Richly Field China Development Limited - Proxy Solicitation & Information Statement 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action you should take, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or otherwise transferred all your shares in United Pacific Industries Limited, you should at once pass this circular and the accompanying proxy form to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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United Pacific Industries

UNITED PACIFIC INDUSTRIES LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 00176)

website: http://www.irasia.com/listco/hk/upi/index.htm

PROPOSED VERY SUBSTANTIAL ACQUISITION OF A CONTROLLING INTEREST IN SPEAR & JACKSON, INC.

Adviser to United Pacific Industries Limited on Hong Kong Listing Rules requirements

CENTURION CORPORATE FINANCE LIMITED

A letter from the Board of Directors of United Pacific Industries Limited (“Company”) is set out from pages 5 to 32 of this circular. A notice convening a special general meeting (“SGM”) of the Company to be held at The Laurel, Level 3, Renaissance Kowloon Hotel at 22 Salisbury Road, Tsim Sha Tsui, Kowloon, Hong Kong on 28 July 2006 at 10:30 a.m., or so soon thereafter following the conclusion or adjournment of the annual general meeting of the Company to be held at 10:00 a.m. on the same day at the same place, is set out from pages 294 to 295 of this circular. Whether or not you are able to attend the SGM in person, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s principal place of business in Hong Kong at Unit 2705-6, 27/F., Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so desire.

13 July 2006

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER	FROM THE BOARD
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2.	Summary Terms of the Stock Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .	7
3.	Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
4.	Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
5.	Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
6.	Reasons for and Benefits of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
7.	Very Substantial Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
8.	Interests of Mr. Beazer and Mr. Clarke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
9.	Information on Jacuzzi Brands, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
10.	Further Information and Waiver from Strict Compliance with the Listing Rules . . .	18
11.	Information on Spear & Jackson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
12.	Financial and Trading Prospects of the UPI Group . . . . . . . . . . . . . . . . . . . . . . . . .	28
13.	Financial Effects of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
14.	Directors and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
15.	General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
16.	Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
17.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
18.	Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
APPENDIX I — FINANCIAL INFORMATION OF UPI GROUP . . . . . . . . . . . . . . . . .		33
APPENDIX II — FINANCIAL INFORMATION OF SPEAR & JACKSON GROUP . . .		98
APPENDIX III — GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		287
NOTICE	OF SPECIAL GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	294

— i —

DEFINITIONS

In this circular, including the appendices, unless the context otherwise requires, the following expressions have the following meanings:

“Acquisition”	the proposed acquisition by the Company from Jacuzzi of the
	Jacuzzi Shares pursuant to the Agreement;
“Agreement” or “Stock	the Stock Purchase Agreement dated as of 23 March 2006
Purchase Agreement”	between Jacuzzi and the Company in respect of the
	Acquisition, as amended by Amendment No. 1 dated as of 4
	May 2006 and Amendment No. 2 dated as of 10 July 2006;
“Amendment No. 2”	the second amendment to the Agreement dated as of 10 July
	2006;
“Announcement”	the announcement of the Company dated 27 March 2006 in
	respect of the Acquisition;
“associate”	has the same meaning ascribed to it in the Listing Rules;
“Board”	the Board of Directors of the Company for the time being;
“Closing”	the closing in respect of the Acquisition;
“Closing Date”	a date not later than 31 July 2006 or such other date to be
	mutually agreed by the Company and Jacuzzi;
“Company” or “UPI”	United Pacific Industries Limited, a company incorporated in
	Bermuda with limited liability and listed on the Main Board
	of The Stock Exchange of Hong Kong Limited (Stock Code:
	176);
“Directors”	the Directors of the Company for the time being;
“Enlarged Group”	the UPI Group and S&J Group after the Closing;
“Exchange Act”	the U.S. Securities and Exchange Act of 1934, as amended
	from time to time;
“Governmental Authority”	any transnational, domestic or foreign federal, state or local
	governmental or quasi-governmental authority or regulatory
	authority, department, court, agency, commission or official,
	including any political subdivision thereof;
“HK GAAP”	generally accepted accounting principles applicable in Hong
	Kong;
“Hong Kong”	Hong Kong Special Administrative Region of the PRC;

— 1 —

DEFINITIONS

“Jacuzzi”	Jacuzzi Brands, Inc., a Delaware corporation, listed on the
	New York Stock Exchange and trading under the symbol
	“JJZ”, together with, if the context requires, USIAH
“Jacuzzi Parties”	Jacuzzi Brands, Inc. and its subsidiaries, JBI Holdings
	Limited and USIAH;
“Jacuzzi Shares”	3,543,281 S&J Shares in aggregate held by the Seller,
	representing approximately 61.8% of the S&J Shares;
“Latest Practicable Date”	10 July 2006, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained herein;
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange of Hong Kong Limited;
“Minority Shares”	the remaining approximately 38.2% of S&J Shares which are
	not held by Jacuzzi;
“Mr. Beazer”	Brian C Beazer, Chairman and substantial shareholder of the
	Company, and a non-executive director of Jacuzzi;
“Mr. Clarke”	David H Clarke, a Vice Chairman and substantial shareholder
	of the Company, and Chairman and CEO of Jacuzzi;
“Nevada Business Combination	Nevada Revised Statutes, NRS 78.411 through 78.444;
Statute”
“Nevada Control Share Statute”	Nevada Revised Statutes, NRS 78.378 through 78.3793;
“Nevada Statutes”	Nevada Business Combination Statute and Nevada Control
	Share Statute;
“PRC” or “China”	the People’s Republic of China;
“Pension Plan” or “Plan”	the James Neill Pension Plan, being a defined benefit pension
	plan of certain UK subsidiaries of S&J;
“Pensions Act”	United Kingdom Pensions Act 2004;
“Pensions Regulator”	the statutory body which regulates UK occupational pension
	schemes as defined in section 1 of the Pensions Act;
“Purchaser”	the Company, together with, if the context requires, SPV;

— 2 —

DEFINITIONS

“S&J”	Spear & Jackson, Inc., a Nevada corporation whose shares are
	registered under the Exchange Act;
“S&J Group”	S&J, its subsidiaries and associates, including S&J UK;
“S&J Shares”	shares of common stock of S&J of US$0.001 par value per
	share;
“S&J UK”	the UK subsidiaries of S&J, including Spear & Jackson plc,
	Bowers Group plc, and their respective subsidiaries;
“S&J Form 10-K”	the annual report including the audited financial statements of
	S&J in respect of the relevant financial year, filed on Form
	10-K with the SEC;
“S&J Form 10-K 2005”	S&J Form 10-K in respect of the financial year ended 30
	September 2005 filed with the SEC on 23 December 2005;
“S&J Form 10-Q”	the quarterly report of S&J setting out, inter alia, its
	unaudited financial results for the relevant quarter, filed on
	Form 10-Q with the SEC;
“SEC”	the U.S. Securities and Exchange Commission;
“SGM”	Special General Meeting of the Company, notice of which is
	set out on pages 294 to 295 of this circular;
“SPV”	a company to be incorporated in Hong Kong, with limited
	liability, as a direct wholly-owned subsidiary of UPI, which is
	intended to be used as a special purpose vehicle to acquire the
	Jacuzzi Shares;
“Seller”	Jacuzzi and USIAH, collectively;
“Shares”	ordinary shares of HK$0.10 each in the share capital of the
	Company;
“Shareholders”	the shareholders of the Company;
“Shareholders’ Litigation”	the S&J shareholders’ litigation described on page 23 of this
	circular;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“UPI Group”	UPI and its subsidiaries;

— 3 —

DEFINITIONS

“U.S. GAAP”	generally accepted accounting principles applicable in the
	U.S.;
“USIAH”	USI American Holdings, Inc., Delaware corporation, and a
	wholly-owned subsidiary of Jacuzzi;
“£”	British pound, being the lawful currency of the United
	Kingdom;
“HK$”	Hong Kong dollar, being the lawful currency of Hong Kong
	Special Administrative Region, PRC; and
“US$”	U.S. dollar, being the lawful currency of the United States of
	America.

For the purpose of illustration only, throughout this circular currency translations have been made using the rates of exchange stated in the table below. No representation is made that any amounts in US$, £ or HK$ could have been or can be converted at that rate or at any other rate or at all.

US$1 = HK$7.79 £1 = HK$14.21

— 4 —

LETTER FROM THE BOARD

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United Pacific Industries

UNITED PACIFIC INDUSTRIES LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 00176)

Executive Directors:

Brian C Beazer, Executive Chairman David H Clarke, Executive Vice-Chairman Simon N Hsu, Executive Vice-Chairman

Registered office: Clarendon House Church Street Hamilton, HM 11 Bermuda

Non-executive Directors:

Teo Ek Tor Ng Ching Wo

Independent non-executive Directors:

Dr. Wong Ho Ching, Chris Henry W Lim Ramon Sy Pascual

Head Office and Principal Place of Business in Hong Kong: Unit 2705-6, 27/F., Vicwood Plaza 199 Des Voeux Road Central Hong Kong

13 July 2006

To the Shareholders of the Company

Dear Shareholders,

PROPOSED VERY SUBSTANTIAL ACQUISITION OF A CONTROLLING INTEREST IN SPEAR & JACKSON, INC.

1. INTRODUCTION

The Directors refer to the Announcement dated 27 March 2006 regarding the conditional Stock Purchase Agreement between the Company and Jacuzzi dated as of 23 March 2006 for the purchase by the Company of 3,543,281 S&J Shares, being approximately 61.8% of the outstanding common stock of S&J, of par value US$0.001 per share, from Jacuzzi for an aggregate consideration of US$4,960,593.40 (approximately HK$38.7 million), at a price of US$1.40 (HK$10.91) in cash for each share. The Directors also refer to the Company’s announcement dated 13 April 2006 regarding the Company’s application to the Stock Exchange to extend the deadline for despatch of the Circular to 11 July 2006 for the reasons stated in the announcement, and the announcement dated 10 July 2006 regarding a second amendment to the Agreement and the Company’s application to the Stock Exchange to further extend the deadline for despatch of the circular to not later than 13 July 2006 for the reasons stated therein.

— 5 —

LETTER FROM THE BOARD

The net asset value of S&J was approximately US$4.57 (HK$35.60) per share as reflected in S&J’s audited consolidated balance sheet as at 30 September 2005 filed in Form 10-K with the SEC, and was approximately US$3.79 (HK$29.52) per share as reflected in S&J’s unaudited consolidated balance sheet as at 31 March 2006 filed in Form 10-Q with the SEC.

The Company has no obligation to acquire the Minority Shares under applicable U.S. laws, unlike takeover requirements in Hong Kong, although the Company considers it desirable to acquire the Minority Shares in the future in order to achieve 100% control of S&J. The Company has given an undertaking in the Agreement to offer not less than US$1.40 (HK$10.91) in cash for each Minority Share in the event that the Company or its affiliates seek to acquire any of these shares within a year from the Closing.

S&J, with net sales exceeding US$100 million (HK$779 million) in fiscal 2005, 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, through various channels including a virtual store at www.SpearAndJacksonStore.com; Ebay.co.uk; Amazon.co.uk; leading UK DIY and home improvement chainstores such as Homebase, B&Q and Focus Do It All who, collectively, have several hundred retail outlets in the UK and the Republic of Ireland; Agway, U.S. farm cooperatives; and S&J’s own distribution subsidiaries in France and other countries. The products are sold under various brand names including:

Spear & Jackson — garden tools;
Neill — hand tools;
Bowers — bore gauges and precision measuring tools;
CV — precision measuring instruments; and
Eclipse — blades and magnetic equipment.

The rationale for the Acquisition and the benefits the Company expects to accrue from it include the following:

Consolidation of revenues;
S&J’s brand names extended to the Company’s own-designed products;
Access to S&J’s distribution channels;
Facilitates the Company’s penetration into Europe;
Facilitates S&J’s penetration into China; and
Collaborative engineering efforts by S&J and the Company.

— 6 —

LETTER FROM THE BOARD

The Acquisition is expected to close by 31 July 2006, subject to a number of conditions precedent which are summarized in this circular. The Acquisition is also subject to Shareholders’ approval under Rule 14.49 of the Listing Rules as it constitutes a very substantial acquisition of the Company since S&J’s revenues of more than US$100 million (HK$779 million) for its latest financial year ended 30 September 2005 exceed by more than 100% the Company’s revenues of approximately US$50 million (HK$390 million) for its financial year ended 31 March 2005, being the last completed financial year prior to the date of the Agreement.

The purpose of this circular is to provide you with information regarding the Acquisition and the transactions contemplated in the Agreement to enable you to consider, and if thought appropriate, to vote on the resolution set out in the Notice of SGM on pages 294 to 295 of this circular, with or without modifications.

2. SUMMARY TERMS OF THE STOCK PURCHASE AGREEMENT

Date As of 23 March 2006, as amended as of 4 May 2006 and further amended as of 10 July 2006.

Parties

Seller: Jacuzzi Brands, Inc., a company incorporated in the State of Delaware, USA and listed on the New York Stock Exchange, trading under the symbol “JJZ”, and its wholly-owned subsidiary, USI American Holdings, Inc., a company incorporated in the State of Delaware, USA.

Purchaser: United Pacific Industries Limited, a company incorporated in Bermuda and listed on the Hong Kong Stock Exchange under Stock Code: 176. The Company has the option to use a wholly-owned subsidiary as an acquisition vehicle (i.e. the SPV).

Target: Spear & Jackson, Inc., a company incorporated in the State of Nevada, USA and traded electronically in the over-the-counter market of the National Association of Securities Dealers of America, in the U.S. under the symbol “SJCK.PK”.

Additional information on the parties is disclosed below in this circular.

Acquisition: Subject to the satisfaction of certain conditions precedent set out in the Agreement, the Company will purchase 3,543,281 shares of common stock of US$0.001 par value per share in S&J, with all rights attaching thereto as of the date of the Agreement. This represents approximately 61.8% of outstanding S&J Shares. S&J had 5,735,561 shares of common stock outstanding as of 15 May 2006, as disclosed in its quarterly report for the second quarter ended 31 March 2006 filed in Form 10-Q with the SEC.

The Company considers that it would be advantageous to acquire the remaining 38.2% of S&J in due course but has made no commitment to do so at this time. However, to give assurance to the directors of S&J, the Company undertook in the Agreement that if the Company or its affiliates seek to acquire these Minority Shares within a year of the Closing, the price offered will not be less than US$1.40 in cash for each share.

— 7 —

LETTER FROM THE BOARD

Conditions precedent: The Agreement is subject to certain conditions precedent summarized below ( see “Conditions Precedent” on pages 11 to 13 of this circular ).

Covenants: Each party has given various mutual covenants including:

To use reasonable best efforts to consummate the transaction.
To use reasonable efforts to obtain a clearance from the Pensions Regulator as soon as reasonably practicable in respect of the transactions contemplated in the Agreement, to the effect that S&J, the Company, Jacuzzi, and their respective associates (each, a “Potential Target Person”) will not be required to make a contribution or provide financial support in respect of underfunded pension liabilities of S&J UK other than on terms acceptable to that Potential Target Person in its sole discretion (see “Information on Spear & Jackson — Spear & Jackson UK — Pension Plan Liabilities” on pages 25 to 27 of this circular) . The clearance from the Pensions Regulator must be satisfactory in form and substance to each party.

Individually, the parties have given various covenants. In the case of the Company, these include the following:

To offer not less than US$1.40 for each Minority Share in the event the Company or its affiliates seek to acquire any of the Minority Shares within a year from the Closing.
To use commercially reasonable efforts to help and support the pension clearance process by using its assets to fund or support a portion of the S&J Group’s underfunded pension liabilities in an amount to be mutually agreed by the Pensions Regulator, the Company and Jacuzzi.
Not to structure financing, if any, required for the Acquisition in a way that would weaken the financial covenant of the S&J Group in relation to any UK pension plan such that it would affect adversely the prospects of, or timing for, obtaining the clearance from the Pensions Regulator.

In the case of Jacuzzi, the covenants include the following:

Between the date of the Agreement and the Closing, not to seek another bidder for the Jacuzzi Shares.
After the Pensions Regulator issues a clearance to the Company and Jacuzzi, at the Company’s request, Jacuzzi, as controlling shareholder of S&J, will do the following:
(i) cause the Company’s designees to be appointed or elected to the board of directors of S&J together with one designee of Jacuzzi reasonably acceptable to the Company, and use commercially reasonable best efforts so that the Company’s designees constitute a majority on the S&J board on or before the Closing Date;

— 8 —

LETTER FROM THE BOARD

(ii) cause the bylaws of S&J to be amended to elect not to be governed by the Nevada Control Share Statute (See “Information on Spear & Jackson — Spear & Jackson, Inc. — Nevada Statutes” on page 23 of this circular) , in the event that S&J is subject to the Nevada Control Share Statute prior to the Closing Date; and
(iii) take all other actions reasonably necessary to confer to the Company full and effective voting rights with respect to the Jacuzzi Shares under the Nevada Control Share Statute (with no obligation on Jacuzzi to purchase any additional shares of S&J from any person).
After the Closing, at the request of the Company, cause Jacuzzi’s representative on S&J’s Board, if any, to resign promptly.

By Amendment No. 2, the parties agreed to waive clearance and to accept a comfort letter from the Pensions Regulator in lieu of a clearance, the Company agreed to indemnify the Jacuzzi Parties in respect of certain pension liabilities, and the Company covenanted, among other things, not to engage in any action or inaction within 12 months from the Closing Date that would cause the Pensions Regulator to issue a contribution notice or financial support direction to the Jacuzzi Parties. (see “Information on Spear & Jackson — Spear & Jackson UK — Pensions Regulator’s Comfort Letter and Company’s Indemnity to Jacuzzi” on pages 27 to 28 of this circular) .

Closing: Closing is scheduled to take place as soon as possible, but in no event later than ten business days after all the conditions precedent (other than those conditions that by their nature are to be satisfied at the Closing) are satisfied or, to the extent permitted, waived by the parties entitled to the benefits thereof. The parties contemplate the Closing shall be concluded not later than 31 July 2006, subject to satisfaction or waiver of all conditions precedent.

Termination: The Agreement may be terminated by mutual agreement or by either party if certain conditions precedent have not been satisfied or waived by 31 July 2006. The Agreement may also be terminated if consummation of the transactions contemplated therein would violate any non-appealable final order, decree or judgment of a Governmental Authority. A non-breaching party may terminate the Agreement if the other party has committed a material breach of the Agreement that is incapable of being cured or has not been cured promptly. In the event of termination by breach, the non-breaching party is entitled to recover damages and certain transaction expenses from the breaching party.

Costs and expenses: Each party bears its own costs and expenses.

3. CONSIDERATION

The aggregate consideration of US$4,960,593.40 (approximately HK$38,643,023) is based on a purchase price of US$1.40 (HK$10.91) per share. It will be paid wholly in cash at Closing.

— 9 —

LETTER FROM THE BOARD

The Agreement and the consideration were negotiated on an arm’s length basis and on normal commercial terms, having regard to a number of factors, principally, the Board’s positive views of the business prospects of the S&J Group, S&J’s share price performance, which during the negotiation period reached a high of US$1.40, and during the preceding 52-week prior to the Agreement, ranged between US$0.90 - US$1.90, the premium payable for a controlling bloc and S&J’s balance sheet and net asset value as at 30 September 2005.

Over the 12 months ended 22 March 2006, being the day immediately preceding the Agreement, the S&J Shares traded at an annual high of US$1.90 and an annual low of US$0.90. The per share price of US$1.40 (HK$10.91) represents a premium of approximately US$0.23 (HK$1.81) or approximately 19.7% to the average closing price of the S&J Shares of approximately US$1.17 (HK$9.10) over the five trading days ended 22 March 2006. Based on the closing price of S&J Shares on 22 March 2006 at US$1.18 (HK$9.19), the per share price of US$1.40 represents a premium of US$0.22 (HK$1.71) or approximately 18.6% to the last closing price.

Over the 12 months ended on the Latest Practicable Date, the S&J Shares traded at an annual high of US$1.80 and an annual low of US$0.90. Based on the closing price of S&J Shares at US$1.30 (HK$10.13) as of the Latest Practicable Date, the per share price of US$1.40 represents a premium of US$0.10 (HK$0.78) or approximately 7.7% to such closing price.

There are risks associated with the Acquisition, in particular, in connection with the Shareholders’ Litigation (see “Information on Spear & Jackson — Spear & Jackson, Inc. — Shareholders’ Litigation” on page 24 of the circular) and the pension deficit (see “Information on Spear & Jackson — Spear & Jackson UK — Pension Plan Liabilities” and “— Pensions Regulator’s Comfort letter and Company’s Indemnity to Jacuzzi” on pages 25 to 28 of the circular) .

In relation to the Shareholders’ Litigation, the Company is advised that a sum of, in aggregate, approximately US$6.1 million (HK$47.5 million) has been paid by the Former CEO into a fund to compensate certain shareholders.

In relation to the pension deficit, an acquirer of a controlling stake in a company may under certain circumstances be deemed to assume certain pension liabilities ( see “Information on Spear & Jackson — Spear & Jackson UK — Pension Plan Liabilities” and “— Pensions Regulators’ Comfort Letter and Company’s Indemnity to Jacuzzi” on pages 25 to 28 of this circular ).

In addition, the Company agreed to indemnify the Jacuzzi Parties, in respect of certain pension liabilities, and the Company covenanted, among other things, not to engage in any action or inaction within 12 months from the Closing Date that would cause the Pensions Regulator to issue a contribution notice or financial support direction to the Jacuzzi Parties. ( see “Information on Spear & Jackson — Spear & Jackson UK — Pensions Regulators’ Comfort Letter and Company’s Indemnity to Jacuzzi” on pages 27 to 28 of this circular.

— 10 —

LETTER FROM THE BOARD

March 2006, there is no reason to believe that the S&J Group will not be able to meet its funding obligations to the Pension Plan; the assessment by the Pensions Regulator that the change in control is not detrimental to the Pension Plan, and pension clearance is not necessary for the Acquisition; and the confirmation by the Trustees by letter dated 6 July 2006 that they accept the decision of the Pensions Regulator, the Company believes there is minimal risk associated with the indemnity.

The aforesaid notwithstanding, if such indemnity were to be called upon, the Company would be obligated to indemnify the Jacuzzi Parties as set out above and thus such indemnity, whilst not currently quantifiable, would form part of the consideration for the Acquisition.

The Board believes, having taken into consideration the risks and potential benefits associated with the Acquisition, that the consideration and the terms of the Agreement are fair and reasonable and in the interests of the Company and Shareholders as a whole.

4. FINANCING

The Acquisition is not conditional on the Company raising financing. Funding required for the Acquisition, including for professional and advisory fees in this multi-jurisdictional transaction, is partly through a bank loan for HK$30 million which has been obtained on normal commercial terms, and partly from internal resources. As at 31 March 2006, the audited consolidated balance sheet of the UPI Group shows bank balance and cash at approximately HK$67 million, with bank loans and finance leases of approximately HK$37 million, giving net cash of approximately HK$30 million.

5. CONDITIONS PRECEDENT

The Acquisition is subject to the satisfaction of certain conditions precedent which are summarized below. Some conditions are for the mutual benefit of the Company and Jacuzzi and others are specifically intended for the benefit of the Company or Jacuzzi individually. The mutual conditions include the following:

(a) There are no statutes, rules, regulations or court orders which prohibit the consummation of the Closing.
(b) All actions, consents or approvals by or in respect of or filings with any Governmental Authority required to permit the consummation of the Closing shall have been taken, made or obtained and shall be in full force and effect.
(c) The Company and Jacuzzi have obtained a clearance from the Pensions Regulator, in form and substance satisfactory to each of them. (see “Information on Spear & Jackson — Spear & Jackson UK — Pensions Regulator’s Comfort Letter and Company’s Indemnity to Jacuzzi” on pages 27 to 28 of this circular).”)
(d) If required, the S&J Group companies have completed mandatory consultation with employee representative bodies and obtained their approval.

— 11 —

LETTER FROM THE BOARD

Conditions precedent intended only for the benefit of and which can only be waived by the Company, include the following principal conditions:

(e) There is no material litigation brought by any Governmental Authority which would prevent the Closing or impose material limitations on the Purchaser’s ability to exercise full voting rights in the Jacuzzi Shares.
(f) Jacuzzi’s representations and warranties in the Agreement shall be true and correct as at the Closing Date and Jacuzzi shall have performed in all material respects its other obligations under the Agreement.
(g) The Jacuzzi Shares will not be less than 60% of the fully diluted issued and outstanding S&J Shares.
(h) The Company shall have obtained Shareholders’ approval for the Acquisition.
(i) No material adverse change shall have affected the business, operations or financial condition of the S&J Group taken as a whole since the filing of its Form 10-K for year ended 30 September 2005 until the Closing except for the following permissible changes:
(i) change in the status of the Shareholders’ Litigation ( See “Spear & Jackson — Shareholders’ Litigation” on page 23 );
(ii) an increase in S&J UK’s underfunded pension fund liability from an estimated US$40 million as at December 2004 to not more than US$44 million at Closing Date, using the same assumptions as for December 2004; and
(iii) certain changes beyond the control of S&J or Jacuzzi such as changes resulting from market response to the Acquisition, changes affecting global financial markets, industry-wide changes, changes in accounting requirements or principles, or acts of the Company or its agents.
(j) The Company will have majority control of the board of directors of S&J as of the Closing Date.
(k) Special Nevada counsel for Jacuzzi and special Nevada counsel for the Company will have issued their separate but concurring opinions, prior to the execution of the Agreement, that the Nevada Statutes are not applicable to S&J or the Acquisition, and Jacuzzi’s Nevada counsel shall have confirmed that the Nevada Statutes remain inapplicable to S&J and the Acquisition as of the Closing Date by reason of the number of registered stockholders of record of S&J.
(l) The Nevada Statutes shall remain inapplicable to S&J as of the Closing Date by reason of the number of registered stockholders of record of S&J.

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LETTER FROM THE BOARD

Conditions precedent intended only for the benefit of and which can only be waived by Jacuzzi include the following principal conditions:

(m) The Company’s representations and warranties in the Agreement shall be true and correct as at the Closing Date and the Company shall have performed in all material respects its other obligations under the Agreement.
(n) Jacuzzi shall have received confirmatory documents as to the Company’s existence and authority to enter into the Agreement.
(o) The board of directors of Jacuzzi shall have received, within eight weeks from the date of the Agreement, a satisfactory opinion as to the “fairness” of the transaction from an appropriate professional adviser.
(p) The Company shall have received, within ten weeks from the date of the Agreement, all necessary approvals, if any, from the Stock Exchange. (However, the approval of the Stock Exchange is not required for the Acquisition.)

As at the Latest Practicable Date, none of the conditions precedent have been satisfied or waived other than the following:

(i) the Company has received the opinions of Jacuzzi’s special Nevada counsel and the Company’s special Nevada counsel, prior to signing the Agreement, which confirmed that the Nevada Statutes are not applicable to S&J or the Acquisition by reason of the number of registered stockholders of record;
(ii) the Company’s bank financing for the Acquisition is structured in a way that would not weaken the financial covenant of the S&J Group in relation to the UK pension plan; and
(iii) the Finance Committee of Jacuzzi has received a fairness opinion from an independent financial advisor to the effect that the sale of the Jacuzzi Shares to UPI is fair to Jacuzzi from a financial point of view; and
(iv) by Amendment No. 2, the parties agreed to waive the condition for a clearance and to accept a comfort letter from the Pensions Regulator in lieu thereof, the Company agreed to indemnify the Jacuzzi Parties in respect of certain pension liabilities, and the Company covenanted, among other things, not to engage in any action or inaction within 12 months from the Closing Date that would cause the Pensions Regulator to issue a contribution notice or financial support direction to the Jacuzzi Parties. (see “Information on Spear & Jackson — Spear & Jackson UK — Pensions Regulator’s Comfort Letter and Company’s Indemnity to Jacuzzi” on pages 27 to 28 of this circular).

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LETTER FROM THE BOARD

6. REASONS FOR AND BENEFITS OF THE ACQUISITION

The principal business of the UPI Group is the manufacture and sale of power supply products, electrical and electronic components and products including portable power tools. The UPI Group maintains a head office in Hong Kong, has manufacturing plants in southern China, and operating subsidiaries strategically located in Hangzhou and Shanghai in China, and another subsidiary near Chicago, USA. The UPI Group has traditionally focused on OEM (original equipment manufacturer) services but is increasingly diversifying and moving towards ODM (own design manufacturer) and OBM (own brand manufacturer) operations.

The Company has identified a number of potential synergies that could be achieved for the UPI Group and the S&J Group arising from the Acquisition, including as a result of the increased size and depth of product line available to the Enlarged Group. Some of these potential synergies are described below.

