UNITED STATES
                       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, 2005

                                       OR

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

          For the transition period from _____________ to ____________


                         Commission file number 0-32013


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


Nevada                                   91-2037081
------                                   ----------
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)


401 South Lasalle Street, Suite 201,
Chicago, Illinois                               60605
----------------------------------------        --------
(Address of principal executive offices)        (Zip Code)


        Registrant's telephone number, including area code: 312-765-0680


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

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.001 per share


Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by checkmark 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.
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].

Registrant had 5,735,561 shares of Common Stock, $.001 par value per share,
outstanding as of February 14, 2006.

<PAGE>

                              Spear & Jackson, Inc.


                                      INDEX

                                                                     Page Number
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited) ................................     1

         Condensed Consolidated Statements of Operations -
         Three Months ended December 31, 2005 and 2004 ...................     1

         Condensed Consolidated Balance Sheets - December 31, 2005
         and September 30, 2005 (audited) ................................     2

         Condensed Consolidated Statements of Cash Flows -
         Three Months ended December 31, 2005 and 2004 ...................     3

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

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations .......................................    19

Item 3.  Quantitative and Qualitative Disclosures about Market Risk ......    55

Item 4.  Controls and Procedures .........................................    57

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ...............................................    58

Item 6.  Exhibits ........................................................    60

SIGNATURES ...............................................................    61

Certifications of Acting Chief Executive Officer and
 Chief Financial Officer pursuant to Section 302 ......................... EX 31

Certifications of Acting Chief Executive Officer and
 Chief Financial Officer pursuant to Section 906 ......................... EX 32

<PAGE>

ITEM 1.  Financial Statements (Unaudited)

                     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,
                                                        2005           2004
                                                    ------------   ------------

Net sales ........................................  $     22,926   $     24,685
Cost of goods sold ...............................        15,897         16,734
                                                    ------------   ------------
Gross profit .....................................         7,029          7,951

Operating costs and expenses:
   Selling, general and administrative expenses ..         9,118          8,616

                                                    ------------   ------------
Operating loss ...................................        (2,089)          (665)

Other income (expense)
      Rental income ..............................            37             40
      Interest and bank charges (net) ............           (29)           (29)

                                                    ------------   ------------
Loss from continuing operations before income
 tax benefit .....................................        (2,081)          (654)

Income tax benefit ...............................           416             43
                                                    ------------   ------------

Net loss from continuing operations ..............        (1,665)          (611)
                                                    ------------   ------------
Discontinued operations:

   Loss from discontinued operations (net of
      income taxes of $nil in 2005 and 2004) .....           (21)           (37)
   Adjustment to previously recorded loss on
      disposal of discontinued operations ........             7              -
                                                    ------------   ------------
Net loss from discontinued operations ............           (14)           (37)
                                                    ------------   ------------

Net loss .........................................  $     (1,679)  $       (648)
                                                    ============   ============
Basic and diluted loss per share:

From continuing operations .......................  ($      0.29)  ($      0.05)
From discontinued operations .....................         (0.00)         (0.00)
                                                    ------------   ------------
                                                    ($      0.29)  ($      0.05)
                                                    ============   ============

Weighted average shares outstanding ..............     5,735,561     11,741,122
                                                    ============   ============

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

                                        1
<PAGE>
<TABLE>
                               SPEAR & JACKSON, INC. AND SUBSIDIARIES

                                CONDENSED CONSOLIDATED BALANCE SHEETS

                                    (IN THOUSANDS, EXCEPT SHARES)
<CAPTION>
                                                                 AT DECEMBER 31,   AT SEPTEMBER 30,
                                                                       2005              2005
                                                                 ---------------   ----------------
                                                                   (UNAUDITED)
<S>                                                              <C>               <C>
                                     ASSETS

Current assets:
   Cash and cash equivalents ..................................  $         7,594   $          7,289
   Trade receivables, net of allowance for doubtful accounts of
    $1,474 and $1,525 .........................................           14,832             16,448
   Inventories ................................................           23,570             24,999
   Foreign taxes recoverable ..................................              177                  -
   Deferred income tax asset, current portion .................            2,635              2,623
   Other current assets .......................................            1,243              1,316
                                                                 ---------------   ----------------
      Total current assets ....................................           50,051             52,675

Property, plant and equipment, net ............................           17,036             17,568
Deferred income tax asset .....................................           12,746             12,690
Investments ...................................................              153                157
                                                                 ---------------   ----------------
      Total assets ............................................  $        79,986   $         83,090
                                                                 ===============   ================

                         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Notes payable ..............................................  $             -   $            752
   Trade accounts payable .....................................            8,765              8,103
   Accrued expenses and other liabilities .....................           10,331             11,241
   Foreign taxes payable ......................................              228                 88
                                                                 ---------------   ----------------
      Total current liabilities ...............................           19,324             20,184
Other liabilities .............................................              794                749
Pension liability .............................................           36,016             35,954

                                                                 ---------------   ----------------
      Total liabilities .......................................           56,134             56,887
                                                                 ---------------   ----------------
Stockholders' equity:
Common stock, 25,000,000 shares authorized $0.001 par value;
   12,011,122 shares 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 adjustment, net of tax ...........          (42,457)           (43,751)
   Foreign currency translation adjustment, net of tax ........            9,785             11,765
   Unrealized gain (loss) on derivative instruments ...........                7                 (7)
Retained earnings .............................................            5,455              7,134
Less: 6,275,561 common stock held in treasury, at cost ........             (540)              (540)
                                                                 ---------------   ----------------
      Total stockholders' equity ..............................           23,852             26,203
                                                                 ---------------   ----------------
      Total liabilities and stockholders' equity ..............  $        79,986   $         83,090
                                                                 ===============   ================

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

                                                  2
</TABLE>
<PAGE>
<TABLE>
                               SPEAR & JACKSON, INC. AND SUBSIDIARIES

                           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                             (UNAUDITED)

                                           (IN THOUSANDS)
<CAPTION>
                                                                        FOR THE THREE MONTHS ENDED
                                                                        DECEMBER 31,   DECEMBER 31,
                                                                            2005           2004
                                                                        ------------   ------------
<S>                                                                     <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss attributable to continuing and discontinued operations ...  $     (1,679)  $       (648)
   Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:
      Depreciation ...................................................           594            717
      Amortization of asset held for sale ............................             -             16
      Loss on sale of plant, property and equipment ..................             2             11
        Deferred income taxes ........................................          (566)           (91)
Changes in operating assets and liabilities:
      Decrease in trade receivables ..................................         1,125            748
      Decrease (increase) in inventories .............................           693         (2,467)
      Decrease (increase) in other current assets ....................            40           (401)
      Contributions paid to pension plan .............................          (884)          (729)
      Increase in other non-current liabilities ......................         2,027          1,008
      Increase in trade accounts payable .............................           911          2,446
      (Decrease) increase in accrued expenses and other liabilities ..          (576)           551
      (Decrease) increase in foreign taxes payable ...................           (30)            24
      Increase (decrease) in other liabilities .......................            68            (43)
                                                                        ------------   ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................         1,725          1,142
                                                                        ------------   ------------

INVESTING ACTIVITIES:
   Purchases of property, plant and equipment ........................          (580)          (338)
   Proceeds from sale of property, plant and equipment ...............             -             15
                                                                        ------------   ------------
NET CASH USED IN INVESTING ACTIVITIES ................................          (580)          (323)
                                                                        ------------   ------------

FINANCING ACTIVITIES:
   Repayment of overdraft ............................................          (730)            (2)
                                                                        ------------   ------------
NET CASH USED IN FINANCING ACTIVITIES ................................          (730)            (2)
                                                                        ------------   ------------
Effect of exchange rate changes on cash and cash equivalents .........          (110)           287
                                                                        ------------   ------------

CHANGE IN CASH AND CASH EQUIVALENTS ..................................           305          1,104

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .....................         7,289          5,090
                                                                        ------------   ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD ...........................  $      7,594   $      6,194
                                                                        ============   ============
SUPPLEMENTAL CASH FLOW INFORMATION
    Cash paid for interest ...........................................  $         29   $         29
                                                                        ============   ============
    Cash paid for income taxes .......................................  $        180   $         24
                                                                        ============   ============

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

                                                  3
</TABLE>
<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" 14).

         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, 2005 and September 30, 2005, and the
results of operations for the three month periods ended December 31, 2005 and
December 31, 2004 and cash flows for the three month periods ended December 31,
2005 and December 31, 2004 have been included and that the disclosures are
adequate to make the information presented not misleading. The balance sheet at
September 30, 2005 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, 2005.

         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, 2005 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 and the US
dollar will affect the translation of the UK, French, Dutch, 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 have 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.

         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.

                                        4
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          (IN THOUSANDS, EXCEPT SHARES)

NOTE 1 - BASIS OF PRESENTATION - CONTINUED

         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

         On October 22, 2004, the President signed the "American Jobs Creation
Act of 2004" (the "Act"). On December 21, 2004, the FASB issued two FSP's
regarding the accounting implications of the Act related to (1) the deduction
for qualified domestic production activities ("FSP SFAS No. 109-1") and (2) the
one-time tax benefit for the repatriation of foreign earnings ("FSP SFAS No.
109-2"). The guidance in the FSP's applies to financial statements for periods
ending after the date the Act was enacted.

         FSP 109-1, "Application of FASB Statement No. 109, 'Accounting for
Income Taxes,' to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004", clarifies that the tax deduction for
domestic manufacturers under the Act should be accounted for as a special
deduction in accordance with SFAS 109, "Accounting for Income Taxes." We are
currently evaluating the impact, if any, of FSP-109-1 on our consolidated
financial statements.

         FSP SFAS 109-2, "Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Creation Act of 2004",
provides enterprises more time (beyond the financial-reporting period during
which the Act took effect) to evaluate the Act's impact on the enterprise's plan
for reinvestment or repatriation of certain foreign earnings for purposes of
applying FASB Statement. The Act provides for a special one-time tax deduction
of 85 percent dividends received deduction on certain foreign earnings
repatriated in fiscal 2005 or 2006. The deduction would result in an approximate
5.1 percent federal tax on a portion of the foreign earnings repatriated. State,
local and foreign taxes could apply as well. To qualify for this federal tax
deduction, the earnings must be reinvested in the United States pursuant to a
domestic reinvestment plan. Certain other criteria in the Jobs Act must be
satisfied as well. We studied the provisions of the Act related to the
repatriation of earnings and do not intend to repatriate any earnings as of
December 31, 2005.

