Back to GetFilings.com



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

FORM 10-K
(Mark One)
[X] Annual Report Pursuant To Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the fiscal year ended September 30, 2004

or

[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the transition period from N/A to N/A

COMMISSION FILE NUMBER: 0-32013

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

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

6001 Park of Commerce Boulevard, Suite 2, Boca Raton, Florida 33487
-------------------------------------------------------------------
(Address of principal executive offices, including Zip Code)

(561) 999-9011
--------------
Registrant's telephone number, including area code

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

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act), Yes [ ] No [X]

The aggregate market value of the registrant's common stock (which is the only
common equity of the registrant, voting or non-voting) held by non-affiliates
computed by reference to the closing price of a share of the common stock on the
Over The Counter Bulletin Board on March 30, 2004 was $34,401,487.

The number of shares of registrant's common stock outstanding as of December 31,
2004 was 11,741,122.

TABLE OF CONTENTS

Page
PART I

ITEM 1 BUSINESS ....................................................... 1

ITEM 2 PROPERTIES ..................................................... 17

ITEM 3 LEGAL PROCEEDINGS .............................................. 18

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............ 20

PART II

ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES .............. 20

ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA ........................... 22

ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ...................................... 24

ITEM 7A QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ....... 64

ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....... 66

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ....................................... 67

ITEM 9A CONTROLS AND PROCEDURES ........................................ 68

ITEM 9B OTHER INFORMATION .............................................. 69

PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT ................. 70

ITEM 11 EXECUTIVE COMPENSATION ......................................... 73

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS ..................... 75

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. 78

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES ......................... 80

PART IV

ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K ............................................ 80

SIGNATURES ................................................................. 83


PART I

ITEM 1. BUSINESS

CORPORATE ORGANISATION

Spear & Jackson, Inc. ("Spear & Jackson" or the "Company") 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.

1


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 are subject to
the terms of a Stockholder's Agreement and a Registration Rights Agreement.

2


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

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

Change of Name to Spear & Jackson, Inc.

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

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

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

Exit from Screwdriver 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 disposition followed a strategic review of the screwdriver division by the
then directors of Spear & Jackson, Inc., from which it was determined that the
screwdriver division was no longer a core activity. 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.

3


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.

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.

As a further measure, the Court has 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 bars Mr. Crowley from service as
an officer or director of a public company, and prohibits 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.

The Company has been pursuing settlement negotiations with both the SEC and Mr.
Crowley to reach a resolution with both parties.

As part of such settlement negotiations the Company has now entered into a Stock
Purchase Agreement with PNC Tool Holdings LLC ("PNC") and Dennis Crowley, the
sole member of PNC. Under the Stock Purchase Agreement, the Company will
acquire, for $100, 6,005,561 common shares of the Company held by PNC, which
represents approximately 51.1% of the outstanding common shares of the Company
at December 31, 2004, and which constitute 100% of the common stock held by such
entity. The parties have also executed general releases in favor of each other
subject to the fulfillment of the conditions of the Stock Purchase Agreement.

Mr. Crowley has entered into a Consent to Final Judgment of Permanent Judgment
with the Securities and Exchange Commission, without admitting or denying the
allegations included in the complaint which requires 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.

4


The Company has also entered into a Consent to Final Judgment of Permanent
Injunction with the Securities and Exchange Commission 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 violations of
various sections and rules under the Securities Act of 1933 and the Securities
Exchange Act of 1934.

The Stock Purchase Agreement is not effective until formal approval of the
Consents by the Securities and Exchange Commission, as well as approval by the
U.S. District Court for the Southern District of Florida of the settlement of
that certain 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 is also conditioned
on the Company receiving the benefit of the disgorgement and civil penalty funds
paid by Crowley.

As a result of the contemplated stock purchase, the Company expects that the
stockholders of the Company will have their percentage stock interest increase
correspondingly with the return of the Spear & Jackson shares to the Company by
PNC Tool Holdings LLC. Jacuzzi Brands, Inc., which is a beneficial owner of
3,543,281 shares of common stock, will have its interest in the Company increase
to approximately 61.2% 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 August 13, 2004 the Company announced the resignation of its independent
accountant, Sherb & Co LLP and on November 19, 2004 the Company engaged Chantrey
Vellacott as its independent auditor. The change in accountants was ratified and
approved by the Board of Directors on the same date. Additional disclosures
concerning the resignation and appointment are included under ITEM 9, below.

SUMMARY OF PRINCIPAL OPERATIONS

Spear & Jackson, Inc., through its principal operating entities, as disclosed in
note 1 to the 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

5


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, builder's 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 from Far Eastern suppliers. Neill Tools product offering now
includes a full range of hand power 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 sources from the Far
East both to end-customers as well as parts to UK manufacturers.
Eclipse is also involved in applied magnetics and supplies many areas
of manufacturing with products such as separators, conveyors, lifting
equipment and material handling solutions.

3) The Company's metrology division comprises:

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

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

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.

6


BUSINESS SEGMENTS

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

The following table sets forth external sales by segment as a percentage of
total sales:

Business segment % of Total Sales
---------------- ----------------------------
2004 2003 2002

Hand and garden tools 75.57 76.17 75.03

Magnetic products 15.19 14.78 15.57

Metrology tools 9.24 9.05 9.40

For further detailed financial information by reportable segment including
sales, profit and loss, and total asset information see Note 22 in the "Notes to
the Consolidated Financial Statements" included within this Annual Report on
Form 10-K. Also included within Note 22 is a detailed geographical analysis
including sales, profit and loss, and total asset information.

RESEARCH AND DEVELOPMENT

The Company invests in the development of new products and manufacturing
processes. Direct costs associated with new tooling for products are
capitalized, where material. All other costs, including salaries and wages of
employees involved in research and development projects, are expensed as
incurred.

SEASONALITY

Garden tool sales are seasonal by nature. Sales of such products typically peak
in the second and early part of the third quarter of the Company's financial
year when Northern Hemisphere customers increase order levels in anticipation of
the start of the spring gardening season. Garden product sales are lowest in the
first quarter of the financial year and the Company attempts to mitigate the
adverse impact of this by introducing various incentives to encourage customers
to place orders early.

7


STRATEGY

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:

* 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.

* Continuous product improvement and innovation.

* Increasing market share by offering highly competitive product
offerings.

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

* Consideration and implementation of initiatives to increase our US
penetration.

8


PRODUCTS AND SERVICES

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

With regard to the products supplied by the company, those classes of similar
products that accounted for 10% of more of total consolidated revenue in the
last 3 years were as follows:

Product Type % of Total Revenue
------------ ---------------------------------
2004 2003 2002

Industrial Cutting Tools 19.87 15.84 17.59
(hacksaws, hacksaw blades, small saws,
saw frames, woodsaws and holesaws)

Garden, Digging and Cutting Tools 31.48 26.68 28.40

Electrical tools including power tools
and compressors N/A 11.97 N/A

Metrology products including gauges,
micrometers and precision tools 15.28 14.46 15.33

The company's product offerings comprise both own-manufactured items and
products sourced from third party suppliers. Products manufactured by the
company broadly comprise:

(a) Hand & Garden Tools Division

(i) Industrial tools comprising:
- Hacksaw Blades
- Small Saws and Woodsaws
- Saw Frames
- Holesaws
- Nutspinners and Riveters
- Builders' Tools

(ii) Garden tools comprising:
- Spades, Forks and Shovels
- Shears
- Cultivators
- Other Agricultural and Contractors' Tools

9


(b) Metrology Division

- Gauges
- Squares and Rules
- Calipers and Dividers
- Micrometers
- Hardness Testing Equipment

(c) Magnetics Division

- Popular and Industrial Magnets
- Chucks
- Magnetic Tools
- Lifters and Separators
- Workholding and Handling Systems

Of the total sales revenues arising in the year ended September 30, 2004, 37% of
the revenues were attributable to the sale of non-manufactured, factored
products sourced from external suppliers. The percentage of total revenues
generated in the years ended September 30, 2003 and September 30, 2002 which
related to such factored items was 36% and 32% respectively.

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

Number of
Name/Location Products Manufactured Employees
------------- --------------------- ---------
A. UK:

Neill Tools Hand tools 330
Atlas Site, Sheffield

Spear & Jackson Garden Products Garden tools 99
Wednesbury, West Midlands

Robert Sorby Woodturning tools 35
Sheffield

Eclipse Magnetics Magnetic products 69
Vulcan Road, Sheffield

Bowers Metrology Precision measuring tools 70
Bradford

Coventry Gauge Precision measuring tools 30
Poole

10


B. France:

Spear & Jackson Assembly of garden tools 47
France

We maintain strict internal quality controls to monitor the standard of
production at the various facilities. In addition, the quality of externally
sourced finished products is checked by frequent tests and certification.

The raw materials utilized in our manufacturing processes typically comprise
steel (hot rolled, cold rolled, bright drawn, high speed, stainless) and other
alloys and castings, wood and plastics, paint and other coating materials,
packaging, bought in component parts and various abrasives, lubricants, tooling
and adhesives which are used in the manufacturing processes.

The Company regards these raw materials to be generally available and not
subject to restricted provision. Accordingly, the Company believes that there
are alternate sources for each category of raw materials that could be secured
without significant delay, if necessary.

WORKING CAPITAL

The Company principally builds inventory to known or anticipated customer
demand. In addition to normal safety stock levels, certain additional inventory
levels may be maintained for products with long purchase and manufacturing lead
times. The Company believes that it is important to carry adequate inventory
levels of raw materials and component parts to avoid production and delivery
delays that detract from its sales effort.

Sales of the Company's garden product ranges are lowest in the first quarter of
the financial year. The Company attempts to mitigate the adverse impact of this
by introducing various incentives, including extended payment terms, to
encourage customers to place orders early.

TOTAL BACKLOG ORDERS

As at November 26, 2004 there were $8.6 million backlog orders (December 31,
2003 $4.7 million). Given the nature of the business, the portion of these
orders that will not be fulfilled within the current year will be immaterial.

NEW PRODUCTS

The Company's policy is to support its core product offering with a pipeline of
new products and range extensions. In the 12 months to September 2004 new
product range launches and other significant product related business
developments have included:

11


NEILL TOOLS

* The `Predator' woodsaw which, in independent tests comparing it to its
major competitors, has been proven to be the leader in its field.

* Significant listings were secured with two major building merchants for
woodsaws and contractors' tools for deliveries beginning in September
2004.

* The `Razorsharp' range of cutting tools was launched, its unique
features include oval extending handles with an ergonomic grip to give
better handling quality.

* The premier brand for digging and cultivating tools in the UK and
Australasia, `Neverbend', was relaunched in an exciting new livery and
packaging.

* Soft feel builders' tools which feature a new ergonomically designed
handle.

ECLIPSE

* Eclipse made further inroads into mainland Europe with its `popular'
range of magnets. The product has been included in a major catalog that
is widely used throughout Europe.

* In addition, Eclipse launched the `Ultra Lift Plus', which includes the
patented safety shim. This `switch on, switch' off' magnet allows
significant weights to be lifted in complete safety.

* Eclipse Magnetics continued to develop and grow its "Specials
Division". These individually designed solutions represent a
significant opportunity since they are highly specialized and, as such,
are not subject to threat from cheap foreign imports.

BOWERS

* The previously launched Metrology `SmartPlug' range of gauges was
expanded in the year with the introduction of additional options and
accessories. Sales penetration is now being gained in the general
automotive market and with Formula 1 racing teams.

* Emphasizing our continuing focus on core competencies, we also invested
a further $165,000 in a Computer Numerically Controlled ("C.N.C.")
grinder to ensure that Bowers maintains its reputation as premier
manufacturer and supplier of precision measuring products.

12


SPEAR & JACKSON FRANCE

* Spear & Jackson France successfully launched a new range of brass
garden ornaments and brushes together with extensions to its existing
garden tools ranges. In addition, a number of new lawn and garden
products were launched, mainly sourced from the UK range.

ROBERT SORBY

* Robert Sorby continued its drive into North America and was successful
in obtaining its largest ever-single order from a US customer of $400k.
In addition, a range of electronically controlled woodturning lathes
was launched with sales exceeding all expectations.

AUSTRALASIA

* In Australia our new Managing Director continues to consolidate the
Company following recent management changes, with emphasis on the
promotion of the Spear & Jackson brand and the increased sale of more
products sourced form the UK.

* Spear & Jackson (Australia) tendered for and retained the account of
its largest customer with forecast sales of approximately $5.5 million
per annum. Spear & Jackson (New Zealand) was successful in securing a
major new customer in the third quarter from which annual sales of up
to $0.7 million are anticipated in the forthcoming year.

CUSTOMERS

The Company has a broad customer base with no single customer accounting for
greater than 10% or greater of total sales.

MARKETING AND DISTRIBUTION

Our products are distributed in the United Kingdom, European Union, Australasia
and North America.

They are sold through various distribution channels supported by in-house sales
professionals. Products are handled by mass merchants, independent sales agents,
engineering distributors, as well as sales direct to retailer and end users.
Specific marketing policies and distribution routes are adopted by the
divisions, reflecting either the value of the product being marketed or its
complexity. For the high volume, low unit value products such as garden tools,
hand tools and certain magnetic and metrology tools, the normal course of
distribution is via the merchandiser or industrial tool distributors. For low
volume, high unit value products, such as magnetic systems and precision
laboratory based measuring machines, the normal route would be direct to the end
user.

13


The garden and hand tools are primarily sold through three main channels,
retail, wholesale and industrial. The metrology and magnetics divisions sell
through industrial product distributors and directly to end users. The hobby
products are sold by hobby retailers and in their speciality catalogs.

BRANDS

A significant part of the Company's operation is branding and brands strategy.
Spear & Jackson has held leading brand names in its core business since 1760.
Neill Tools is one of the largest British based manufacturers of hand tools with
leading brand names such as Neill Tools, Eclipse, Elliott Lucas and Spear &
Jackson. In the metrology division, the Moore & Wright brand has been recognized
for over 100 years for its traditional craftsmanship while the Bowers name has
been at the forefront of international precision measuring equipment for over 50
years. Eclipse Magnetics is a recognized brand name in the UK manufacturing
industry because of its long history of supplying quality magnetic tools. Robert
Sorby is a recognized specialist in marketing its wood turning tools.

COMPETITION AND COMPETITIVE CONDITIONS

Each of the Company's divisions operates in mature sectors and under extremely
competitive market conditions. This situation has been increasingly exacerbated
by the influx of low-cost Far Eastern and third world imports ensuring that the
importance of outstanding brand recognition and superior quality and performance
is paramount.

The major competition for our hand and garden tools comes not only from the
low-cost Far Eastern imitations but also many established companies such as
Stanley in hand tools and Fiskars in garden cutting tools, while Ames/True
Temper possesses a significant share of the North American lawn and garden tools
market. The trend towards cheap Far Eastern products, the shift in customer
profile in the United Kingdom from specialized tool distributors to large DIY,
or `one-stop shops' and, in the past, a brand equity dilution due to lower
levels of marketing and advertising, has placed significant pressures upon the
maintenance of market share. Likewise in our French distribution outlet, the
ability to compete effectively with suppliers from the Far East is problematic
and there have also been significant inroads made by cheaper, lower quality
Eastern European products.

Although certain of our competitors are substantially larger than us and have
greater financial resources, we believe that we compete favorably with other
hand and garden tools companies because of the quality of our products, their
pricing and imaginative design, our ability to introduce niche products which
are clearly differentiated from competitor offerings and the level of our
customer support. Our reputation, customer service and unique brand offerings
enable us to build and maintain customer loyalty.

14


In our New Zealand and Australian distribution units, while price pressure has
been exerted through the increasing availability of tools manufactured from
within the Pacific Rim, the divisions are well placed to develop their position
as recognized and respected tool distributors marketing lines from manufacturers
all over the world who do not have, or do not wish to have their own presence in
either New Zealand or Australia.

With regard to our metrology operation, Bowers is a relatively small player
compared to its major competitors such as Mitutoyo, and, as such, is less able
to offer a complete product range. In addition, its traditionally heavy reliance
on the North American economy, the threat offered by low price Chinese imports
and the decline in availability of high-skilled engineers in the United Kingdom,
has directed the company's product ranges towards the "high technology" market
segment. Patented digital technology has staved off domination from Chinese
manufacturers while in certain areas, such as bore-gauging, the complexity and
quality of the design has meant that Chinese competition has been insignificant.
Indeed Bowers is recognized as a global leader in the precision bore gauge
market.

Eclipse Magnetics mirrors a similar picture with a great deal of competition
coming from Europe and the Far East. The launch of quality, high-standard
products at competitive prices is anticipated to maintain and increase the
Eclipse Magnetics market share.

Although one of the smaller divisions within the group, Robert Sorby is a world
leader in turning tools, competing with the likes of Henry Taylor and Pfeil. It
is a premier manufacturer of high specification tools within the niche
wood-working tools market and seeks to differentiate itself from the large
number of manufacturers producing DIY type woodworking tools through quality,
design and brand.

EMPLOYEES

The number of persons employed by the Company and its wholly owned subsidiaries
at September 30, 2004, 2003 and 2002 were 755, 764 and 843 respectively. 339 of
the Company's employees are subject to union agreements. Our Company's union
contracts with Neill Tools at the Company's Atlas and Wednesbury UK sites fall
due for negotiation in January 2005 and the agreements with the Bowers workforce
at Bradford in the UK become due in July 2005. The Company believes its
relationship with employees is good.

CAPITAL EXPENDITURE

Capital expenditure in the years ended September 30, 2004, 2003 and 2002 was
$7.1 million, $2.9k million and $1.4 million respectively. Capital expenditure
in the year ended September 30, 2004 related to the purchases of property in
Wednesbury, England ($3.2 million), and Boca Raton ($3.3 million). The remaining
$0.6 million was incurred in the updating of manufacturing plant and equipment
and the further automation of the Company's manufacturing facilities. Capital
expenditure in the forthcoming financial year is expected to be approximately
$1.4 million and will be used to improve the Company's existing facilities,
expand its manufacturing capabilities and increase productivity.

15


INTELLECTUAL PROPERTY

Our ability to compete effectively depends in part on the protection of our
license patents, designs and trademarks, which are used in the design, marketing
and sales of our many products. We can provide no assurance to investors that
the patents and trademark licensed by us will not be challenged, invalidated, or
circumvented by other manufacturers.

The Company has approval for three patents and is awaiting approval for ten
others. The filing dates for these patents range between June 1999 and January
2004, and the expiration dates will, therefore, occur 20 years after these
original dates of application. These patents are registered in Great Britain,
Canada, Hong Kong and Taiwan and relate to tools produced by the Company and to
specific mechanisms utilized in certain products manufactured by the Company.

In addition, the Company has 415 trade marks and 64 designs registered
throughout the world. The renewal dates for the trade marks range from December
2004 to December 2018. The registered designs fall due for renewal between
January 2005 and March 2009.

The designs to which the Company currently maintains rights comprise 8
registered designs issued by the United States, 1 registered design issued by
Canada, 33 registered designs issued by Great Britain, 12 registered designs
issued by Taiwan, 4 registered designs issued by China, 3 registered designs
issued by France, 1 registered design issued by New Zealand, 1 registered design
issued by Australia, and 1 registered design issued by India. The registered
designs relate to certain tools manufactured by the Company.

INFORMATION AVAILABLE ON SPEAR & JACKSON WEBSITE

We make available on our website our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to these
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
and Exchange Act of 1934, as amended, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC. The Company's
internet address is http://www.spear-and-jackson.com.

These documents are also available in print to any shareholder who requests by
sending a letter addressed to the Secretary of the Company.

16


ITEM 2. PROPERTIES

Our principal executive office is located at 6001 Park of Commerce Boulevard,
Suite 2, Boca Raton, Florida 33487, comprising a warehouse and administration
facility of 30,000 square feet on a 7.9 acre site.

The property was purchased in March 2004. As discussed in note 8 (a) to the
Financial statements, following the removal from office of the Company's former
CEO, the current Board, in conjunction with the Corporate Monitor, has performed
a detailed review of its U.S. sales and distribution strategy. As a result, the
original initiative of setting up a central distribution unit in Florida has
been deferred. The property has now been offered for sale.

We operate from eight sites in the United Kingdom one site in France and New
Zealand and four sites in Australia. Six of such locations are plant facilities
and the remainder are office and distribution facilities. Five of the locations
are owned and the remaining nine are occupied under leases of varying lengths.

The UK owned locations comprise:

* Neill Tools, Atlas site, Sheffield, England
* Spear & Jackson Garden Products site, Wednesbury, West Midlands, England
* Robert Sorby site, Sheffield, England
* Bowers Metrology site, Bradford, England

The French manufacturing and distribution facility is located in St Chamond.

The leasehold sites and their respective lease periods, date of expiry of lease
and annual lease rentals are as follows:
Annual
Lease Lease Rental
Occupier/Location Period Expiry of Lease $'000
----------------- ------ --------------- ------------
UK
Eclipse Magnetics, Sheffield
England 25 years June 2011 320

Coventry Gauge, Poole Dorset
England 20 years June 2009 117

Robert Sorby, Doncaster
England 10 years May 2009 22

Bowers Metrology, Hampshire
England 10 years August 2012 135

AUSTRALIA
Victoria Building
Dandenong South
Australia 12 years December 2015 156

17


Welshpool, Australia 10 years January 2005 28

Wetherill Park, Australia Annually May 2005 14

West Terrace, Adelaide
Australia 3 years February 2007 7

NEW ZEALAND
Avondale
Auckland, New Zealand 12 years November 2005 34

The square footage of the above properties ranges from 3,000 to 240,000 square
feet.

We consider all of our properties as suitable and adequate to carry on our
business. We also believe that we maintain sufficient insurance coverage on all
of our real and personal property.

We do not lease or own any other real property.

ITEM 3. LEGAL PROCEEDINGS.

The Company is currently involved in a legal action with the former managing
director of Spear & Jackson plc concerning the amount of severance compensation
payable following his dismissal as part of a management reorganization program
in September 2002. The outcome of this action will not be known until the year
ended September 30, 2005 but the Company expects that the amounts provided in
respect of the dispute will be adequate to cover any amounts payable should the
Company's defence be unsuccessful.

On April 15, 2004, the US Securities and Exchange Commission filed suit in the
US District Court for the Southern District of Florida, against the Company and
Mr. Dennis Crowley, its then Chief Executive Officer/Chairman, among others,
alleging violations of the federal security laws. Specifically with regard to
the Company, the SEC alleged that the Company violated its 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
the 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.

In addition, the Court has appointed a Corporate Monitor to oversee the
Company's operations. Further to Mr. Crowley consenting to a preliminary
injunction, the Court's Order also temporarily bars Mr. Crowley from serving as
an officer or director of a public company and prohibits him from voting or
disposing of Company stock. The Company's Board of Directors has also suspended
Mr. Crowley from all positions he occupied as an officer or director. The
Company is cooperating with the Monitor and the continuing SEC investigation.

18


Subsequent to the SEC action, a number of class action lawsuits have been
initiated in the US District Court for the Southern District of Florida by
Company shareholders against the Company, Sherb & Co. LLP, the Company's former
independent auditor, and certain of the Company's directors and officers,
including Mr. Crowley and Mr. William Fletcher, the Company's CFO. These suits
allege essentially the same claims as the SEC suit, and seek unspecified
damages. The Company has not yet responded to the suits, and likely will not
until they have been consolidated and lead counsel appointed for the Class. It
is impossible at this time to ascertain the ultimate legal and financial
liability or whether these actions, as well as the SEC action, will have a
material adverse effect on the Company's financial condition and results of
operation.

The Company has been pursuing settlement negotiations with the SEC and Mr.
Crowley to reach a resolution with the SEC as well as Mr. Crowley. The Company
has now entered into a Stock Purchase Agreement with PNC Tool Holdings LLC
("PNC") and Dennis Crowley, the sole member of PNC. Mr. Crowley is the former
Chief Executive Officer, President and Chairman of the Board of the Company.
Under the Stock Purchase Agreement, the Company will acquire, for $100,
6,005,561 common shares of the Company held by PNC, which represents
approximately 51.1% of the outstanding common shares of the Company and which
constitutes 100% of the common stock held by such entity. The parties have also
executed general releases in favor of each other subject to the fulfillment of
the conditions of the Stock Purchase Agreement.

Mr. Crowley has entered into a Consent to Final Judgment of Permanent Judgment
with the Securities and Exchange Commission, without admitting or denying the
allegations included in the complaint, which requires 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.

The Company has also entered into a Consent to Final Judgment of Permanent
Injunction with the Securities and Exchange Commission 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 violations of
various sections and rules under the Securities Act of 1933 and the Securities
Exchange Act of 1934.

The Stock Purchase Agreement is not effective until formal approval of the
Consents by the Securities and Exchange Commission, as well as approval by the
U.S. District Court for the Southern District of Florida of the settlement of
that certain 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 is also conditioned
on the Company receiving the benefit of the disgorgement and civil penalty funds
paid by Crowley.

19


As a result of the contemplated stock purchase, the stockholders of the Company
will have their percentage stock interest increase correspondingly with the
return of the Spear & Jackson shares to the Company by PNC. Jacuzzi Brands,
Inc., which is a beneficial owner of 3,543,281 shares of common stock, will have
its interest in the Company increase to approximately 61.2% 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.

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.

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

No matters were submitted to our security holders for a vote during the final
quarter of our fiscal year ended September 30, 2004.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Our shares are currently trading on the OTC Bulletin Board under the stock
symbol SJCK. Our shares began trading on the OTC Bulletin Board on November 17,
2001. The following table sets forth for the periods indicated the range of the
high and low sales price.

20


Fiscal 2004 - Stock Price Fiscal 2003 - Stock Price
------------------------- -------------------------
High $ Low $ High $ Low $
------ ----- ------ -----
First Quarter 6.40 3.25 4.15 2.60
Second Quarter 5.53 2.58 5.89 3.37
Third Quarter 3.15 1.10 15.99 5.40
Fourth Quarter 1.85 1.10 15.75 4.30
Year 6.40 1.10 15.99 2.60

The trades reflect inter-dealer prices, without retail mark-up, markdown or
commission and may not represent actual transactions.

HOLDERS OF COMMON STOCK

As of September 30, 2004 there were 22 record owners of our common stock and
approximately 1,152 beneficial owners of our common stock.

DIVIDENDS

We have not paid or declared any dividends on our common stock and do not intend
to do so for the foreseeable future. Any earnings will be retained by the
Company and used to expand the Company's existing operations.