Revenues

The annual revenues of the Company for its financial year ended 31 March 2005 were approximately US$50 million (HK$390 million) while revenues for its financial year ended 31 March 2006 were approximately US$58 million (approximately HK$454 million), compared to the annual revenues of approximately US$100 million (HK$779 million) achieved by the S&J Group for its financial year ended 30 September 2005. The Company therefore regards the Acquisition as a significant development which has the potential to increase the revenues of the UPI Group on a consolidated basis.

Brand names

The S&J Group owns well-established brand names, including:

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

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LETTER FROM THE BOARD

Extending S&J’s brand names to encompass compatible ODM products manufactured by the UPI Group could give an immediate and higher profile in the market for UPI’s own products, while at the same time enhancing and diversifying S&J’s own product range.

● Distribution channels

The S&J Group has established distribution channels in Europe, Australasia and elsewhere. Access to these distribution channels could open up wider markets for the Company’s own products.

S&J products are distributed in the United Kingdom, European Union, Australasia, North and South America, Asia and the Far East. S&J’s subsidiary companies in France, Holland, Australia and New Zealand act as distributors for products manufactured by the S&J Group and complementary products sourced from third party suppliers.

S&J products are also 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.

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 catalogues.

S&J products are carried by leading UK DIY and home improvement chainstores such as Homebase, B&Q and Focus Do It All who, collectively, have several hundred retail outlets in the UK and the Republic of Ireland. S&J products are also sold over the internet in a virtual store at www.SpearAndJacksonStore.com, on Ebay.co.uk, Amazon.co.uk. and other web-based locations. S&J garden tools are sold through the catalogues of Peaceful Valley in northern California, Agway, a large farm co-op with stores throughout Northeast USA, and other catalogues and garden tool outlets across the USA.

S&J continues to expand their distribution channels. Neill Tools recently negotiated an exclusive supply agreement with a large UK catalogue house to supply a range of garden power tools, while Robert Sorby went on-line with its e-commerce web-site for its retail store at www.robert-sorby.co.uk.

Marketing through S&J’s extensive distribution channels could significantly improve the Company’s sales efforts.

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LETTER FROM THE BOARD

● Market penetration

The Company recently re-established operations in USA, and is actively exploring expansion opportunities in Europe. S&J’s long-established market presence, through its 12 principal trading subsidiaries located in England, Europe, China, Australia and New Zealand, could be especially helpful in facilitating the Company’s efforts to penetrate these markets.

● China insight and experience

Conversely, the UPI Group is well positioned to provide assistance to S&J in its efforts to penetrate and sell into the markets in Asia and especially China, as well as to source from low cost suppliers in these regions. As part of this strategy, in January 2006 S&J’s Magnetics operation acquired a 25% equity participation in a recently formed Chinese venture. S&J’s metrology division also established an allied manufacturing, quality control and distribution centre in Shanghai, China in 2005 which is anticipated to commence manufacturing in S&J’s fourth quarter of fiscal 2006.

● Collaborative engineering

From January 2005, the range of S&J garden tools has been supplemented by a portfolio of electric powered garden tools. The combined engineering talent and expertise in S&J and in UPI, which has a pool of approximately 105 engineers and technicians as at the Latest Practicable Date, offers opportunity for collaborative R&D efforts in designing and developing power tools.

For all the above reasons, the Company believes that the Acquisition could help to establish UPI as a worldwide business, better able to serve all its customers.

There is no assurance that all or any of the above synergies will be achieved in whole or in

part.

7. VERY SUBSTANTIAL ACQUISITION

The annual revenues of S&J for its latest financial year ended 30 September 2005 exceeds by more than 100% the annual revenues of the Company for its financial year ended 31 March 2005, being the last completed financial year prior to the date of the Agreement. For this reason among others, the Acquisition constitutes a very substantial acquisition of the Company under Chapter 14 of the Listing Rules and requires Shareholders’ approval.

The Company will convene the SGM for Shareholders to consider and vote in respect of the Acquisition, such voting to be taken on a poll. Notice of the SGM is set out on pages 294 to 295 of this circular.

8. INTERESTS OF MR. BEAZER AND MR. CLARKE

Pursuant to Rule 14.49 of the Listing Rules, Mr. Beazer and Mr. Clarke, who are directors and substantial shareholders of the Company, are required to abstain from voting on the Acquisition at the SGM as they have a material interest in the Acquisition.

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LETTER FROM THE BOARD

Mr. Beazer, the Executive Chairman and a substantial shareholder of the Company with approximately 24.56% of the issued Shares, is also a non-executive director of Jacuzzi and holds approximately 0.16% of the issued and outstanding shares of Jacuzzi. Mr. Beazer does not hold any shares in S&J.

Mr. Clarke, a Vice-Chairman and a substantial shareholder of the Company with approximately 22.88% of the issued Shares, is also the Chairman and CEO of Jacuzzi, and holds approximately 2.1% of the issued and outstanding shares of Jacuzzi. He also holds approximately 0.49% of the issued S&J Shares for his personal account. Mr. Clarke’s shares in S&J were acquired in open market purchases some years ago, and do not form any part of the Acquisition.

Both Mr. Beazer and Mr. Clarke had disclosed these interests to the respective boards of directors of UPI and of Jacuzzi. They had abstained from voting on the Acquisition in their capacity as directors of UPI. Having carefully considered the Acquisition, the Board of UPI (with the abstention of Mr. Beazer and Mr. Clarke) has approved and authorised the Acquisition, subject to Shareholders’ approval. The Board has also appointed an Executive Committee comprising four Board members to manage the Acquisition. The Committee is chaired by Mr. Henry W Lim, an Independent Director and a CPA, who has a casting vote. The other members are Mr. Simon Hsu, a Vice Chairman who has a voting right, and Mr. Beazer and Mr. Clarke without voting rights.

Mr. Beazer and Mr. Clarke had also recused themselves from participating in any discussions or decisions of the Jacuzzi Board involving the sale of the Jacuzzi Shares. ( See also “Information on Jacuzzi Brands, Inc.” on pages 17 to 18 of this circular. )

9. INFORMATION ON JACUZZI BRANDS, INC.

Jacuzzi is listed on the New York Stock Exchange, trading under ticker symbol “JJZ”. As at 15 December 2005, the date Jacuzzi filed its Form 10-K with the SEC, there were approximately 77 million shares of Jacuzzi common stock outstanding. Jacuzzi is a leading global manufacturer and distributor of branded whirlpool baths, other bath products and plumbing products which are marketed under brand names, including JACUZZI�, SUNDANCE�, ZURN�, and ASTRACAST�.

Jacuzzi holds 3,543,281 shares in S&J, representing approximately 61.8% of the issued S&J Shares. On 21 April 2005 Jacuzzi adopted a Plan of Disposition for all the Jacuzzi Shares and thereafter commenced an extensive process to sell the Jacuzzi Shares. In this process, considerable efforts were undertaken to identify potential purchasers, obtain indications of interest, coordinate with the Company to provide access to potential purchasers to conduct due diligence investigations and evaluate the various proposals submitted. At the end of the 11-month process, the Finance Committee of Jacuzzi decided to sell all of the Jacuzzi Shares to UPI as more fully described herein.

Upon learning of UPI’s interest in acquiring the Jacuzzi Shares, the Jacuzzi board of directors delegated full control to execute the Plan of Disposition to its Finance Committee. The Finance Committee was comprised entirely of independent directors. Neither Mr. Clarke nor Mr. Beazer participated in any deliberations or decision of the Finance Committee or of the Jacuzzi board, or voted in their capacity as directors of Jacuzzi, in connection with the Acquisition. ( See “Interests of Mr. Beazer and Mr. Clarke” on page 16 of this circular. )

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LETTER FROM THE BOARD

The Finance Committee had the full and sole authorization to analyze, review, negotiate and approve a transaction to dispose of the Jacuzzi Shares. Jacuzzi received and assessed offers from, and engaged in discussions with, numerous bidders, including UPI. The Finance Committee weighed the range of potential value for Jacuzzi under each offer as well as the different structures proposed, the proposed form and source of any financing, the conditions to each offer and the likelihood that such conditions would be satisfied, the proposed form of agreement submitted by the bidders and the other risks presented in respect of consummation of the various proposed transactions.

In addition, the Finance Committee carefully assessed each bidder’s proposal addressing S&J’s liability under its UK defined pension benefit plan ( see “Information on Spear & Jackson, Inc. — Spear & Jackson UK — Pension Plan Liabilities” on pages 25 to 27 of this circular ).

At the end of an 11-month process, the Finance Committee determined that the offer from UPI was superior to the other offers. The Finance Committee also engaged an independent financial advisor to render a fairness opinion to the effect that the sale of the Jacuzzi Shares to UPI is fair to Jacuzzi from a financial point of view. The Finance Committee has received such confirmatory fairness opinion from the independent financial advisor. The consideration for the sale of the Jacuzzi Shares was determined pursuant to arm’s-length negotiations.

Jacuzzi is not a “connected person” of the Company as defined in the Listing Rules. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, there is no previous or existing business relationship between Jacuzzi and the Company other than that arising from the Agreement.

Jacuzzi is not represented on the board of directors or management of S&J, and neither Mr. Beazer, Mr. Clarke nor any of their respective associates serve on the board of directors or in the management of S&J or its subsidiaries.

Save as otherwise disclosed herein, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquiry, the Seller and the ultimate beneficial owners of the Seller are third parties independent of the Company and connected persons (as defined under the Listing Rules) of the Company.

10. FURTHER INFORMATION AND WAIVER FROM STRICT COMPLIANCE WITH THE LISTING RULES

The Acquisition was made by the Company on an unsolicited basis. The Company’s decision to enter into the Agreement was based primarily on publicly available information on the S&J Group. Due diligence could only be and has been done based on publicly available information and market research, and the limited due diligence materials S&J provided on a confidential basis, primarily in relation to the Pension Plan and S&J management’s discussion and analysis in respect of the period ended 31 March 2006.

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LETTER FROM THE BOARD

The Company has endeavoured to collect and collate information from Jacuzzi and S&J in order to fulfill the disclosure requirements in respect of this circular under the Listing Rules. However, the Company does not have the ability to obtain access to non-public information and not all such information was available as at the Latest Practicable Date. For the purpose of this circular, the Company has extracted, from publicly-available sources, certain information on S&J, set out in Appendix II to this circular, including from S&J’s audited financial statements filed with the SEC in Forms 10-K in respect of financial years, and S&J’s unaudited financial statements filed in Forms 10-Q in respect of quarterly periods, all of which have been prepared in accordance with U.S. GAAP. As such, save for information available in the public domain, the Company does not have access to non-public financial information relating to the S&J Group for the purpose of fulfilling certain disclosure requirements of the Listing Rules.

It is expected that the Company will have access to the material non-public financial information of the S&J Group after the Closing, at which time the designees of the Company will have been appointed to the S&J Board. The Company has applied for, and the Stock Exchange has granted, a waiver from strict compliance with the following provisions of the Listing Rules in relation to the disclosure requirements in the circular:

(a) Rules 4.01(3) and 14.69(4)(a)(i) — an accountants’ report on S&J prepared using accounting policies which are materially consistent with those of the Group;
(b) Rule 14.69(4)(a)(ii) — a pro forma income statement, balance sheet and cash flow statement of the Enlarged Group on the same accounting basis and in compliance with Chapter 4 of the Listing Rules;
(c) Paragraph 28 and note 2 to Appendix 1B of the Listing Rules — the statement on the indebtedness of the Enlarged Group;
(d) Rule 14.66(4) and Paragraph 30 and note 2 to Appendix 1B of the Listing Rules — the statement of sufficiency of working capital available to the Enlarged Group;
(e) Paragraph 33 and note 2 to Appendix 1B of the Listing Rules — particulars of any litigation or claims of material importance pending or threatened against any member of the Enlarged Group; and
(f) Rule 14.69(7) — the discussion and analysis of the performance of S&J Group for the three preceding financial years covering all those matters set out in Paragraph 32 of Appendix 16 of the Listing Rules.
((b) to (f) above shall collectively be defined as the “Further Information”).

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LETTER FROM THE BOARD

The waiver is granted subject to the following conditions:

(a) The circular will include the following information:
(i) S&J’s audited financial statements for each of three years ended 30 September 2003, 2004 and 2005 (as extracted from S&J’s Forms 10-K for the relevant years);
(ii) S&J’s unaudited financial statements for each of the six months ended 31 March 2005 and 2006 (as extracted from S&J’s Forms 10-Q for the relevant periods);
(iii) a qualitative explanation of the differences between U.S. GAAP and HK GAAP which may have a material impact on the audited financial statements of S&J;
(iv) the statement on the indebtedness of each of the UPI Group and S&J Group;
(v) the statement of sufficiency of working capital available to the UPI Group;
(vi) particulars of any litigation or claims of material importance pending or threatened against any member of each of the UPI Group and S&J Group; and
(vii) the discussion and analysis of the performance of each of the UPI Group and S&J Group for the three preceding financial years covering all those matters set out in Paragraph 32 of Appendix 16 of the Listing Rules.

For the sake of clarity, the information mentioned in paragraphs (a)(iv), (vi) and (vii) above refers to the information of S&J as extracted from S&J’s published information.

(b) After taking into account the due diligence work performed by the Company, the Board confirms that the content of the circular complies with the requirements under Rule 2.13 of the Listing Rules.
(c) The Company will issue paid announcement(s) not less than 14 days before the date of the SGM providing any material information has come to the attention of the Directors after the issue of the circular. Such announcements should be issued as soon as practicable once the Directors are aware of any material developments of S&J. This will ensure that the Shareholders are kept fully informed of all the material developments of S&J (e.g. those material developments or claims filed or announced by S&J) before making their decision to vote for or against the Acquisition.
(d) The Company will issue a supplemental circular within 45 days from Closing Date (and in any event on or before 30 September 2006) which includes the following information:
(i) consolidated income statements and consolidated balance sheets of S&J for each of the three years ended 30 September 2003, 2004 and 2005 and for each of the six months ended 31 March 2005 and 2006 (together defined as the “Relevant Periods”) prepared under HK GAAP, together with a reconciliation of equity and profits

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LETTER FROM THE BOARD

attributable to shareholders from U.S. GAAP figures to HK GAAP figures for the Relevant Periods. All this information should be reviewed and reported on by the Company’s auditors in accordance with Hong Kong Standard on Review Engagements 2400 “Engagement to Review Financial Statements” issued by the Hong Kong Institute of Certified Public Accountants;

(ii) a review report prepared by the Company’s auditors in relation to paragraph (d)(i) above;
(iii) a line-by-line reconciliation between U.S. GAAP and HK GAAP for the consolidated income statements and consolidated balance sheets of S&J for the Relevant Periods and any material adjustments should be described on an individual basis; and
(iv) the Further Information.

The following conditions have since been fulfilled:-

Condition (a)(i): See pages 98 and 136 of this circular Condition (a)(ii): See page 171 of this circular Condition (a)(iii): See page 284 of this circular Condition (a)(iv): See pages 97 and 284 of this circular Condition (a)(v): See page 97 of this circular Condition (a)(vi): See pages 290 and 291 of this circular Condition (a)(vii): See pages 77, 195 and 244 of this circular Condition (b): See page 287 of this circular

The Stock Exchange also requires, and the Company has undertaken to comply, that (i) the Company will post S&J’s Forms 10-K & Forms 10-Q for the Relevant Periods on the Company’s website; (ii) the above Forms 10-K & Forms 10-Q are available for inspection in the Company’s office; and (iii) upon the request of the Shareholders, the Company hereby undertakes to promptly despatch hard copies of the above Forms 10-K & Forms 10-Q to such Shareholders. The Company’s website is: http://www.upi.com.hk/spear&jackson.htm

11. INFORMATION ON SPEAR & JACKSON

(A) Spear & Jackson, Inc.

Background

Megapro Tools, Inc., the predecessor of S&J was incorporated in the State of Nevada, USA in 1998. Its shares are registered under the U.S. Securities Exchange Act of 1934 and are electronically traded in the U.S. in the Over the Counter (OTC) market of the National Association of Securities Dealers of America. With its acquisition of Spear & Jackson plc and Bowers Group plc in 2002, the company changed its name to “Spear & Jackson, Inc.” S&J now trades on the OTC under the trading

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LETTER FROM THE BOARD

symbol “SJCK.PK”. The most recent shareholding information on S&J as of 30 November 2005, extracted from S&J Form 10-K 2005, indicates that Jacuzzi holds approximately 61.8% of the issued and outstanding S&J Shares, all executive officers and directors as a group hold 2.1%, and the public holds the remainder.

Jacuzzi’s percentage shareholding in S&J was enlarged to 61.8% as a result of the return of certain S&J Shares (currently held as treasury stock) pursuant to a court order. ( see “ — SEC Enforcement Proceedings” page 23 of the circular .) To the best of the knowledge and belief of the Directors, none of the S&J Shares are held on behalf of or for the benefit of the Company. As disclosed above, Mr. Clarke holds less than 0.5% of S&J Shares for his personal account.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, there was no previous business relationship between S&J and the Company.

The following table shows certain audited financial information, extracted from S&J 2005 Form 10-K which was prepared according to U.S. GAAP as stipulated by the American Institute of Certified Public Accountants, of the S&J Group in each of its two fiscal years ended 30 September 2004 and 2005 respectively:

	For year ended	For year ended
	30 September 2005	30 September 2004
	US$’000	US$’000
Net sales	100,698 (approximately	99,485 (approximately
	HK$784.437 million)	HK$774.988 million)
Income from continuing operations	2,034 (approximately	2,042 (approximately
before unusual or infrequent items	HK$15.845 million)	HK$15.907 million)
and income taxes
Net income after taxation and	3,095 (approximately	436 (approximately
extraordinary items	HK$24.110 million)	HK$3.396 million)
Net asset value	26,203 (approximately	29,439 (approximately
	HK$204.12 million)	HK$229.33 million)
Net asset value per share (in dollars)	4.57 (approximately	5.13 (approximately
(based on 5,735,561 S&J Shares issued	HK$35.60)	HK$39.96)
and outstanding as at 14 February 2006)

Board of Directors

There are currently three directors on the board of S&J. They are Mr. John Harrington, Jr., chairman and independent director, Mr. Robert Dinerman, independent director, and Mr. William Fletcher, executive director and acting CEO of S&J. Immediately prior to Closing, Seller will cause designees of the Company to be appointed or elected to the board in such numbers to achieve majority representation on the board. (See “ Directors and Management ” at page 29 of this circular).

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LETTER FROM THE BOARD

Nevada Statutes

Certain Nevada corporate laws discourage potential investors from acquiring a controlling stake in Nevada corporations which meet the qualifying requirements and have the requisite number of registered shareholders. The Nevada Business Combination Statute imposes restrictions on business combinations with the acquirer, while the Nevada Control Share Statute imposes voting restrictions.

Prior to signing the Agreement, the Company has obtained the opinion in writing of both Jacuzzi’s special Nevada counsel and the Company’s special Nevada counsel, which confirmed that the Nevada Statutes are not applicable as at the signing date as S&J does not have the qualifying number of registered shareholders.

As a condition precedent to Closing (see “ Conditions Precedent ” at pages 11 to 13 of this circular), the Company requires that (i) it is established that the Nevada Statutes are not applicable as at the Closing Date because S&J lacks the qualifying number of registered shareholders, and (ii) a confirmatory opinion in writing is rendered by Jacuzzi’s Nevada counsel to such effect.

SEC Enforcement Proceedings

On 15 April 2004, the SEC filed suit in the U.S. District Court for the Southern District of Florida against S&J, its then Chairman/CEO (“Former CEO”) and others alleging violations of federal securities laws. Specifically with regard to S&J, the SEC alleged that S&J violated the SEC’s registration, anti-fraud and reporting provisions. These allegations arose from the alleged failure of its Former CEO to accurately report his ownership of S&J’s stock, and his alleged manipulation of the price of S&J’s stock.

On 15 February 2005, the court approved a negotiated settlement with the SEC, without any admission of liability by the parties. S&J consented to a permanent injunction from violation of various provisions under federal securities laws. The Former CEO was required to disgorge his profits to recompense defrauded investors and to make other monetary compensation in an aggregate amount of approximately US$6.1 million (HK$47.5 million), and to return 6,005,561 S&J Shares he owned. These moneys were paid into an interest-bearing fund, created pursuant to the Sarbanes-Oxley Act of 2002, which is managed by a court-appointed fund administrator.

S&J kept the shares returned by the Former CEO as treasury stock, thereby reducing its outstanding shares from 11,741,122 shares as of 31 December 2004 to 5,735,561 shares as of 23 December 2005, and correspondingly enlarging the percentage shareholdings of the remaining shareholders. As a result, Jacuzzi, which was then a beneficial owner of 3,543,281 shares in S&J, increased its percentage shareholding to approximately 61.8% of the outstanding common stock.

Corporate Monitor

In connection with the SEC complaint, the court appointed a Corporate Monitor on 15 April 2004 to oversee S&J’s operations, with power to review and approve all corporate actions. The fees and disbursements of the Corporate Monitor are borne by S&J. The term of office of the Corporate Monitor will cease when the Court determines the function of the Corporate Monitor is no longer necessary, or S&J and the Corporate Monitor so agree.

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LETTER FROM THE BOARD

Shareholders’ Litigation

Following the SEC action, S&J was named as one of the defendants in actions by certain shareholders of S&J who had suffered financial loss from their share dealings with the Former CEO and others. These actions were consolidated in a shareholders’ class action in federal court in Florida.

A derivative action was also commenced by certain shareholders in state court in Florida against certain former and current directors and officers of S&J, and naming S&J as a nominal defendant. The complaint alleges state law claims, among others, breaches of fiduciary duty. Although any judgement in favour of the plaintiffs will enure to the benefit of S&J, the individual defendants may be entitled to recover from S&J under directors’ and officers’ indemnity cover.

The Company is monitoring the progress of the Shareholders’ Litigation and undertakes to issue paid announcement(s) as soon as practicable in the Hong Kong press, in English and Chinese, pursuant to Rules 14.52 and 14.53 of the Listing Rules, if it receives any material information thereon between the date of dispatch of this circular and the SGM.

(B) Spear & Jackson UK

History

Spear & Jackson plc traces its heritage as a premium tools manufacturer and one of the world’s oldest hand and garden tool manufacturers to Spear & Jackson Limited which began its business in Sheffield, England in 1760. James Neill, from its own modest beginnings in Sheffield in 1889, has built up its reputation as a supplier of quality hacksaw blades under the “Eclipse” brand name. In 1985, the two businesses came together when James Neill acquired Spear & Jackson. In 1995, the parent company of the Neill/Spear & Jackson Group was renamed Spear & Jackson plc. In 2002, after periods of ownership by a venture capital organization and by U.S. Industries Inc. (now Jacuzzi Brands, Inc.), Spear & Jackson plc and its affiliate metrology group, Bowers Group plc, were acquired by Megapro Tools, Inc., a publicly quoted Nevada corporation. Shortly afterwards, Megapro Tools, Inc. changed its name to Spear & Jackson, Inc. to promote public recognition and more accurately reflect its intended business focus.

Business

S&J operates principally through the UK sub-holding companies, Spear & Jackson plc and Bowers Group plc. The business of S&J UK is carried out by a number of trading subsidiaries located in England, France, Netherlands, Australia, New Zealand and, most recently, in Shanghai, China.

S&J UK 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. Hand and garden products are currently exported to over 115 countries and distributed through subsidiary companies in Australia, New Zealand, France, Holland, China and the USA. S&J products are manufactured and distributed under a number of well-established brand names. (See “ Reasons for and Benefits of Acquisition ” at pages 14 to 16 of this circular).

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LETTER FROM THE BOARD

The four principal business units of S&J UK and their product offerings can be summarized as follows:

(1) NEILL TOOLS, which consists of Spear & Jackson Garden Tools and Neill Tools, manufactures hacksaws, garden and agricultural tools.
(2) ECLIPSE MAGNETICS’ key products are magnetic tools, ranging from very simple low-cost items to technically complex high value added systems.
(3) THE METROLOGY DIVISION comprising BOWERS, a manufacturer of high specification metrology instruments including precision bore gauges that measure the diameter of machined components, and MOORE & WRIGHT, whose core product ranges principally include low technology measuring tools and hand held gauges for checking the threads, diameters and tapers of machined components.
(4) ROBERT SORBY is a manufacturer of hand held wood working tools and complementary products. The products are handcrafted with strong aesthetic appeal.

Pension Plan Liabilities

S&J UK has four UK pension arrangements of which only one is a defined benefit pension plan (“Pension Plan” or “Plan”), the others being defined contribution plans. Certain past and current employees of S&J UK are covered under the Plan. The Plan was closed to new entrants in March 2005. Currently, there are approximately 2,700 members entitled to benefits under the Plan. At present, the actuarial value of the Pension Plan liabilities exceeds the Pension Plan assets. Under applicable UK laws and regulations, S&J UK is required to make cash contributions to the Pension Plan to the extent necessary to comply with minimum or statutory funding requirements.

The last valuation of the Plan was carried out as at 31 December 2004. This showed a cash contribution deficit of approximately £23 million (approximately HK$327 million), although there are a number of different accepted methods and assumptions used to measure pension deficits which could result in figures that are higher or lower than those given.

The Plan had assets of £96.8 million (approximately HK$1,376 million) as at 31 December 2005, which are invested broadly 50% in equities and 50% in bonds. At present, the Plan remains in deficit. Watson Wyatt Limited (“Watson Wyatt”) has been appointed by UPI as actuaries to carry out a review of the Pension Plan, to advise the Board and provide actuarial input into the clearance process (see below). Watson Wyatt’s findings are based on information provided to them by S&J UK and the instructions provided to them by UPI. Given the timescales and complexity of the Plan it has not been possible for Watson Wyatt to verify that the information provided is materially complete and accurate in all respects. A summary of some of the relevant information used by Watson Wyatt in the course of their work is presented below.

Cash contributions

Cash contribution deficit was approximately £23 million (approximately HK$327 million) at 31 December 2004 as set out in the report on the actuarial valuation produced by the Plan

— 25 —

LETTER FROM THE BOARD

Trustees’ actuary and dated 26 May 2005, and approximately £13 million (approximately HK$185 million) in May 2006 as set out in the letter from Wrigleys Solicitors LLP (on behalf of the Trustees of the Plan) to Mr. Beazer dated 17 May 2006 (“Wrigleys’ Letter”).

Cash contributions are agreed between S&J UK and the Plan Trustees. Current annual cash contributions by S&J are £1.9 million (approximately HK$27 million), as set out in the Schedule of Contributions agreed between S&J UK and the Plan Trustees and dated 26 May 2005.
From 1 August 2007 it has been agreed that, if there is no further arrangement with the Plan Trustees, the annual cash contribution will rise to approximately £3 million (approximately HK$43 million). This is set out in an undated letter from James Neill Holdings Limited, a subsidiary in the S&J UK group and the Principal Employer of the Plan, to the Plan Trustees.
In the Wrigleys’ Letter, the Plan Trustees, having taken actuarial advice, have indicated that, were a valuation to be carried out as at 10 May 2006, the annual cash contribution could rise to approximately £4 million (approximately HK$56.8 million), based on a deficit of £13 million although the letter noted that this cash contribution cannot be taken to be the maximum amount that could be required.

Accounting position

The deficit at 30 September 2005, as reflected in S&J Form 10-K 2005, was approximately £24 million (approximately HK$341 million).
The current annual accounting charge for the year ending 30 September 2006 as reflected in S&J Form 10-K 2005 is approximately £4.5 million (approximately HK$64 million).

Cash Contribution Deficit as at 31 May 2006

Watson Wyatt estimates the cash contribution deficit at 31 May 2006 at approximately £22 million (approximately HK$313 million). As requested by UPI, these calculations were carried out using assumptions consistent with those adopted for the last valuation of the Plan but allowing for moderate additional future improvements in longevity (more details are set out below).

In assessing the cash contribution deficit of the Plan as at 31 May 2006, the Directors of UPI agreed that Watson Wyatt should adopt an approach to setting the assumptions that is consistent with the approach adopted by the Plan Trustees’ actuary at the last valuation of the Plan as of 31 December 2004, but allowing for the impact of changes in bond yields, inflation and estimated returns on the Plan’s assets since that date and making a moderate allowance for additional future improvements in longevity. The calculations do not allow for the difference between actual Plan experience and the valuation assumptions since the 2004 valuation, for such items as salary increases and actual pension increases received etc.

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LETTER FROM THE BOARD

Watson Wyatt’s calculations have been based on an approximate updating of the latest formal actuarial valuation of the Plan as at 31 December 2004 to allow for estimated cashflows and the passage of time. This approach introduces an element of approximation relative to the result of a full actuarial valuation at 31 May 2006 which would allow for actual Plan experience over the period since the previous valuation. Watson Wyatt have not carried out such a full actuarial valuation. Watson Wyatt have also cautioned that the results of their findings are particularly sensitive to some assumptions such as the discount rate, level of salary inflation, level of assumed price inflation and mortality. A decrease in the discount rate assumed or an increase in salary inflation or price inflation will lead to an increase in reported cost.

