completed the sale of the remaining
element of its industrial site at St. Paul's Road, Wednesbury, England for
$4,756. The conditions of the sale agreement stipulated that the Company could
occupy the site, for a peppercorn rent, until November 30, 2006. In the
financial statements for the year ended September 30, 2006 $88 of the gain on
the sale of the site was deferred. This deferral represented the fair value of
rentals during the period of occupation from the sale of the site until November
30, 2006, the planned closure date. The Wednesbury site was vacated on schedule
and the deferred element of the gain has accordingly been released to the profit
and loss account in the three month period under review.

   (b)   MANUFACTURING REORGANIZATION COSTS

         On January 25, 2006, the Company announced the closure of the remaining
element of its manufacturing site at Wednesbury, England. All warehouse and
distribution operations previously performed at this location have been
transferred to the Company's principal UK manufacturing site in Sheffield. The
manufacturing and assembly functions formerly carried out at this site have now
been out sourced to suppliers based outside the UK.

                                       12
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 9 - UNUSUAL OR INFREQUENT ITEMS - CONTINUED

         The closure and relocation of the Wednesbury facility was completed by
November 30, 2006 and the costs of this exercise, including employee severance
payments, site closure expenses, factory reorganization expenses, were provided
for in the year ended September 30, 2006. That element of employee severance
costs relating to the payment of loyalty bonuses for those employees staying
until the site vacation in November 2006 was not provided for at September 30,
2006 and $10 has been expensed to the profit and loss in the current period in
respect of such bonuses.

   (c)   SUMMARY OF MOVEMENTS ON PROVISIONS IN RESPECT OF THE UK MANUFACTURING
         AND REORGANIZATION PROGRAM

         A noted above, in January 2006 the company announced the closure of the
remaining element of its manufacturing site at Wednesbury, England. With effect
from November 30, 2006 all warehouse and distribution operations performed at
this operation were transferred to the Company's principal UK manufacturing site
in Sheffield. The manufacturing and assembly functions formerly carried out at
this site have now been out sourced to suppliers based outside the UK. Provision
for the costs of closure, including employee severance costs, site closure
expenses, factory reorganization expenses, and plant transfer costs were made in
the quarter ended March 31, 2006.

         In addition to the above, in the quarter ended June 30, 2006, the
Company announced that certain manufacturing operations carried out at its Atlas
site in Sheffield would also cease. Provision for employee severance and
reorganization costs in respect of the closure of these manufacturing operations
were made in that quarter.

         On August 11, 2006, The Company's UK subsidiary, Eclipse Magnetics
Limited ("Eclipse"), announced the cessation of certain manufacturing activities
at its site in Sheffield, England. Eclipse also announced that it would be
relocating the remaining elements of its business to the Sheffield, Atlas site.
The cessation of manufacturing and site relocation were completed by December
31, 2006 and provisions were made at September 30, 2006 in respect of severance,
relocation and empty property rentals.

         The Wednesbury site closure, the production rationalization at Atlas
and the restructuring at Eclipse form part of the Company's UK manufacturing
reorganization program which has been initiated to regenerate and modernize key
areas of the hand and garden tools business. The closures will enable the
Company to consolidate its two UK hand and garden tool manufacturing sites and
will allow the Company to develop a modern manufacturing, warehouse and
distribution facility which will be well placed to meet the current and future
needs of its customers.

         As at September 30, 2006 provisions of $3,730 were included within
accrued expenses and other liabilities as follows:

         (i)      $1,387 was provided for in respect of severance, site closure
                  costs and factory reorganization costs in relation to the
                  Wednesbury site closure and Atlas reorganization.

         (ii)     $299 was provided in respect of severance costs relating to
                  the cessation of certain manufacturing activities at Eclipse
                  and costs in connection with the relocation of its remaining
                  business to the Atlas site.

         (iii)    The Company also had a further provision of $2,044 in respect
                  of other UK manufacturing reorganization costs that was set up
                  in previous years.

Additionally, asset impairments write-downs of $1,767 were made at September 30,
2006 in respect of plant and machinery at the restructured operations.

                                       13
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 9 - UNUSUAL OR INFREQUENT ITEMS - CONTINUED

         The movements in the provisions balance between October 1, 2006 and
December 31, 2006 are as follows:

(a) Included in Accrued Expenses and Other Liabilities:
<TABLE>
<CAPTION>
                             AT SEPTEMBER 30,     EXCHANGE        AMOUNTS         AMOUNTS      AT DECEMBER 31,
                                  2006            MOVEMENTS       PROVIDED     PAID/UTILISED        2006
                             ----------------  --------------  --------------  --------------  ---------------
                              (IN THOUSANDS)   (IN THOUSANDS)  (IN THOUSANDS)  (IN THOUSANDS)  (IN THOUSANDS)
<S>                               <C>              <C>             <C>             <C>             <C>
Other UK reorganization costs     $ 2,044          $    97         $     -         $   (84)        $ 2,057
Wednesbury / Atlas costs ....       1,387               45             (78)         (1,027)            327
Eclipse move ................         299               15               -            (202)            112
                                  -------          -------         -------         -------         -------
                                  $ 3,730          $   157         $   (78)        $(1,313)        $ 2,496
                                  =======          =======         =======         =======         =======
</TABLE>
(b) Included in Property, Plant and Equipment:
<TABLE>
<CAPTION>
<S>                               <C>              <C>             <C>             <C>             <C>
Asset impairments ...........     $ 1,767          $   84          $     -         $  (276)        $ 1,575
                                  =======          =======         =======         =======         =======

Total .......................     $ 5,497          $  241          $   (78)        $(1,589)        $ 4,071
                                  =======          =======         =======         =======         =======
</TABLE>

NOTE 10 - INCOME TAXES

         Spear & Jackson is subject to income taxes in the US and in the other
overseas tax jurisdictions where its principal trading subsidiaries operate. The
(provision)/ benefit for US and foreign income taxes arising on its continuing
operations consists of:

                                                   FOR THE THREE MONTHS ENDED
                                                  DECEMBER 31,     DECEMBER 31,
                                                      2006             2005
                                                 --------------   --------------
                                                 (IN THOUSANDS)   (IN THOUSANDS)

Current tax charge ..............................     $ (50)           $(150)
Deferred tax  credit ............................         -              566
                                                      -----            -----
                                                      $ (50)           $ 416
                                                      =====            =====

         A reconciliation of the net (provision) benefit for income taxes
compared with the amounts arising at the US federal rate is as follows:

                                                   FOR THE THREE MONTHS ENDED
                                                  DECEMBER 31,     DECEMBER 31,
                                                      2006             2005
                                                 --------------   --------------
                                                 (IN THOUSANDS)   (IN THOUSANDS)

Tax at US federal statutory income tax rate .....     $ 454            $ 733
Overseas tax at rates different to effective rate       (42)            (147)
Adjustment to prior year overseas tax provisions          -              (89)
Permanent differences ...........................       (40)             (36)
Valuation allowance .............................      (422)             (45)
                                                      -----            -----
                                                      $ (50)           $ 416
                                                      =====            =====

                                       14
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 10 - INCOME TAXES - CONTINUED

         The Company follows the provisions of SFAS No. 109, "Accounting for
Income Taxes", which requires the Company to recognize deferred tax liabilities
and assets for the expected future tax consequences of events that have been
recognized in the Company's financial statements or tax returns using the
liability method. Under this method, deferred tax liabilities and assets are
determined based on the temporary differences between the financial statement
carrying amounts and tax bases of assets and liabilities using enacted rates in
effect in the years in which the differences are expected to reverse.

         Deferred income tax expense or benefit is based on the changes in the
asset or liability from period to period. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
The Company reviews the recoverability of its deferred tax assets and, based on
such periodic reviews, the Company could recognize a change in the valuation
allowance relating to its deferred tax assets in the future should, for example,
estimates of forecast taxable income be reduced or other favorable or adverse
events occur.

         In the quarter ended December 31, 2006, the potential income tax
benefit relating to the Company's U.S. and non-U.S. subsidiary losses arising in
the period has been offset by a valuation allowance based upon an assessment by
management of the Company's ability to realize such benefits. In assessing the
Company's ability to realize its deferred tax assets, management considered the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax and other strategic planning initiatives. Future reversal of the
valuation allowance will be achieved either when the tax benefit is realized or
when it has been determined that it is more likely than not that the benefit
will be realized through offset against future taxable income.

NOTE 11 - COMPREHENSIVE INCOME

         Comprehensive income represents net income and other revenues,
expenses, gains and losses that are excluded from net income and recognized
directly as a component of stockholder's equity. Comprehensive income and its
components comprise the following:

                                                   FOR THE THREE MONTHS ENDED
                                                  DECEMBER 31,     DECEMBER 31,
                                                      2006             2005
                                                 --------------   --------------
                                                 (IN THOUSANDS)   (IN THOUSANDS)

Net loss ........................................    $(1,349)         $(1,679)

Other comprehensive income (loss)

  Additional minimum pension liability ..........     (2,113)           1,294
  Foreign currency translation adjustments ......      3,167           (1,980)
  Unrealized (losses) gains on derivative
   instruments ..................................        (13)              14
                                                     -------          -------
Total comprehensive  loss .......................    $  (308)         $(2,351)
                                                     =======          =======

                                       15
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 12 - SEGMENT DATA

         The Company's principal operations relate to the manufacture and
distribution of a broad line of hand tools, lawn and garden tools, industrial
magnets and metrology tools. These operations are conducted through business
divisions located primarily in the United Kingdom, France, the Netherlands, USA,
Australasia and China.

         Given below are summaries of the significant accounts and balances by
business segment and by geographical location, reconciled to the consolidated
totals. In both periods, transactions and balances applicable to the Company's
distribution companies in France, Australia and New Zealand have been aggregated
with the hand and garden product businesses since these products represent the
most significant proportion of the distribution companies' trades. Those
transactions relating to the Company's distribution entities in the Netherlands
and China have been included in the Metrology division disclosures. The
summaries also provide an analysis of the accounts and balances between
continuing and discontinued operations.

         The financial information of the segments is regularly evaluated by the
corporate operating executives in determining resource allocation and assessing
performance and is reviewed by the Company's Board of Directors.

         The Company's senior management evaluates the performance of each
business segment based on its operating results and, other than general
corporate expenses, allocates specific corporate overhead to each segment.
Accounting policies for the segments are the same as those for the Company.

         The following is a summary of the significant accounts and balances (in
thousands) by business segment, reconciled to the consolidated totals.

                                       16
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 12 - SEGMENT DATA - CONTINUED
<TABLE>
<CAPTION>
                                              SALES                 LONG-LIVED ASSETS (a)
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2006           2005           2006           2005
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
  Hand & garden tools ......          $17,489        $16,258        $ 2,706        $ 5,314
  Metrology tools ..........            4,376          4,421          3,036          2,346
  Magnetic products ........            2,948          2,602            197            310
  Corporate ................                -              -         10,113          9,066
                                      -------        -------        -------        -------
     Total .................          $24,813        $23,281        $16,052        $17,036
                                      =======        =======        =======        =======
Attributable to:
     Continuing operations .          $24,813        $22,926        $16,052        $17,036
     Discontinued operations          $     -        $   355        $     -        $     -
                                      -------        -------        -------        -------
                                      $24,813        $23,281        $16,052        $17,036
                                      =======        =======        =======        =======

<CAPTION>
                                          DEPRECIATION             CAPITAL EXPENDITURE (b)
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2006           2005           2006           2005
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
  Hand & garden tools ......          $   324        $   378        $   229        $   363
  Metrology tools ..........               91             85             27            210
  Magnetic products ........               67             81            120              7
  Corporate ................               54             50              -              -
                                      -------        -------        -------        -------
     Total .................          $   536        $   594        $   376        $   580
                                      =======        =======        =======        =======
Attributable to:
     Continuing operations .          $   536        $   594        $   376        $   580
                                      =======        =======        =======        =======

<CAPTION>
                                     OPERATING (LOSS) INCOME            NET INTEREST
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2006           2005           2006           2005
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
  Hand & garden tools ......          $(1,505)       $(2,228)       $   (43)       $   (38)
  Metrology tools ..........              326            395            (11)           (10)
  Magnetic products ........              193             76             (1)            (2)
  Corporate ................             (438)          (346)            62             21
                                      -------        -------        -------        -------
     Total .................          $(1,424)       $(2,103)       $     7        $   (29)
                                      =======        =======        =======        =======
Attributable to:
     Continuing operations .          $(1,424)       $(2,089)       $     7        $   (29)
     Discontinued operations          $     -        $   (14)       $     -        $     -
                                      -------        -------        -------        -------
                                      $(1,424)       $(2,103)       $     7        $   (29)
                                      =======        =======        =======        =======
</TABLE>
(a) Represents property, plant and equipment, net.

(b) Capital expenditure for the three months to December 31, 2006 includes $289
(2005- $320) in respect of assets acquired under finance leases.

                                       17
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 12 - SEGMENT DATA - CONTINUED

The following table presents certain data by geographic areas (in thousands):
<TABLE>
<CAPTION>
                                             SALES (a)              LONG-LIVED ASSETS (b)
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2006           2005           2006           2005
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
  United Kingdom ...........          $ 9,517        $ 9,608        $14,168        $15,388
  Europe ...................            5,477          4,675          1,161          1,127
  Australasia ..............            4,527          3,733            418            457
  North America ............            1,878          1,789              -              -
  China and Rest of World ..            3,414          3,476            305             64
                                      -------        -------        -------        -------
     Total .................          $24,813        $23,281        $16,052        $17,036
                                      =======        =======        =======        =======
Atributable to:
     Continuing operations .          $24,813        $22,926        $16,052        $17,036
     Discontinued operations          $     -        $   355        $     -        $     -
                                      -------        -------        -------        -------
                                      $24,813        $23,281        $16,052        $17,036
                                      =======        =======        =======        =======

<CAPTION>
                                          DEPRECIATION             CAPITAL EXPENDITURE (c)
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2006           2005           2006           2005
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
  United Kingdom ...........          $   432        $   499        $   321        $   490
  Europe ...................               39             37             24             27
  Australasia ..............               55             58             31              -
  China and Rest of World ..               10              -              -             63
                                      -------        -------        -------        -------
     Total .................          $   536        $   594        $   376        $   580
                                      =======        =======        =======        =======
Atributable to:
     Continuing operations .          $   536        $   594        $   376        $   580
                                      =======        =======        =======        =======

<CAPTION>
                                     OPERATING (LOSS) INCOME            NET INTEREST
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2006           2005           2006           2005
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
  United Kingdom ...........          $(1,338)       $(1,935)       $    13        $   (23)
  Europe ...................              (86)           (39)           (42)           (38)
  Australasia ..............              168             (4)            20             12
  North America ............              (93)          (113)            16             20
  China and Rest of World ..              (75)           (12)             -              -
                                      -------        -------        -------        -------
     Total .................          $(1,424)       $(2,103)       $     7        $   (29)
                                      =======        =======        =======        =======
Atributable to:
     Continuing operations .          $(1,424)       $(2,089)       $     7        $   (29)
     Discontinued operations          $     -        $   (14)       $     -        $     -
                                      -------        -------        -------        -------
                                      $(1,424)       $(2,103)       $     7        $   (29)
                                      =======        =======        =======        =======
</TABLE>
(a) Sales are attributed to geographic areas based on the location of the
customers.

(b) Represents property, plant and equipment, net.

(c) Capital expenditure for the three months to December 31, 2006 includes $289
(2005- $320) in respect of assets acquired under finance leases.

                                       18
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 13 - LEGAL PROCEEDINGS

         On April 15, 2004, the US Securities and Exchange Commission filed suit
in the U.S. District Court for the Southern District of Florida against the
Company and Mr. Dennis Crowley, its then current Chief Executive
Officer/Chairman, among others, alleging violations of the federal securities
laws. Specifically with regard to the Company, the SEC alleged that the Company
violated the SEC's registration, anti-fraud and reporting provisions. These
allegations arise from the alleged failure of Mr. Crowley to accurately report
his ownership of the Company's stock, and his alleged manipulation of the price
of the Company's stock through dissemination of false information, allowing him
to profit from sales of stock through nominee accounts. On May 10, 2004, the
Company consented to the entry of a preliminary injunction, without admitting or
denying the allegations of the SEC complaint. The SEC is continuing its
investigation into pension issues. The Company is offering its full cooperation.

         As a further measure, the Court appointed a Corporate Monitor to
oversee the Company's operations. In addition to Mr. Crowley consenting to a
preliminary injunction the Court's order also temporarily barred Mr. Crowley
from service as an officer or director of a public company, and prohibited him
from voting or disposing of Company stock. Although Soneet Kapila has continued
to serve as Corporate Monitor for the Company, on January 10, 2007, he applied
to the Court to terminate the role of Corporate Monitor having determined that
his function was no longer necessary. As discussed below, on January 22, 2007
the Court entered the order to relieve the Corporate Monitor of his duties.

         Following Mr. Crowley's suspension the Board appointed Mr. J.R.
Harrington, a member of its Board of Directors, to serve as the Company's
interim Chairman. Mr. William Fletcher, a fellow member of the Company's Board
of Directors, who, until October 27, 2004, was the Company's Chief Financial
Officer, and who is a director of Spear & Jackson plc, based in Sheffield, is
serving as acting Chief Executive Officer. Following extensive settlement
negotiations with the SEC and Mr. Crowley, the Company reached a resolution with
both parties. On September 28, 2004, Mr. Crowley signed a Consent to Final
Judgment of Permanent Judgment with the SEC, without admitting or denying the
allegations included in the complaint, which required a disgorgement and payment
of civil penalties by Mr. Crowley consisting of a disgorgement payment of
$3,765,777 plus prejudgment interest in the amount of $304,014, as well as
payment of a civil penalty in the amount of $2,000,000. In May 2005, the SEC
applied to the Court for the appointment of an administrator for the
distribution of these funds as well as funds collected from co-defendants
International Media Solutions, Inc., Yolanda Velazquez and Kermit Silva who are
not affiliated with the Company, to the victims of their actions, pursuant to
the Fair Funds provisions of the Sarbanes-Oxley Act of 2002.