         SFAS No. 123 (Revised 2004), "Share-Based Payment," issued in December
2004, is a revision of FASB Statement 123, "Accounting for Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and its related implementation guidance. The Statement focuses
primarily on accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SFAS No. 123 (Revised 2004)
requires a public entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award (with limited exceptions). That cost will be recognized over the
period during which an employee is required to provide service in exchange for
the award. This statement is effective as of the beginning of the first interim
or annual reporting period of the Company's first fiscal year beginning on or
after June 15, 2005. The Company has adopted the standard in the first quarter
of fiscal 2006 and the Company believes that the adoption of this statement will
not have a material effect on the Company's consolidated financial position or
results of operations.

         In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an
amendment of ARB No. 43, Chapter 4," which clarifies the types of costs that
should be expensed rather than capitalized as inventory. This statement also
clarifies the circumstances under which fixed overhead costs associated with
operating facilities involved in inventory processing should be capitalized. The
provisions of SFAS No. 151 are effective for fiscal years beginning after June
15, 2005 and the Company has therefore adopted this standard in fiscal 2006. We
believe the adoption of this Statement will not have a material impact on our
financial position or results of operations.

                                        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 December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets--An Amendment of APB Opinion No. 29, Accounting for
Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from
fair value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not have
commercial substance. SFAS 153 specifies that a nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS 153 is effective for the
fiscal periods beginning after June 15, 2005 and was adopted by the Company in
the first quarter of fiscal 2006, beginning on October 1, 2005. The Company does
not believe that the implementation of this statement will have a material
impact on its consolidated results of operations and financial condition.

         In March 2005, the 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.
We do not believe that the implementation of this statement will have 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. We believe the adoption of this Statement will not have 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 is
effective for accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005 which is effective with our first quarter of
fiscal 2007. We intend to adopt the disclosure requirements upon the effective
date of the pronouncement. We do not believe that the adoption of this
pronouncement will have a material effect on our consolidated financial
position, results of operations or cash flows.

         In June 2005, the 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 will be applied prospectively and is
effective for periods beginning after June 29, 2005. Adoption of this standard
is not expected to have a material impact on our consolidated financial position
or results of operations.

                                        6
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          (IN THOUSANDS, EXCEPT SHARES)

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, 2005. 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, 2005, 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, 2005, 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.

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

                                        7
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          (IN THOUSANDS, EXCEPT SHARES)

NOTE 4 - NATURE OF BUSINESS - CONTINUED

         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. 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 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, has 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 (the "Plan of Disposition"), under which Jacuzzi intends
to:

         investigate the strategic alternatives with respect to the sale of the
         Common Stock held by them; take such further actions as will result in
         Jacuzzi disposing of the Common Stock within a one-year period; and
         engage investment banking, legal, and other advisors as necessary to
         assist in the disposition of the Company's Common Stock.

         Jacuzzi may dispose of its Common Stock in one or more transactions of
all or a portion of their shares of Common Stock in the open market, in
privately negotiated transactions or otherwise.

         At this time, no decision has been made by Jacuzzi to either change the
composition of the Company's Board of Directors or assert an expanded role in
the management of the Company. Jacuzzi intends to monitor and evaluate its
investment in the Company on a continuing basis or formulate other purposes,
plans or proposals regarding the Company or the investment in the Company's
Common Stock that it holds, in addition to those discussed above. Jacuzzi
retains the right to change its investment intent.

                                        8
<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 that has been recorded
in connection with the disposal of these businesses:
<TABLE>
<CAPTION>
                                                                     FOR THE THREE    FOR THE THREE
                                                                     MONTHS ENDED     MONTHS ENDED
                                                                     DECEMBER 31,     DECEMBER 31,
                                                                         2005             2004
                                                                    --------------   --------------
                                                             Note   (IN THOUSANDS)   (IN THOUSANDS)
<S>                                                          <C>    <C>              <C>
Revenues reclassified to discontinued operations:
Thread gauge measuring division ..........................    (a)   $          355   $          422
                                                                    --------------   --------------
                                                                    $          355   $          422
                                                                    ==============   ==============

Loss from discontinued operations
Loss from operations of thread gauge measuring division ..    (a)              (21)  $          (37)
                                                                    --------------   --------------
                                                                    $          (21)  $          (37)
                                                                    ==============   ==============

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

                                                                    --------------   --------------
Total loss from discontinued operations net of taxes .....          $          (14)  $          (37)
                                                                    ==============   ==============
</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 thread gauge measuring
business that is located in the United Kingdom. The carrying value of the assets
relating to this entity has been written down to the lower of depreciated cost
or estimated fair value after consideration of selling costs. These 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 has now been agreed with Megapro that it will pay Canadian $54
(approximately $41) in settlement of those debts and this is being repaid in
monthly installments of Canadian $5 (approximately $4) of which $27 was received
in the year ended September 30, 2005. A further $7 has been received in the
three months ended December 31, 2005.

                                        9
<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 $2,027 for the quarter ending December 31,
2005 and $1,008 for the same quarter last year. The net periodic costs include
the following components:

                                                 FOR THE THREE    FOR THE THREE
                                                 MONTHS ENDED     MONTHS ENDED
                                                 DECEMBER 31,     DECEMBER 31,
                                                     2005             2004
                                                --------------   --------------
                                                (IN THOUSANDS)   (IN THOUSANDS)

Service cost ................................   $          525   $          456
Interest cost ...............................            2,600            2,544
Expected return on plan assets ..............           (2,459)          (2,674)
Recognition of actuarial loss ...............            1,361              682

                                                --------------   --------------
Total Benefit cost ..........................   $        2,027   $        1,008
                                                ==============   ==============

         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. The Company has contributed $884 to the Plan in the quarter to
December 31, 2005 (2004 $729). The Company anticipates that contributions of
$3.3 million will be made in the year ending September 30, 2006 (2005 $10.2
million of which $3.0 million was in respect of annual ongoing employer
contributions and $7.2 million related to a one-off special contribution into
the Plan).

         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, 2005, 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 $35.95
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 2006. If the
level of pension assets exceeds the ABO as of a future measurement date, the
full charge against stockholders' equity would be reversed.

                                       10
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          (IN THOUSANDS, EXCEPT SHARES)

NOTE 7 - PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
                                                         AT DECEMBER 31,   AT SEPTEMBER 30,
                                                               2005              2005
                                                         ---------------   ----------------
                                                          (IN THOUSANDS)    (IN THOUSANDS)
<S>                                                <C>   <C>               <C>
Assets held and used:
   Land and buildings, at cost .................         $        15,451   $         15,799
   Machinery, equipment and vehicles, at cost ..                  30,202             35,331
   Furniture and fixtures, at cost .............                   1,136              1,256
   Computer hardware, at cost ..................                   1,334              1,244
   Computer software, at cost ..................                     292                342
   Assets held under finance leases, at cost ...   (a)             2,598              2,883
                                                         ---------------   ----------------
                                                                  51,013             56,855
   Accumulated Depreciation ....................                 (33,977)           (39,287)
                                                         ---------------   ----------------
      Net ......................................         $        17,036   $         17,568
                                                         ===============   ================
</TABLE>

(a) Included in property, plant and equipment at December 31, 2005 are capital
leases with a net book value of $1.0 million (September 30, 2005 $0.9 million).
The cost of these assets held under capital leases was $2.6 million (September
30, 2005 $2.9 million) and the accumulated depreciation relating to these assets
was $1.6 million (September 30, 2005 $2.0 million).

NOTE 8 - INVENTORIES
<TABLE>
<CAPTION>
                                                         AT DECEMBER 31,   AT SEPTEMBER 30,
                                                         ---------------   ----------------
                                                               2005              2005
                                                         ---------------   ----------------
                                                          (IN THOUSANDS)    (IN THOUSANDS)
<S>                                                      <C>               <C>
Finished products ..............................         $        18,960   $         19,740
In-process products ............................                   5,375              6,481
Raw materials ..................................                   5,074              5,320
   Less: allowance for slow moving and
      obsolete inventories .....................                  (5,839)            (6,542)
                                                         ---------------   ----------------
                                                         $        23,570   $         24,999
                                                         ===============   ================
</TABLE>

NOTE 9 - MANUFACTURING REORGANIZATION PROGRAM

         As described in footnote 4 (b) of the Company's consolidated financial
statements included within the Company's Form 10-K for the year ended September
30, 2005, provisions totaling $1.7 million were provided in respect of a UK
manufacturing reorganization program that was initiated during the course of
that year. The provisions comprised the following:

         (i) As a result of the sale of the surplus element of the Company's
         manufacturing site at Wednesbury, England, the Company became
         contractually obligated to vacate office and warehouse facilities
         located on those parts of the site that had been sold. A provision of
         $0.5 million was made for costs in connection with this obligation. The
         provision principally relates to office and factory refurbishment and
         reorganization expenses together with expenditures in connection with
         departmental relocations within the remainder of the site. Following
         the sale, elements of the Wednesbury manufacturing operation have been
         closed or transferred and costs in connection with these initiatives
         are dealt with in (ii) and (iii) below.

         In the final quarter of the year ended September 30, 2005 the Company
performed a review of its UK manufacturing operations and began implementation
of a number of strategies to reduce its ongoing cost base. Costs provided in
connection with the implementation of these initiatives relate to:

         (ii) $0.4 million of severance costs relating to the closure and down
         scaling of certain manufacturing processes at the Company's Sheffield
         and Wednesbury locations in the UK.

         (iii) $0.8 million of impairment write-downs in respect of the plant
         and machinery involved in the restructured operations.

                                       11
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          (IN THOUSANDS, EXCEPT SHARES)

NOTE 9 - MANUFACTURING REORGANIZATION PROGRAM - CONTINUED

         In addition to the above, the Company has a further provision of $1.7
million in respect of other UK manufacturing reorganization and relocation costs
that was set up in prior periods.

         In the quarter ended December 31, 2005, $0.3 million of costs were
incurred in connection with employee severance costs and other reorganization
expenses for which provision was made at September 30, 2005. The following is a
summary of the liability balance as September 30, 2005 and December 31, 2005
together with movements in the period.