Future dividend policy will depend on:
* our earnings
* capital commitments
* expansion plans
* legal or contractual limitations
* financial conditions and
* other relevant factors

EQUITY PLAN COMPENSATION INFORMATION


Number of Securities
Number of Securities to Weighted average remaining available for
be issued upon exercise exercise price of future issuance under
of outstanding options, outstanding options, equity compensation
warrants and rights. warrants, and rights. plans.
----------------------- --------------------- -----------------------

Equity compensation plans approved
by security holders 0 0 0

Equity compensation plans not
approved by security holders 0 0 0


21


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below in respect of the
Consolidated Statements of Operations for the years ended September 30, 2004,
2003, and 2002 and the consolidated financial data relating to the Consolidated
Balance Sheets as at September 30, 2004 and 2003, have been derived from the
audited consolidated financial statements of Spear & Jackson, Inc. included
elsewhere herein. The selected consolidated data in respect of the Consolidated
Statement of Operations for the year ended September 30, 2001 and the
consolidated financial data pertaining to the Consolidated Balance Sheets at
September 30, 2002 and September 30, 2001 have been derived from audited
consolidated financial statements of Spear & Jackson, Inc. that are not included
herein. Consolidated financial information in respect of the year ended
September 30, 2000 has been compiled from US GAAP consolidated financial
statements that have not been subject to audit under applicable US GAAS.


AS OF AND FOR THE FISCAL YEARS ENDED SEPTEMBER 30,

2004 2003 2002 2001 2000
------------ ------------ ----------- ----------- -----------
UNAUDITED

CONSOLIDATED STATEMENTS OF
OPERATIONS:

Net sales $ 101,179 $ 91,845 $ 87,886 $ 95,462 $ 123,529
Cost and Expenses:
Cost of goods sold 68,685 62,947 61,954 68,049 78,113
Operating costs and expenses 30,550 22,534 27,250 27,375 38,382
Other net expense 116 101 96 13,788 410

------------ ------------ ----------- ----------- -----------
Income (loss) from continuing
operations before income taxes 1,828 6,263 (1,414) (13,750) 6,624
Provision for income taxes (1,205) (1,497) (948) 226 (2,346)
------------ ------------ ----------- ----------- -----------

Net income (loss) from continuing
operations 623 4,766 (2,362) (13,524) 4,278
------------ ------------ ----------- ----------- -----------

Discontinued operations (187) (150) (1,150) - -
------------ ------------ ----------- ----------- -----------
Net income (loss) $ 436 $ 4,616 $ (3,512) $ (13,524) $ 4,278
============ ============ =========== =========== ===========

Basic and diluted net income (loss) per share:

From continuing operations $ 0.05 $ 0.40 $ (0.58) $ (3.82) $ 1.21

From discontinued operations $ (0.02) $ (0.01) $ (0.28) $ 0.00 $ 0.00
------------ ------------ ----------- ----------- -----------
$ 0.03 $ 0.39 $ (0.86) $ (3.82) $ 1.21
============ ============ =========== =========== ===========

Weighted average shares outstanding 11,741,122 11,988,930 4,100,071 3,543,281 3,543,281
============ ============ =========== =========== ===========


CONSOLIDATED BALANCE SHEETS:

Working capital (note 4) $ 28,821 $ 28,273 $ 21,789 $ 24,637 $ 26,003
Other assets (note 4) $ 35,335 $ 30,628 $ 28,934 $ 27,388 $ 40,063
Other liabilities $ 34,717 $ 27,049 $ 21,419 $ 11,573 $ 1,377
Stockholders' equity $ 29,439 $ 31,852 $ 29,304 $ 40,452 $ 64,689


NOTES 3 2 1


22


1. The Consolidated Statements of Operations for the years ended September
30, 2000 and 2001 contain the results of the Company's Industrial Saws
Division that was sold in March 2001. Similarly, the net assets of this
Division are included in the Consolidated Balance Sheet disclosures at
September 30, 2000.

2. On September 6, 2002 Spear & Jackson, Inc. acquired Megapro Tools, Inc.
and its subsidiaries ("Megapro") via a reverse takeover. The results
and net assets of Megapro are included in the Consolidated Statements
of Operations and the Consolidated Balance Sheet from that date until
the date of Megapro's disposition on September 30, 2003. The results of
Megapro are presented in the Consolidated Statements of Operations as
discontinued operations.

3. Working capital comprises current assets, excluding any deferred income
tax assets, less current liabilities. Other assets comprise property,
plant and machinery, deferred income tax assets, and investments.

4. For consistency of presentation, the current portion of deferred income
tax assets is shown within "Other assets".

23


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD LOOKING STATEMENTS

This report (including the information in this discussion) contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements involve risks and uncertainties,
including statements regarding the Company's capital needs, business strategy
and expectations, and are being made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Any statements contained
herein that are not statements of historical facts may be deemed to be
forward-looking statements. Terminology such as "may", "will", "should",
"believes", "estimates", "plans", "expects", "attempts", "intends",
"anticipates", "could", "potential" or "continue", the negative of such terms,
or other comparable terminology, are intended to identify forward-looking
statements.

RISK FACTORS

Historically, growth has been achieved 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, without limitation:

- - achieving planned revenue and profit growth in each of the Company's business
units;
- - renewal of material contracts in the Company's business units consistent with
past experience;
- - successful and timely integration of any significant businesses acquired by
the Company and realization of anticipated synergies;
- - increasing price, products and services competition;
- - emergence of new competitors or consolidation of existing competitors;
- - the timing of orders and shipments;
- - continuing availability of appropriate raw materials and factored products;
- - maintaining and improving current product mix;
- - changes in customer requirements and in the volume of sales to principal
customers;
- - changes in governmental regulations in the various geographical regions where
the Company operates;
- - the timely implementation of the Company's restructuring programs and
financial plans;
- - general economic and political conditions, including the global economic
slowdown and interest rate and currency exchange rate fluctuation;

24


- - continuing development and maintenance of appropriate business continuity
plans for the Company's processing systems;
- - absence of consolidation among key customers;
- - attracting and retaining qualified key employees;
- - no material breach of security of any of the Company's systems;
- - the ability of the Company to control manufacturing and operating costs;
- - continued availability of financing, and financial resources on the terms
required to support the Company's future business strategies; and
- - the outcome of pending and future litigation and governmental or regulatory
proceedings.
- - the potential acquisition of the Company or its principal assets.

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
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.

OVERVIEW

Overall, although sales for the year ended September 30, 2004 show an increase
over those recorded for the equivalent period last year, there has been a
significant decrease in operating profitability.

Sales for the year ended September 30, 2004 increased by approximately $9.4
million (10.2%) over the previous year, primarily attributable to favorable
currency exchange fluctuations in the year offset by sales volume decreases.
While improvements in sales volumes were recorded in the UK trading divisions,
these were offset by the continued impact of the loss, in late 2003, of a major
Australian customer, the negative impact in certain export markets of the weak
US dollar, soft domestic demand, lack of optimism in the capital goods
manufacturing sector and fragile customer confidence following the removal from
office of the Company's former Chief Executive Officer.

Gross profit was 32.1% for the year ended September 30, 2004 compared to 31.5%
for the prior year. Margins have been adversely affected by increases in prices
for our principal raw materials of steel, plastic, cobalt and nickel, increases
in basic utility charges which form a key part of our manufacturing costs and
the movement towards factored product, which has a lower contribution, in
preference to own manufactured items. The negative impact of these factors has
been counterbalanced, however, by stronger sales mix, the flow-through benefits
of the "direct to market" sales strategy and the successful disposal of slow
moving inventories at amounts above written down value. The upward pressure on
steel prices caused by strong demand from China shows no signs of easing and is
likely, therefore, to remain an adverse influence on margins in the short term.

25


Selling, general and administrative expenses have increased by $8.0 million
(35.6%) in the year. Key factors here include: the additional costs associated
with the set up of the enhanced UK and US sales infrastructure; continuing UK
distribution cost overruns; the impact of adverse movements in the US $/sterling
cross rates in the period and general inflationary increases. As an additional
factor, certain one time savings experienced in 2003 have not been repeated in
2004. These include such items as: the settlement of senior employee termination
liabilities at amounts less than expected ($0.6 million), bad debt recoveries in
quarter 1 of 2003 ($0.1 million), one-off car leasing credits ($0.2 million) and
tax dispute settlements at amounts less than anticipated ($0.2 million).

In addition, corporate head office costs in the US have significantly increased
as a result of the legal and professional fees, monitor costs and associated
expenses incurred in connection with the US Securities and Exchange Commission's
suit against the Company and its former Chief Executive Officer. Head office
salary costs have fallen as a result of the removal of the Company's former CEO
but this reduction has not been sufficient to absorb the increases in legal fees
in the period.

The Company believes that the level of overheads incurred in the twelve months
ended September 30, 2004 will be maintained in the short term. Various
initiatives are, however, being implemented to reduce the levels of sales and
distribution costs in future periods. Additionally, on the assumption of a
prompt settlement of the Company's SEC and other related litigation issues,
decreases in administration costs should follow in future periods as a result of
decreases in legal and professional costs.

As a result of the decrease in sales volumes and higher overhead costs offset by
gross margin improvements the Company's operating income decreased by $4.42
million (69.4%) from $6.4 million in 2003 to $1.94 million in 2004.

The Company's management believes, however, that conditions are showing signs of
improvement in certain of our markets, and this is borne out by the strong
trading performance in the last quarter of the year.

The Company is addressing the decrease in operating profitability by the launch
of new products to re-establish our competitive edge over cheap imports. An
extended woodsaw range has already been introduced to the market and the launch
of a range of powered garden tools is planned for later in the year.
Additionally, the Company anticipates that it will continue to buy in finished
and semi finished components as a cost efficient alternative to own manufacture.
The Company intends to continue exploring initiatives to reduce its
manufacturing base costs, both in respect of raw materials and processes, in
order to minimize margin erosion.

The Company's management has implemented a number of initiatives to improve
profitability and further strategies are being considered. Emphasis will
continue to be placed on biasing our sales mix towards higher margin products,
restructuring of the UK manufacturing cost base, reducing warehouse and
distribution costs in the UK and the augmentation of the Company's sales and
marketing functions to ensure the Company derives maximum advantage from the new
UK direct trading route.

26


A new managing director was appointed in quarter 1 to lead our Australasian
operations. His initial responsibility was to regain market share through
increased sales to the existing customer base and the establishment of new
customer contacts so that the adverse effect on sales revenues of the loss of a
major customer can be mitigated as far as possible. Sound trading relationships
with certain major customers have been re-established with the intention that
sales opportunities can be maximized going forward. A significant new customer
has been secured in New Zealand and the Australian division's largest customer
has been retained following a successful tender process. It is now anticipated
that the Australasian companies will return to profitability in the forthcoming
year after incurring a significant operating loss in the year ended September
30, 2004.

These restructuring costs and other initiatives, together with continued
investment in new capital equipment in the UK, are anticipated to achieve
improved efficiencies and reduced labor costs with corresponding improvements in
the ongoing profitability of the Company from quarter 2 of Fiscal 2005 onwards.

In addition to the above reorganization programs, the Company has also invested
significantly in the acquisition of land and buildings in the UK in the year
ended September 30, 2004. In October 2003, through our UK subsidiary Spear &
Jackson Garden Products Limited, we acquired, for $3.2 million, the land and
buildings occupied by our garden tools division in Wednesbury, England.
Subsequent to this Spear & Jackson Garden Products Limited signed, on December
9, 2004, a conditional contract for the sale, for (pound)2.8 million
(approximately $5.3 million), of the excess element of this site. The agreement
was conditional upon the buyer entering into binding contracts for the
acquisition of the adjoining property. These conditions were satisfied early in
2005 and the contract for sale was formally completed on January 28, 2005. This
will enable us to plan future UK garden tool strategies with more certainty.

In March 2004, we also purchased through our wholly owned subsidiary, S&J
Acquisition, Corp., warehouse premises in Boca Raton, Florida for $3.3 million
(including preliminary fit out costs). Following the removal of the Company's
former CEO, the current board, in consultation with the Corporate Monitor, has
performed a detailed review of its US sales and distribution strategy. As a
result, the original initiative of setting up a central distribution unit in
Florida for the company's North American sales operations has been deferred. The
warehouse has been placed for sale and is accordingly presented as an asset held
for resale in the Company's consolidated balance sheet. The directors do not
anticipate that the sale will result in any significant loss to the Company and
the sales proceeds derived from the sale will be available for investment in
alternative US sales strategies and other key initiatives within the group.

The removal by the SEC, in April 2004, of Dennis Crowley as Company CEO and the
initiation of legal proceedings against the Company and certain of its directors
had a debilitating effect on the Company's operating focus.

The Company has been pursuing settlement negotiations with both the SEC and Mr.
Crowley to reach a resolution with both parties.

27


As part of such settlement negotiations the Company has now entered into a Stock
Purchase Agreement with PNC Tool Holdings LLC ("PNC") and Dennis Crowley, the
sole member of PNC. Under the Stock Purchase Agreement, the Company will
acquire, for $100, 6,005,561 common shares of the Company held by PNC, which
represents approximately 51.1% of the outstanding common shares of the Company
at December 31, 2004, and which constitute 100% of the common stock held by such
entity. The parties have also executed general releases in favor of each other
subject to the fulfilment of the conditions of the Stock Purchase Agreement.

Mr. Crowley has entered into a Consent to Final Judgment of Permanent Judgment
with the Securities and Exchange Commission, without admitting or denying the
allegations included in the complaint, which requires 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.

The Company has also entered into a Consent to Final Judgment of Permanent
Injunction with the Securities and Exchange Commission 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 violations of
various sections and rules under the Securities Act of 1933 and the Securities
Exchange Act of 1934.

The Stock Purchase Agreement is not effective until formal approval of the
Consents by the Securities and Exchange Commission, as well as approval by the
U.S. District Court for the Southern District of Florida of the settlement of
that certain 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 is also conditioned
on the Company receiving the benefit of the disgorgement and civil penalty funds
paid by Crowley.

The Company expects that, in the short term, resolution, of the remaining
approval issues will enable management to refocus its energies on implementing
the key strategies of the business and will allow the Company to move forward
free from the operational uncertainties associated with this legal action.

RESULTS OF OPERATIONS

GENERAL

The results discussed below compare the years and quarters ended September 30,
2004, 2003 and 2002. As explained in note 3 to the financial statements, the
acquisition of Spear & Jackson plc and Bowers Group plc (together "S&J") by
Megapro Tools, Inc. (now Spear & Jackson, Inc.) on September 6, 2002 has been
accounted for as a reverse acquisition. In these financial statements, S&J is
the operating entity for financial reporting purposes and the financial
statements for all periods represent S&J's financial position and results of
operations.

The operating results and net assets of Megapro Tools, Inc. and its subsidiary
companies are included in the consolidated financial statements from September
6, 2002, the date of its deemed acquisition, until September 30, 2003, the
effective date of the disposition of the Megapro screwdriver division.

28


The disposition of the Megapro companies followed a review of the screwdriver
division by the directors of Spear & Jackson, Inc. from which it was determined
that the screwdriver division was not a core activity. As a result of the sale,
the Megapro business has been disclosed in the consolidated financial statements
for the years ended September 30, 2004, September 30, 2003 and September 30,
2002 as a discontinued operation.

The disposition of the screwdriver division was undertaken by Neil Morgan, who
was then heading up the division, to a separate group, which included Mr.
Morgan, and in exchange for which the Company received promissory notes and
other receivables from management of $0.3 million as well as discharge of a loan
in the amount of approximately $0.1 million owed by the Company to Neil Morgan.
The assets disposed of had a net book value of approximately $0.4 million.

The Company believes that no specific authorization was afforded to the
Company's management at the time of the disposition to formally dispose of the
Company's screwdriver division assets pending approval by the Board of Directors
of the Company. The Company's current management has reviewed the terms of the
transaction, as well as evaluating the receivable and the assets purportedly
conveyed, to consider its course of action in this matter and has resolved that,
as at September 30, 2004, a further provision of $0.2 million should be made
against the carrying value of the amounts receivable from the acquirers in
addition to the $0.1 million already provided as potentially irrecoverable in
2003. The Company's evaluation of the circumstances of the disposition and the
potential claims against Mr. Morgan and the transferee was already underway at
the time that the SEC proceedings commenced in April 2004.

The Company plans to challenge the manner in which the screwdriver division was
disposed of by Mr. Morgan and expects to commence a legal action against Mr.
Morgan and the third party purchaser of the assets of the division.

SUMMARY

A summary of the results of operations is as follows:

Years Ended Quarters Ended
September 30 September 30
----------------------- ----------------------
2004 2003 2002 2004 2003 2002
$m $m $m $m $m $m
---- ---- ---- ---- ---- ----

Sales 101.2 91.8 87.9 24.4 19.8 21.9
----- ---- ---- ---- ---- ----

Gross profit 32.5 28.9 25.9 8.6 5.7 6.5
Operating costs 30.6 22.5 27.2 7.4 5.7 9.3
----- ---- ---- ---- ---- ----
Operating income (loss) 1.9 6.4 (1.3) 1.1 - (2.8)
Other income/(expenses) (0.1) (0.1) (0.1) - (0.1) 0.1
Provision for taxes (1.2) (1.5) (0.9) (0.4) 0.3 (0.4)
Discontinued operations (0.2) (0.2) (1.2) (0.2) (0.2) (1.2)
----- ---- ---- ---- ---- ----
Net income (loss) 0.4 4.6 (3.5) 0.5 0.0 (4.3)
===== ==== ==== ==== ==== ====

29


SALES

2004 COMPARED TO 2003

Sales from continued activities increased by $9.4 million (10.2%) from $91.8
million in the year ended September 30, 2003 to $101.2 million for the year
ended September 30, 2004. Sales of $24.4 million for the quarter ended September
30, 2004 were $4.6 million (23.2%) higher than sales of $19.8 million recorded
for the comparable period last year.

The net increase in sales for both the year and quarter ended September 30, 2004
over the comparable periods in the prior year is analyzed as follows:

Year Quarter
ended ended
September 30, September 30,
2004 2004
Note $m $m
---- ------------- -------------

Effect of exchange rate movements (a) 12.8 2.0
Sales volumes (decreases)/increases (b) (3.2) 2.4
(Increased)/decreased rebates (c) (0.2) 0.2
---- ---
9.4 4.6
==== ===

Analyzed by principal business segment, the net revenue increase over prior
periods can be summarized as follows:-

Year Quarter
ended ended
September 30, September 30,
2004 2004
Note $m $m
---- ------------- -------------
a) Hand and garden tools

Effect of exchange rate movements (a) 10.2 1.4
Sales volume (decreases)/ (b) (3.4) 2.0
increases
Rebates (c) (0.2) 0.2
---- ---
6.6 3.6
---- ---
b) Metrology tools

Effect of exchange rate movements (a) 1.6 0.4
Sales volume increases 0.2 0.2
---- ---
1.8 0.6
---- ---
c) Magnetic products

Effect of exchange rate movements (a) 1.0 0.2
Sales volume increases (b) - 0.2
---- ---
1.0 0.4
---- ---
Total 9.4 4.6
==== ===

30


Notes:

(a) The functional currency of the majority of the group's revenues is sterling
and the variation in the US$/(pound) cross rate in both the year and the
quarter ended September 30, 2004 compared to the comparable periods last
year has had a significant favorable impact on the US dollar value of the
group's sales. The average cross rates in the periods under review can be
summarized as:

Average Cross Rates
----------------------------------------
2004 2003 % Movement
---- ---- ----------
Year ended September 30 1.787 1.597 +11.9%
Quarter ended September 30 1.788 1.614 +10.8%

(b) Business conditions in most of our end markets remained challenging as a
result of depressed demand, the intense competition from competing suppliers
in a number of our product ranges and the adverse effect of weak US dollar
in a number of our export markets. Additionally, although the Company
strategy to aggressively promote our product continues, increased
expenditure in the current year on expanding and strengthening the sales and
marketing infrastructure, while now showing an improvement in the level of
sales, is still not sufficient to fully absorb the increase in overhead on
the previous year.

Within the hand and garden products segment, despite difficult trading
conditions both the Neill Tools and Robert Sorby divisions showed aggregate
sales volume increases for both the quarter ($2.3 million (26.4%)) and the
year ($4.1 million (9.9%)) ended September 30 2004 compared to the
comparable periods last year. Furthermore, the Neill Tools 2004 sales volume
increase has been achieved despite the cessation of trade with Toolbank, a
major UK wholesaler, to whom Neill Tools sold $2.8 million of product in the
year ended September 30, 2003.

However, the sales volume increases achieved in Neill Tools and Robert Sorby
were exceeded by sales volume decreases in the Australia and New Zealand
divisions (a $0.4 million (13.6%)) shortfall in quarter 4, 2004 and a $7.4
million (37.4%)) fall for the year). The Australian sales shortfall in 2004
compared to 2003 is primarily attributable to the loss of a major customer
to whom significant sales were made in the first three-quarters of 2003.

Similar market pressures were prevalent in the metrology, magnetic products
segments and in the Company's French subsidiary but volumes were largely
maintained with both divisions generating a marginal sales volume increase
by the end of the year.

31


(c) The level of rebates has increased in 2004 as a result of both increased
sales and changes in customer profile within the Neill Tools division
together with the benefits experienced in 2003 which accrued from certain
customers not triggering higher rebate levels not being repeated in the
current year.

Sales rebates charged in the year ended September 30, 2004 amounted to $3.6
million and $1.0 million of rebates were expensed in the quarter ending on
that date. Assuming similar sales volumes and customer mix, the Company
anticipates that this level of rebate will be maintained in future periods.

2003 COMPARED TO 2002

Sales from continuing activities increased by $3.9 million (4.5%) from $87.9
million in the year ended September 30, 2002 to $91.8 million in the twelve
months ended September 30, 2003. For the quarter to September 30, 2003, sales
decreased from $21.9 million in 2002 to $19.8 million in 2003, a decrease of
$2.1 million (9.6%).

The net increase/(decrease) in sales in both the year and quarter ended
September 30, 2003 is analyzed as follows:

Year ended Quarter ended
September 30, September 30,
2003 2003
Note $m $m
---- ------------- -------------
Effect of exchange rate movement (a) 9.6 1.6
Sales volume decreases (b) (5.3) (3.7)
Increased rebates (c) (0.4) -
---- ----
3.9 (2.1)
==== ====

Notes:

(a) As referred to above in the comparison of Fiscal 2004 to Fiscal 2003, the
variation in the US$/pound cross rate in the year ended and quarter ended
September 30, 2003 compared to the same periods of the prior year had a
significant favorable impact on the US dollar value of the group's sales.
The average cross rates in the periods under review can be summarized as:

Average Cross Rates
----------------------------------------
2003 2002 %Movement
---- ---- ---------
Year ended September 30 1.597 1.469 +8.71%
Quarter ended September 30 1.614 1.551 +4.06%

(b) Business conditions in most of our end markets became increasingly
challenging through 2003, as a result of a softening of demand, increased
competition from rival suppliers in a number of our product ranges and the
detrimental effect of a weakening US Dollar on our export business. More
specifically, sales were also diluted by reduced sales in the UK following
management's decision to cease trading with a major tool wholesaler,
Toolbank. Toolbank revenues from October 1, 2002 to the cessation of trade
in April 2003 were $2.8 million (year ended September 30, 2002 $6.6
million). Sales suffered while new trading relationships were being built
but despite the reduction in gross sales revenue there was no adverse effect
on margin.

32


(c) The level of rebates increased in 2003 principally as a result of changes in
the UK customer profile following the change in the route to market,
together with increased sales, especially in our Australian operations where
sales volumes increased by $1.8 million.

SEGMENTAL REVIEW OF SALES

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

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

NEILL TOOLS

2004 COMPARED TO 2003

Revenues for the year to September 30, 2004 of $44.4 million showed an
improvement of $6.9 million (18.3%) over last year's revenues of $37.5 million.
This increase was attributable to favorable exchange movements of $4.6 million,
and increased volumes of $3.4 million offset by an increase in sales rebates of
$1.1 million.

While the division has experienced another demanding year, the decision
implemented in July 2003 to cease trading with its major UK wholesale customer,
Toolbank, and to deal with its customers on a direct basis, has reaped benefits
and has enabled the division to re-establish links with its customer base. The
increased UK sales have been partially offset however, by the weakening dollar
which has continued to have a detrimental effect on sales into certain export
markets which are linked to that currency. To counteract this decline in price
competitiveness, margins have been reduced in some regions in order to achieve
substantial fixed volume orders. In other areas, such as the Middle East, for
example, the division received increased orders for metal cutting blades due to
a major competitor experiencing financial difficulties, and hand tool sales and
orders strengthened as a result of the proliferation of rebuilding projects
following the recent conflicts in Iraq.

The Company continues to invest in new product development, improved overseas
distribution and the marketing of group product through our overseas
subsidiaries.

The 'Predator' woodsaw range has been revitalized in the year and sales order
intake has exceeded all expectations with the woodsaw department operating on a
three shift basis to meet demand. Investment in new plant will be undertaken in
the forthcoming quarter to ensure that this level of output can be sustained.
Likewise, the division has successfully secured business with two major UK
builders merchants for woodsaws and contractors' tools. The introduction of hand
power tools into the UK market under the S&J brand has generated approximately
$1.8 million of sales in the year and it is hoped to expand upon this in the
forthcoming financial year by selling these products throughout continental
Europe.

33


While sales are improving, divisional management is fully appreciative of the
shrinking UK manufacturing base and the threat from low-cost, Far Eastern
economies. Manufacturing costs have remained high and, in order to compete
effectively in a global market, alternative sources of supply are being sought.

The control of costs, especially increased distribution costs associated with
the change in customer delivery requirements, has become a major priority. A
strategic plan to reduce the cost of manufacturing and distribution is well
under way to improve the division's profitability.

2003 COMPARED TO 2002

Sales for the year ended September 30, 2003 were $1.7 million (4.4%) less than
those in the year ended September 30, 2002, with volume decreases of $5.8
million (including sales reductions arising from a cessation of trade with a
major wholesaler - see below), offset by favorable exchange rate variances of
$3.2 million and a decrease in sales rebates of $0.9 million.

The division experienced a very demanding year with considerable change and
restructuring at all levels. During July 2003 Neill Tools confronted a
long-standing issue regarding its relationship with its major wholesale
customer, Toolbank. Toolbank, as Neill Tools' largest single customer, had
progressively positioned itself to become not only a customer but also a
competitor. A strategic decision was therefore taken to cease trading with
Toolbank and deal with its customers on a direct basis.

Neill Tools' management recognized that the division's sales would initially
suffer while new relationships were being built but that it would be in a
stronger position moving forward since customer relationships and contacts would
be improved and gross margins would be increased by removing the wholesaler.
Toolbank sales from October 1, 2003 to cessation of trade in April 2003 were
$2.9 million (year ended September 30, 2002 $6.6 million).

The Company was restructured to cope with the demands of its new trading route
and during the 3rd and 4th quarters of 2003 the primary focus of the business
was to establish direct trading links with its customers. The Company's decision
to trade direct was fully supported by its customer base and new business
continued to grow.