It is unlikely that the assumptions used to determine the Plan deficit will be exactly borne out in practice and there is therefore no certainty that the pension deficit, howsoever measured, will not increase or diminish over time, due to actual Plan experience differing from assumptions (e.g. the return on the Plan assets or Plan members living longer than expected) or changes in assumptions, including those highlighted by Watson Wyatt. There is no assurance that the value of the Pension Plan assets, or the investment returns on those assets, will continue to be sufficient in the future. This could result in S&J making significant additional cash contributions to the Plan which would reduce the cash available for other business requirements, and require S&J to recognize a significant pension liability adjustment which would decrease the net assets of S&J.

Pensions Regulator’s Comfort Letter and Company’s Indemnity to Jacuzzi

Under United Kingdom law, an acquirer of a controlling stake in a company may under certain circumstances be deemed or required to assume certain pension liabilities. The Pensions Regulator can issue contribution notices, or financial support directions, to the acquirer of the controlling stake under the Pensions Act.

As disclosed above, as a condition precedent to Closing, both the Company and Jacuzzi intended to seek clearance from the Pensions Regulator, in relation to the Acquisition, from any obligation by S&J, Jacuzzi, UPI or their respective associates, to make any contribution or provide any financial support to cover pensions liabilities in respect of the Plan, and either party has the right to withdraw from the transaction unless such clearance is in form and substance satisfactory to them individually.

By Amendment No. 2, the Company and Jacuzzi agreed to waive their respective requirements for a clearance and accept the comfort letter dated 5 July 2006 (“comfort letter”) issued by the Pensions Regulator which states the Pensions Regulator is of the view, based on the information supplied to him in connection with the clearance application, that the change of control as a result of the Acquisition is not detrimental to the Pension Plan, and the Pensions Regulator believes a clearance is not necessary for the transaction. The Company is of the view that the comfort letter is fair and reasonable. The Trustees of the Plan have confirmed by letter dated 6 July 2006 that they accept the decision of the Pensions Regulator.

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LETTER FROM THE BOARD

By Amendment No. 2, the Company also agreed to indemnify the Jacuzzi Parties should the Pensions Regulator, regardless of the comfort letter, issue or purport to issue a contribution notice or financial support direction to any of the Jacuzzi Parties in relation to any UK pension plan of the S&J Group unless Jacuzzi breached its obligation, in connection with the clearance application, to provide information to the Pensions Regulator which is true, complete and accurate in all material respects. The indemnity is effective from the Closing for an indefinite period or until the latest date permitted by law.

Additionally, by Amendment No. 2, the Company agreed that, for a period of 12 months from the Closing Date, it will not (and it will use its best efforts to procure that the S&J Group will not) (i) take, or omit to take, any action, that causes the Pensions Regulator to issue or purport to issue a contribution notice against the Jacuzzi Parties in relation to any UK pension plan of the S&J Group, or (ii) engage in any action or inaction that constitutes an event which requires clearance by the Pensions Regulator unless it is confirmed that none of the Jacuzzi Parties shall be linked to a financial support direction or contribution notice in respect of such event.

Taking into account current economic circumstances which present expanded trading and other business opportunities for the S&J Group and synergistic potentials with the UPI Group; the Company’s view that, based on publicly available information of S&J presented in its Forms 10-K in respect of the 3 years ended 30 September 2005, and in Form 10-Q in respect of the period ended 31 March 2006, there is no reason to believe that the S&J Group will not be able to meet its funding obligations to the Pension Plan; the assessment by the Pensions Regulator that the change in control is not detrimental to the Pension Plan and clearance is not necessary for the transaction; and the confirmation by the Trustees that they accept the decision of the Pensions Regulator, the Company believes there is minimal risk associated with the indemnity.”

12. FINANCIAL AND TRADING PROSPECTS OF THE UPI GROUP

The fast changing market environment brought a number of challenges for the UPI Group. We are progressively enhancing our competitiveness in the field of switch-mode power supply products, expanding our manufacturing of electrical or electronic appliances and components to ODM (original design manufacturer) and OBM (own brand manufacturer) products while increasing sales volume of our power-tools products, chargers and related products (i.e. components, tooling and finished products).

We continue to strengthen the management team and further build up our undoubted strengths in tooling, molding, plastic injection and coil winding.

The most significant event in the past financial year was the agreement to purchase 61.8% of S&J, subject to certain closing conditions.

Assuming the Acquisition is successfully completed, it is the intention of the Company to change its financial year end from 31 March to 30 September in each year to align itself with the S&J Group. Barring unforeseen circumstances, the Company expects the UPI Group, combined with S&J Group, to achieve improved earnings for the period ending 30 September 2007 as compared with the Company’s last financial year ended 31 March 2006.

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LETTER FROM THE BOARD

13. FINANCIAL EFFECTS OF ACQUISITION

(a) Net assets

As at 31 March 2006, the audited net assets of the UPI Group were approximately HK$172.6 million. For illustrative purposes, the net assets value of the Enlarged Group attributable to Shareholders is expected to remain approximately the same on the basis of consolidating the audited consolidated balance sheet of the UPI Group as at 31 March 2006 with the unaudited HK GAAP conversion of the consolidated balance sheet of the S&J Group as at 30 September 2005, and translating all values denominated in US$ to HK$ using the rate set forth on page 4 of this circular.

(b) Earnings

The UPI Group recorded an audited consolidated net profit after tax of approximately HK$15.7 million for the year ended 31 March 2006. The S&J Group recorded an audited net income from continuing operations, after a provision for income tax, of approximately US$3.7 million (HK$29.0 million) for its latest year ended 30 September 2005. Given the track record, earnings ability, distribution network and customer base of the S&J Group, and the synergies that may be realised by the UPI Group from the Acquisition, the Acquisition is expected to improve the earnings of the Enlarged Group for the period ending 30 September 2007.

(c) Liabilities

As at 31 March 2006, the UPI Group’s gearing ratio was nil as the UPI Group had a net cash balance of approximately HK$30 million. With the Acquisition, the UPI Group will have HK$30 million of bank borrowing to finance the Acquisition.

14. DIRECTORS AND MANAGEMENT

The Company understands from Jacuzzi that all three existing directors on the S&J board, Mr. Harrington, Mr. Dinerman & Mr. Fletcher, having served more than a year, will not be re-elected to office and that pursuant to the Agreement, Jacuzzi will procure that UPI’s designees are appointed as their successors on the S&J board concurrently with and in connection with the Closing. The UPI designees are: Lewis Ho, general manager of Pantene Electronics (Hangzhou) Co. Ltd.; Maria Lam, senior finance director of the UPI Group and Andy Poon, senior finance manager of the UPI Group.

The Company is informed by Mr. William Fletcher that he intends to retire from all offices with Spear & Jackson, Inc., but is prepared to continue as Chairman and managing director of the UK principal operating subsidiaries. It is proposed that Mr. Beazer will join the boards of the main UK subsidiaries.

The Company does not currently contemplate any other material changes to the board or management of S&J (or for that matter, to the Board) at this time or immediately after Closing. Biographical information on the UPI designees and Mr. Beazer is set out below.

— 29 —

LETTER FROM THE BOARD

Lewis Hon Ching Ho — Director and General Manager, Pantene Electronics (Hangzhou) Co. Ltd. (“PE HGZ”)

Mr. Ho, age 45, joined Pantene Industrial Co. Limited, a wholly-owned subsidiary of UPI, in 1999. Mr. Ho holds an Associate’s diploma in Mechanical Engineering and an Associate’s diploma in Electrical/Electronic Engineering. He has worked in the manufacturing field for more than 27 years, of which 17 years was spent in the electronics industry. He has special expertise in tool and die-making. He was appointed a director and general manager of PE HGZ, a wholly-owned subsidiary of UPI, in 2005.

Andy Yan Wai Poon — Senior Finance Manager, UPI

Mr. Poon, age 36, joined UPI in 2005 and is responsible for finance matters. Mr. Poon is a qualified member of the Hong Kong Institute of Certified Public Accountants. He also holds a Bachelor’s degree in Accountancy and a Master’s degree of Corporate Finance from The Hong Kong Polytechnic University. He has over 10 years experience in the accounting and finance sector.

Maria Yuen Man Lam Senior Director of Finance and Company Secretary, UPI

Ms. Lam, age 36, joined UPI in 1997. She is responsible for the financial, treasury and information technology of UPI. She is a qualified member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants. Ms. Lam also holds a Bachelor’s degree in Accountancy from The Hong Kong Polytechnic University and a Master’s degree in Management from Macquarie University. Prior to joining UPI, she worked for Deloitte Touche Tohmatsu. Ms. Lam was appointed Company Secretary of UPI in June 2004.

Brian C Beazer — Chairman, UPI

Mr. Beazer, aged 71, was appointed a director of United Pacific Industries Limited in March, 1998, and was appointed Executive Chairman on 9 June 2003. Mr. Beazer is also a director of various Group subsidiaries. He is the Chairman of Beazer Homes USA, Inc., a leading United States homebuilder listed on the New York Stock Exchange with corporate offices in Atlanta, Georgia, USA. Mr. Beazer serves as a Director of Jacuzzi Brands, Inc. (NYSE), Numerex Corp. (Nasdaq), Jade Technologies Singapore Ltd (Singapore Stock Exchange), Beazer (Japan) Ltd, and Sealmint Ltd, and is a consultant to Strategic Industries LLC.

15. GENERAL

The Company, through its principal operating subsidiaries, is principally engaged in the manufacture and sale of power supply products and electronic components, but additionally, also offers OEM (original equipment manufacturing) and EMS (electronic/electrical manufacturing) services.

As the Agreement is subject to a number of conditions precedent, there is no certainty that all or any of the conditions precedent to the Agreement will be satisfied or waived, or that the Acquisition, which is unsolicited by S&J, will be concluded within the original timeframe

— 30 —

LETTER FROM THE BOARD

expected or at all. In addition, there is no certainty that the Company will proceed with an acquisition of the Minority Shares, or that if it does, that the attempt will be successful. Shareholders and potential investors are advised to exercise caution in dealing in the Shares of the Company.

16. SPECIAL GENERAL MEETING

A special general meeting of the Company will be held at The Laurel, Level 3, of the Renaissance Kowloon Hotel at 22 Salisbury Road, Tsim Sha Tsui, Kowloon on 28 July 2006 at 10:30 a.m. or so soon thereafter following the conclusion or adjournment of the annual general meeting of the Company to be held at 10:00 a.m. on the same day at the same place, for the purpose of considering, and if thought fit, passing the ordinary resolution to approve, among other things the Acquisition and the transactions contemplated in the Agreement. Notice of the SGM is set out on pages 294 to 295 of this circular.

Pursuant to Rule 14.49 of the Listing Rules, voting will be conducted by poll. The procedure by which you may demand a poll pursuant to the Bye-Laws of the Company are set out in Appendix III (General Information) at paragraph 10 under the heading “Procedures for Demanding a Poll”. The Company will procure that a poll is demanded by the Chairman of the meeting.

Mr. Beazer and Mr. Clarke and their respective associates (as defined in the Listing Rules) are required to abstain from voting in respect of the Acquisition under Rule 14.49 of the Listing Rules as they have a material interest in the Acquisition. No other persons are required to abstain from voting in respect of the Acquisition.

As at the Latest Practicable Date, Mr. Beazer held or is deemed to hold 136,827,775 Shares and, as far as the Company is aware, having made all reasonable enquiries:

(a) Mr. Beazer controlled or was entitled to exercise control over the voting rights in respect of his Shares;
(b) (i) there were no voting trusts or other agreements or arrangements or understanding entered into by or binding upon him; and
(ii) there were no obligations on or entitlements of Mr. Beazer, as at the Latest Practicable Date, whereby Mr. Beazer had or might have temporarily or permanently passed control over the exercise of the voting rights in respect of his Shares to third parties, either generally or on a case-by-case basis; and
(c) there were no discrepancies between the beneficial shareholding interests of Mr. Beazer in the Company as disclosed in this circular and the number of Shares in respect of which he will control or will be entitled to exercise control over the voting rights at the SGM.

— 31 —

LETTER FROM THE BOARD

As at the Latest Practicable Date, Mr. Clarke held or is deemed to hold 127,439,723 Shares and, as far as the Company is aware, having made all reasonable enquiries:

(a) Mr. Clarke controlled or was entitled to exercise control over the voting rights in respect of his Shares;
(b) (i) there were no voting trusts or other agreements or arrangements or understanding entered into by or binding upon him; and
(ii) there were no obligations on or entitlements of Mr. Clarke, as at the Latest Practicable Date, whereby Mr. Clarke had or might have temporarily or permanently passed control over the exercise of the voting rights in respect of his Shares to third parties, either generally or on a case-by-case basis; and
(c) there were no discrepancies between the beneficial shareholding interests of Mr. Clarke in the Company as disclosed in this circular and the number of Shares in respect of which he will control or will be entitled to exercise control over the voting rights at the SGM.

A form of proxy for use at the SGM is enclosed. If you are unable to attend the SGM in person, you are requested to complete and return the form of proxy to the Company’s principal place of business in Hong Kong at Unit 2705-6, 27/F., Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or any adjournment thereof should you so wish.

17. RECOMMENDATION

The Directors (including all the independent non-executive Directors) consider that the terms of the Stock Purchase Agreement, including the consideration specified therein, have been negotiated on arm’s length basis, are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend that Shareholders vote in favour of the ordinary resolution set out in the notice of SGM contained in this circular.

18. FURTHER INFORMATION

Your attention is also drawn to the appendices of this circular which set out among others financial information of the UPI Group, the S&J Group and other general information.

By order of the Board

United Pacific Industries Limited Brian C Beazer Executive Chairman

— 32 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

A. FINANCIAL INFORMATION

The following is a summary of the audited consolidated results for the three financial years ended 31 March 2006 extracted from the published audited financial statements of the UPI Group (which are unqualified and presented in HK GAAP):

Summary of Consolidated Income Statement

Year Ended 31 March 2006 2005 2004 HK$ HK$ HK$ 454,338,931 392,136,391 338,386,078 (392,598,589) (338,989,471) (291,824,863) 61,740,342 53,146,920 46,561,215 2,482,262 2,982,409 9,982,493 (3,139,748) (3,892,950) (1,398,380) (40,043,163) (36,625,184) (39,489,937) 1,000,000 — — — 1,400,000 (8,329,005) (2,028,022) (1,611,297) (702,693) 20,011,671 15,399,898 6,623,693 (4,357,611) (2,520,508) (20,350,699) 15,654,060 12,879,390 (13,727,006) — — 11,141,168 2.81 cents 2.31 cents (2.5) cents N/A 2.31 cents N/A	Year Ended 31 March 2006 2005 2004 HK$ HK$ HK$ 454,338,931 392,136,391 338,386,078 (392,598,589) (338,989,471) (291,824,863) 61,740,342 53,146,920 46,561,215 2,482,262 2,982,409 9,982,493 (3,139,748) (3,892,950) (1,398,380) (40,043,163) (36,625,184) (39,489,937) 1,000,000 — — — 1,400,000 (8,329,005) (2,028,022) (1,611,297) (702,693) 20,011,671 15,399,898 6,623,693 (4,357,611) (2,520,508) (20,350,699) 15,654,060 12,879,390 (13,727,006) — — 11,141,168 2.81 cents 2.31 cents (2.5) cents N/A 2.31 cents N/A	Year Ended 31 March 2006 2005 2004 HK$ HK$ HK$ 454,338,931 392,136,391 338,386,078 (392,598,589) (338,989,471) (291,824,863) 61,740,342 53,146,920 46,561,215 2,482,262 2,982,409 9,982,493 (3,139,748) (3,892,950) (1,398,380) (40,043,163) (36,625,184) (39,489,937) 1,000,000 — — — 1,400,000 (8,329,005) (2,028,022) (1,611,297) (702,693) 20,011,671 15,399,898 6,623,693 (4,357,611) (2,520,508) (20,350,699) 15,654,060 12,879,390 (13,727,006) — — 11,141,168 2.81 cents 2.31 cents (2.5) cents N/A 2.31 cents N/A
61,740,342 2,482,262 (3,139,748) (40,043,163) 1,000,000 — (2,028,022) 20,011,671 (4,357,611) 15,654,060	53,146,920 2,982,409 (3,892,950) (36,625,184) — 1,400,000 (1,611,297) 15,399,898 (2,520,508) 12,879,390	46,561,215 9,982,493 (1,398,380 (39,489,937 — (8,329,005 (702,693
		6,623,693 (20,350,699
		(13,727,006
— 2.81 cents N/A	— 2.31 cents 2.31 cents

— 33 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

Consolidated Balance Sheet

Year ended 31 March 2006 2005 2004 HK$ HK$ HK$ — 628,931 817,610 — 6,500,000 5,550,000 36,435,901 48,435,858 52,813,445 667,914 685,308 — — — — — — —	Year ended 31 March 2006 2005 2004 HK$ HK$ HK$ — 628,931 817,610 — 6,500,000 5,550,000 36,435,901 48,435,858 52,813,445 667,914 685,308 — — — — — — —	Year ended 31 March 2006 2005 2004 HK$ HK$ HK$ — 628,931 817,610 — 6,500,000 5,550,000 36,435,901 48,435,858 52,813,445 667,914 685,308 — — — — — — —
37,103,815 72,647,372 95,601,391 — 5,000,000 61,958,897 235,207,660 60,216,389 29,866,358 1,756,641 966,953 92,806,341 142,401,319 179,505,134	56,250,097 71,584,518 91,177,057 3,820 — 35,272,848 198,038,243 65,803,417 27,848,892 90,433 — 93,742,742 104,295,501 160,545,598	59,181,055
		47,330,573 80,235,256 — — 45,993,854
		173,559,683
		43,233,838 26,164,844 147,233 8,247,590
		77,793,505
		95,766,178
		154,947,233

— 34 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

Consolidated Balance Sheet

Non-current liabilities Secured bank loans — amount due after one year Obligations under finance lease — amount due after one year Deferred tax liability Net assets Capital and reserves Share capital Reserves Total equity attributable to equity holders of the Company	Year ended 31 March 2006 2005 2004 HK$ HK$ HK$ 3,087,853 3,289,710 — 2,297,265 — 90,433 1,546,508 558,508 — 6,931,626 3,848,218 90,433 172,573,508 156,697,380 154,856,800 55,705,840 55,705,840 55,705,840 116,867,668 100,991,540 99,150,960 172,573,508 156,697,380 154,856,800	Year ended 31 March 2006 2005 2004 HK$ HK$ HK$ 3,087,853 3,289,710 — 2,297,265 — 90,433 1,546,508 558,508 — 6,931,626 3,848,218 90,433 172,573,508 156,697,380 154,856,800 55,705,840 55,705,840 55,705,840 116,867,668 100,991,540 99,150,960 172,573,508 156,697,380 154,856,800
		90,433
		154,856,800
		55,705,840 99,150,960
		154,856,800

— 35 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

B. SUMMARY OF AUDITED FINANCIAL RESULTS

The following is a summary of the audited consolidated income statement of the Group for the two years ended 31 March, 2006, the audited consolidated balance sheet of the Group as at 31 March 2006 and 2005, the audited consolidated statement of changes in equity of the Group for the two years ended 31 March 2006 and the audited consolidated cash flow statement of the Group for the two years ended 31 March 2006, together with accompanying notes extracted from the 2006 annual report of the Company:

Consolidated Income Statement

For the year ended 31 March 2006

NOTES Turnover 7 Cost of sales Gross profit Other income 8 Distribution costs Administrative expenses Gain arising from changes in fair value of investment properties Reversal of impairment loss in respect of property, plant and equipment Finance costs 9 Profit before taxation 10 Income tax expense 12 Profit for the year Dividend 13 Earnings per share 14 — Basic — Diluted	2006 HK$ 454,338,931 (392,598,589)	2005 HK$ (restated) 392,136,391 (338,989,471) 53,146,920 2,982,409 (3,892,950) (36,625,184) — 1,400,000 (1,611,297) 15,399,898 (2,520,508) 12,879,390 — 2.31 cents 2.31 cents
	61,740,342 2,482,262 (3,139,748) (40,043,163) 1,000,000 — (2,028,022) 20,011,671 (4,357,611)	53,146,920 2,982,409 (3,892,950 (36,625,184 — 1,400,000 (1,611,297
		15,399,898 (2,520,508
	15,654,060 — 2.81 cents N/A

— 36 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 March 2006

NOTES Non-current assets Goodwill 15 Investment properties 16 Property, plant and equipment 17 Prepaid lease payments 18 Investments in securities 19 Available-for-sale investments 20 Current assets Inventories 21 Debtors and prepayments 22 Taxation recoverable Pledged bank deposits 23 Bank balances and cash 24 Current liabilities Creditors and accrued charges 25 Secured bank loans — amount due within one year 26 Obligations under finance leases — amount due within one year 27 Taxation payable Net current assets Total assets less current liabilities	2006 HK$ — — 36,435,901 667,914 — —	2005 HK$ (restated) 628,931 6,500,000 48,435,858 685,308 — —
	37,103,815 72,647,372 95,601,391 — 5,000,000 61,958,897 235,207,660 60,216,389 29,866,358 1,756,641 966,953 92,806,341 142,401,319 179,505,134	56,250,097
		71,584,518 91,177,057 3,820 — 35,272,848
		198,038,243
		65,803,417 27,848,892 90,433 —
		93,742,742
		104,295,501
		160,545,598

— 37 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 March 2006

NOTES Non-current liabilities Secured bank loans — amount due after one year 26 Obligations under finance leases — amount due after one year 27 Deferred tax liability 28 Net assets Capital and reserves Share capital 29 Reserves Total equity attributable to equity holders of the Company	2006 HK$ 3,087,853 2,297,265 1,546,508 6,931,626 172,573,508 55,705,840 116,867,668 172,573,508	2005 HK$ (restated) 3,289,710 — 558,508
		3,848,218
		156,697,380
		55,705,840 100,991,540
		156,697,380

— 38 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2006

Share capital HK$ 55,705,840 — — —	Share premium HK$ 13,526,924 — — —	Share option reserve HK$ — — — 102,358	Capital redemption reserve HK$ 1,442,200 — — —	Capital reserve HK$ 19,870,430 — — —	Translation reserve Accumulated profits HK$ HK$ 1,031,567 52,138,671 — 12,879,390 — — — —	Translation reserve Accumulated profits HK$ HK$ 1,031,567 52,138,671 — 12,879,390 — — — —	Dividend reserve HK$ 11,141,168 — (11,141,168) —	Total HK$ 154,856,800 12,879,390 (11,141,168) 102,358 156,697,380 (28,205) 15,654,060 15,625,855 250,273 172,573,508
55,705,840 — — — —	13,526,924 — — — —	102,358 — — — 250,273	1,442,200 — — — —	19,870,430 — — — —	1,031,567 (28,205) — (28,205) —	65,018,061 — 15,654,060 15,654,060 —	—	156,697,380
							— —	(28,205 15,654,060
							—	15,625,855
							—	250,273
55,705,840	13,526,924	352,631	1,442,200	19,870,430	1,003,362	80,672,121	—

The capital reserve of the Group represented the capital reserve arising on the group reorganisation in 1994.

— 39 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2006

Cash flows from operating activities Profit before taxation Adjustments for: Interest income Interest on bank borrowings Interest on obligations under finance leases Amortisation of goodwill (Gain) loss on disposal of property, plant and equipment Depreciation and amortisation of property, plant and equipment Amortisation of prepaid lease payments Allowance for bad and doubtful debts Impairment loss on goodwill Gain arising from changes in fair value of investment properties Reversal of impairment loss recognised in respect of property, plant and equipment Share-based payment expenses Surplus on revaluation of investment properties Operating cash flows before movements in working capital Increase in inventories Increase in debtors and prepayments (Decrease) increase in creditors and accrued charges Net cash generated from operations Mainland China profits tax paid Hong Kong Profits Tax paid Net cash from operating activities Cash flows from investing activities Purchases of property, plant and equipment Interest received Increase in pledged bank deposits Proceeds from disposal of property, plant and equipment Net proceeds received from disposal of investment properties Net cash from (used in) investing activities	2006 HK$ 20,011,671 (1,330,019) 1,937,968 90,054 — (307,031) 11,463,004 17,394 640,697 628,931 (1,000,000) — 250,273 —	2005 HK$ (restated) 15,399,898 (281,012) 1,598,338 12,959 188,679 591,726 12,015,208 17,394 1,666,195 — — (1,400,000) 102,358 (950,000) 28,961,743 (24,253,945) (12,607,996) 22,569,579 14,669,381 — (10,213,410) 4,455,971 (8,494,312) 281,012 — 962,263 — (7,251,037)
	32,402,942 (1,062,854) (5,065,031) (5,587,028) 20,688,029 (802,281) (1,596,557) 18,289,191 (5,814,367) 1,330,019 (5,000,000) 11,514,932 7,500,000 9,530,584	28,961,743 (24,253,945 (12,607,996 22,569,579
		14,669,381 — (10,213,410
		4,455,971
		(8,494,312 281,012 — 962,263 —
		(7,251,037

— 40 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2006

Cash flows from financing activities Dividends paid Principal repayments for obligations under finance leases Interest paid on bank borrowings Interest paid on obligations under finance leases Net cash outflow in trust receipts and export loans Repayment of bank loans New bank loans raised Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Analysis of the balances of cash and cash equivalents Bank balances and cash	2006 HK$ — (893,108) (1,937,968) (90,054) (396,215) (5,123,426) 7,335,250 (1,105,521) 26,714,254 (28,205) 35,272,848 61,958,897 61,958,897	2005 HK$ (restated) (11,141,168) (147,233) (1,598,338) (12,959) (315,952) (593,512) 5,883,222 (7,925,940) (10,721,006) — 45,993,854 35,272,848 35,272,848

— 41 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2006

1. GENERAL

The Company was incorporated in Bermuda as an exempted company with limited liability with its shares listed on The Stock Exchange of Hong Kong Limited (“The Stock Exchange”). The addresses of the registered office and principal place of business of the Company are disclosed in the Corporate Information of the annual report.

The Company is an investment holding company. Its subsidiaries are principally engaged in the manufacture and trading of voltage converters, coils and components for electrical/electronic/mechanical products and rechargeable battery products.

The financial statements are presented in Hong Kong dollar, which is the same as the functional currency of the Company.

2. APPLICATION OF NEW/REVISED HONG KONG FINANCIAL REPORTING STANDARDS

In the current year, the Group has applied, for the first time, a number of new Hong Kong Financial Reporting Standards (HKFRSs), Hong Kong Accounting Standards (HKASs) and Interpretations (INTs) (hereinafter collectively referred to as “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) that are effective for annual accounting periods beginning on or after 1 January 2005.

The adoption of these new HKFRSs has resulted in changes to the Group’s accounting policies in the following areas that have an effect on how the results for the current and prior accounting years are prepared and presented:

financial instruments (HKAS 32 and HKAS 39);
leases (HKAS 17);
share-based payments (HKFRS 2);
investment properties (HKAS 40); and
business combination (HKFRS 3).

HKAS 32 Financial instruments: Disclosure and Presentation and HKAS 39 Financial instruments: Recognition and Measurement

In the current year, the Group has applied HKAS 32 “Financial Instruments: Disclosure and Presentation” and HKAS 39 “Financial Instruments: Recognition and Measurement”. HKAS 32 requires retrospective application. HKAS 39, which is effective for annual periods beginning on or after 1 January 2005, generally does not permit the recognition, derecognition or measurement of financial assets and liabilities on a retrospective basis. The application of HKAS 32 has had no material impact on how financial instruments of the Group are presented for current and prior accounting periods. The principal effects resulting from the implementation of HKAS 39 are summarised below.

Prior to 1 April 2005, the Group has classified its investment securities in accordance with the benchmark treatment of Statement of Standard Accounting Practice 24 “Accounting for Investment for Securities” (SSAP 24). Under SSAP 24, investments in equity securities are classified as “investment securities” or “other investments” as appropriate. “Investment securities” are carried at cost less impairment losses (if any) while “other investments” are measured at fair value, with unrealised gains or losses included in profit or loss. From 1 January 2005 onwards, the Group has classified and measured its equity securities in accordance with HKAS 39. Under HKAS 39, financial assets are classified as

— 42 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

2. APPLICATION OF NEW/REVISED HONG KONG FINANCIAL REPORTING STANDARDS — CONTINUED

HKAS 32 Financial instruments: Disclosure and Presentation and HKAS 39 Financial instruments: Recognition and Measurement — continued

“financial assets at fair value through profit or loss”, “available-for-sale financial assets” or “loans and receivables”. “Financial assets at fair value through profit or loss” and “available-for-sale financial assets” are carried at fair value, with changes in fair values recognised in profit or loss and equity respectively. Available-for-sale equity investments that do not have quoted market prices in an active market and whose fair value cannot be reliably measured are measured at cost less impairment after initial recognition. “Loans and receivables” are measured at amortised cost using the effective interest method after initial recognition. At 1 April 2005, the Group has reclassified its investment securities and other investments which were fully impaired in previous years as available-for-sale investments. The adoption of the requirements of HKAS 39 in respect of equity investments has had no impact to the Group at 1 April 2005 nor has it has an impact on the current period.