(a) Included in Accrued Expenses and Other Liabilities:
<TABLE>
<CAPTION>
                                 AT OCTOBER 1,                                       AT DECEMBER 31,
                                 --------------      EXCHANGE          AMOUNTS      ----------------
                                      2005           MOVEMENTS          PAID              2005
                                 --------------   --------------   --------------   ----------------
                                 (IN THOUSANDS)   (IN THOUSANDS)   (IN THOUSANDS)    (IN THOUSANDS)
<S>                              <C>              <C>              <C>              <C>
Wednesbury move costs .........  $          444   $          (13)  $          (31)  $            400
Employee severance costs ......             402              (11)            (273)               118
Other UK reorganization costs .           1,687              (49)               -              1,638

                                 --------------   --------------   --------------   ----------------
                                 $        2,533   $          (73)  $         (304)  $          2,156
                                 ==============   ==============   ==============   ================

(b) Included in Property,
    Plant and Equipment:

Asset impairments .............  $          803   $          (24)  $            -   $            779
                                 ==============   ==============   ==============   ================

Total .........................  $        3,336   $          (97)  $         (304)  $          2,935
                                 ==============   ==============   ==============   ================
</TABLE>
         On January 25, 2006, the Company announced the closure of the remaining
element of its manufacturing site at Wednesbury, England. All manufacturing,
assembly, warehouse and distribution operations currently performed at this
location will be transferred to the Company's principal UK manufacturing site in
Sheffield.

         The closure and relocation of the Wednesbury facility are expected to
take approximately six months and the costs of this exercise are anticipated to
be approximately $2.1 million. These costs include employee severance payments,
site closure expenses, factory reorganization expenses, plant transfer costs and
associated capital expenditure. Negotiations are currently in progress regarding
the sale of the Wednesbury site to a non-related third party. It is expected
that the sales price of the site will be in excess of its net book amount and
the Company has not therefore made any provision against the balance sheet
carrying value of this property at December 31, 2005. Funds realized from any
disposal will be used to finance the closure costs with any excess sale proceeds
being reinvested in the business.

         As a result of the closure of the remaining element of the Wednesbury
site, a number of provisions that were made in fiscal 2005 relating to the
reorganization of that site are no longer required. At December 31, 2005, the
amount of these excess provisions was not, however, materially different from
certain additional provisions that had crystallized at that date in respect of
costs, as described above, relating to the closure of the Wednesbury plant.
Since there is no significant difference between the value of the excess and the
additional provisions, no adjustment has therefore been made to the overall
level of provisioning required at December 31, 2005.

         The site closure forms part of the Company's UK manufacturing
reorganization program which was implemented to regenerate and modernize key
areas of the hand and garden tools business. The closure 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.

                                       12
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          (IN THOUSANDS, EXCEPT SHARES)

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 continuing
operations consists of:

                                                  FOR THE THREE   FOR THE THREE
                                                   MONTHS ENDED    MONTHS ENDED
                                                   DECEMBER 31,    DECEMBER 31,
                                                       2005            2004
                                                  -------------   -------------
                                                   IN THOUSANDS    IN THOUSANDS

Current tax charge ............................   $        (150)  $         (48)
Deferred tax credit ...........................             566              91

                                                  -------------   -------------
                                                  $         416   $          43
                                                  =============   =============

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

                                                  FOR THE THREE   FOR THE THREE
                                                   MONTHS ENDED    MONTHS ENDED
                                                   DECEMBER 31,    DECEMBER 31,
                                                      2005            2004
                                                  -------------   -------------
                                                   IN THOUSANDS    IN THOUSANDS

Tax at US federal statutory income tax rate ..... $         733   $         242
Overseas tax at rates different to effective rate          (147)            (43)
Adjustment to prior year overseas tax provisions            (89)              -
Permanent differences ...........................           (36)            (39)
Valuation allowance .............................           (45)           (117)

                                                  -------------   -------------
                                                  $         416   $          43
                                                  =============   =============

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.

                                       13
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          (IN THOUSANDS, EXCEPT SHARES)

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    FOR THE THREE
                                                 MONTHS ENDED     MONTHS ENDED
                                                 DECEMBER 31,     DECEMBER 31,
                                                     2005             2004
                                                --------------   --------------
                                                (IN THOUSANDS)   (IN THOUSANDS)

Total net loss ...............................  $       (1,679)  $         (648)

Other comprehensive income (loss)

   Additional minimum pension liability ......           1,294           (2,587)
   Foreign currency translation adjustments ..          (1,980)           4,666
   Unrealized gains on derivative
      instruments ............................              14               41
                                                --------------   --------------
Total comprehensive (loss) income ............  $       (2,351)  $        1,472
                                                ==============   ==============

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
and Australasia.

         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 entity in the Netherlands
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.

                                       14
<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            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2005           2004           2005           2004
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
   Hand & garden tools .........   $     16,258   $     18,422   $      5,314   $      9,240
   Metrology tools .............          4,421          4,019          2,346          2,808
   Magnetic products ...........          2,602          2,666            310            838
   Corporate ...................              -              -          9,066         10,354
                                   ------------   ------------   ------------   ------------
      Total ....................   $     23,281   $     25,107   $     17,036   $     23,240
                                   ============   ============   ============   ============
Attributable to:
      Continuing operations ....   $     22,926   $     24,685   $     17,036   $     23,240
      Discontinued operations ..   $        355   $        422   $          -              -
                                   ------------   ------------   ------------   ------------
                                   $     23,281   $     25,107   $     17,036   $     23,240
                                   ============   ============   ============   ============

<CAPTION>
                                          DEPRECIATION               CAPITAL EXPENDITURE
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2005           2004           2005           2004
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
   Hand & garden tools .........   $        378   $        462   $        363   $        278
   Metrology tools .............             85            113            210             56
   Magnetic products ...........             81             84              7              4
   Corporate ...................             50             58              -              -
                                   ------------   ------------   ------------   ------------
      Total ....................   $        594   $        717   $        580   $        338
                                   ============   ============   ============   ============
Attributable to:
      Continuing operations ....   $        594   $        717   $        580   $        338
                                   ============   ============   ============   ============

<CAPTION>
                                     OPERATING (LOSS) INCOME            NET INTEREST
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2005           2004           2005           2004
                                   ------------   ------------   ------------   ------------
<S>                                <C>         <C>               <C>            <C>
   Hand & garden tools .........   $     (2,228)  $       (698)  $        (38)  $        (46)
   Metrology tools .............            395            292            (10)            (3)
   Magnetic products ...........             76            223             (2)            (3)
   Corporate ...................           (346)          (519)            21             23
                                   ------------   ------------   ------------   ------------
      Total ....................   $     (2,103)  $       (702)  $        (29)  $        (29)
                                   ============   ============   ============   ============
Attributable to:
      Continuing operations ....   $     (2,089)  $       (665)  $        (29)  $        (29)
      Discontinued operations ..   $        (14)  $        (37)  $          -   $          -
                                   ------------   ------------   ------------   ------------
                                   $     (2,103)  $       (702)  $        (29)  $        (29)
                                   ============   ============   ============   ============

         (a) Represents property, plant and equipment, net.
</TABLE>
                                       15
<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            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2005           2004           2005           2004
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
   United Kingdom ..............   $      9,608   $     10,651   $     15,388   $     21,152
   Europe ......................          4,675          4,725          1,127          1,344
   Australasia .................          3,733          3,998            457            744
   North America ...............          1,789          1,620              -              -
   China and Rest of World .....          3,476          4,113             64              -
                                   ------------   ------------   ------------   ------------
      Total ....................   $     23,281   $     25,107   $     17,036   $     23,240
                                   ============   ============   ============   ============
Attributable to:
      Continuing operations ....   $     22,926   $     24,685   $     17,036   $     23,240
      Discontinued operations ..   $        355   $        422   $          -   $          -
                                   ------------   ------------   ------------   ------------
                                   $     23,281   $     25,107   $     17,036   $     23,240
                                   ============   ============   ============   ============

<CAPTION>
                                          DEPRECIATION               CAPITAL EXPENDITURE
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2005           2004           2005           2004
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
   United Kingdom ..............   $        499   $        628   $        490   $         99
   Europe ......................             37             24             27             20
   Australasia .................             58             65              -            219
   China and Rest of World .....              -              -             63              -
                                   ------------   ------------   ------------   ------------
      Total ....................   $        594   $        717   $        580   $        338
                                   ============   ============   ============   ============
Attributable to:
      Continuing operations ....   $        594   $        717   $        580   $        338
                                   ============   ============   ============   ============

<CAPTION>
                                     OPERATING (LOSS) INCOME            NET INTEREST
                                   ---------------------------   ---------------------------
                                       THREE MONTHS ENDED            THREE MONTHS ENDED
                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                       2005           2004           2005           2004
                                   ------------   ------------   ------------   ------------
<S>                                <C>            <C>            <C>            <C>
   United Kingdom ..............   $     (1,935)  $       (322)  $        (23)  $         (9)
   Europe ......................            (39)          (124)           (38)           (41)
   Australasia .................             (4)            69             12             18
   North America ...............           (113)          (325)            20              3
   China and Rest of World .....            (12)             -              -              -
                                   ------------   ------------   ------------   ------------
      Total ....................   $     (2,103)  $       (702)  $        (29)  $        (29)
                                   ============   ============   ============   ============
Attributable to:
      Continuing operations ....   $     (2,089)  $       (665)  $        (29)  $        (29)
      Discontinued operations ..   $        (14)  $        (37)  $          -   $          -
                                   ------------   ------------   ------------   ------------
                                   $     (2,103)  $       (702)  $        (29)  $        (29)
                                   ============   ============   ============   ============

         (a) Sales are attributed to geographic areas based on the location of
             the customers.

         (b) Represents property, plant and equipment, net.
</TABLE>
                                       16
<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.

         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 both 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 to the victims of Mr.
Crowley's 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.

         Additionally, the Company entered into a Stock Purchase Agreement with
PNC Tool Holdings LLC ("PNC") and Mr. Crowley, the sole member of PNC Tool
Holdings. 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 Tool Holdings, 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 Crowley, and these monies have now been received.

         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, has had its interest in
the Company increase to approximately 61.8% of the outstanding common stock.

                                       17
<PAGE>

                     SPEAR & JACKSON, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                          (IN THOUSANDS, EXCEPT SHARES)

NOTE 13 - LEGAL PROCEEDINGS - CONTINUED.

         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. Dennis Crowley, the Company's former Chief Executive
Officer/Chairman, and Mr. William 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.

         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 Dennis Crowley, the former Chief Executive Officer of Spear & Jackson.
The Company is in the process of preparing its answer and defenses to the
Complaint. The Court granted the Motion to Dismiss on behalf of William
Fletcher, the Company's interim Chief Executive Officer, and also granted the
Motion to Dismiss of the Company's former auditor, Sherb & Co., LLP.