The division continued to focus on new product development and this strategy saw
the launch of new ranges of dry lining tools, hand power tools, air power tools,
leather workware, spanners, sockets, screwdrivers and pliers. To further enhance
end-user presence a team of dedicated merchandisers was recruited to go direct
to stores to ensure that our product was both available and prominently
displayed. In addition Neill Tools worked actively in the US market to secure
business with national `Big-Box' retailers.

Despite difficult trading conditions, profitability increased thanks to
preserved margins and the beneficial effects of the restructuring that took
place in the final quarter of September 2002. Significant cost savings and
earnings benefits flowed from reorganization and efficiency initiatives in
administration and production.

34


The Company did not neglect its core competencies and a capital investment
program of $0.5 million was instigated in the year in new robotic technology to
ensure our world class status in our core processes was maintained.

ECLIPSE MAGNETICS

2004 COMPARED TO 2003

Sales for the year increased by $1.0 million (12.3%) from $8.3 million in 2003
to $9.3 million in 2004. The increase is due primarily to favorable exchange
differences with sales volumes remaining static.

During this challenging year the division has suffered from the generally
depressed industrial economic conditions. Most markets have remained stagnant
and the depressed nature of the sector has been exacerbated by the continuing
weakness of the US dollar which has challenged margins and reduced
competitiveness in comparison to locally based manufacturers.

The standard low technology area of the business continued to be affected
adversely by the increased presence of good quality imports from our competitors
in China and the Far East, which directly impacted upon our distribution and
industrial markets. On top of this, Eclipse has witnessed a 60% increase in the
raw material prices of nickel and cobalt, two major alloys used in magnet
manufacturing, which has inevitably resulted in margin erosion.

The division's higher added value Applied Magnetics operation continues to
flourish, however, showing an 18% sales growth in the year. During the year the
Company has refocussed its sales activities towards these higher technology
products, particularly materials handling and product separation, to mitigate
volume reductions and product discontinuations in its traditional permanent
magnets business.

The division continues to offer a high level of quality product and after sales
service with emphasis on new products and ranges. The new Optimag standard range
launched during the year offers the automotive, automation, and materials
handling markets a high performance clamping module for all materials handling
applications. Likewise, the Automag oil filtration device, designed to remove
all ferrous contamination from oils within manufacturing process lines, was
launched and was well received by UK automotive manufacturers. The patented
"Ultralift" permanent lifting magnet has increased market share and continues to
grow at over 10% per year. During the year new industrial catalog listings were
obtained with major distributors in Germany and the USA, building solid
foundations for the future.

The main challenges to the business remain the retention of the low technology
business with its high quality brand image, to continue to develop the "added
value" side of the business with its higher margin sales and to promote the high
level of after sales service provided by the Company.

35


2003 COMPARED TO 2002

Eclipse Magnetics sales for the year ended September 2003 of $8.3 million were
little changed from those in the previous year ($8.2 million) with advantageous
exchange rate variances of $0.7 million compensating a reduction in sales
volumes of $0.6 million.

The Eclipse Magnetics markets reflected the still some-what depressed global
industrial economic conditions. During this challenging year the division
refocused its sales activities towards higher technology, value added products,
at the same time underpinning these new sales areas with its core product
offerings within its traditional low technology markets.

New product development continued with the introduction of patented lifting
magnets, specialized separation equipment and specialized magnetic materials for
industrial applications. Despite sluggish revenues, gross margins improved due
to greater emphasis on higher-margin products, changes in manufacturing methods
and efficiency improvements. The restructuring exercise carried out in 2002
reaped significant benefits with regard to margin improvement and a 20% decrease
in fixed costs.

ROBERT SORBY

2004 COMPARED TO 2003

Sales for the year have increased by $1.2 million (29.8%), rising from $3.9
million in 2003 to $5.1 million in 2004. The increase is due to increased volume
growth of $0.7 million and favorable exchange rates of $0.5 million.

The division has had a successful year with substantial sales volume growth.
Despite the weak US dollar, sales into North America have remained buoyant in
the year. This strong overseas sales performance has been able to compensate for
a flat UK market where demand has been depressed.

In the soft UK market, the main thrust has continued to be the promotion of
lathes, lathe chisels and lathe chucks where the division occupies an
increasingly strong position. The introduction of the new DVR lathe in the first
quarter impacted very strongly on subsequent periods' results and we anticipate
this trend will continue. This introduction was supported by heavy promotional
activity including consumer advertising, consumer literature and in-store
demonstrations. Other product sales have flowed through as a result of this
activity.

As with other divisions, Robert Sorby has suffered through the weakness of the
US dollar as a high percentage of business is generated in North America. This
position was exacerbated by the closure of a major customer in November 2003.
However the loss of the customer and the negative impact of a weak dollar have
been compensated by an increase in business with other dealers and the Company
anticipates that, in the long term, this broadening of the customer base will
prove to be a major benefit.

36


2003 COMPARED TO 2002

Robert Sorby sales in the year ended September 30, 2003 showed an increase of
$0.3 million (6.9%) compared to revenues in the twelve months ended September
30, 2002, comprising favorable exchange variances of $0.3 million and minimal
adverse volume variances.

The UK market performed strongly with growth in business through an improved
distribution network and through our own retail outlet where mail order business
improved markedly. By contrast, the US market was generally weak reflecting a
softness in the economic climate.

Considerable focus was placed on building our overseas presence in key markets
such as the US, Canada and Australia, especially through consumer shows and
demonstration tours. One of the most encouraging developments during the year
was the introduction of a new range of woodworking lathes and there was
considerable success at marketing products through international consumer
exhibitions, in-store demonstrations and increased consumer advertising and
editorials.

The core woodturning tool business remained strong despite an increasing number
of competitors. This was backed by strong consumer advertising in which we
switched our strategy from brand advertising to more focused product
advertising. The `Sandmaster', which was introduced during 2003, is now listed
by almost every dealer network worldwide.

BOWERS

2004 COMPARED TO 2003

Sales for the year have increased by $1.8 million (13.3%), rising from $13.6
million in 2003 to $15.4 million in 2004. The increase is due primarily to
favorable exchange fluctuations with only modest sales volume growth.

The trend for the year continued into quarter 4 where a steadily improving US
market was offset by difficult trading conditions in Europe. In particular sales
to France and Italy witnessed significant reductions from the previous year
while sales into Germany saw improvements, although part of this increase can be
attributed to goods being re-exported to expanding Eastern European markets.

Far Eastern markets were targeted throughout the year with additional
distribution channels opened up in China, Thailand and Malaysia. The weakness of
the US dollar has made Bowers products less competitive in these regions and
margins have therefore been affected. As many Western manufacturers relocate to
China there is an ever-increasing demand for gauges to improve product quality
and the division sees this as a major advantage over local Chinese competition.
Plans are now in place to have a local presence to tap this burgeoning market.

With regard to UK sales, the final quarter saw some improvements although the
year finished well behind expectations. The main successes have been in the
Aerospace sector, with several projects signed with blue-chip manufacturers.
Likewise the systems side of the business continues to expand and the new Moore
& Wright brand of digital products has achieved important listings in several of
the large UK catalog distribution companies.

37


The capital products within the range continue to disappoint, due to the
hesitancy of key customers to invest, but some signs of recovery are now being
experienced, led mainly by demand from UK based aerospace manufacturers. Finance
options for customers are being considered to alleviate the upfront cost of such
products.

The fixed limit products sold under the Coventry Gauge brand continue to face
fierce price competition. The business is under increasing pressure from low
cost foreign imports and a strategic review to concentrate on the higher margin
non-standard business is now being implemented.

The successful launch of the new Smart Plug 2-point range has far exceeded
expectations and the focus going forward is to open up the lucrative German and
US markets for this product as it is ideally suited to the automotive sector.

2003 COMPARED TO 2002

Sales in the twelve months ended September 2003 decreased by 0.8% from $13.7
million to $13.6 million. Unfavorable sales volume variances of $1.2 million
were mitigated by favorable exchange variances of $1.1 million.

Despite difficult trading conditions, especially in Europe and Asia, the upturn
in both the US and the UK continued to gain momentum. Initiatives in China grew
at a rapid pace, in particular as western manufacturers relocated in large
numbers and required high precision measuring equipment to maintain quality
standards.

A series of new product and marketing initiatives introduced in 2003 including
the Smart Plug 2-point gauging system and the new range of Moore & Wright
digital hand tools, further extended our product range.

A focus on the large industrial catalogs brought some excellent results during
the year, particularly with the Hoffmann Group, one of the largest catalogs in
Europe. Additional listings were obtained in the new issue of their catalog that
was launched in July 2003.

The positive effect of restructuring carried out in the last quarter of 2002
such as closing the loss making calibration business and consolidating two sites
in the south of England, was reflected in the increased profitability of the
division.

S&J FRANCE

2004 COMPARED TO 2003

Sales have increased by $0.9 million (10.7%) from $8.7 million in 2003 to $9.6
million in 2004, the increase being attributable to favorable exchange rate
variances of $1.1 million offset by increased sales rebates ($0.1 million) and
volume decreases ($0.1 million).

The French economy has remained depressed during the year and the poor weather
in March and April resulted in reduced garden tool sales activity in the key
selling months for the garden season from which full year sales never fully
recovered.

38


Despite the flat trading conditions several new listings have been achieved for
new products including brass ornaments and the stainless steel range extensions.

In addition the division was successful in gaining the business of two new
private labels and the increased sales orders arising from these new outlets are
now crystallizing as additional sales revenues.

Production improvements have been introduced in the year in the assembly and
paint area with the involvement of UK manufacturing management. The results of
this should enable us to improve rates of productivity and ensure a better
control over product flow.

It has been long recognized that the French operation is a highly seasonal
business since most of its product offering relates to lawn and garden tools. In
the coming months we plan to introduce non-garden products (electronic weather
stations, snow shovels, etc) with the assistance of a recently recruited
manager. This will substantially broaden our product portfolio, reduce
seasonality, and keep the business profitable throughout the year.

2003 COMPARED TO 2002

Sales in the year ended September 30, 2003 increased by $1.7 million (24.3%) in
the year, of which $0.5 million was attributable to increased sales volume and
the remainder being advantageous exchange rate movements offset by higher sales
rebates.

S&J France launched, with success, new garden ranges including cottage garden
tools, aimed at the female market, or those working in restricted garden areas
like rockeries. These new ranges enjoyed penetration into new markets including
a listing with Castorama, the largest `Big Box' retailer in France.

AUSTRALASIA

2004 COMPARED TO 2003

Sales decreased from $19.8 million in 2003 to $17.4 million in 2004, the $2.4
million (12.5%) decrease being attributable to sales volume decreases of $7.4
million compensated by favorable exchange variances of $4.1 million and reduced
sales rebates of $0.8 million.

Despite the Australian and New Zealand economies performing strongly, retail
trading slowed down in the second half of the year with the increase in domestic
interest rates driving a slow down in consumer spending.

The considerable fall in sales from last year is principally due to the poor
performance of hand tools, masonry products and garden tools arising from:-

(a) The interruptions to the operations of the business, particularly the
enforced reduction of promotional sales programs, resulting from the resignation
of the division's Managing Director and the restructuring of the sales and
marketing functions.

39


(b) The prolonged Australian drought severely affected rural trade and farm
income resulting in sales of digging and garden products failing to reach
expectations. A decline in power tool sales due to falling price points and
competition from cheap foreign imports further compounded the situation. The
adverse impact of these shortfalls was partially offset, however, by strong air
tool sales.

(c) The loss of significant power tool business with a major retailer and
changes to legislation regarding the specification of electrical goods which saw
a substantial reduction of power tools inventories at lower than budgeted
margins to avoid significant stock obsolescence provisions.

Our Australasian division remains focused on rebuilding its sales and marketing
infrastructure and to maximize the selling opportunities of the Spear & Jackson
branded products. The current management team have re-established and
consolidated the business, completed major product reviews and established
ongoing promotional programs with major retail customers. With customer
confidence returning we will continue to focus on expanding our market share of
the air tool market.

2003 COMPARED TO 2002

S&J Australia and S&J New Zealand 2003 sales were over $3.8 million (23.8%) more
than those in the year ended September 30, 2002. This increase comprised sales
volume increases of $1.8 million, favorable exchange rate movements of $2.9
million, offset by increased rebates of $0.9 million.

The increased sales and profitability of the division was largely due to the
introduction of new ranges of products being sold to national retail chains
under specific branding arrangements. Continued efficiencies in the areas of
administration, warehousing and distribution also contributed to the improved
profitability.

COSTS OF GOODS SOLD AND GROSS PROFIT

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

Years ended September 30, Qtrs. ended September 30,
------------------------- --------------------------
2004 2003 2002 2004 2003 2002
% % % % % %
---- ---- ---- ---- ---- ----

Cost of goods sold 67.88 68.54 70.49 64.84 72.49 70.30
as a % of sales

Gross profit margin 32.12 31.46 29.51 35.16 27.51 29.70

Costs of goods sold increased by 9.1% to $68.7 million in the year to September
30, 2004 from $62.9 million in 2003. In the quarter to September 30, 2004 the
cost of goods sold was $15.8 million compared to $14.1 million in 2002, an
increase of 12.1%.

40


COMPARISON OF 2004 TO 2003

Margins have been negatively impacted in the year by a number of raw material
price increases (principally rises in cost of nickel and cobalt, major raw
materials of our magnetic products, and steel), together with increases in the
costs of fuel used to operate our manufacturing processes and higher utility
charges. These adverse variances have, however, been mitigated by the following,
which has meant that overall gross profit margins have improved over the last
year, and especially in the last quarter of the year:

- - exchange gains realized on the purchase of factored products denominated in
US dollars from suppliers located in the Far East

- - more favorable and advantageous sales mix, especially in the last quarter of
the year

- - the full year effect of selling directly to customers as a result of the
decision of Neill Tools to cease trading with its major UK wholesaler,
Toolbank

- - Sales, at amounts greater than net written down value, of inventories of
certain obsolete and slow-moving products

- - the release in September 2004 of the excess element of UK stock loss
provisions. These provisions had been accrued in the first three quarters of
the year based on management's estimates, as in previous years, of the
expected ongoing level of stock losses. The excess portion was identified
following the completion of the year-end inventory counts.

We continue to monitor and evaluate means of maintaining and improving current
sales mixes and of further reducing costs of goods sold across all our principal
trading operations to avoid margin erosion. However, the upward pressure on
steel prices caused by strong demand from China shows no sign of easing and is
likely, therefore, to have an adverse influence on our margins in the short
term.

COMPARISON OF 2003 TO 2002

Cost of goods sold increased by 1.6% to $62.9 million in the year ended
September 30, 2003 compared to $62.0 million in the comparable prior year
period. Cost of goods sold as a percentage of sales decreased to 68.54% during
2003 compared to 70.49% in 2002. These movements reflect:


- - more favorable sales mixes

- - the initial profit advantages in the UK attaching to the move to direct
customer selling rather than using an intermediary wholesaler:

- - continuous focus on a strict product control

- - the benefits derived in 2003 from both the closure of the loss-making
calibration business division in September 2002 and certain manufacturing
reorganization programs initiated in Q4 2003.

41


EXPENSES

2004 COMPARED TO 2003

Selling, general and administrative (SG&A) expenses increased by $8.1 million
(35.6%) from $22.5 million in the year ended September 30, 2003 to $30.6 million
in the year ended September 30, 2004. SGA expenses for the quarter ended
September 30, 2004 were $7.4 million, an increase of $1.7 million (29.8%) over
the expenses charged in the equivalent period last year.

The principal reasons for the increases are as follows:

Increase over Prior Years
-----------------------------
Year ended Quarter ended
September 30, September 30,
2004 2004
$m $m
------------- -------------

a) Impact of movements in average 2.6 0.6
US$/sterling cross rates in the period

b) Increased FAS87 pension costs 1.0 0.2

c) Inflationary increases and set up costs of 0.7 0.2
Florida US sales infrastructure

d) Increased head office costs relating to legal 1.1 0.3
and professional fees, monitor fees and
associated costs

e) Increased UK warehouse and distribution 0.6 -
costs following the change to direct sales

f) Settlements of senior and other employees' 0.6 -
severance liabilities in 2002/3 for amounts
less than anticipated. There are no
comparable items in the current year

g) Exceptional bad debt recoveries in Q1 0.1 -
2002/3 which were not repeated in 2003/4

h) One-time car leasing benefits in Q2 2002/3 0.2 -

i) Exchange losses suffered 0.2 -

j) Settlement of sales tax liabilities at
amounts less than anticipated 0.2 -


42


k) Current year expansion of UK and 0.6 0.2
Australasian selling and administration
functions, increased property depreciation
and other costs

l) Increased audit and other compliance costs 0.2 0.2
--- ---

Total increase in expenses 8.1 1.7
=== ===

The Company anticipates that the level of overheads incurred in the year will be
maintained in the short term. Various initiatives are, however, being considered
to reduce the levels of sales and distribution costs in future periods.
Additionally, on the assumption of a prompt settlement of the Companies SEC and
other related litigation, decreases in administration costs should follow in
future periods as a result of decreases in legal and professional costs.

2003 COMPARED TO 2002

SGA costs for the year ended September 30, 2003 of $22.5 million showed an
overall decrease of $4.7 million (20.9%) compared to the $27.2 million incurred
in the year ended September 30, 2002.

The decrease was attributable to:

a) The provision in Q4 2002 of restructuring costs in respect of various
initiatives including: the restructuring of senior management across all
businesses; the reorganization of the UK purchasing and customer service
departments; the relocation of manufacturing and office facilities in the UK
and Australia; the implementation of severance programs in the UK. In total,
these restructuring provisions amounted to $4.4 million. There were no
comparable items in 2003.

b) Significant savings in the year ended September 30, 2003 accruing from the
staff reduction programs, reorganization of senior management and
departmental restructuring, referred to above, together with the benefits of
continued rigorous control of costs and non-essential expenditure.

Offset by:-

c) Overhead increases in respect of: -

i) adverse exchange movements of $1.8 million
ii) increased FAS87 pension charge of $0.2 million

43


OTHER INCOME AND EXPENSES

Other income and expenses have seen a slight increase over the last three years
(2004 : $0.12 million, 2003 : $0.10 million 2002 : $0.09 million). This adverse
movement is attributable to higher bank interest charges in the Company's French
and UK businesses (principally as a result of the level of UK borrowings
increasing in the year ended September 30, 2004 following the purchase of land
and buildings in Wednesbury).

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

Our profit from continuing activities before income taxes in the year ended
September 30, 2004 amounted to $1.8 million (2003 : $6.2 million profit, 2002 :
$1.4 million loss).

In the quarter ended September 30, 2004 the profit from continuing activities
before income tax was $1.1 million (2003 : $0.1 million, 2002 : $2.8 million
loss).

INCOME TAX

Income taxes of $1.2 million were provided in the year ended September 30, 2004
(2003 : $1.5 million, 2002 : $0.9 million). In the quarter ended September 30,
2004 the charge was $0.5 million (2003 : $0.3 million credit, 2002 : $0.4
million charge).

Income taxes were 65.9% of profit before tax and 23.9% for 2003. The charge in
2002 represented 67.04% of the loss before income taxes in that year.

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

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

a) 2004

The effective rate in the year ended September 30, 2004 was greater than the
expected statutory rate for the following reasons:

i) Losses arose in the US parent company and our Australian subsidiary in
the year which could not be offset against other taxable income and
which were not treated as a deferred tax asset as no short-term
utilization of these losses could be anticipated. The tax value of these
losses was $0.6 million and the tax charge for the year has been
increased by this amount.

ii) The majority of the Company's operations are located outside the United
States. The typical non-US taxation rate suffered by the Company's
overseas subsidiaries is approximately 30%, compared to a US Federal
statutory rate of 35%. The effect of applying a rate of 30% as opposed
to 35% to the Company's pre-tax earnings results in a tax credit of
approximately $0.1 million.

44


b) 2003

The effective rate in the year ended September 30, 2003 was less than the
expected statutory rate for the following reasons:

i) Significant profits arose in the Company's Australian and UK
subsidiaries, which were sheltered from taxation by the availability of
Net Operating Losses ("NOLs"), brought forward. These NOLs had not
previously been capitalized as a deferred tax asset due to doubts
concerning their utilization, in the short-term, against future trading
profits of the entity. This therefore resulted in a taxation credit of
$0.7 million in the year.

ii) The Company was informed by its former parent undertaking of reductions
required to the carrying value of UK NOLs brought forward from prior
accounting periods. This adjustment resulted in an increase to the tax
charged $0.2 million.

iii) The typical non-US taxation rate suffered by the Company's overseas
subsidiaries is approximately 30%, compared to a US federal statutory
rate of 35%. The effect of applying a rate of 30% as opposed to 35% to
the Company's pre-tax earnings results in a tax credit of $0.3 million.

iv) Losses arose in certain subsidiaries during the year which could not be
offset against other taxable income and which were not treated as a
deferred tax asset as no short-term utilization of these losses could be
anticipated. The tax value of these losses was $0.2 million and the
Company's tax charge for the year was correspondingly increased by this
amount.

c) 2002

Although a pre-tax loss was incurred in the year to September 30, 2002, a
tax charge arose as a result of:

i) As discussed in (a) (i) above, current year NOLs arising in certain UK
entities were not capitalized as deferred tax assets which resulted in
an increase to the tax charge of $0.9 million.

ii) A goodwill impairment charge of $1.1 million was charged to the
Company's profit and loss account in the year. No tax deduction is,
however, applicable to this item.

iii) The disposal of one of the Company's manufacturing plants in September
2002 crystallized a tax charge of $0.2 million relating to a claw-back
of prior year tax allowances.

iv) The typical average non-US taxation rate suffered by the Company's
overseas subsidiaries is approximately 30%. This compared to a US
federal statutory rate of 35%. The effect of applying a rate of 30% as
opposed to 35% to the Company's pre-tax loss results in a tax debit of
$0.1 million.

45


Because of the availability of tax net operating losses (particularly in the
United Kingdom and Australia) it is not anticipated that any of the 2004 tax
charge will result in the payment of income taxes.

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

Our net profit after income taxes from continuing operations was $0.6 million
for the year to September 30, 2004. This compares to a profit after income taxes
of $4.8 million for the year ended September 30, 2003 and a loss after income
taxes of $2.3 million in 2002.

DISCONTINUED OPERATIONS

The discontinued operations refer to the Megapro screwdriver division of Spear &
Jackson, Inc. which was acquired on September 6, 2002 and which was disposed
with effect from September 30, 2003. The directors of the Company had previously
carried out a goodwill impairment appraisal and a strategic review of the
division and had determined that this division did not represent a continuing
core activity. Various divestment strategies were considered and as at September
30, 2003 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.

Total losses attributable to discontinued operations were $0.2 million in the
year ended September 30, 2004 and $0.2 million and $1.1 million in the years
ended September 30, 2003 and September 30, 2002 respectively.

The 2002 losses include a $1.1 million goodwill impairment write-down following
an initial review of the future earnings and cashflows of the screwdriver
business together with a small trading loss arising in the period from
acquisition to September 30, 2002.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity, cash flows and capital resources were as follows:

September September September
30, 2004 30, 2003 30, 2002
$ m $ m $ m
--------- --------- ---------

Cash and cash equivalents 5.1 9.2 6.5
Overdrafts (0.1) (0.3) (1.2)
Working capital (excluding deferred tax) 28.8 28.3 21.8
Stockholders' equity 29.4 31.9 29.3
==== ==== ====

Net operating cash 3.4 6.6 (1.0)
Cash provided by investing activities (7.1) (1.7) 2.4
Cash used in financing activities (0.3) (2.1) 2.0
Effect of exchange rate changes (0.1) (0.1) 0.4
---- ---- ----
Changes in cash and cash equivalents (4.1) 2.7 3.8
==== ==== ====

46


DISCUSSION OF CASH FLOWS

2004 COMPARED TO 2003

Net cash generated from operating activities in the year ended September 30,
2004 was $3.4 million (2003 : $6.6 million). This represents a decrease of $3.2
million (48.9%) which arose primarily from the factors discussed below:-

- - reduction in net income (adjusted for depreciation, pension charges and
deferred taxes) of $4.0 million (47.5%) as dealt with in the commentary of
results, above.

- - increase in trade working capital inflows of $0.7 million (81.1%).

- - increase in net inflows from other assets and liabilities of $0.1 million
(5.5%).

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

(a) Trade Working Capital Variances

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

Note $ million
---- ---------

Increased inventory inflows (i) 4.2
Reduced trade receivable inflows (ii) (5.8)
Increased trade payable inflows (iii) 2.3
---
0.7
---

(i) UK inventories show year on year reductions which are attributable, in
part, to the ongoing implementation of the group inventory reduction
program. In addition, stock levels at September 30, 2003 were
particularly high, with one-off stock builds in the Company's
Australian subsidiary and the purchase of new factored products in the
UK. These stock-builds have reversed in the year resulting in a
favorable inventory inflow.

(ii) UK sales in August and September 2002 benefited from increased turnover
of approximately $1.1 million with the UK distributor, Toolbank, as
that company placed additional sales orders pre year end in order to
secure higher sales rebate levels. This increased sales activity
increased trade receivables at September 30, 2002 to higher than normal
levels. As a result of this, the cash flow in the year ended September
30, 2003 benefited from the receipt of the cash receivable from these
extra sales. Following the cessation of trade with Toolbank in April
2003, there were no similar sales in August and September of 2003, and
so the cash flows in the year ended September 2004 have been
correspondingly reduced.

47


In addition, trade receivable balances in the Neill Tools division at
September 30, 2004 have increased, reflecting both the higher level of
sales in the month of September 2004 and the change in the customer
base resulting from the division's decision to deal with customers
directly rather than via intermediary wholesalers.

(iii) Favorable trade payable variances compared to last year arise as a
result of the 2003 movement on trade payables being negatively impacted
by the payment in that year for significant stocks purchased at the
2002 period end by the Company's Australian subsidiary which were sold
immediately after the year end.

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

With regard to the net increase in inflows from other assets and
liabilities contributing factors include:

(i) $0.8 million of additional legal and professional fees, monitor
costs and related expenses accrued in the US holding company at
September 30, 2004. Payment of these fees will crystallize in the
forthcoming months and further costs will be incurred until the
monitor's duties are curtailed and the various SEC and other
litigation issues are resolved.

(ii) That element of the Pension Plan liability recognized on the
balance sheet that relates to the FAS87 charge has increased from
$0.3 million in 2003 to $1.3 million in 2004.

The benefits of the above inflows has been reduced by:

(i) An interim payment in March 2004 of $0.4 million relating to the
settlement payable in respect of the termination of the former
managing director of Spear & Jackson, plc.