HKAS 17 Leases

The Group has land use rights in the Mainland China, with self-constructed buildings erected on them for manufacturing purposes. In previous years, these property interests were included in property, plant and equipment and accounted for using cost model.

Under HKAS 17, the land and buildings elements of a lease of land and building are considered separately for the purposes of lease classification, unless the lease payments cannot be allocated reliably between the land and buildings elements, in which case, the entire lease is generally treated as a finance lease. To the extent that the allocation of the lease payments between the land and buildings elements can be made reliably, the leasehold interest in land are reclassified to prepaid lease payments under operating leases, which are carried at costs and amortised over the lease term on a straight-line basis. This change in accounting policy has been applied retrospectively. Alternatively, where the allocation between the land and buildings elements cannot be made reliably, the leasehold interest in land continue to be accounted for as property, plant and equipment. In the absence of any transitional rules, HKAS 17, the change in accounting policy has been applied retrospectively. The impacts on the adoption of HKAS 17 have been disclosed in note 3.

HKFRS 2 Share-based payments

In the current year, the Group has applied HKFRS 2 share-based payment which requires an expense to be recognised where the Group buys goods or obtains services in exchange for shares or rights over shares (“equity-settled transactions”), or in exchange for other assets equivalent in value to a given number of shares or rights over shares (“cash-settled transactions”). The principal impact of HKFRS 2 on the Group is in relation to the expensing of the fair value of share options granted to directors and employees of the Group, determined at the date of grant of the share options, over the vesting period. Prior to the application of HKFRS 2, the Group did not recognise the financial effect of these share options until they were exercised. In accordance with the relevant transitional provision, the Group has applied HKFRS 2 retrospectively to share options that were granted after 7 November 2002 and had not yet vested on 1 April 2005. Comparative figures have been restated. The change in policy has resulted in a decrease of HK$250,273 in the profit for the current year (2005: HK$102,358) and a decrease of HK$102,358 in the Group’s retained profits at 1 April 2005 (1 April 2004: Nil).

HKAS 40 Investment properties

In the current year, the Group has, for the first time, applied HKAS 40 Investment Property. The Group has elected to use the fair value model to account for its investment properties which requires gains or losses arising from changes in the fair value of investment properties to be recognised directly in the profit or loss for the period in which they arise. In previous periods, investment properties under the predecessor accounting standard were measured at open market

— 43 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

2. APPLICATION OF NEW/REVISED HONG KONG FINANCIAL REPORTING STANDARDS — CONTINUED

HKAS 40 Investment properties — continued

values, with revaluation surplus or deficits credited or charged to investment property revaluation reserve unless the balance on this reserve was insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance on the investment property revaluation reserve was charged to the income statement. Where a decrease had previously been charged to the income statement and revaluation subsequently arose, that increase was credited to the income statement to the extent of the decrease previously charged. The Group has applied the relevant transitional provisions in HKAS 40 and elected to apply HKAS 40 from 1 April 2005 onwards. The adoption has had no impact on the Group’s accumulated profits on 1 April 2005 and the results for the current year.

HKFRS 3 Business combination: Goodwill

In previous years, goodwill was capitalised and amortised over its estimated useful life. The Group has applied the relevant transitional provisions in HKFRS 3. With respect to goodwill previously capitalised on the balance sheet, the Group on 1 April 2005 eliminated the carrying amount of the related accumulated amortisation of HK$314,465 with a corresponding decrease in the cost of goodwill (see Note 15). The Group has discontinued amortising such goodwill from 1 April 2005 onwards and such goodwill will be tested for impairment at least annually. Goodwill arising on acquisitions after 1 April 2005 is measured at cost less accumulated impairment losses (if any) after initial recognition. As a result of this change in accounting policy, no amortisation of goodwill has been charged but fully impaired in the current year.

At the date of authorisation of these consolidated financial statements, the following standards and interpretations and amendments were in issue but not yet effective for the years covered by these consolidated financial statements:

	1
HKAS 1 (Amendment)	Capital disclosures
HKAS 19 (Amendment)	Actuarial gains and losses, group plans	and disclosures2
HKAS 21 (Amendment)	Net investment in a foreign operation2
HKAS 39 (Amendment)	Cash flow hedge accounting of forecast intragroup transactions2
HKAS 39 (Amendment)	The fair value option2
HKAS 39 and HKFRS 4	Financial guarantee contracts2
(Amendments)
HKFRS 6	Exploration for and evaluation of mineral resources2
	1
HKFRS 7	Financial instruments: Disclosures
HK(IFRIC) — INT 4	Determining whether an arrangement contains a lease2
HK(IFRIC) — INT 5	Rights to interests arising from	decommissioning,	restoration	and
	environmental rehabilitation funds2
HK(IFRIC) — INT 6	Liabilities arising from participating in	a specific market	— waste
	electrical and electronic equipment3
HK(IFRIC) — INT 7	Applying the restatement approach under HKAS 29
	Financial Reporting in Hyperinflationary Economies4
HK(IFRIC) — INT 8	Scope of HKFRS 25
HK(IFRIC) — INT 9	Reassessment of embedded derivatives6

1 Effective for annual periods beginning on or after 1 January 2007.

2 Effective for annual periods beginning on or after 1 January 2006. 3 Effective for annual periods beginning on or after 1 December 2005. 4 Effective for annual periods beginning on or after 1 March 2006. 5 Effective for annual periods beginning on or after 1 May 2006.
6 Effective for annual periods beginning on or after 1 June 2006.

— 44 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

2. APPLICATION OF NEW/REVISED HONG KONG FINANCIAL REPORTING STANDARDS — CONTINUED

The Group has not early applied the above HKFRSs that have been issued but are not yet effective. The directors of the Company anticipate that the application of these HKFRSs will have no material impact on the consolidated financial statements.

3. SUMMARY OF THE EFFECTS OF THE CHANGES IN ACCOUNTING POLICIES

The effects of the changes in the accounting policies described above on the results for the current and prior years are as follows:

Recognition of share-based payments as expenses Decrease in profit for the year	2006 HK$ 250,273 250,273	2005 HK$ 102,358
		102,358

The cumulative effects of the application of the new HKFRSs on 31 March 2005 are summarised below:

	As at		As at
	31 March		31 March
	2005		2005
	(originally stated)	Adjustments	(restated)
	HK$	HK$	HK$
Balance sheet items
Impact of HKAS 17
Property, plant and equipment	49,121,166	(685,308)	48,435,858
Prepaid lease payments	—	685,308	685,308
Total effects on assets and liabilities	49,121,166	—	49,121,166
Retained earnings	65,120,419	(102,358)	65,018,061
Share options reserve — recognition of equity
— settled share-based payment expenses	—	102,358	102,358
	65,120,419	—	65,120,419

— 45 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared under the historical cost convention, except for investment properties and financial instruments, which are measured at fair values, as explained in the principal accounting policies set out below.

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange and by the Hong Kong Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March each year.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective dates of acquisition or disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group balances, income and expenses are eliminated on consolidation.

Goodwill

Goodwill arising on an acquisition for which the agreement date is on or after 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the date of acquisition.

Goodwill arising on the acquisition of subsidiary is presented separately in the balance sheet. Goodwill is carried at cost less any accumulated impairment losses.

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Revenue recognition

Revenue is measured at fair value of the consideration received or receivable and represented amounts receivable for goods and services provided in the normal course of business, net of discounts and sales related taxes.

Sales of goods are recognised when goods are delivered and title has been passed.

— 46 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

Rental income, including rentals invoiced in advance from properties let under operating leases, is recognised on a straight line basis over the term of the leases.

Interest income from a financial asset is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial assets to that assets net carrying amount.

Investment properties

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising from changes in the fair value of investment properties are included in profit or loss for the period in which they arise.

Property, plant and equipment

Property, plant and equipment other than construction in progress are stated at cost less accumulated depreciation and amortisation and accumulated impairment losses.

Depreciation and amortisation is provided to write off the cost of property, plant and equipment other than construction in progress over their estimated useful lives, using the straight line method, at the following rates per annum:

Leasehold land and buildings	Over the remaining unexpired terms of the leases or fifty years,
	whichever is the shorter
Furniture, fixtures and equipment	10% - 25%
Motor vehicles	20% - 25%
Plant and machinery	10% - 331⁄3 %

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year in which the item is derecognised.

Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

— 47 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

Financial assets

The Group’s financial assets are classified into loans and receivables, and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the market place. The accounting policies adopted in respect of each category of financial assets are set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables comprising debtors are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as any of the other categories (set out above). At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment loss on available-for-sale financial assets is recognised in profit or loss. Impairment losses on available-for-sale equity investments will not reverse in subsequent periods.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and bank balances, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s financial liabilities are generally classified other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Bank borrowings

Interest-bearing bank loans and overdrafts are initially recognised at fair value, and are subsequently measured at amortised costs, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowings costs.

— 48 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

Creditors and accrued charges

Creditors and accrued charges are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs.

Borrowing costs

All borrowing costs are recognised as and included in finance costs in the consolidated income statement in the period in which they are incurred.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct costs and those overhead that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the first-in, first-out method. Net realisable value represents the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Impairment of assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Taxation

Taxation represents the sum of the tax paid or currently payable and deferred tax.

The tax currently paid and payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes income statement items that are never taxable or deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

— 49 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Company (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in the income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

The Group as lessee

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

— 50 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES — CONTINUED

Assets held under finance leases are recognised as assets of the Group at fair values at inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to profit or loss.

Retirement benefits costs

Payments to the defined contribution retirement plan are charged as expenses as they fall due.

The Group operates a defined contribution retirement benefits scheme under the Mandatory Provident Fund Schemes Ordinance (the “MPF” Scheme”), for employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees’ basic salaries and are charged to profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme, except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the MPF Scheme.

The employees of the Group’s subsidiaries which operates in Mainland China are required to participate in a central pension scheme operated by the local municipal government. The subsidiaries are required to contribute a certain percentage of its payroll costs to the central pension scheme. The contributions are charged to the profit and loss account as they become payable in accordance with the rules of the central pension scheme.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

In process of applying the Group’s accounting policies, which are described in note 4 above, management had made the following estimate that have significant effect on the amounts recognised in the consolidated financial statements.

Inventories

Inventories are measured at lower of cost or net realisable value. The management of the Group reviews the carrying amount of the inventory at each balance sheet date, and makes allowance for inventory items identified, if any, to be carried at lower recoverable value through estimation of the expected selling prices under the current market conditions.

6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s major financial instruments include debtors, bank deposits, creditors and accrued charges and bank borrowings. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31 March 2006 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. The Group is exposed to concentration risk as a significant portion of its business are derived from its largest customers. As at 31 March 2006, trade debtors of HK$36,737,960 (2005: HK$38,339,056) were

— 51 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

6. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES — CONTINUED

Credit risk — continued

contributed by the top five trade debtors of the Group. In order to minimise the credit risk, the management of the Group has delegated a team responsible for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by the international credit rating agencies.

Currency risk

Certain trade receivables and borrowings of the Group are denominated in foreign currencies. The Group did not have a foreign currency hedging policy as at the balance sheet date. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arises.

Interest rate risk

The Group’s cash flow interest rate risk primarily relates to variable-rate bank loans.

The Group’s fair value interest rate risk relates primarily to the fixed-rate obligations under finance leases.

The Group currently does not have any risk hedging policy. However, the management monitors interest rate risk exposure and will consider hedging significant risk exposure should the used arises.

— 52 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

7. SEGMENT INFORMATION

Business Segments

The Group’s principal activities are manufacture and trading of voltage converters, coils and components for electrical/electronic/mechanical products and rechargeable battery products. These two business segments are the basis on which the Group reports its primary segment information. Segment information about these businesses is presented as below:

Voltage
converters,
coils and
components for
electrical/
electronic/
mechanical
products
Rechargeable
battery
products
HK$
HK$
For the year ended 31 March 2006
Turnover
External sales
409,054,175
45,284,756
Inter-segment sales
30,410,741
5,079,490
439,464,916
50,364,246
Inter-segment sales are charged at prevailing market rates.
Result
Segment result
21,051,363
297,331
Unallocated corporate expenses
Interest income
Gain arising from change in fair value of
investment properties
Finance costs
Profit before taxation
Income tax expense
Profit for the year
Other information
Additions of property, plant and equipment
10,153,713
517,235
Impairment loss on goodwill
—
628,931
Share-based payment expenses
250,273
—
Depreciation and amortisation of property,
plant and equipment
10,794,652
668,352
Gain on disposal of property, plant and equipment
307,031
—

Elimination
Consolidated
HK$
HK$
—
454,338,931
(35,490,231)
—
(35,490,231)
454,338,931
21,348,694
(1,639,020)
1,330,019
1,000,000
(2,028,022)
20,011,671
(4,357,611)
15,654,060
10,670,948
628,931
250,273
11,463,004
307,031

— 53 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

7. SEGMENT INFORMATION — CONTINUED

Business Segments — continued

		Voltage
	converters, coils
	and components
	for electrical/
	electronic/
	mechanical		Rechargeable
		products	battery	products	Consolidated
		HK$		HK$	HK$
As at 31 March 2006
Balance sheet
Assets
Segment assets	195,045,096			9,335,022	204,380,118
Unallocated corporate assets					67,931,357
Total assets					272,311,475
Liabilities
Segment liabilities	58,464,773			1,484,551	59,949,324
Unallocated corporate liabilities					39,788,643
Total liabilities					99,737,967
	Voltage
	converters,
	coils and
	components for
	electrical/
	electronic/	Rechargeable
	mechanical	battery
	products	products		Elimination	Consolidated
	HK$		HK$	HK$	HK$
For the year ended 31 March 2005
Turnover
External sales	345,492,937	46,643,454		—	392,136,391
Inter-segment sales	33,573,626		—	(33,573,626)	—
	379,066,563	46,643,454		(33,573,626)	392,136,391

Inter-segment sales are charged at prevailing market rates.

— 54 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

7. SEGMENT INFORMATION — CONTINUED

Business Segments — continued

	Voltage
	converters,
	coils and
	components for
	electrical/
	electronic/	Rechargeable
	mechanical	battery
	products	products	Elimination	Consolidated
	HK$	HK$	HK$	HK$
Result
Segment result	15,785,216	2,153,367		17,938,583
Unallocated corporate expenses				(1,208,400)
Interest income				281,012
Finance costs				(1,611,297)
Profit before taxation				15,399,898
Income tax expense				(2,520,508)
Profit for the year				12,879,390
Other information
Reversal of impairment loss recognised in respect
of property, plant and equipment	1,400,000	—		1,400,000
Additions of property, plant and equipment	8,461,171	33,141		8,494,312
Amortisation of goodwill	—	188,679		188,679
Share-based payment expenses	102,358	—		102,358
Depreciation and amortisation of property, plant
and equipment	12,013,774	1,434		12,015,208
Loss on disposal of property, plant
and equipment	591,726	—		591,726

— 55 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

7. SEGMENT INFORMATION — CONTINUED

Business Segments — continued

	Chargers and
	voltage
	converters, coils
	and components
	for electrical/
	electronic/
	mechanical	Rechargeable
	products	battery products	Consolidated
	HK$	HK$	HK$
As at 31 March 2005
Balance sheet
Assets
Segment assets	207,980,239	10,864,818	218,845,057
Unallocated corporate assets			35,443,283
Total assets			254,288,340
Liabilities
Segment liabilities
	64,366,389	654,780	65,021,169
Unallocated corporate liabilities			32,569,791
Total liabilities			97,590,960

— 56 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

7. SEGMENT INFORMATION — CONTINUED

Geographical Segments

The Group’s operations are located in Mainland China and Hong Kong. The following table provides an analysis of the Group’s turnover by geographical market, irrespective of the origin of the goods:

The People’s Republic of China (“The PRC”) Mainland China Hong Kong United States of America, South America and Canada Europe Malaysia Asia (excluding the PRC and Malaysia)	Turnover by geographical market Year ended 31 March 2006 2005 HK$ HK$ 35,642,855 56,710,594 77,620,445 55,478,458	Turnover by geographical market Year ended 31 March 2006 2005 HK$ HK$ 35,642,855 56,710,594 77,620,445 55,478,458
	113,263,300 166,183,443 138,606,034 19,514,245 16,771,909	112,189,052 155,043,733 96,291,925 10,223,745 18,387,936
	454,338,931	392,136,391

The following is an analysis of the carrying amount of consolidated total assets and additions to property, plant and equipment analysed by the geographical areas in which the assets are located:

Carrying amount of segment assets Hong Kong Mainland China United States of America	As at 31 March 2006 2005 HK$ HK$ 190,362,216 143,986,695 80,960,654 110,297,825 988,605 — 272,311,475 254,284,520	As at 31 March 2006 2005 HK$ HK$ 190,362,216 143,986,695 80,960,654 110,297,825 988,605 — 272,311,475 254,284,520
		254,284,520

— 57 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

7. SEGMENT INFORMATION — CONTINUED

Additions to property, plant and equipment Mainland China Hong Kong Others OTHER INCOME The other income comprises: Exchange gain Gain on disposal of property, plant and equipment Interest earned on bank deposits and balances Property rental income net of outgoings Change in fair value of investment properties Others FINANCE COSTS Interest on: Bank borrowings wholly repayable within five years Obligations under finance leases Total finance costs	Year ended 31 March 2006 2005 HK$ HK$ 2,905,484 6,137,297 7,674,255 2,357,015 91,209 — 10,670,948 8,494,312 2006 2005 HK$ HK$ — 133,630 307,031 — 1,330,019 281,012 560,953 889,057 — 950,000 284,259 728,710 2,482,262 2,982,409 2006 2005 HK$ HK$ 1,937,968 1,598,338 90,054 12,959 2,028,022 1,611,297	Year ended 31 March 2006 2005 HK$ HK$ 2,905,484 6,137,297 7,674,255 2,357,015 91,209 — 10,670,948 8,494,312 2006 2005 HK$ HK$ — 133,630 307,031 — 1,330,019 281,012 560,953 889,057 — 950,000 284,259 728,710 2,482,262 2,982,409 2006 2005 HK$ HK$ 1,937,968 1,598,338 90,054 12,959 2,028,022 1,611,297
		8,494,312
		2005 HK$ 133,630 — 281,012 889,057 950,000 728,710
		2,982,409
		2005 HK$ 1,598,338 12,959
		1,611,297

8. OTHER INCOME

9. FINANCE COSTS

— 58 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

10. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging (crediting): Directors’ remuneration (Note 11) Staff salaries, allowances and welfare Provident fund contributions Mandatory provident fund contributions Share-based payment expenses to other employees Direct labour costs Total staff costs Amortisation of goodwill included in administrative expenses Amortisation of prepaid lease payments Impairment loss on goodwill Auditors’ remuneration Exchange loss Depreciation and amortisation of property, plant and equipment Owned assets Assets held under finance leases (Gain) loss on disposal of property, plant and equipment Allowance for bad and doubtful debts Minimum lease payments in respect of rented premises Cost of inventories recognised as expenses	2006 HK$ 3,210,469 35,235,452 1,215,167 434,513 78,517 21,442,420	2005 HK$ (restated) 4,108,711 29,907,297 699,418 264,478 32,112 19,236,476
	61,616,538 — 17,394 628,931 923,774 882,623 11,036,476 426,528 11,463,004	54,248,492
		188,679 17,394 — 865,000 — 11,955,906 59,302
		12,015,208
	(307,031) 640,697 4,566,130 392,598,589	591,726 1,666,195 3,279,220 338,989,471

— 59 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

11. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

The emoluments paid or payable to each of the 10 (2005: 13) directors were as follows:

Fees Basic salaries and allowances Retirement benefits scheme contribution Share-based payment expenses Consulting fee HK$ HK$ HK$ HK$ HK$ — — — 49,073 934,800 100,000 — — 24,537 — — 480,000 12,000 98,146 — — 948,913 3,000 — — 180,000 — — — — 100,000 — — — — 100,000 — — — — — — — — — 180,000 — — — — — — — — — 660,000 1,428,913 15,000 171,756 934,800	Fees Basic salaries and allowances Retirement benefits scheme contribution Share-based payment expenses Consulting fee HK$ HK$ HK$ HK$ HK$ — — — 49,073 934,800 100,000 — — 24,537 — — 480,000 12,000 98,146 — — 948,913 3,000 — — 180,000 — — — — 100,000 — — — — 100,000 — — — — — — — — — 180,000 — — — — — — — — — 660,000 1,428,913 15,000 171,756 934,800	Fees Basic salaries and allowances Retirement benefits scheme contribution Share-based payment expenses Consulting fee HK$ HK$ HK$ HK$ HK$ — — — 49,073 934,800 100,000 — — 24,537 — — 480,000 12,000 98,146 — — 948,913 3,000 — — 180,000 — — — — 100,000 — — — — 100,000 — — — — — — — — — 180,000 — — — — — — — — — 660,000 1,428,913 15,000 171,756 934,800	Fees Basic salaries and allowances Retirement benefits scheme contribution Share-based payment expenses Consulting fee HK$ HK$ HK$ HK$ HK$ — — — 49,073 934,800 100,000 — — 24,537 — — 480,000 12,000 98,146 — — 948,913 3,000 — — 180,000 — — — — 100,000 — — — — 100,000 — — — — — — — — — 180,000 — — — — — — — — — 660,000 1,428,913 15,000 171,756 934,800	Fees Basic salaries and allowances Retirement benefits scheme contribution Share-based payment expenses Consulting fee HK$ HK$ HK$ HK$ HK$ — — — 49,073 934,800 100,000 — — 24,537 — — 480,000 12,000 98,146 — — 948,913 3,000 — — 180,000 — — — — 100,000 — — — — 100,000 — — — — — — — — — 180,000 — — — — — — — — — 660,000 1,428,913 15,000 171,756 934,800	Total HK$ 983,873 124,537 590,146 951,913 180,000 100,000 100,000 — 180,000 —
					3,210,469
— 50,685 — — — — 180,000 140,000 50,000 — 91,233 — —	— — 360,000 1,076,998 576,000 555,749 — — — — — — —	— — 8,000 12,000 — 3,000 — — — — — — —	20,070 10,035 40,141 — — — — — — — — — —	934,800 — — — — — — — — — — — —	954,870 60,720 408,141 1,088,998 576,000 558,749 180,000 140,000 50,000 — 91,233 — —
511,918	2,568,747	23,000	70,246	934,800	4,108,711

* Independent non-executive directors

None of the directors has waived any emoluments during the year.

— 60 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

11. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS — CONTINUED

The management consider that the directors of the Company are the key management of the Group.

Employees’ emoluments

The five highest paid individuals of the Group included two (2005: two) directors, details of whose emoluments are set out above. The emoluments of the three highest paid employees for the year ended 31 March 2006, other than directors of the Company, were as follows:

Salaries and other benefits Mandatory provident fund contribution	2006 HK$ 2,695,143 36,000 2,731,143	2005 HK$ 2,601,750 36,000
		2,637,750

Emoluments of these employees were within the following bands:

Nil — HK$1,000,000 INCOME TAX EXPENSE The charge comprises: Current taxation Hong Kong Mainland China Under(over)provision in prior years Deferred taxation (note 28)	Number of employee(s) 2006 2005 3 3 2006 2005 HK$ HK$ 1,882,042 1,979,090 1,421,249 —	Number of employee(s) 2006 2005 3 3 2006 2005 HK$ HK$ 1,882,042 1,979,090 1,421,249 —
		2005 HK$ 1,979,090 —
	3,303,291 66,320 988,000	1,979,090 (17,090) 558,508
	4,357,611	2,520,508

12. INCOME TAX EXPENSE

Hong Kong Profits Tax is calculated at 17.5% (2005: 17.5%) of the estimated assessable profit for the year. Taxation for Mainland China is calculated at the rates prevailing in the respective jurisdictions.

— 61 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

12. INCOME TAX EXPENSE — CONTINUED

The total charge for the year can be reconciled to the profit per the consolidated income statement as follows:

Profit before taxation Tax at the average income tax rate of 16.25% (2005: 17.5%) Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Tax effect of tax loss not recognised Utilisation of tax losses previously not recognised Effect of difference tax rate of subsidiaries operating in other jurisdictions Under(over)provision in the prior years Taxation charge for the year	2006 HK$ 20,011,671 3,251,897 1,505,730 (596,272) 199,248 (166,411) 97,099 66,320 4,357,611	2005 HK$ 15,399,898
		2,694,982 53,340 (512,946 302,222 — — (17,090
		2,520,508

Note: The average income tax rate for the year ended 31 March 2006 represents the average tax rate applicable to Hong Kong and Mainland China. The income tax rate for the year ended 31 March 2005 represented the Hong Kong Profits Tax rate of 17.5%.

13. DIVIDEND

The directors of the Company do not recommend the payment of a dividend for the year ended 31 March 2006 (2005:

nil).

14. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share is based on the following data:

Earnings Earnings for the purposes of basic earnings per share (profit for the year) Weighted average number of ordinary shares for the purpose of basic earnings per share Effect of dilutive potential ordinary shares in respect of share options Weighted average number of ordinary shares for the purpose of diluted earnings per share	2006 HK$ 15,654,060	2005 HK$ (restated) 12,879,390
	557,058,400 —	557,058,400 54,529
	557,058,400	557,112,929

Diluted earnings per share has not been presented because the exercise price of the Company’s share options was higher than the average market price of shares for the year ended 31 March 2006.

— 62 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

14. EARNINGS PER SHARE — CONTINUED

Impact of changes in accounting policies

Changes in the Group’s accounting policies during the year are described in detail in note 2. To the extent that those changes have had an impact on results reported for 2006 and 2005, they have had an impact on the amounts reported for earnings per share. The following table summaries that impact on both basic and diluted earnings per share:

Impact on basic
earnings per share
2006
2005
HK$
HK$
Figures before adjustments
2.86 cents
2.33 cents
Adjustments arising from changes in accounting
policies
(0.05 cents)
(0.02 cents)
As reported/restated
2.81 cents
2.31 cents
GOODWILL
COST
At 1 April 2004, 31 March 2005
Elimination of accumulated amortisation upon application of HKFRS 3
Impairment loss recognised for the year
At 31 March 2006
AMORTISATION
At 1 April 2004
Provided for the year
At 31 March 2005 and 1 April 2005
Elimination of accumulated amortisation upon application of HKFRS 3
At 31 March 2006
CARRYING VALUE
At 31 March 2006
At 31 March 2005

Impact on diluted
earnings per share
2006
2005
HK$
HK$
N/A
2.33 cents
N/A
(0.02 cents)
N/A
2.31 cents
HK$
943,396
(314,465)
(628,931)
—
125,786
188,679
314,465
(314,465)
—
—
628,931

15. GOODWILL

Until 31 March 2005, goodwill is amortised over its estimated useful life of five years.

— 63 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

15. GOODWILL — CONTINUED

As explained in Note 7, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill have been allocated to one individual cash generating unit (“CGU”), a subsidiary in rechargeable battery product segment.

During the year ended 31 March 2006, the Group fully impaired the goodwill as the directors are of the opinion that business prospect of this subsidiary is unfavourable and the recoverable amount of the CGU cannot support the amount of goodwill.

16. INVESTMENT PROPERTIES

AT VALUATION At 1 April 2004 Change in fair value during the year At 31 March 2005 and 1 April 2005 Gain arising from changes in fair value Disposal At 31 March 2006	HK$ 5,550,000 950,000 6,500,000 1,000,000 (7,500,000) —

On 30 June 2005, the directors fair valued the investment properties based on the net sale proceeds to be obtained from the potential buyer. A gain arising from change in fair value of HK$1,000,000 was recognised at interim date.

On 5 October 2005, the Group has entered into a sale and purchase agreement with an independent third party to dispose of investment properties at consideration of HK$8,000,000 (with disposal expenses of HK$500,000).