         The Court denied the motion of Spear & Jackson's Monitor to abate the
litigation for a six-month period pending the administration of the SEC's
restitution fund. The Court also denied the Plaintiff's Motion for Clarification
and established a new cut-off for discovery until December 19, 2005. The case
has been set on the Court's two-week calendar beginning March 6, 2006.

         On September 6, 2005, the Company was served with a Shareholder
Derivative Complaint filed on June 1, 2004 in the Circuit Court for Palm Beach
County, Florida (Case No. CA005068). The suit names, in addition to the Company,
which is a nominal defendant, present and former directors and the Company's
prior accounting firm as defendants. 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 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. The Company will evaluate the Complaint and file
its response at the appropriate time.

         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.

         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. The disposition of the screwdriver division was
undertaken by Neil Morgan who was then heading up the division. The Company
believes that no specific authorization was afforded to Mr. Morgan to undertake
that disposition and, following review of the terms and circumstances of the
purported sale, it is the intention of the Company to pursue claims against Mr.
Morgan and the transferee.

NOTE 14 - SUBSEQUENT EVENTS

         On January 25, 2006, the Company announced the closure of the remaining
element of its manufacturing site at Wednesbury, England. All manufacturing,
assembly, warehouse and distribution operations currently performed at this
location will be transferred to the Company's principal UK manufacturing site in
Sheffield. Full details of the site closure are provided in footnote 9 of these
condensed consolidated financial statements, "Manufacturing Reorganization
Program".

         On January 27, 2006, the Company paid $0.2 million for a 25% equity
participation in a recently incorporated Chinese magnetic products company.

                                       18
<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 thereto 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 and
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.

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
Spear & Jackson, Inc. 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 that 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
that could cause actual results or events to differ materially from those set
forth or implied include:

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:

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

   o  changes in customer requirements and in the volume of sales to principal
      customers;

                                       19
<PAGE>

   o  renewal of material contracts in the Company's business units consistent
      with past experience;

   o  the timing of orders and shipments;

   o  emergence of new competitors or consolidation of existing competitors;

   o  continued absence of consolidation among key customers;

   o Industry demand fluctuations.

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.

                                       20
<PAGE>

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 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 reallocate 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 that limits our ability to spread manufacturing costs over higher 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.

                                       21
<PAGE>

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 when reorganization or restructuring plans are implemented or
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. Accordingly, we
cannot be certain that currency exchange rate fluctuations will not adversely
affect our future results of operations and financial condition.

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:

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

   o  fluctuating exchange rates;

   o  tariffs and other barriers;

   o  difficulties in staffing and managing foreign sales operations;

   o  import and export restrictions;

                                       22
<PAGE>

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

   o  potentially adverse tax consequences;

   o  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
managements' 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.

                                       23
<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. Our 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 underfunded 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 these 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.

                                       24
<PAGE>

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, 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:

   o  increases in transportation costs;

   o  new or increased import duties;

   o  transportation delays;

   o  foreign work stoppages;

   o  potential war, terrorism and political unrest;

   o  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 involved in various pending litigation matters arising out of
Derivative and 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

                                       25
<PAGE>

of these matters, particularly those relating to the Class Action litigation,
cannot 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, bad debt, 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.

THE POTENTIAL ACQUISITION OF THE COMPANY OR ITS PRINCIPAL ASSETS:

As detailed in the footnotes to the condensed consolidated financial statements
the Company's majority shareholder, Jacuzzi Brands, Inc., has formally announced
a plan of disposition with regard to the shares it holds in the Company. Any
resulting change in ownership 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.

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; 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.

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, 2005.

In evaluating any forward-looking statements, you should consider various risk
factors, including those summarized above, and, those described in the 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

                                       26
<PAGE>

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.

CORPORATE ORGANIZATION

OVERVIEW

Spear & Jackson, Inc. 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.

                                       27
<PAGE>

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.

The 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.

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

                                       28
<PAGE>

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.

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, has been established in Shanghai,
China and is expected to be fully operational during the second quarter of
fiscal 2006.

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.

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 has now been agreed with Megapro that it will pay
Canadian $ 53,900 (approximately $41,000) in settlement of those debts and this
is being paid in monthly installments of Canadian $5,000 (approximately $3,800).

                                       29
<PAGE>

$27,000 was received in the year ended September 30, 2005 and a further $7,000
has been received in the three months to December 31, 2005.

During the fourth quarter of fiscal 2005, the Company began marketing for sale
certain assets associated with its UK thread gauge measuring business. The
carrying values of the assets relating to this operation have been written down
to estimated fair value and the net operations, cash flows and assets are
presented as "Discontinued Operations" in accordance with SFAS 144.

RECENT DEVELOPMENTS

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.

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 both 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 to the victims of Mr.
Crowley's 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

                                       30
<PAGE>

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.

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 provisions 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 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, has had its interest in the Company
increase to approximately 61.8% of the outstanding common stock.

Such percentage stock increases are not necessarily permanent as the Company may
subsequently reissue these shares, wholly or in part, for legitimate business
purposes.

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 shareholders of the Company. At the time the letter agreement was
executed, Jacuzzi was a principal, but a minority shareholder of the Company. As
explained above, with the recent return to the capital of the Company of the
majority shareholder interest previously held by PNC, Jacuzzi now holds 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 Mr. Crowley and his spouse.

On April 21, 2005, Jacuzzi adopted a plan of disposition of the Company's common
stock (the "Plan of Disposition"), under which Jacuzzi intends to: investigate
the strategic alternatives with respect to the sale of the common stock held by
them; take such further actions as will result in Jacuzzi disposing of the
common stock within a one-year period; and engage investment banking, legal, and
other advisors as necessary to assist in the disposition of the Company's common
stock. Jacuzzi may dispose of their common stock in one or more transactions of
all or a portion of their shares of common stock in the open market, in
privately negotiated transactions or otherwise.

                                       31
<PAGE>

On April 25, 2005 Jacuzzi stated in a report filed with the SEC that, at this
time, no decision has been made by Jacuzzi to either change the composition of
the Company's Board of directors or assert an expanded role in the management of
the Company. Jacuzzi intends to monitor and evaluate its investment in the
Company on a continuing basis or formulate other purposes, plans or proposals
regarding the Company, or the Company's common stock that it holds, in addition
to those discussed above. Jacuzzi retains its right to change its investment
intent.

A number of class action lawsuits have been 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.

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 Company is in the
process of preparing its answer and defenses to the Complaint. 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 of the Company's former
independent auditor, Sherb & Co., LLP. The class plaintiff has since 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.

The Court denied the motion of Spear & Jackson's Monitor to abate the litigation
for a six-month period pending the administration of the SEC's restitution fund.
The Court also denied Plaintiff's Motion for Clarification and established a new
cut-off for discovery until December 19, 2005. The case was initially set on the
Court's two-week calendar beginning March 6, 2006, but the trial date has since
been reset for October 2006.

On September 6, 2005, the Company was served with a Shareholder Derivative
Complaint filed on June 1, 2004 in the Circuit Court for Palm Beach County,
Florida (Case No. CA005068). The suit names, in addition to the Company, which
is a nominal defendant, present and former directors and the Company's prior
independent auditors, Sherb & Co LLP, as defendants. 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
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. The Company will evaluate the
Complaint and file its response at the appropriate time.

                                       32
<PAGE>

SUMMARY OF PRINCIPAL OPERATIONS

Spear & Jackson, Inc., through its principal operating entities, as disclosed in
note 1 to the condensed financial statements, manufactures 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;
*  Coventry Gauge - air and other gauges;
*  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

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

1) NEILL TOOLS, which consists of Spear & Jackson Garden Tools and Neill Tools,
   manufactures, among other products, hand hacksaws, hacksaw blades, hacksaw
   frames, builders' tools, riveter guns, wood saws and lawn, garden and
   agricultural tools, 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 in the form of sales of
   complete factored items to end-customers as well as sales of component 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 and COVENTRY GAUGE which manufacture a wide variety of
   products including: 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.

                                       33
<PAGE>

   BOWERS METROLOGY which is a manufacturer of high specification metrology
   instruments including precision bore gauges that 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 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 components.

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

   Name/Location                             Products Manufactured

A  UK

a) Neill Tools                               Hand tools
   Atlas Site, Sheffield

b) Spear & Jackson Garden Products           Garden tools
   Wednesbury, West Midlands

                                       34
<PAGE>

c) Robert Sorby                              Wood turning tools
   Sheffield

d) Eclipse Magnetics                         Magnetic products
   Vulcan Road, Sheffield

e) Bowers Metrology                          Precision measuring tools
   Bradford

f) Coventry Gauge                            Precision measuring tools
   Poole

B  France

a) 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:

(a) 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.

                                       35
<PAGE>

(b) Continuous product improvement and innovation.

(c) Increasing market share by offering highly competitive product offerings.

(d) The launch of new and innovative product and product ranges.

(e) 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
magnet to a computer controlled materials handling system.

The Company's policy is to support its core product offering with a pipeline of
new products and range extensions. In the period from October 1, 2005 to
December 31, 2005 new product range launches and other significant product
related business developments have included:

Neill Tools has successfully tendered to supply S&J branded woodsaws to a large
UK builders' merchant, with deliveries to commence in February 2006. An
exclusive supply agreement with a large catalog house has been negotiated to
supply a range of garden power tools during February and March 2006.

Robert Sorby is currently developing an e-commerce site for its retail store in
order to add incremental sales at no extra cost.

The Metrology Group has successfully launched the Bowers Xtreme waterproof
3-point gauge in the US.

Spear & Jackson France has extended its product offerings to include a
specialized bonsai range. Certain existing product lines, including
thermometers, children's tools and S&J garden tools have also been revised.

In Australia and New Zealand new and extended ranges under the S&J brand across
garden digging, cutting, hand saw, masonry and air tool categories have been
introduced.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

We prepare our consolidated financial statements in accordance with accounting
principles 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, 2005 included a detailed discussion
which addressed our most critical accounting policies. The quarterly financial
statements for the period ended December 31, 2005, attached hereto, should
therefore be read in conjunction with that discussion.

                                       36
<PAGE>

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 current income taxes.

Since September 30, 2005 there have been no changes in our critical accounting
policies and no significant change to the assumptions and estimates related to
them.

OVERVIEW

When compared to the equivalent period last year, the results for the quarter
ended December 31, 2005 show a decrease in both sales and operating
profitability.