         On November 18, 2004, the Company signed a Consent to Final Judgment of
Permanent Injunction with the SEC pursuant to which the Company, without
admitting or denying the allegations included in the Complaint filed by the
Commission, consented to a permanent injunction from violation of various
sections and rules under the Securities Act of 1933 and the Securities Exchange
Act of 1934. No disgorgement or civil penalties were sought from, or ordered to
be paid by, the Company.

         Additionally, the Company entered into a Stock Purchase Agreement with
PNC Tool Holdings LLC ("PNC") and Mr. Crowley, the sole member of PNC. Under the
Stock Purchase Agreement, the Company acquired, for $100, and other good and
valuable consideration, 6,005,561 common shares of the Company held by PNC,
which represented approximately 51.1% of the outstanding common shares of the
Company at December 31, 2004, and which constituted 100% of the common stock
held by such entity. The parties also executed general releases in favor of each
other subject to the fulfillment of the conditions of the Stock Purchase
Agreement. The Stock Purchase Agreement was effected on April 8, 2005, following
formal approval by the SEC on February 10, 2005 and, on February 15, 2005 by the
U.S. District Court for the Southern District of Florida of the settlement of
the litigation captioned SEC v. Dennis Crowley, Spear & Jackson, Inc.,
International Media Solutions, Inc., Yolanda Velazquez and Kermit Silva (Case
No: 04-80354-civ-Middlebrooks). The Stock Purchase Agreement was further
conditioned on, among other things, the disgorgement and civil penalty funds
being paid by Mr. Crowley. These monies have now been received and are being
administered for the benefit of the victims of the alleged fraud by a court
appointed administrator pursuant to the Fair Funds provision of the
Sarbanes-Oxley Act of 2002.

                                       19
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 13 - LEGAL PROCEEDINGS - CONTINUED

         With the return of the Spear & Jackson shares to the Company by PNC,
the stockholders of the Company have had their percentage stock interest
increase correspondingly. Jacuzzi Brands, Inc. ("Jacuzzi"), which is a
beneficial owner of 3,543,281 shares of common stock, had its interest in the
Company increased to approximately 61.8% of the outstanding common stock.

         Subsequent to the SEC action a number of class action lawsuits were
initiated in the U.S. District Court for the Southern District of Florida by
Company stockholders against the Company, Sherb & Co. LLP, the Company's former
independent auditor, and certain of the Company's directors and officers,
including Mr. Crowley, the Company's former Chief Executive Officer/Chairman,
and Mr. Fletcher, the Company's former CFO and current acting Chief Executive
Officer. These suits alleged essentially the same claims as the SEC suit
discussed above.

         These various class action suits were subsequently consolidated.
Thereafter, the defendants filed certain Motions to Dismiss with regard to the
Complaint and on October 19, 2005, the U.S. District Court for the Southern
District of Florida in Re Spear & Jackson Securities Litigation entered its
Order regarding these Motions. The Order denied the Company's motion as well as
that of Mr. Crowley, the former Chief Executive Officer of Spear & Jackson. The
Court granted the Motion to Dismiss on behalf of Mr. Fletcher, the Company's
interim Chief Executive Officer, and also granted the Motion to Dismiss on
behalf of the Company's former independent auditor, Sherb & Co., LLP. The class
plaintiff has subsequently filed an appeal regarding the trial court's decision
to dismiss the case against Sherb & Co., LLP, which appeal is presently pending.
No appeal was filed with respect to the decision to dismiss the case against Mr.
Fletcher.

         On July 7, 2006 the Company, Dennis Crowley and the Class Plaintiff
reached a Memorandum of Understanding ("MOU") which confirmed that the
plaintiffs, the Company and Dennis Crowley had reached an agreement in principle
for the settlement of this litigation, subject to Court approval. According to
the terms of the MOU, the Company deposited $650,000 into a Qualified Settlement
Fund, for disbursement to the Settlement Class pending approval of the Court.
Subsequent to this Sherb & Co. also agreed to the terms of the Settlement
agreeing to contribute an additional $125,000.

         On November 9, 2006, the Stipulation of Settlement was filed with the
Court for preliminary approval. On January 31, 2007, the Court entered its Order
Preliminarily Approving Settlement and Providing for Notice and Setting Class
Action Statutory Settlement Hearing. The Order, for purposes of the proposed
settlement , certified a "Settlement Class" of persons (with certain exceptions)
who purchased the Company's common stock between February 1, 2002 and April 15,
2004. The Order also approved as to form and content the Notice of Pendency and
Proposed Settlement of Class Action and Summary Notice. The Settlement Hearing
has been set for May 11, 2007 at 11:30 a.m. at the West Palm Beach, Florida
Federal District Courthouse to determine whether the terms of the Settlement are
fair, just reasonable and adequate to the Settlement Class, and should be
approved by the Court; whether a final judgment should be entered dismissing the
litigation; whether the proposed plan of allocation should be approved; and to
determine the amount of fees and expenses to be awarded to plaintiffs' lead
counsel. The Order also appointed a claims administrator and provided for notice
to those who sought exclusion from the Settlement Class.

         If the Settlement outlined in the MOU is not approved by the Court or,
if subsequently terminated, the terms of the above Settlement will be without
prejudice. Any settlement amounts already paid will be returned and parties will
revert to their litigation positions immediately prior to the MOU.

         Should the class action settlement be approved, to facilitate the
distribution of the funds from the class suit to the class shareholders and keep
administrative costs to a minimum, the SEC Claim's Administrator applied to the
Court on January 9, 2007 for permission to combine the class action funds with
the funds derived in the SEC litigation, and allow for the SEC's Claim's
Administrator to disburse the collective funds.

                                       20
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 13 - LEGAL PROCEEDINGS - CONTINUED

         On September 6, 2005, the Company was served with a Shareholder
Derivative Complaint, Hapka v. Crowley, et al. Case No: CA005068, filed on June
1, 2004 in the Circuit Court for Palm Beach County, Florida. The suit names the
Company as nominal defendant. Also named as defendants were former directors,
Robert Dinerman, William Fletcher and John Harrington, in addition to Dennis
Crowley and the Company's prior independent auditors, Sherb & Co. LLP. The suit
contains essentially the same factual allegations as the SEC suit, which was
filed in April 2004 in the U. S. District Court for the Southern District of
Florida, and the series of class actions claims initiated in the U.S. District
Court, but additionally alleges state law claims of breaches of fiduciary duty,
abuse of control, gross mismanagement, waste of corporate assets, unjust
enrichment and lack of reasonable care by various or all the defendants.

         Due to ongoing settlement discussions with the plaintiff's attorney,
the Company had not responded to the Complaint. In August 2006 the Company
entered into a settlement agreement with the plaintiff by agreeing to accept
certain changes to its corporate governance procedures and the payment of
$70,000 in legal fees. The settlement was filed with the Court in early November
2006, and if approved by the Court, will result in a dismissal of the suit and
release the Company and the former director defendants, Messrs Robert Dinerman,
William Fletcher and John Harrington. A Preliminary Approval hearing is
scheduled on February 4, 2007. Dennis Crowley and Sherb & Co. continue as
defendants in this suit.

         On February 2, 2007, the Circuit Court entered a Preliminary Approval
Order preliminarily approving the partial settlement pursuant to the Stipulation
of Settlement between plaintiff and the Company, including its former directors
William Fletcher, John Harrington, and Robert Dinerman.. The Court has set May
29, 2007 at 8a.m. at the West Palm Beach County Courthouse, for the Settlement
Hearing to determine (i) whether the terms of the Partial Settlement are fair,
just reasonable and adequate to the derivative stockholders and to the Company,
and should be approved by the Court; (ii) whether a final judgment should be
entered dismissing the litigation and releasing the defendants Spear & Jackson,
as described in the Stipulation; and (iii) to determine the amount of fees and
expenses to be awarded to plaintiffs' counsel. The Order approved as to form and
contents the Notice of Partial Settlement and the mailing and distribution
process. The Order also provided for notice to those who sought exclusion from
the settlement.

         There can be no assurance that the respective courts will approve
either settlement.

         Additionally, the Company is, from time to time, subject to legal
proceedings and claims arising from the conduct of its business operations,
including litigation related to personal injury claims, customer contract
matters, employment claims and environmental matters. While it is impossible to
ascertain the ultimate legal and financial liability with respect to contingent
liabilities including lawsuits, the Company believes that the aggregate amount
of such liabilities, if any, in excess of amounts accrued or covered by
insurance, will not have a material adverse effect on the consolidated financial
position or results of operations of the Company.

                                       21
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                          (IN THOUSANDS EXCEPT SHARES)

NOTE 14 - SUBSEQUENT EVENTS

         On January 22, 2007, the US District Court for the Southern District of
Florida in SEC V Dennis Crowley, et al., case No.
04-80354-civ-Middlebrooks/Johnson, entered its Order Determining Corporate
Monitor Is No Longer Necessary and Terminating Appointment of Corporate Monitor.
The order was in response to the uncontested application by the Corporate
Monitor, Soneet Kapila, who had concluded that his function as the Corporate
Monitor was no longer necessary and thus sought to relieve the Corporate Monitor
of his duties by voluntarily ending his term.

         The Corporate Monitor was first appointed at the request of the SEC by
Order dated April 15, 2004, and has served in that capacity for nearly three
years. By Court Order, the Corporate Monitor was charged with the duty to
oversee the Company's operations, including the ability to "review and approve
all corporate actions by SJI and by all agents of SJI", and to devise and
implement any procedures, systems, and controls that he deems appropriate to
ensure that all prospective SJI actions are brought to his attention and to
document his approval of such actions. On May 1 2004, The Corporate Monitor's
powers were expanded to permit the Corporate Monitor to investigate the
Company's historic business and the conduct of management, corporate
transactions, and financial records and disclosures.

                                       22
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

GENERAL

The following information should be read in conjunction with the consolidated
financial statements and notes hereto and other information set forth in this
report.

FORWARD LOOKING STATEMENTS

This report (including the information in this discussion) 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. These forward-looking statements involve risks and uncertainties,
including statements regarding the Company's capital needs, business strategy
and expectations, and are being made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Any statements contained
herein that are not statements of historical facts may be deemed to be
forward-looking statements. Terminology such as "may", "will", "should",
"believes", "estimates", "plans", "expects", "attempts", "intends",
"anticipates", "could", "potential" or "continue", the negative of such terms,
or other comparable terminology, are intended to identify forward-looking
statements.

In evaluating any forward-looking statements, you should consider various risk
factors, including those summarized under "Risk Factors", below, and those
described in other sections of this report, in the other reports the Company
files with the SEC and in the Company's press releases. Such factors may cause
the Company's actual results to differ materially from any forward-looking
statement. The Company disclaims any obligation to publicly update the
statements, or disclose any difference between its actual results and those
reflected in the statements. With respect to all such forward-looking
statements, the Company seeks the protection afforded by the Private Securities
Litigation Reform Act of 1995.

RISK FACTORS

Historically, Spear & Jackson, Inc. ("Spear & Jackson", "the Company", "we") has
achieved growth by the development of new products, strategic acquisitions and
expansion of the Company's sales organization. There can be no assurance that
the Company will be able to continue to develop new products, effect corporate
acquisitions or expand sales to sustain rates of revenue growth and
profitability in future periods. Any future success that the Company may achieve
will depend upon many factors including factors which may be beyond the control
of the Company or which cannot be predicted at this time.

Although we believe that our expectations are based on reasonable assumptions
within the bounds of our knowledge of our business and operations, actual
results may differ materially from our expectations. Uncertainties and factors
which could cause actual results or events to differ materially from those set
forth or implied include, without limitation:

THE COMPANY IS SUBJECT TO A NUMBER OF SIGNIFICANT RISKS THAT MIGHT CAUSE THE
COMPANY'S ACTUAL SALES TO VARY MATERIALLY FROM ITS FORECASTS, TARGETS, OR
PROJECTIONS, INCLUDING:

      -  achieving planned revenue and profit growth in each of the Company's
         business units;

      -  changes in customer requirements and in the volume of sales to
         principal customers; renewal of material contracts in the Company's
         business units consistent with past experience;

      -  the timing of orders and shipments;

      -  emergence of new competitors or consolidation of existing competitors;

      -  continued absence of consolidation among key customers;

      -  Industry demand fluctuations.

                                       23
<PAGE>

Our expectations for both short- and long-term future net revenues are based on
our own estimates of future demand. Orders from our principal customers are
ultimately based on demand from end-users and such prospective end-user demand
can be difficult to measure. Low end-user demand would negatively affect orders
we receive from distributors and other principal customers and this would mean
that our revenues in any fiscal period could be adversely impacted. If our
estimates of sales are not accurate and we experience unforeseen variability in
our revenues and operating results, we may be unable to adjust our expense
levels accordingly and our profit margins will be adversely affected.

A number of our products are sold through distributors and large retailers. No
assurances can be given that any or all such distributors or retailers will
continue their relationship with us. Distributors and other significant retail
customers cannot easily be replaced and the loss of revenues and our inability
to reduce expenses to compensate for the loss of revenues could adversely affect
our net revenues and profit margins.

With the growing trend toward retail trade consolidation, especially in the
developed US, European and Australasian markets, certain of our product groups
are sold to key retailers whose bargaining strength is growing. Accordingly, we
face greater pressure from such significant retail trade customers to provide
more favorable trade terms with, accordingly, the risk of margin dilution. We
can also be negatively affected by changes in the policies of our material
retail trade customers, particularly with regard to the reduction of trade
inventory levels, access to shelf space, and other conditions.

The market for certain of the Company's products is subject to economic
conditions affecting the industrial manufacturing sector, including the level of
capital spending by industrial companies and the general movement of
manufacturing to low cost foreign countries where the Company may not have a
competitive market presence. Accordingly, economic weakness in the industrial
manufacturing sector may result in decreased demand for certain of the Company's
products, which will impact negatively on the Company's trading performance.
Economic weakness in the consumer market will also have a detrimental effect on
the Company's profitability. In the event that demand for any of the Company's
products declines significantly, the Company could be required to recognize
certain costs as well as asset impairment charges on long-lived assets related
to those products.

RISKS ASSOCIATED WITH THE SUCCESSFUL AND TIMELY INTEGRATION OF ANY SIGNIFICANT
BUSINESSES ACQUIRED BY THE COMPANY AND REALIZATION OF ANTICIPATED SYNERGIES:

The Company has made, and in the future may make, acquisitions of, or
significant investments in, businesses with complementary or aligned products
and services or in new start up businesses. Acquisitions involve numerous risks,
including but not limited to: (1) diversion of management's attention from other
operational matters; (2) inability to complete acquisitions along anticipated
timescales, or at all; (3) lack of success in realizing anticipated synergies
from acquisitions and investments (4) weaknesses in acquired company's internal
controls; (5) worse-than-expected performance of the acquired company or its
product offerings; (6) unknown, underestimated and/or undisclosed commitments or
liabilities; (7) failure to integrate and retain key employees; and (8)
unsuccessful integration of operations. The Company's inability to effectively
manage these risks could materially and adversely affect the Company's business,
financial condition and results of operations.

RISKS ASSOCIATED WITH MAJORITY STOCKHOLDER

As detailed in the footnotes to the consolidated financial statements, on July
28, 2006, the Company's majority stockholder, Jacuzzi Brands, Inc. ("Jacuzzi"),
completed the sale of its 61.8% stockholding in Spear & Jackson, Inc. to United
Pacific Industries Limited, a Bermuda corporation, and its wholly-owned
subsidiary Pantene Global Holdings Limited (collectively, "UPI"). This change in
ownership and control of the Company may have a significant impact on its future
strategy, the way that it conducts its operations and the size and composition
of its earnings and net assets, since UPI can influence substantially all
matters requiring stockholder approval by simple majority in excess of 50%,
including the election of directors, the approval of significant corporate
transactions, such as acquisitions, the ability to block an unsolicited tender
offer predicated on minimum acquisition of at least 50% of the equity and any
other matter requiring a simple majority vote of shareholders.

                                       24
<PAGE>

Additionally, assuming it exercises its majority ownership rights, UPI is in
position to complete a merger or other transaction involving the Company,
subject to compliance with applicable regulatory requirements, which could
result in minority stockholders being required to sell or otherwise dispose of
their shares. UPI paid Jacuzzi $1.40 per share for its shares of common stock of
the Company. UPI has agreed that for a one-year period following the closing of
its acquisition of the majority interest in the Company, should UPI or any of
its affiliates acquire any additional shares of the Company, the purchase price
per share will not be less than $1.40. However, UPI is under no obligation to
acquire any additional shares of the Company.

RISKS CONCERNING THE CONTINUING AVAILABILITY OF APPROPRIATE RAW MATERIALS AND
FACTORED PRODUCTS:

The Company's business units source raw materials, component parts and factored
goods from a wide range of domestic and foreign suppliers. If the business units
experience difficulties in obtaining sufficient supplies of such items as a
result of component prices becoming unreasonable, interruptions in supply due to
natural disaster, economic or political difficulties, changes in regulatory
requirements and tariffs, quarantines or other restrictions, the Company would
experience resultant delays in the shipping of its products to customers which
would have a negative impact on our revenues.

RISKS CONCERNING THE MAINTAINING AND IMPROVEMENT OF CURRENT PRODUCT MIX:

If we fail to appropriately manage our cost structure to allocate resources to
areas that will provide the best long-term benefits to our customers and
shareholders, our reporting results will be adversely affected. For instance, we
may experience unfavorable shifts in product mix or reductions in demand for a
product or products that could dilute margins or limit our ability to spread
manufacturing costs over normal levels of sales volume.

RISKS RELATING TO INCREASING PRICE, PRODUCTS AND SERVICES COMPETITION:

The markets for our products are characterized by intense competition and
pricing pressures. We compete with businesses having substantially greater
financial, research and development, manufacturing, marketing, and other
resources. If we are not able to continually design, manufacture, and
successfully introduce new or enhanced products or services that are comparable
or superior to those provided by our competitors and at comparable or better
prices, we could experience pricing pressures and reduced sales, profit margins,
profits, and market share, each of which could have a materially adverse effect
on the Company's sales and margins.

RISKS IN CONNECTION WITH CHANGES IN COMPANY INVENTORY LEVELS:

Our inventory is subject to risks of changes in market demand for particular
products. Our inability to obtain critical parts and supplies or any resulting
excess and/or obsolete inventory could have an adverse impact on our results of
operations.