— 64 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

17. PROPERTY, PLANT AND EQUIPMENT

Land and buildings Furniture, fixtures and equipment HK$ HK$ 41,184,935 22,768,299 — 4,702,824 (2,417,301) (1,501,405) — 295,347	Land and buildings Furniture, fixtures and equipment HK$ HK$ 41,184,935 22,768,299 — 4,702,824 (2,417,301) (1,501,405) — 295,347	Motor vehicles HK$ 4,765,398 — (912,021) —	Plant and machinery Construction in progress HK$ HK$ 48,914,037 295,347 3,791,488 — — — — (295,347)	Plant and machinery Construction in progress HK$ HK$ 48,914,037 295,347 3,791,488 — — — — (295,347)	Plant and machinery Construction in progress HK$ HK$ 48,914,037 295,347 3,791,488 — — — — (295,347)
38,767,634 — (21,196,520) 17,571,114 15,483,020 774,721 (1,455,037) (1,400,000) 13,402,704 386,123 (10,272,779) 3,516,048	26,265,065 7,450,937 (739,662) 32,976,340 15,647,138 3,243,628 (1,198,781) — 17,691,985 3,819,092 (541,178) 20,969,899	3,853,377 773,099 — 4,626,476 4,220,957 181,521 (622,920) — 3,779,558 185,366 — 3,964,924	52,705,525 2,446,912 (180,884) 54,971,553 30,466,158 7,815,338 — — 38,281,496 7,072,423 (95,208) 45,258,711	— — — — — — — — — — — —	121,591,601 10,670,948 (22,117,066
					110,145,483
					65,817,273 12,015,208 (3,276,738 (1,400,000
					73,155,743 11,463,004 (10,909,165
					73,709,582

Leasehold land was included in property, plant and equipment as the allocations between the land and buildings elements cannot be made reliably.

— 65 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

17. PROPERTY, PLANT AND EQUIPMENT — CONTINUED

The carrying value of the Group’s property interests shown above comprises: Leasehold properties held under long leases in Hong Kong Leasehold properties outside Hong Kong held under — long leases — medium term leases	2006 HK$ — 2,147,057 11,908,009 14,055,066	2005 HK$ 10,959,070 2,200,847 12,205,013
		25,364,930

The net book value of furniture, fixtures and equipment of HK$12,006,441 (2005: HK$8,573,080) includes an amount of HK$4,430,053 (2005: nil) in respect of assets held under finance leases.

On 31 March 2005, the directors conducted a review for the carrying value of the property, plant and equipment and reversed impairment loss in respect of certain land and buildings of HK$1,400,000 based on the net sale proceeds to be obtained from potential buyer. In April 2005, the Group has entered into a sale and purchase agreement with an independent third party to dispose of leasehold properties in Hong Kong at consideration of HK$11,480,000.

18. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments comprise: Medium-term land use right in the PRC 19. INVESTMENTS IN SECURITIES INVESTMENT SECURITIES Unlisted shares, at cost Impairment loss OTHER INVESTMENTS Listed shares in Hong Kong, market value at 31 March 2005 (Note) Impairment loss	2006 2005 HK$ HK$ 667,914 685,308 2006 & 2005 HK$ 773,450 (773,450) — 2,052,240 (2,052,240) —	2006 2005 HK$ HK$ 667,914 685,308 2006 & 2005 HK$ 773,450 (773,450) — 2,052,240 (2,052,240) —
		—
		2,052,240 (2,052,240)
		—

— 66 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

19. INVESTMENTS IN SECURITIES — CONTINUED

Note: The amount represents the Group’s investment in the shares of Climax International Company Limited (“CICL”), a company incorporated in Bermuda with its shares listed on The Stock Exchange, representing approximately a 1.74% of the issued share capital of CICL as at 31 March 2005.

In the opinion of the directors, in view of the low volume of transactions in the market for CICL’s shares and it is difficult to dispose of the entire shares in the market, full impairment loss was made.

20. AVAILABLE-FOR-SALE INVESTMENTS

As mentioned in note 2, from 1 April 2005 onwards, other investments have been reclassified to available-for-sale investments, in accordance with the requirements to HKAS 39. At 31 March 2005, the carrying value of the other investments amounted to HK$ Nil as the investments were fully impaired in prior years.

Available-for-sale investments as at 31 March 2006 comprises: Unlisted equity investments, at cost Impairment loss Equity securities listed in Hong Kong, market value at 31 March 2006 (Note) Impairment loss	2006 HK$ 773,450 (773,450)
	—
	957,712 (957,712)
	—

Note: The amount represents the Group’s investment in the shares of CICL representing approximately a 1.15% of the issued share capital of CICL as at 31 March 2006.

In the opinion of the directors, in view of the low volume of transactions in the market for CICL’s shares, it is difficult to dispose of the entire shares in the market consequently, full impairment loss was made.

21. INVENTORIES

Raw materials Work in progress Finished goods	2006 HK$ 39,615,425 8,596,405 24,435,542 72,647,372	2005 HK$ 43,557,292 8,448,289 19,578,937
		71,584,518

— 67 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

22. DEBTORS AND PREPAYMENTS

Debtors and prepayments includes trade debtors of HK$90,276,351 (2005: HK$84,322,085). The aged analysis of trade debtors at the balance sheet date is as follows:

0 - 60 days 61 - 90 days 91 - 120 days > 120 days	2006 HK$ 65,839,235 8,782,181 6,805,168 8,849,767 90,276,351	2005 HK$ 54,291,375 14,442,600 8,468,304 7,119,806
		84,322,085

The Group allows an average credit period ranged from 90 to 120 days (2005: 90 to 120 days) to its trade customers.

The directors consider that the carrying amount of the debtors approximates their fair value.

23. PLEDGED BANK DEPOSITS

The amount represents deposits pledged to banks to secure banking facilities granted to the Group. Deposits amounting to HK$5,000,000 (2005: nil) have been pledged to secure trust receipt and export invoices financing facilities and are therefore classified as current assets.

The deposits carry interest at prevailing market rate. The directors consider the carrying value of the amount at the balance sheet date approximates to the fair value.

24. BANK BALANCES AND CASH

Bank balances and cash comprise short-term bank deposits carrying interest at prevailing market rates. The directors consider the carrying value of the amount at the balance sheet date approximates to the fair value.

Included in the bank balances, deposits and cash are the following amounts denominated in a currency other than functional currency of the entity to which they relate:

			2006	2005
			HK$	HK$
United	States	Dollars	24,179,259	21,310,138

— 68 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

25. CREDITORS AND ACCRUED CHARGES

Creditors and accrued charges includes trade creditors of HK$48,567,099 (2005: HK$54,052,030). The aged analysis of trade creditors at the reporting date is as follows:

0 - 60 days 61 - 90 days > 90 days	2006 HK$ 45,884,180 488,964 2,193,955 48,567,099	2005 HK$ 45,824,694 5,198,648 3,028,688
		54,052,030

The directors consider that the carrying amount of the creditors and accrued charges approximates their fair value.

26. SECURED BANK LOANS

Export invoices financing Trust receipts/import loans Other bank loans Less: Amount due within one year included under current liabilities Amount due after one year	2006 HK$ 25,452,677 — 7,501,534	2005 HK$ 20,469,083 5,379,809 5,289,710
	32,954,211 (29,866,358)	31,138,602 (27,848,892)
	3,087,853	3,289,710

The bank loans carry a variable interest rate with reference to the Hong Kong Dollar Prime Lending Rate which ranges from 5% to 7.5% per annum.

The directors consider that the carrying amount of secured bank loans approximates their fair value.

— 69 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

27. OBLIGATIONS UNDER FINANCE LEASES

Minimum lease payments 2006 2005 HK$ HK$ 1,970,208 91,216 2,534,568 —	Minimum lease payments 2006 2005 HK$ HK$ 1,970,208 91,216 2,534,568 —	Present value of minimum lease payments 2006 2005 HK$ HK$ 1,756,641 90,433 2,297,265 —	Present value of minimum lease payments 2006 2005 HK$ HK$ 1,756,641 90,433 2,297,265 —
4,504,776 (450,870)	91,216 (783)	4,053,906 —	90,433 —
4,053,906	90,433	4,053,906 (1,756,641) 2,297,265	90,433
			(90,433)
			—

During the year, the Group has acquired certain computer equipment under finance leases with lease term range from 2 to 3 years. Interest rates underlying all obligations under finance leases are fixed at respective contract dates ranging from 3.95% to 4.10%. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The fair value of the Group’s finance lease obligations, determined based on the present value of the estimated future cash flows discounted using the prevailing market rate at balance sheet date approximates to their carrying value.

The Group’s obligations under finance leases are secured by the lessor’s charge over the leased assets.

28. DEFERRED TAX LIABILITY

The movement in deferred tax liability is as follows:

At 1 April Charged to consolidated income statement At 31 March	Accelerated tax depreciation 2006 2005 HK$ HK$ 558,508 — 988,000 558,508 1,546,508 558,508	Accelerated tax depreciation 2006 2005 HK$ HK$ 558,508 — 988,000 558,508 1,546,508 558,508
		558,508

At the balance sheet date, the Group has unrecognised deferred tax assets in respect of unused tax losses of approximately HK$28,798,000 (2005: HK$28,610,000) available for offset against future profits. No deferred tax asset has been recognised due to the unpredictability of future profit streams. The tax losses may be carried forward indefinitely.

— 70 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

29. SHARE CAPITAL

		2006 & 2005
		HK$
Authorised:
1,000,000,000 shares of HK$0.1 each		100,000,000
	Number of shares	Amount
	2006 & 2005	2006 & 2005
		HK$
Issued and fully paid:
Shares of HK$0.1 each	557,058,400	55,705,840

There was no change of the Company’s authorised, issued and fully paid share capital during both years.

30. SHARE OPTIONS

(a) Pursuant to a special general meeting of the Company held in April, 1994, the Company adopted an executives’ share option scheme (the “1994 Scheme”) for the primary purpose of providing incentives to the executive directors and eligible employees of the Company and its subsidiaries. According to the 1994 Scheme, the Board of Directors of the Company is authorised, at any time within ten years after the adoption date of the 1994 Scheme, to grant options to eligible participants to subscribe for shares in the Company at a subscription price equal to the higher of the nominal value of the shares and an amount, to be determined by a committee administering the 1994 Scheme, which is not less than 80% of the average of the closing prices of the shares on The Stock Exchange on the five trading days immediately preceding the date of the options are offered to the participant.

The total number of shares in respect of which options may be granted under the 1994 Scheme is not permitted to exceed 10% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders. The number of shares issued and to be issued in respect of which options granted and may be granted to any individual is not permitted to exceed 25% of the maximum number of shares that may be issued pursuant to the 1994 Scheme without prior approval from the Company’s shareholders.

The offer of a grant of share options under the 1994 Scheme may be accepted within 21 days from the date of the offer together with the payment of nominal consideration of HK$1 in total by the grantee. The exercise period shall be determined by the board of directors but not exceeding 10 years from the date of grant.

Share options granted under the 1994 Scheme are fully vested immediately at the date of grant. Options granted to a participant are lapsed if the participant ceased to be an eligible participant pursuant to the 1994 Scheme before the options are vested.

		Date of grant	Exercisable period	Exercise price
				HK$
1994	Scheme	23.7.2003	23.7.2003-22.7.2013	0.36

— 71 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

30. SHARE OPTIONS — CONTINUED

(a) continued

The movements in the number of options outstanding during the year which have been granted to the directors of the Company under the 1994 Scheme were as follows:

			Number of option shares	Number of option shares	Number of option shares
			Lapsed	Outstanding	Lapsed
		Outstanding	during the	at 31.3.2005	during the	Outstanding
		at 1.4.2004	year	and 1.4.2005	year	at 31.3.2006
1994	Scheme	8,000,000	(2,000,000)	6,000,000	(1,000,000)	5,000,000

(b) At a special general meeting of the Company held on 30 August 2004, a new share option scheme was adopted (the “2004 Scheme”) for the purpose of providing incentives to the executive directors and eligible employees of the Company and its subsidiaries. The Board is authorised to grant options to eligible executive directors and employees of the Company and its subsidiaries, to subscribe for shares in the Company. The number of underlying shares available under the 2004 Scheme shall not, in aggregate, exceed 5% of the issued shares as at 30 August 2004. The number of shares issued and to be issued in respect of which options granted and may be granted to any individual in any 12 months is not permitted to exceed 1% of the issued shares at such time. Options to be offered to any participants who is also an executive director, chief executive officer, substantial shareholder of the Company or any of their respective associates (“Connected Persons”) shall require prior approval from the independent non-executive directors of the Company. No option can be granted to Connected Persons in any 12 months that exceeds in aggregate over 0.1% of the issued shares and an aggregate value exceeding HK$5 million based on the closing price of the share at the date of each grant without prior approval from the Company’s shareholders.

The exercise price of the options shall be determined by a committee administering the 2004 Scheme, and shall fall within the following prescribed parameters: they should not be less than (i) the par value of the shares, (ii) the closing price of the shares on the date of grant which must be a business day, and (iii) the average closing price of the shares over 5 consecutive trading days immediately preceding the date of grant.

The offer of a grant of share options under the 2004 Scheme may be accepted within 30 days from the date of the offer together with the payment of nominal consideration of HK$1 in total by the grantee. Options granted are vested for a period of 3 years immediately after the date of grant by one-third on each anniversary. The exercise period shall be determined by the board of directors but not exceeding 10 years from the date of grant. Options granted to a participant are lapsed if the participant ceased to be an eligible participant pursuant to the 2004 Scheme before the options are vested.

— 72 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

30. SHARE OPTIONS — CONTINUED

(b) continued

The movements in the number of share options under the 2004 Scheme during the current financial period are as follows:

Directors Other employees	Date of grant 28.9.2004 20.12.2004 28.9.2004 20.12.2004	Number of option Exercise price Granted during the year and outstanding at 31.3.2005 Lapsed during the year Outstanding at 31.3.2006 0.242 6,062,106 (327,681) 5,734,425 0.250 5,152,790 (278,529) 4,874,261 0.242 2,621,448 (327,681) 2,293,767 0.250 2,228,232 (278,529) 1,949,703 16,064,576 (1,212,420) 14,852,156	Number of option Exercise price Granted during the year and outstanding at 31.3.2005 Lapsed during the year Outstanding at 31.3.2006 0.242 6,062,106 (327,681) 5,734,425 0.250 5,152,790 (278,529) 4,874,261 0.242 2,621,448 (327,681) 2,293,767 0.250 2,228,232 (278,529) 1,949,703 16,064,576 (1,212,420) 14,852,156
			14,852,156

The options granted on 28 September 2004 and 20 December 2004 are vested for a period of 3 years immediately after the date of grant by one-third on each anniversary and are fully vested on 27 September 2007 and 19 December 2007 respectively. Options granted on those dates are exercisable after one year but not exceeding ten years from the date of grant subject to vesting conditions stated above.

As at 31 March 2006, the total number of shares available for issue under the 2004 Scheme is 13,000,764 shares and represent 2% of issued share capital of the Company at 30 August 2004, being the date of adoption of the 2004 Scheme.

Total consideration received during the year from directors and employees for taking up the options amounted to HK$nil (2005: HK$24).

The fair values of options granted during the year ended 31 March 2005 were calculated using The Black-Scholes pricing model which is considered by the Directors to be the best pricing model currently available for estimating the fair values of these options. The inputs into the model were as follows:

Date of grant	28.9.2004	20.12.2004
Share price at date of grant	HK$0.240	HK$0.245
Exercise price	HK$ 0.242	HK$ 0.250
Expected volatility	66%	58%
Expected life in years	9	9
Risk free rate	3.73%	3.66%
Expected dividend yield	9.0%	9.0%

Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous one year. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

— 73 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

30. SHARE OPTIONS — CONTINUED

During the year ended 31 March 2005, options were granted on 28 September 2004 and 20 December 2004 and the estimated fair values of the options granted on those dates are 5.1 HK cents and 4.5 HK cents respectively.

31. MAJOR NON-CASH TRANSACTIONS

During the year, the Group entered into finance lease arrangements in respect of assets with a total capital value at the inception of the lease of approximately HK$4,856,581 (2005: nil).

32. PLEDGE OF ASSETS

At the balance sheet date, the Group pledged its bank deposits of HK$5,000,000 to banks to secure credit facilities granted by the banks to the extent of approximately HK$50,000,000 (2005: HK$45,000,000).

33. CONTINGENT LIABILITIES

At balance sheet date, the Group had no significant contingent liabilities.

34. CAPITAL COMMITMENTS

	2006	2005
	HK$	HK$
Commitments for the acquisition of property, plant and equipment contracted
for but not provided in the financial statements	—	932,400

On 23 March 2006, the Company has entered into an agreement with Jacuzzi Brands, Inc., a company incorporated in the State of Delaware, USA and listed on the New York Stock Exchange (“Jacuzzi”) to purchase approximately 61.8% of the issued share capital of Spear & Jackson, Inc., a company incorporated in the State of Nevada, USA and traded electronically on the Over-the-counter bulletin board of the National Association of Securities Dealers of America (“S&J”) for a total consideration of approximately HK$38.7 million (US$5 million) (the “Proposed Acquisition”). The Proposed Acquisition constitutes a very substantial acquisition under the Rules Governing the Listing Securities on The Stock Exchange. The Company had no obligation to acquire the remaining 38.2% minority shares under applicable US laws, unlike in Hong Kong. The completion of the Proposed Acquisition is subjected to a number of conditions precedents which have been summarized in the announcement made by the Company dated 27 March 2006.

— 74 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

35. OPERATING LEASE COMMITMENTS

The Group as lessee

At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of rented premises which fall due as follows:

Operating leases which expire: Within one year In the second to fifth years inclusive	2006 HK$ 4,728,696 12,717,824 17,446,520	2005 HK$ 2,666,046 1,621,742
		4,287,788

Operating lease payments represent rentals payable by the Group for its office properties and factories which are negotiated for an average terms of three years.

The Group as lessor

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

			2006	2005
			HK$	HK$
Within	one	year	—	270,397

Operating lease income represents the rental receivable by the Group for its investment properties. Leases are negotiated for an average term of three years.

36. RETIREMENT BENEFIT SCHEMES

Hong Kong

With effect from 1 December 2000, the Group has joined a mandatory provident fund scheme (“MPF Scheme”) for all employees in Hong Kong. The MPF Scheme is registered with the Mandatory Provident Fund Scheme Authority under the Mandatory Provident Fund Schemes Ordinance. The assets of the MPF Scheme are held separately from those of the Group in funds under the control of an independent trustee. Under the MPF Scheme, the employer and its employees are each required to make contributions to the MPF Scheme at rates specified in the rules. The only obligation of the Group with respect to the MPF Scheme is to make the required contributions under the MPF Scheme. During the year ended 31 March 2006, the retirement benefit scheme contributions charged to the consolidated income statement amounting to HK$449,513 (2005: HK$287,478), which represented contribution payable to the fund by the Group at rates specified in the rules of the MPF Scheme.

— 75 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

36. RETIREMENT BENEFIT SCHEMES — CONTINUED

Mainland China

The employees of the Group’s subsidiaries in the PRC are members of a state-managed retirement benefit scheme operated by the PRC government. The subsidiaries are required to contribute 8% of payroll costs to the retirement benefit scheme to fund the benefits. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions. The total contribution incurred in this connection for the year ended 31 March 2006 was HK$1,215,167 (2005: HK$699,418). No forfeited contributions may be used by the employer to reduce the existing level of contributions.

37. PRINCIPAL SUBSIDIARIES

			Percentage of	Percentage of	issued
			share capital/registered
			capital
				Attributable
					equity
	Place of	Issued and fully	Held by the		interest
	incorporation	paid share capital/	Company/		to the	Principal
Name of company	or registration	registered capital	subsidiaries		Group	activities
Pan Electrium Industrial	Hong Kong	Ordinary	100%		100%	Manufacture of and
Co. Limited		HK$5,000,000				trading in
						electronic/electrical
						parts and products
Pantene Industrial Co.	Hong Kong	Ordinary	100%		100%	Trading in
Limited		HK$10,000				electronics
						products
Pantronics Holdings	British Virgin	Ordinary US$200	100%		100%	Investment holding
Limited (note)	Islands
Pin Xin International	Hong Kong	Ordinary	100%		100%	Trading in
Limited		HK$10,000				rechargeable
						battery products
Rise Up International	British Virgin	Ordinary US$1	100%		100%	Investment holding
Limited (note)	Islands PRC*	Registered	100%		100%	in Hong Kong Trading of
Shanghai Pin Xin Power		HK$28,000,000				rechargeable
Resource Industry Co.						battery products
Limited	PRC*	Registered	100%		100%	Manufacture of
Shenzhen Pantai		US$700,000				electronic products
Electronic Co., Limited

* This subsidiary was established in the PRC as a wholly foreign-owned enterprise.

Note: Directly held by the Company.

Unless specified in the “Principal activities”, the above subsidiaries operate principally in their respective places of incorporation or registration.

— 76 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

37. PRINCIPAL SUBSIDIARIES — CONTINUED

The above list includes the subsidiaries of the Company which, in the opinion of the directors, principally affected the results of the year or formed a substantial portion of the assets and liabilities of the Group. To give details of all the other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

None of the subsidiaries had any debt securities subsisting at 31 March 2006 or at any time during the year.

38. RELATED PARTY TRANSACTIONS

Other than the emoluments paid to the directors of the Company, who are also considered as the key management of the Group, the Group have not entered into any other related parties transaction.

C. MANAGEMENT DISCUSSION AND ANALYSIS OF UPI GROUP FOR EACH OF THE LAST 3 YEARS ENDED 31 MARCH 2006

YEAR ENDED 31ST MARCH, 2006

Financial and Operations Review

The following sets out the financial highlights for the year ended 31st March, 2006, with the comparative figures for the corresponding period in 2005.

	2006	2005	Change	Change
	_HK$’million _	_HK$’million _	HK$’million	%
Turnover	454.3	392.1	62.2	16%
Earnings before interest, taxation,
depreciation & amortisation	33.7	28.9	4.8	17%
Depreciation & amortisation	(11.5)	(12.2)	0.7	6%
Net interest expenses	(0.7)	(1.3)	0.6	46%
Adjusted operating profit	21.5	15.4	6.1	40%
Redundancy payment	(1.9)	—	1.9	NA
Impairment loss on goodwill	(0.6)	—	0.6	NA
Gain arising from changes in fair value
of investment properties	1.0	—	1.0	NA
Profit before taxation	20.0	15.4	4.6	30%
Income tax expense	(4.3)	(2.5)	1.8	72%
Profit for the year	15.7	12.9	2.8	22%

Group Overview

Fiscal 2005/2006 denoted another outstanding year of growth for UPI. We delivered the second consecutive year of double-digit growth in sales and net profit. We strengthened the balance sheet and capital efficiency; and delivered strong cash flow performance throughout the year.

— 77 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

C. MANAGEMENT DISCUSSION AND ANALYSIS OF UPI GROUP FOR EACH OF THE LAST 3 YEARS ENDED 31 MARCH 2006 — CONTINUED

YEAR ENDED 31ST MARCH, 2006 — CONTINUED

Financial and Operations Review — continued

Turnover of HK$454.3 million and Net profit after tax of HK$15.7 million represented growth over 2004/2005 of 16% and 22% respectively despite the continuing problems of overcapacity and growing competition in the electronics industry.

Earnings before interest, taxation, depreciation and amortisation (“EBITDA”) for the year ended 31st March, 2006 was HK$33.7 million, a notable growth of 17% from the prior year.

Consistent with increase in EBITDA, the Group’s adjusted operating profit (“earnings before other non-operating items and taxation”) continues to be strong, an increase of 40% to HK$21.5 million.

The catalyst for UPI’s strong growth continues despite a slight decline in gross margins due to pricing pressure from customers. This was mainly attributable to the success in controlling fixed overheads in spite of higher volumes, and diligent adherence to financial budgets adopted by the Group.

In the interests of efficiency, certain employees were made redundant during the year which entailed redundancy payments in the amount of HK$1.9 million. UPI’s financial position remains strong and the Company continues to generate substantial cash flow. As at the balance sheet date, the Group had a bank and cash balance of HK$67.0 million with certain trade debt and bank borrowings amounting to HK$37.0 million (a net cash balance of HK$30.0 million), while the Group’s net assets value was HK$172.6 million, with a relatively healthy current ratio of 253% and a gearing ratio of nil balance (ratio of net bank debt to net assets value). The Group has adequate liquidity to meet its expected working capital requirements.

— 78 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

C. MANAGEMENT DISCUSSION AND ANALYSIS OF UPI GROUP FOR EACH OF THE LAST 3 YEARS ENDED 31 MARCH 2006 — CONTINUED

YEAR ENDED 31ST MARCH, 2006 — CONTINUED

Liquidity and Capital Resources

The net cash (debt) position as at 31st March, 2006 and corresponding gearing ratio are shown as follows:

	2006
	HK$’ million
Cash	67.0
Less: trade debt and bank borrowings	(37.0)
Net cash position	30.0
Shareholders’ funds	172.6
Trade debt and bank borrowings to shareholders’ funds	21.4%
Net debt to shareholders’ funds	—

The Group follows a policy of prudence in managing its cash balance, and maintains a high level of liquidity to ensure the Group is well placed to take advantage of growth opportunities for the business. As at 31st March, 2006, cash and bank balances amounted to HK$67.0 million with certain trade debt and bank borrowings amounting to HK$37.0 million (net cash of HK$30.0 million), while the Group’s net asset value as at 31st March, 2006 was HK$172.6 million.

The working capital position of the Group remains healthy. As at 31st March, 2006, the liquidity ratio (ratio of current assets to current liabilities) was 253%. (2005: 211%) and a gearing ratio of nil balance (ratio of net bank debt to net assets value). It is the intention of the Group to maintain an appropriate mix of equity and debt to ensure an efficient capital structure.

— 79 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

C. MANAGEMENT DISCUSSION AND ANALYSIS OF UPI GROUP FOR EACH OF THE LAST 3 YEARS ENDED 31 MARCH 2006 — CONTINUED

YEAR ENDED 31ST MARCH, 2006 — CONTINUED

Cash Flow from Operating Activities

The Group’s main source of liquidity continued to be the net cash from operating activities. With the continuous implementation of prudent cash control measures, cash generated from operating activities was a positive of HK$18.3 million, though the Group reported a net profit after tax for the year of HK$15.7 million. The reconciliation of profit before taxation to net cash inflow from operating activities is shown as follows:

	2006
	HK$’ million
Profit before taxation	20.0
Depreciation & amortization	11.5
Change in working capital	(11.5)
Net interest expenses	0.7
Profits tax paid	(2.4)
Net cash inflow from operating activities	18.3

Cash Flow from Financing Activities

The net cash outflow from financing activities for the year amounted to HK$1.1 million, which mainly included net payment of HK$8.4 million, being repayment of bank loans, obligation under finance leases and interest incurred on trade financing after setting off net cash inflow from bank loans of HK$7.3 million.

Capital Expenditure

The Group had made a Capex investment of HK$10.7 million in the year under review. This was mainly financed by cash internally generated from operations. With the capital expenditure, the Group would be able to further increase its production capacity, improve quality and expand product variety, which will lay the foundation for the Group’s future development.

During the year, the Group had committed to the implementation of a new global enterprise resources planning system to enhance the supply chain management which was financed from internal resources.

— 80 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

C. MANAGEMENT DISCUSSION AND ANALYSIS OF UPI GROUP FOR EACH OF THE LAST 3 YEARS ENDED 31 MARCH 2006 — CONTINUED

YEAR ENDED 31ST MARCH, 2006 — CONTINUED

Treasury Management

During the year, there was no material change in the Group’s funding and treasury policy. On 31st March, 2006, the Group had a sufficient level of banking facilities from our major bankers to finance the working capital requirements. For exchange risk management, the Group adopted cautious financial measures to manage and minimize the exchange risk exposure, and in this regard, the Group endeavored to match the currencies of sales with those of purchase in order to neutralize the effect of currency exposure. Furthermore, the Group also took appropriate financial actions to ensure that the Group borrowings were primarily denominated in Hong Kong dollars, while the non-Hong Kong dollar loans were either directly tied in with the Group’s businesses in the countries of the currencies concerned or such loans were balanced by assets in the same currencies. The management continues to monitor foreign exchange exposure from time to time and will consider hedging significant foreign currency exposure when the need arises.

Major Customers and Major Suppliers

For the year under review, sales to the largest customer and the five major customers accounted for 17% and 47%, respectively, of total sales for the year.

Purchases from the largest supplier and the five largest suppliers accounted for 4% and 16%, respectively, of total purchases for the year.

As far as the directors are aware, none of the directors of the Company, their associates, or any shareholder (which to the knowledge of the directors own more than 5% of the Company’s share capital) has any interest in the customers or suppliers of the Company disclosed above.