Sales revenues for the quarter ended December 31, 2005 were $22.93 million,
representing a decrease of $1.76 million over the comparable period in the
previous year. This reduction was primarily attributable to adverse currency
exchange fluctuations of $1.44 million, decreased trading volumes of $0.23
million and increased sales rebates of $0.09 million. While sales volumes
increased in our Metrology and Magnetics divisions, principally as a result of
incremental sales in our new selling and distribution facility in Maastricht,
business conditions in many of our end markets remained challenging, as a result
of continuing intense competition from rival suppliers and sluggish retail
demand.

Gross profit was $7.03 million for the period ended December 31, 2005 compared
to $7.95 million for the prior year. Direct costs are still being adversely
affected by increases in prices for our principal raw materials of steel,
plastic, cobalt and nickel, and increases in basic utility costs. Margins
improved in certain divisions as a consequence of favorable sales mixes and
exchange gains on imported factored products. However, these improvements were
eliminated by reduced trading volumes in our Neill Tools division which resulted
in adverse production variances and an overall margin erosion in the quarter.

Selling, general and administrative expenses have increased by $0.5 million
(5.83%) to $9.12 million in the three months ended December 31, 2005 compared to
the comparable period last year. This is primarily due to the $1.0 million
increase in the non-cash FAS 87 pension charge and inflationary increases which
have been only partially offset by the beneficial movement in the US$/Sterling
cross rate, reduced head office legal costs and the effects of local
reorganization and overhead cost-cutting measures.

Therefore, while reductions have been made to certain aspects of general and
administrative overheads in the quarter, administration costs for the full 2006
fiscal year will show a significant increase over the prior year largely as a
result of the $4.4 million increase in the FAS 87 pension charge. Additionally,
while settlement of the Company's SEC litigation suit has resulted in decreases
in administrative costs, head office legal expenses associated with the class
action litigation and the role of the corporate monitor will continue to be
incurred until a resolution of these legal issues.

                                       37
<PAGE>

As a result of decreased sales volumes, lower margins and higher overhead costs,
the Company's operating loss from continuing activities before income tax
benefit has increased by $1.43 million (218.19%) from a loss of $0.65 million in
the quarter to December 31, 2004 to a loss of $2.08 million in 2005.

The Company intends to continue to launch new products and to explore
initiatives to reduce its operational base costs both in respect of raw
materials and processes, in order to retain its competitive edge over cheap
foreign imports. The Company's management has already implemented a number of
programs to improve profitability and to restructure its UK manufacturing base
and a further initiative was set up in January 2006 with the announcement of the
closure of the Company's manufacturing facility in Wednesbury, England. 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 ongoing
profitability.

RESULTS OF OPERATIONS

The following discussion provides a review of results for the three months ended
December 31, 2005 versus the three months ended December 31, 2004.

Summary Profit and Loss Account Data:

                                                 Three Months ended December 31
                                                 ------------------------------

                                                   2005        2004     % Change
                                                    $m          $m

Net Sales ..................................      22.93       24.69       (7.13)
Cost of goods sold .........................     (15.90)     (16.74)      (5.0)
                                                 ------      ------
Gross profit ...............................       7.03        7.95      (11.60)
Selling, general and
  administrative expenses ..................      (9.12)      (8.62)      +5.83
                                                 ------      ------

Operating loss .............................      (2.09)      (0.67)    (214.14)
Other income ...............................       0.01        0.02     (100.00)
                                                 ------      ------
Loss from continuing operations
  before income tax benefit ................      (2.08)      (0.65)    (218.19)
Income tax benefit .........................       0.41        0.04     +867.44
                                                 ------      ------
Net loss from continuing
  operations ...............................      (1.67)      (0.61)    (172.50)

Net loss from discontinued operations ......      (0.01)      (0.04)     +62.16
                                                 ------      ------
Net Loss ...................................      (1.68)      (0.65)    (159.10)
                                                 ======      ======

Effective tax rate .........................      20.13%       6.22%
                                                 ======      ======

                                       38
<PAGE>

Comparisons as a % of net sales:

Gross profit ...............................      30.66%      32.21%
Selling, general and
  Administration expenses ..................      39.77%     (34.90%)
Operating loss .............................      (9.11%)     (2.69%)
Loss from continuing operations
  before income tax benefit ................      (9.08%)     (2.65%)
Net loss ...................................      (7.32%)     (2.63%)

Note: The percentages and percentage change data shown above have been
calculated from the Consolidated Statements of Operations included in 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.

Commentary:

Sales from continuing activities have decreased by $1.76 million (7.13%) from
$24.69 million in the three months ended December 31, 2004 to $22.93 million for
the three months ended December 31, 2005.

The decrease is analyzed as follows:

                                                              Three Months ended
                                                              December 31, 2005
                                                Note                 $m

Effect of exchange rate movements               (a)                 (1.44)

Sales volumes movements                         (b)                 (0.23)

Increased rebates                               (c)                 (0.09)
                                                                    ------
                                                                    (1.76)
                                                                    ======

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

                                                              Three Months ended
                                                              December 31, 2005
                                                Note                 $m
i)     Hand and garden tools

       Effect of exchange rate movements        (a)                 (0.97)
       Sales volume decreases                   (b)                 (1.10)
       Rebates                                  (c)                 (0.09)
                                                                    ------
                                                                    (2.16)
                                                                    ------

                                       39
<PAGE>

ii)    Metrology tools

       Effect of exchange rate movements        (a)                 (0.30)
       Sales volume increases                   (b)                  0.76
                                                                    ------
                                                                     0.46
                                                                    ------

iii)   Magnetic products

       Effect of exchange rate movements        (a)                 (0.17)
       Sales volume increases                   (b)                  0.11
                                                                    ------
                                                                    (0.06)
                                                                    ------
       Total net sales decrease                                     (1.76)
                                                                    ======

Notes:

(a)    The main functional currencies of the group's revenues are sterling, the
       Euro and the Australian and New Zealand dollar. The principal functional
       currency is sterling and the average of the US$/(pound) cross rates in
       the three month period ending December 31, 2005 compared to the average
       in the comparable period last year has had a significant adverse impact
       on the US dollar value of the group's sales. The average cross rates in
       the period under review can be summarized as:

                                                    Average Cross Rates
                                                    -------------------

                                             2005          2004       % Movement

       3 months ended December 31           1.7474        1.8647         (6.3%)

(b)    In general, business conditions in many of our end markets remained
       challenging as a result of continuing intense competition from rival
       suppliers in a number of our product ranges and sluggish consumer demand.

       Within the Metrology division, sales volumes increased despite
       challenging trading conditions. This was attributable to incremental
       sales growth in our new selling and distribution facility in Maastricht,
       together with a strong trading performance in the US. Likewise, our
       Magnetics division recorded sales in the quarter that were ahead of
       budget and last year. Elsewhere, however, sales volume decreases were
       experienced especially within the UK, France and New Zealand hand and
       garden product segments. UK trading conditions, particularly in the
       multiple retail sector, have continued to deteriorate, while in New
       Zealand the market place has witnessed demand deterioration due to a slow
       down in consumer confidence.

(c)    The level of rebates has increased overall by $0.09 million when compared
       to 2004. Changes in customer and sales mix have resulted in higher rebate
       levels in our Australian and French divisions. Assuming similar sales
       volumes and customer mix the Company anticipates that this level of
       rebate will be maintained in future periods.

                                       40
<PAGE>

SEGMENT REVIEW OF SALES REVENUES

We aim to maintain and develop the revenues of our businesses through the launch
of new products, the enhancement of existing items and the continued marketing
of the Company's 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, 2005 of $9.29 million showed a decrease
of $1.62 million over last year's sales of $10.91 million. This decrease was
attributable to adverse exchange movements of $0.63 million and decreased
volumes of $0.99 million.

Over the quarter, UK trading conditions, especially in the garden tools market,
have continued to deteriorate due to increasingly soft demand in the multiple
retail sector. Low consumer footfall has resulted in the major retailers keeping
tight control of inventories. The division's sales have suffered accordingly
with planned shipments being cancelled or postponed.

In the export market there have been some encouraging signs with sales ahead of
budget. Compared to the same period last year, however, sales are down as the
demand from the huge construction programs and rebuilding projects following the
conflicts in the Middle East has softened.

The threat to the business from low-cost, Far Eastern economies continues
unchanged. These competitive pressures have been exacerbated by price increases
imposed by our steel, plastics and utility suppliers and the difficulty within a
competitive market place of passing on these increases to customers. As a result
of the above, and substantial adverse manufacturing variances due to reduced
manufacturing output, margins have been eroded in the quarter.

During the second half of the last fiscal year, the division commenced a
reorganization program that included the closure of part of one of its
manufacturing facilities and a complete review of its UK manufacturing
operations. The initiatives were designed to reduce reliance on own-manufactured
items and to enable the division to progress the sourcing of componentry for UK
assembly to further reduce costs and increase profitability. In the current
quarter $0.3 million has been spent in respect of employee severance costs and
other reorganization costs for which provision was made at September 30, 2005.
In addition, on January 25, 2006 the company announced the closure of the
remaining element of its manufacturing site at Wednesbury, England. The site
closure forms another key part of the Company's UK manufacturing strategy to
regenerate and modernize key areas of the hand and garden tools businesses.

Given the depressed trading conditions focus has again been directed towards
tight overhead cost control, inventory reduction, credit control and heavy
promotional campaign launches in order to improve sales. The division has
successfully tendered to supply S&J branded woodsaws to a large builders
merchant in the UK with delivery to commence in February 2006. Additionally, we
have succeeded in negotiating an exclusive supply agreement for garden power
tools to a large UK catalog house, during February and March 2006.

                                       41
<PAGE>

ECLIPSE MAGNETICS

Sales for the quarter showed a $0.06 million decrease over last year's figures
(2005 $2.6 million, 2004 $2.66 million) with adverse exchange movements of $0.17
million exceeding increased volumes of $0.11 million.

The division enjoyed a sales increase in the UK market, mainly driven by
increases within magnetic fixturing magnets, but a reduction in sales to export
markets as a result of de-listings by a major distributor and financial
difficulties experienced by overseas key distributors. Despite this overall
decrease in export sales, we were able to continue to increase our US market
share, driven by the introduction of new products and close key account
management.

The Engineered Magnetic Solutions business continued to see growth with new
products and technologies being offered for industry solutions.

As previously reported, the standard low technology area of the business has
continued to be eroded by good quality imports at low prices from our
competitors in China and the Far East. We continue to see more and more
companies in the markets with higher quality goods at low market price points.