RISKS CONCERNING THE TIMELY IMPLEMENTATION OF THE COMPANY'S RESTRUCTURING
PROGRAMS AND FINANCIAL PLANS:

The Company continues to evaluate plans to consolidate and reorganize some of
its manufacturing and distribution operations. There can be no assurance that
the Company will be successful in these efforts or that any consolidation or
reorganization will result in revenue increases or cost savings to the Company.
The implementation of these reorganization measures may disrupt the Company's
manufacturing and distribution activities, could adversely affect operations,
and could result in asset impairment charges and other costs that will be
recognized if and as these reorganization or restructuring plans are implemented
or the related obligations are incurred.

RISKS INHERENT IN OUR DEPENDENCE ON INTERNATIONAL SALES AND FOREIGN OPERATIONS:

Our principal business locations are situated in the UK, France, the
Netherlands, Australasia and China and we generate sales from many areas of the
world involving transactions denominated in a variety of currencies. The Company
is subject to currency exchange rate risk to the extent that its costs are
denominated in currencies other than those in which its revenues are derived. In
addition, since our financial statements are denominated in U.S. dollars,
changes in currency exchange rates between the U.S. dollar and other currencies
have had, and will continue to have, an impact on our earnings and net assets.
Accordingly, we cannot be certain that currency exchange rate fluctuations will
not adversely affect our future results of operations and financial condition.

                                       25
<PAGE>

As explained above, a significant proportion of sales are made by our
businesses, particularly those in the UK, into foreign export markets. We
anticipate that the portion of our total revenue from international sales will
continue to increase as we further enhance our focus on developing new products,
establishing new business partners and strengthening our presence in key growth
areas. These overseas interests will therefore be subject to various financial
and operating risks that arise from conducting business internationally,
including:

      -  unexpected changes in, or the imposition of, additional legislative or
         regulatory requirements in the various geographical regions where the
         Company operates;

      -  fluctuating exchange rates;

      -  tariffs and other barriers;

      -  difficulties in staffing and managing foreign sales operations;

      -  import and export restrictions;

      -  greater difficulties in accounts receivable collection and longer
         payment cycles;

      -  potentially adverse tax consequences;

      -  potential hostilities and changes in diplomatic and trade
         relationships.

RISKS CONCERNING THE CONTINUING DEVELOPMENT AND MAINTENANCE OF APPROPRIATE
BUSINESS CONTINUITY PLANS FOR THE COMPANY'S PROCESSING SYSTEMS:

Our results could be adversely affected if we are unable to implement
improvements in our reporting systems without significant interruptions in our
accounting, order entry, billing, manufacturing and other customer support IT
functions.

Additionally, should employee time and advisory costs to be incurred in respect
of compliance with Section 404 of the Sarbanes-Oxley Act 2002 be higher than
management's expectations, this may also have a negative impact on Company
earnings.

RISKS IN CONNECTION WITH ATTRACTING AND RETAINING QUALIFIED KEY EMPLOYEES:

The success of the Company's efforts to grow its business depends on the
contributions and abilities of key executive and operating officers and other
personnel. The Company must therefore continue to recruit, retain and motivate
management and operating personnel sufficient to maintain its current business
and support its projected growth. A shortage of these key employees might
jeopardize the Company's ability to meet its growth targets.

RISKS RELATING TO MATERIAL BREACHES OF SECURITY OF ANY OF THE COMPANY'S SYSTEMS:

The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal control over
financial reporting is a process to provide reasonable assurance regarding the
reliability of financial reporting for external purposes in accordance with
accounting principles generally accepted in the United States of America.
Internal control over financial reporting includes: maintaining records that in
reasonable detail accurately and fairly reflect the Company's transactions;
providing reasonable assurance that transactions are recorded as necessary for
preparation of the financial statements; providing reasonable assurance that
receipts and expenditures of the Company's assets are made in accordance with
management authorization; and providing reasonable assurance that unauthorized
acquisition, use or disposition of the Company assets that could have a material
effect on the financial statements would be prevented or detected on a timely
basis. Because of its inherent limitations, internal control over financial
reporting is not intended to provide absolute assurance that a misstatement of
the Company's financial statements would be prevented or detected. Any failure
to maintain an effective system of internal control over financial reporting
could limit the Company's ability to report its financial results accurately and
timely or to detect and prevent fraud.

                                       26
<PAGE>

RISKS CONCERNING SIGNIFICANT INCREASES IN THE COST OF PROVIDING PENSION BENEFITS
TO EMPLOYEES AND RETIREES:

The Company has a defined benefit pension plan ("The Pension Plan", "The Plan")
covering certain of its UK employees, former employees and retirees. The Pension
Plan assets are invested primarily in equity securities and fixed-income
government and corporate securities. At present, the Pension Plan has pension
liabilities that exceed its assets. Under applicable law, we are required to
make cash contributions to an under funded pension plan to the extent necessary
to comply with minimum funding requirements imposed by regulatory demands. The
amount of such cash contributions is based on an actuarial valuation of the
Plan.

A number of statistical and other factors which attempt to anticipate future
events are used by the actuaries in calculating the expense and liability
related to the Plan. These factors include assumptions about the discount rate,
expected return on plan assets and rate of future compensation increases as
determined by us, within certain guidelines, and in conjunction with our
actuarial consultants and auditors. Our actuarial consultants also use
subjective factors such as withdrawal and mortality rates to estimate the
expense and liability related to the Plans. The actuarial assumptions used by us
may differ significantly, either favorably or unfavorably, from actual results
due to changing market and economic conditions, higher or lower withdrawal rates
or longer or shorter life spans of participants.

The funding status of the Plan can therefore alter as a result of changes in the
actuarial assumptions used, changes in market conditions and a number of other
factors. We cannot provide assurance that the value of the Pension Plan assets,
or the investment returns on those Plan assets, will continue to be sufficient
in the future. It is therefore possible that we may be required to make
significant additional cash contributions to the Plan which would reduce the
cash available for other business requirements, or that we will have to
recognize a significant pension liability adjustment which would decrease the
net assets of the Company.

RISKS RELATED TO RAW MATERIAL AND ENERGY COSTS:

The prices of many of the Company's raw materials vary with market conditions.
In addition, the price of many of the Company's finished goods that are sourced
from overseas' suppliers are impacted by changes in currency rates, freight
costs and raw materials at the point of production.

We purchase the majority of our raw materials for our products on the open
market and we also rely on third parties for the sourcing of certain finished
goods and component parts and assemblies. Accordingly, our cost of products may
be affected by changes in the market price of raw materials, sourced components
or finished goods.

Gas, electricity and other utility prices have become increasingly volatile in
the UK, where we have a significant manufacturing presence. This situation has
been exacerbated by price increases for certain of our raw materials,
particularly steel, cobalt and plastics. We do not generally engage in commodity
hedging transactions for raw materials.

Significant increases in the prices of raw materials, sourced components,
finished goods or other commodities could require us to increase the prices of
our products, which may reduce consumer demand for our products or make us more
susceptible to competition. The Company's ability to pass these increases on to
its customers varies depending on the product line and the rate and magnitude of
any increase. There may be periods of time during which increases in these costs
cannot be recovered and our profitability will be adversely affected.

RISKS ASSOCIATED WITH FOREIGN SUPPLIERS:

We purchase a growing portion of our products from foreign suppliers based in
India and the Far East. In line with the those risks, outlined above, associated
with our foreign operations and international selling, our use of foreign
suppliers also causes increased risk to our business due to:

                                       27
<PAGE>

      -  increases in transportation costs;

      -  new or increased import duties;

      -  transportation delays;

      -  foreign work stoppages;

      -  potential war, terrorism and political unrest;

      -  exchange rate fluctuations that could increase the cost of foreign
         manufactured goods.

RISKS CONCERNING THE CONTINUED AVAILABILITY OF FINANCING, AND FINANCIAL
RESOURCES ON THE TERMS REQUIRED TO SUPPORT THE COMPANY'S FUTURE BUSINESS
STRATEGIES:

We believe that our existing balances of cash, cash equivalents, our cash flow
from operations, and the existing credit facilities negotiated for the Company's
UK and other operations will be sufficient to meet our cash needs for working
capital and capital expenditures for at least the next 12 months. We may,
however, require additional financing to fund our operations in the future.
Although we expect existing debt financing arrangements and cash flows generated
from operating activities to be sufficient to fund operations at the current and
projected levels in the future, there is no assurance that our operating plan
will be achieved. We may need to take actions to reduce costs and to seek
alternative financing arrangements.

RISKS RELATING TO THE OUTCOME OF PENDING AND FUTURE LITIGATION AND GOVERNMENTAL
OR REGULATORY PROCEEDINGS:

As discussed in the footnotes to the condensed consolidated financial
statements, we are, and have been, involved in various pending litigation
matters arising out of main and Derivative Class Action claims and also from the
ordinary routine conduct of our business, including, from time to time,
litigation relating to such items as commercial transactions, contracts, and
environmental matters. The final outcome of such matters cannot always be
determined with certainty and such actions may therefore have a material adverse
effect on the Company's financial position and its results of operations or cash
flows.

RISKS ASSOCIATED WITH OUR ACCOUNTING POLICIES AND ESTIMATES THAT MAY HAVE A
MATERIAL EFFECT ON THE COMPANY'S FINANCIAL RESULTS:

Significant accounting policies and estimates have material effects on our
calculations and estimations of amounts in our financial statements. Our
operating results and balance sheets may be adversely affected either to the
extent that actual results prove to be adversely different from previous
accounting estimates or to the extent that accounting estimates are revised
adversely. We base our critical accounting policies, including our policies
regarding revenue recognition, reserves for returns, rebates, and bad debts,
deferred tax asset recognition, pension plan assumptions and inventory
valuation, on various estimates and subjective judgments that we may make from
time to time. The judgments made can significantly affect net income and our
balance sheets. Our judgments, estimates and assumptions are subject to change
at any time. In addition, our accounting policies may change at any time as a
result of changes in GAAP as it applies to us or changes in other circumstances
affecting us. Changes in accounting policy have affected and could further
affect, in each case materially and adversely, our results of operations or
financial position.

RISK FACTORS THAT MAY NEGATIVELY IMPACT OUR STOCK PRICE:

Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors particular to the Company, its industry and
the markets in which it operates. Not all of these factors are in our control.
These factors may include: sales falling below anticipated levels because of the
timing of orders or weakening demand; adverse sales mixes; regional economic and
governmental conditions; raw material price volatility; profit volatility
arising from the seasonality of the garden product trade and benefits from
restructuring initiatives falling below forecast. Such factors may therefore
cause our operating results for future periods to be below the expectations of
management and the Company's advisers and this may cause a decline in the price
of our common stock.

                                       28
<PAGE>

There has been no material change in our risk factors from those described on
pages 12 to 16 in our Form 10-K for the fiscal year ended September 30, 2006.

CORPORATE ORGANISATION

Spear & Jackson, Inc. ("Spear & Jackson", the "Company" or "we") currently
conducts its business operations through its wholly owned subsidiaries, Spear &
Jackson plc and Bowers Group plc, and, until September 30, 2003, Mega Tools Ltd
and Mega Tools USA, Inc. A brief summary of our corporate organizational history
is as follows:

Incorporation of Megapro Tools, Inc.

The Company was incorporated under the name Megapro Tools, Inc., on December 17,
1998 under the laws of the State of Nevada. The Company was inactive until the
acquisition of Mega Tools Ltd and Mega Tools USA, Inc., by means of a reverse
acquisition, on September 30, 1999.

Incorporation of Mega Tools Ltd and Mega Tools USA, Inc.

Mega Tools Ltd was incorporated in British Columbia, Canada, on January 7, 1994.
Mega Tools USA Inc. was incorporated under the laws of the State of Washington
on April 18, 1994. Prior to the acquisition by Megapro Tools, Inc., Mega Tools
USA Inc. was operated as a subsidiary of Mega Tools Ltd.

The acquisition of Mega Tools Ltd and Mega Tools USA, Inc. by Megapro Tools,
Inc.

On September 30, 1999 Mega Tools Ltd was acquired from Mrs. Maria Morgan,
Envision Worldwide Products Ltd, Mr. Robert Jeffrey, Mr. Lex Hoos and Mr. Eric
Paakspuu in exchange for the issue of 6,200,000 restricted shares in the common
stock of Megapro Tools, Inc. These shares were valued at $275 for accounting
purposes, representing the total paid-in-capital of the Mega Tools Ltd shares
acquired. Mega Tools USA, Inc. was acquired from Mega Tools Ltd in exchange for
the payment of $340,000 which was satisfied by the issuance of a promissory note
to Mega Tools Ltd. The acquisition of Mega Tools USA, Inc. was completed
immediately prior to the acquisition of Mega Tools Ltd. Megapro Tools, Inc. had
no business assets prior to the acquisition of the two companies.

Prior to the acquisition of Mega Tools Ltd and Mega Tools USA, Inc., each of
Mrs. Maria Morgan, Mr. Robert Jeffery, Mr. Lex Hoos and Mr. Eric Paakspuu were
shareholders of Mega Tools Ltd. Neither Mrs. Maria Morgan, Mr. Robert Jeffery,
Mr. Lex Hoos nor Mr. Eric Paakspuu was a director or officer of Mega Tools Ltd
or Mega Tools USA and neither individual had any management role with Mega Tools
Ltd or Mega Tools USA, either before or after the acquisition. Envision
Worldwide Products Ltd owned 24.8% of the shares of Mega Tools Ltd prior to the
acquisition of this interest by Megapro Tools, Inc.

The former stockholders of Mega Tools Ltd acquired a proportionate interest in
Megapro Tools, Inc. upon completion of the acquisition of Mega Tools Ltd and
Mega Tools USA. Mr. Neil Morgan, husband of Mrs. Maria Morgan, was sole promoter
upon inception. Other than the issue of stock to Mrs. Maria Morgan upon the
acquisition of Mega Tools Ltd, Mr. Morgan did not enter into any agreement with
the Company in which he was to receive from or to provide to the company
anything of value. Mr. Neil Morgan was the legal and beneficial owner of the
interest in Mega Tools Ltd held by Mrs. Maria Morgan. Mrs. Morgan acquired the
interest previously held by Mr. Morgan on April 16, 1999. Prior to the
acquisition of Mega Tools Ltd and Mega Tools USA, Mr. Neil Morgan was the
president and chief executive officer of Megapro Tools, Inc. and each of Mega
Tools Ltd and Mega Tools USA. Mr. Morgan continued as president and CEO of
Megapro Tools, Inc. upon completion of this acquisition.

Acquisition of Spear & Jackson plc and Bowers Group plc by Megapro Tools, Inc.

On August 23, 2002, USI Mayfair Limited, a corporation organized under the laws
of England and a wholly owned subsidiary of USI Global Corp., Megapro Tools,
Inc. ("Megapro") and S and J Acquisitions Corp. (a company incorporated on
August 22, 2002 under the laws of the State of Florida and a wholly owned
subsidiary of Megapro Tools, Inc.) executed a Stock Purchase Agreement to
acquire all of the issued and outstanding shares of Spear & Jackson plc and its
affiliate, Bowers Group plc, owned by USI Mayfair Limited. The purchase price
comprised 3,543,281 shares of common stock of Megapro and promissory notes in
the principal amount of (pound)150,000 pounds sterling ($232,860) ("the
Transaction"). The Transaction closed on September 6, 2002.

                                       29
<PAGE>

Concurrently with the closing of the Transaction, and as a condition precedent
thereto, Megapro closed a Private Placement pursuant to which it agreed to issue
6,005,561 shares of the common stock of Megapro to PNC Tool Holdings, LLC, a
Nevada limited liability company ("PNC"), in consideration for $2,000,000 (the
"Private Placement"). Mr. Dennis Crowley ("Crowley"), who became CEO of the
company, was the sole owner of PNC.

In connection with the closing of the Transaction, certain principal
shareholders of Megapro, including Envision Worldwide Products, Ltd, Neil Morgan
and Maria Morgan contributed an aggregate of 4,742,820 shares of their common
stock of Megapro to the capital of Megapro, and agreed to a two-year lock-up
with respect to their remaining 192,480 shares of common stock of Megapro. The
stockholders did not receive any consideration in connection with their
contribution of shares. As a result of the closing of the Transaction and the
Private Placement, and upon the effectuation of all post closing matters,
Megapro had 12,011,122 shares of common stock outstanding, 6,005,561 shares of
which were beneficially owned by PNC. The shares issued to PNC was subject to
the terms of a Stockholder's Agreement and a Registration Rights Agreement.

In the Stockholders' Agreement dated as of September 6, 2002 by and among
Megapro Tools, Inc., USI Mayfair Limited, PNC and Crowley (the "Stockholders")
it was agreed that, other than certain "unrestricted transfers", the parties
involved would not transfer any Company securities for the two years beginning
on September 6, 2002. On September 6, 2002, under an unrestricted transfer
relating to the transfer of stock from a permitted affiliate, USI Mayfair
Limited, transferred all of the Company securities owned by it, along with all
of its rights under the Stockholders' Agreement, to USI Global Corp.

Since the date of the Transaction, the Company has not issued any shares of its
stock except under a limited number of options and has not engaged in any
financing using its stock.

Change of Name to Spear & Jackson, Inc.

On October 1, 2002, the Board of Directors unanimously executed a written
consent authorizing and recommending that the stockholders approve a proposal to
effect the change of name to Spear & Jackson, Inc. On October 2, 2002, company
stockholders holding a majority of the voting power of the Company executed a
written consent authorizing and approving the proposal to effect the name
change.

The Board believed that the new name, Spear & Jackson, Inc., would reflect the
change in business and would promote public recognition and more accurately
reflect the Company's intended business focus.

On November 7, 2002, the name of the Company was changed from Megapro Tools,
Inc. to Spear & Jackson, Inc. through the filing of a Certificate of Amendment
to the Company's Articles of Incorporation with the Secretary of State of the
State of Nevada.

Recent Regulatory Matters.