Business Review and Prospects

Voltage Converter and Rechargeable Battery Business Segments

Due to the intensely competitive nature of electronics industry, the business environment relating to voltage converters, coils, and components and rechargeable battery segments was generally affected by the following factors during the year under review:

Rise in materials costs, particularly of resins, metal, electronics components and from RoHS compliance;
Upward revaluation of the RMB which reduces our margins;

— 81 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

C. MANAGEMENT DISCUSSION AND ANALYSIS OF UPI GROUP FOR EACH OF THE LAST 3 YEARS ENDED 31 MARCH 2006 — CONTINUED

YEAR ENDED 31ST MARCH, 2006 — CONTINUED

Business Review and Prospects — continued

Severe downward pricing pressure from customers; and
Change in the ordering pattern of customers, resulting in shorter product life cycle.

The Group acted swiftly to identify and address the problems so that the situation can be brought under control. Comprehensive measures were taken to improve production efficiency, streamline operations, and optimize the financial resources through on-going cost cutting and financial control measures.

The Group’s revenue growth momentum is now on a much more stable footing. Turnover for 2005/2006 was in an uptrend with 16% increase as compared with 2004/2005 while net profit after tax increased by 22% to HK$15.7 million.

Progress was also made in development of new markets. We successfully re-opened our Chicago office and set up our Hangzhou office to serve our customers’ needs. We also plan to expand our business presence further to the European Union. We will continue to invest in traditional product line while expanding new product range that provides a sound platform for future business growth.

The fast changing market environment brought a number of challenges for the Group. We need to step ahead to improve our R&D production technology to remain relevant and competitive in order to adapt to the changing trends in product demand in the electronics and telecommunications industry. We are progressively enhancing our competitiveness in the field of switch-mode power supply products, expanding our manufacturing of electrical or electronic appliances and components to ODM (original design manufacturer) and OBM (own brand manufacturer) products while increasing sales volume of our power-tools products, chargers and related products (i.e. components, tooling and finished products). We remain optimistic that we can effectively compete with the main suppliers of power supply products, both for the high-end and the low-end market segments.

The Group continue to expand our customer base, maintain a close working relationship with our customers and be highly responsive to customers’ requirements. This will enable us to fulfill our mission of providing broad-based solutions to our customers and creating a “one-stop shop” to our customers. We continue to strengthen the management team and further build up our undoubted strengths in tooling, molding, plastic injection and coil winding. We are well-equipped to offer our customers a one-stop, complete manufacturing package that would enable our customers to have all components of their electrical/electronic products designed, manufactured, assembled, qualitychecked and packaged at our facilities, and then shipped directly to them or to their designated delivery locations.

— 82 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

C. MANAGEMENT DISCUSSION AND ANALYSIS OF UPI GROUP FOR EACH OF THE LAST 3 YEARS ENDED 31 MARCH 2006 — CONTINUED

YEAR ENDED 31ST MARCH, 2006 — CONTINUED

Employees

On 31st March, 2006, the Group employed 551 executive and clerical staff and 2,177 factory workers. The remuneration of such staff and workers are determined by overall guidelines within the industry. The Group has also adopted a discretionary bonus program, share option scheme, medical insurance and personal accident insurance for its various categories of employees. Awards, under award programs, are determined annually based on the performance of the Group as a whole and the careful assessment of the performance of each employee individually.

The Group has not experienced any significant problems with its employees or disruption to its operations due to labor disputes nor has it experienced any difficulty in the recruitment and retention of experienced staff. The Group maintains a good relationship with employees.

The Group benefited from a motivated workforce. The Group is fully committed to investing in the growth and development of its people. The Group organized English and computer software skill trainings and organized management training to upgrade staff skills.

Outlook

The most significant event in the past year was the agreement to purchase 61.8% of Spear & Jackson, Inc. The closing of which is still subject to certain conditions precedent.

The Directors have decided that on closing this purchase we will change the financial year end to 30th September. Barring unforeseen circumstances, we expect that for the period ending 30th September, 2007 and on the assumption Spear & Jackson closes, earnings before tax will increase with an increase in earnings per share.

We look forward to the benefits which will arise from the acquisition of Spear & Jackson, Inc., which will with the increase size and depth of the group, and our product lines produce greater revenues, and subject to trading conditions, greater profits for our shareholders.

We will continue to move from being an OEM (original equipment manufacturer)/ODM (original design manufacturer) to OBM (owned-brand manufacturer), without compromising our competitive pricing, and high standards of service and quality to our customers.

To succeed in a competitive environment, our management team is focusing on improving our operational efficiencies, control measures, while investing prudently in R&D technology to remain competitive in the long term.

— 83 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2005

Financial and Operations Review

The following sets out the financial highlights for the year ended 31st March, 2005, with the comparative figures for the corresponding period in 2004

	2005	2004	Change	Change
	_HK$’million _	_HK$’million _	HK$’million	%
Turnover	392.1	338.4	53.7	16%
Earnings before interest, taxation,
depreciation & amortisation	29.0	24.1	4.9	20%
Depreciation & amortisation	(12.2)	(11.8)	0.4	3%
Net interest expenses	(1.3)	(0.4)	0.9	225%
Adjusted operating profit	15.5	11.9	3.6	30%
Other non-operating items	—	(5.2)	5.2	100%
Profit before taxation	15.5	6.7	8.8	131%
Taxation
— tax provision for the current year	(2.5)	(2.0)	0.5	25%
— underprovisions for the years of
assessment from 1997/98 to 2001/02	—	(11.4)	11.4	100%
— tax penalty	—	(7.0)	7.0	100%
Net profit (loss) for the year	13.0	(13.7)	26.7	N/A

Group Overview

The Group continued to perform well despite overcapacity in electronic/electrical manufacturing services (EMS) industry and severe competition in the electronics industry.

Net Profit generated for the year was up by HK$26.7 million to HK$13.0 million, a turnaround from a net loss of HK$13.7 million in 2003/2004.

We achieved an increase in profit before taxation by 131% from HK$6.7 million to HK$15.5 million.

Turnover for the Group increased by approximately 16% to HK$392.1 million (2004: HK$338.4 million).

— 84 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2005 — CONTINUED

Group Overview — continued

Earnings before interest, taxation, depreciation and amortisation (“EBITDA”) for the year ended 31st March, 2005 was HK$29.0 million, a notable growth of 20% from prior year.

We were pleased with our strong performance in 2004/2005 that was mainly attributable to the increasing orders from certain major customers, the continued stringent cost control measures and diligent adherence to financial budgets adopted by the Group.

There were no “other non-operating items” in the year ended 31st March, 2005, compared to the corresponding year when the Company incurred an expense of HK$5.2 million which represented the compensation payment made to directors in respect of management changes.

In May 2003, a tax audit was commenced by the Hong Kong Inland Revenue Department (the “IRD”) on certain subsidiaries of the Company in respect of the years of assessment from 1997/98 to 2001/02. Pursuant to a settlement agreement, without the directors admitting any liability, the Company agreed to pay the additional assessments of HK$11.4 million for the years of assessment from 1997/98 to 2001/02 together with a compound tax penalty of HK$7.0 million. As at the date of this report, the tax liabilities arising from the tax audit were fully settled.

As at 31st March, 2005, the Group had a bank and cash balance of HK$35.3 million with certain trade debt and bank borrowings amounting to HK$31.1 million (a net cash balance of HK$4.2 million), while the Group’s net assets value was HK$156.7 million, with a relatively healthy current ratio of 211% and a gearing ratio of nil balance (ratio of net bank debt to net assets value). The Group has adequate liquidity to meet its expected working capital requirements.

Business Review and Prospects

Voltage Converters and Rechargeable Battery Business Segments

During the year under review, the business environment relating to voltage converters, coils, and components and rechargeable battery segments was generally affected by the following factors:

Rise in materials costs, particularly of plastics, metal and electronics components;
Tight components supply;
Severe downward pressure from customer on prices; and
Change in the ordering pattern of customers, resulting in shorter product life cycle.

The Group moved to address these issues by improving production efficiency, streamlining operations, optimizing the financial resources through on-going cost cutting and financial control measures wherever possible in order to maximize shareholders’ value.

— 85 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2005 — CONTINUED

Business Review and Prospects — continued

The Group’s revenue growth momentum continues to be strong. The business returned to profitability from a net loss of HK$ 13.7 million (after tax provisions and tax expenses) in the last year under review to a net profit of HK$ 13.0 million, reflecting an increase of HK$26.7 million.

In response to changing trends, the product demands in the electronics and telecommunications industry, we are progressively enhancing our competitiveness in the field of linear-mode power supply and switch-mode power supply products, expanding our manufacturing scope from OEM (original equipment manufacturer) manufacturing of electrical or electronic home and personal appliances to ODM (original design manufacturer) and OBM (own brand manufacturer) work while increasing the sale volume of our power-tools products, chargers and related products (i.e. components, tooling and finished products). We remain optimistic that we can effectively compete with the main suppliers of power supply products, both for the high-end and the low-end market segments for the present.

To fulfill our mission of providing broad solutions to our customers, we continued to strengthen the management team and build our undoubted strengths in tooling, molding, plastic injection and coil winding. We are well-equipped to offer our customers a one-stop, complete manufacturing package that would enable our customers to have all components of their electrical/electronic products designed, manufactured, assembled, quality-checked and packaged at our facilities, and then shipped directly to them. Our focus is on rebuilding the profitability of the business through a series of important measures, some of which have already been started and have helped the Group to improve its financial performance. They include:

Strengthening the sales effort and opening up new opportunities for growth;
Expanding the customer base, maintaining a close working relationship with existing customers and being highly responsive to customers’ requirements throughout the design, manufacturing and distribution process;
Making considerable efforts to reduce costs and streamline operations; and
Continuing to diversify products and services sector.

Our management team is confident that such measures and controls will continue to help the Group to grow.

The Year Ahead

Barring unforeseen circumstances, UPI plans to adopt various strategies that will further increase our sales and improve our efficiency in order to assist our profitability.

— 86 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2005 — CONTINUED

The Year Ahead — continued

We will continue to move from being an ODM (Original Design Manufacturer) and OBM (Own Brand Manufacturer) work while continuing to offer attractive pricing policy, service and quality for our traditional customers.
To succeed in a competitive environment, our management team is focusing on improving our operational efficiencies and financial control measures while investing prudently in R&D production technology to remain competitive in the long term.
We are confident that our Group will enter a new era of growth when the momentum of recovery of the world economy is in full swing.

Liquidity and Capital Resources

The net cash (debt) position as at 31st March, 2005 and corresponding gearing ratio are shown as follows:

	2005
	HK$’ million
Cash	35.3
Less: trade debt and bank borrowings	(31.1)
Net cash position	4.2
Shareholders’ funds	156.7
Trade debt and bank borrowings to shareholders’ funds	19.8%
Net debt to shareholders’ funds	—

The Group follows a policy of prudence in managing its cash balance, and maintains a high level of liquidity to ensure the Group is well placed to take advantage of growth opportunities for the business. As at 31st March, 2005, cash and bank balances amounted to HK$35.3 million with certain trade debt and bank borrowings amounting to HK$31.1 million (net cash of HK$4.2 million), while the Group’s net asset value as at 31st March, 2005 was HK$156.7 million.

The working capital position of the Group remains healthy. As at 31st March, 2005, the liquidity ratio (ratio of current assets to current liabilities) was 211% (2004: 223%) and a gearing ratio of nil balance (ratio of net bank debt to net assets value). It is the intention of the Group to maintain an appropriate mix of equity and debt to ensure an efficient capital structure.

— 87 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2005 — CONTINUED

Cash Flow from Operating Activities

The Group’s main source of liquidity continued to be the net cash from operating activities. With the continuous implementation of prudent cash control measures, cash generated from operating activities was a positive of HK$4.5 million, though the Group reported a net profit after tax for the year of HK$13.0 million. The reconciliation of profit before taxation to net cash inflow from operating activities is shown as follows:

	2005
	HK$’ million
Profit before taxation	15.5
Depreciation & amortisation	12.2
Change in working capital	(14.3)
Net interest expenses	1.3
Profit tax paid	(10.2)
Net cash inflow from operating activities	4.5

Cash Flow from Financing Activities

The net cash used in financing activities for the year amounted to HK$7.9 million, which mainly included dividend payment of HK$11.1 million, net payment of HK$1.8 million, being repayment of obligation under finance leases and interest incurred on trade financing after setting off net cash inflow from trade loans of HK$5.0 million.

The dividend payment of HK$11.1 million represented a payment of the prior year’s final dividend of HK$0.02 per share.

Capital Expenditure and Corporate Activities

The Group had made a capex investment of HK$8.5 million in the year under review. This was mainly financed by cash internally generated from operations. With the capital expenditure, the Group would be able to further increase its production capacity, improve quality and expand product variety, which will lay the foundation for the Group’s future development.

— 88 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2005 — CONTINUED

Treasury Management

During the year, there was no material change in the Group’s funding and treasury policy. On 31st March, 2005, the Group had a sufficient level of banking facilities from our major bankers to finance the working capital requirements. For exchange risk management, the Group adopted cautious financial measures to manage and minimize the exchange risk exposure, and in this regard, the Group endeavored to match the currencies of sales with those of purchase in order to neutralize the effect of currency exposure. Furthermore, the Group also took appropriate financial actions to ensure that the Group borrowings were primarily denominated in Hong Kong dollars, while the non-Hong Kong dollar loans were either directly tied in with the Group’s businesses in the countries of the currencies concerned or such loans were balanced by assets in the same currencies.

Major Customers and Major Suppliers

For the year under review, sales to the largest customer and the five major customers accounted for 24% and 50%, respectively, of total sales for the year.

Purchases from the largest supplier and the five largest suppliers accounted for 4% and 15%, respectively, of total purchases for the year.

As far as the directors are aware, none of the directors of the Company; their associates, or any shareholder (which to the knowledge of the directors own more than 5% of the Company’s share capital) has any interest in the customers or suppliers of the Company disclosed above other than portfolio interests.

Employees

On 31st March, 2005, the Group employed 581 executive and clerical staff and 2,270 factory workers. The remuneration of such staff and workers are determined by overall guidelines within each industry. The Group has also adopted a discretionary bonus program, share option scheme, medical insurance and personal accident insurance for its various categories of employees. Awards, under award programs, are determined annually based on the performance of the Group as a whole and the careful assessment of the performance of each employee individually.

— 89 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2004

Financial and Operations Review

The following sets out the financial highlights for the year ended 31st March, 2004, with the comparative figures for the corresponding period in 2003.

	2004	2003	Change	Change
	_HK$’million _	_HK$’million _	HK$’million	%
Turnover	338.4	320.8	17.6	5%
Earnings before interest, taxation, depreciation
and amortisation	25.6	21.9	3.7	17%
Depreciation and amortisation of tangible and
intangible assets	(11.8)	(18.4)	6.6	36%
Net interest (expenses)/income	(0.4)	0.2	(0.6)	300%
Adjusted operating profit	13.4	3.7	9.7	262%
Share of results of associates and impairment
losses recognised in respect of interest in
associates	—	(1.5)	1.5	100%
Other non-operating items:
— Compensation to directors	(5.2)	—	(5.2)	NA
— Impairment on property	(8.3)	—	(8.3)	NA
— Provision for restructuring	6.8	(18.3)	25.1	137%
	(6.7)	(18.3)	11.6	63%
Profit/(Loss) before taxation	6.7	(16.1)	22.8	142%
Taxation
— Underprovision in prior years	(11.4)	(0.8)	(10.6)	1,325%
— Tax penalty	(7.0)	—	(7.0)	NA
— Tax provision in current year	(2.0)	(0.9)	(1.1)	122%
	(20.4)	(1.7)	(18.7)	1,100%
Net loss for the year	(13.7)	(17.8)	4.1	23%
Dividends	11.1	44.6	(33.5)	75%

— 90 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2004 — CONTINUED

Group Overview

The Group recorded a moderate increase in turnover during the year by approximately 5% to HK$338.4 million (2003: HK$320.8 million).

Earnings before interest, taxation, depreciation and amortisation (“EBITDA”) for the year ended 31st March, 2004 was HK$25.6 million, an impressive growth of 17% over last year.

Adjusted operating profit, which represented profit before the provision for current year’s taxation and prior years’ taxation (aggregate of HK$20.4 million), compensation payment (HK$5.2 million) and, impairment on property (HK$8.3 million), setting off the reversal of provision for restructuring (HK$6.8 million), increased from HK$3.7 million to HK$13.4 million, up by 262%.

The increase in EBITDA for the year was mainly attributable to the increased orders from certain major customers, the continued stringent cost control measures and diligent adherence to financial budgets adopted by the Group, even though the business environment was adversely affected by the outbreak of Severe Acute Respiratory Syndrome (“SARS”) epidemic and the US-Iraq war in the early part of the year under review.

In May 2003, a tax audit was commenced by the Hong Kong Inland Revenue Department (the “IRD”) on certain subsidiaries of the Company in respect of the years of assessment from 1997/98 to 2001/02. During the year, the Company and the IRD reached a mutual settlement agreement in respect of the additional tax liabilities of the Group, without the directors admitting any liability. On 19th November, 2003, additional assessments of HK$11.5 million for the years of assessment from 1997/98 to 2001/02 together with a compound tax penalty of HK$7.0 million were issued by the IRD to the Group. The additional taxation charge and the tax penalty will be settled, after deducting the provisional tax already paid amounting to HK$6.8 million, in twelve monthly installments starting from 31st December, 2003. As at the date of this report, the Group has paid approximately HK$8.0 million towards the aforesaid tax liabilities of approximately HK$12.0 million (outstanding balance as at the date of this report of HK$4.0 million).

As at 31st March, 2004, the Group had a bank and cash balance of HK$46.0 million with certain trade debt amounting to HK$26.2 million (a net cash balance of HK$19.8 million), while the Group’s net assets value was HK$154.9 million, with a relatively healthy current ratio of 223% and a gearing ratio of nil balance (ratio of net bank debt to net assets value). The Group has adequate liquidity to meet its expected working capital requirements.

— 91 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2004 — CONTINUED

Business Review and Prospects

Voltage Converter, Coils, and Components and Rechargeable Battery Business Segments

During the year under review, the business environment relating to voltage converter, coils, and components and rechargeable battery segments was generally affected by the following factors:

Customers’ pricing pressure;
Change in the ordering pattern of customers;
Increase in materials costs; and
Economic uncertainty from the outbreak of SARS and US-Iraq war.

The financial performance of voltage converter, coils and components and of the rechargeable battery segments were slightly improved in the second half of the year under review despite the tough environment in which the industries operate.

We are progressively improving our competitiveness in the field of linear-mode power supply and switch-mode power supply products in response to the changing trend in product demand in the electronics and the telecommunications industry. We remain optimistic that we can effectively compete with the main suppliers of power supply products, both for the high-end and the low-end market segments for the present.

Expansion of our manufacturing scope to OEM manufacturing of electrical or electronic home and personal appliances and increasing the sales volume of our power-tools products, chargers and related products (i.e. components, tooling and finished products) are also progressing positively.

Year 2003/2004 was a transformation year for the Group. We restructured operations, expanded services and focused on streamlining our manufacturing capabilities in order to penetrate more directly into the core EMS (electronic/electrical manufacturing services) market.

The EMS industry includes hundreds of companies in Mainland China and is highly competitive. We compete with different companies on the basis of the type of services provided as prospective customers also evaluate the completeness of our manufacturing capabilities which ideally, are intended to complement their internal operations. The global trend towards outsourcing continue to allow EMS providers to grow. While the long term outlook for the industry is good, it is dependent on world economic trends which, during the year under review, have been affected by rapidly rising raw materials prices.

— 92 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2004 — CONTINUED

Business Review and Prospects — continued

Our strategy is to provide customers a “one-stop shop”. We continue to strengthen our management team and to build our expertise in tooling, molding, plastic injection and coil winding. Our focus is on rebuilding the profitability of the business through a series of important measures, some of which have already been started and have helped the Group to improve its financial performance. They include:

Strengthening the sales effort and opening up new opportunities for growth;
Expanding the customer base, maintaining a close working relationship with existing customers and being highly responsive to customers’ requirements throughout the design, manufacturing and distribution process;
Making considerable efforts to reduce costs and streamline operations; and
Continuing to diversify product and services sector.

Your management is confident that such measures and controls will continue to help the Group to grow.

The Year Ahead

Barring unforeseen circumstances, we expect to produce a greater volume of sales leading to higher revenues and profitability.
We will continue to move from being an OEM of linear adapters to being a provider of electronic/electrical manufacturing services, (EMS), with the objective of widening our product range and customer base.
To succeed in a competitive environment, your management is focusing on improving our operational efficiencies and financial control measures while investing prudently in R&D production technology to remain competitive in the long term.
We are confident that our Group will enter a new era of growth when the momentum of recovery of the world economy is in full swing.

— 93 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2004 — CONTINUED

Liquidity and Capital Resources

The net cash (debt) position as at 31st March, 2004 and corresponding gearing ratio are shown as follows:—

	2004
	HK$’ million
Cash	46.0
Less: trade debt	(26.2)
Net cash position	19.8
Shareholders’ funds	154.9
Trade debt to shareholders’ funds	16.9%
Net debt to shareholders’ funds	—

The Group follows a policy of prudence in managing its cash balance, and maintains a high level of liquidity to ensure the Group is well placed to take advantage of growth opportunities for the business. As at 31st March, 2004, cash and bank balances amounted to HK$46.0 million with certain trade debt amounting to HK$26.2 million (net cash of HK$19.8 million), while the Group’s net asset value as at 31st March, 2004 was HK$154.9 million.

The working capital position of the Group remains healthy. As at 31st March, 2004, the liquidity ratio (ratio of current assets to current liabilities) was 223% (2003: 355%) and a gearing ratio of nil balance (ratio of net bank debt to net assets value).

It is the intention of the Group to maintain an appropriate mix of equity and debt to ensure an efficient capital structure. At this stage, however, with continuing strong cash flows, there is no immediate requirement for significant debt finance. Management is comfortable that existing financial resources will be sufficient for working capital and future expansion plans. Should other opportunities arise requiring additional funding, management also believes that the Group is in a good position to obtain financing on favorable terms.

— 94 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2004 — CONTINUED

Liquidity and Capital Resources — continued

Cash Flow from Operating Activities

The Group’s main source of liquidity continued to be the net cash from operating activities. With the continuous implementation of prudent cash control measures, cash generated from operating activities was a positive of HK$3.2 million, though the Group reported a net loss for the year of HK$13.7 million. The reconciliation of profit before taxation to net cash inflow from operating activities is shown as follows:—

	2004
	HK$’ million
Profit before taxation	6.7
Impairment losses recognized in respect of property,
plant & equipment	8.3
Depreciation, amortisation and gain on disposal of fixed assets	10.9
Change in working capital	(23.0)
Other items	0.3
Net cash inflow from operating activities	3.2

Cash Flow from Financing Activities

The net cash used in financing activities for the year amounted to HK$7.9 million, which mainly included dividend payment of HK$22.3 million, net payment of HK$0.8 million, being repayment of obligation under finance leases and interest incurred on trade financing after setting off net cash inflow from trade loans of HK$15.2 million.

The dividend payment of HK$22.3 million represented a payment of the prior year’s final dividend of HK$0.04 per share.

Capital Expenditure and Corporate Activities

The Group had made a capex investment of HK$4.7 million in the year under review. This was mainly financed by the cash internally generated from the operations. With the capital expenditure, the Group would be able to further increase its production capacity, improve quality and expand product variety, which will lay the foundation for the Group’s future development.

During the year, the Group entered into agreements to dispose of all of the Group’s interests in associates for an aggregate consideration of HK$3.5 million to the other shareholders of such associates. The Group also acquired back the 10% interest in Shanghai Pin Xin Power Resources Industry Co., Ltd (“Shanghai Pin Xin”) from the PRC Partner at a consideration of HK$0.9 million. The Group currently holds a 100% interest (2003: 90%) in Shanghai Pin Xin.

— 95 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

YEAR ENDED 31ST MARCH, 2004 — CONTINUED

Liquidity and Capital Resources — continued

Treasury Management

On 31st March, 2004,the Group had a sufficient level of banking facilities from our major bankers to finance the working capital requirements. For exchange risk management, the Group adopted cautious financial measures to manage and minimize the exchange risk exposure, and in this regard, the Group endeavoured to match the currencies of sales with those of purchase in order to neutralize the effect of currency exposure. Furthermore, the Group also took appropriate financial actions to ensure that the Group borrowings were primarily denominated in Hong Kong dollars, while the non-Hong Kong dollar loans were either directly tied in with the Group’s businesses in the countries of the currencies concerned or such loans were balanced by assets in the same currencies.

Major Customers and Major Suppliers

For the year under review, sales to the largest customer and the five major customers accounted for 11% and 32%, respectively, of total sales for the year.

Purchases from the largest supplier and the five largest suppliers accounted for 3% and 14%, respectively, of total purchases for the year.

Employees

On 31st March, 2004, the Group employed 518 executive and clerical staff and 1,868 factory workers. The remuneration of such staff and workers are determined by overall guidelines within each industry. The Group has also adopted a discretionary bonus program, share option scheme, medical insurance and personal accident insurance for its various categories of employees. Awards under award programs, are determined annually based on the performance of the Group as a whole and the careful assessment of the performance of each employee individually.

— 96 —

FINANCIAL INFORMATION OF UPI GROUP

APPENDIX I

D. WORKING CAPITAL OF UPI GROUP

The directors, after due and careful consideration, are of the opinion that upon the completion of the Acquisition, and based on available banking facilities and internal resources of the UPI Group, the UPI Group has sufficient working capital for its requirements currently and for the period ending twelve months from the date of this circular.

E. INDEBTEDNESS OF UPI GROUP

(i) Borrowings

As at the close of business on 31 May 2006, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the UPI Group had outstanding secured bank loans and obligations under finance leases of approximately HK$31,538,000 and HK$3,801,000, respectively.

The secured bank loans of approximately HK$31,538,000 in aggregate were secured by corporate guarantees from the Company and its subsidiaries, of which, bank loans of approximately HK$5,506,000 in aggregate were additionally secured by pledged bank deposits of HK$5.0 million. As at 31 May 2006, the carrying amount of property, plant and machinery of the UPI Group held under finance leases amounted to approximately HK$4,210,000.

Amounts in foreign currency have, for the purpose of this indebtedness statement, been translated into Hong Kong dollars at the applicable rate of exchange ruling at the close of business on 31 May 2006.

(ii) Contingent liabilities

As at 31 May 2006, the UPI Group had no substantial contingent liabilities.

(iii) Disclaimer

Save as aforesaid, and apart from intra-group liabilities, and normal trade payables, the UPI Group did not have any loan capital issued or agreed to be issued, bank overdrafts, loans, debt securities issued and outstanding, an authorised or otherwise created but unissued term loans or other borrowings, indebtedness in the nature of borrowings, liabilities under acceptance (other than trade bills) or acceptance credit, debentures, mortgages, charges, finance lease or hire purchase commitments, which are either guaranteed, unguaranteed, secured, or unsecured, guarantees or other material contingent liabilities outstanding at the close of business on 31 May 2006.

Save as aforesaid and except that the UPI Group has a facility of HK$30 million to finance the purchase of S&J, the Directors confirm that there has been no material change in the indebtedness and contingent liabilities of the UPI Group since 31 March 2006 up to the Latest Practicable Date.

— 97 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

A. FINANCIAL INFORMATION

The following financial information has been extracted from the audited financial statements of S&J Group (which are unqualified and presented in U.S. GAAP) as published in S&J’s Forms 10-K in respect of the relevant financial years, and unaudited financial statements published in Forms 10-Q in respect of quarterly reporting periods filed by S&J with the SEC.