Gross margins have witnessed an improvement on last year mainly attributable to
the sales mix switch towards UK sales and stable steel, nickel and cobalt
prices. These favorable movements have, however, been mitigated by higher gas
and electricity unit prices. Improvements in manufacturing costs continue to be
the focus of the management in order to improve competitiveness in new and
existing markets.

The major challenges continue to be the effective management of the threat from
Far East manufacturers and improved competitiveness in new and existing markets.
To achieve this, management focus will be directed on the delivery of
manufacturing efficiencies, the provision of increased added value to customers,
the continued development of new products and increasing market share within key
product segments.

As part of this strategy, the division enhanced its presence in China in January
2006 when it paid $0.2 million for a 25% equity participation in a recently
formed Chinese Venture.

ROBERT SORBY

Sales for the first quarter were $0.07 million less than last year (2005 $1.31
million, 2004 $1.38 million), attributable to adverse exchange movements.

In volume terms, Robert Sorby sales were flat in comparison with the period
ended December 31, 2004. Overseas markets have seen encouraging growth but this
has been offset by continuing UK sales decline.

Trading conditions have been difficult in both the UK and North America.
Additionally, our typical customer is retired and on a fixed income. Concerns
about the value of pensions and escalating utility costs have contributed to an
increasingly cautious approach in the spending patterns of this customer group.

                                       42
<PAGE>

Consequently margins have remained under pressure in order to maintain the
required volume levels and, at the same time, there have been above average cost
increases in steel, which is our basic raw material, and utilities. Where
possible, these increases have been absorbed by sales price increases
implemented in the quarter.

As part of our regular review of business practices we have also implemented a
series of cost reductions to maintain profitability.

Our business approach continues to be focused almost exclusively on the UK and
North America. During October an extensive demonstration tour of the US took
place, encompassing 21 different cities in 31 days. This plays a major role in
achieving new product listings and strengthening relationships with key dealers.
Similarly we have continued to market through specialized journals and our web
site.

Going forward, the immediate outlook still appears to be challenging. The most
exciting development will be the introduction of an e-commerce facility for our
retail store which accounts for an increasing portion of our sales. We believe
that the e-commerce site will add incremental sales at no extra cost to support
our manufacturing base.

BOWERS METROLOGY

Sales for the first quarter show an increase of $0.40 million over last year
($4.42 million 2005, $4.02 million 2004) due to favorable volume increases of
$0.70 million offset by adverse exchange movements of $0.3 million.

A significant part of the sales increase is due to the new sales and
distribution facility set up in December 2004 in Maastricht, Holland. This new
facility, established as a major distribution hub for mainland Europe, is
expected to expand throughout 2006. All of the original set-up costs are
complete and the business is now trading profitably. An allied manufacturing,
quality control and distribution centre is being established in Shanghai, China,
and this is expected to improve divisional margins once the business is fully
functional during Quarter two of the current fiscal year. The facility will
initially act as a quality control centre for products being shipped worldwide
as well as the distribution centre for the Asia Pacific region. Manufacture of
selected products is scheduled for quarter four.

Other successes in the quarter have been strong performance from our North
American distributors buttressed by the launch of the Bowers XT Xtreme
waterproof 3-point gauges.

Generally market conditions worldwide have remained mixed with the USA and China
showing strong growth but with most of the major European markets remaining
flat. The domestic UK market on a macro level is still disappointing within the
manufacturing sector. The Aerospace sector is very strong, however, and the
division has focused its efforts there. The continuing strength of this market
is important given the comparative weakness of the Automotive sector.

The division continues to focus on the strict control of operating costs and
certain manufacturing inefficiencies will be addressed by the delivery of new
items of plant and equipment in quarter two of fiscal 2006.

                                       43
<PAGE>

Looking forward, quarter two is unlikely to see a repeat of the solid
performance witnessed in quarter one but the introduction of new testing
products in the forthcoming quarter will boost growth. Whether the forecast
levels of sales revenues can be achieved will be dependent, however, on the
overall strength of our UK and European markets where market conditions continue
to disappoint.

S&J FRANCE

Sales for the quarter decreased by $0.21 million from $2.15 million in 2004 to
$1.94 million in 2005. This is attributable to adverse exchange movements of
$0.18 million and volume decreases of $0.03 million.

On a macro level, the French economy has remained depressed with increased
unemployment rates, lower consumer confidence and reduced spending levels.
Business conditions in the company's markets have reflected this depressed
retail environment.

Pressure from the increasing flow of cheap Asian and Far Eastern imports,
continues to put pressure on turnover and margins. This margin dilution could be
further exacerbated by the opening of specialist cut price garden stores in
quarters two and three. Additionally, the company suffers from a large
proportion of its French garden product turnover being concentrated in a small
number of retail outlets. This can make price negotiation difficult and can
result in additional incentives, e.g. rebates, being offered to secure orders.

The Company continues to concentrate upon marketing actively to promote its
principal brands and to gain new listings in order to combat the negative
effects of increased competition from cheap imports and the seasonality of the
garden product sales. During the quarter the division has seen the development
of a new website, new design presentation of its leading brands, revisions of
some product ranges (thermometers and children's range) and the launch of a
bonsai tool range. It is clear, however, that in order to maintain the increased
turnover, the success of new product ranges is essential together with our
ability to offer quality products at lower price points.

AUSTRALASIA

Sales for the quarter for Spear & Jackson Australia and Spear & Jackson New
Zealand were $0.27 million lower than last year (2005 $3.71 million, 2004 $3.98
million). Volume reductions of $0.13 million contributed to the decrease along
with adverse exchange movements of $0.08 million and increased sales rebates of
$0.06 million.

Trading conditions, especially in the New Zealand market, where all of the
volume decreases were concentrated, have been particularly difficult in the
quarter. The New Zealand economy has witnessed signs of a slowdown as consumer
confidence started to weaken as the impact of higher interest rates and higher
petrol prices restricted consumer spending. This has manifested itself in lower
demand levels for our products. Additionally, increased levels of competition
from Asian imported products within the power and air tool categories together
with the loss of business with a major retailer in the second quarter of fiscal
2005, have had a negative impact on sales.

                                       44
<PAGE>

In Australia, too, challenging macro economic factors are having an adverse
effect on retail trading activity. Major retailers have instigated inventory
reduction programs and are looking to import product direct from the Far East to
increase margins. Despite this, and the loss of a garden range with a major
customer, increased sales in air and metal products enabled sales to be
maintained at comparable levels to last year.

Margins in both divisions have remained under pressure. The adverse effects of
sluggish retail demand, the increased promotional and marketing costs necessary
to maintain sales levels, and unfavorable sales mixes, have been mitigated,
wherever possible, by improved product sourcing and a strong Australian dollar.

Competition from imported Asian products and the increasing trend of the large
retailers to import directly and develop their own home brands continues to
place pressure on the sales and margins of the business. To counter this trend,
we continue to instigate aggressive pricing policies and remain focused on
consolidating trading relationships with retail customers and suppliers. In
addition, the division has concentrated on improved product sourcing, branding
and packaging to ensure that all S&J branded products meet customers'
expectations. For example, our new "County" garden and S&J masonry ranges,
launched last year, for example, have exceeded sales expectations, as has the
performance of our specialized metals division. To date, not all of our sales
growth initiatives have reached their full potential but we remain optimistic
that incremental sales and margin growth will be forthcoming.

COSTS OF GOODS SOLD AND GROSS PROFIT

Costs of goods sold decreased by $0.84 million from $16.74 million in the three
month period ended December 31, 2004 to $15.9 million in the three months ended
December 31, 2005.

Headline information concerning costs of goods sold as a percentage of sales and
gross profit margins in the periods under review is as follows:

                                                   Three Months Ended
                                          December 31                December 31
                                             2005                        2004
                                               %                           %

Cost of goods sold as a % of sales .......   69.34                       67.79

Gross Profit Margin ......................   30.66                       32.21

While the have been gross margin improvements in both our Metrology and
Magnetics divisions, these have been diluted by higher costs in our Hand and
Garden tool division.

Raw material (principally steel and plastic) and utility price increases
together with the cost of fuel used to operate our manufacturing processes have
continued to have a detrimental effect on margins. Additionally, we have
incurred adverse production variances in our hand tool manufacturing operation
division due to reduced output and the impact of the divisional reorganization
program.

                                       45
<PAGE>

We continue to monitor and 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. The highly price sensitive
markets in which we operate make it prohibitive to pass on cost increases to
certain of our customers. This, and the upward pressure on steel prices caused
by strong demand from China, will continue to have an adverse influence on our
margins in the short term.

The manufacturing reorganization program, initiated in the last quarter of
fiscal 2005, will have a beneficial effect on margins, as reliance on
own-manufactured items is reduced and the sourcing of componentry for UK
assembly is progressed, thereby reducing costs and increasing profitability.

OPERATING COSTS AND EXPENSES

Selling, general and administrative (SG&A) expenses increased by $0.5 million
from $8.62 million in the three months ended December 31, 2004 to $9.12 million
in the three months ended December 31, 2005. Expressed as a percentage of sales,
selling, general and administration expenses were 39.77% of sales for the three
months ended December 31, 2005 (2004: 34.90%).

The principal reasons for the increase in the level of the current quarter's
selling, general and administrative expenses over its prior year comparative can
be summarized as follows:

                                                    Increases Over Prior Year
                                                       Three Months ended
                                                        December 31, 2005
                                                               $m

a)    Increased FAS 87 non-cash pension costs ......           1.0

b)    Inflationary increases .......................           0.2

c)    Impact of movements in average
      US$/sterling cross rates in the period .......          (0.5)

d)    Decreased head office costs relating
      to legal and professional fees, monitor
      fees and associated costs ....................          (0.2)
                                                              -----

      Net increase in expenses .....................           0.5
                                                              =====

OTHER INCOME AND EXPENSES

Other income and expenses moved from a net credit of $0.02 million in the three
months ended December 31, 2004 to a net credit of $0.01 million in the three
months ended December 31, 2005.

                                       46
<PAGE>

This decrease is attributable to lower 2005 bank interest credits in the
Company's UK businesses. Although the Company completed the sale of part of its
industrial site at Wednesbury, England in February 2005 for $5.2 million, the
payment of the special pension contribution of $7.2 million in June 2005 and
September 2005 reduced cash balances thereby reducing interest receivable.

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

Our loss from continuing operations before income taxes in the three months
ended December 31, 2005 amounted to $2.08 million. This compares to a loss for
the three months ended December 31, 2004 of $0.65 million. This net increase of
$1.43 million is attributable to increased overhead costs of $0.5 million, and
reductions in gross profit of $0.93 million, as explained above.