(ii) Full annual effect of $0.7 million in respect of the increased
lease payments in the year payable on the UK car fleet that was
replaced between January and April of 2003.

Cash outflow from investing activities was $7.1 million in the year ended
September 30, 2004, compared to $1.7 million in 2003. The year ended 2004
includes $7.2 million of capital expenditure, $3.2 million of which relates to
the purchase of land and buildings at Wednesbury, England which is the base for
our UK garden tools manufacturing operation. Prior to its purchase this property
was being leased from the former owners of Spear & Jackson, plc. A further $3.3
million relates to the purchase of a distribution outlet at Boca Raton, Florida.
2003 comparatives include $2.9 million capital expenditure which principally
relates to the replacement of the UK car fleet under capitalized operating
leases. In addition the 2003 cash flow also includes $1.0 million relating to
the sales proceeds derived from the replacement of the UK car fleet. This has
not been repeated in 2004.

48


Net cash absorbed by financing activities was $0.3 million in the year compared
to $2.1 million in 2003. The 2004 outflow principally represents the repayment
of overdrafts in the Company's French subsidiary. The 2003 financing activity
outflow reflects, inter alia, the $1.0 million repayment of the Company's
Australian subsidiary's overdraft, the repayment of $0.2 million promissory
notes issued in connection with the purchase of Spear & Jackson plc and Bowers
Group plc and the $0.5 million repurchase of common stock.

2003 COMPARED TO 2002

In the year ended September 30, 2003 operating cash of $6.6 million was
generated compared to an operating cash outflow of $1.0 million in the prior
period. This increase in net operating cash in 2003 of $7.6 million (776.9%)
arises from:

- - the increase in profitability (adjusted for depreciation and deferred taxes)
of $7.0 million which is attributable to the one-off charges in 2002 for
goodwill impairment and reorganization programs

- - the resultant cost savings accruing from these initiatives in 2003.

- - A decrease in trade working capital of $0.3 million together with a pension
fund contribution payment reduction of $0.3 million

The decrease in trade working capital in the year to September 30, 2003 amounts
to $0.7 million compared to a decrease in the year to September 30, 2002 of $0.4
million. The principal components of this movement comprise:

- - improved trade receivables collection of $3.3 million

- - reduced outflows on current and non-current liabilities of $2.2 million
(largely attributable to the inception of new finance leases following the
replacement of the UK leased motor vehicle fleet)

The beneficial impact of these favorable variances was reduced by:

- - increased inventory outflows of $2.4 million (stock builds in the company's
Australian subsidiary and the purchase of new factored products in the UK)
and

- - adverse trade payable flows of $3.0 million.

The cash outflow from investing activities was $1.7 million in the year ended
September 30, 2003 compared to an inflow from investing activities in the year
ended September 30, 2002 of $2.4 million. 2002 benefited from both the receipt
of $1 million in respect of the sale proceeds of the Company's Irish subsidiary
and proceeds of $3.1 million received on the sale of a UK manufacturing plant.
2003 includes $2.9 million regarding purchases of property, plant and equipment
(2002 $1.4 million) which principally relates to the replacement of the UK car
fleet under capitalized operating leases and the purchase of computer equipment
in Australia.

Net cash used in financing activities was $2.1 million in the year ended
September 30, 2003 compared to net cash provided by financing activities of $2.0
million in the year ended September 30, 2002. Cash provided by financing
activities in the year ended September 30, 2002 includes $2.0 received from
shares issued in the year. There was no comparable item in the twelve months
ended September 30, 2003.

49


Cash utilized by financing activities in the year ended September 30, 2003
includes the repayment of overdrafts in Australia of approximately $1 million,
the repayment of a shareholder loan of the repayment of the promissory notes of
$0.2 million issued to the vendors of Spear & Jackson plc and Bowers Group plc
which formed part of the purchase consideration of those companies and $0.5
million expended on the repurchase of common stock.

BANK FACILITIES

The UK subsidiaries of Spear & Jackson plc and Bowers Group plc maintain a line
of credit of $8.1 million. This is secured by fixed and floating charges on the
assets and undertakings of these businesses. Of the total facility, $5.4 million
relates to bank overdrafts and $2.7 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 September 30, 2004 and September 30,
2003 the Company had no borrowings outstanding under the overdraft line but had
$1.5 million in outstanding letters of credit (September 30, 2003 : $0.8
million).

The French and Australian subsidiaries of Spear & Jackson plc maintain
short-term credit facilities of $3.2 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 $0.07 million outstanding under the
overdraft lines at September 30, 2004 (September 30, 2003 : $0.3 million) and
$0.9 million of letters of credit and bills outstanding under these facilities
(September 30, 2003 : $0.8 million).

The UK facilities were renewed in December 2004 and the Australasian and French
facilities fall for renewal at various dates in 2005. 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
September 30, 2004 the extent of this guarantee relating to gross bank
overdrafts was $20.5 million (September 30, 2003 $24.6 million). The overall
pooled balance of the bank accounts within the pool at September 30, 2004 was a
net cash in hand balance of $1.6 million (September 30, 2003 $1.7 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.

50


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.

The Company believes its current cash resources, projected operating cash flow
and bank lines of credit are sufficient to cover all of its expected working
capital needs, planned capital expenditures and other cash requirements.

The company will continue to focus its efforts on improving the competitiveness
of its worldwide operations. Further restructuring of the non-profitable areas
of the Company's divisions and any expansion of the Spear & Jackson or Bowers
operations may, therefore, require additional funding through the negotiation of
increased bank lending facilities or the sale of surplus assets, including the
Company's Florida warehouse and the excess element of its industrial site in
Wednesbury, England.

OUTLOOK

The first few weeks of the 2005 financial year have shown signs of improvement
in certain sectors of our markets and, in particular, export sales orders
received by our UK divisions have shown an encouraging increase. However,
because of the seasonal nature of sales of garden products in the UK and in
Europe continuing logistics and distribution issues in the UK, increased raw
material costs, weakening US$ and an increased 2004/5 FAS87 charge, we do not
anticipate full productivity levels and a return to significant profit levels
until the second quarter of fiscal 2005. The Company therefore anticipates that
a loss before taxation of approximately $0.7 million will be incurred in the
first quarter of the year ended September 30, 2005.

Competition remains fierce from cheap foreign imports but our brand strength is
helping us to perform well in our export markets, particularly the Far and
Middle East, and certain macro economic factors in the UK and Middle East are
working to our advantage. For example, the buoyant UK housing market is
continuing to stimulate demand for our builders' tools and related products.
Some slackening of demand in this sector may however start to crystallize
following a succession of Bank of England interest base rate hikes and their
effect on potential homebuyers' mortgage repayments. In the Middle East hand
tool sales and orders are strong as a result of the demand for these products
being buoyed by the number of building projects emerging from the Iraqi
conflict.

Demand for the Predator woodsaw remains high and investment in new plant of
approximately $0.7 million will be commissioned in Quarter 1 of 2005 so that
output can be increased to fulfil customer orders on a timely basis. Similarly,
demand for hacksaw blades and power tools is strong and it is expected that this
will result in earnings benefits in quarters two and three of the year ended
September 30, 2005.

Our Australasian subsidiaries experienced difficult trading conditions in the
last year following the loss, in 2003, of a major customer and upheavals caused
by changes to the management teams. Restructuring of the business is nearing
completion and, with the new managing director successfully exploring a number
of initiatives to regain lost market share, we anticipate increased sales
revenues from the operation in the forthcoming year and a return to
profitability.

51


In 2005 we plan to continue to pursue a widening of our direct sell UK customer
base together with initiatives to increase our presence in mainland Europe. Such
customer gains are essential in helping to absorb the additional overhead
incurred in setting up the infrastructure for the "direct to market" sale route.

The management of the Company anticipates that 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 and a weak
dollar. This will again put pressure on our margins and overhead costs.

To mitigate the impact of these factors we plan to continue both to look at
initiatives to rationalize underperforming areas of the business and to monitor
the business 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. For example the distribution issues
highlighted above have been addressed by the appointment of a new UK logistics
manager whose remit will include a review of the Company's existing warehouse
distribution and supply chain management.

Increased emphasis will also be placed in promoting our own manufactured product
in an effort to reverse the dilution of margin caused by an increasing bias in
our recent sales mix towards factored items. Despite this we anticipate that
there will continue to be increases in the level of certain administrative
overhead expenses as a result of legal and professional charges, monitoring fees
and related costs associated with the SEC suit referred to in Part I, Item 3,
above. The level of such costs is not always easy to accurately forecast but the
Company is committed to reducing overhead expenses wherever possible so that the
adverse impact of these legal costs is mitigated.

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.

In the forthcoming year we will continue to focus on improving cash generation.
The sale of part of the Company's Wednesbury manufacturing site was concluded on
January 28, 2005 for approximately $5.3 million (excluding transaction costs).
Further funds could also be released via the disposal of the Company's warehouse
and office premises in Boca Raton, Florida, which is currently being marketed
for sale, and by the sale of other surplus capital assets in the UK. All such
opportunities will be considered in detail. The proceeds of any such sales will
enable us to fund future working capital requirements and other projects, both
domestically and abroad, which will contribute to increased operational
profitability and to the continued growth of our business.

Going forward, the success factors critical to our business include sales growth
through continued 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 imports; ensuring that our manufacturing and
overhead bases are as cost efficient as possible; and the maximization of cash
resources so that we are able to fund new initiatives and take advantage of
market opportunities.

52


In 2005, therefore, we will continue to aggressively promote our products to
penetrate new markets and broaden our customer base. The emphasis will again be
placed on the development and launch of new, high quality products that are
clearly differentiated from the cheap foreign imports that are widely available
in our markets. The recent success of the "Predator" saw launches clearly
illustrated the benefits of this strategy and we intend to build on this in the
following months with the introduction of other new products.

In November 2004, the Metrology Division was successful in obtaining the
European distributorship for a well-known brand of hardness testing equipment. A
separate company and dedicated infrastructure has been set up in the Netherlands
to service this new product line and incremental revenues of up to $1.5 million
are anticipated in the coming year.

Inevitably the removal, in April 2004, of the Company CEO by the SEC, and the
initiation of legal proceedings against the Company and certain of its directors
resulted in a loss of focus on operating activities and a fragility of
confidence in the long term direction of the Company. Thanks to a dedicated
senior management and work force, these disruptions were successfully overcome.
The Company returned to profit in quarter 4 and is now confident that the
resources and expertise are in place to enable the business to move forward to
achieve its short and long-term objectives.

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
September 30, 2004:

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

Capital lease obligations 1.4 0.8 0.6 - -
Operating leases
(note a) 7.3 0.9 1.8 1.8 2.8
--- --- --- --- ---
8.7 1.7 2.4 1.8 2.8
--- --- --- --- ---

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

(b) Excluded from the above tables are the amounts payable by the Company
to the UK defined benefit pension plan as future funding obligations
cannot be accurately forecast. The annual contribution rate is set
annually by the actuary in accordance with the applicable UK regulatory
legislation and will be next determined on or before May 31, 2005. In
the year ended September 30, 2004 the Company paid $2.7 million into
the plan.

53


(c) As at September 30, 2004, the Company had letters of credit of $2.4
million outstanding which are secured by the UK and Australian credit
facilities. In addition, the Company's French subsidiary had discounted
$0.6 million of bills of exchange with recourse.

At September 30, 2004, the Company had no material off-balance sheet
arrangements other than the non-debt obligations described in contractual
obligations above.

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, judgements 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. We believe that
the following discussion addresses our most critical accounting policies, which
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
judgements, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. Note 2 to the accompanying consolidated
financial statements includes a summary of the significant accounting policies
used in the preparation of the consolidated financial statements.

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

INVENTORY VALUATION

Inventories are stated at the lower of cost and net realizable value. Cost
includes all costs incurred in bringing each product to its present location and
condition, as follows:-

Raw materials, consumables and goods for resale - principally valued at cost
determined on a first in, first out basis although, in certain subsidiaries,
inventories are valued using a cost determined on a weighted average basis.

Work in progress and finished goods - cost of direct materials and labor plus
attributable overheads based on a normal level of activity. As above, in certain
subsidiaries, inventories of factored products are valued at average cost.

Provisions in respect of net realizable value and obsolescence are applied to
the gross value of the inventory. Net realizable value is based on estimated
selling price less any further costs expected to be incurred to completion and
disposal. Provision is made for slow moving or defective items by comparing
inventories on hand to future projected demand. Provision is made where
inventories held are in excess of 1 year's budgeted future sales as follows:

54


Inventory in excess of 1 to 2 years' sales: provision of 25% of cost
Inventory in excess of 2 to 3 years' sales: provision of 50% of cost
Inventory in excess of 3 to 5 years' sales: provision of 75% of cost
Inventory in excess of 5 years' sales: provision of 95% of cost

Obsolete inventories are subject to a 100% provision. This provisioning
methodology has been consistently applied by management over a number of years.
Management believes that this approach is both prudent and provides an accurate
and efficient manner for making suitable provision against slow moving and
obsolete inventory lines.

Comparable stock values are as follows:-
09.30.04 09.30.03
$m $m
-------- ---------
Gross Stock
- raw materials and consumables 5.9 5.5
- work in progress 5.2 4.9
- finished goods 16.8 18.8

Less
- slow moving, obsolete and net
realizable value provisions (5.9) (5.8)
---- ----
Net Stock Valuation 22.0 23.4
==== ====

The overall decrease in the net value of inventory is $1.4 million. This
decrease is stated, however, after the impact of a weakening sterling/US$ cross
rate. The year-end cross rate at September 30, 2004 was 1.7976 compared to
1.6597 at September, 2003. Restating the 2003 inventory at 2004 exchange rates
increases the net value of 2003 inventories by $1.9 million. Having eliminated
the effect of exchange variances, therefore, the decrease is therefore $3.3
million. This reduction is attributable to:

(i) Reversal of inventory builds in the Company's Australian subsidiary and
its UK hand and garden products division at September 30, 2003, which
had been accumulated in anticipation of new product launches in the
2004 fiscal year.

(ii) General reduction in operational inventories at operational levels
resulting from the implementation of stock reduction programs in all
divisions.

Activity on the inventory reserve in the above years can be summarized as:

2004 2003
$m $m Notes
---- ---- -----

Balance brought forward 5.8 5.8
Provisions released following
disposal of inventory (0.7) (0.6) (a)
Additional provisions made 0.4 0.1
Exchange movements 0.4 0.5
---- ----
Balance carried forward 5.9 5.8
==== ====

55


(a) Stock reduction programs have continued throughout the year and as part
of this exercise significant amounts of old stock have been sold at
discounted prices to release warehouse space and to liquidate heavily
provisioned slow-moving inventory lines.

REVENUE RECOGNITION

Revenue is recognized upon shipment of products or delivery of products to the
customer depending on the terms of the sale. Provisions are made for warranty
and return costs at the time of sale. Such provisions have not been material.

Most of the Company's major customers have provision for sales rebates in their
trading terms. The levels of rebates are individually negotiated with each
customer and are unique to that customer. Typically, a series of escalating
targets are set for purchases from Spear & Jackson, Inc. and, on reaching each
target, a rebate, usually paid in the form of credit note but occasionally in
cash, is triggered e.g.

Sales
Revenues Rebate Rebate
$m % $m
-------- ------ ------

Target 1 0.5 5.0 0.025
2 0.75 7.5 0.056
3 1.0 10.0 0.100
4 1.25 12.0 0.150

The revenue targets are set on a twelve-month basis, however the period ends
used for these sales targets are not necessarily coterminous with the accounting
period end of Spear & Jackson, Inc. At any point in time, the rebate liability
is calculated by estimating the annual sales value for each customer (in order
to ascertain the rebate % the customer is likely to achieve), applying the
relevant % to the actual sales achieved to date, and then deducting any interim
rebates already paid.

The charge for rebates is netted against gross sales in the profit and loss
account. Rebates are paid to customers per their individual agreements.
Typically payments are made semi-annually or annually, however there are
agreements in place in which rebates are paid monthly and quarterly.

Generally there is no provision for customers to return products they cannot
sell. However, a small number of customers have negotiated a return clause in
their trading agreements. There is a time limit for these returns, which vary
from customer to customer, none of which exceed 12 months from the original
invoice date. The amount of mutual returns made in the year ended September 30,
2004 was $0.3 million (September 30, 2003 $0.07 million)

56


FOREIGN CURRENCY TRANSLATION

The functional currency of each of the Company's foreign operations is the local
currency. The consolidated financial statements of Spear & Jackson, Inc. are
denominated in US dollars.

Changes in exchange rates between UK sterling, the Euro, the New Zealand dollar,
the Australian dollar and the US dollar will affect the translation of the UK,
French, 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.

The US$ Balance sheet and income statement financial data could therefore be
subject to material fluctuation year on year as a result of significant
movements in the cross rate between the US$ and the various source functional
rates used in the consolidation.

Translation adjustments arising from the use of differing exchange rates from
period to period are included in the Accumulated Other Comprehensive Income
(Loss) account in Stockholders' Equity. Management has decided not to hedge
against the impact of exposures giving rise to these translation adjustments as
such hedges may impact upon the Company's cash flow compared to the translation
adjustments which do not affect cash flow in the medium term.

PENSION AND POST-RETIREMENT BENEFIT OBLIGATIONS

The Company operates a contributory defined benefit plan covering certain of its
employees in the United Kingdom based subsidiaries of Spear & Jackson plc.
Several statistical and other factors that attempt to anticipate future events
are used in calculating the expense and liability related to the plans. 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. In addition, 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.

This discussion addresses the sensitivities in assumptions that could impact the
plan disclosures in the Company's consolidated balance sheet and income
statement and also their effect on ongoing employer contribution payments and
the Company's liquidity.

The principal assumptions used to determine Spear & Jackson plc's pension
benefit costs are the discount rate, the rate of compensation increase and the
expected return on plan assets.

57


The discount rate used to determine the present value of future pension payments
is based on the yields on high-quality, fixed-income investments (typically
AA-rated corporate bonds). The present values of the Company's future pension
and other post-retirement obligations were determined using discount rates of
5.5% at September 30, 2004, and September 30, 2003 and 5.75% at September 30,
2002.

The expected rate of return on assets is set in the light of long term
expectations for returns on the assets held by the plan. The start point for the
derivation of the rate is the return on gilts of appropriate term compared to
the plan liabilities. To reflect the fact that a significant part of the plan's
assets are invested in asset classes, such as equities and corporate bonds, that
are expected to produce higher returns than gilts, the overall rate of return on
assets has then been adjusted to take account of these higher yields.

The rate of compensation increase and the expected return on plan assets were
assumed to be 2.8% and 7.0% in the year ended September 30, 2004 (2003: 2.5% and
7.5% respectively), (2002 : 2.25% and 7.5% respectively).

As noted above, a number of statistical and other factors are utilized in
determining the assumptions about the discount rate, expected return on Plan
assets, rates of future compensation and inflationary increase and mortality
rates necessary for the preparation of the disclosures relating to the Company's
Pension Plan which are required in accordance with FAS 87. The use of different
assumptions may have a significant impact on the measurement of the profit and
loss account pension expense and the balance sheet pension liability that are to
be recognized in the Company's financial statements.

Certain of these assumptions have judgmental aspects. There is, therefore, the
potential for a range of acceptable values to be available for several of the
assumptions at any time, all of which could be justified and considered
appropriate for the purposes of compiling the necessary disclosures under FAS
87.

The range of possible acceptable assumptions reflects, inter alia, degrees of
optimism and caution that the actuaries can build into their assumption models
concerning certain macro and micro economic conditions and other demographic
factors. Further, because of the constantly evolving nature of such economic and
demographic factors, assumptions will not remain constant over time but will
move to reflect changes in the principal calculation drivers that underpin them.

The following sensitivity table illustrates the impact on the Company's balance
sheet and the amounts charged against the Company's earnings in respect of FAS
87 pension expense as a result of making changes in certain of the key
assumptions used in calculating the assets and liabilities of the pension plan:

58


Impact on
September 30,
2004 Impact on
Impact on 2005 Projected September 30,
Pre-Tax Pension Benefit 2004 Equity
Change in Assumption Expense Obligation (Net of tax)
-------------------- --------------- -------------- --------------

25 basis point
decrease in discount rate +$0.63 million +$7.67 million -$5.20 million

25 basis point
increase in discount rate -$0.61 million -$7.32 million +$4.96 million

25 basis point
decrease in expected
return on assets +$0.37 million - -

25 basis point
increase in expected
return on assets -$0.37 million - -

25 basis point
decrease in compensation
assumption -$0.16 million -$0.67 million -

25 basis point
increase in compensation
assumption +$0.15 million +$0.69 million -

Use of PA90 (-1 for non-
pensioners) mortality
table -$1.41 million -$11.01 million +$7.47 million

Given below, in tabular format, is a summary of the assumptions used in the
preparation of the FAS 87 pension calculations in the years ended September 30,
2004, 2003, 2002 and 2001.

ASSUMPTIONS SUMMARY
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
2004 2003 2002 2001
--------- --------- --------- ---------

Weighted Average Assumptions

Discount rate 5.50% 5.50% 5.75% 6.25%
Rate of compensation increase 2.80% 2.50% 2.25% 3.25%
Expected return on assets 7.00% 7.50% 7.50% 7.50%
Fixed pension increase 5.00% 5.00% 5.00% 5.00%
LPI pension increase 2.70% 2.50% 2.25% 2.50%
Post 1988 GMP increase 2.40% 2.00% 1.85% 2.00%
Inflation 2.80% 2.50% 2.25% 2.50%
Mortality table PA80 PA90 PA90 PA90
(C=2010) (-1) (-1) (-1)

59


Using the assumptions referred to above, the funded status of the plan under FAS
87 at September 30, 2004, 2003, 2002 and 2001 was as follows:

9/30/04 9/30/03 9/30/02 9/30/01
$'m $'m $'m $'m
------- ------- ------- -------

Projected benefit obligation (180.4) (154.1) (132.9) (116.1)
Fair value of plan assets 141.3 124.4 109.1 106.7
------- ------- ------- -------
Projected benefit obligation
in excess of plan assets (39.1) (29.7) (23.8) (9.4)
Unrecognized actuarial loss 59.9 47.6 38.1 19.8
------- ------- ------- -------
Net amount recognized 20.8 17.9 14.3 10.4
======= ======= ======= =======

As at September 30, 2001, 2002, 2003 and 2004 the projected benefit obligation
is in excess of plan assets. The impact of this underfunding has not been
recognized in its entirety but has, instead, been deferred or spread over the
assumed future working lifetime of 13 years for active plan members based on
actuarial expectation of a substantial future increase in the value of plan
assets.

The majority of the unrecognized actuarial loss has arisen as a result of
substantial asset losses, significant liability increases due to a continuing
reduction in the discount rate and the increased longevity of Plan participants.
The impact of the reduction in the discount rate has been particularly severe
for the Plan given that the membership profile of the scheme is relatively
mature (with over 50% of the Plan members being pensioners) and that a
significant proportion of pensions increase at a fixed 5% when in payment.

Due to the lower discount rate, a decline in the fair market value of plan
assets during 2002 and 2003 and the use of revised mortality tables, the
accumulated benefit obligation at September 2001, September 30, 2002 and 2003
exceeded the fair value of plan assets by $4.7 million, $20.4 million and $25.3
million, respectively. At September 30, 2004, the ABO again exceeded the market
value of plan assets. The excess at the 2004 period end was $33.5 million and a
net of tax comprehensive loss of $5.3 million has been charged against
shareholders' equity in 2004. Cumulative amounts recognized in the consolidated
balance sheet at September 30, 2004, together with comparative disclosures for
2001, 2002 and 2003 are therefore as follows:

2004 2003 2002 2001
$'m $'m $'m $'m
---- ---- ---- ----

Accrued pension liability
(disclosed in other liabilities) (33.5) (25.2) (20.4) (4.7)
Other comprehensive income
(disclosed in shareholders' equity) 54.3 43.1 34.7 15.1
------ ------ ------ ------
Net amount recognized 20.8 17.9 14.3 10.4
------ ------ ------ ------

Assuming only modest recoveries in the fair market value of plan assets in 2005
and the application of a reduced discount rate it is anticipated that the
accumulated benefit obligation at September 30, 2005 will again exceed the fair
value of plan assets.

60


The overall funding objective of the scheme is to hold assets that are
sufficient to cover the plan's past service ongoing liabilities. These
liabilities form the "funding target" and include an allowance for expected
future increases to the pensionable earnings of active members so that the cost
of the plan's benefits is considered over the longer term.

The last full actuarial valuation of the scheme was carried out at April 5,
2002. This showed the following:

$M
--

Value of past service ongoing liabilities (128.4)
Market value of assets 120.3
------
Past service deficit (8.1)
======

Funding ratio 94%

Under the United Kingdom Pensions Act 1995, schemes must satisfy a minimum
funding test known as the Minimum Funding Requirement (MFR). This is based on
the benefits that would be paid if the active members had left the plan on the
valuation date. The ratio of the market value of the plan's assets to its MFR
liabilities is known as the MFR funding ratio. At the valuation date the MFR
funding ratio was also 94%.

As at September 30, 2002 because of falls in stock markets in the period from
April 5, 2002 to that date and adverse movements in bond yields, the
base-funding ratio had fallen to approximately 78% and the MFR funding ratio to
circa. 91%. At November 30, 2003 (the latest date at which information was
available for inclusion in the Company's 10-KSB filling for the year ended
September 30, 2003), following modest equity rallies, the base funding ratio
improved to 89% and the MFR funding rate to 96%. At September 30, 2004 (the
latest date at which information is available for the current year annual
filing), the base funding ratio and MFR Funding ratio had softened to 81% and
92% respectively.

Company pension contributions are determined by the Trustees of the plan with
the agreement of the principal employer and after consultation with the actuary
with the intention of eliminating the past service deficit in the long term and
ensuring that the MFR funding ratio is restored to 100% within 8 years.

With effect from November 1, 2003 the actuary recommended that the Company
should change its rate of contributions to 21.2%. This rate of contributions was
unchanged from that recommended and implemented for the year ended October 31,
2003.

Based on the funding position of the plan at the valuation date and applying his
long-term assumptions, the actuary confirmed that contributing at such a rate
would be sufficient to bring the plan's assets into line with its funding
target. Further, in current investment market conditions, contributions at the
rate of 21.2% rising to 24.2% with effect from November 1, 2007 would be
sufficient to meet the MFR requirements.

The rate of employer contributions is due for re-certification prior to May 31,
2005 following an actuarial valuation of the Plan that is to be carried out as
at December 31, 2004. The current contribution rate of 21.2% is therefore
subject to change.

61


Contributions at a rate of 21.2% equate to a cash cost to the Company of
approximately $2.7 million. The Company believes that payments at this level
will be adequately funded from operating cash generated in the year.