A-1. Form 10-K (Annual Report) for the year ended 30 September 2005 (in US$’000):

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

	FOR THE FISCAL YEARS ENDED	FOR THE FISCAL YEARS ENDED	FOR THE FISCAL YEARS ENDED
	SEPTEMBER	SEPTEMBER	SEPTEMBER
	30, 2005	30, 2004	30, 2003
Net sales	$100,698	$99,485	$90,124
Cost of goods sold	67,463	67,574	61,838
Gross profit	33,235	31,911	28,286
Operating costs and expenses:
Selling, general and administrative expenses	31,405	29,753	21,909
Operating income	1,830	2,158	6,377
Other income (expense)
Rental income	157	184	136
Interest (net)	47	(300)	(237)
Income from continuing operations before
unusual or infrequent items and income taxes	2,034	2,042	6,276
Unusual or infrequent items:
Gain on sale of land and buildings	3,279	—	—
Manufacturing reorganization costs	(1,111)	—	—
Income from continuing operations
before income taxes	4,202	2,042	6,276
Provision for income taxes	(468)	(1,205)	(1,497)
Net income from continuing operations	3,734	837	4,779

— 98 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

	FOR THE FISCAL YEARS ENDED	FOR THE FISCAL YEARS ENDED	FOR THE FISCAL YEARS ENDED	FOR THE FISCAL YEARS ENDED	FOR THE FISCAL YEARS ENDED	FOR THE FISCAL YEARS ENDED
	SEPTEMBER		SEPTEMBER		SEPTEMBER
		30, 2005		30, 2004		30,	2003
Discontinued operations:
Loss from discontinued operations
(net of income taxes of $nil in 2005 and 2004
and $44 in 2003)		(163)		(214)			(66)
Provision for losses on disposal of discontinued
operations		(476)		(187)			(97)
Net loss from discontinued operations		(639)		(401)			(163)
Net income	$	3,095	$	436	$	4,616
Basic and diluted net income (loss) per share:
From continuing operations	$	0.42	$	0.07	$		0.40
From discontinued operations		(0.07)		(0.03)		(0.01)
	$	0.35	$	0.04	$		0.39
Weighted average shares outstanding		8,845,290		11,741,122		11,988,930

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

— 99 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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

		AT		AT
	SEPTEMBER		SEPTEMBER
	30, 2005		30, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	7,289	$	5,090
Trade receivables, net		16,448		18,843
Inventories		24,999		21,988
Assets held for sale		—		3,190
Deferred income tax asset, current portion		2,623		2,128
Other current assets		1,316		1,310
Total current assets		52,675		52,549
Property, plant and equipment, net		17,568		22,114
Deferred income tax asset		12,690		10,933
Investments		157		160
Total assets	$	83,090	$	85,756
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable	$	752	$	68
Trade accounts payable		8,103		8,562
Accrued expenses and other liabilities		11,241		12,948
Taxes payable		88		22
Total current liabilities		20,184		21,600
Other liabilities		749		1,172
Pension liability		35,954		33,545
Total liabilities		56,887		56,317
Stockholders’ equity:
Common stock		12		12
Additional paid in capital		51,590		51,590
Accumulated other comprehensive income (loss):
Minimum pension liability adjustment, net of tax of $16,974 in
2005 and $14,261 in 2004		(43,751)		(38,030)
Foreign currency translation adjustment, net of tax $nil		11,765		12,429
Unrealized loss on derivative instruments		(7)		(61)
Retained earnings		7,134		4,039
Less: 6,275,561 common stock shares held in treasury, at cost		(540)		(540)
Total stockholders’ equity	$	26,203	$	29,439
Total liabilities and stockholders’ equity	$	83,090	$	85,756

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

— 100 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

SPEAR & JACKSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (IN THOUSANDS EXCEPT AMOUNT OF SHARES)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMMON STOCK ADDITIONAL PAID IN CAPITAL PENSION MINIMUM LIABILITY FOREIGN CURRENCY TRANSLATION UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS RETAINED EARNINGS TREASURY STOCK (COMMON) NUMBER AMOUNT $12,011,122 $ 12 $ 51,590 $ (24,343) $ 3,056 $ 2 $ (1,013) $ 0 4,616 (1,683) 4,350 (2) (15) (4,178) (540) 12,011,122 12 51,590 (30,204) 7,406 (15) 3,603 (540) 436 (2,509) 5,023 15 (61) (5,317)	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMMON STOCK ADDITIONAL PAID IN CAPITAL PENSION MINIMUM LIABILITY FOREIGN CURRENCY TRANSLATION UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS RETAINED EARNINGS TREASURY STOCK (COMMON) NUMBER AMOUNT $12,011,122 $ 12 $ 51,590 $ (24,343) $ 3,056 $ 2 $ (1,013) $ 0 4,616 (1,683) 4,350 (2) (15) (4,178) (540) 12,011,122 12 51,590 (30,204) 7,406 (15) 3,603 (540) 436 (2,509) 5,023 15 (61) (5,317)	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMMON STOCK ADDITIONAL PAID IN CAPITAL PENSION MINIMUM LIABILITY FOREIGN CURRENCY TRANSLATION UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS RETAINED EARNINGS TREASURY STOCK (COMMON) NUMBER AMOUNT $12,011,122 $ 12 $ 51,590 $ (24,343) $ 3,056 $ 2 $ (1,013) $ 0 4,616 (1,683) 4,350 (2) (15) (4,178) (540) 12,011,122 12 51,590 (30,204) 7,406 (15) 3,603 (540) 436 (2,509) 5,023 15 (61) (5,317)	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMMON STOCK ADDITIONAL PAID IN CAPITAL PENSION MINIMUM LIABILITY FOREIGN CURRENCY TRANSLATION UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS RETAINED EARNINGS TREASURY STOCK (COMMON) NUMBER AMOUNT $12,011,122 $ 12 $ 51,590 $ (24,343) $ 3,056 $ 2 $ (1,013) $ 0 4,616 (1,683) 4,350 (2) (15) (4,178) (540) 12,011,122 12 51,590 (30,204) 7,406 (15) 3,603 (540) 436 (2,509) 5,023 15 (61) (5,317)	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMMON STOCK ADDITIONAL PAID IN CAPITAL PENSION MINIMUM LIABILITY FOREIGN CURRENCY TRANSLATION UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS RETAINED EARNINGS TREASURY STOCK (COMMON) NUMBER AMOUNT $12,011,122 $ 12 $ 51,590 $ (24,343) $ 3,056 $ 2 $ (1,013) $ 0 4,616 (1,683) 4,350 (2) (15) (4,178) (540) 12,011,122 12 51,590 (30,204) 7,406 (15) 3,603 (540) 436 (2,509) 5,023 15 (61) (5,317)	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMMON STOCK ADDITIONAL PAID IN CAPITAL PENSION MINIMUM LIABILITY FOREIGN CURRENCY TRANSLATION UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS RETAINED EARNINGS TREASURY STOCK (COMMON) NUMBER AMOUNT $12,011,122 $ 12 $ 51,590 $ (24,343) $ 3,056 $ 2 $ (1,013) $ 0 4,616 (1,683) 4,350 (2) (15) (4,178) (540) 12,011,122 12 51,590 (30,204) 7,406 (15) 3,603 (540) 436 (2,509) 5,023 15 (61) (5,317)	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMMON STOCK ADDITIONAL PAID IN CAPITAL PENSION MINIMUM LIABILITY FOREIGN CURRENCY TRANSLATION UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS RETAINED EARNINGS TREASURY STOCK (COMMON) NUMBER AMOUNT $12,011,122 $ 12 $ 51,590 $ (24,343) $ 3,056 $ 2 $ (1,013) $ 0 4,616 (1,683) 4,350 (2) (15) (4,178) (540) 12,011,122 12 51,590 (30,204) 7,406 (15) 3,603 (540) 436 (2,509) 5,023 15 (61) (5,317)	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMMON STOCK ADDITIONAL PAID IN CAPITAL PENSION MINIMUM LIABILITY FOREIGN CURRENCY TRANSLATION UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS RETAINED EARNINGS TREASURY STOCK (COMMON) NUMBER AMOUNT $12,011,122 $ 12 $ 51,590 $ (24,343) $ 3,056 $ 2 $ (1,013) $ 0 4,616 (1,683) 4,350 (2) (15) (4,178) (540) 12,011,122 12 51,590 (30,204) 7,406 (15) 3,603 (540) 436 (2,509) 5,023 15 (61) (5,317)	TOTAL $ 29,304 4,616 2,667 (2) (15) (4,178)
	12	51,590	(30,204) (2,509) (5,317)	7,406 5,023	(15) 15 (61)	3,603 436	(540) (540)	(1,528)
								3,088 (540)
12,011,122								31,852
								436 2,514 15 (61) (5,317)
								(2,849)
								(2,413)
$12,011,122	$ 12	$ 51,590	$ (38,030)	$ 12,429	$ (61)	$ 4,039	$ (540)	$ 29,439

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APPENDIX II

FINANCIAL INFORMATION OF S&J GROUP

Comprehensive income Net income for the year Other comprehensive income: Foreign currency translation adjustment Reclassification adjustment for prior year unrealized holding gains included in net income Unrealized holding losses originating in the year Additional minimum pension liability adjustment (net of tax of $2,713) Other comprehensive income Comprehensive income Balance September 30, 2005	ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) COMMON STOCK ADDITIONAL PAID IN CAPITAL PENSION MINIMUM LIABILITY FOREIGN CURRENCY TRANSLATION UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS RETAINED EARNINGS TREASURY STOCK (COMMON) NUMBER AMOUNT 3,095 608 (664) 61 (7) (6,329) $12,011,122 $ 12 $ 51,590 $ (43,751) $ 11,765 $ (7) $ 7,134 $ (540)	TOTAL 3,095 (56) 61 (7) (6,329)
		(6,331)
		(3,236)
		$ 26,203

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

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

SPEAR & JACKSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

	FOR THE FISCAL	FOR THE FISCAL	FOR THE FISCAL	YEARS ENDED	YEARS ENDED
	SEPTEMBER		SEPTEMBER		SEPTEMBER
	30, 2005		30, 2004		30,	2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to continuing and
discontinued operations	$	3,095	$	436	$ 4,616
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation		3,542		2,929	2,741
Provision for loss on disposal of discontinued
operations		503		187		97
Amortization of asset held for sale		16		—		—
Gain on sale of land and buildings		(3,279)		—		—
Loss (gain) on sale of plant, property and
equipment		6		14		(134)
Deferred income taxes		294		1,092	1,441
Changes in operating assets and liabilities,
excluding the effects of acquisitions and
dispositions:
Decrease (increase) in trade receivables		2,129		(1,930)	3,894
(Increase) decrease in inventories		(3,553)		3,192	(1,040)
(Increase) decrease in other current assets		(30)		(437)		557
Contributions paid to pension plan		(10,207)		(2,706)	(2,836)
Increase in other non-current liabilities		3,991		1,295		274
(Decrease) increase in trade accounts payable		(168)		392	(1,941)
Decrease in accrued expenses and other
liabilities		(1,739)		(286)	(1,752)
Increase (decrease) in taxes payable		37		(56)		4
(Decrease) increase in other liabilities		(423)		(722)		733
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES		(5,786)		3,400	6,654
INVESTING ACTIVITIES:
Proceeds from sale of business net of costs		—		—		287
Purchases of property, plant and equipment		(1,379)		(7,191)	(2,933)
Net cash relinquished on sale of businesses		—		—		(17)
Proceeds from sale of property, plant and
equipment		8,676		81		982

— 103 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

	FOR	THE FISCAL	THE FISCAL	YEARS ENDED	YEARS ENDED	YEARS ENDED
	SEPTEMBER		SEPTEMBER		SEPTEMBER
	30,	2005	30, 2004		30,		2003
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES		7,297		(7,110)		(1,681)
FINANCING ACTIVITIES:
Repayment of long-term debt		—		—			(23)
Repayment of overdraft		(77)		(261)		(1,012)
Increase in overdraft		762		—			—
Promissory notes repaid		—		—			(235)
Director loan discharged		—		—			(100)
Shareholder loan repaid		—		—			(60)
Common stock re-purchased		—		—			(540)
Notes receivable (net of provisions) discharged		—		—			(209)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES		685		(261)		(2,179)
Effect of exchange rate changes on cash and cash
equivalents		3		(130)			(89)
CHANGE IN CASH AND CASH EQUIVALENTS		2,199		(4,101)		2,705
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR		5,090		9,191		6,486
CASH AND CASH EQUIVALENTS AT
END OF YEAR	$7,289		$	5,090	$	9,191
SUPPLEMENTAL CASH FLOW INFORMATION
Cash (received) paid for interest	$	(32)	$	297	$		145
Cash paid for income taxes	$	137	$	169	$		96

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

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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., Societe Neill France S.A., CV Instruments Europe BV and Bowers Eclipse Equipment Shanghai Co. Limited.

As further explained in note 3, 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. The results of operations of companies sold during the period are included in the consolidated statements of operations and cash flows of the Company up to the date of disposal. The results and assets of discontinued operations are presented in accordance with Statement of Financial Accounting Standards (“SFAS”) 144.

All significant intercompany accounts and transactions have been eliminated on consolidation. 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, 2005, September 30, 2004 and September 30, 2003.

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 that do not affect cash flow in the medium term.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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 1to 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.

— 106 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 2 — ACCOUNTING POLICIES — CONTINUED

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

Deferred income tax expense or benefit is based on the changes in the asset or liability from period to period.

EARNINGS PER SHARE: Earnings (loss) per share is computed in accordance with SFAS 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: SFAS 123, “Accounting for Stock-Based Compensation,” 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 $2,252 in the year ended September 30, 2005 and $2,444 and $1,847 in the years ended September 30, 2004 and September 30, 2003, 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 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.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 2 — ACCOUNTING POLICIES — CONTINUED

REVENUE RECOGNITION — CONTINUED

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

		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 that 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, 2005 was $350 and $257 and $66 in the years ended September 30, 2004 and September 30, 2003, respectively.

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, 2005, September 30, 2004 and September 30, 2003.

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:

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

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

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 2 — ACCOUNTING POLICIES — CONTINUED

NEW ACCOUNTING PRONOUNCEMENTS — CONTINUED

FSP SFAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004”, provides enterprises more time (beyond the financial-reporting period during which the Act took effect) to evaluate the Act’s impact on the enterprise’s plan for reinvestment or repatriation of certain foreign earnings for purposes of applying FASB Statement. The Act provides for a special one-time tax deduction of 85 percent dividends received deduction on certain foreign earnings repatriated in fiscal 2005 or 2006. The deduction would result in an approximate 5.1 percent federal tax on a portion of the foreign earnings repatriated. State, local and foreign taxes could apply as well. To qualify for this federal tax deduction, the earnings must be reinvested in the United States pursuant to a domestic reinvestment plan. Certain other criteria in the Jobs Act must be satisfied as well. We studied the provisions of the Act related to the repatriation of earnings and do not intend to repatriate any earnings as of September 30, 2005.

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

In March 2005, the FASB issued Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations � an Interpretation of FASB Statement No. 143.” This Interpretation clarifies the timing of liability recognition for legal obligations associated with an asset retirement when the timing and (or) method of settling the obligation are conditional on a future event that may or may not be within the control of the entity. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. We are currently evaluating the impact, if any, of FIN 47 on our consolidated financial statements.

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

— 109 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 2 — ACCOUNTING POLICIES — CONTINUED

NEW ACCOUNTING PRONOUNCEMENTS — CONTINUED

In June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”. SFAS 154 replaces APB Opinion No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements”. SFAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle. SFAS 154 also requires that a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for prospectively as a change in estimate, and correction of errors in previously issued financial statements should be termed a restatement. SFAS 154 is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005 which is effective with our first quarter of fiscal 2007. We intend to adopt the disclosure requirements upon the effective date of the pronouncement. We do not believe that the adoption of this pronouncement will have a material effect on our consolidated financial position, results of operations or cash flows.

In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the Amortization Period for Leasehold Improvements (“EITF 05-6.”) EITF 05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF 05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. Adoption of this standard is not expected to have a material impact on our consolidated financial position or results of operations.

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.

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

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 3 — NATURE OF BUSINESS — CONTINUED

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

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

On April 21, 2005, Jacuzzi adopted a plan of disposition of the Company’s’ Common Stock (the “Plan of Disposition”), under which Jacuzzi intends to:

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

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

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

NOTE 4 — UNUSUAL OR INFREQUENT EVENTS

a) GAIN ON SALE OF LAND AND BUILDINGS

On January 28, 2005 the Company completed the sale of part of its industrial site at St. Paul’s Road, Wednesbury, England, and on February 15, 2005 the Company also concluded the disposal of its warehouse and office facility in Boca Raton, Florida. Details of these sales are as follows:

	WEDNESBURY	BOCA	RATON
	ENGLAND	FLORIDA			TOTAL
	(IN THOUSANDS)	(IN THOUSANDS)		(IN THOUSANDS)
Sale of land and buildings:
Sale proceeds net of selling, professional
and other costs	$ 5,243	$	3,433	$	8,676
Less: net book value	2,223		3,174		5,397
Gain on sale	$ 3,020	$	259	$	3,279

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 4 — UNUSUAL OR INFREQUENT EVENTS — CONTINUED

b) MANUFACTURING REORGANIZATION COSTS

Manufacturing reorganization costs arising in the year ended September 30, 2005 comprise the following:

	NOTE	TOTAL
		(IN THOUSANDS)
Manufacturing, reorganization and relocation	(i)	$ (437)
Severance costs	(ii)	(487)
Fixed asset impairment write-downs	(iii)	(819)
Release of provisions	(iv)	632
		$(1,111)

(i) As a result of the sale of the surplus element of the Wednesbury property, the Company is contractually obliged to vacate office and warehouse facilities located on those parts of the site that have been sold. A provision of $437 has been made for costs in connection with this obligation. The provision principally relates to office and factory refurbishment and reorganization expenses together with expenditure in respect of departmental relocations within the remainder of the site. $45 of these costs were paid prior to the year end. Following the sale, elements of the Wednesbury manufacturing operation have been closed or transferred and costs in connection with these initiatives are dealt with in (ii) and (iii) below.

In the final quarter of the year the Company performed a review of its UK manufacturing operations and has now begun implementation of a number of strategies to reduce its ongoing cost base. Costs incurred in the implementation of these initiatives comprise:

(ii) Severance costs relating to the closure and down scaling of certain manufacturing processes at the Company’s Sheffield and Wednesbury locations in the UK.
(iii) The ongoing usage and remaining asset lives of the plant and machinery involved in the restructured operations have been reviewed and impairment write-downs made where necessary.
(iv) Certain provisions made in prior periods relating to manufacturing initiatives which will not now be implemented following the finalization of the Company’s UK manufacturing reorganization strategy, have been released in the year.

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APPENDIX II

NOTE 5 — DISCONTINUED OPERATIONS

The following table presents the results of the Company’s operations that have been reclassified as discontinued and the loss that has been recorded in connection with the disposal these businesses:

			FOR	THE FISCAL	THE FISCAL	YEARS
			ENDED SEPTEMBER 30,
			2005		2004		2003
			(IN		(IN		(IN
	Note	THOUSANDS)		THOUSANDS)		THOUSANDS)
Revenues reclassified to discontinued operations:
Megapro screwdrivers division	(a)	$	—	$	—	$1,093
Thread gauge measuring division	(b)		1,627	$1,694		$1,721
		$1,627		$1,694		$2,814
Loss from discontinued operations:
Loss from operations of Megapro screwdrivers division	(a)	$	—	$	—	$	(53)
Loss from operations of thread gauge measuring
division	(b)		(163)	$	(214)	$	(13)
		$	(163)	$	(214)	$	(66)
(Loss) profit on disposal of discontinued operations:
Provision for profit (loss) on disposal of Megapro
screwdrivers division	(a)	$	27	$	(187)	$	(97)
Provision for loss on disposal of thread gauge
measuring division	(b)		(503)		—		—
		$	(476)	$	(187)	$	(97)
Total loss from discontinued operations, net of taxes		$	(639)	$	(401)	$	(163)

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 5 — DISCONTINUED OPERATIONS — CONTINUED

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

(a) 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)	(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 that was outstanding at September 30, 2003. A further $187 was provided against this debt in the year ended September 30, 2004. It has now been agreed with Megapro that it will pay Canadian $54 (approximately $41) in settlement of those debts and this is being repaid in monthly installments of Canadian $5 (approximately $4) of which $27 has been received in the year ended September 30, 2005.

(b) During the fourth quarter of fiscal 2005, the Company began marketing for sale certain assets associated with its thread gauge measuring business that is located in the United Kingdom. The carrying value of the assets relating to this entity has been written down to the lower of depreciated cost or estimated fair value after consideration of selling costs. These assets and liabilities of discontinued operations held for sale have not been reported separately in the consolidated balance sheets of the Company as the amounts involved are not considered material.

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APPENDIX II

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

	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER
		30, 2005		30, 2004
	(IN THOUSANDS)		(IN THOUSANDS)
Trade receivables	$	17,973	$	20,546
Allowance for doubtful accounts		(1,525)		(1,703)
	$	16,448	$	18,843

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 roll forward of the changes in the allowance for doubtful accounts:

		CHARGED
	BALANCE AT	TO COSTS	CHARGED			BALANCE AT
	BEGINNING	AND	TO OTHER			END OF
DESCRIPTION	OF PERIOD	EXPENSES	ACCOUNTS	DEDUCTIONS		PERIOD
Notes			(1)		(2)
Year ended September 30, 2005	$ 1,703	$ 21	($ 27)	($	172)	$ 1,525
Year ended September 30, 2004	$ 2,101	($ 147)	$ 165	($	416)	$ 1,703
Year ended September 30, 2003	$ 1,975	$ 81	$ 151	($	106)	$ 2,101

NOTES:

(1) Items charged to other accounts comprise exchange rate fluctuations during the year.
(2) Deductions comprise recoveries of items previously written off.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 7 — INVENTORIES

	AT SEPTEMBER 30,	AT SEPTEMBER 30,
	2005	2004
	(IN THOUSANDS)	(IN THOUSANDS)
Finished products	$19,740	$16,779
In-process products	6,481	5,211
Raw materials	5,320	5,944
Less: allowance for slow moving and obsolete inventories	(6,542)	(5,946)
	$24,999	$21,988

The following table provides a summary of the adjustments to the allowance for slow moving and obsolete inventories:

			CHARGED	CHARGED
	BALANCE AT		TO	COSTS	CHARGED				BALANCE
	BEGINNING			AND	TO	OTHER				AT END
DESCRIPTION	OF	PERIOD	EXPENSES		ACCOUNTS		DEDUCTIONS		OF	PERIOD
NOTE						(1)		(2)
Year ended September 30, 2005	$	5,946	$	884	$	189	($	477)	$	6,542
Year ended September 30, 2004	$	5,755	$	391	$	468	($	668)	$	5,946
Year ended September 30, 2003	$	5,839	$	125	$	431	($	640)	$	5,755

NOTES:

(1) Items charged to other accounts comprise exchange rate fluctuations during the year, and sundry recategorizations.
(2) Deductions comprise obsolete items sold or scrapped.

— 116 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 8 — PROPERTY, PLANT AND EQUIPMENT, NET

		AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER
		30, 2005		30, 2004
		(IN THOUSANDS)		(IN THOUSANDS)
Assets held and used:
Land and buildings, at cost	(a)	$	15,799	$	18,177
Machinery, equipment and vehicles, at cost			35,331		35,101
Furniture and fixtures, at cost			1,256		1,241
Computer hardware, at cost			1,244		1,264
Computer software, at cost			342		348
Assets held under finance leases, at cost	(b)		2,883		2,828
			56,855		58,959
Accumulated Depreciation:			(39,287)		(36,845)
Net		$	17,568	$	22,114
Assets held for sale:
Assets held for sale, at cost:	(a)	$	—	$	3,228
Accumulated Depreciation:			—		(38)
Net		$	—	$	3,190

(a) During the year ended September 30, 2004, the Company spent $3.3 million on the acquisition of its manufacturing site at St Paul’s Road, 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 retained by the U.S. Securities and Exchange Commission, 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 was deferred. The Boca Raton warehouse was offered for sale and this property was accordingly presented as an asset held for sale in the consolidated balance sheet of the Company at September 30, 2004. The Boca Raton premises were sold on February 15, 2005. The Company completed the sale of part of its industrial site at Wednesbury on January 28, 2005. Details of these dispositions are provided in note 4, above.
(b) Included in property, plant and equipment at September 30, 2005 are capital leases with a net book value of $1.3 million (September 30, 2004 $1.3 million). The cost of these assets held under capital leases was $2.9 million (September 30, 2004 $2.8 million), and the accumulated depreciation relating to these assets was $1.6 million (September 30, 2004 $1.5 million).

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 9 — INVESTMENTS

Investments comprise the following:

		AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER
			30, 2005		30, 2004
	NOTE	(IN THOUSANDS)		(IN THOUSANDS)
30% investment in Bipico Industries Private limited	(a)	$	67	$	69
30% investment in Bowers Metrologie SA	(a)		67		68
Other investments in equity securities	(b)		23		23
		$	157	$	160

(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.

— 118 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 10 — INCOME TAXES

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

		FOR THE FISCAL	FOR THE FISCAL	YEARS	ENDED
	SEPTEMBER 30,		SEPTEMBER 30,		SEPTEMBER 30,
		2005		2004		2003
	_(IN THOUSANDS) _		_(IN THOUSANDS) _		(IN THOUSANDS)
Continued operations:
Current tax charge	$	(174)	$	(113)	$	(100)
Deferred tax charge		(294)		(1,092)		(1,397)
	$	(468)	$	(1,205)	$	(1,497)
Discontinued operations:
Deferred tax charge	$	—	$	—	$	(44)
Total	$	(468)	$	(1,205)	$	(1,541)

The current and deferred tax charges arise wholly in non US operations.

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

		FOR THE FISCAL	FOR THE FISCAL	YEARS ENDED	YEARS ENDED
	SEPTEMBER		SEPTEMBER		SEPTEMBER
		30, 2005		30, 2004		30, 2003
	(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
Tax at US federal statutory income tax rate	$	(1,247)	$	(574)	$	(2,192)
Overseas tax at rates different to effective rate		(89)		(81)		313
Gain on sale of UK property covered by capital losses
brought forward		906		—		—
Permanent timing differences		(161)		(162)		(60)
Adjustment of prior year estimates		219		118		(98)
Valuation allowance		(143)		(536)		533
Miscellaneous		47		30		7
	$	(468)	$	(1,205)	$	(1,497)

Deferred income tax assets and liabilities for 2005 and 2004 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.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 10 — INCOME TAXES — CONTINUED

The temporary differences and carry forwards that give rise to deferred assets and liabilities at September 30, 2005 and September 30, 2004 comprise:

	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER
		30, 2005		30, 2004
	(IN THOUSANDS)		(IN THOUSANDS)
Deferred tax assets:
Property, plant and equipment	$	412	$	59
Pension benefit plan		10,812		10,064
Accruals and allowances		3,666		2,752
Inventory		423		186
Tax loss carry forwards and other tax credits		21,082		21,152
Total deferred tax assets		36,395		34,213
Valuation allowance		(21,082)		(21,152)
Net deferred tax assets		15,313		13,061
Deferred tax asset, net	$	15,313	$	13,061
Deferred tax asset, current portion		2,623		2,128
Deferred tax asset, non-current portion		12,690		10,933
	$	15,313	$	13,061

SFAS No. 109, “Accounting for Income Taxes,” requires a valuation allowance to be established when it is “more likely than not” that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence was undertaken by the Company at September 30, 2005 to determine the likelihood of realizing the deferred tax benefits relating to property, plant and equipment, pension benefit plan, accruals and allowances, inventories and tax loss carryforwards shown above.

The review considered the available positive and negative evidence, and included those factors believed to be relevant, including the Company’s recent operating results and its expected future profitability, including the impact of its manufacturing restructuring strategies. Based on this review, the Company expects to generate sufficient future taxable income such that its gross deferred tax assets relating to property, plant and equipment, the UK pension benefit plan, accruals and allowances and inventories will meet the “more-likely-than-not” realizability test.

The gross deferred tax assets in respect of tax loss carry forwards and other tax credits relate to operating loss carry forwards in the Company’s UK, US and Australian companies totaling approximately $6.5 million (September 30, 2004 $6.3 million) and to other UK tax credits of approximately $14.6 million (September 30, 2004 $14.9 million). The Company’s NOLs arising in the UK, France and Australia can be carried forward without time expiration while the US tax losses expire at various dates between 2017 and 2020. A recent history of operating losses and other factors has precluded the Company from demonstrating that it is more likely than not that the benefits of these domestic and foreign operating loss carryforwards and other tax credits will be realized.Accordingly, at September 30, 2005 a valuation allowance of $21.1 million (September 30, 2004 $21.2 million) has been recorded against these items.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 10 — INCOME TAXES — CONTINUED

Spear & Jackson will continue to review the recoverability of its deferred tax assets and, based on such periodic reviews, the Company could recognize a change in the valuation allowance relating to its deferred tax assets in the future should, for example, estimates of forecast taxable income be reduced or other favorable or adverse events occur.

NOTE 11 — BANK FACILITIES

The French and Australian subsidiaries of Spear & Jackson, Inc. maintain short-term credit facilities of $2.8 million (2004: $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 nothing outstanding under the overdraft lines at September 30, 2005 (2004: $0.07 million) and $0.1 million of letters of credit and bills were outstanding under these facilities (2004: $0.9 million).