INCOME TAXES

An income tax credit of $0.41 million arose in the three months ended December
31, 2005 compared to a $0.04 million income tax credit in the three months ended
December 31, 2004.

Income taxes were 20.13% of losses before tax in the three months ended December
31, 2005 compared to 6.22% in the three months ended December 31, 2004.

Differences between the effective rate and the statutory rate of taxation of 35%
result from income and losses in certain overseas subsidiaries within the Spear
& Jackson group being taxed at rates different from the effective rate, the
utilization of tax losses which are not recognized within the deferred tax
computation and permanent differences between accounting and taxable income as a
result of non-deductible expenses and non-taxable income. Principal factors
behind the divergence in effective tax rates in the two quarters were as
follows:

(a)   For the three months ended December 31, 2004 there was a higher incidence
      of losses incurred in the United States than in the comparable period in
      2005. As no utilization against future profits for these losses is
      envisaged, a valuation allowance has been applied.

(b)   The net credit for the three months to December 31, 2005 is stated after
      the inclusion of a tax charge of $0.09 million relating to the adjustment
      to prior year tax provisions in Spear & Jackson France. This is to be paid
      over to the relevant tax authorities in the forthcoming months.

Because of the availability of tax net operating losses, other tax credits and
the benefit of a tax deduction (spread over four years) in respect of the
special contribution of $7.2 million that was made to the Company Pension Plan
in 2005, it is not anticipated that any significant element of the taxation
provision for the three months ended December 31, 2005, other than the Spear &
Jackson France item mentioned above, will result in the payment of income tax.

                                       47
<PAGE>

NET LOSS FROM CONTINUING OPERATIONS AFTER INCOME TAXES

Our net loss from continuing activities after income taxes was $1.67 million for
the three months ended December 31, 2005 (2004: $0.61 million).

DISCONTINUED OEPRATIONS

Discontinued operations relate to the thread gauge measuring division of the
Metrology Division based in the UK, and the Company's Megapro screwdriver
division.

During the fourth quarter of fiscal 2005, the Company began marketing for sale
the thread gauge business located in the UK. The carrying values of the assets
relating to this entity were written down to estimated fair value.

The Megapro screwdriver division was disposed of 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.

Total losses attributable to discontinued operations were $0.01 million in the
three months ended December 31, 2005 (2004 : $0.04 million).

FINANCIAL CONDITION

Liquidity and Capital Resources

Our cash and cash equivalents amounted to $7.59 million at December 31, 2005
($7.29 million at September 30, 2005), working capital (excluding deferred
taxes) totaled $28.09 million at December 31, 2005 ($29.87 million at September
30, 2005) and our stockholders' equity was $23.85 million at December 31, 2005
($26.20 million at September 30, 2005).

Net cash generated from operating activities in the three month period ended
December 31, 2005 was $1.73 million compared to a $1.14 million in the three
months ended December 31, 2004. This increase of $0.59 million primarily arises
from:

o     increased trading working capital inflows of $2.0 million (note a)

o     increase in net inflows from other assets and liabilities of $0.29 million
      (note b)

Offset by:

o     the reduction in net income (adjusted for depreciation, and deferred
      taxes) of $1.7 million as explained in the commentary on trading results
      above.

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

                                       48
<PAGE>

a)    Trade Working Capital Variances

      The net increase in inflows from trade working capital is attributable to:

                                                             Note       $million

      Increased inventory inflows .....................      (i)          3.16
      Increased trade receivable inflows ..............      (ii)         0.38
      Reduced trade payable inflows ...................      (iii)       (1.54)
                                                                         -----
      Net increase in trade working capital inflows ...                   2.0
                                                                         =====

i)    In the quarter ended December 31, 2004 inventories increased by $2.47
      million compared to a decrease of $0.69 million in the quarter ended
      December 31, 2005. Within the UK hand tool division the quarter to
      December 31, 2005 witnessed a rigorous inventory reduction program,
      whereas in the comparable period last year stock levels increased. This
      trend was also followed in the Robert Sorby and New Zealand divisions.
      Elsewhere, in France, Australia and the Eclipse divisions seasonal stock
      increases were not as pronounced as they had been in the quarter to
      December 31, 2004.

ii)   Even though trade receivable inflows for the quarter to December 31, 2004
      benefited by $0.7 million from increased sales levels in August and
      September 2004, the inflow from trade receivables for the quarter to
      December 31, 2005 is $0.38 better than the previous year. This is due
      primarily to the reduction in the level of sales ledger receivables in the
      Neill Tools division caused by decreased trading volumes together with a
      reduction in debtor days.

iii)  The movement in inventories discussed in point (i) above is also reflected
      in the reduced trade payable inflows. Trade payable levels at December 31,
      2004 were especially high in those divisions carrying high levels of
      inventory (Neill Tools, France, Australia and New Zealand). At December
      31, 2005 purchasing activity, and therefore trade payable levels, had
      reduced thereby contributing to the reduced trade payable inflows in the
      quarter under review.

b)    Variances in Cash Flows attributable to Other Assets and Liabilities.

      With regard to the net inflows from other assets and liabilities, the main
      factors contributing to the increased inflows are:

i)    An increase in the non-cash FAS 87 pension charge of $1.02 million;

ii)   Higher levels of capital deposits included within other debtors at
      December 31, 2005;

iii)  Partial replacement of the UK car fleet in December 2005 thereby
      increasing leased creditor levels.

                                       49
<PAGE>

      The beneficial effect of the above has been diluted by:

i)    Increased annual employer pension contributions of $0.16 million to the UK
      pension scheme;

ii)   Payment of $0.3 million in respect of the UK manufacturing reorganization
      program;

iii)  At December 31, 2004 $0.8 million of additional legal and professional
      fees, monitor costs and related expenses had been accrued in the US
      holding company. At December 31, 2005 the level of accruals required had
      been reduced;

iv)   Reduced accrual levels at December 31, 2005 compared to December 31, 2004
      in trading entities in line with the reduction in trading activity levels.

Cash outflow from investing activities was $0.58 million in the period ended
December 31, 2005 compared to an outflow of $0.32 million in the period ended
December 31, 2004. This is attributable to an increase in purchases of plant and
equipment in our UK manufacturing businesses.

Net cash used in financing activities was $0.73 million in the period ended
December 31, 2005 (2004: $0.002 million). The 2005 outflow principally
represents the repayment of the UK bank overdraft at September 30, 2005, which
had been utilized following the payment of the second element of the special
pension contribution paid to the UK Pension Plan at the end of that month.

BANK FACILITIES

The UK subsidiaries of Spear & Jackson plc and Bowers Group plc maintain a line
of credit of $7.73 million. This is secured by fixed and floating charges on the
assets and undertakings of these businesses. Of the total facility, $5.15
million relates to bank overdrafts and $2.58 million is available for letters of
credit. These facilities are denominated in British pounds. The overdraft
carries interest at UK base rate plus 0.75%. At December 31, 2005 the Company
had no borrowings outstanding under the overdraft line (September 30, 2005 $0.75
million) but had $0.65 million in outstanding letters of credit (September 30,
2005: $0.6 million).

As a consequence of the special pension contribution of $7.2 million that was
paid in two installments in June and September 2005, and the additional funding
which will be required to finance the ongoing restructuring initiatives, an
open-ended, on demand bridging loan of $5.15 million has also been negotiated
with the Company's UK bankers. The facility is denominated in British pounds and
is secured by a first legal charge over the Company's land and property at
Wednesbury, England. It carries interest at UK base rate plus 1%. This facility
has not yet been utilized.

The French and Australian subsidiaries of Spear & Jackson plc maintain
short-term credit facilities of $2.73 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 December 31, 2005 (September 30, 2005: nil). At that date
$0.33 million of letters of credit and bills were outstanding under these
facilities (September 30, 2005: $0.9 million).

                                       50
<PAGE>

The UK facilities were renewed in December 2005, the Australian facilities were
renewed in October 2005, and the French facilities fall due for renewal at
various dates in 2006. 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 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, 2005 the extent of this guarantee relating to gross bank overdrafts
was $19.1 million (September 30, 2005 $20.4 million). The overall pooled balance
of the bank accounts within the pool at December 31, 2005 was a net cash in hand
balance of $2.5 million (September 30, 2005 $1.6 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.

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 that we have sufficient capital
resources, liquidity and available credit under our 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 the
restructuring of the non-profitable areas of the Company's divisions and to meet
items of significant one-off expenditure. Such expenditure may include: costs
associated with the closure and relocation of the Company's manufacturing
facility in Wednesbury, England; investment in new capital equipment; further
special contribution payments to reduce the pension plan deficit; set up costs
of new business ventures in China; and any other expansion of the Spear &
Jackson or Bowers operations. Funding of these initiatives may be obtained
through the negotiation of increased bank lending facilities or the sale of
surplus assets.

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, 2005:

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

Capital lease obligations    1.0          0.5        0.3      0.2      -
Operating leases (note a)    6.5          1.0        1.9      1.6      2.0
                             ---          ---        ---      ---      ---
                             7.5          1.5        2.2      1.8      2.0
                             ---          ---        ---      ---      ---

                                       51
<PAGE>

(a)   Amounts represent the minimum rental commitments under non-cancelable
      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 cannot
      be accurately forecast beyond the short term. In the years ended September
      30, 2006 and September 30, 2007, providing that certain criteria are met,
      the annual contributions will be fixed at (pound)1.9 million sterling
      (approximately $3.3 million).

(c)   As at December 31, 2005, the Company had letters of credit of $0.83
      million outstanding which are secured under the UK and Australian credit
      facilities. In addition, the Company's French subsidiary had discounted
      $0.18 million of bills of exchange with recourse.

At December 31, 2005, the Company had no material off-balance sheet arrangements
other than the non-debt obligations described in contractual obligations, above.

OUTLOOK

Although quarter one produced a net operating loss, 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 sales in December 2005, a
small trading profit will be recorded for the second quarter as a whole. Like
quarter one, the Company's base trading profit will be substantially reduced by
the significant increase in the non-cash FAS 87 pension charge compared to that
charged in the previous year.

As previously explained, the Company's actuaries have calculated that the annual
charge will rise by $4.4 million from $4.0 million in 2005 to $8.4 million in
the year ended September 30, 2006. Base trading profit for the second quarter is
currently anticipated to be approximately $2.3 million and after deduction of
the quarter's pension charge of $2.1 million an operating profit (before unusual
items and taxation) of $0.2 million is forecast.