On April 15, 2004, the US Securities and Exchange Commission filed suit in the
U.S. District Court for the Southern District of Florida against the Company and
Mr. Dennis Crowley, its then current Chief Executive Officer/Chairman, among
others, alleging violations of the federal securities laws. Specifically with
regard to the Company, the SEC alleged that the Company violated the SEC's
registration, anti-fraud and reporting provisions. These allegations arise from
the alleged failure of Mr. Crowley to accurately report his ownership of the
Company's stock, and his alleged manipulation of the price of the Company's
stock through dissemination of false information, allowing him to profit from
sales of stock through nominee accounts. On May 10, 2004, the Company consented
to the entry of a preliminary injunction, without admitting or denying the
allegations of the SEC complaint. The SEC is continuing its investigation into
pension issues. The Company is offering its full cooperation.

As a further measure, the Court appointed a Corporate Monitor to oversee the
Company's operations. In addition to Mr. Crowley consenting to a preliminary
injunction the Court's order also temporarily barred Mr. Crowley from service as
an officer or director of a public company, and prohibited him from voting or
disposing of Company stock.

                                       30
<PAGE>

Following Mr. Crowley's suspension the Board appointed Mr. J.R. Harrington, a
member of its Board of Directors, to serve as the Company's interim Chairman.
Mr. William Fletcher, a fellow member of the Company's Board of Directors, who,
until October 27, 2004, was the Company's Chief Financial Officer, and who is a
director of Spear & Jackson plc, based in Sheffield, was elected to serve as
acting Chief Executive Officer.

Following extensive settlement negotiations with the SEC and Mr. Crowley, the
Company reached a resolution with both parties. On September 28, 2004, Mr.
Crowley signed a Consent to Final Judgment of Permanent Judgment with the SEC,
without admitting or denying the allegations included in the complaint, which
required a disgorgement and payment of civil penalties by Mr. Crowley consisting
of a disgorgement payment of $3,765,777 plus prejudgment interest in the amount
of $304,014, as well as payment of a civil penalty in the amount of $2,000,000.
In May 2005, the SEC applied to the Court for the appointment of an
administrator for the distribution of these funds as well as funds collected
from co-defendants International Media Solutions, Inc., Yolanda Velazquez and
Kermit Silva who are not affiliated with the Company, to the victims of their
actions, pursuant to the Fair Funds provisions of the Sarbanes-Oxley Act of
2002.

On November 18, 2004, the Company signed a Consent to Final Judgment of
Permanent Injunction with the SEC pursuant to which the Company, without
admitting or denying the allegations included in the Complaint filed by the
Commission, consented to a permanent injunction from violation of various
sections and rules under the Securities Act of 1933 and the Securities Exchange
Act of 1934. No disgorgement or civil penalties were sought from, or ordered to
be paid by, the Company.

Additionally, the Company entered into a Stock Purchase Agreement with PNC Tool
Holdings LLC ("PNC") and Mr. Crowley, the sole member of PNC. Under the Stock
Purchase Agreement, the Company acquired, for $100, and other good and valuable
consideration, 6,005,561 common shares of the Company held by PNC, which
represented approximately 51.1% of the outstanding common shares of the Company
at December 31, 2004, and which constituted 100% of the common stock held by
such entity. The parties also executed general releases in favor of each other
subject to the fulfillment of the conditions of the Stock Purchase Agreement.

The Stock Purchase Agreement was effected on April 8, 2005, following formal
approval by the SEC on February 10, 2005 and, on February 15, 2005 by the U.S.
District Court for the Southern District of Florida of the settlement of the
litigation captioned SEC v. Dennis Crowley, Spear & Jackson, Inc., International
Media Solutions, Inc., Yolanda Velazquez and Kermit Silva (Case No:
04-80354-civ-Middlebrooks). The Stock Purchase Agreement was further conditioned
on, among other things, the disgorgement and civil penalty funds being paid by
Mr. Crowley. These monies have now been received and are being administered for
the benefit of the victims of the alleged fraud by a court appointed
administrator pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of
2002.

With the return of the Spear & Jackson shares to the Company by PNC, the
stockholders of the Company had their percentage stock interest increase
correspondingly. Jacuzzi Brands, Inc. ("Jacuzzi"), which at this time was a
beneficial owner of 3,543,281 shares of common stock, had its interest in the
Company increased to approximately 61.8% of the outstanding common stock.

On April 11, 2005, Jacuzzi agreed to the termination of a previous letter
agreement dated September 6, 2002, which supplemented the Stockholders'
Agreement of the same date. The letter agreement required Jacuzzi to vote a
substantial portion of its voting stock in the Company in proportion to the vote
of other stockholders of the Company. At the time the letter was executed,
Jacuzzi was a principal, but a minority shareholder of the Company. As explained
above, with the return to the capital of the Company of the majority shareholder
interest previously held by PNC, Jacuzzi then held a majority capital stock
interest in the Company, and the continuation of the letter agreement was no
longer considered necessary for the fulfillment of its original intent. Jacuzzi
also provided a general release to the Company and its affiliates excepting
Dennis Crowley and his spouse.

                                       31
<PAGE>

Disposal of Majority Interest by Jacuzzi to United Pacific Industries Limited

On April 21, 2005, Jacuzzi adopted a plan of disposition of its interest in the
Company's common stock. On March 23, 2006, Jacuzzi and its subsidiary
undertaking, USI American Holdings, Inc. ("USI" and, together with Jacuzzi, "the
Seller") entered into a Stock Purchase Agreement (the "Stock Purchase Agreement"
with United Pacific Industries Limited ("UPI"), a Bermuda Corporation, whose
shares are traded on the Hong Kong Exchange, to sell its entire holding of
3,543,281 shares of the common stock ("the Shares") of Spear & Jackson, Inc. to
UPI for $1.40 per share for an aggregate purchase price of $4,960,593.

The representations, warranties and covenants made by Jacuzzi and UPI were
typical for this type of transaction. UPI agreed that neither it nor any of its
affiliates would purchase any additional Common Stock during the period from the
signing date of the Stock Purchase Agreement through one year following the
closing at a price less than $1.40 per share.

A copy of the Stock Purchase Agreement is on file with the SEC in connection
with the filing by Jacuzzi of a Schedule 13D/A on March 27, 2006.

The Seller and UPI entered into Amendment No. 1 dated as of May 4, 2006
("Amendment No. 1 to the Stock Purchase Agreement") to extend the date by which
the Seller and UPI were required to lodge the clearance application with the UK
Pensions Regulator. The Seller and UPI subsequently received a comfort letter
dated July 5, 2006 issued by the UK Pensions Regulator (the "Comfort Letter").

The trustees of Spear & Jackson, Inc.'s UK Pension Plan confirmed by a letter
dated July 6, 2006 their acceptance of the UK Pensions Regulator's
determination. The Seller and UPI then entered into Amendment No. 2 dated as of
July 10, 2006 ("Amendment No. 2 to the Stock Purchase Agreement") to waive their
respective requirements for a clearance from the UK Pensions Regulator and to
accept in its place the Comfort Letter which states the UK Pensions Regulator is
of the view, based on the information supplied to him in connection with the
clearance application, that the change of control as a result of the sale by the
Seller of all of its shares of Spear & Jackson, Inc. to UPI is not detrimental
to the UK pension plan and the UK Pensions Regulator believes that a clearance
is not necessary for the transaction.

In addition, pursuant to Amendment No. 2 to the Stock Purchase Agreement, UPI
agreed, subject to the Closing having occurred, to indemnify the Seller and JBI
Holdings Limited (the "Jacuzzi Indemnified Parties") should the UK Pensions
Regulator, regardless of the Comfort Letter, require any of the Jacuzzi
Indemnified Parties to make a contribution or provide financial support in
relation to the potential pension plan liabilities of SJI or its subsidiaries.
In addition, UPI has also agreed that for a period of 12-months from the Closing
Date, UPI will not, and will use its best efforts to ensure that neither SJI nor
any of its subsidiaries will, take any action or omit to take any action that
causes the UK Pensions Regulator, as a result of such action or omission, to
issue a contribution notice against the Jacuzzi Indemnified Parties in relation
to any UK pension plan in which SJI or any subsidiary of SJI is an employer.
Further, UPI agreed that for a period of 12-months from the Closing Date, that
it will not (and will use its best efforts to ensure that neither SJI nor any
subsidiary of SJI will) engage in any action or inaction which in relation to
any such UK pension plan would fall within the UK Pension Regulation clearance
guidance note dated April 2005 as a 'Type A' event unless UPI procures that
clearance is issued by the UK Pensions Regulator in relation to such event in
terms which confirm that no Jacuzzi Indemnified Party shall be linked to a
financial support direction or contribution notice in respect of such event.

                                       32
<PAGE>

Closing occurred on July 28, 2006.

On June 22, 2006, Jacuzzi and UPI filed a preliminary Form 14C with the SEC
announcing notice of change in control and of a majority of directors pursuant
to section 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1
thereunder. The 14C indicated that three new directors would be designated by
and elected to the Board of directors by UPI, to serve until the Company's next
annual meeting. The 14C became effective on August 7, 2006, and the three new
directors replaced the incumbent directors on about August 27, 2006. In the
interim, the Board by resolution, appointed the three new directors--Lewis Hon
Ching Ho, Andy Yan Wai Poon and Maria Yuen Man Lam--to the Board effective on
August 9, 2006.

As previously reported by the Company, on July 28, 2006, Jacuzzi Brands, Inc.
together with USI American Holdings, Inc., completed the sale of their shares of
common stock of Spear & Jackson (representing a majority interest) to United
Pacific Industries Limited, which shares are held by United Pacific Industries
Limited's wholly-owned subsidiary Pantene Global Holdings Limited (collectively,
"UPI"). On August 7, 2006, the Company filed with the Securities and Exchange
Commission, and mailed to the Company's stockholders, an Information Statement
pursuant to Sections 14(c) and 14(f) of the Securities Exchange Act of 1934, as
amended, disclosing the intention of UPI to execute a written consent, as
majority stockholder, electing to the Board of Directors the following UPI
nominees: Lewis Hon Ching Ho; Andy Yan Wai Poon; and Maria Yuen Man Lam. On
August 9, 2006, the Board of Directors expanded the Board of Directors from
three members to six members and elected as additional directors Messrs. Ho and
Poon and Ms. Lam. Information concerning the backgrounds of the new Directors is
included in the Information Statement under the heading "Information Regarding
the Executive Officers and New Directors".

The Board of Directors elected the new Directors as a means to facilitate the
transition from the prior Board of Directors to the new Board of Directors.
Messrs. Harrington, Fletcher and Dinerman retired as Directors on or about
August 27, 2006. No new officers have been elected as yet by the Company
although the Board appointed various officers to fill vacancies in the interim.
On November 8, 2006, the Company filed Form 8K to announce Maria Yuen Man Lam's
resignation as a director of the Company with effect from 4 January 2007
Although Soneet Kapila continued to serve as Corporate Monitor for the Company,
on January 10, 2007, he applied to the Court to terminate his role as Corporate
Monitor having determined that his function was no longer necessary. On January
22, 2007, the US District Court for the Southern District of Florida entered
into its Order and the Corporate Monitor was relieved of his duties.

Further Changes to Corporate Organization

During the year ended September 30, 2005 the Company set up a new sales and
distribution facility, CV Instruments BV, in Maastricht, Holland. This new
facility specializes in the distribution of portable hardness testing equipment
manufactured in China and the sale of general engineers hand tools.
Additionally, an allied manufacturing, quality control and distribution centre,
Bowers Eclipse Equipment Shanghai Co. Limited, was established in Shanghai,
China and it is expected to become fully operational as a distribution and
manufacturing operation during the second quarter of fiscal 2007.

Exit from Screwdriver and Thread Gauge Measuring Operations

With effect from September 30, 2003 the Company exited its screwdriver
operations following the disposition of the trade and assets of Mega Tools Ltd
and Mega Tools USA, Inc.

                                       33
<PAGE>

The disposition of the trade and assets of the screwdriver division was
undertaken by Neil Morgan who was then heading up the division. The Company
believed that no specific authorization was afforded to Mr. Morgan to undertake
that disposition. The disposition proceeds were in the form of $284,000 of loan
notes and other receivables and the discharge of a loan of $100,000 owed by the
Company to the managing director of the screwdriver division. Full provision was
made in the Company's Financial Statements against the recoverability of these
disposition proceeds. It was subsequently agreed with Megapro that it would pay
Canadian $ 53,900 (approximately $41,000) in settlement of those debts and these
were paid in monthly installments of Canadian $5,000 (approximately $3,800).

During the fourth quarter of fiscal 2005, the Company began marketing for sale
certain assets associated with its UK thread gauge measuring business. On
February 28, 2006, the Company concluded the sale of these assets for a nominal
consideration. The assets sold comprised plant and equipment, inventories and
goodwill. The acquirer paid (pound)1 sterling and assumed certain liabilities in
respect of the leased premises from which the trade operates. The carrying
values of the assets relating to this operation were written down to estimated
fair value and the net operations, cash flows and assets have been presented as
"Discontinued Operations" in accordance with Statement of Financial Accounting
Standards ("SFAS") 144.

Recent Litigation Developments

Subsequent to the SEC action a number of class action lawsuits were initiated in
the U.S. District Court for the Southern District of Florida by Company
stockholders against the Company, Sherb & Co. LLP, the Company's former
independent auditor, and certain of the Company's directors and officers,
including Mr. Crowley, the Company's former Chief Executive Officer/Chairman,
and Mr. Fletcher, the Company's former CFO and former acting Chief Executive
Officer. These suits alleged essentially the same claims as the SEC suit
discussed above.

These various class action suits were subsequently consolidated. Thereafter, the
defendants filed certain Motions to Dismiss with regard to the Complaint and on
October 19, 2005, the U.S. District Court for the Southern District of Florida
in Re Spear & Jackson Securities Litigation entered its Order regarding these
Motions. The Order denied the Company's motion as well as that of Mr. Crowley,
the former Chief Executive Officer of Spear & Jackson.. The Court granted the
Motion to Dismiss on behalf of Mr. Fletcher, the Company's interim Chief
Executive Officer, and also granted the Motion to Dismiss on behalf of the
Company's former independent auditor, Sherb & Co., LLP. The class plaintiff
subsequently filed an appeal regarding the trial court's decision to dismiss the
case against Sherb & Co., LLP, which appeal is presently pending. No appeal was
filed with respect to the decision to dismiss the case against Mr. Fletcher.

On July 7, 2006 the Company, Dennis Crowley and the Class Plaintiff reached a
Memorandum of Understanding ("MOU"), which confirmed that the plaintiffs, the
Company and Crowley in the class action had reached an agreement in principle
for the settlement of this litigation, subject to Court approval. According to
the terms of the MOU, the Company deposited the sum of $650,000 into a Qualified
Settlement Fund, for disbursement to the Settlement Class pending approval of
the Court. Subsequent to this, Sherb & Co. also agreed to the terms of the
Settlement agreeing to contribute an additional $125,000.

On November 9, 2006, the Stipulation of Settlement was filed with the Court for
preliminary approval. On January 31, 2007, the Court entered its Order
Preliminarily Approving Settlement and Providing for Notice and Setting Class
Action Statutory Settlement Hearing. The Order, for purposes of the proposed
settlement certified a "Settlement Class" of persons (with certain exceptions)
who purchased the Company's common stock between February 1, 2002 and April 15,
2004. The Order also approved as to form and content the Notice of Pendency and
Proposed Settlement of Class Action and Summary Notice. The Settlement Hearing
has been set for May 11, 2007 at 11:30 a.m. at the West Palm Beach, Florida
Federal District Courthouse to determine whether the terms of the Settlement are
fair, just reasonable and adequate to the Settlement Class, and should be
approved by the Court; whether a final judgment should be entered dismissing the
litigation; whether the proposed plan of allocation should be approved; and to
determine the amount of fees and expenses to be awarded to plaintiffs' lead
counsel. The Order also appointed a claims administrator and provided for notice
to those who sought exclusion from the Settlement Class.

                                       34
<PAGE>

If the Settlement outlined in the MOU is not approved by the Court or, if
subsequently terminated, the terms of the above Settlement will be without
prejudice, any settlement amounts already paid will be returned and parties will
revert to their litigation positions immediately prior to the MOU.

Should the class action settlement be approved, to facilitate the distribution
of the funds from the class suit to the class shareholders and keep
administrative costs to a minimum, the SEC Claim's Administrator applied to the
Court on January 9, 2007 for permission to combine the class action funds with
the funds derived in the SEC litigation, and allow for the SEC's Claim's
Administrator to disburse the collective funds.

On September 6, 2005, the Company was served with a Shareholder Derivative
Complaint, Hapka v. Crowley, et al. Case No: CA005068 filed on June 1, 2004 in
the Circuit Court for Palm Beach County, Florida. The suit named the Company as
a nominal defendant. Also named as defendants were former directors Robert
Dinerman, William Fletcher and John Harrington, in addition to Dennis Crowley
and the Company's prior independent auditors, Sherb & Co. LLP. The suit contains
essentially the same factual allegations as the SEC suit, which was filed in
April 2004 in the U. S. District Court for the Southern District of Florida, and
the series of class actions claims initiated in the U.S. District Court, but
additionally alleges state law claims of breaches of fiduciary duty, abuse of
control, gross mismanagement, waste of corporate assets, unjust enrichment and
lack of reasonable care by various or all the defendants.

Due to ongoing settlement discussions with the plaintiff's attorney, the Company
had not responded to the Complaint. In August 2006 the Company entered into a
settlement agreement with the plaintiff by agreeing to accept certain changes to
its corporate governance procedures and the payment of up to $70,000 in legal
fees. The settlement was filed with the Court in early November 2006, and if
approved by the Court, will result in a dismissal of the suit and release the
Company and the former director defendants Messrs. Robert Dinerman, William
Fletcher and John Harrington, would be dismissed. Dennis Crowley and Sherb & Co.
continue as defendants in this suit.

On February 2, 2007, the Circuit Court entered a Preliminary Approval Order
preliminarily approving the partial settlement pursuant to the Stipulation of
Settlement between plaintiff and the Company, including its former directors
William Fletcher, John Harrington, and Robert Dinerman. The Court has set May
29, 2007 at 8a.m. at the West Palm Beach County Courthouse, for the Settlement
Hearing to determine (i) whether the terms of the Partial Settlement are fair,
just reasonable and adequate to the derivative stockholders and to the Company,
and should be approved by the Court; (ii) whether a final judgment should be
entered dismissing the litigation and releasing the defendants Spear & Jackson,
as described in the Stipulation; and (iii) to determine the amount of fees and
expenses to be awarded to plaintiffs' counsel. The Order approved as to form and
contents the Notice of Partial Settlement and the mailing and distribution
process. The Order also provided for notice to those who sought exclusion from
the settlement.