In the period from August 1, 2001 to October 30, 2002 the Company contribution
rate was 24.8%, from June 1, 2000 to July 31, 2001 the rate was 28.5% and prior
to that the level of employer contributions was set at 5%.

Employer contributions paid in the year ended September 30, 2004 were $2.7
million, contributions in the year ended September 30, 2003 totalled $2.8
million, contributions in the year ended September 30, 2002 amounted to $3.2 and
$11.2 million in the year ended September 30, 2001. The latter figure included a
one-off special contribution payment of $7.4 million that was made to reduce the
funding deficit.

Under FAS 87, the following amounts have been charged against earnings in the
years ended September 30, 2004, 2003 and 2002.

$m
--

2004 1.3
2003 0.3
2002 0.1

The Company has been advised by its actuaries that the comparable FAS87 pension
charge for the year ended September 30, 2005 will be approximately $4.0 million.

INCOME TAXES

With regard to the accounting for income taxes, we are required to recognize a
provision for income taxes based upon the taxable income and temporary
differences for each of the tax jurisdictions in which we operate and for all
discrete reportable income streams within those jurisdictions. This process
requires a calculation of taxes payable and an analysis of temporary differences
between the book and tax bases of our assets and liabilities, including various
accruals, allowances, depreciation and amortization. The tax effect of these
temporary differences and the estimated tax benefit from our tax net operating
losses are reported as deferred tax assets and liabilities in our consolidate
balance sheet.

In accordance with the provisions of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), deferred taxes are recognized
for operating losses that are available to offset future taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. To the extent we establish a
valuation allowance or change the allowance in a period, we reflect the change
with a corresponding increase or decrease in our tax provision in our income
statement. Historically, these provisions have adequately provided for our
actual income tax liabilities. However, unexpected or significant future changes
in trends could result in a material impact to future statements of income and
cash flows.

62


Spear & Jackson, Inc. has approximately twenty income streams within its
subsidiary companies for which individual income tax computations are required.
Certain of these income streams have NOLs brought forward from earlier periods
that are available for set off against current period earnings arising within
those streams. Aggregating these individual income tax calculations derives the
income tax charge or credit that appears in the Company's consolidated quarterly
and annual financial statements.

Because of the streamed approach applied to the Company's earnings for the
purpose of calculating its overall taxation liability, significant movements in
the Company's effective rate of income tax can arise despite consolidated pre
tax earnings remaining constant between one reporting period and the next.
Factors giving rise to such fluctuations include:

a) Periodic variations in the geographical location of earnings. For
example, losses incurred in any of our UK subsidiaries in a period may
be set off against profits arising in other UK entities in the same
period. Where individual UK profit streams are in excess of UK losses,
all the losses can be absorbed. If the UK taxable losses exceed UK
taxable profits the excess losses cannot, however, be surrendered to
non-UK companies. A situation may therefore arise whereby a reduction
in the level of profitability of our UK subsidiaries from one reporting
period to the next could be matched by an increase in earnings in, say,
our French affiliate. Although the overall total of consolidated pre
tax earnings in the two periods remains unaltered, a higher effective
tax charge may result as a consequence of excess UK tax losses arising
in the second period which cannot be offset against the French
earnings. The French earnings thus remain unsheltered and attract
taxation at the local statutory rate. The excess UK losses may not give
rise to a taxation credit if a carry forward of the losses as a
deferred tax asset cannot be justified through doubts concerning their
ultimate utilization against future profits and a higher period two tax
charge will follow.

b) Variations in the amount of expenses not allowed to be treated as a
deduction for income tax purposes. The level of such permanently
disallowable items can vary substantially period to period as a result,
for example, of the incidence of substantial one-off legal and
professional fees incurred on non-trading items.

c) Higher or lower levels of profit arising in entities having the benefit
of NOLs which have not been capitalised as a deferred tax asset because
of doubts concerning their short term realization against future
profits.

d) Fluctuations in the level of losses incurred in consistently
loss-making subsidiaries which already have significant NOLs against
which valuation allowances have been previously made.

63


The interaction of these factors can cause our effective tax rate to vary
significantly. Because of the complex interrelationships involved and variances
between actual and budgeted earnings on both a consolidated and an individual
income stream basis, the impact of these items on the Company's overall taxation
rate cannot always be accurately forecast for future periods.

RECENT ACCOUNTING PRONOUNCEMENTS

See note 2 in the "Notes to the Consolidated Financial Statements" in Part II of
this Annual Report on Form 10-K.

ITEM 7A. 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 September 30, 2004 the Company had borrowings in the form of
overdrafts amounting to $0.07 million which are repayable on demand and had cash
and cash equivalents of approximately $5.1 million. Given the current levels of
borrowings, the Company believes that a 1% change in interest rates would not
have a material impact on consolidated income or cash flows. Holding the same
variables constant, a 10% increase in interest rates would again have a
negligible effect on interest payable.

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

EXCHANGE RATE RISK

The Company has operations in the United Kingdom, France, Australia and New
Zealand. 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 year ended September 30, 2004 compared to the equivalent period in 2003,
the change in exchange rates had the effect of increasing the Company's
consolidated sales by $12.8 million, or 12.65%. Since most of the Company's
international operating expenses are also included in local currencies, the
change in exchange rates had the effect of increasing operating expenses by $2.6
million for the nine months ended September 30, 2004 compared to the comparable
prior year period. If the US dollar further weakens in the future, it could
result in the Company having to suffer reduced margins in order for its products
to remain competitive in the local market place.

64


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 September 30, 2004 the Company
held forward contracts to sell Australian and New Zealand dollars to buy
approximately $1.5 million US dollars.

The contract values were not materially different to the period end value of the
contracts. A 10% strengthening or weakening of the US$ against its Australian
and New Zealand counterparts could, however, result in the Company suffering
losses or benefiting from gains of approximately $0.2 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.

At September 30, 2004 the Company had made an allowance of $1.7 million in
respect of doubtful accounts which management believes is sufficient to cover
all known or expected debt non-recoveries.

65


ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



INDEX


Page Number

Report of Independent Registered Public Accounting Firm F-1

Report of Former Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets as of September 30, 2004 and 2003 F-3

Consolidated Statements of Operations for the years ended
September 30, 2004, 2003 and 2002 F-4

Consolidated Statements of Changes in Stockholders' Equity for
the years ended September 30, 2004, 2003 and 2002 F-5

Consolidated Statements of Cash Flows for the years ended
September 30, 2004, 2003 and 2002 F-6

Notes to Consolidated Financial Statements F-7






66


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Spear & Jackson, Inc.
Boca Raton, Florida

We have audited the accompanying consolidated balance sheet of Spear & Jackson,
Inc. and Subsidiaries (the "Company") as of September 30, 2004 and the related
consolidated statements of operations, stockholders equity and cash flows for
the year ended September 30, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Spear & Jackson,
Inc. and subsidiaries as of September 30, 2004, and the consolidated results of
their operations and their cash flows for the year ended September 30, 2004, in
conformity accounting principles generally accepted in the United States of
America.


/s/ Chantrey Vellacott DFK
Chartered Accountants

London, England
February 1, 2005

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors
Spear & Jackson, Inc.
Boca Raton, Florida

We have audited the accompanying consolidated balance sheet of Spear & Jackson,
Inc. and Subsidiaries as of September 30, 2003 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
September 30, 2003 and September 30, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public
Accounting Oversight Board ( United States) . Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Spear &
Jackson, Inc. as of September 30, 2003 and the results of their operations and
their cash flows for the years ended September 30, 2003 and 2002, in conformity
with accounting principles generally accepted in the United States of America.

/s/ Sherb & Co., LLP
Certified Public Accountants

New York, New York
December 5, 2003

F-2


SPEAR & JACKSON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARES)


AT SEPTEMBER 30, AT SEPTEMBER 30,
2004 2003
---------------- ----------------

ASSETS

Current assets:
Cash and cash equivalents ................................. $ 5,090 $ 9,191
Trade receivables, net .................................... 18,843 15,432
Inventories ............................................... 21,988 23,350
Assets held for sale ...................................... 3,190 -
Deferred income tax asset, current portion ................ 2,128 2,594
Other current assets ...................................... 1,310 999
-------- --------
Total current assets ...................................... 52,549 51,566

Property, plant and equipment, net ........................ 22,114 19,561
Deferred income tax asset ................................. 10,933 8,325
Investments ............................................... 160 148
-------- --------
Total assets .............................................. $ 85,756 $ 79,600
======== ========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable ......................................... $ 68 $ 304
Trade accounts payable ................................ 8,562 7,552
Accrued expenses and other liabilities ................ 12,948 12,793
Foreign taxes payable ................................. 22 50
-------- --------
Total current liabilities ................................. 21,600 20,699
Other liabilities ......................................... 1,172 1,787
Pension liability ......................................... 33,545 25,262

-------- --------
Total liabilities ......................................... 56,317 47,748
-------- --------
Stockholders' equity:
Common stock .............................................. 12 12
Additional paid in capital ............................... 51,590 51,590
Accumulated other comprehensive income(loss):
Minimum pension liabilty adjustment, net of tax ....... (38,030) (30,204)
Foreign currency translation adjustment, net of tax ... 12,429 7,406
Unrealized loss on derivative instruments ............. (61) (15)
Retained earnings ......................................... 4,039 3,603
Less: 270,000 common stock shares held in treasury, at cost (540) (540)
-------- --------
$ 29,439 $ 31,852
-------- --------

Total stockholders' equity ................ $ 85,756 $ 79,600
======== ========

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

F-3



SPEAR & JACKSON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)


FOR THE FISCAL YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2002
------------- ------------- -------------

Net sales .................................................... $ 101,179 $ 91,845 $ 87,886
Cost of goods sold ........................................... 68,685 62,947 61,954
------------ ------------ -----------
Gross profit ................................................. 32,494 28,898 25,932

Operating costs and expenses:
Selling, general and administrative expenses ................. 30,550 22,534 27,250

------------ ------------ -----------
Operating income (loss) ...................................... 1,944 6,364 (1,318)

Other income (expense)
Royalties .................................................... - - 13
Rental income ................................................ 184 136 125
Interest (net) ............................................... (300) (237) (234)

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

Income (loss) from continuing operations before income taxes 1,828 6,263 (1,414)
Provision for income taxes ................................... (1,205) (1,497) (948)
------------ ------------ -----------


Net income (loss) from continuing operations ................ 623 4,766 (2,362)
------------ ------------ -----------

Discontinued operations:

Loss from operations of Megapro screwdriver division ......... - (53) (12)
(net of income taxes of $44 in 2003 and $nil in 2002)
Goodwill impairment loss ..................................... - - (1,138)
Provision for loss on disposal of Megapro screwdriver division (187) (97) -
------------ ------------ -----------

Net loss from discontinued operations ........................ (187) (150) (1,150)
------------ ------------ -----------

Net income (loss) ............................................ $ 436 $ 4,616 $ (3,512)
============ ============ ===========

Basic and diluted net income (loss) per share:

From continuing operations ................................... $ 0.05 $ 0.40 $ (0.58)

From discontinued operations ................................. (0.02) (0.01) (0.28)
------------ ------------ -----------
$ 0.03 $ 0.39 $ (0.86)
============ ============ ===========

Weighted average shares outstanding .......................... 11,741,122 11,988,930 4,100,071
============ ============ ===========

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

F-4



SPEAR & JACKSON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(IN THOUSANDS EXCEPT NUMBER OF SHARES)


ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
---------------------------------------
UNREALIZED
ADDITIONAL TREASURY FOREIGN PENSION GAINS/(LOSSES)
COMMON STOCK PAID IN STOCK CURRENCY MIMIMUM ON DERIVATIVE RETAINED
NUMBER AMOUNT CAPITAL (COMMON) TRANSLATION LIABILITY INSTRUMENTS EARNINGS TOTAL
---------- ------ ---------- -------- ----------- --------- -------------- -------- --------

Balance October 1, 2001 3,543,281 $ 3 $ 48,428 $ 0 $ 29 $ (10,572) $ 65 $ 2,499 $ 40,452
Comprehensive income
Net loss for the year . (3,512) (3,512)
Other comprehensive
income:
Foreign currency
translation
adjustment ......... 3,027 (560) 2,467
Reclassification
adjustmentfor prior
year unrealized
holding gains
included in net
income .............. (65) (65)
Unrealized holding
gains originating in
the year ............ 2 2
Additional minimum
pension liability
adjustment (net of
tax of $5,662) ...... (13,211) (13,211)
--------
Other comprehensive
income ............... (10,807)
--------
Comprehensive income ... (14,319)
Shares issued less
cancellations ......... 8,467,841 9 3,162 3,171
---------- --- -------- -------- -------- --------- ---- ------- --------
Balance September 30,
2002 .................. 12,011,122 12 51,590 0 3,056 (24,343) 2 (1,013) 29,304
---------- --- -------- -------- -------- --------- ---- ------- --------
Comprehensive income
Net income for the year 4,616 4,616
Other comprehensive
income:
Foreign currency
translation
adjustment ......... 4,350 (1,683) 2,667
Reclassification
adjustment for prior
year unrealized
holding gains
included in net
income .............. (2) (2)
Unrealized holding
losses originating in
the year ........... (15) (15)
Additional minimum
pension liability
adjustment (net of
tax of $1,790) ...... (4,178) (4,178)
--------
Other comprehensive
income ............... (1,528)
--------
Comprehensive income 3,088
Shares repurchased ..... (270,000) (540) (540)
---------- --- -------- -------- -------- --------- ---- ------- --------
Balance September 30,
2003 .................. 11,741,122 12 51,590 (540) 7,406 (30,204) (15) 3,603 31,852
---------- --- -------- -------- -------- --------- ---- ------- --------
continued
The accompanying notes are an integral part of these consolidated financial statements

F-5A



SPEAR & JACKSON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(IN THOUSANDS EXCEPT NUMBER OF SHARES)
continued

ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
---------------------------------------
UNREALIZED
ADDITIONAL TREASURY FOREIGN PENSION GAINS/(LOSSES)
COMMON STOCK PAID IN STOCK CURRENCY MIMIMUM ON DERIVATIVE RETAINED
NUMBER AMOUNT CAPITAL (COMMON) TRANSLATION LIABILITY INSTRUMENTS EARNINGS TOTAL
---------- ------ ---------- -------- ----------- --------- -------------- -------- --------


Comprehensive income
Net income for the year 436 436
Other comprehensive
income:
Foreign currency
translation
adjustment ......... 5,023 (2,509) 2,514
Reclassification
adjustment for prior
year unrealized
holding gains
included in net
income .............. 15 15
Unrealized holding
losses originating in
the year ............ (61) (61)
Additional minimum
pension liability
adjustment (net of
tax of $2,278) ...... (5,317) (5,317)
--------
Other comprehensive
income ............... (2,849)
--------
Comprehensive income ... (2,413)
---------- --- -------- -------- -------- --------- ---- ------- --------
Balance September 30,
2004 .................. 11,741,122 $12 $ 51,590 $ (540) $ 12,429 $ (38,030) $(61) $ 4,039 $ 29,439
========== === ======== ======== ======== ========= ==== ======= ========

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

F-5B



SPEAR & JACKSON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)


FOR THE FISCAL YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2002
------------- ------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) attributable to continuing and discontinued
operations ................................................... $ 436 $ 4,616 $(3,512)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation ................................................ 2,929 2,741 3,211
Provision for loss on disposal of discontinued operations ... 187 97 -
Goodwill impairment loss .................................... - - 1,138
Loss (profit) on sale of plant, property and equipment ...... 14 (134) 95
Deferred income taxes ....................................... 1,092 1,441 835
Changes in operating assets and liabilities, excluding the
effects of acquisitions and dispositions:
(Increase) decrease in trade receivables .................... (1,930) 3,894 605
Decrease (increase) in inventories .......................... 3,192 (1,040) 1,331
(Increase) decrease in other current assets ................. (437) 557 607
Contributions paid to pension plan .......................... (2,706) (2,836) (3,175)
Increase in other non-current liabilities ................... 1,295 274 25
Increase (decrease) increase in trade accounts payable ...... 392 (1,941) 1,110
Decrease in accrued expenses and other liabilities .......... (286) (1,752) (3,118)
(Decrease) increase in foreign taxes payable ................ (56) 4 17
(Decrease) increase in other liabilities .................... (722) 733 (152)
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ........... 3,400 6,654 (983)
------- ------- -------

INVESTING ACTIVITIES:
Purchases of property, plant and equipment .................... (7,191) (2,933) (1,434)
Costs incurred on purchase of businesses ...................... - - (281)
Proceeds from sale of businesses net of costs ................. - 287 1,000
Net cash (relinquished) acquired on sale/purchase of businesses - (17) 46
Proceeds from sale of property, plant and equipment ........... 81 982 3,105
------- ------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES ............ (7,110) (1,681) 2,436
------- ------- -------

FINANCING ACTIVITIES:
Repayment of long-term debt ................................... - (23) (9)
Repayment of overdraft ........................................ (261) (1,012) (18)
Promissory notes repaid ....................................... - (235) -
Director loan discharged ...................................... - (100) -
Shareholder loan repaid ....................................... - (60) -
Common stock re-purchased ..................................... - (540) -
Notes receivable (net of provisions) discharged ............... - (209) -
Share capital issued .......................................... - - 2,009
------- ------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ............ (261) (2,179) 1,982
------- ------- -------

Effect of exchange rate changes on cash and cash equivalents ... (130) (89) 341
------- ------- -------

CHANGE IN CASH AND CASH EQUIVALENTS ............................ (4,101) 2,705 3,776

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................. 9,191 6,486 2,710
------- ------- -------

CASH AND CASH EQUIVALENTS AT END OF YEAR ....................... $ 5,090 $ 9,191 $ 6,486
======= ======= =======

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest ....................................... $ 297 $ 145 $ 147
======= ======= =======
Cash paid for taxes .......................................... $ 169 $ 96 $ 96
======= ======= =======

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

F-6


SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS EXCEPT SHARES)

NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

These 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 consolidated financial statements include the
accounts of Spear & Jackson, Inc. (the Company) and its wholly owned
subsidiaries, Mega Tools Limited, 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. and Societe Neill France S.A.

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 of operations of acquired companies have been included in the
consolidated statements of operations and cash flows of the Company from the
date of acquisition.

All significant intercompany accounts and transactions have been
eliminated on consolidation. Certain prior year amounts have been reclassified
in the accompanying financial statements to conform with current year
presentation.

NOTE 2 - ACCOUNTING POLICIES

FISCAL YEAR: All fiscal year data contained herein reflect results of operations
for the years ended September 30, 2004, September 30, 2003 and September 30,
2002.

USE OF ESTIMATES: 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.

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

F-7

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 2 - ACCOUNTING POLICIES - CONTINUED

PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated on the
basis of cost less accumulated depreciation provided under both the
straight-line method and the declining balance basis, depending on type and
class of asset.

Depreciation is calculated using the following estimated useful lives:
Buildings - depreciation based on lives ranging from 25 to 70 years
Equipment - depreciation based on lives ranging from 2 to 10 years
Vehicles - depreciation based on lives ranging from 3 to 4 years
Computer hardware - depreciation based on lives ranging from 3 to 5 years
Computer software - depreciation based on lives ranging from 1 to 3 years
Molds - depreciation based on a life of 10 years

Where assets are held under finance leases the assets are depreciated over their
estimated useful lives or the period of the lease, if shorter.

All of the Company's long lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected discounted future cash flows is less
than the carrying value of the asset, a loss is recognized based upon the fair
value of the asset and its carrying value.

INVENTORIES: Inventories are principally valued at the lower of cost, determined
under the first-in, first-out method, or net realizable value. Certain finished
goods inventories are recorded at the lower of average cost and net realizable
value. In addition, certain raw materials and work-in-progress inventories are
stated at the lower of cost and replacement cost, where cost is determined on a
weighted average basis.

COMPREHENSIVE INCOME: The Company has adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is comprised of net income and all changes to stockholders' equity except
those due to investment by stockholders, changes in paid in capital and
distributions to stockholders.

FINANCIAL INSTRUMENTS: The fair value of all short-term financial instruments
approximate their carrying value due to their short maturity.

The Company's financial instruments consist of cash, accounts receivable, bank
indebtedness, accounts payable, accrued liabilities, director's loan payable and
loans and notes payable. Unless otherwise noted, it is management's opinion that
the Company is not exposed to significant interest, or credit risks arising from
these financial instruments. Unless otherwise noted the fair values of these
financial instruments approximate their carrying values since they are
receivable or payable on demand, or the interest rates on these instruments
fluctuate with market rates.

DERIVATIVE FINANCIAL INSTRUMENTS: SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, requires that all derivative
instruments be reported on the balance sheet at fair value and establishes
criteria for designation and effectiveness of hedging relationships. The Company
uses forward contracts to hedge its exposure to volatility of currency exchange
rates. These hedges are intended to offset the effect of transaction gains and
losses, which arise when payments of collections in a foreign currency are made
or received one to three months after the asset or liability is generated. The
fair value of these instruments is reflected in other current assets on the
Company's balance sheet. Where the Company's assessment of these hedges reveals
no ineffectiveness, gains and losses on these instruments are deferred in other
comprehensive income (loss) until the underlying transaction gain or loss is
recognized in earnings.

F-8

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 2 - ACCOUNTING POLICIES - CONTINUED

INCOME TAXES: The Company follows the provisions of Statement of Financial
Accounting Standards ("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.

EARNINGS PER SHARE: Earnings (loss) per share is computed in accordance with
SFAS No. 128, "Earnings Per Share". Basic earnings (loss) per share is
calculated by dividing the net income (loss) available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
earnings (loss) per share reflects the potential dilution of securities that
could share in earnings of an entity. In loss periods, dilutive common
equivalent shares are excluded, as the effect would be anti-dilutive. Basic and
diluted earnings per share are the same for the periods presented.

STOCK BASED COMPENSATION: Stock-Based Compensation Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
123"), encourages, but does not require, companies to record compensation cost
for stock-based employee compensation plans at fair value. The Company has
chosen to account for stock- based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related Interpretations. Accordingly, compensation
cost for the Company's stock at the date of the grant over the amount of an
employee must pay to acquire the stock. The Company has adopted the "disclosure
only" alternative described in SFAS 123 and SFAS 148, which require pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been applied.

ADVERTISING AND MARKETING EXPENSES: The Company follows the provisions of
Statement of Position 93-7 in respect of advertising expenses and costs are
expensed as incurred. Advertising and marketing costs charged to operations were
$2,444 in the year ended September 30, 2004 and $1,847 and $1,192 in the years
ended September 30, 2003 and September 30, 2002, respectively.

GOODWILL, GOODWILL IMPAIRMENT, INTANGIBLE AND OTHER ASSETS: Goodwill represents
the excess of the cost over the fair value of net assets acquired in business
combinations. Goodwill and other "indefinite-lived" assets are not amortized and
are subject to the impairment rules of Statement of Financial Accounting
Standards No. 142 (SFAS 142) which the Company adopted effective as of October
1, 2001. Goodwill is tested for impairment on an annual basis or upon the
occurrence of certain circumstances or events. The Company determines the fair
market value of its reporting unit using quoted market rates and cash flow
techniques. The fair market value of the reporting unit is compared to the
carrying value of the reporting unit to determine if an impairment loss should
be calculated. If the book value of the reporting unit exceeds the fair value of
the reporting unit, an impairment loss is indicated. The loss is calculated by
comparing the fair value of the goodwill to the book value of the goodwill. If
the book value of the goodwill exceeds the fair value of goodwill, an impairment
loss is recorded. Fair value of goodwill is determined by subtracting the fair
value of the identifiable assets of a reporting unit from the fair value of the
reporting unit.

CASH EQUIVALENTS: Cash equivalents represent short-term, highly liquid
investments, which have maturities of ninety days or less when purchased.

REVENUE RECOGNITION: Revenue is recognized upon shipment of products or delivery
of products to the customer depending on the terms of the sale. Provisions are
made for warranty and return costs at the time of sale. Such provisions have not
been material.

Most of the company's major customers have provision for sales rebates in their
trading terms. The level of rebates is individually negotiated with each
customer and is unique to that customer. Typically, a series of escalating
targets is set for purchases from Spear & Jackson and, on reaching each target,
a rebate, usually paid

F-9

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 2 - ACCOUNTING POLICIES - CONTINUED

REVENUE RECOGNITION - CONTINUED

in the form of credit note but occasionally in cash, is triggered e.g.

Sales
Turnover Rebate Rebate
$ % $
-------- ------ ------
Target 1 500k 5.0 25k
2 750k 7.5 56k
3 1,000k 10.0 100k
4 1,250k 12.0 150k

The revenue targets are set on a twelve-month basis, however these sales targets
period ends are not necessarily coterminous with the accounting period end of
Spear & Jackson, Inc. At any point in time, the rebate liability is calculated
by estimating the annual sales value for each customer (in order to ascertain
the rebate % the customer is likely to achieve), applying the relevant % to the
actual sales achieved to date, and then deducting any interim rebates already
paid.

The rebates charge is taken as a reduction to sales in the profit and loss
account. Rebates are paid to customers per their individual agreements.
Typically payments are made half yearly or yearly, however there are agreements
in place in which rebates are paid monthly and quarterly.

Generally there is no provision for customers to return products they cannot
sell. However, a small number of customers have negotiated a return clause in
their trading agreements. There is a time limit for these returns which vary
from customer to customer, none of which exceed 12 months from the original
invoice date. The amount of mutual returns made in the year ended September 30,
2004 was $257 and $66 in both the year ended September 30, 2003 and September
30, 2002.

RESEARCH AND DEVELOPMENT COSTS: Research and development costs are expensed as
incurred. There was no material research and development expenditure in the
years ended September 30, 2004, September 30, 2003 and September 30, 2002.

SEGMENT REPORTING: Operating segments are defined as components of an enterprise
for which separate financial information is available that is evaluated
regularly by chief operating decision makers in deciding how to allocate
resources in assessing performance.

NEW ACCOUNTING PRONOUNCEMENTS:

SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections was issued April 2002. This
Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and an amendment of that Statement, FASB Statement No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This
Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets
of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
Statement related to the rescission of Statement 4 shall be applied in fiscal
years beginning after May 15, 2002. The provisions in paragraph 8 and 9(c) of
this Statement related to Statement 13 shall be effective for transactions
occurring after May 15, 2002. All other provisions of this Statement shall be
effective for financial statements issued on or after May 15, 2002. The effects
of implementation were not material.

F-10

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 2 - ACCOUNTING POLICIES - CONTINUED

NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities
was issued June 2002. This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The provisions of this
Statement are effective for exit and disposal activities that are initiated
after December 31, 2002. The Company adopted this standard as of January 1, 2003
with no material effect on its financial position, results of operations or cash
flows.