Earnings in quarter two will also be negatively impacted by the provision of
approximately $1.8 million of costs in connection with the closure of the
Company's manufacturing site in Wednesbury, England. The adverse effect of these
costs would, however, be offset by any gain arising on the subsequent disposal
of the Wednesbury site. As a result of these increased pension charges and
closure costs the Company does not anticipate returning a profit before taxation
in fiscal 2006. Management will consider all available operational strategies to
mitigate the negative impact of these items so that any trading losses in the
year ended September 30, 2006 which arise as a result of the increase in pension
costs and one-time reorganization expenditure will be reduced as far as
possible.

Within the hand and garden business, competition remains fierce from cheap
foreign imports and the softening of demand in the UK retail sector is having an
adverse effect on sales as our major UK retailers initiate inventory reduction
programs and other working capital reduction measures to counter falling
consumer interest. Demand from our export markets, particularly the Far and
Middle East also continues to soften as the intensive purchasing activity
resulting from building projects in the aftermath of the Iraqi conflict
declines.

                                       52
<PAGE>

Although other elements of the UK hand and garden business have performed
encouragingly, it is unlikely, however, that the level of demand for these
products will be sufficient to fully offset the adverse effects of the general
downturn in demand in the UK retail sector.

As previously reported, the Company performed a detailed review of its UK
manufacturing operations in quarter four of 2005 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 started in that quarter and this has continued into
quarter one of fiscal 2006.

In addition to this, on January 25, 2006, the Company announced the closure of
the remaining element of its manufacturing site at Wednesbury, England. All
manufacturing, assembly, warehouse and distribution operations currently
performed at this location will be transferred to the Company's principal UK
hand tools manufacturing site in Sheffield.

The closure and relocation of the Wednesbury facility are expected to take
approximately six months and the costs of this exercise are anticipated to be
approximately $2.1 million. These costs include employee severance payments,
site closure expenses, factory reorganization expenses, plant transfer costs and
associated capital expenditure. Negotiations are currently in progress regarding
the sale of the Wednesbury site to a non-related third party. It is expected
that the sale price of the site will be in excess of the property's net book
amount and the Company has not therefore made any provision against its balance
sheet carrying value at December 31, 2005. Funds realized from any disposal will
be used to finance the closure costs with any excess sale proceeds being
reinvested in the business.

The site closure forms 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 closure 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.

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. In
conjunction with this, an inventory reduction program is underway to reduce
inventory levels, especially in those divisions witnessing a softening on sales
demand. Despite the implementation of this program, temporary increases in
inventory will occur, however, as a result of inventory builds that will be
necessary during the closure of the Wednesbury manufacturing site.

As with the Company's UK hand and garden tool businesses, 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 some retail groups to
expand their own direct import programs.

                                       53
<PAGE>

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 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, and incremental revenue growth is forecast
for the rest of the fiscal year. This revenue and earnings growth will be
enhanced by the division's quality control and distribution centre which has
been established in Shanghai, China and which is expected to become fully
functional in quarter two of fiscal 2006.

Looking forward, demand for low cost, own manufactured metrology hand tools will
continue to face further pressure from the Far East and increased emphasis will
be placed on the new systems division which offers bespoke gauging solutions.
The Company therefore recognizes that it needs to continue to focus the UK
manufacturing sites on producing more high technology products and measuring
solutions. In order to make the Company more competitive in the low technology
sectors various initiatives are being explored including the establishment of a
full manufacturing and distribution centre in the Far East.

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 $4.4 million increase in the 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.

Any strengthening of the US dollar would impact favorably on the business as
this would ease the pressure on margins and increase our competitiveness. The
overall benefits would, however, be diluted by the related increases in the
purchase price of factored product from the Far East.

The level of overhead expenses, particularly legal and professional costs,
incurred by our US corporate head office have reduced following the settlement
of the SEC suit during 2005. However, any future savings will be offset by the
professional costs that are anticipated to be incurred in relation to the Class
Action lawsuit.

In the following quarters we will continue to focus on improving cash
generation. As explained above, on January 25, 2006 the Company announced the
closure of the remaining element of its manufacturing site at Wednesbury,
England. In the next six months costs of approximately $2.1 million will be
incurred in the relocation of the Wednesbury manufacturing operation and its
consolidation into the Company's principal UK manufacturing site in Sheffield.
These costs will be funded from existing core and extended UK bank facilities.

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. The benefits of this initiative can be seen in
the favorable inventory movements in the quarter and emphasis will continue to
be placed on strict working capital control in the forthcoming months.
Additionally, the Company is in negotiation with an external third party in
connection with the sale of the Wednesbury site. Utilization of the Company's
base and extended facilities will not be necessary if a sale is concluded in the
short term as any disposal proceeds will be used to fund the reorganization
costs. Any residual sale proceeds will be reinvested in the business.

                                       54
<PAGE>

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; 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; reorganization
of our manufacturing and overhead bases so that they are as cost efficient as
possible; the successful start up 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 will also depend on the level of retail demand in our UK, French and
Australasian markets. The quarter one results were adversely affected by
softening demand and a further deterioration in consumer confidence could
significantly impact on our earnings levels in quarter two and subsequent
periods.

The Company has been able to deal with the significant business disruptions and
distractions caused by the SEC legal action and the formal resolution of this
litigation in fiscal 2005 has enabled the Company to move forward in a focused
and structured manner so that both its short and long term strategies can be
formulated and delivered. Inevitably, however, uncertainties will still impact
upon the Company's operations until the financial effects of the Class Action
and Derivative Complaint, explained in detail in PART II Item 1 ("Legal
proceedings"), below, are also quantified and settled.

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, 2005 the Company had cash and cash equivalents of
approximately $7.59 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, reorganization programs, 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.

                                       55
<PAGE>

EXCHANGE RATE RISK

The Company has operations in the United Kingdom, France, the Netherlands
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, 2005 compared to the equivalent period in
2004, the change in exchange rates had the effect of decreasing the Company's
consolidated sales by $1.44 million, or 5.8%. Since most of the Company's
international operating expenses are also included in local currencies, the
change in exchange rates had the effect of decreasing operating expenses by $0.5
million for the three months ended December 31, 2005 compared to the comparable
prior year period.

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, 2005 the Company
held forward contracts in place to sell Australian dollars to buy approximately
1.91 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
counterpart could, however, result in the Company suffering losses or benefiting
from gains of approximately $0.161 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.

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.

                                       56
<PAGE>

At December 31, 2005, the Company had made an allowance of $1.47 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

Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of
our "disclosure controls and procedures" (Disclosure Controls) as of the end of
the period covered by this Quarterly Report. The controls evaluation was done
under the supervision and with the participation of management, including our
acting Chief Executive Officer (CEO) and our Chief Financial Officer (CFO).

Attached as exhibits to this Quarterly Report are certifications of the acting
CEO and the CFO, which are required in accord with Rule 13a-14 of the Securities
Exchange Act of 1934. This Controls and Procedures section includes the
information concerning the controls evaluation referred to in the certifications
and it should be read in conjunction with the certifications for a more complete
understanding of the topics presented.

Definition of Disclosure Controls

Disclosure Controls are controls and other procedures of the Company designed to
ensure that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934, such as this Quarterly Report, is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. Disclosure Controls are also designed to ensure that such
information is accumulated and communicated to our management, including the
Company's principal executive and principal financial officers, as appropriate,
to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Controls

Our management, including the acting CEO and the CFO, does not expect that our
Disclosure Controls or our internal control over financial reporting will
prevent all error and all fraud. A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control system's objectives will be met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, have
been detected.

These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. The design of any system of controls is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur and not be
detected.

                                       57
<PAGE>

Conclusions

Based upon the Disclosure Controls evaluation referenced above, our acting CEO
and our CFO have concluded that, subject to the limitations noted above, as of
the end of the period covered by this Quarterly Report, our Disclosure Controls
were effective.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934)
that occurred during the quarter ended December 31, 2005 that has materially
affected, or 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.

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.

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 both 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 to the victims of Mr.
Crowley's actions, pursuant to the Fair Funds provisions of the Sarbanes-Oxley
Act of 2002.

                                       58
<PAGE>

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.

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 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, has 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.

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 Company is in the
process of preparing its answer and defenses to the Complaint. 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 of the Company's
former independent auditor, Sherb & Co., LLP. The class plaintiff has since
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.

                                       59
<PAGE>

The Court denied the motion of Spear & Jackson's Monitor to abate the litigation
for a six-month period pending the administration of the SEC's restitution fund.
The Court also denied the Plaintiff's Motion for Clarification and established a
new cut-off for discovery until December 19, 2005. The case was initially set on
the Court's two-week calendar beginning March 6, 2006 but the trial date has
since been reset for October 2006.

On September 6, 2005, the Company was served with a Shareholder Derivative
Complaint filed on June 1, 2004 in the Circuit Court for Palm Beach County,
Florida (Case No. CA005068). The suit names, in addition to the Company, which
is a nominal defendant, present and former directors and the Company's prior
independent auditors, Sherb & Co. LLP., as defendants. 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
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. The Company will evaluate the
Complaint and file its response at the appropriate time.

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

(a)  Exhibits

31.1  Certification of acting Chief Executive Officer pursuant to Rule 13a-14(b)
      or Rule 15d -14(c) of the Securities Exchange Act of 1934 and Section 906
      of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 350).

31.2  Certification of Chief Financial Officer pursuant to Rule 13a - 14(a) or
      Rule 15(d) - 14(c) of the Securities Exchange Act of 1934 as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1  Certification of acting Chief Executive Officer pursuant to Rule 13a -
      14(b) or Rule 15d - 14(c) of the Securities Exchange Act of 1934 and
      Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.1350).

32.2  Certification of Chief Financial Officer pursuant to Rule 13a - 14(b) or
      Rule 15d - 14(c) of the Securities Exchange Act of 1934 and Section 906 of
      the Sarbanes-Oxley Act of 2002 (18 U.S.C.1350).

                                       60
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

SPEAR & JACKSON, INC.


February 14, 2006                       /s/ John Harrington, Jr.
                                        ------------------------
                                        John Harrington, Jr.
                                        Interim Chairman



February 14, 2006                       /s/ William Fletcher
                                        --------------------
                                        William Fletcher
                                        Acting Chief Executive
                                        Officer
                                        (Principal Executive Officer)


February 14, 2006                       /s/ Patrick J. Dyson
                                        ---------------------
                                        Patrick J. Dyson
                                        Chief Financial Officer
                                        (Principal Financial and
                                        Accounting Officer)

                                       61