There can be no assurance that the respective courts will approve either
settlement.

SUMMARY OF PRINCIPAL OPERATIONS

Spear & Jackson, Inc., through its principal operating entities, as disclosed in
note 1 to the financial statements, manufactures, factors and distributes a
broad line of hand tools, lawn and garden tools, industrial magnets and
metrology tools primarily in the United Kingdom, Europe, Australasia, North and
South America, Asia and the Far East. These products are manufactured and
distributed under various brand names including:

      *  Spear & Jackson - garden tools;
      *  Neill - hand tools;
      *  Bowers - bore gauges and precision measuring tools;
      *  CV - precision measuring instruments;
      *  Robert Sorby - wood turning tools;
      *  Moore & Wright - precision tools;
      *  Eclipse - blades and magnetic equipment;
      *  Elliot Lucas - pincers and pliers; and
      *  Tyzack - builders' tools

                                       35
<PAGE>

Until the disposition of the screwdriver division in September 2003, the Company
also manufactured and sold a range of patented multi-bit screwdrivers under the
"Megapro" brand name. The Company also manufactured and sold a rage of thread
gauge measuring equipment under the "Coventry Gauge" logo until the sale of the
principal business assets of that operation in February 2006.

The Company's four principal business units and their product offerings can be
summarized as:

1)    NEILL TOOLS, consisting of Spear & Jackson Garden Tools and Neill Tools,
      manufactures, among other products, hand hacksaws, hacksaw blades, hacksaw
      frames, builder's tools and wood saws, all non-powered. In addition, Neill
      Tools has supplemented its UK manufactured products with factored products
      and bought in components from Far Eastern and Indian suppliers. Neill
      Tools product offering now includes a full range of hand power tools and,
      from January 1, 2005, Spear & Jackson Garden Tools' range has been
      supplemented by a portfolio of electric powered garden tools.

2)    ECLIPSE MAGNETICS' key products are permanent magnets (cast alloy),
      magnetic tools, machine tools, magnetic chucks and turnkey magnetic
      systems. Products range from very simple low-cost items to technically
      complex high value added systems. In addition, Eclipse Magnetics engages
      in the trading of other magnetic material, sourced from the Far East, both
      to end-customers as well as parts to UK manufacturers. Eclipse is also
      involved in applied magnetics and supplies many areas of manufacturing
      with products such as separators, conveyors, lifting equipment and
      material handling solutions.

3)    The Company's metrology division comprises:

      MOORE & WRIGHT which manufactures a wide variety of products. The core
      product ranges principally include low technology measuring tools and hand
      held gauges for checking the threads, diameters and tapers of machined
      components. This division has supplemented its manufactured products with
      a range of factored items.

      BOWERS METROLOGY, which is a manufacturer of high specification metrology
      instruments including precision, bore gauges, which measure the diameter
      of machined components. In addition to the core range of bore gauges, the
      Company also manufactures universal gauges and hardness testing equipment.

      In December 2004, the division secured the European distributorship rights
      for a range of premier portable hardness testers sourced from China. This
      distribution operation is operated through a specifically formed Dutch
      subsidiary company, CV Instruments Europe BV, based in Maastricht,
      Holland. An allied manufacturing, quality control and distribution centre,
      Bowers Eclipse Shanghai Equipment Limited, was established in Shanghai,
      China, during the year ended September 30, 2005.

4)    ROBERT SORBY is a manufacturer of hand held wood working tools and
      complementary products. The products are handcrafted with strong aesthetic
      appeal.

In addition, Spear & Jackson, Inc. has subsidiary companies in France (Spear &
Jackson France SA) and Australasia (Spear & Jackson (Australia) Pty Limited and
Spear & Jackson (New Zealand) Limited) which act as distributors for Spear &
Jackson and Bowers manufactured products and complementary products sourced from
third party suppliers.

The Company's continuing operations can be analyzed into three business
segments, hand and garden tools, magnetic products and metrology tools.

For further detailed financial information by reportable segment, including
sales, profit and loss, and total asset information, see note 12 in the "Notes
to the Condensed Consolidated Financial Statements" included within this
Quarterly Report on Form 10-Q. Also included within note 12 is a detailed
geographical analysis including sales, profit and loss, and total net asset
information.

The Company's product offering comprises both own-manufactured items and
products sourced from third party suppliers as fully complete factored products
or semi finished products.

                                       36
<PAGE>

The Company's principal manufacturing sites can be summarized as:

         Name/Location                      Products Manufactured
         -------------                      ---------------------
A. UK:

         Neill Tools                        Hand tools
         Atlas Site, Sheffield

         Robert Sorby                       Woodturning tools
         Sheffield

         Bowers Metrology                   Precision measuring tools
         Bradford

Up to the date of their closure in November and December 2006, the Company also
manufactured a range of garden tools at its UK plant in Wednesbury and a range
of magnetic products at its premises in Vulcan Road, Sheffield, England.

B. France:

         Spear & Jackson                    Assembly of garden tools
         France

We currently sell our products to industrial, commercial and retail markets
throughout the world, with a significant concentration in the United Kingdom,
European Union, Australia, New Zealand and the Far East.

These markets chiefly comprise:

The non-powered hand tool industry in which the Company has hand tool,
engineers' hand tool and garden tool business interests. These products are
typically sold in industrial catalogs, hardware stores, garden centers and
multiple retailers. This industry is highly mature with clearly defined
traditional brand names being joined by a broad base of "house brands" typically
supplied from third world manufacturers.

The magnetic industry. This can be split into magnet manufacturers and magnetic
integrators. The magnet users and integrators utilize the magnetic materials to
produce products such as security sensors, electrical windows and magnetic
filters and lifters.

The metrology industry, which can be split into two main market segments: (i)
low tolerance tools such as tape measures, rulers and protractors and (ii)
surface roughness measuring equipment and laser measuring instruments, etc.,
used in the exact measurement of technologically precise machined components.
The Company's Bowers Metrology Group presently operates in the latter market
segment on a worldwide basis.

The hobbyist and professional wood turning industry. This industry is relatively
small and caters to individuals who have reasonable disposable income, often
retirees, or who are professional wood turners producing craft products.

Our strategy is to maintain and develop the revenues of our businesses through
such methods as:

   o  Maintaining and heightening the profile of our existing quality brand
      names. Such activity will comprise trade, general and TV advertising,
      extensive promotional work at trade shows, the development of corporate
      web sites, etc.

   o  Continuous product improvement and innovation.

   o  Increasing market share by offering highly competitive product offerings.

   o  The launch of new and innovative product and product ranges.

   o  Improving manufacturing efficiencies and continually reviewing other cost
      saving measures.

The Company offers a comprehensive range of tools and equipment ranging from
hacksaw blades to pliers, from secateurs to digging forks and from a simple red
magnet to a computer controlled materials handling system.

                                       37
<PAGE>

The Company's policy is to support its core product offering with a pipeline of
new products and range extensions. In the three months to December 2006 new
product range launches and other significant product related business
developments have included:

   o  Within Neill Tools, the new "Predator X", marketed as the best performing
      hard point woodsaw available, has been accepted in the retail sector and
      the main launch to the UK DIY journals took place in January 2007.
      Additionally, the UK garden centre direct sales initiative has delivered
      volumes far in excess of original expectations. The investment in placing
      over 600 merchandisers throughout the UK will give returns not only in the
      current fiscal year but will also provides a base for growth next year.

   o  The Eclipse Magnetics division has been focusing on filtration products
      aimed at domestic and industrial boiler systems, consumable hydraulic
      filters and products for filtering petroleum to be delivered to gas
      stations.

   o  With the establishment of the Bowers Shanghai facility a new range of
      portable testing instruments has been launched and a catalogue covering
      all products offered by the Bowers Shanghai division has now been
      released. A significant expansion of this range is scheduled for the
      remainder of the fiscal year with two major product launches planned for
      the annual Control Exhibition to be held in Germany in May 2007. New
      products from the Bowers UK division include the "Snapmatic", which has
      now been released to all distributors worldwide.

   o  Robert Sorby has promoted its "ProEdge" sharpening system and improved the
      profile of its retail operation, Turner's Retreat, with the launch of a
      new catalog and further development of the e-commerce site.

   o  Spear & Jackson France continues to diversify its product range. There
      have been significant inroads in bonsai tools, and wood accessories such
      as wooden baskets, wooden crates and wheelbarrows.

   o  Our Australasian divisions continue to develop and introduce new and
      extended products under the S&J brand across the garden digging, garden
      cutting, hand tool and masonry, hammer and air tool ranges.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with accounting
policies generally accepted in the United States. As such, we are required to
make certain estimates, judgments and assumptions that we believe are reasonable
based upon the information available. These estimates and assumptions affect the
reported amounts of assets and liabilities as of the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the periods presented. Actual results could differ significantly from those
estimates under different assumptions and conditions.

Management's Discussion and Analysis or Plan of Operation in the Company's 10-K
filing for the year ended September 30, 2006 included a detailed discussion
which addressed our most critical accounting policies. The quarterly financial
statements for the period ended December 31, 2006, attached hereto, should
therefore be read in conjunction with that discussion.

These policies are those that are most important to the portrayal of our
financial condition and results of operations and which require our most
difficult and subjective judgments, often as a result of the need to make
estimates about the effect of matters that are inherently uncertain.

Our most critical accounting policies are those relating to revenue recognition,
foreign exchange risk, inventory valuation, pension and post-retirement benefit
obligations and accounting for deferred and income taxes.

Since September 30, 2006 there have been no changes in our critical accounting
policies and no significant change to the assumptions and estimates related to
them.

                                       38
<PAGE>

OVERVIEW

When compared to the equivalent period last year, the results for the quarter
ended December 31, 2006 show an increase in sales of $1.88 million and a
decrease in the operating loss from $2.09 million to $1.42 million.

Sales revenues for the quarter ended December 31, 2006 were $24.81 million,
representing an increase of $1.88 million (8.23%) over the comparable period in
the previous year. This increase was primarily attributable to favorable
currency exchange fluctuations in the period of $1.73 million, and increased
sales volumes of $0.34 million. These favorable volume and exchange movements
were partially offset, however, by increased sales rebates of $0.19 million.
Sales volume improvements were recorded in our Metrology, Magnetics, Robert
Sorby, Australia, New Zealand and French divisions, but theses increases were
mitigated by a volume decrease in our Neill Tools business. Once again, soft
domestic retail demand in the UK, and the weak US dollar had an adverse effect
on the division's sales in the first quarter of fiscal 2007. In addition, UK
garden product sales were down compared to Q1 of fiscal 2006 as a result of
sales direct into UK garden centers being lower than those into the previous
wholesale channel.

Gross profit was $ 8.34 million (33.62%) for the period ended December 31, 2006
compared to $ 7.03 million (30.66%) for the prior year. The increase reflects
the improvements in manufacturing efficiencies and the reduction of direct costs
as a result of the extensive restructuring initiatives in our UK manufacturing
operations. Own-manufactured product is being progressively replaced with
factored items sourced from overseas thereby reducing costs and increasing
profitability.

Selling, general and administrative expenses have increased by $0.64 million
(7.11%) in the quarter. After eliminating the adverse impact of movements in
average US$/sterling cross rates in the period ($0.74 million) and general
inflationary increases ($0.22 million) the underlying trend is one of decreased
SG&A costs.

As a result of the increase in sales volume, higher gross profits and higher
overhead costs, the Company's Q1 operating loss has decreased by $0.67 million
(31.83%) from a loss of $2.09 million in 2005 to a loss of $1.42 million in
2006.

The Company has started to benefit in the quarter from the various
reorganization programs initiated in fiscal 2006. In November2006, the Company
completed the closure of the remaining element of its manufacturing site at
Wednesbury. All warehouse and distribution operations previously carried out at
that location were transferred to the Company's principal UK manufacturing site,
Atlas, in Sheffield. Additionally, in the final quarter of the year, the Company
performed a review of its remaining UK manufacturing operations. Certain
manufacturing activities at the Atlas site were also closed down in the final
quarter of fiscal 2006. Additionally, in December 2006, the Company ceased
magnet production at its Sheffield plant and relocated its remaining operations
to the Company's Atlas site.

The Company intends to continue to launch new products and to explore
initiatives to reduce its operational base costs, through improved raw materials
and product sourcing and by more efficient processes, in order to minimize
margin erosion and to retain its competitive edge over cheap foreign imports. As
noted above, the Company's management has already implemented a number of
initiatives to improve profitability and to restructure its UK manufacturing
base. These strategies will continue and further opportunities will be explored.
Such restructuring costs and other initiatives, together with planned investment
in new capital equipment in the UK, are anticipated to achieve improved
efficiencies and reduce labor costs with corresponding improvements in the
ongoing profitability of the Company in the forthcoming year.

                                       39
<PAGE>

RESULTS OF OPERATIONS

The following discussion provides a review of results for the three months ended
December 31, 2006 compared to the three months ended December 31, 2005.

Summary Profit and Loss Account Data:

                                                Three Months ended December 31,
                                                 2006         2005      % Change
                                                  $m           $m

Sales ....................................       24.81       22.93        +8.23
Cost of goods sold .......................      (16.47)      (15.9)       +3.61
                                                ------       -----
Gross profit .............................        8.34        7.03       +18.68
Selling, general and
  administrative expenses ................       (9.76)      (9.12)       +7.11
                                                ------       -----
Operating loss ...........................       (1.42)      (2.09)      +31.83
Other income .............................        0.05        0.01         +488
Unusual or infrequent items ..............        0.07        0.00         +100
                                                ------       -----
Loss from continuing operations
  before income taxes ....................       (1.30)      (2.08)      +37.58
Income tax (provision) benefit ...........       (0.05)       0.41       (87.98)
Net loss from discontinued operations ....        0.00       (0.01)        +100
                                                ------       -----

Net loss .................................       (1.35)      (1.68)      +19.65
                                                ------       -----

Effective tax rate .......................       (3.85%)     19.86%
                                                ------       -----

As a percentage of sales:

Gross profit .............................       33.62%      30.66%
Selling, general and
  administration expenses ................       39.36%      39.77%
Operating loss ...........................       (5.74%)     (9.11%)
Loss from continuing
  operations before income taxes .........       (5.24%)     (9.08%)
Net loss .................................       (5.44%)     (7.32%)

Note: The percentage and percentage change data shown above have been calculated
from the Consolidated Statements of Operations included within the Financial
Statements attached hereto. The financial data shown in the Financial Statements
is given in thousands rather than the millions presentation adopted in the table
above.

SALES

Sales from continuing activities increased by $1.88 million (8.23%) from $22.93
million in the three months ended December 31, 2005 to $24.81 million for the
three months ended December 31, 2006.

The net increase in sales is analyzed as follows:

                                                              Three months ended
                                                              December 31, 2006
                                              Note            $m

Effect of exchange rate movements ......      (a)              1.73

Sales volume increases .................      (b)              0.34

Increased rebates ......................      (c)             (0.19)
                                                              -----
                                                               1.88
                                                              =====

                                       40
<PAGE>

Analyzed by principal business segment, the net sales increase is as follows:

                                                              Three months ended
                                                              December 31, 2006
                                              Note            $m
a) Hand and garden tools

   Effect of exchange rate movements ...      (a)              1.18
   Sales volume increases ..............      (b)              0.24
   Rebates .............................      (c)             (0.19)
                                                              -----
                                                               1.23
                                                              -----
b) Metrology tools

   Effect of exchange rate movements ...      (a)              0.30
   Sales volume increases ..............      (b)              0.01
                                                              -----
                                                               0.31
                                                              -----
c) Magnetic products

   Effect of exchange rate movements ...      (a)              0.25
   Sales volume increases ..............      (b)              0.09
                                                              -----
                                                               0.34
                                                              -----
   Total                                                       1.88
                                                              =====

Notes:

(a)   The functional currencies of the group's revenues are UK sterling, the
      Euro, the Australian and New Zealand dollar and the Chinese Yuan. The
      principal functional currency is sterling and the variation in the average
      US$/(pound) cross rate in the three month period to December 31, 2006
      compared to the comparable period last year has had a significant
      favorable impact on the US dollar value of the group's sales. The average
      US$/(pound) cross rates in the periods under review can be summarized as:

                                                  Average Cross Rates
                                                  -------------------
                                          2006          2005         % Movement

      3 months ended December 31,        1.9105        1.7474           9.33

(b)   The trading environment in our principal markets was again challenging as
      a result of flat consumer demand, continuing competition from rival
      suppliers across a number of product ranges and the increasing practice of
      major retail customers promoting own label offerings sourced from the Far
      East at the expense of S & J Company product.

      Despite the ongoing trading conditions all of our divisions, with the
      exception of Neill Tools, have witnessed favorable sales volume growth in
      the period under review. Neill Tools has suffered from subdued UK consumer
      demand and rescheduled orders in both the UK and export markets.
      Elsewhere, growth has been more forthcoming, especially in Australia,
      where a successful air tools promotion has increased sales.

      Despite the less than favorable market conditions in the Metrology and
      Magnetics products divisions, sales volumes have increased. This increase
      arose from incremental sales growth in the Metrology division's
      distribution facilities in Maastricht and Shanghai (the latter business
      only started to trade in the second quarter of fiscal 2006) and increases
      in sales in Eclipse Magnetics with both the filtration and separation
      ranges featuring prominently.

(c)   Sales rebates charged in the period ended December 31, 2006 amounted to
      $1.26 million compared to $ 0.99 million in the three month period ended
      December 31, 2005. The increase is primarily due to increased trading
      volumes in Australia and the variation in exchange rates.

                                       41
<PAGE>

SEGMENTAL REVIEW OF SALES

We aim to maintain and develop the sales levels of our businesses through the
launch of new products, the improvement of existing ranges and the continued
marketing of our portfolio of brands in order to retain and gain market share.

Sales and revenue details on a segment basis are as follows:

NEILL TOOLS

Sales for the quarter ended December 31, 2006 of $9.28 million showed a marginal
decrease over last years sales of $9.29 million. The decrease was attributable
to adverse volumes of $0.83 million, favorable exchange rates of $0.79 million
and decreased rebates of $0.03 million.