In September 2002, the FASB issued SFAS No. 147, Acquisition of Certain
Financial Institutions. SFAS No. 147 changed the special accounting for
unidentifiable intangible assets recognized under SFAS No. 72. Transition
provisions for previously recognized unidentifiable intangible assets were
effective on October 1, 2002. The effects of implementation had no impact on the
Company's consolidated financial statements.

In December 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure," which provides alternative methods of
transition for a voluntary change to fair value based method of accounting for
stock-based employee compensation as prescribed in SFAS 123, "Accounting for
Stock-Based Compensation." Additionally, SFAS 148 required more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The provisions of this Statement are effective for
fiscal years ending after December 15, 2002, with early application permitted in
certain circumstances. The Company has adopted the disclosure provisions with
effect from the fiscal year ended September 30, 2003.

In January 2003, FASB issued Interpretation No.46, Consolidation of Variable
Interest Entities (FIN No.46). This interpretation of Accounting Research
Bulletin No. 51, Consolidated Financial Statements., provides guidance for
identifying a controlling interest in a variable interest entity established by
means other than voting interests. FIN No. 46 also requires consolidation of a
variable interest entity by an enterprise that holds such a controlling
interest. In December 2003, the FASB completed its deliberations regarding the
proposed modification to FIN No.46 and issued Interpretation Number 46R,
Consolidation of Variable Interest Entities - an Interpretation of ARB No.51
(FIN No.46R). The decisions reached included a deferral of the effective date
and provisions for additional scope exceptions for certain types of variable
interests. Application of FIN No.46R is required in financial statements of
public entities that have interests in variable interest entities or potential
variable interest entities commonly referred to as special - purpose entities
for periods ending after December 15, 2003. Application by public entities
(other than small business users) for all other types of entities is required in
financial statements for periods ending after March 15, 2004. The adoption of
FIN No. 46R did not have a material impact on the Company's our consolidated
financial position, results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
changes in SFAS No. 149 improve financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. This statement is
effective for contracts entered into or modified after June 30, 2003 and all of
its provisions should be applied prospectively. The Company adopted this
standard as of July 1, 2003, with no material effect on its financial position,
results of operations, or cash flows.

On May 15, 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
("Statement 150"). SFAS 150 establishes standards for classifying and measuring
as liabilities certain financial instruments that embody obligations of the
issuer and have

F-11

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 2 - ACCOUNTING POLICIES - CONTINUED

NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

characteristics of both liabilities and equity. SFAS 150 represents a
significant change in practice in the accounting for a number of financial
instruments, including mandatory redeemable equity instruments and certain
equity derivatives that frequently are used in connection with share repurchase
programs. SFAS 150 is effective for all financial instruments created or
modified after May 31, 2003, and to other instruments as of September 1, 2003.
We adopted this standard on such effective dates, with no material impact on our
financial position, results of operations or cash flows.

In December of 2003, the FASB issued a revised SFAS No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits". The statement
revises employers' disclosures about pension plans and other postretirement
benefit plans but it does not change the measurement or recognition of those
plans. The revised SFAS No. 132 requires additional disclosures to those in the
original SFAS 132 about the assets, obligations, cash flows, and net periodic
benefit cost of defined pension plans and other defined benefit postretirement
plans. The statement also increases quarterly pension plan and postretirement
benefit plan disclosure requirements. Revised SFAS No. 132 domestic plan
disclosure requirements are effective for financial statements with fiscal years
ending after December 15, 2003. However, disclosure of information about foreign
plans required by the Statement is effective for fiscal years ending after June
15, 2004. The Company adopted this statement in December of 2003 and there was
no impact to the financial position and results of operations of the Company as
a result of the adoption. See Note 15 for the disclosures required by this
pronouncement.

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 that begins after June 15, 2005 and the Company will adopt the
standard in the third quarter of fiscal 2005. The Company has not determined the
impact, if any, that this statement will have on its 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 will adopt this standard in fiscal 2006. The Company
has not determined the impact, if any, that this statement will have on its
consolidated financial position or results of operations.

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 is required to be adopted by the
Company in the first quarter of fiscal 2006, beginning on October 1, 2005. The
Company is currently evaluating the effect that the adoption of SFAS 153 will
have on its consolidated results of operations and financial condition but does
not expect it to have a material impact.

F-12

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 3 - 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. At that date 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
loss from discontinued operations on the Company's Consolidated Statement 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
November 7, 2002 the Company changed its name from Megapro Tools, Inc. to Spear
& Jackson, Inc.

NOTE 4 - ACQUISITIONS AND DISPOSITIONS OF BUSINESSES

(a) ACQUISITIONS - PRIOR YEARS

On September 6, 2002, the Company purchased the entire issued share
capital of Spear & Jackson plc and Bowers Group plc via the issue of 3,543,281
of its common stock and the issue of (pound)150,000 ($232,860) of 6% promissory
notes. Spear & Jackson manufactures and distributes a wide range of hand tools,
garden tools and magnetic products. The Bowers Group manufactures and
distributes metrology instruments.

As explained in note 3 to these financial statements, this transaction
was accounted for as a reverse acquisition. Accordingly, the net assets of Spear
& Jackson plc and Bowers Group plc were included in the consolidated financial
statements at their historic carrying value. The operating results, cash flows
and the fair value of Megapro Tools, Inc. and its subsidiary companies are
included in the financial statements from September 6, 2002, the deemed date of
acquisition, onwards.

The purchase price for the Megapro Tools, Inc. and its subsidiary
companies was $1,443, which was allocated to the fair value of assets and
liabilities acquired as follows:

F-13

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 4 - ACQUISITIONS AND DISPOSITIONS OF BUSINESSES

(a) ACQUISITIONS - PRIOR YEARS - CONTINUED

(IN THOUSANDS)

Inventories .................................... $ 271
Trade receivables .............................. 101
Trade payables ................................. (38)
Other assets ................................... 32
Other liabilities and provisions ............... (180)
Property, plant and equipment .................. 202
Deferred and current income taxes .............. 62
Director and shareholder loans ................. (160)
Cash and cash equivalents ...................... 46
Bank indebtedness .............................. (31)
Goodwill (note 5) .............................. 1,138
-------
Purchase price ................................. $ 1,443
=======

(b) DISPOSITIONS - PRIOR YEARS

(i) 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. 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 net assets transferred comprised:
(IN THOUSANDS)
Inventories ...................................... $ 141
Trade receivables ................................ 190
Property, plant and equipment .................... 100
Cash ............................................. 17
Other assets ..................................... 9
Trade payables and other liabilities ............. (73)
-----
$ 384
=====

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 the Megapro
division, 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. The company continues to monitor the ability of the
Megapro management to settle the outstanding sale proceeds and is also in
discussion with them concerning alternative means of payment so as to minimize
the amount of disposal losses that may ultimately crystallize.

F-14

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 4 - ACQUISITIONS AND DISPOSITIONS OF BUSINESSES - CONTINUED

(b) DISPOSITIONS - CONTINUED

(ii) On January 20, 2002 the Company sold its subsidiary, True Temper
Ireland Limited, for $1million. This subsidiary had been excluded from the
consolidated results of the Company in prior periods as it had been regarded as
an asset held for resale and control was therefore temporary. In addition,
effective control did not rest with the direct majority owner (Spear & Jackson
plc) but rather with the ultimate parent, US Industries, Inc. (now Jacuzzi
Brands, Inc.). All decisions concerning the company's strategic direction and
its ultimate sale were dealt with by officers of US Industries, Inc. The
original cost of investment in True Temper Ireland amounted to $7.54 million and
the difference of $6.54 million between the above cost and the ultimate sale
proceeds of $1million was provided in the Company's financial statements for the
year ended September 30, 2001.

NOTE 5 - GOODWILL

As disclosed in note 4, above, goodwill of $1,138 was recognized on the deemed
acquisition of Megapro Tools, Inc. ("Megapro"). Due to deteriorating earnings
projections and cash flow forecasts of Megapro, the Company decided that
goodwill impairment existed at September 30, 2002. As a result, Spear & Jackson,
Inc. recorded a goodwill impairment charge of $1,138 at that date thereby
eliminating all recorded goodwill in respect of the Megapro acquisition.

NOTE 6 - TRADE RECEIVABLES, CONCENTRATIONS OF CREDIT RISK AND ALLOWANCE FOR
DOUBTFUL ACCOUNTS

AT SEPTEMBER 30, AT SEPTEMBER 30,
---------------- ----------------
2004 2003
---------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)
Trade receivables $ 20,546 $ 17,533
Allowance for doubtful accounts (1,703) (2,101)
---------------- ----------------
$ 18,843 $ 15,432
================ ================

Concentration of Credit Risk:

The Company's sales are principally in the United Kingdom, Europe,
Australia, North and South America, Asia and the Far East. The Company performs
periodic credit evaluations of its customers' financial condition and generally
does not require collateral. Credit losses have been within management's
estimates.

Allowance for Doubtful Accounts:

The Company establishes reserves for potential credit losses including
a specific reserve for any particular receivable when collectibility is not
probable. In addition, the Company provides a general reserve on all accounts
based on a specified range of percentages which are applied to outstanding
balances depending on their aging. Such losses have been within management's
expectations.

The following table provides a rollforward of the changes in the allowance for
doubtful accounts:

F-15

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 6 - TRADE RECEIVABLES, CONCENTRATIONS OF CREDIT RISK AND ALLOWANCE FOR
DOUBTFUL ACCOUNTS - CONTINUED


BALANCE CHARGED TO CHARGED TO DEDUCTIONS BALANCE
AT BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS PERIOD
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)

NOTES (1) (2)

Year ended September 30, 2004 $2,101 ($147) $165 ($416) $1,703
============ ========== ========== ========== =========
Year ended September 30, 2003 $1,975 $81 $151 ($106) $2,101
============ ========== ========== ========== =========
Year ended September 30, 2002 $1,528 $773 $92 ($418) $1,975
============ ========== ========== ========== =========


Notes:

(1) Items charged to other accounts comprise exchange rate fluctuations
during the year.

(2) Deductions comprise recoveries of items previously written off.

NOTE 7 - INVENTORIES

AT SEPTEMBER 30, AT SEPTEMBER 30,
---------------- ----------------
2004 2003
---------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)
Finished products $ 16,779 $ 18,747
In-process products 5,211 4,894
Raw materials 5,944 5,464
Less: allowance for slow moving and
obsolete inventories (5,946) (5,755)
---------------- ----------------
$ 21,988 $ 23,350
================ ================

Adjustments to the allowance for slow moving and obsolete inventories comprise:



BALANCE CHARGED TO CHARGED TO DEDUCTIONS BALANCE
AT BEGINNING COSTS AND OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS PERIOD
-------------- -------------- -------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)

NOTES (1) (2)

Year ended September 30, 2004
Allowance for inventory obsolesence $5,755 $391 $468 ($668) $5,946
====== ==== ==== ===== ======
Year ended September 30, 2003
Allowance for inventory obsolesence $5,839 $125 $431 ($640) $5,755
====== ==== ==== ===== ======
Year ended September 30, 2002
Allowance for inventory obsolesence $5,980 $451 $390 ($982) $5,839
====== ==== ==== ===== ======


NOTES:

(1) Items charged to other accounts comprise exchange rate fluctuations
during the year.

(2) Deductions comprise obsolete items sold or scrapped.

F-16

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 8 - PROPERTY, PLANT AND EQUIPMENT, NET

AT SEPTEMBER 30, AT SEPTEMBER 30,
---------------- ----------------
NOTE 2004 2003
---------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)
Assets held and used:
Land and buildings, at cost (a) $ 18,177 $ 13,532
Machinery, equipment and vehicles,
at cost 35,101 31,993
Furniture and fixtures, at cost 1,241 1,142
Computer hardware, at cost 1,264 1,150
Computer software, at cost 348 321
Assets held under finance leases,
at cost (b) 2,828 2,458
---------------- ----------------
58,959 50,596
Accumulated Depreciation: (36,845) (31,035)
---------------- ----------------
Net $ 22,114 $ 19,561
================ ================

Assets held for sale:
Assets held for sale, at cost: (a) $ 3,228 $ -
Accumulated Depreciation: (38)
---------------- ----------------
Net $ 3,190 $ -
================ ================

(a) In the year ended September 30, 2004, the Company has spent $3.3 million on
the acquisition of its manufacturing site in Wednesbury, England, and $3.2
million on a warehouse and office facility in Boca Raton, Florida. Following the
removal from office of the Company's former CEO, the current board, in
conjunction with the independent Corporate Monitor, has performed a detailed
review of its U.S. sales and distribution strategy. As a result, the original
initiative of setting up a central distribution unit in Florida has been
deferred. The Boca Raton warehouse has now been offered for sale and this
property is accordingly presented as an asset held for sale in the consolidated
balance sheet of the Company at September 30, 2004. The directors believe the
ultimate sales proceeds for the property will not be below original cost and the
land and buildings are therefore included at their net book carrying value.

(b) Included in property, plant and equipment at September 30, 2004 are capital
leases with a net book value of $1.3 million (September 30, 2003 $1.9 million).
The cost of these assets held under capital leases was $2.8million (September
30, 2003 $2.5million), and the accumulated depreciation relating to these assets
was $1.5 million (September 30, 2003 $0.6million).

F-17

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 9 - INVESTMENTS

Investments comprise the following:

AT SEPTEMBER 30, AT SEPTEMBER 30,
---------------- ----------------
NOTE 2004 2003
---------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)

30% investment in Bipico Industries
Private limited (a) $ 69 $ 63
30% investment in Bowers Metrologie SA (a) 68 63
Other investments in equity securities (b) 23 22
---------------- ----------------
$160 $148
================ ================

(a) With regard to the investments in Bipico Industries Private Limited and
Bowers Metrologie SA, the Company does not have the ability or right to appoint
any directors to the boards of either company. The majority ownership in the
companies is held by a small group of shareholders and Spear & Jackson, Inc. is
therefore unable to exercise significant influence over the operating and
financial decisions of these companies. Accordingly, Spear & Jackson, Inc.
accounts for these investments on the basis of historical cost less provision
for any permanent diminution in value.

(b) These investments represent equity investments classified as
available-for-sale. It is the Company's intention to hold these for longer than
one year. The investments are shown at cost which the Company's directors
estimate to be equivalent to their fair value.

NOTE 10 - INCOME TAXES

Spear & Jackson, Inc. is subject to income taxes in the US and in the
other overseas tax jurisdictions where its principal trading subsidiaries
operate. The provision for US and foreign income taxes attributable to
continuing operations consists of:

FOR THE FISCAL YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------- -------------- --------------
2004 2003 2002
-------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
Current tax charge (113) $ (100) $ (113)
Deferred tax charge (1,092) (1,397) (835)
-------------- -------------- --------------
$(1,205) $(1,497) $ (948)
============== ============== ==============

A reconciliation of the provision for income taxes compared with the amounts
provided at the US federal rate is as follows:


FOR THE FISCAL YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
-------------- -------------- --------------
2004 2003 2002
-------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)

Tax at US federal statutory income tax rate $ (574) $ (2,192) $ 897
Overseas tax at rates different to effective rate (81) 313 (129)
Impairment loss not giving rise to tax credits - - (341)
Permanent timing differences (162) (60) (62)
Adjustment of prior year estimates 118 (98) -
Valuation allowance (536) 533 (1,216)
Miscellaneous 30 7 (97)
-------------- -------------- --------------
$(1,205) $ (1,497) $ (948)
============== ============== ==============


F-18

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 10 - INCOME TAXES - CONTINUED

Deferred income tax assets and liabilities for 2004 and 2003 reflect the impact
of temporary differences between the book values of assets, liabilities and
equity for financial reporting purposes and the bases of such assets,
liabilities and equity as measured by applicable tax regulations, as well as tax
loss and tax credit carry-forwards.

The temporary differences and carry forwards that give rise to deferred assets
and liabilities at September 30, 2004 and September 30, 2003 comprise:

AT SEPTEMBER 30, AT SEPTEMBER 30,
---------------- ----------------
2004 2003
---------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)

Deferred tax liabilities:
Property, plant and equipment ............... $ - $ (56)

-------- --------
Total deferred tax liabilities .............. - (56)
-------- --------

Deferred tax assets:
Property, plant and equipment ............... $ 59 $ -
Pension benefit plan ........................ 10,064 8,238
Accruals and allowances ..................... 2,752 2,471
Inventory ................................... 186 266
Tax loss carry forwards and other tax credits 21,152 19,208

-------- --------
Total deferred tax assets ................... 34,213 30,183
Valuation allowance ......................... (21,152) (19,208)
-------- --------
Net deferred tax assets ..................... 13,061 10,975
-------- --------

Deferred tax asset, net ...................... $ 13,061 $ 10,919
======== ========

Deferred tax asset, current portion .......... 2,128 2,594
Deferred tax asset, non-current portion ...... 10,933 8,325
======== ========
$ 13,061 $ 10,919
======== ========

At September 30, 2004 a valuation allowance of $21.2 million (September 30, 2003
$19.2 million) has been made against certain deferred tax assets of Spear &
Jackson, Inc. due to the uncertainty of their future realization. These assets
relate to operating loss carry forwards in the Company's UK, US, and Australian
companies totaling approximately $6.3 million (September 30, 2003 $5.5 million)
and to other UK tax credits of approximately $14.9 million (September 30, 2003
$13.7 million).

NOTE 11 - BANK FACILITIES

The French and Australian subsidiaries of Spear & Jackson plc maintain
short-term credit facilities of $3.2 million (2003: $5.6 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 $0.07 million
outstanding under the overdraft lines at September 30, 2004 (2003: $0.3 million)
and $0.9 million of letters of credit and bills outstanding under these
facilities (2003: $0.8 million). In addition, the UK subsidiaries of Spear &
Jackson plc and Bowers Group plc maintain a line of credit of $8.1 million
(2003: $7.4million). This is secured by fixed and floating charges on the assets
and undertakings of these businesses. Of the total facility, $5.4 million (2003:
$5.0 million) relates to bank

F-19

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 11 - BANK FACILITIES - CONTINUED

overdrafts and $2.7 million (2003: $2.4 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 September 30, 2004 and September
30, 2003 the Company had no borrowings outstanding under the overdraft line but
had $1.5 million in outstanding letters of credit (2003: $0.8 million).

NOTE 12 - ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

AT SEPTEMBER 30, AT SEPTEMBER 30,
---------------- ----------------
2004 2003
---------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)
Compensation related $ 4,124 $ 4,212
Rebates/dealer incentives 1,315 1,288
Sales taxes payable 480 425
Finance lease liabilities
- current portion 803 811
Audit and accountancy fees 308 286
Commissions 698 483
Property rentals 309 282
Provisions 2,411 2,289
Other 2,500 2,717
---------------- ----------------
$ 12,948 $ 12,793
================ ================

NOTE 13 - LOAN PAYABLE TO DIRECTOR

The managing director of the Megapro screwdriver division had previously
provided a loan of $100 to the Company. The loan was unsecured, due on demand,
bore interest at 10.25% per annum and had no specific terms of repayment. The
loan was discharged as part of the sales consideration due from the director on
the sale of the screwdriver division (note 4).

F-20

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 14 - OTHER LIABILITIES

Other liabilities comprise:
AT SEPTEMBER 30, AT SEPTEMBER 30,
---------------- ----------------
2004 2003
---------------- ----------------
(IN THOUSANDS) (IN THOUSANDS)
Finance lease liabilities
- non current portion $ 625 $ 1,144
Property rentals 495 523
Government grant received 52 120
---------------- ----------------
$1,172 $ 1,787
================ ================

NOTE 15 - PENSION PLAN

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

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.
In the years ended September 30, 2004, September 30, 2003, and September 30,
2002, contributions amounted to $2.7 million, $2.8million and $3.4 million,
respectively. Employer contributions in the year ending September 30, 2005 are
expected to be $2.7 million.

Future benefit payments, excluding future new members, are as follows:

EXPECTED BENEFIT
YEAR PAYMENTS
---- ----------------
(IN THOUSANDS)
2005 $ 7,740
2006 $ 8,089
2007 $ 8,454
2008 $ 8,833
2009 $ 9,230
2010-2014 $ 52,770

The Company changed its actuarial adviser on August 1, 2004. These advisers
carried out a valuation of the plan under SFAS 87 at September 30, 2004. The
Company's previous actuary performed the SFAS 87 plan valuation at September 30,
2003. The following table, as provided by the actuary, analyzes the movement in
the pension plan liability between September 30, 2002, September 30, 2003 and
September 30, 2004 and provides a reconciliation of changes in the projected
benefit obligation, fair value of plan assets and the funded status of the
Company's defined benefit pension plan with the amounts recognized in the
Company's balance sheets at September 30, 2004 and September 30, 2003:

F-21

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 15 - PENSION PLAN - CONTINUED


2004 2003
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)

CHANGE IN PROJECTED BENEFIT OBLIGATION:
Projected benefit obligation at the beginning of the year $ 154,105 $ 132,953
Service cost 1,518 1,439
Interest cost 8,977 7,996
Employee contributions 933 934
Foreign currency exchange rate changes 12,795 9,190
Actuarial loss 9,459 8,977
Benefits paid (7,412) (7,384)
-------------- --------------
Projected benefit obligation at the end of the year $ 180,375 $ 154,105
============== ==============

CHANGE IN FAIR VALUE OF PLAN ASSETS:
Fair value of plan assets at the beginning of the year $ 124,355 $ 109,141
Actual return on plan assets 10,346 11,284
Foreign currency exchange rate changes 10,329 7,544
Employer contributions 2,706 2,836
Employee contributions 933 934
Benefits paid (7,412) (7,384)
-------------- --------------
Fair value of plan assets at the end of the year $ 141,257 $ 124,355
============== ==============

FUNDED STATUS OF PLAN:
Projected benefit obligation in excess of plan assets $ (39,118) $ (29,750)
Unrecognized net actuarial loss 59,902 47,637
-------------- --------------
Net amount recognized $ 20,784 $ 17,887
============== ==============

AMOUNTS RECOGNIZED IN THE BALANCE SHEET CONSIST OF:
Accrued benefit cost $ (33,545) $ (25,262)
Accumulated other comprehensive income 54,329 43,149
-------------- --------------
Net amount recognized $ 20,784 $ 17,887
============== ==============

INCREASE OVER THE YEAR IN THE MINIMUM LIABILITY
INCLUDED IN OTHER COMPREHENSIVE INCOME $ 7,595 $ 5,968
============== ==============


The accumulated benefit obligations of the pension plan are in excess
of its assets. At September 30, 2004 the projected benefit obligation,
accumulated benefit obligation, and fair value of assets for the pension plan
were $180.4million, (2003: $154.1 million) $174.8 million (2003: $149.6
million), and $141.3 million (2003: $124.4 million).

F-22

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 15 - PENSION PLAN - CONTINUED

The assumptions used and the net periodic pension cost for the
Company's defined benefit plans are presented below:

2004 2003 2002
---- ---- ----
Weighted average assumptions
Discount rate 5.50% 5.50% 5.75%
Rate of compensation increase 2.80% 2.50% 2.25%
Expected return on assets 7.00% 7.50% 7.50%
Fixed pension increase 5.00% 5.00% 5.00%
LPI pension increase 2.70% 2.50% 2.25%
Post 1988 GMP increase 2.40% 2.00% 1.85%


2004 2002 2002
-------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
Components of net periodic
benefit cost
Defined benefit plans:
Service cost $ 1,518 $ 1,439 $ 1,647
Interest cost 8,977 7,996 7,442
Expected return on plan assets (10,901) (9,915) (9,064)
Recognition of actuarial loss 1,701 754 -
------- ------- -------
Net periodic cost $ 1,295 $ 274 $ 25
======= ======= =======

The tables above set forth the historical components of net periodic
pension cost for the employees associated with the Company and is not
necessarily indicative of the amounts to be recognized by the Company on a
prospective basis.

The valuation results are sensitive to the choice of key financial
assumptions. These assumptions are determined by the Company in consultation
with its actuarial advisers and are reviewed by its auditors. The major
financial assumptions have been derived as follows:

The Company sets the discount rate assumption annually for the
retirement benefit plan at its respective measurement date to reflect the yield
of high quality fixed-income corporate bonds of suitable duration

The Company's expected return on assets assumption is set in the light
of an actuarial analysis of the long term return expectations for the assets
held by the plan. The start point for the derivation of the rate is the return
on UK government stocks with maturity dates matching the crystallization of the
plan's liabilities. To reflect the fact that a significant part of the plan's
assets are invested in asset classes such as equities and corporate bonds that
are expected to produce higher returns than the government bonds, the overall
rate of return on assets has been adjusted to take account of these higher
yields. The expected return on assets assumed to determine the 2005 expense is
7.0% a year (2004: 7.5%), which is based on an equity risk premium of 3.9% a
year over the yields available on long-term government bonds at September 30,
2004 of 4.85% a year for 48% of the assets.

F-23

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 15 - PENSION PLAN - CONTINUED

The allocation of Plan investments to the various asset categories at
September 30, 2004 and September 30, 2003 was as follows:

TARGET % OF ASSETS AT % OF ASSETS AT
ALLOCATION SEPTMBER 30, 2004 SEPTMBER 30, 2003
---------- ----------------- -----------------
ASSET CATEGORY:

Equities 50% 48% 38%
Bonds 50% 49% 61%
Cash 0% 3% 1%
---------- ----------------- -----------------
Total 100% 100% 100%
========== ================= =================

Price inflation is determined with reference to the difference in yield between
fixed interest and index-linked government bonds as adjusted to take account of
a higher perceived demand for index-linked bonds.