Neill Tools continued to experience particularly tough trading conditions in the
period under review in both its export and home markets. The UK retail sector,
once again, has reported a downturn in consumer spending that has had an impact
on our hand and garden tools sales. Against this difficult trading backdrop
there were a number of encouraging developments. For example, the UK garden
centre initiative has shown encouraging signs, delivering volumes greater than
our original expectations. Over 600 Spear & Jackson merchandiser stands have
been placed in garden centers throughout the UK. The timing of the sales made
direct to UK garden centers has had an adverse effect on current quarter sales
when compared to Q1 2006 when the route to market was via wholesalers. It is
expected, however, that these shortfalls will be recovered in the forthcoming
quarter. Positive returns are anticipated from these merchandisers in this
financial year and it is hoped that the current trading results will provide a
base for future growth in this area. Additionally, the new "Predator X",
recognized as the best performing hard point wood saw, has been accepted within
the retail sector and the main launch to the DIY journals took take place in
January 2007.

In the export market sales were 8% down compared to the same period last year,
mainly attributable to the timing of key account orders moving into April 2007.
The export market continues to be driven by demand for our hacksaw blades. Sales
of these products now represent 60% of our industrial tools' revenues and
strategies are being prepared to spread this sales concentration risk through
the development of higher margin product ranges, brand presence and new product
development.

Gross margins have improved considerably when compared to the same period last
year despite the strength of the US dollar providing margin challenges within
currency driven markets. The main drivers behind the increased margins were the
reduction in fixed production costs and the outsourcing of previously
manufactured products. As previously reported, on November 2006, the company
completed the closure of the remaining element of its manufacturing site at
Wednesbury, England. The site closure forms a key part of the Company's UK
manufacturing strategy to regenerate and modernize key areas of the hand and
garden tools businesses. All warehouse and distribution operations previously
performed at this location have now been transferred to the Atlas site in
Sheffield. The manufacturing and assembly functions formally carried out at the
Wednesbury site have been outsourced to suppliers based outside the UK. As a
further element of its UK reorganization program, in the third quarter of fiscal
2006 the company announced that certain manufacturing operations carried out at
its Atlas site would also cease. We are now witnessing the beneficial effects of
both of these restructuring initiatives, including fixed cost reductions and
improved customer service and satisfaction.

Improvements in manufacturing costs continue to be the focus of management to
improve competitiveness in new and existing markets.

Going forward, the main challenges for the business centre in the continuing
reduction of the manufacturing cost base and driving innovation and new product
development in line with our core brands and competences. Demand for the new
"Predator " woodsaw range will continue to drive UK manufacturing as we focus on
improving our output to satisfy the demand from our markets.

ECLIPSE MAGNETICS

Revenues for the quarter showed a $0.35 million increase over last year's
figures (2006 $2.95 million, 2005 $2.6 million) with favorable exchange
movements of $0.25 million and volume increases of $0.1 million.

                                       42
<PAGE>

Overall, sales for the quarter were 2% higher than in the first quarter of
fiscal 2006. The net increase represents a 16% sales volume growth in our export
markets offset by a 9% reduction in our home sales. The UK market has reflected
global industrial economic conditions with our Magnetic Materials products
suffering reduced demand within the Industrial distribution sector. Likewise, a
downturn in capital expenditure in the Engineered Products market is having a
direct impact on our project based business. Export markets have, however, shown
increases in the quarter driven by the supply of new separation based products
into Germany.

Competition from the Far East remains the main threat, whether directly or
through agents, as we continue to see the emergence of more and more companies
in our trading markets offering high quality goods at low market price points.

Gross margins have remained the same as the comparable period last year. This
was achieved despite a weak US$ and the cost of key primary materials, steel,
nickel and cobalt increasing during the period, with cobalt and nickel trading
at a 8 year high. This increase has and will continue to put pressure on our
margins and, although we were able to pass on this increase as a surcharge
within certain sectors, our main customers will not accept such surcharges until
supply contract renewal dates.

On August 11, 2006, the company announced both the cessation of certain
manufacturing activities at its site in Sheffield, England and the relocation of
its remaining business to the Atlas site, Sheffield. This site consolidation
forms another part of the Group's strategy to regenerate and modernize
operations and to reduce costs. The relocation was completed in December 2006
and this reduction in direct costs and improvements in manufacturing
efficiencies continues therefore, to be the focus of management to improve
competitiveness in new and existing markets.

Looking forward, the main challenge remains the distancing of rival Far East
manufacturers from our key customer base. Our commodity-based business is under
continued threat but to counter this, we continue to promote the attractiveness
of our product by offering added value options to our customers. At the same
time we are taking positive steps to improve our manufacturing process and
product sourcing.

The continued price increases of neodymium, nickel and cobalt, which are already
having an adverse impact on our margins, will continue to do so if prices keep
increasing. To counter this management continues to follow a strategy of new
product development as a key driver in increasing market share within key
product segments, active cost control and manufacturing efficiencies.

ROBERT SORBY

Sales for the first quarter were $0.21 million more than the comparable period
last year last year (2006 $1.52 million, 2005 $1.31 million), attributable to
favorable exchange variances of $0.13million and increased volumes of $0.08
million.

Following the difficulties of the last fiscal year which was one of the most
challenging periods faced by Robert Sorby for many years, the first quarter of
fiscal 2007 has witnessed improvements in both home and export retail sales.
This has resulted in an overall 6% increase in sales over the previous year.

Our North American business picked up on the back of increased retail activity,
including a program of in-store demonstrations and retail shows across the
United States and Canada in October and November. Additionally, one of our
leading US customers held a month long promotion of our lines and we introduced
a short range of timber framers' slick which was immediately listed by two
specialist customers.

In the UK trade sector we have continued to support our network of dealers with
intensive participation in their in-house shows, thereby allowing us to actively
promote and demonstrate our new "Pro-edge" sharpening system to consumers around
the country. Our retail operation has continued to improve its image in the
market place with attendance at major woodworking shows, the promotion of its
own in-house events and the launch of a new 88-page mail order catalogue with
over 50 new product lines. The greatest progress, however, continues to be made
within our e-commerce site, which now attracts business from all over the world.

                                       43
<PAGE>

Gross margins in the period have improved when compared to the same period last
year, mainly attributable to a more favorable mix of product sales. At the same
time overhead costs have been rigorously held in check. During the quarter a new
CNC and drilling machine was procured in order to bring operations in-house
thereby reducing operating costs and improve service on key items. This is part
of our long- term strategy to rationalize and up-date our manufacturing
facility.

Looking forward the business climate remains uncertain. One of the biggest
factors which could impact adversely upon our business is the continuing
weakness of the US dollar against the pound sterling. Most of our North America
customers operate annual mail order catalogs and so are locked into fixed
pricing structures. The weakening of the dollar constantly eats into their gross
margins making UK products an increasingly far less attractive proposition. The
launch of the new "Pro-edge" sharpening system has created a number of new
opportunities, but given the increases in domestic demand and the relative
complexities of marketing electrical products in international markets, the full
launch of this product is to be phased in over a period of time and should be
completed by the end of fiscal 2007.

BOWERS

Sales for the first quarter have increased by $0.31 million (7.6%) from $4.07
million in Q1of fiscal 2006 to $4.38 million in Q1 of fiscal 2007. This increase
is attributable to favorable exchange rate variances of $0.30 million and
increased volumes of $.01 million.

Increased quarter one sales were mainly due to the activities in our Maastricht
and Bowers Shanghai divisions as well as strong export sales in our Bowers
German, Italian and USA markets.

The Shanghai facility is currently operating as a quality control and
administration centre for products being shipped to Europe. A new range of
portable testing instruments was launched in the quarter and a catalog covering
all of the products offered by the Shanghai division has been printed and
released. Activities in Shanghai will be further enhanced when manufacturing
operations commence in quarter 2 of Fiscal 2007.

Growth in the UK based UK markets has been rather more subdued with
disappointing results in the value Systems and Specials division products. The
UK market remains the main concern, with the double threat of competition from
low cost imports and a shrinking industrial market place.

Gross margins have been in line with budgets with some higher than expected
machinery maintenance costs being offset by improved margins on imported
products due to the weakness of the US $. Energy costs and raw material costs
have now stabilized but are still running at significantly higher than historic
levels. Initiatives have been put in place to source non-sensitive components
and packaging from overseas low cost centers in order to compensate for these
increases. A full product review of our low-end Engineers' hand tools is
underway with a view to making substantial cost savings in this area.

The employment of skilled labor in the UK manufacturing division continues to be
challenging with fewer graduates choosing engineering as a career. New capital
expenditure programs for CNC machinery are currently being investigated in order
to counter this shortage of labor.

The outlook for the remainder of fiscal 2007 remains positive as long as we can
rectify the disappointing first quarter sales in the UK domestic division. With
Machine Tool sales running at a 5 year high, we expect to see the benefit of
this in the coming months due to the normal investment trend of measuring
equipment being purchased to compliment this Machine Tool expenditure. Providing
the pound does not strengthen further against the US $ we expect export markets
to remain buoyant for the rest of the year.

Looking forward, demand for our own manufactured hand tools will continue to
face further pressure from cheap Far East imports. The company recognizes that
new products are the key drivers for growth in the business and several
significant new products are due to be launched during the current fiscal year.

                                       44
<PAGE>

S&J FRANCE

Sales in the quarter have increased by $0.24 million from $1.94 million in 2005
to $2.18 million in 2006, the increase being attributable to favorable exchange
rate variances of $.15 million and increased volumes of $0.09 million.

While our traditional garden tool sales have continued to be effected by intense
competition, and the increasing flow of cheap Asian and Far Eastern imports, our
product diversification in the quarter has more than accounted for the increased
sales volumes. We have noticed that garden tools have a tired image in the
garden centers and what are now attracting the most attention are garden
associated leisure products such as garden furniture, and barbecue accessories.
With this in mind we have tried to launch new products which are competitive in
terms of price and which are associated with this garden leisure theme such as
bonsai tools, wooden baskets, wooden crates, repotting tables and decorative
wooden wheel barrows.

Despite our success in product diversification our base garden tool business is
suffering. The French economy remains subdued and business conditions in the
Company's principal markets have continued to mirror this depressed retail
environment. French garden product trade associations have spoken of up to 5% in
the value of garden tools. This reflects both reductions in the volume of
products sold and the lowering of retail price points through an increasing
amount of entry level products sourced, typically, from the Far East.
Additionally, competition remains intense in the French garden products market
with a number of suppliers trying to secure business with a shrinking base of
retail outlets. This competition inevitably leads to pressure on margins and the
situation is exacerbated by our sales profile where 40% of our turnover is
concentrated on two customers. This makes price negotiations difficult and can
result in additional incentives, e.g. rebates being offered, as a matter of
course, in order to gain orders.

We continue to feel the effects from the increasing flow of cheap Asian and Far
Eastern imports which puts pressure on turnover and margins. These pressures are
being intensified with the opening of specialist cut-price garden stores.

In order to relieve these margin pressures the Company continues to look for new
suppliers in China and India in order to drive down product costs. Quality
control and reliability of delivery times will be a key criteria here to ensure
that the Company's branding and market reputation are not compromised. The
Company will continue to concentrate on marketing activity to promote its
principal brands and to secure new listings. Such activity will centre on the
publication of a new 2007 product catalogue, improvements to the Company web
site, advertising, newsletters, e-marketing, etc.

As sales of traditional product lines decline (forks, hooks, snow tools, etc.)
it is clear that we must offer new product ranges and that we are able to offer
quality products at lower price points. We will therefore focus on new product
development as a way of both improving margins and eliminating the seasonal
peaks that are typical of the garden products business.

AUSTRALASIA

Sales have increased by $0.79 million (21.31%) from $3.71 million in Q1 of 2006
to $4.5 million in Q1 of 2007. Volume increases of $0.89 million and favorable
exchange rate variances of $.12 million were partially offset by increased sales
rebates of $0.22 million.

The sales volume increases have occurred both within our Australian and our New
Zealand divisions.

In Australia, while imported house brands and the ongoing drought impeded sales
of garden products compared to the previous year, this was offset by improved
sales in core masonry and hand tool products. The most significant factor behind
the increase in sales, however, was due to the increased air tool promotions
within our major customers. This increased promotional activity has been
reflected in the higher levels of sales rebates.

Likewise, New Zealand sales have benefited from increased promotional activity
due to the release of new ranges of Spear & Jackson petrol generators, air
compressors and trade digging tools. Customer confidence is at a high in New
Zealand with reduced fuel prices resulting in increased disposable income.

                                       45
<PAGE>

As a result of increased sales levels, improved sourcing, wholesale and currency
price gains, and changes within the sales and customer mix of the businesses,
gross margins have seen a considerable improvement over the same period last
year.

Despite quarter one achievements, the Australian and New Zealand markets
continue to be highly competitive as a result of Asian imports and retailers
promoting those brands at the expense of comparable S&J products. This practice
has placed, and will continue to place, added pressure on our sales, margins and
market share. Overall, sales to our major customers reflect the continued
expansion and domination of the market by the major corporate retailers who
continue to expand their market share at the expense of the traditional
independent retail groups. As such, our sales mix reflects this trend with sales
growth continuing in the corporate sector whilst sales to the independent
retailers continue to decline. Our objective going forward is to spread our
exposure to the corporate sector by increasing our sales and market share in the
independent and industrial markets.

A major focus going forward will be the promotion and marketing of Spear &
Jackson brands to gain incremental sales and profit growth together with
aggressive pricing strategies to maintain and improve market share in all the
categories in which we compete. The division will also continue to develop and
introduce new and extended ranges under the S&J brand across our garden digging,
cutting, hand tool, masonry, hammer and air tool ranges as a further lever to
generate additional revenues and as a means of distancing ourselves from low-end
house brands.

COSTS OF GOODS SOLD AND GROSS PROFIT

Summary details regarding costs of goods sold as a percentage of sales and gross
profit margins in the periods under review are as follows:

                                                     Three months ended
                                             December 31,           December 31,
                                                 2006                   2005
                                                   %                      %

Cost of goods sold as a % of sales               66.38                  69.34

Gross profit margin                              33.62                  30.66

Costs of goods sold increased to $16.47 million in the three month period ended
September 31, 2006 from $15.9 million in 2005.

The increased gross margin in the period under review and the decrease in cost
of goods as a percentage of sales reflects the improvements in manufacturing
efficiencies and the reduction of direct costs as a result of the extensive
restructuring initiatives in our UK manufacturing operations. The UK
manufacturing reorganization program, initiated in the last quarter of 2005, and
continued in the second and subsequent quarters of Fiscal 2006 with the
announcement of the closure of our manufacturing site at Wednesbury in the UK,
the relocation of the UK central warehouse to the Atlas site in Sheffield and
the cessation of certain manufacturing activities in the UK magnetics division
has had, and will have, a beneficial effect on margins. Own-manufactured product
is being progressively replaced with factored items sourced from overseas
thereby reducing costs and increasing profitability.

We will continue to evaluate means of maintaining and improving current sales
mixes and of further reducing costs of goods sold across all of our principal
trading operations to avoid margin erosion. Improvements in manufacturing
efficiency and the reduction of direct costs continue to be the focus of
management as a means to improve competitiveness in new and existing markets.

Further pressure is exerted on our margins by the weak dollar and, to retain
competitiveness, additional discounts have been offered in certain markets where
our sales are transacted in that currency.

The Company's position is not, however, unique in this respect since the trading
issues crystallized by the weakening value of the dollar are currently faced by
many other UK companies with material export sales interests.

                                       46
<PAGE>

EXPENSES

Selling, general and administrative (SG&A) expenses increased by $0.64 million
(7.11%) from $9.12 million in the quarter ended December 31, 2005 to $9.76
million in the quarter ended December 31, 2006.

The principal reasons for the movements are as follows:

                                                        Increase over Prior Year
                                                             Quarter ended
                                                              December 31,
                                                                  2006
                                                                   $m
a)    Impact of movements in average
      US$/sterling cross rates in the period                      0.74

b)    Decreased FAS87 pension costs                              (0.07)

c)    Bowers Shanghai quarter 1 2007 costs                        0.12

d)    Inflationary increases                                      0.22

e)    Other net decreases                                        (0.37)
                                                                 -----
Total net increase in SG&A expenses                               0.64
                                                                 =====

OTHER INCOME AND EXPENSES

Other income and expenses has moved from a net credit of $.01 million in Q1 of
2006 to a net credit of $0.05 million in Q1 of 2007.

This increase is due to the increased level of bank interest receivable levels
in Q1 of 2007 in the UK and Australian divisions. In particular, the UK cash
balances during the latter part of fiscal 2006 benefited from the receipt, in
July 2006, of sale proceeds of $4.8 million relating to the remaining element of
the Company's Wednesbury manufacturing site. This has resulted in higher
interest receivable levels in the UK.

UNUSUAL OR INFREQUENT EVENTS

Unusual or infrequent events comprise a $0.09 million credit in relation to the
deferred portion of the gain arising on the sale of the Wednesbury land and
buildings and a $0.01 restructuring charge. As previously reported, the Company
completed the sale of the remaining element of its industrial site at
Wednesbury, England on July 27, 2006. The conditions of the sale agreement
stipulated that the Company could occupy the site, for a peppercorn rent, until
November 30, 2006. In the financial statements for the year ended September 30,
2006, $88 of the gain on the sale of the site was deferred. This deferral
represented the fair value of rentals during the period of occupation from the
sale of the site until November 30, 2006,the planned closure date. The
Wednesbury site was vacated on schedule and the deferred element of the gain has
accordingly been released to the profit and loss account in the three month
period under review. The $0.01 million charge relates to that element of
employee severance costs in connection with the reorganization of the Wednesbury
and Atlas sites which did not become payable until completion of the relevant
reorganizations in December 2006.

INCOME TAX

An income tax charge of $0.05 million arose in the quarter to December 31, 2006
compared to a credit of $0.41 million in the comparable period last year.

Income taxes represented 3.85% of the loss before tax in 2006 and 19.86% of the
loss before tax in 2005.

In general, differences between the Company's effective rate of income tax and
the statutory rate of 35% result from such factors as: tax charges in certain
overseas subsidiaries within the Spear & Jackson group being taxed at rates
different from the statutory rate; the utilization of tax losses which are not
recognized within the deferred tax computation, the provision of valuation
allowances against potential deferred tax assets regarded as non-recoverable and
permanent differences between accounting and taxable income as a result of
non-deductible expenses and non-taxable income.

                                       47
<PAGE>

The principal reasons for the significant fluctuations between the effective
rates of tax and the US Federal statutory rate in the periods under review are
summarized below:

      i)    As a result of pre-tax losses in the UK in the three months to
            December 2006 and the benefit of a tax deduction (spread over 4
            years) in respect of the special contribution of $7.2 million that
            was made to the Company Pension Plan in fiscal 2005, tax losses have
            been generated in certain of the UK companies. Valuation allowances
            of approximately $0.38 million have been applied to these losses as
            a recent history of losses and other factors has precluded the
            Company from demonstrating that it is more likely than not that the
            benefits of these operating loss carry forwards will be realized.

      ii)   Income within certain overseas subsidiaries within the Spear &
            Jackson Group is taxed at different rates from the effective rate.
            The typical local taxation rate suffered by the Company's non-US
            overseas subsidiaries is approximately 30% compared to a US Federal
            Statutory rate of 35%. The effect of applying a rate of 30%, as
            opposed to 35%, to the Company's results is a tax debit of
            approximately $0.06 million.

      iii)  Permanent differences between accounting and taxable income as a
            result of non-deductible expenses have had the effect of increasing
            the taxation charge by $.04 million.

      iv)   In addition, the rate of tax has been increased as a result of
            losses that have been incurred in the United States for which no
            utilization against future income is envisaged in the short term and
            to which a valuation allowance has therefore been applied (tax
            impact $0.03 million).

NET LOSS FROM CONTINUING OPERATIONS AFTER INCOME TAXES

Our net loss from continuing activities after income taxes was $1.35 million for
the three months to December 31, 2006 (2005: $1.67 million).

DISCONTINUED OPERATIONS

Discontinued operations in the results for the quarter to December 31, 2005
relate to the Coventry Gauge thread gauge measuring division of the Metrology
Division, based in the UK, and the Megapro screwdriver division of Spear &
Jackson, Inc.

During the fourth quarter of fiscal 2005, the company began marketing for sale
its thread gauge measuring business located in the United Kingdom. The carrying
values of the assets relating to this entity were initially written down to
estimated fair value in the quarter ended March 31, 2005 and further write-downs
were made in the final quarter of fiscal 2005. On February 28, 2006, the Company
concluded the sale of these assets for a nominal consideration.

The Megapro screwdriver division was disposed with effect from September 30,
2003 when the trade and assets of the principal Megapro companies were
transferred at their net book value to a management buy-in team headed by the
managing director of the Megapro business.

In accordance with SFAS No. 144, "Accounting For the Impairment or Disposal of
Long-Lived Assets", the Company's previously issued Financial Statements have
been reclassified to present separately the net operations, cash flows, assets
and liabilities of these business segments, where material, as "Discontinued
Operations".

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents amounted to $11.08 million at December 31, 2006
($9.93 million at September 30, 2006), working capital (excluding deferred
taxes) totaled $31.86 million ($30.25 million at September 30, 2006) and our
stockholder's equity was $21.53 at December 31, 2006 ($21.84 million at
September 31, 2006).

                                       48
<PAGE>

Net cash generated from operating activities in the quarter ended December 31,
2006 was $0.59 million compared to $1.41 million in the three months ended
December 31, 2005. This decrease of $0.82 million primarily arises from:

   -  decrease in trade working capital inflows of $0.60 million (21.9%)

   -  decrease in net inflows from other assets and liabilities (including
      taxation) of $0.96m (294%)

   -  Reduction in net loss (adjusted for depreciation, gain on sale of land and
      buildings and deferred income taxes, etc) of $0.74 million (45.2%) as
      dealt with in the commentary of results above.

The reasons for these trade working capital variances and movements in other
assets and liabilities are summarized below:

(a)   Trade working capital variances.

      The net decrease in cash inflows derived from decreases in trade working
      capital is as follows:

                                                        Note           $ million

      Decreased inventory inflows                       (i)              (0.17)
      Decreased trade receivable inflows                (ii)             (0.67)
      Decreased trade payable outflows                  (iii)             0.24
                                                                         -----
                                                                          (0.6)
                                                                         -----

i)    The inventory inflows for the three months to December 31, 2005 benefited
      from the rigorous inventory reduction program initiated within the UK hand
      and tool division at the beginning of fiscal 2006. By September 30, 2006
      stock levels across most of the divisions, especially those undergoing
      manufacturing reorganization programs, had decreased. In addition, the UK
      manufacturing reorganization program had also begun to take effect at
      September 30, 2006 with a number of divisions recording lower inventory
      levels following the move to factored rather than own-manufactured
      product. As a result therefore, stock reductions in the quarter to
      December 31, 2006, in certain UK operations were not as pronounced as in
      the comparable period under review. In Eclipse Magnetics, however, where
      the reorganization plans were initiated at a later date, there have been
      significant stock reductions in the three month period to December 31,
      2006. Elsewhere, in Australia and New Zealand, for example, stock levels
      were higher than last year due to lower December 2006 sales.

ii)   The decrease in trade receivable inflows is primarily due to an increase
      in debtors days outstanding in certain of our operating divisions when
      compared to last year and the differences in sales profiles. For example,
      payment terms can range from 30 days to 90 days dependant upon whether the
      customer is home or export based. The differing sales profiles can have a
      significant impact upon trade receivable levels when comparing one period
      to another.

iii)  Decreased trade payable outflows of $0.24 million mirror the inventory
      movements discussed in i), above although the favorable variance has been
      diluted by increasing levels of purchases of factored goods from overseas
      suppliers on reduced settlement terms.

(b)   Variances in cash flows attributable to other assets and liabilities

i)    The major contributory factor is the $1.31 million payment of severance
      and move costs associated with the UK manufacturing reorganization
      programs at Wednesbury, Atlas and Eclipse. For the three month period to
      December 31, 2005 $ 1.3 million had been defrayed.

The adverse effect of the above has been mitigated by:

i)    Reduced accrual levels at December 31, 2006 compared to December 31, 2005
      in trading entities in line with the reduction in trading activity levels.

ii)   Other receivables, which, due to the Christmas holiday period, were
      received in January 2007 instead of December 2006.

                                       49
<PAGE>

Cash inflow from investing activities in the three months to December 31, 2006
was $0.003 million compared to a $0.26 million outflow in 2005. This is
attributable to lower levels of capital expenditure in the quarter to December
2006, and higher levels of proceeds from the sale of property plant and
equipment.

Net cash used in financing activities was $0.73 million in the quarter to
December 31, 2005 (December 31, 2006 $nil). The outflow in 2005 represents the
repayment of the UK bank overdraft at September 30, 2005 which had been utilized
following the payment of the second element of a special pension contribution to
the UK Pension Plan in September 2005.

BANK FACILITIES

The UK subsidiaries of Spear & Jackson plc and Bowers Group plc maintain a line
of credit of $8.8 million. This is secured by fixed and floating charges on the
assets and undertakings of these businesses. Of the total facility, $5.9 million
relates to bank overdrafts and $2.9 million is available for letters of credit.
These facilities are denominated in British pounds. The overdraft carries
interest at UK base rate plus 1%. At December 31, 2006 and September 30, 2005
the company had $nil outstanding under the overdraft line and $0.06 million in
outstanding letters of credit (September 30, 2006: $0.6 million).

The French and Australian subsidiaries of Spear & Jackson plc maintain
short-term credit facilities of $2.8 million denominated in Euros and Australian
dollars. The facilities comprise bank overdraft lines, with interest rates
ranging from 6.8% to 12.6%, together with facilities for letters of credit and
the discount of bills receivable. There was nothing outstanding under the
overdraft lines at both December 31, 2006 and September 30, 2006. $0.5 million
of letters of credit and bills were outstanding under these facilities at
December 31, 2006 (September 30, 2006: $0.5 million).

The UK facilities were renewed in December 2006, the Australian facilities were
renewed in October 2006 and the French facilities fall for renewal at various
dates in 2007. These lines of credit are subject to the Company's and its
subsidiaries' continued credit worthiness and compliance with the applicable
terms and conditions of the various facilities. Assuming that the Company
maintains compliance with these conditions it is anticipated that all the
facilities will continue to be renewed on comparable terms and conditions.

The Company's bank accounts held with the HSBC Bank plc by UK subsidiaries of
Spear & Jackson plc and Bowers Group plc form a pooled fund. As part of this
arrangement the companies involved have entered into a cross guarantee with HSBC
Bank plc to guarantee any bank overdraft of the entities in the pool. At
December 31, 2006 the extent of this guarantee relating to gross bank overdrafts
was $22.9 million (September 30, 2006 $21.6 million). The overall pooled balance
of the bank accounts within the pool at December 31, 2006 was a net cash in hand
balance of $6.6 million (September 30, 2005 $5.4 million).

The bank overdraft and other facilities of Spear & Jackson Australia Pty.
Limited have been guaranteed by its immediate parent, James Neill Holdings
Limited and the bank overdraft and other facilities of Spear & Jackson France SA
have been guaranteed by Spear & Jackson plc.

Historically, our business operations have been funded from net operating income
supplemented, where necessary, by utilization of the UK, French and Australian
banking facilities described above. We believe what we have sufficient capital
resources, liquidity and available credit under our current principal banking
facilities supplemented, where necessary, by temporary increases, to sustain our
current business operations and normal operating requirements for the
foreseeable future.

As the Company continues to focus its efforts on improving the competitiveness
of its worldwide operations, additional funding may be required to finance
restructuring of the non-profitable areas of the Company's divisions and to meet
items of significant one-off expenditure. Such expenditure may include:
investment in new capital equipment; further special contribution payments to
reduce the pension plan deficit; and any expansion of the Spear & Jackson or
Bowers operations.

Funding for these initiatives may be obtained through the negotiation of
increased bank lending facilities or the sale of surplus assets.

                                       50
<PAGE>

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

The Company makes a range of contractual obligations in the ordinary course of
business. The following table summarizes the Company's principal obligations at
December 31, 2006:

                             Total Amount       Payments due by period ($m)
                             Committed      1 year     1-3      4-5      5 years
Contractual obligation       ($m)           or less    years    years    or more

Capital lease obligations    1.0            0.5        0.3      0.2      -
Operating leases (note a)    5.9            1.1        2.0      1.5      1.3
                             ---            ---        ---      ---      ---
                             6.9            1.6        2.3      1.7      1.3
                             ---            ---        ---      ---      ---

(a)   Amounts represent the minimum rental commitments under non-cancellable
      operating leases.

(b)   Excluded from the above tables are the amounts payable by the Company to
      the UK defined benefit pension plan as future funding obligations over the
      five year term shown above cannot be accurately forecast. The annual
      contribution rate is set annually by the actuary in accordance with the
      applicable UK regulatory legislation. In the year ended September 30, 2006
      the Company paid $3.4 million into the plan. With regard to the year ended
      September 30, 2007, in the ten month period to July 31, 2007 the level of
      contributions will be approximately $3.1 million. Contributions after that
      date will be determined after consultation between the Company, the
      actuary and the pension plan trustees. Following the introduction of new
      UK pension legislation it is anticipated that post July 31, 2007 Company
      contributions will increase to approximately $5.9 million per annum.

(c)   As at December 31, 2006, the Company had letters of credit of $0.56
      million outstanding, which are secured by the UK and Australian credit
      facilities.

At December 31, 2006 the Company had no material off-balance sheet arrangements
other than the non-debt obligations described in contractual obligations above.

OUTLOOK

We anticipate that, because of the seasonal demand increase in our garden
products businesses in the UK and France, and a partial recovery of the low
level of December sales, an operating profit (before the inclusion of FAS 87
pension charges) of approximately $2.2 million will be recorded in Quarter 2.
After taking into account quarterly pension charges of $2.1 million a small
operating profit is forecast for Quarter 2. This result is dependant upon
current forecast sales levels being realized with no significant sales revenue
either being lost or being deferred into future quarters. Although current
forecasts indicate a small operating profit for Quarter 2, the trading profit
for the year is still anticipated to be a loss, as all base trading profits will
be eliminated by the significant non-cash pension charge calculated in
accordance with FAS 87. The Company's actuaries anticipate that the charge will
be $8.0 million for fiscal 2007 compared to $8.4 million for fiscal 2006. As a
result of the level of pension charges the Company does not anticipate returning
a net profit after tax for fiscal 2007. Management will consider all available
operational strategies to mitigate the negative impact of trading losses which
arise as a result of the high pension costs during the forthcoming year.

During the later part of fiscal 2005 and during 2006 the Company performed a
detailed review of its UK manufacturing operations to identify initiatives to
combat declining sales performance and the increase in low price point imports
from Far Eastern markets. The implementation of a number of strategies to reduce
its ongoing cost base was carried out during the year. In January 2006, the
Company announced the closure of its Wednesbury manufacturing and distribution
facility and the relocation of the central UK warehousing facility to the Atlas
site in Sheffield, England. This was completed by the end of November 2006. In
fiscal 2005 the Company had previously sold the excess element of its site and
on July 27, 2006 the Company completed the sale of the remaining element of the
Wednesbury property. Funds realized from the disposal have been used to finance
the closure costs associated with the Wednesbury site with any excess sale
proceeds being reinvested in the business.

                                       51
<PAGE>

In addition, in the third quarter of fiscal 2006 the Company announced the
cessation of certain manufacturing operations at its Atlas site. Likewise, on
August 11, 2006 the Company's UK subsidiary, Eclipse Magnetics, announced that
the Company would cease a number of its manufacturing activities at its site in
Sheffield and that the remaining elements of the business would also be
transferred to the Atlas Site. This reorganization was completed in December
2006.

The Wednesbury site closure, the Atlas reorganization and the Eclipse
restructuring and relocation form part of the Company's UK manufacturing
reorganization program which has been initiated to regenerate and modernize key
areas of the hand and garden tools and Eclipse businesses. The closures will
enable the Company to consolidate its sites and will allow the Company to
develop a modern manufacturing, warehouse and distribution facility which will
be well placed to meet the current and future needs of its customers. The
changes made to the shape and structure of the UK business are significant and
it is therefore probable that, in the short term, the cost savings that the
reorganizations will deliver will be diluted whilst new procedures and processes
are being established. The results foe the quarter ended December 31, 2006 show,
however, an improvement in the Company's gross margins from 30.66% in Q1 of 2006
to 33.62% in the current quarter which demonstrates that these initiatives are
already impacting positively on the business.

Given the competitive markets in which we operate, we will continue to look at
further initiatives to rationalize underperforming areas of the business and to
monitor operational infrastructures in the United Kingdom, particularly overhead
costs, to ensure that these are as cost efficient as possible and at a level
appropriate to the needs of the business.

The Company's core UK hand and garden businesses continue to face challenging
trading conditions with the key considerations being soft demand in the UK
retail sector, fierce competition from cheap foreign imports and the increasing
trend for multiple retailers to buy and promote own label brands in preference
to Company products. The reorganization program referred to above was
implemented to address these issues and further strategies will be considered to
reduce the Company's cost base.

As with the Company's UK hand and garden tool businesses, and despite strong
trading performances in Quarter 1,our Australasian and French subsidiaries
continue to experience difficult trading conditions because of flat retail
demand, increased levels of competition from Far East imports, reduced consumer
spending and the increasing trend of retail groups to consolidate and to
increase their promotional activity of house brands.

To counteract such factors, the management of these operations has developed and
introduced a number of new and extended ranges and promotional programs. Going
forward it is anticipated that these ranges should deliver incremental sales and
margin growth. Additionally, overhead reduction programs are ongoing as
management continues to focus on the removal of all excess costs from the
businesses.

Within the Metrology division, the new selling and distribution outlet in
Maastricht is now fully operational. In the future, this revenue and earnings
growth will be enhanced by the division's operation in Shanghai, China.
Currently this acts as a quality and distribution centre, but in Q2 of fiscal
2007 its business will be expanded to include a manufacturing facility.

Looking forward, demand for our own manufactured metrology hand tools will
continue to face further pressure from low cost Far East imports. The Company
therefore recognizes the need to focus its UK manufacturing sites on producing
more high technology products and measuring solutions. New products are the key
drivers for growth and several new ranges are due to be released during fiscal
2007.

Our businesses will again face the issues of increased costs and margin erosion
as a result of raw material, fuel and other utility price increases, interest
rate increases, the $8.0 million FAS 87 pension charge and a weak dollar. This
will again put pressure on our margins and overhead costs, and wherever
possible, these increases will be passed on though sales price increases.

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<PAGE>

Any strengthening of the US dollar would impact favorably on the business as it
would benefit our sales into a number of export markets where sales are
denominated in US$. The beneficial impact would be diluted, however, by the
increased pressure that such a strengthening would have on the sterling value of
products and materials purchased in US$.

Current trends, however, suggest a continued weakening which will place
additional pressure on export sales, particularly from the UK.

In the forthcoming months we will continue to focus on improving cash
generation. As explained above, during fiscal 2006 the Company announced the
closure of its Wednesbury site and the relocation and reorganization of its
Eclipse and Atlas sites. In addition, therefore, to normal trading cash
requirements, in the first quarter of fiscal 2007, and for the forthcoming
quarter, costs will be defrayed in the relation to the various restructuring
initiatives. These costs have been funded from existing core UK bank facilities.
Further funds will also be required to finance the next stage of the development
of the Shanghai business through the set up of its own manufacturing facility.
During the course of the forthcoming year the Company will commence negotiations
with the trustees of the pension plan to determine the level of future employer
cash contributions. The contributions will be calculated in accordance with new
UK pension legislation and it is therefore likely that pension payments will
increase by at least $2 million per annum from July 2007.

To restrict the pressure that this expenditure will have on the Company's bank
facilities, focus will be maintained on the working capital reduction program
that has already been initiated. Emphasis will therefore continue to be placed
on strict working capital control in the forthcoming months. In conjunction with
this, the inventory reduction program that was implemented fiscal 2006 will
continue.