The following table illustrates the sensitivity to a change in certain
of the key assumptions used in calculating the assets and liabilities of the
pension plan:

IMPACT ON
IMPACT ON 2005 IMPACT ON SEPTEMBER 30,
PRE-TAX PENSION SEPTEMBER 30, 2004 EQUITY
CHANGE IN ASSUMPTION EXPENSE 2004 PBO (NET OF TAX)
-------------------- --------------- -------------- --------------

25 basis point
decrease in discount +$0.63 million +$7.67 million -$5.20 million
rate

25 basis point
increase in discount -$0.61 million -$7.32 million +$4.96 million
rate

25 basis point
decrease in expected +$0.37 million - -
return on assets

25 basis point
increase in expected -$0.37 million - -
return on assets

25 basis point
increase in compensation +$0.15 million +$0.69 million -
assumption

25 basis point
decrease in compensation -$0.16 million -$0.67 million -
assumption

Use of PA90 (-1 for non-
pensioners) mortality
table -$1.41 million -$11.01 million +$7.47 million

F-24

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 16 - LEASES

Rental expense for operating leases in the year ended September 30,
2004 was $0.9 million. Operating lease costs in the year ended September 30,
2003 and September 30, 2002 amounted to $ 0.9 million and $0.9 million
respectively. Future minimum rental commitments under non-cancelable operating
leases as of September 30, 2004 and September 30, 2003 are:

2004 2003
(IN THOUSANDS) (IN THOUSANDS)
-------------- --------------

2005 $ 907 $ 798
2006 868 775
2007 859 780
2008 859 785
2009 828 789
Thereafter 2,813 789
-------------- --------------
Total minimum lease payments $ 7,134 $ 4,716
============== ==============

Under capital lease agreements, the Company is required to make certain
monthly, quarterly or annual lease payments through 2008. The aggregate minimum
capital lease payments for the next four years, with their present value as of
September 30, 2004, and September 30, 2003 are as follows:

2004 2003
(IN THOUSANDS) (IN THOUSANDS)
-------------- --------------

2005 $ 846 $ 856
2006 510 691
2007 148 414
2008 5 102
-------------- --------------
Total minimum lease payments 1,509 2,063
Less amount representing interest at 5.25% (81) (108)
-------------- --------------
Present value of net minimum lease payments 1,428 1,955
Less current portion (803) (811)
-------------- --------------
Long-term portion $ 625 $ 1,144
============== ==============


NOTE 17 - COMMON STOCK

2004 2003
(NUMBER) (NUMBER)
---------- ----------
Par value $.001 per share

Authorized shares 25,000,000 25,000,000
Issued 12,011,122 12,011,122
Outstanding 11,741,122 11,741,122
========== ==========


NOTE 18 - STOCK OPTION PLAN

On January 20, 2000, the Company's board of directors approved a Stock
Option Plan which provided for incentive stock options and non-qualified stock
options to be granted to officers, employees, directors and consultants to the
Company. Subject to restrictions outlined in the Stock Option Plan, options
granted, terms of exercise and expiration of options were determined by the
Board of Directors or by a compensation committee selected by the Board of
Directors. The maximum number of shares of the Company's common stock that could
be granted under the plan was 950,000 shares increased quarterly commencing
April 1, 2000 by the lessor of (i) 15% of the outstanding shares of the common
stock on the first day of the fiscal quarter less the number of shares of common
stock which could be granted under the plan prior to the first day of the
applicable fiscal

F-25

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 18 - STOCK OPTION PLAN - CONTINUED

quarter or (ii) a lessor amount determined by the Board of Directors. No option
was exercisable after the expiration of the earliest of (i) ten years after the
option was granted and (ii) three months after the date of termination of the
optionor's employment. Under the terms of the plan no options could be granted
to any employee of the Company who owned more than 10% of the voting stock of
the Company or its subsidiaries unless the option price was at least 110% of the
fair market value of the shares subject to the option and the option was not
exercisable after the expiration of five years from the date such option was
granted.

The stock option plan was cancelled on September 6, 2002 following the
acquisition of Megapro Tools, Inc., via a reverse takeover, on that date.

NOTE 19 - STOCK OPTIONS

Pro-forma information regarding Net Loss and Loss per Share is required
under SFAS No. 123 and has been determined as if the Company had accounted for
its stock options under the fair value method of SFAS No. 123. As explained in
note 18, above, the stock option plan was cancelled on September 6, 2002. No
options were granted in the year to September 30, 2001 and 50,000 options were
granted in the year ended September 30, 2002. The fair value of options granted
in this period was $0.65. The fair value was estimated at the date of the grant
using a Black-Scholes option pricing model with the following assumptions: no
dividends, an average risk-free interest rate of 3.01% (2001 - 5.59%),
volatility factor of the expected market price of the Company's common stock of
100% (2001 - 0.00%) and a weighted average expected life of the options of two
years.

A summary of stock option transactions for the year ended September 30, 2002 is
presented below:

SHARES WEIGHTED AVERAGE
EXERCISE PRICE
-------- ----------------

Outstanding, September 30 2001 130,000 $0.85
Issued October 16, 2001 50,000 $1.50
Exercised, May 2002 (27,000) $1.50
Cancelled, September, 2002 (153,000) $0.95
-------- ----------------
Outstanding, September 30 2004, 2003, and 2002 0 $0.00
======== ================


NOTE 20 - STOCK COMPENSATION

There were no stock compensation transactions in the years ended
September 30, 2004 and September 30, 2003. Items of stock compensation in the
year ended September 30, 2002 were as follows:

On January 15, 2002 the company issued 321,000 shares of its common
stock to a then business combination consultant in consideration for the
provision of services with the objective of increasing the company's revenues
and earnings and expanding its business. The Company recorded compensation of
$449,400 for this contract in the year ended September 30, 2002 based upon the
fair market value of the common stock on the date of issue.

On February 27, 2002 10,000 shares of common stock were issued as
consideration for director's services. The company recorded compensation expense
of $28,000 in the year to September 30, 2002 based upon the fair market value of
the stock at the date of issue.

Both the above items of stock compensation expense were charged to
income in the accounts of Megapro Tools, Inc. prior to its deemed purchase via a
reverse acquisition on September 6, 2002. They do not therefore impact the
consolidated statement of operations of Spear & Jackson, Inc. for the year ended
September 30, 2002.

F-26

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)


NOTE 21 - RELATED PARTY TRANSACTIONS AND BALANCES

Transactions for the years ended September 30, 2004, September 30, 2003, and
September 30, 2002 were as follows:

FOR THE FISCAL YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------- ------------- -------------
2004 2003 2002
------------- ------------- -------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
Interest on the promissory note
payable to a significant
stockholder of the company and
interest on director's loan $0 $12 $7
============= ============= =============

These transactions are recorded at the exchange amount, being the amount of
consideration established and agreed to by the related parties.

At the year end, there were no amounts due from and to related parties which are
not disclosed elsewhere in these consolidated financial statements.

NOTE 22 - 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, 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 all years, 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. 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 periodically 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.

F-27

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 22 - SEGMENT DATA - CONTINUED

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


SALES LONG-LIVED ASSETS (a)
------------------------------------------- -------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2002 2004 2003 2002
------------- ------------- ------------- ------------- ------------- -------------

Hand & garden tools $ 76,468 $ 69,959 $ 65,940 $ 8,814 $ 6,640 $ 6,638
Metrology tools 15,370 13,571 13,684 2,689 2,699 2,318
Magnetic products 9,341 8,315 8,262 862 1,023 915
Screwdrivers - 1,093 84 - - 200
Corporate - - - 9,749 9,199 8,781
------------- ------------- ------------- ------------- ------------- -------------
Total $ 101,179 $ 92,938 $ 87,970 $ 22,114 $ 19,561 $ 18,852
============= ============= ============= ============= ============= =============

Attributable to:
Continuing operations $ 101,179 $ 91,845 $ 87,886 $ 22,114 $ 19,561 $ 18,652
Discontued operations $ - $ 1,093 $ 84 $ - $ - $ 200
------------- ------------- ------------- ------------- ------------- -------------
$ 101,179 $ 92,938 $ 87,970 $ 22,114 $ 19,561 $ 18,852
============= ============= ============= ============= ============= =============


DEPRECIATION CAPITAL EXPENDITURE
------------------------------------------- -------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2002 2004 2003 2002
------------- ------------- ------------- ------------- ------------- -------------

Hand & garden tools $ 1,975 $ 1,901 $ 2,183 $ 3,726 $ 1,863 $ 1,181
Metrology tools 421 400 473 202 638 139
Magnetic products 281 234 362 35 337 75
Screwdrivers - 14 2 - 2 5
Corporate 252 192 191 3,228 93 34
------------- ------------- ------------- ------------- ------------- -------------
Total $ 2,929 $ 2,741 $ 3,211 $ 7,191 $ 2,933 $ 1,434
============= ============= ============= ============= ============= =============

Attributable to:
Continuing operations $ 2,929 $ 2,727 $ 3,209 $ 7,191 $ 2,931 $ 1,429
Discontued operations $ - $ 14 $ 2 $ - $ 2 $ 5
------------- ------------- ------------- ------------- ------------- -------------
$ 2,929 $ 2,741 $ 3,211 $ 7,191 $ 2,933 $ 1,434
============= ============= ============= ============= ============= =============


OPERATING INCOME NET INTEREST
------------------------------------------- -------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2002 2004 2003 2002
------------- ------------- ------------- ------------- ------------- -------------

Hand & garden tools $ 1,124 $ 3,404 $ 2,952 $ (203) $ (255) $ (358)
Metrology tools 1,533 1,380 91 (17) (18) (17)
Magnetic products 1,136 1,715 (1,214) (14) (14) (8)
Screwdrivers - (17) (10) - (10) (2)
Corporate (1,849) (135) (3,147) (66) 50 149
------------- ------------- ------------- ------------- ------------- -------------
Total $ 1,944 $ 6,347 $ (1,328) $ (300) $ (247) $ (236)
============= ============= ============= ============= ============= =============
Attributable to:
Continuing operations $ 1,944 $ 6,364 $ (1,318) $ (300) $ (237) $ (234)
Discontued operations $ - $ (17) $ (10) $ - $ (10) $ (2)
------------- ------------- ------------- ------------- ------------- -------------
$ 1,944 $ 6,347 $ (1,328) $ (300) $ (247) $ (236)
============= ============= ============= ============= ============= =============

(a) Represents property, plant and equipment, net

F-28

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 22 - SEGMENT DATA - CONTINUED

THE FOLLOWING TABLE PRESENTS CERTAIN DATA BY GEOGRAPHIC AREAS (IN THOUSANDS):


SALES (a) LONG-LIVED ASSETS (b)
------------------------------------------- -------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2002 2004 2003 2002
------------- ------------- ------------- ------------- ------------- -------------

United Kingdom $ 45,417 $ 38,625 $ 40,814 $ 20,337 $ 17,706 $ 17,047
Europe 18,817 17,159 15,439 1,231 1,243 1,135
Australasia 17,505 20,215 16,136 546 605 463
North America 6,954 6,802 7,390 - 7 207
Other 12,486 10,137 8,191 - - -
------------- ------------- ------------- ------------- ------------- -------------
Total $ 101,179 $ 92,938 $ 87,970 $ 22,114 $ 19,561 $ 18,852
============= ============= ============= ============= ============= =============
Attributable to:
Continuing operations $ 101,179 $ 91,845 $ 87,886 $ 22,114 $ 19,561 $ 18,652
Discontued operations $ - $ 1,093 $ 84 $ - $ - $ 200
------------- ------------- ------------- ------------- ------------- -------------
$ 101,179 $ 92,938 $ 87,970 $ 22,114 $ 19,561 $ 18,852
============= ============= ============= ============= ============= =============


DEPRECIATION CAPITAL EXPENDITURE
------------------------------------------- -------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2002 2004 2003 2002
------------- ------------- ------------- ------------- ------------- -------------

United Kingdom $ 2,472 $ 2,303 $ 2,913 $ 3,694 $ 2,585 $ 1,241
Europe 93 117 73 3 11 20
Australasia 313 301 223 266 330 161
North America 51 20 2 3,228 7 12
------------- ------------- ------------- ------------- ------------- -------------
Total $ 2,929 $ 2,741 $ 3,211 $ 7,191 $ 2,933 $ 1,434
============= ============= ============= ============= ============= =============
Attributable to:
Continuing operations $ 2,929 $ 2,727 $ 3,209 $ 7,191 $ 2,931 $ 1,429
Discontued operations $ - $ 14 $ 2 $ - $ 2 $ 5
------------- ------------- ------------- ------------- ------------- -------------
$ 2,929 $ 2,741 $ 3,211 $ 7,191 $ 2,933 $ 1,434
============= ============= ============= ============= ============= =============


OPERATING INCOME NET INTEREST
------------------------------------------- -------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2002 2004 2003 2002
------------- ------------- ------------- ------------- ------------- -------------

United Kingdom $ 3,441 $ 6,333 $ (1,415) $ (186) $ (77) $ 58
Europe 243 (85) (251) (163) (186) (166)
Australasia (171) 595 376 24 (10) (126)
North America (1,569) (496) (38) 25 26 (2)
------------- ------------- ------------- ------------- ------------- -------------
Total $ 1,944 $ 6,347 $ (1,328) $ (300) $ (247) $ (236)
============= ============= ============= ============= ============= =============
Attributable to:
Continuing operations $ 1,944 $ 6,364 $ (1,318) $ (300) $ (237) $ (234)
Discontued operations $ - $ (17) $ (10) $ - $ (10) $ (2)
------------- ------------- ------------- ------------- ------------- -------------
$ 1,944 $ 6,347 $ (1,328) $ (300) $ (247) $ (236)
============= ============= ============= ============= ============= =============



(a) Sales are attributed to geographic areas based on the location of the
customers.
(b) Represents property, plant and equipment, net.

F-29

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 23 - FINANCIAL INSTRUMENTS

In the normal course of its business, the company invests in various
financial assets and incurs various financial liabilities. The company also
enters into agreements for derivative financial instruments to manage its
exposure to fluctuations in foreign currency exchange rates. The fair value
estimates of financial instruments presented below are not necessarily
indicative of the amounts the company might pay or receive from actual market
transactions.

The company had the following financial assets and liabilities and
derivative financial instruments at September 30, 2004 and 2003:

FINANCIAL ASSETS AND LIABILITIES

The Company's financial assets and liabilities comprise cash and cash
equivalents, accounts receivable, short-term borrowings, notes and accounts
payable and long-term debt. In respect of these items fair value approximates to
the carrying amounts indicated in the balance sheets at September 30, 2004 and
2003.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company had $1.5 million and $0.31 million outstanding in respect
of forward exchange contracts outstanding as of September 30, 2004 and 2003,
respectively, in order to hedge the foreign currency risk of certain accounts
receivable and accounts payable transactions. These transactions are expected to
crystallize within three months of the period end. The estimated fair values of
the Company's forward exchange contracts at September 30, 2004 and 2003, which
equal the carrying amounts of the related accounts receivable and accounts
payable balances, were $2.1 million and $0.3 million. Changes in the fair value
of forward exchange contracts designated and qualifying as cash flow hedges are
reported in accumulated other comprehensive income (loss). These amounts are
subsequently reclassified into earnings through other income (expenses) in the
same period that the hedged items affect earnings. Most reclassifications occur
when the products related to a hedged transaction are sold to customers or
purchased from suppliers. Substantially all unrealized losses on derivatives
included in accumulated other comprehensive income (loss) at the end of the 2004
fiscal year are expected to be recognized in earnings within the next three
months.

NOTE 24 - COMMITMENTS AND CONTINGENCIES

The Company had outstanding documentary letters of credit totaling $2.4
million at September 30, 2004 (2003: $1.5 million) relating primarily to
inventory purchases from suppliers in the Far East.

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 September 30, 2004 the extent of this guarantee relating to gross
bank overdrafts was $20.5 million (2003: $24.6 million). The overall pooled
balance of the bank accounts within the pool at September 30, 2004 was a net
cash in hand balance of $1.6 million (2003: $1.7 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.

Commitments under non-cancelable operating leases are disclosed in note
16.

The Company is currently involved in a legal action with the former
managing director of Spear & Jackson plc concerning the amount of severance
compensation payable following his dismissal as managing director as part of a
management reorganization program in November 2002. The outcome of this action
will not be known until later in the year to September 30, 2005 but the Company
is confident that the amounts provided in respect of the dispute will be
adequate to cover any amounts payable should the Company's defense be
unsuccessful.

F-30

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 24--COMMITMENTS AND CONTINGENCIES - CONTD.

On April 15, 2004, the U.S. 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 Chief Executive Officer/Chairman,
among others, alleging violations of the federal security laws. Specifically
with regard to the Company, the SEC alleged that the Company violated its
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 the 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.

In addition, the Court has appointed a Corporate Monitor to oversee the
Company's operations. Further to Mr. Crowley consenting to a preliminary
injunction, the Court's Order also temporarily bars Mr. Crowley from serving as
an officer or director of a public company and prohibits him from voting or
disposing of Company stock. The Company's Board of Directors has also suspended
Mr. Crowley from all positions he occupied as an officer or director. The
Company is cooperating with the Monitor and the continuing SEC investigation.

Subsequent to the SEC action, a number of class action lawsuits have
been initiated in the U.S. District Court for the Southern District of Florida
by Company shareholders against the Company, Sherb & Co. LLP, the Company's
independent auditor, and certain of the Company's directors and officers,
including Mr. Crowley, and Mr. William Fletcher, the Company's CFO. These suits
allege essentially the same claims as the SEC suit, and seek unspecified
damages. The Company has not yet responded to the suits, and likely will not
until they have been consolidated and lead counsel appointed for the Class. It
is impossible at this time to ascertain the ultimate legal and financial
liability or whether these actions, as well as the SEC action, will have a
material adverse effect on the Company's financial condition and results of
operations.

The Company has been pursuing settlement negotiations with the SEC and
Mr. Crowley to reach a resolution with the SEC as well as Mr. Crowley. The
Company has now entered into a Stock Purchase Agreement with PNC Tool Holdings
LLC ("PNC") and Dennis Crowley, the sole stockholder of PNC. Under the Stock
Purchase Agreement, the Company will acquire for a nominal payment 6,005,561
common shares of the Company held by PNC, which represents approximately 51.1%
of the outstanding common shares of the Company. The parties have also executed
general releases in favor of each other subject to the fulfillment of the
conditions of the Stock Purchase Agreement.

Mr. Crowley has entered into a Consent to Final Judgment of Permanent
Judgment with the Securities and Exchange Commission, without admitting or
denying the allegations included in the complaint, which requires 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.

The Company has also entered into a Consent to Final Judgment of
Permanent Injunction with the Securities and Exchange Commission 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
violations of various sections and rules under the Securities Act of 1933 and
the Securities Exchange Act of 1934.

The Stock Purchase Agreement is not effective until formal approval of
the Consents by the Securities and Exchange Commission, as well as approval by
the U.S. District Court for the Southern District of Florida of the settlement
of that certain 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 is also
conditioned on the Company receiving the benefit of the disgorgement and civil
penalty funds paid by Crowley.

F-31

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 24 - COMMITMENTS AND CONTINGENCIES - CONTD.

As a result of the contemplated stock purchase, the stockholders of the
Company will have their percentage stock interest increase correspondingly with
the return of the Spear & Jackson shares to the Company by PNC. Jacuzzi Brands,
Inc., which is a beneficial owner of 3,543,281 shares of common stock, will have
its interest in the Company increase to approximately 61.2% of the outstanding
common stock. This increase is not necessarily permanent as, for legitimate
business purposes, the company may subsequently reissue, wholly or in part,
those shares purchased from PNC.

As discussed in Note 4, 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.

From time to time, the Company is also 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
operation of the Company.

NOTE 25 - SUBSEQUENT EVENTS

Spear & Jackson, Inc.'s UK subsidiary, Spear & Jackson Garden Products
Limited signed, on December 9, 2004, a conditional contract for the sale of part
of its industrial site at St. Paul's Road, Wednesbury, England at the price of
(pound)2.8 million (approximately $5.3million). The agreement was conditional
upon the buyer entering into binding contracts for the acquisition of adjoining
property. These conditions were satisfied early in 2005 and the contract for
sale was formally completed on January 28, 2005.

F-32

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(IN THOUSANDS EXCEPT SHARES)

NOTE 26 - SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)




FISCAL 2004:
QUARTERS ENDED
-------------------------------------------------------------------------
DECEMBER MARCH JUNE SEPTEMBER TOTAL
-------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Net sales ................. $22,982 $ 27,427 $ 26,407 $24,363 $101,179
Gross profit .............. $ 7,175 $ 8,706 $ 8,048 $ 8,565 $ 32,494
Net income (loss) ......... $ 281 $ (68) $ (287) $ 510 $ 436
Net income (loss) per share
(Basic and diluted) ....... $ 0.02 $ (0.01) $ (0.02) $ 0.05 $ 0.04



FISCAL 2003:

QUARTERS ENDED
-------------------------------------------------------------------------
DECEMBER MARCH JUNE SEPTEMBER TOTAL
-------- --------- --------- --------- ---------
(RESTATED) (RESTATED) (RESTATED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

Net sales ................. $22,182 $ 25,034 $ 24,787 $19,842 $ 91,845
Gross profit .............. $ 6,932 $ 8,194 $ 8,053 $ 5,719 $ 28,898
Net income ................ $ 1,211 $ 1,444 $ 1,926 $ 35 $ 4,616
Net income per share
(Basic and diluted) ...... $ 0.1 $ 0.12 $ 0.16 $ 0.01 $ 0.39




F-33


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Effective December 16, 2002, the Company dismissed BDO Dunwoody LLP ("BDO") as
its principal accountants. The reports of BDO on the financial statements of
Megapro Tools, Inc. for the past two years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. The decision to dismiss BDO was recommended
by management and approved by the Company's Board of Directors. In connection
with its audits for the two most recent fiscal years and the subsequent interim
period preceding dismissal on December 16, 2002, there were no disagreements
with BDO on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of BDO would have caused them to make reference
thereto and report on the financial statements for such years. During the two
most recent fiscal years and prior to December 16, 2002, the Company had no
reportable events.

The Company requested BDO furnish a letter addressed to the Securities and
Exchange Commission stating whether or not BDO agrees with the statements above
and on December 22, 2002 BDO filed such letter with the Securities and Exchange
Commission.

Effective December 19, 2002, the Company engaged the accounting firm of Sherb &
Co LLP ("Sherb") to audit the Company's financial statements for the fiscal year
ended September 30, 2002. The Company had not consulted with Sherb & Co, LLP
during the last two years or subsequent interim period on either the application
of accounting principles or type of opinion, Sherb might issue on the Company's
financial statements.

On August 13, 2004 the Company announced the resignation of its independent
accountant, Sherb and on November 19, 2004 the Company engaged Chantrey
Vellacott DFK ("Chantrey Vellacott") as its independent auditor. The change in
accountants was ratified and approved by the Board of Directors on the same
date.

Prior to their appointment as the Company's primary auditor, Chantrey Vellacott
performed significant auditing procedures relating to the Company's non-United
States subsidiaries. In connection with these auditing procedures, the Company
discussed a variety of matters, including the application of accounting
principles and auditing standards. However, these discussions occurred in the
normal course of the Company's professional relationship with Chantrey Vellacott
and were not a condition of retaining them as Spear & Jackson's primary auditor.

There have been no disagreements between the Company and the former certifying
accountant, Sherb, for which Chantrey Vellacott was consulted.

67


During the Company's year ended September 30, 2003 and the subsequent interim
period up to August 13, 2004, there were no disagreements between the Company
and Sherb on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to Sherb's satisfaction, would have caused Sherb to make reference
to the subject matter of the disagreement in connection with its reports on the
Company's financial statements for such periods.

The audit reports issued by Sherb on the consolidated financial statements of
the Company as of, and for the years ended September 30, 2003 and September 30,
2002, did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles.

ITEM 9A. 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 Annual 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 Annual 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 Annual 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

68


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.

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 Annual 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) of the Securities Exchange Act) that occurred during
the year ended September 30, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

ITEM 9B OTHER INFORMATION

The Company is currently involved in litigation with the SEC relating to the
actions of its former Chief Executive Officer, Dennis Crowley. This matter is
discussed in detail under ITEM 3 LEGAL PROCEEDINGS, above.

69


PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.

The executive officers of the Company, their ages, positions and past five
years' experience are set forth below. All executive officers of the company are
appointed by the Board of Directors annually. There are no family relationships
between any director, executive officer, or person nominated to become a
director or executive officer.

Directors and Executive Officers:

NAME AGE TITLE
---- --- -----
John Harrington, Jr. 63 Interim Chairman
William Fletcher 58 Acting Chief Executive Officer and Director
Robert Dinerman 68 Director
Patrick Dyson 48 Chief Financial Officer

Mr. John R. Harrington, Jr. was appointed Acting Chairman in April 2004
following the removal of Dennis Crowley from that position. He had previously
been a director of the Company since April 1, 2003. Mr. Harrington has 30 years
experience in the banking and trust fields and financial advisory services. Mr.
Harrington has served as President of Harrington Capital Management, a financial
advisory service firm since October 1996. Also in 1996, Mr. Harrington formed
the Harrington Foundation. The Foundation was formed for philanthropic purposes
with particular emphasis on the promotion of the cultural arts amongst children
and the development of awareness of the environment and the importance of its
protection. Mr. Harrington holds a degree in economics.

Mr. William Fletcher was appointed Acting Chief Executive Officer in April 2004
following the removal of Dennis Crowley from that position. He had previously
been Chief Financial Officer since September 2002. Mr. Fletcher has served in
various positions with Spear & Jackson plc since 1970. Mr. Fletcher was
appointed Finance Director of Neill Tools Limited , the Company's principal UK
subsidiary, in September 1987, and in May 2002 he was appointed Group Finance
Director.

Mr. Robert Dinerman was appointed a director in August 2003. Mr. Dinerman was
Vice President - Administration of a frozen food corporation for many years and
from 1996 to 2001 was chairman of Envision Industries. He is currently a board
member of Spring Valley Bank and the Cincinnati Psychoanalytic Institute. Mr.
Dinerman received a BA in Psychology from Lebanon University, Cincinnati in
1967. A licensed psychologist, Mr. Dinerman taught for over 25 years in the
Graduate School of Business Administration at Xavier University where he became
Assistant Professor in the Department of Psychology.

70


Mr. Patrick Dyson was appointed Chief Financial Officer in October 2004. He
qualified as a member of the Institute of Chartered Accountants in England and
Wales in 1982 and worked in public practice with Barber Harrison & Platt in
Sheffield, England until joining Spear & Jackson plc in 1991, where he has
occupied a number of Corporate Financial roles within the Group. From April 1995
to July 2001 Mr. Dyson was Group Chief Accountant, and from August 2001 until
his appointment as Chief Financial Officer in October 2004 he was Group
Financial Controller. He holds a BA in English and an MA in Linguistics, both
from the University of Leeds, England.

In October 2004, the Company appointed Mr. S. Jack Campbell as advisor and
consultant to the Board of Directors. Mr. Campbell is Principal of MASI, Ltd., a
private investment banking firm in Chicago. His engagement will involve advising
the Company on corporate governance matters, sourcing and identifying qualified
director candidates to augment the current Board, corporate strategic assistance
and coordination and liaison with the Corporate Monitor.

The Company's efforts to appoint additional directors had previously been
restricted by the lack of Directors and Officers insurance cover. In January
2005, with the pending resolution of the Crowley litigation, the Company's Board
of Directors secured preliminary approval for Directors and Officers ("D&O")
insurance with acceptable coverage (subject to satisfactory completion of, and
subsequent authorization for, the application). Assuming final approval is
obtained from the insurance provider, the presence of an acceptable level of D&O
insurance should facilitate the search for additional directors.

TERM OF OFFICE

Our Directors are appointed for terms of one year to hold office until the next
annual general meeting of the holders of our common stock, as provided by the
Nevada Revised Statutes, or until removed from office in accordance with our
bylaws. Our officers are appointed by our board of directors and hold office
until removed by the board.