Going forward, the success factors critical to our business include sales growth
through penetration in new and existing markets; the implementation of
strategies to enable us to compete against suppliers based in low cost
manufacturing regimes; successful sourcing of new and existing products at
favorable prices, emphasis on new product development activities so that we can
exploit our brand equity and technical expertise to differentiate our product
offerings from cheap "me-too" imports; emphasis on promotional campaigns and
demonstration tours which focus on high margin product groups and on those high
added value areas of the Metrology and Magnetics businesses; continued
reorganization of our manufacturing and overhead bases so that they are as cost
efficient as possible; the successful onward development of new operations in
China and elsewhere; and the maximization of cash resources and the negotiation
of additional bank facilities, where required, so that we are able to fund new
initiatives and take advantage of market opportunities.

Much, however, will continue to depend on the level of retail demand in our UK,
French and Australasian markets. Softening demand and a further deterioration in
consumer confidence could significantly impact on our earnings levels in
subsequent periods.

As previously reported, the formal resolution of the SEC legal action in fiscal
2005 enabled the Company to move forward with more certainty so that both short
and long term commercial strategies could be formulated and implemented. The
stability of the Company will be further enhanced by the settlement of the Class
and derivative Action litigation. Additionally, the Court's approval, on January
22, 2007, to the Corporate Monitor's request to be relieved of his duties is
another indication of the significant steps that the Company has taken in
restoring its financial and reputational standing since the Monitor's original
appointment in April 2004.

The sale of Jacuzzi Brands, Inc.'s 61.8% majority shareholding in Spear &
Jackson, Inc. to United Pacific Industries Limited ("UPI") on July 28, 2006
removed another area of uncertainty and has provided a platform for future
business growth. The development of detailed business strategies under our new
ownership structure is in its formative stages but potential synergies and areas
of specific market and commercial expertise have been identified which, going
forward, are hoped to be of benefit to both Spear & Jackson, Inc. and UPI. Both
UPI and Spear & Jackson, Inc. welcome this business combination which should
lead to the formation of an enterprise of sufficient size and with a range of
products that will enable it to compete effectively in the modern global trading
environment.

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<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The principal market risks to which the Company is exposed comprise interest and
exchange rate fluctuation, changes in commodity prices and credit risk.

INTEREST RATE RISK

The Company is exposed to interest rate changes primarily as a result of
interest payable on its bank borrowings and interest receivable on its cash
deposits. At December 31, 2006 the Company had no borrowings in the form of
overdrafts and had cash and cash equivalents of approximately $11.08 million.
Given the current levels of borrowings, the Company believes that a 1% change in
interest rates would not have a material impact on consolidated income or cash
flows. Holding the same variables constant, a 10% increase in interest rates
would again have a negligible effect on interest payable.

The nature and amount of our debt and cash deposits may, however, vary as a
result of future business requirements, market conditions, and other factors.
The definitive extent of our interest rate risk is not therefore quantifiable or
predictable because of the variability of future interest rates and business
financing requirements.

EXCHANGE RATE RISK

The Company has operations in the United Kingdom, France, Holland, Australia,
New Zealand and China. These operations transact business in the relevant local
currency and their financial statements are prepared in those currencies.
Translation of the balance sheets, income statements and cash flows of these
subsidiaries into US dollars is therefore impacted by changes in foreign
exchange rates.

In the three months ended December 31,2006 compared to the equivalent period in
2005, the change in exchange rates had the effect of increasing the Company's
consolidated sales by $1.73 million or 7.54%. Since most of the Company's
international operating expenses are also denominated in local currencies, the
change in exchange rates had the effect increasing operating expenses by $0.74
million for the three months ended December 31, 2006 compared to the comparable
prior year period. If the US dollar further weakens in the future, it could
result in the Company having to suffer reduced margins in order for its products
to remain competitive in the local market place.

Additionally, our subsidiaries bill and receive payments from some of their
foreign customers and are invoiced and pay certain of their overseas suppliers
in the functional currencies of those customers and suppliers. Accordingly, the
base currency equivalent of these sales and purchases is affected by changes in
foreign currency exchange rate.

We manage the risk and attempt to reduce such exposure by periodically entering
into short-term forward exchange contracts. At December 31, 2006 the Company
held forward contracts to sell Australian and New Zealand dollars to buy
approximately $1.4 million US dollars.

The contract values were not materially different to the period end value of the
contracts. A 10% strengthening or weakening of the US$ against its Australian
and New Zealand counterparts could, however, result in the Company suffering
losses or benefiting from gains of approximately $0.1 million had no forward
contracts been taken out.

COMMODITY PRICE RISK

The major raw materials that we purchase for production are steel, cobalt,
nickel and plastic. We currently do not have a hedging program in place to
manage fluctuations in commodity prices. The prices of certain of these raw
materials are currently falling but this trend cannot be guaranteed to be
maintained and we will continue to monitor price movements closely.

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<PAGE>

CREDIT RISK

Credit risk is the possibility of loss from a customer's failure to make
payments according to contract terms. Prior to granting credit, each customer is
evaluated, taking into consideration the borrower's financial condition, past
payment experience, credit bureau information, and other financial and
qualitative factors that may affect the borrower's ability to repay. Specific
credit reviews are used in performing this evaluation. Credit that has been
granted is typically monitored through a control process that closely monitors
past due accounts and initiates collection actions when appropriate. In
addition, credit insurance is taken out in respect of a substantial proportion
of the Company's non-UK receivables as a means of recovering outstanding debt
where the customer is unable to pay.

At December 31, 2006 the Company had made an allowance of $1.67 million in
respect of doubtful accounts which management believes is sufficient to cover
all known or expected debt non-recoveries.

ITEM 4.  CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") that are designed to ensure that information required to be
disclosed in its reports filed or submitted under the Exchange Act is processed,
recorded, summarized and reported within the time periods specified in the SEC's
rules and forms, and that such information is accumulated and communicated to
the Company's management, including the Company's Principal Executive Officer
(PEO) and Chief Financial Officer (CFO), as appropriate, to allow for timely
decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

The Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the former acting Chief
Executive Officer (now Chairman and Managing Director of the Company's principal
UK operating subsidiaries), the PEO and our CFO, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15(e) as of the end of the period covered by
this report. Based upon that evaluation, the PEO and CFO concluded that the
Company's disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC filings, and
management has concluded that the unaudited consolidated condensed financial
statements included in this Form 10-Q fairly present, in all material respects,
the Company's financial position, results of operations and cash flows for the
periods presented.

There has been no significant change in our internal control over financial
reporting that occurred during the period covered by this report that has
materially affected, or that is reasonably likely to materially affect our
internal control over financial reporting.

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

On April 15, 2004, the US Securities and Exchange Commission filed suit in the
U.S. District Court for the Southern District of Florida against the Company and
Mr. Dennis Crowley, its then current Chief Executive Officer/Chairman, among
others, alleging violations of the federal securities laws. Specifically with
regard to the Company, the SEC alleged that the Company violated the SEC's
registration, anti-fraud and reporting provisions. These allegations arise from
the alleged failure of Mr. Crowley to accurately report his ownership of the
Company's stock, and his alleged manipulation of the price of the Company's
stock through dissemination of false information, allowing him to profit from
sales of stock through nominee accounts. On May 10, 2004, the Company consented
to the entry of a preliminary injunction, without admitting or denying the
allegations of the SEC complaint. The SEC is continuing its investigation into
pension issues. The Company is offering its full cooperation.

                                       55
<PAGE>

As a further measure, the Court appointed a Corporate Monitor to oversee the
Company's operations. In addition to Mr. Crowley consenting to a preliminary
injunction the Court's order also temporarily barred Mr. Crowley from service as
an officer or director of a public company, and prohibited him from voting or
disposing of Company stock. Although Soneet Kapila has continued to serve as
Corporate Monitor for the Company, on January 10, 2007, he applied to the Court
to terminate the role of Corporate Monitor having determined that his function
was no longer necessary. On January 22, 2007, the Court entered the order
relieving the Corporate Monitor of his duties.

Following Mr. Crowley's suspension the Board appointed Mr. J.R. Harrington, a
member of its Board of Directors, to serve as the Company's interim Chairman.
Mr. William Fletcher, a fellow member of the Company's Board of Directors, who,
until October 27, 2004, was the Company's Chief Financial Officer, and who is a
director of Spear & Jackson plc, based in Sheffield, was elected to serve as
acting Chief Executive Officer. Following extensive settlement negotiations with
the SEC and Mr. Crowley, the Company reached a resolution with both parties. On
September 28, 2004, Mr. Crowley signed a Consent to Final Judgment of Permanent
Judgment with the SEC, without admitting or denying the allegations included in
the complaint, which required a disgorgement and payment of civil penalties by
Mr. Crowley consisting of a disgorgement payment of $3,765,777 plus prejudgment
interest in the amount of $304,014, as well as payment of a civil penalty in the
amount of $2,000,000. In May 2005, the SEC applied to the Court for the
appointment of an administrator for the distribution of these funds as well as
funds collected from co-defendants International Media Solutions, Inc., Yolanda
Velazquez and Kermit Silva who were not affiliated with the Company, to the
victims of their actions, pursuant to the Fair Funds provisions of the
Sarbanes-Oxley Act of 2002.

On November 18, 2004, the Company signed a Consent to Final Judgment of
Permanent Injunction with the SEC pursuant to which the Company, without
admitting or denying the allegations included in the Complaint filed by the
Commission, consented to a permanent injunction from violation of various
sections and rules under the Securities Act of 1933 and the Securities Exchange
Act of 1934. No disgorgement or civil penalties were sought from, or ordered to
be paid by, the Company.

Additionally, the Company entered into a Stock Purchase Agreement with PNC Tool
Holdings LLC ("PNC") and Mr. Crowley, the sole member of PNC. Under the Stock
Purchase Agreement, the Company acquired, for $100, and other good and valuable
consideration, 6,005,561 common shares of the Company held by PNC, which
represented approximately 51.1% of the outstanding common shares of the Company
at December 31, 2004, and which constituted 100% of the common stock held by
such entity. The parties also executed general releases in favor of each other
subject to the fulfillment of the conditions of the Stock Purchase Agreement.
The Stock Purchase Agreement was effected on April 8, 2005, following formal
approval by the SEC on February 10, 2005 and, on February 15, 2005 by the U.S.
District Court for the Southern District of Florida of the settlement of the
litigation captioned SEC v. Dennis Crowley, Spear & Jackson, Inc., International
Media Solutions, Inc., Yolanda Velazquez and Kermit Silva (Case No:
04-80354-civ-Middlebrooks). The Stock Purchase Agreement was further conditioned
on, among other things, the disgorgement and civil penalty funds being paid by
Mr. Crowley. These monies have now been received and are being administered for
the benefit of the victims of the alleged fraud by a court appointed
administrator pursuant to the Fair Funds provision of the Sarbanes-Oxley Act of
2002.

With the return of the Spear & Jackson shares to the Company by PNC, the
stockholders of the Company had their percentage stock interest increase
correspondingly. Jacuzzi Brands, Inc. ("Jacuzzi"), which a this time was a
beneficial owner of 3,543,281 shares of common stock had its interest in the
Company increase to approximately 61.8% of the outstanding common stock.

Subsequent to the SEC action a number of class action lawsuits were initiated in
the U.S. District Court for the Southern District of Florida by Company
stockholders against the Company, Sherb & Co. LLP, the Company's former
independent auditor, and certain of the Company's directors and officers,
including Mr. Crowley, the Company's former Chief Executive Officer/Chairman,
and Mr. Fletcher, the Company's former CFO and current acting Chief Executive
Officer. These suits allege essentially the same claims as the SEC suit
discussed above.

                                       56
<PAGE>

These various class action suits were subsequently consolidated. Thereafter, the
defendants filed certain Motions to Dismiss with regard to the Complaint and on
October 19, 2005, the U.S. District Court for the Southern District of Florida
in Re Spear & Jackson Securities Litigation entered its Order regarding these
Motions. The Order denied the Company's motion as well as that of Mr. Crowley,
the former Chief Executive Officer of Spear & Jackson. The Court granted the
Motion to Dismiss on behalf of Mr. Fletcher, the Company's interim Chief
Executive Officer, and also granted the Motion to Dismiss on behalf of the
Company's former independent auditor, Sherb & Co., LLP. The class plaintiff has
filed an appeal regarding the trial court's decision to dismiss the case against
Sherb & Co., LLP, which appeal is presently pending. No appeal was filed with
respect to the decision to dismiss the case against Mr. Fletcher.

On July 7, 2006 the Company, Dennis Crowley and the Class Plaintiff reached a
Memorandum of Understanding ("MOU"), which confirmed that the plaintiffs, the
Company and Crowley in the class action had reached an agreement in principle
for the settlement of this litigation, subject to Court approval. According to
the terms of the MOU, the Company deposited the sum of $650,000 into a Qualified
Settlement Fund, for disbursement to the Settlement Class pending approval of
the Court. Subsequent to this, Sherb & Co. also agreed to the terms of the
Settlement agreeing to contribute an additional $125,000.

On November 9, 2006, the Stipulation of Settlement was filed with the Court for
preliminary approval. On January 31, 2007, the Court entered its Order
Preliminarily Approving Settlement and Providing for Notice and Setting Class
Action Statutory Settlement Hearing. The Order, for purposes of the proposed
settlement certified a "Settlement Class" of persons (with certain exceptions)
who purchased the Company's common stock between February 1, 2002 and April 15,
2004. The Order also approved as to form and content the Notice of Pendency and
Proposed Settlement of Class Action and Summary Notice. The Settlement Hearing
has been set for May 11, 2007 at 11:30 a.m. at the West Palm Beach, Florida
Federal District Courthouse to determine whether the terms of the Settlement are
fair, just reasonable and adequate to the Settlement Class, and should be
approved by the Court; whether a final judgment should be entered dismissing the
litigation; whether the proposed plan of allocation should be approved; and to
determine the amount of fees and expenses to be awarded to plaintiffs' lead
counsel. The Order also appointed a claims administrator and provided for notice
to those who sought exclusion from the Settlement Class.

If the Settlement outlined in the MOU is not approved by the Court or, if
subsequently terminated, the terms of the above Settlement will be without
prejudice, any settlement amounts already paid will be returned and parties will
revert to their litigation positions immediately prior to the MOU.

Should the class action settlement be approved, to facilitate the distribution
of the funds from the class suit to the class shareholders and keep
administrative costs to a minimum, the SEC Claim's Administrator applied to the
Court on January 9, 2007 for permission to combine the class action funds with
the funds derived in the SEC litigation, and allow for the SEC's Claim's
Administrator to disburse the collective funds.

On September 6, 2005, the Company was served with a Shareholder Derivative
Complaint, Hapka v. Crowley, et al. Case No. CA005068, filed on June 1, 2004 in
the Circuit Court for Palm Beach County, Florida. The suit names the Company as
a nominal defendant, and former directors Robert Dinerman, William Fletcher and
John Harrington, in addition to Dennis Crowley and the Company's prior
independent auditors, Sherb & Co. LLP.,. The suit contains essentially the same
factual allegations as the SEC suit, which was filed in April 2004 in the U. S.
District Court for the Southern District of Florida, and the series of class
actions claims initiated in the U.S. District Court, but additionally alleges
state law claims of breaches of fiduciary duty, abuse of control, gross
mismanagement, waste of corporate assets, unjust enrichment and lack of
reasonable care by various or all the defendants.

                                       57
<PAGE>

Due to ongoing settlement discussions with the plaintiff's attorney, the Company
had not responded to the Complaint. In August 2006 the Company entered into a
settlement agreement with the plaintiff by agreeing to accept certain changes to
its corporate governance procedures and the payment of $70,000 in legal fees.
The settlement was filed with the Court in early November 2006, and if approved
by the Court, will result in a dismissal of the suit and release the Company and
the former director defendants Robert Dinerman, William Fletcher and John
Harrington. Dennis Crowley and Sherb & Co. continue as defendants in this suit.

On February 2, 2007, the Circuit Court entered a Preliminary Approval Order
preliminarily approving the partial settlement pursuant to the Stipulation of
Settlement between plaintiff and the Company, including its former directors
William Fletcher, John Harrington, and Robert Dinerman. The Court has set May
29, 2007 at 8a.m. at the West Palm Beach County Courthouse, for the Settlement
Hearing to determine (i) whether the terms of the Partial Settlement are fair,
just reasonable and adequate to the derivative stockholders and to the Company,
and should be approved by the Court; (ii) whether a final judgment should be
entered dismissing the litigation and releasing the defendants Spear & Jackson,
as described in the Stipulation; and (iii) to determine the amount of fees and
expenses to be awarded to plaintiffs' counsel. The Order approved as to form and
contents the Notice of Partial Settlement and the mailing and distribution
process. The Order also provided for notice to those who sought exclusion from
the settlement.

There can be no assurance that the respective courts will approve either
settlement.

Additionally, the Company is, from time to time, subject to legal proceedings
and claims arising from the conduct of its business operations, including
litigation related to personal injury claims, customer contract matters,
employment claims and environmental matters. While it is impossible to ascertain
the ultimate legal and financial liability with respect to contingent
liabilities including lawsuits, the Company believes that the aggregate amount
of such liabilities, if any, in excess of amounts accrued or covered by
insurance, will not have a material adverse effect on the consolidated financial
position or results of operations of the Company.

ITEM 6.  EXHIBITS

31.1     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2     Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002.

                                       58
<PAGE>

                                   SIGNATURES


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


Dated: February 14, 2007           SPEAR & JACKSON, INC.

                                   By: /s/ Lewis Hon Ching Ho
                                       ----------------------
                                       Lewis Hon Ching Ho
                                       Director and Chief Administrative Officer
                                       (Principal Executive Officer)


Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.


Dated:   February 14, 2007         By: /s/ Lewis Hon Ching Ho
                                       ----------------------
                                       Lewis Hon Ching Ho
                                       Director and Chief Administrative Officer
                                       (Principal Executive Officer)


Dated:   February 14, 2007         By: /s/ Andy Yan Wai Poon
                                       ---------------------
                                       Andy Yan Wai Poon
                                       Director, Corporate Controller, and
                                       Secretary


Dated: February 14, 2007           By: /s/ Patrick J. Dyson
                                       --------------------
                                       Patrick J. Dyson
                                       Chief Financial Officer
                                       (Principal Financial
                                       And Accounting Officer)

                                       59