MEETINGS OF THE BOARD

During fiscal 2004, in addition to actions taken by unanimous written consent,
there were 13 meetings of the Company's Board of Directors.

COMMITTEES

The Company presently has an audit committee comprising Messrs. John Harrington
and Robert Dinerman, who comprise two of the three members of our Board of
Directors. There is currently no independent financial expert, but assuming that
appropriate D&O insurance coverage is obtained, it is anticipated that the
Company will then be in a position to consider the appointment of a suitably
qualified individual. The audit committee met once during the year. A copy of
the Audit Committee Charter, which was formally adopted by the Board of
Directors in January 2005, is filed as an exhibit to this Annual Report.

71


The Board of Directors also adopted in January 2005 the charter for a
Compensation Committee and this, too, is filed as an exhibit to this Annual
Report.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Exchange Act requires our executive officers and directors,
and persons who beneficially own more than ten percent of our equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file.

Our former Chief Executive Officer, Dennis Crowley, through certain affiliated
companies made various transactions in the Company's common stock, which were
not reported. These transactions were part of the course of conduct involving
Mr. Crowley and the Company which were the subject of the litigation instituted
by the Securities and Exchange Commission and reported elsewhere in this Annual
Report.

The Company has requested various of its division and group executives to
register under Section 16(a) of the Securities Exchange Act of 1934,
notwithstanding that the Company does not consider such individuals to be
"officers" within the meaning of that statute. Accordingly, following the
conclusion of the Company's fiscal year, Messrs. Gilles Champain, Stephen White
and Paul Moore registered under Section 16 and Messrs. Peter Gill and Lee Wells
are also expected to complete their registration in the near future.

William Fletcher, the Company's interim Chief Executive Officer and former Chief
Financial Officer was late in filing his Form 3 which was filed in December
2004.

John R. Harrington, Jr., our interim Chairman of the Board, was late in filing a
Form 4 to reflect certain stock acquisitions which were consummated in June 2004
due to a delay in obtaining filing identification numbers.

CODE OF ETHICS

The Company's management had previously developed a detailed employee policy
document covering business conduct practices and processes. Subsequent to this,
the Company has recently drafted and adopted a Code of Business Ethics and
Conduct. A copy of the code is filed as an exhibit to this Annual Report.

72


ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain compensation information as to each
individual who served as the Company's chief executive officer during the years
ended September 30, 2004, 2003 and 2002 and each executive officer who received
in excess of $100,000 for such fiscal period.

SUMMARY COMPENSATION TABLE


Annual Compensation Long-Term Compensation
-------------------------------- -------------------------------
Awards Payouts
----------------------- -------
Other Securities
Annual Under- All Other
Compen- Restricted Lying Compen-
sation Stock Options/ LTIP sation
Name and Principal Year Salary Bonus ($) Award(s) SARs Payouts ($)
Position ($) ($) ($) (1) ($) (#) ($) (2)
------------------------ ---- ------- ----- ------- ---------- ---------- ------- ---------

Dennis Crowley 2004 194,545 - - - - - -
Chief Executive Officer, 2003 365,907 - - - - - -
President, Secretary and 2002 30,000 - - - - - -
Chairman of the Board
until 15 April 2004****


William Fletcher 2004 175,265 - 15,231 - - - 54,683
Acting Chief Executive 2003 141,000 5,000 15,160 - - - 44,371
Officer*** 2002 - - - - - - -


Patrick J. Dyson 2003 111,900 5,393 12,654 - - - 23,723
Chief Financial 2002 95,988 - 11,475 - - - 20,638
Officer**

Neil Morgan * 2002 146,485 - - - - - -



**** Mr. Crowley was appointed Chief Executive Officer, President
and Chairman of the Board in September 2002. He was removed
from office in April 2004.

*** Mr. Fletcher was appointed Chief Financial Officer in
September 2002. On Mr. Crowley's removal from office in April
2004 he was appointed acting Chief Executive Officer.

** Mr. Dyson was appointed Chief Financial Officer in October
2004.

* Mr. Morgan resigned his officer and director positions in
September 2002.

(1) Other annual compensation includes payments made by the
Company on behalf of the executive officers in respect of the
provision of a fully expensed company automobile, private
medical insurance and professional subscriptions.

(2) Comprises contributions to the Company's defined benefit
pension plan.

73


STOCK OPTION GRANTS

No stock options were granted to our directors and executive officers during our
most recent fiscal year ended September 30, 2004.

EMPLOYMENT AGREEMENTS

William Fletcher has no formal employment agreement but in a letter issued
supplementary to Mr. Fletcher's original terms of employment, the Company has
agreed that in the event of termination of employment other than for cause, Mr.
Fletcher would be entitled to severance pay equal to twelve months of his
current base salary and other benefits.

On September 1, 2000 Patrick Dyson entered into an employment agreement which
provides that, in the event of termination of employment other than for cause,
Mr. Dyson would be entitled to severance pay equal to twelve months of his
current base salary and other benefits.

Mr. Fletcher's and Mr. Dyson's base salaries are determined by the Board and
both are entitled to participate in an annual bonus scheme under which bonuses
are payable based on the operating profit and cash performance of the Company
measured against pre-set targets.

EXERCISES OF STOCK OPTIONS AND YEAR-END OPTION VALUES

No stock options held by our directors and executive officers were exercised
during our most recent fiscal year ended September 30, 2004. At September 30,
2004, no director or executive officer held any stock options.

COMPENSATION ARRANGEMENTS OF OTHER DIRECTORS

Messrs. Harrington and Dinerman received no compensation the year ended
September 30, 2004. In the year ended September 30, 2003 each received fees of
$5,000. Additionally, Mr. Harrington and Mr. Dinerman are reimbursed for travel
and other expenses incurred in connection with meetings of the Board of
Directors and other Company matters.

At a meeting of the Board of Directors held in January 2005, the following
compensation arrangements were agreed for members of the Company's Board of
Directors, effective, prospectively, from January 1, 2005:

Fee Per
Meeting
Attendance at $
------------- -------
Formal Board Meeting 3,000
Special Board Meeting 500
Compensation Committee Meeting 500
Audit Committee Meeting 750

Out of pocket costs incurred in connection with the above meetings and other
expenses incurred on other Company matters will be reimbursed according to
formal policy guidelines.
74


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth our common stock ownership information as of
November 30, 2004, with respect to (i) each person known to us to own more than
five percent (5%) of our outstanding common stock, (ii) each director of the
Company; (iii) each executive officer of the Company and (iv) all directors and
executive officers as a group. The information as to beneficial ownership was
furnished to the Company by or on behalf of the persons named. Unless otherwise
Chief Financial Officer Boulevard, Suite 2, Boca Raton, Florida 33457.

The disclosures relating to Dennis Crowley are compiled from information
supplied for the preparation of the original Form 10-KSB for the year ended
September 30, 2003. As referred to, the SEC filed a complaint in the US District
Court for the Southern District of Florida naming Dennis Crowley, inter alios,
as defendant. The Complaint makes various allegations against Mr. Crowley
including that he misrepresented the status of his stock ownership in the
Company. Accordingly, the disclosures given below in respect of Dennis Crowley
may be subject to future revision.

SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED SHARES OUTSTANDING
---------------- ------------------ ------------------
PNC Tool Holdings LLC (1) 6,005,561 51.15%

Dennis Crowley(1) 6,080,061 51.78%

William Fletcher(2) - -

Patrick J Dyson - -

John R. Harrington (3) 67,981 0.58%

Robert Dinerman (4) 53,076 0.45%

USI Global Corp. 3,543,281 30.18%
777 S. Flagler Drive
Suite 1108
West Palm Beach, FL 33495

All Executive Officers and 121,057 1.03%
Directors as a group
(4 persons)

(1) Dennis Crowley was the Company's Chief Executive Officer, President,
Treasurer, and a Director until April 2004. He is the sole owner of PNC
Tools Holdings LLC and majority shareholder of Arden Enterprises.
Includes 6,005,561 shares beneficially held by PNC Tools Holdings, LLC
and 74,500 shares beneficially held by Arden Enterprises.

(2) William Fletcher is the Acting Chief Executive Officer of the Company.

(3) John Harrington is Interim Chairman of the Company. Includes 15,000
shares owned by Mr. Harrington's wife. The holding excludes 1,200
shares owned by Mr. Harrington's daughter.

(4) Robert Dinerman is a Director of the Company. He is the owner along
with his family of Envision Worldwide Products Ltd. Includes 53,076
shares beneficially held by Worldwide Products, Ltd.

The Company has no securities authorized for issuance under equity compensation
plans.
75


CHANGE IN CONTROL

On September 6, 2002, we entered into a Stockholders' Agreement with USI Mayfair
Limited, PNC Tool Holdings LLC, and Dennis Crowley (collectively the
"Stockholders"). Pursuant to the terms of the Stockholders' Agreement the
Stockholders have agreed not to transfer any Company securities for a period of
two years following the date of the Agreement, other than certain unrestricted
transfers. An "Unrestricted Transfer" is any transfer (i) from any Stockholder
to any affiliate of such Stockholder, (ii) from any Stockholder to any other
Stockholder, (iii) from Dennis Crowley to any member of the immediate family of
Dennis Crowley or certain estate planning vehicles of Dennis Crowley, (iv) as
collateral security, by USI Mayfair Limited or its affiliates to one or more
third party banks or financial institutions, and (v) in the case of any
Stockholder that is not a natural person, transfers to non-affiliates of such
Stockholder resulting from a bona fide merger, stock sale, sale of all or
substantially all the assets of such Stockholder or other business combination
transaction involving such Stockholder, provided that clause (v) shall not apply
in the case of any such transaction effected with the intent of circumventing
the transfer restrictions of the Stockholders' Agreement.

Under the terms of the Stockholders' Agreement the Stockholders have agreed,
except in the case of an Unrestricted Transfer or a transfer of Company
securities registered under the Securities Act to a non-affiliated third person
effected through an ordinary course open market transaction, if at any time
after the two year anniversary of the date of the Stockholders' Agreement one or
more Stockholders propose to transfer any Company securities in a transaction or
series of transactions where the consideration for such Company securities is in
excess of $10,000, then the selling Stockholder shall provide written notice of
the proposed transaction to the other Stockholders and provide them with an
opportunity to participate in the proposed sale of Company securities on a pro
rata basis.

In addition, under the terms of the Stockholders' Agreement, subject to certain
exceptions set forth in the following paragraph, the Company has agreed not to
issue, sell or exchange, agree to issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange, (i) any Company securities or (ii) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any Company securities, (collectively, the "Offered Securities"), unless in each
such case the Company shall have first delivered to the Stockholders a written
notice of any proposed or intended issuance, sale or exchange of Offered
Securities (the "Offer"), which Offer shall (A) identify and describe the
Offered Securities, (B) describe the price and other terms upon which the
Offered Securities are to be offered, issued, sold or exchanged, and (C) offer
to issue and sell to or exchange with the Stockholders up to their respective
pro rata portion of such Offered Securities. Each Stockholder's pro rata portion
of the Offered Securities shall be determined by multiplying seventy-five
percent (75%) of the aggregate amount of the Offered Securities by a fraction,
the numerator of which is the number of shares of voting securities then held by
such Stockholder and the denominator of which is the number of shares of voting
securities then outstanding. Each Stockholder shall have the right, for a period
of twenty (20) days following delivery of the Offer, to purchase or acquire such

76


Stockholder's pro rata portion of the Offered Securities at the price and upon
the other terms specified in the Offer. The Offer, by its terms, shall remain
open and irrevocable for such twenty (20) day period. To accept an Offer, in
whole or in part (provided, however, that the Stockholders may only elect to
purchase part of the Offered Securities if the Offer is not contingent on the
sale to the prospective purchaser of all of the Offered Securities), such
Stockholder must deliver a written notice ("Notice of Acceptance") to the
Company prior to the end of the twenty (20) day period of the Offer, setting
forth the portion (or all, if the Offer is contingent upon the sale to the
prospective purchaser of all of the Offered Securities) of such Stockholder's
pro rata portion of the Offered Securities that such Stockholder elects to
purchase. In addition, each Stockholder shall have the right to purchase (which
right shall be exercised by notice to such effect in the Notice Of Acceptance)
any Offered Securities not accepted by any other Stockholder, in which case the
Offered Securities not accepted by any such other Stockholders shall be deemed,
on the same terms and conditions, to be offered from time to time during such
twenty (20) day period to and accepted by such Stockholders who exercised their
options under this sentence ratably based on their interests in the Company or
as they may otherwise agree. Any Offered Securities that are not acquired by the
Stockholders or the offerees or purchasers described in the Offer in accordance
with this Section 6 may not be issued, sold or exchanged until they are again
offered to the Stockholders under the procedures specified in this Section 6.

Notwithstanding the foregoing, the pre-emptive rights of the Stockholders set
forth in the prior paragraph shall not apply to: (i) the issuance by the Company
of Offered Securities to employees, directors or consultants of the Company
pursuant to any Company stock option or other equity incentive plan, in
connection with an employment or consulting agreement or arrangement with the
Company, or in exchange for other securities of the Company (including, without
limitation, options granted under option plans) held by any such employees,
directors or consultants, (ii) Offered Securities issued in connection with the
acquisition of the business of another entity, whether by the purchase of equity
securities, assets or otherwise, (iii) Offered Securities issued as a stock
dividend to Stockholders or upon any subdivision or combination of Company
Securities, (iv) Offered Securities issued pursuant to or as contemplated by
that certain Stock Purchase Agreement, dated August 2001 by and between USI
Mayfair Limited and the Company, (v) Offered Securities sold by 18 the Company
in an underwritten public offering pursuant to an effective registration
statement under the Securities Act, (vi) capital stock or securities exercisable
for or convertible into such capital stock issued in connection with any
equipment leases or borrowings, direct or indirect, from third-party financial
or other institutions regularly engaged in such businesses, (vii) any warrants
issued without consideration or for nominal consideration in connection with any
third-party debt financings, or (viii) any performance-based equity issued to
third-parties in connection with strategic relationships.

The Stockholders' Agreement shall terminate upon the earliest of (i) our
dissolution, bankruptcy, or insolvency, or any assignment of all or
substantially all of our assets for the benefit of any creditor, (ii) an
agreement to terminate between us and certain of the Stockholders, and (iii) the
five year anniversary of the date of the Stockholders' Agreement.

77


As disclosed in ITEM 3 LEGAL PROCEEDINGS the Company has now entered into a
Stock Purchase Agreement with PNC Tool Holdings LLC and Dennis Crowley, its sole
member. Under the Stock Purchase Agreement, the Company will acquire, for $100,
the 6,005,561 common shares of the Company held by PNC Tool Holdings, which
represents approximately 51.1% of the outstanding common shares of the Company.
The parties have 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 is not effective until formal approval of the
Consents by the Securities and Exchange Commission, as well as approval by the
U.S. District Court for the Southern District of Florida of the settlement of
that certain 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 is also conditioned
on the Company receiving the benefit of the disgorgement and civil penalty funds
paid by Crowley.

As a result of the contemplated stock purchase, the stockholders of the Company
will have their percentage stock interest increase correspondingly with the
return of the Spear & Jackson shares to the Company by PNC Tool Holdings LLC.
Jacuzzi Brands, Inc., which is a beneficial owner of 3,543,281 shares of common
stock, will have its interest in the Company increase to approximately 61.2% of
the outstanding common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Except as disclosed in this section below, none of the following parties has,
since our date of incorporation, had any material interest, direct or indirect,
in any transaction with us or in any presently proposed transaction which has or
will materially affect us:

* Any of our directors or officers;

* Any person proposed as a nominee for election as a director;

* Any person who beneficially owns, directly or indirectly,
shares carrying more than 10% of the voting rights attached to
our outstanding shares of common stock;

* Any relative or spouse of any of the foregoing persons who has
the same house as such person.

Mr. Neil Morgan, our former president, had advanced to us a total of $100,019.
The loan was unsecured, bore interest at 10.25% per annum and had no specific
repayment terms. The loan was settled at September 30, 2003 as part of the sales
consideration for the disposal of the Megapro screwdriver division.

During the 2003 fiscal year, the Company carried out a strategic review of its
Megapro screwdriver division, which was operating at a loss. It was determined
that the division was no longer a core activity of the Company and various
divestment strategies were considered. Disposition of the assets was undertaken
by Neil Morgan, who was heading up Megapro, to a separate group, which included
Mr. Morgan, and in exchange for which Spear & Jackson, Inc. received promissory
notes and other receivables from management of $284,000, as well as discharge of
a loan in the amount of approximately $100,000 owed by the Company to Neil
Morgan. The assets disposed of had a net book value of approximately $384,000.

78


While the Company was evaluating the disposition of this non-core activity, no
specific authorization was afforded to prior management to formally dispose of
the operations of the Megapro assets pending approval by the Board of Directors
of the Company. Management has reviewed the terms of the transaction and has
evaluated the receivable and the assets purportedly conveyed to consider its
course of action in this matter and has accordingly provided $187,000 against
the recoverability of these receivables in the Company's financial statements
for the year ended September 30, 2004. This provision is in addition to the
$97,000 already provided as potentially irrecoverable in the Company's financial
statements for the year ended September 30, 2003.

REGISTRATION AGREEMENT

The Company, USI Mayfair Limited and PNC Tool Holdings LLC have entered into a
Registration Rights Agreement. Under the terms of such agreement at any time
after 18 months from September 2002, or expiration or earlier termination of
that two-year lock-up period contained in the Stockholders` Agreement between
the Company, PNC Tool Holdings, LLC and USI Mayfair owners of 15% of the
securities held by (i) USI issued under the Acquisition Agreement between the
Company, USI Mayfair, Spear & Jackson Acquisition Corp and Spear & Jackson,
Inc., or (ii) PNC as of September 6, 2002 may demand that the Company register
all or part of such securities under the Securities Act of 1933. Each holder and
subsequent transferee shall have the right to exercise three demand registration
statements on Form S-1 or other similar form. Each holder of the security shall
have the right to an unlimited number demand registrations on Form S-3 provided
the Company shall not be obligated to effect more than two demand registrations
on Form S-3 in any 12-month period. In addition, after expiration or early
termination of the two-year lock-up period, the holders of the registrable
securities shall have a right, if the Company proposes to register any of its
securities (except for registration to the offer on Form S-8 or Form S-4) to
piggyback such registrable securities on such registration statement.

The Company has agreed not to make any public sale or distribution of its equity
securities or any other securities convertible into or exchangeable or
exercisable for its equity securities during the 7 days prior to and 90 days
after the effective date of any underwritten demand registration or underwritten
piggyback registration. The Company also agrees that after filing a registration
statement with respect to the registrable securities, the Company will not
register any of its equity securities or the convertible securities issued on
its own behalf or at the request of any holder until at least 3 months have
lapsed from the effective date of the previous registration. This three-month
restriction does not apply to registrations of securities issued in connection
with employee benefits plans, to permit exercise or conversions of previously
issued options, warrants or other convertible securities or registrations on
Form S-4.

79


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

ANNUAL AUDIT AND QUARTERLY REVIEW FEES

The aggregate fees for professional services rendered for the audit of the
Company's annual financial statements for the year ended September 30, 2004 and
for professional services rendered for the quarterly review of the financial
statements was $345,000 (2003: $239,000). The 2004 fee of $345,000 comprises
$332,000 billed by Chantrey Vellacott DFK and $13,000 billed by Sherb & Co LLP
(2003: $203,000 and $36,000 respectively).

TAX FEES

The aggregate fees billed by Chantrey Vellacott DFK for professional services
rendered for tax compliance, tax advice and tax planning were $73,000 for the
year ended September 30, 2004 (September 30, 2003: $41,000).

AUDIT RELATED FEES

There were no fees billed by the Company's accountants and former principal
accountants for financial information systems design and implementation in
either fiscal 2003 or 2004. There were also no fees billed for professional
services related to Sarbanes-Oxley implementation, Section 404 in particular,
although it is likely that fees will be incurred on this item in fiscal 2005.

PRE-APPROVAL POLICIES AND PROCEDURES

It is the policy of the Audit Committee to pre-approve all material, specific
expenditures relating to any off the matters set out above. In some cases,
projects with estimated budgets are pre-approved and monitored by the Audit
Committee, and final expenditures are ratified on completion. For fiscal 2004,
the Audit Committee approved and/or ratified all of the services detailed above.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) Financial Statements:

The following documents are either filed herewith or incorporated herein by
reference:

The audited consolidated financial statements of Spear & Jackson, Inc. and
subsidiaries as of September 30, 2004 and 2003 and for each of the three years
in the period ended September 30, 2004 (including the notes thereto which
contain unaudited quarterly financial data for each of the two years ended
September 30, 2004), and the Reports of Independent Registered Public Accounting
Firms thereon, are included herein as shown in the "Index to the Consolidated
Financial Statements" set forth in ITEM 8.

(b) Financial Statement Schedules:

No Financial Statement Schedules are included herein because either the amounts
are not sufficient to require submission of the schedules or because the
information is included in the Financial Statements or notes thereto.

80


(c) Exhibits:

EXHIBIT
NUMBER DESCRIPTION
------- -----------
3-1 Articles of Incorporation(1)
3-2 Articles of Amendment changing our name to Megapro Tools
Corporation(1)
3-3 Articles of Amendment changing our name to Megapro Tools Inc.(1)
3-4 Articles of Amendment amending Article 6 (1) 3.5 Amended By-Laws(1)
3-5 Articles of Amendment changing our name to Spear & Jackson, Inc.(2)
3-6 Amended and Restated Bylaws(2)
4.1 Stock Purchase Agreement dated September 2002 between us, USI Mayfair
Limited, and PNC Tool Holdings, LLC(3)
4.2 Registration Rights Agreement dated September 2002, between us, USI
Mayfair Limited, and PNC Tool Holdings, LLC(3)
4.3 Stockholders' Agreement dated September 2002, between us, USI Mayfair
Limited, PNC Tool Holdings LLC, and Dennis Crowley(3)
4.4 Specimen Form of Common Stock Certificate.(1)
10.1 Acquisition Agreement dated September 30, 1999 between us and Ms.
Maria Morgan, Envision Worldwide Products Ltd., Mr. Robert Jeffery,
Mr. Lex Hoos and Mr. Eric Paakspuu(1)
10.2 Employment Agreement dated September 2002, between us and Neil
Morgan(2)
10.3 Employment Agreement dated September 2002, between us and Joseph
Piscitelli(2)
14 Code of Ethics *
16 Letters regarding concurrence of former independent public
accountants.(4)
21 List of Subsidiaries *
31.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302 of the Sarbannes-Oxley Act of 2002. *
31.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 302 of the Sarbannes-Oxley Act of 2002. *
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbannes-Oxley Act of 2002. *
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbannes-Oxley Act of 2002. *
99.1 Audit Committee Charter *
99.2 Compensation Committee Charter *

* Filed herewith.
(1) Filed as an exhibit to the Company's Form SB-2 registration
statement, as amended, filed with the Securities and Exchange
Commission originally on July 3, 2000 and as amended through
April 23, 2001.
(2) Filed as an exhibit to the Company's Annual Return on Form
10-KSB for the year ended September 30, 2002.
(3) Filed as an Exhibit to the Company's Report on Form 8-K filed
with the Securities and Exchange Commission on September 9,
2002.
(4) Filed as an Exhibit to the Company's Report on Form 8-K/A
filed with the Securities and Exchange Commission on August
25, 2004.

81


(c) Reports on form 8-K:

i) Form 8-K was filed on August 4, 2004 in which the Company announced the
following:

On July 22, 2004, the Company received a preliminary offer to purchase
the Company's corporate subsidiaries, including Spear & Jackson plc and
Bowers Group plc, from the Company's subsidiary management, including
William Fletcher, a director and the Company's Acting Chief Executive.
The proposed purchase (based on current exchange rates), which is for
acquisition of the issued share capital of these subsidiaries,
contemplates a cash purchase amount of approximately US$26,000,000,
with the Company retaining existing cash and non-subsidiary real estate
assets currently estimated to be approximately US$5,000,000. The
proposal also contemplates forgiveness of existing inter-company
receivables due from the parent. The offer is based on various
assumptions including that the subsidiaries will be free of third party
net debt and satisfactory resolution of certain pension issues as a
result of changing pension legislation in the United Kingdom. The
purchase price is based on minimum net assets of the subsidiaries of
approximately $12,161,700 (based on current exchange rates) and subject
to downward adjustment on the basis of the prospective purchaser's
evaluation of the impact of such pension legislation.

The Company will engage the services of an investment banking firm or
similar organizations to assist in evaluating this proposal, as well as
to consider any other proposals relevant to the Company and its
subsidiaries. The Company will also require the evaluation and approval
of its court-appointed Corporate Monitor as part of the approval
process.

ii) Form 8-K was filed on August 18, 2004 in which the Company announced
the resignation of its independent accountant, Sherb & Co, LLP
("Sherb") on August 13, 2004.

iii) Form 8-K/A was filed on August 25, 2004 in which a letter from Sherb to
the Securities and Exchange Commission was appended in which Sherb
stated their agreement to the statements made by the Company concerning
Sherb in Form 8-K filed on August 18, 2004.

iv) Form 8-K/A was filed on December 16, 2004 in which the Company
announced the following:

On November 19, 2004, Chantrey Vellacott DFK was engaged as the
independent registered public accounting firm for Spear & Jackson, Inc.
As previously reported, Sherb & Co. LLP resigned as Spear & Jackson's
independent accountant on August 13, 2004.

Prior to their appointment as the Company's primary auditor, Chantrey
Vellacott DFK performed significant auditing procedures relating to the
Company's non-United States subsidiaries. In connection with these
auditing procedures, the Company discussed a variety of matters,
including the application of accounting principles and auditing
standards. However, these discussions occurred in the normal course of
the Company's professional relationship with Chantrey Vellacott DFK and
were not a condition of retaining them as Spear & Jackson's primary
auditor.

There have been no disagreements between the Company and the former
certifying accountant, Sherb & Co. LLP, for which Chantrey Vellacott
DFK was consulted.

82

SIGNATURES

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

Dated: February 1, 2005 SPEAR & JACKSON, INC.

By: /s/ John Harrington Jr.
------------------------
John Harrington Jr.
Interim Chairman

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

Dated: February 1, 2005 By: /s/ John Harrington Jr.
------------------------
John Harrington Jr.
Interim Chairman

Dated: February 1, 2005 By: /s/ William Fletcher
--------------------
William Fletcher
Acting Chief Executive Officer
(Principal Executive Officer)

Dated: February 1, 2005 By: /s/ Robert Dinerman
-------------------
Robert Dinerman
Director

Dated: February 1, 2005 By: /s/ Patrick J. Dyson
--------------------
Patrick J. Dyson
Chief Financial Officer
(Principal Financial
And Accounting Officer)

83