In addition, the UK subsidiaries of Spear & Jackson, Inc. maintain a line of credit of $8.0 million (2004: $8.1million). This is secured by fixed and floating charges on the assets and undertakings of these businesses. Of the total facility, $5.3 million (2004: $5.4 million) relates to bank overdrafts and $2.7 million (2004: $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 1%. At September 30, 2005 the Company had $0.8 million (2004: $nil) borrowings outstanding under the overdraft line and $0.6 million in outstanding letters of credit (2004: $1.5 million). Additionally, as a consequence of the special pension contributions made in June and September 2005, and the additional funding which will be required to finance the forthcoming restructuring initiatives, an open-ended on demand bridging loan of $5.3 million has been secured with Company’s UK bankers. The facility is denominated in British pounds and is secured by a first legal charge over the Wednesbury land and property. It carries interest at UK base rates plus 1%. This facility had not been utilized at September 30, 2005.

NOTE 12 — ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER
		30, 2005		30, 2004
	(IN THOUSANDS)		(IN THOUSANDS)
Compensation related	$	2,746	$	4,124
Rebates/dealer incentives		1,297		1,315
Sales taxes payable		462		480
Finance lease liabilities �current portion		613		803
Audit and accountancy fees		503		308
Commissions		735		698
Property rentals		224		309
Provisions		2,533		2,411
Other		2,128		2,500
	$	11,241	$	12,948

— 121 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 13 — OTHER LIABILITIES

Other liabilities comprise:

	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER
		30, 2005		30, 2004
	(IN THOUSANDS)		(IN THOUSANDS)
Finance lease liabilities �non current portion	$	337	$	625
Property rentals		412		495
Government grant received		—		52
	$	749	$	1,172

NOTE 14 — 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. Admittance to the Plan is now closed. Pension Plan assets are primarily invested in equities, fixed income securities and Government stocks.

Amounts payable by the Company to the Plan are determined on the advice of the Plan’s actuaries and after discussion with, and agreement by, the Plan’s trustees. The Company’s funding policy with respect to the Plan is to make contributions in respect of ongoing benefit accruals and the clearance of underfunding deficits which are at least the minimum amounts required in accordance with applicable UK law and pension regulations. In the years ended September 30, 2005, September 30, 2004, and September 30, 2003, contributions amounted to $10.3 million, $2.7million and $2.8 million, respectively. Contributions in the year ending September 30, 2005 included special contributions of (pound)4 million (approximately $7.2 million). The reasons for the special contribution are explained below. Employer contributions in the year ending September 30, 2006 are expected to be approximately $3.4 million.

The pension Plan actuarial advisors carried out an actuarial valuation of the Plan as at December 31, 2004. This valuation showed an increase in the Plan’s deficit compared to that calculated at April 5, 2002, the date of the last full actuarial valuation. Following discussions between the Company and the trustees of the Plan, it was agreed that the Company would make a special contribution to the Plan of (pound) 4 million (approximately $7.2 million). (pound) 2 million (approximately $3.6 million) was paid in June 2005 and the remainder was paid in September 2005. Also, from May 2005, the Company’s annual pension contributions have increased from 21.2% of pensionable salaries (approximately (pound) 1.5 million or $2.7 million) to a fixed amount of (pound) 1.9 million (approximately $3.4 million). This rate of annual contribution will remain in place, subject to certain conditions, until April 207 when it will be reviewed by the Plan actuary.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 14 — PENSION PLAN — CONTINUED

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

	EXPECTED BENEFIT
YEAR	PAYMENTS
	(IN THOUSANDS)
2006	$ 7,960
2007	$ 8,319
2008	$ 8,692
2009	$ 9,083
2010	$ 9,491
2011-2015	$54,260

The Company’s actuary carried out valuations of the Plan under SFAS 87, “Employers Accounting for Pensions”, at September 30, 2005 and at September 30, 2004. The following table, as provided by the actuary, analyzes the movement in the pension Plan liability between September 30, 2003, September 30, 2004 and September 30, 2005 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, 2005 and September 30, 2004:

2005 2004 (IN THOUSANDS) (IN THOUSANDS) CHANGE IN PROJECTED BENEFIT OBLIGATION: Projected benefit obligation at the beginning of the year $ 180,375 $ 154,105 Foreign currency exchange rate changes (4,530) 12,795 Service cost 1,805 1,518 Interest cost 10,072 8,977 Employee contributions 947 933 Actuarial loss 32,229 9,459 Benefits paid (7,427) (7,412 Projected benefit obligation at the end of the year $ 213,471 $ 180,375 CHANGE IN FAIR VALUE OF PLAN ASSETS: Fair value of plan assets at the beginning of the year $ 141,257 $ 124,355 Foreign currency exchange rate changes (3,525) 10,329 Actual return on plan assets 28,651 10,346 Employer contributions 10,207 2,706 Employee contributions 947 933 Benefits paid (7,427) (7,412 Fair value of plan assets at the end of the year $ 170,110 $ 141,257	2005 2004 (IN THOUSANDS) (IN THOUSANDS) CHANGE IN PROJECTED BENEFIT OBLIGATION: Projected benefit obligation at the beginning of the year $ 180,375 $ 154,105 Foreign currency exchange rate changes (4,530) 12,795 Service cost 1,805 1,518 Interest cost 10,072 8,977 Employee contributions 947 933 Actuarial loss 32,229 9,459 Benefits paid (7,427) (7,412 Projected benefit obligation at the end of the year $ 213,471 $ 180,375 CHANGE IN FAIR VALUE OF PLAN ASSETS: Fair value of plan assets at the beginning of the year $ 141,257 $ 124,355 Foreign currency exchange rate changes (3,525) 10,329 Actual return on plan assets 28,651 10,346 Employer contributions 10,207 2,706 Employee contributions 947 933 Benefits paid (7,427) (7,412 Fair value of plan assets at the end of the year $ 170,110 $ 141,257	2005 2004 (IN THOUSANDS) (IN THOUSANDS) CHANGE IN PROJECTED BENEFIT OBLIGATION: Projected benefit obligation at the beginning of the year $ 180,375 $ 154,105 Foreign currency exchange rate changes (4,530) 12,795 Service cost 1,805 1,518 Interest cost 10,072 8,977 Employee contributions 947 933 Actuarial loss 32,229 9,459 Benefits paid (7,427) (7,412 Projected benefit obligation at the end of the year $ 213,471 $ 180,375 CHANGE IN FAIR VALUE OF PLAN ASSETS: Fair value of plan assets at the beginning of the year $ 141,257 $ 124,355 Foreign currency exchange rate changes (3,525) 10,329 Actual return on plan assets 28,651 10,346 Employer contributions 10,207 2,706 Employee contributions 947 933 Benefits paid (7,427) (7,412 Fair value of plan assets at the end of the year $ 170,110 $ 141,257
		$ 180,375
	$ 141,257 (3,525) 28,651 10,207 947 (7,427)	$ 124,355 10,329 10,346 2,706 933 (7,412
	$ 170,110	$ 141,257

— 123 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 14 — PENSION PLAN — CONTINUED

2005 2004 (IN THOUSANDS) (IN THOUSANDS) FUNDED STATUS OF PLAN: Projected benefit obligation in excess of plan assets $ (43,361) $ (39,118 Unrecognized net actuarial loss 69,907 59,902 Net amount recognized $ 26,546 $ 20,784 AMOUNTS RECOGNIZED IN THE BALANCE SHEET CONSIST OF: Accrued benefit cost $ (35,954) $ (33,545 Accumulated other comprehensive income 62,501 54,329 Net amount recognized $ 26,546 $ 20,784 INCREASE OVER THE YEAR IN THE MINIMUM LIABILITY INCLUDED IN OTHER COMPREHENSIVE INCOME $ 8,172 $ 7,595	2005 2004 (IN THOUSANDS) (IN THOUSANDS) FUNDED STATUS OF PLAN: Projected benefit obligation in excess of plan assets $ (43,361) $ (39,118 Unrecognized net actuarial loss 69,907 59,902 Net amount recognized $ 26,546 $ 20,784 AMOUNTS RECOGNIZED IN THE BALANCE SHEET CONSIST OF: Accrued benefit cost $ (35,954) $ (33,545 Accumulated other comprehensive income 62,501 54,329 Net amount recognized $ 26,546 $ 20,784 INCREASE OVER THE YEAR IN THE MINIMUM LIABILITY INCLUDED IN OTHER COMPREHENSIVE INCOME $ 8,172 $ 7,595	2005 2004 (IN THOUSANDS) (IN THOUSANDS) FUNDED STATUS OF PLAN: Projected benefit obligation in excess of plan assets $ (43,361) $ (39,118 Unrecognized net actuarial loss 69,907 59,902 Net amount recognized $ 26,546 $ 20,784 AMOUNTS RECOGNIZED IN THE BALANCE SHEET CONSIST OF: Accrued benefit cost $ (35,954) $ (33,545 Accumulated other comprehensive income 62,501 54,329 Net amount recognized $ 26,546 $ 20,784 INCREASE OVER THE YEAR IN THE MINIMUM LIABILITY INCLUDED IN OTHER COMPREHENSIVE INCOME $ 8,172 $ 7,595
		$ 20,784
	$ (35,954) 62,501	$ (33,545 54,329
	$ 26,546 $ 8,172	$ 20,784
		$ 7,595

At September 30, 2005 the projected benefit obligation, accumulated benefit obligation, and fair value of assets for the pension Plan were $213.5 million (2004: $180.4 million), $206.2 million (2004: $174.8 million), and $170.1 million (2004: $141.3 million).

At September 30, 2005 and 2004 the Company had minimum pension plan liabilities of $62.5 million and $54.3 million, respectively, in respect of the Plan. In accordance with the requirements of SFAS 87 the Company has recognized this liability on its balance sheet since the accumulated benefit obligations of the Plan exceed the fair value of the Plan’s assets. Any increase or decrease in the minimum liability is recorded through a direct charge or credit to stockholders’ equity and is reflected, net of tax, as a component of comprehensive income in the consolidated statements of shareholders’ equity. The Company’s minimum pension liabilities increased by $8.4 million from fiscal 2004 to fiscal 2005. This increase is principally due to the adoption of a different mortality table in the calculation of the Plan’s benefit obligations together with a decrease in the discount rate assumption used at September 30, 2005 compared to that employed at the previous fiscal year end.

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

	2005	2004	2003
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate	5.00%	5.50%	5.50%
Rate of compensation increase	2.90%	2.80%	2.50%
Expected return on assets	6.50%	7.00%	7.50%
Fixed pension increase	5.00%	5.00%	5.00%
LPI pension increase	2.70%	2.70%	2.50%
Post 1988 GMP increase	2.40%	2.40%	2.00%
Inflation	2.80%	2.80%	2.50%

— 124 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 14 — PENSION PLAN — CONTINUED

COMPONENTS OF NET PERIODIC BENEFIT COST Defined benefit plans: Service cost Interest cost Expected return on plan assets Recognition of actuarial loss Net periodic cost	2005 $ 1,805 10,072 (10,588) 2,702 $ 3,991	2004 $ 1,518 8,977 (10,901) 1,701 $ 1,295	2003 $ 1,439 7,996 (9,915) 754 $ 274

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 net periodic pension cost for the year ended September 30, 2006 is estimated to be $8.2 million.

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 2006 expense is 6.5% a year (2005: 7.0%), which is based on an equity risk premium of 3.75% a year over the yields available on long-term government bonds at September 30, 2005 of 4.35% a year for 51% of the assets.

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.

— 125 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 14 — PENSION PLAN — CONTINUED

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 2006	Impact on	September 30,
	Pre-Tax Pension	September 30,	2005 Equity
Change in Assumption	Expense	2005 PBO	(Net of tax)
25 basis point decrease in discount rate	+$0.74 million	+$9.09 million	-$6.08 million
25 basis point increase in discount rate	-$0.71 million	-$8.67 million	+$5.84 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 increase in compensation assumption	+$0.16 million	+$0.78 million	—
25 basis point decrease in compensation assumption	-$0.16 million	-$0.76 million	—
Use of PA80C2010 Mortality table	-$1.38 million	-$10.44 million	+$7.04 million

The trustees aim to invest the assets of the Plan prudently to ensure that the benefits promised to members are provided. In setting the investment strategy, the trustees first considered the lowest risk asset allocation that they could adopt in relation to the Plan’s liabilities (100% UK Government Bonds). The asset allocation strategy they have selected is designed to achieve a higher return than the lowest risk strategy while maintaining a prudent approach to meeting the Plan’s liabilities.

The allocation of Plan investments to the various asset categories at September 30, 2005 and September 30, 2004 was as follows:

		%	of Assets at	% of Assets at
	Target	September 30,		September 30,
	Allocation		2005	2004
ASSET CATEGORY:
Equities	50%		51%	48%
Bonds	50%		43%	49%
Cash	0%		6%	3%
Total	100%		100%	100%

The target shown above is a short-term allocation.

— 126 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 15 — LEASES

Rental expense for operating leases in the year ended September 30, 2005 was $1.1 million. Operating lease costs in both the years ended September 30, 2004 and September 30, 2003 amounted to $0.9 million. Future minimum rental commitments under non-cancelable operating leases as of September 30, 2005 and September 30, 2004 are as follows:

		2005
	(IN THOUSANDS)
2006	$	1,032
2007		1,016
2008		982
2009		923
2010		809
Thereafter		2,163
Total minimum lease payments	$	6,925

Under capital lease agreements, the Company is required to make certain monthly, quarterly or annual lease payments through 2009. The aggregate minimum capital lease payments for the next four years, with their present value as of September 30, 2005, and September 30, 2004 are as follows:

2005 2004 (IN THOUSANDS) (IN THOUSANDS) 2006 $ 651 $ 846 2007 350 510 2008 5 148 2009 — 5 Total minimum lease payments 1,006 1,509 Less amount representing interest at 5.5% (56) (81) Present value of net minimum lease payments 950 1,428 Less current portion (613) (803) Long-term portion $ 337 $ 625	2005 2004 (IN THOUSANDS) (IN THOUSANDS) 2006 $ 651 $ 846 2007 350 510 2008 5 148 2009 — 5 Total minimum lease payments 1,006 1,509 Less amount representing interest at 5.5% (56) (81) Present value of net minimum lease payments 950 1,428 Less current portion (613) (803) Long-term portion $ 337 $ 625	2005 2004 (IN THOUSANDS) (IN THOUSANDS) 2006 $ 651 $ 846 2007 350 510 2008 5 148 2009 — 5 Total minimum lease payments 1,006 1,509 Less amount representing interest at 5.5% (56) (81) Present value of net minimum lease payments 950 1,428 Less current portion (613) (803) Long-term portion $ 337 $ 625
	1,006 (56) 950 (613)	1,509 (81)
		1,428 (803)
	$ 337	$ 625

— 127 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 16 — COMMON STOCK

2005 (NUMBER) 2004 (NUMBER)

Par value $0.001 per share Authorized: Issued: Outstanding: At beginning of period Purchase of shares (see below) At end of period	25,000,000 12,011,122	25,000,000
		12,011,122
	11,741,122 (6,005,561)	11,741,122 —
	5,735,561	11,741,122

On April 8, 2005 the Company acquired, for $100, 6,005,561 common shares of the Company that were held by PNC Tool Holdings LLC. The agreement for the purchase of this stock had been approved by the SEC on February 10, 2005, and by the US District Court for the Southern District of Florida on February 15, 2005 in part settlement of the litigation captioned SEC v Dennis Crowley, Spear & Jackson, Inc., International Media solutions, Inc., Yolanda Velazquez and Kermit Silva (Case No. 04-80354-civ-Middlebrooks).

NOTE 17 — RELATED PARTY TRANSACTIONS AND BALANCES

Transactions for the years ended September 30, 2005, September 30, 2004, and September 30, 2003 were as follows:

		FOR THE FISCAL YEARS	FOR THE FISCAL YEARS	FOR THE FISCAL YEARS	ENDED
	SEPTEMBER		SEPTEMBER		SEPTEMBER
		30, 2005		30, 2004	30,	2003
Interest on the promissory note payable to a significant
stockholder of the company and interest on director’s
loan	$	0	$	0	$	12

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.

— 128 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 18 — SEGMENT DATA

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

Given below are summaries of the significant accounts and balances by business segment and by geographical location, reconciled to the consolidated totals. In 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. Those transactions relating to the Company’s distribution entity in the Netherlands have been included in the Metrology division. The summaries also provide an analysis of the accounts and balances between continuing and discontinued operations.

The financial information of the segments is regularly evaluated by the corporate operating executives in determining resource allocation and assessing performance and is reviewed by the Company’s Board of Directors. The Company’s senior management evaluates the performance of each business segment based on its operating results and, other than general corporate expenses, allocates specific corporate overhead to each segment. Accounting policies for the segments are the same as those for the Company.

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

		SALES			LONG-LIVED ASSETS (a)	LONG-LIVED ASSETS (a)	LONG-LIVED ASSETS (a)
YEAR ENDED		YEAR ENDED	YEAR ENDED	YEAR ENDED		YEAR ENDED	YEAR	ENDED
SEPTEMBER		SEPTEMBER	SEPTEMBER	SEPTEMBER		SEPTEMBER	SEPTEMBER
	30, 2005	30, 2004	30, 2003	30,	2005	30, 2004		30,	2003
Hand & garden tools	$ 74,339	$ 76,468	$69,959	$	5,488	$ 8,814		$	6,640
Metrology tools	17,262	15,370	13,571		2,293	2,689			2,699
Magnetic products	10,724	9,341	8,315		395	862			1,023
Screwdrivers	—	—	1,093		—	—			—
Corporate	—	—	—		9,392	9,749			9,199
Total	$102,325	$101,179	$92,938	$17,568		$22,114		$19,561
Attributable to:
Continuing operations	$100,698	$ 99,485	$90,124	$17,568		$22,060		$19,561
Discontinued operations	$ 1,627	$ 1,694	$ 2,814	$	—	$ 54		$	—
	$102,325	$101,179	$92,938	$17,568		$22,114		$19,561

(a) Represents property, plant and equipment, net

— 129 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 18 — SEGMENT DATA — CONTINUED

DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 Hand & garden tools $2,291 $1,975 $1,901 $1,256 $3,726 $1,863 Metrology tools 530 421 400 119 202 638 Magnetic products 474 281 234 4 35 337 Screwdrivers — — 14 — — 2 Corporate 247 252 192 — 3,228 93 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 Hand & garden tools $2,291 $1,975 $1,901 $1,256 $3,726 $1,863 Metrology tools 530 421 400 119 202 638 Magnetic products 474 281 234 4 35 337 Screwdrivers — — 14 — — 2 Corporate 247 252 192 — 3,228 93 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 Hand & garden tools $2,291 $1,975 $1,901 $1,256 $3,726 $1,863 Metrology tools 530 421 400 119 202 638 Magnetic products 474 281 234 4 35 337 Screwdrivers — — 14 — — 2 Corporate 247 252 192 — 3,228 93 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 Hand & garden tools $2,291 $1,975 $1,901 $1,256 $3,726 $1,863 Metrology tools 530 421 400 119 202 638 Magnetic products 474 281 234 4 35 337 Screwdrivers — — 14 — — 2 Corporate 247 252 192 — 3,228 93 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 Hand & garden tools $2,291 $1,975 $1,901 $1,256 $3,726 $1,863 Metrology tools 530 421 400 119 202 638 Magnetic products 474 281 234 4 35 337 Screwdrivers — — 14 — — 2 Corporate 247 252 192 — 3,228 93 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 Hand & garden tools $2,291 $1,975 $1,901 $1,256 $3,726 $1,863 Metrology tools 530 421 400 119 202 638 Magnetic products 474 281 234 4 35 337 Screwdrivers — — 14 — — 2 Corporate 247 252 192 — 3,228 93 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933
					$2,933
$3,488 $ 54	$2,922 $ 7	$2,708 $ 33	$1,379 $ —	$7,137 $ 54	$2,931 $ 2
$3,542	$2,929	$2,741	$1,379	$7,191	$2,933

		OPERATING INCOME	OPERATING INCOME	OPERATING INCOME	OPERATING INCOME				NET INTEREST	NET INTEREST
YEAR	ENDED		YEAR ENDED		YEAR	ENDED	YEAR ENDED		YEAR ENDED	YEAR	ENDED
SEPTEMBER			SEPTEMBER		SEPTEMBER		SEPTEMBER		SEPTEMBER	SEPTEMBER
	30,	2005	30, 2004			30, 2003	30, 2005		30, 2004		30, 2003
Hand & garden tools	$	(19)	$	1,124		$3,404	$(178)		$(203)		$(255)
Metrology tools		1,610		1,533		1,380		(14)	(17)		(18)
Magnetic products		1,058		1,136		1,715		(10)	(14)		(14)
Screwdrivers		—		—		(17)		—	—		(10)
Corporate		(982)		(1,849)		(135)		249	(66)		50
Total	$1,667		$	1,944		$6,347	$	47	$(300)		$(247)
Attributable to:
Continuing operations	$1,830		$	2,158		$6,377	$	47	$(300)		$(237)
Discontinued operations	$	(163)	$	(214)		$ (30)	$	—	$ —		$ (10)
	$1,667		$	1,944		$6,347	$	47	$(300)		$(247)

— 130 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 18 — SEGMENT DATA — CONTINUED

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

SALES(a) LONG-LIVED ASSETS(b) YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $ 44,555 $ 45,417 $38,625 $15,875 $20,337 $17,706 Europe 21,778 18,817 17,159 1,163 1,231 1,243 Australasia 15,160 17,505 20,215 530 546 605 North America 6,982 6,954 6,802 — — 7 Other 13,850 12,486 10,137 — — — Total $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 Attributable to: Continuing operations $100,698 $ 99,485 $90,124 $17,568 $22,060 $19,561 Discontinued operations $ 1,627 $ 1,694 $ 2,814 $ — $ 54 $ — $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $3,172 $2,472 $2,303 $ 995 $3,694 $2,585 Europe 109 93 117 79 3 11 Australasia 261 313 301 305 266 330 North America $ — $ 51 $ 20 $ — $3,228 $ 7 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	SALES(a) LONG-LIVED ASSETS(b) YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $ 44,555 $ 45,417 $38,625 $15,875 $20,337 $17,706 Europe 21,778 18,817 17,159 1,163 1,231 1,243 Australasia 15,160 17,505 20,215 530 546 605 North America 6,982 6,954 6,802 — — 7 Other 13,850 12,486 10,137 — — — Total $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 Attributable to: Continuing operations $100,698 $ 99,485 $90,124 $17,568 $22,060 $19,561 Discontinued operations $ 1,627 $ 1,694 $ 2,814 $ — $ 54 $ — $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $3,172 $2,472 $2,303 $ 995 $3,694 $2,585 Europe 109 93 117 79 3 11 Australasia 261 313 301 305 266 330 North America $ — $ 51 $ 20 $ — $3,228 $ 7 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	SALES(a) LONG-LIVED ASSETS(b) YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $ 44,555 $ 45,417 $38,625 $15,875 $20,337 $17,706 Europe 21,778 18,817 17,159 1,163 1,231 1,243 Australasia 15,160 17,505 20,215 530 546 605 North America 6,982 6,954 6,802 — — 7 Other 13,850 12,486 10,137 — — — Total $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 Attributable to: Continuing operations $100,698 $ 99,485 $90,124 $17,568 $22,060 $19,561 Discontinued operations $ 1,627 $ 1,694 $ 2,814 $ — $ 54 $ — $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $3,172 $2,472 $2,303 $ 995 $3,694 $2,585 Europe 109 93 117 79 3 11 Australasia 261 313 301 305 266 330 North America $ — $ 51 $ 20 $ — $3,228 $ 7 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	SALES(a) LONG-LIVED ASSETS(b) YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $ 44,555 $ 45,417 $38,625 $15,875 $20,337 $17,706 Europe 21,778 18,817 17,159 1,163 1,231 1,243 Australasia 15,160 17,505 20,215 530 546 605 North America 6,982 6,954 6,802 — — 7 Other 13,850 12,486 10,137 — — — Total $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 Attributable to: Continuing operations $100,698 $ 99,485 $90,124 $17,568 $22,060 $19,561 Discontinued operations $ 1,627 $ 1,694 $ 2,814 $ — $ 54 $ — $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $3,172 $2,472 $2,303 $ 995 $3,694 $2,585 Europe 109 93 117 79 3 11 Australasia 261 313 301 305 266 330 North America $ — $ 51 $ 20 $ — $3,228 $ 7 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	SALES(a) LONG-LIVED ASSETS(b) YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $ 44,555 $ 45,417 $38,625 $15,875 $20,337 $17,706 Europe 21,778 18,817 17,159 1,163 1,231 1,243 Australasia 15,160 17,505 20,215 530 546 605 North America 6,982 6,954 6,802 — — 7 Other 13,850 12,486 10,137 — — — Total $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 Attributable to: Continuing operations $100,698 $ 99,485 $90,124 $17,568 $22,060 $19,561 Discontinued operations $ 1,627 $ 1,694 $ 2,814 $ — $ 54 $ — $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $3,172 $2,472 $2,303 $ 995 $3,694 $2,585 Europe 109 93 117 79 3 11 Australasia 261 313 301 305 266 330 North America $ — $ 51 $ 20 $ — $3,228 $ 7 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933	SALES(a) LONG-LIVED ASSETS(b) YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $ 44,555 $ 45,417 $38,625 $15,875 $20,337 $17,706 Europe 21,778 18,817 17,159 1,163 1,231 1,243 Australasia 15,160 17,505 20,215 530 546 605 North America 6,982 6,954 6,802 — — 7 Other 13,850 12,486 10,137 — — — Total $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 Attributable to: Continuing operations $100,698 $ 99,485 $90,124 $17,568 $22,060 $19,561 Discontinued operations $ 1,627 $ 1,694 $ 2,814 $ — $ 54 $ — $102,325 $101,179 $92,938 $17,568 $22,114 $19,561 DEPRECIATION CAPITAL EXPENDITURE YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2005 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 United Kingdom $3,172 $2,472 $2,303 $ 995 $3,694 $2,585 Europe 109 93 117 79 3 11 Australasia 261 313 301 305 266 330 North America $ — $ 51 $ 20 $ — $3,228 $ 7 Total $3,542 $2,929 $2,741 $1,379 $7,191 $2,933 Attributable to: Continuing operations $3,488 $2,922 $2,708 $1,379 $7,137 $2,931 Discontinued operations $ 54 $ 7 $ 33 $ — $ 54 $ 2 $3,542 $2,929 $2,741 $1,379 $7,191 $2,933
					$2,933
$3,488 $ 54	$2,922 $ 7	$2,708 $ 33	$1,379 $ —	$7,137 $ 54	$2,931 $ 2
$3,542	$2,929	$2,741	$1,379	$7,191	$2,933

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

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

— 131 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 18 — SEGMENT DATA — CONTINUED

	OPERATING INCOME	OPERATING INCOME	OPERATING INCOME	OPERATING INCOME				NET INTEREST	NET INTEREST
YEAR	ENDED	YEAR ENDED		YEAR	ENDED	YEAR ENDED		YEAR ENDED	YEAR	ENDED
SEPTEMBER		SEPTEMBER		SEPTEMBER		SEPTEMBER		SEPTEMBER	SEPTEMBER
	30, 2005	30, 2004			30, 2003	30, 2005		30, 2004		30, 2003
United Kingdom	$1,938	$	3,441		$6,333	$	109	$(186)		$ (77)
Europe	355		243		(85)		(185)	(163)		(186)
Australasia	183		(171)		595		60	24		(10)
North America	(809)		(1,569)		(496)		63	25		26
Total	$1,667	$	1,944		$6,347	$	47	$(300)		$(247)
Attributable to:
Continuing operations	$1,830	$	2,158		$6,377	$	47	$(300)		$(237)
Discontinued operations	$ (163)	$	(214)		$ (30)	$	—	$ —		$ (10)
	$1,667	$	1,944		$6,347	$	47	$(300)		$(247)

NOTE 19 — 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, 2005 and 2004:

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, 2005 and 2004.

Derivative Financial Instruments

The Company had $1 million and $1.5 million outstanding in respect of forward exchange contracts outstanding as of September 30, 2005 and 2004, respectively, in order to hedge the foreign currency risk of certain accounts receivable and accounts payable transactions. These transactions are expected to mature within four months of the period end. The estimated fair values of the Company’s forward exchange contracts at September 30, 2005 and 2004, which equal the carrying amounts of the related accounts receivable and accounts payable balances, were $1 million and $2.1 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 2005 fiscal year are expected to be recognized in earnings within the next three months.

— 132 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 20 — COMMITMENTS AND CONTINGENCIES

The Company had outstanding documentary letters of credit totaling $0.7 million at September 30, 2005 (2004: $2.4 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, 2005 the extent of this guarantee relating to gross bank overdrafts was $20.4 million (2004: $20.5 million). The overall pooled balance of the bank accounts within the pool at September 30, 2005 was a net overdrawn balance of $0.8 million (2004: $1.6 million cash in hand).

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 15.

A number of class action lawsuits have been initiated in the U.S. District Court for the Southern District of Florida by Company stockholders against the Company, Sherb & Co. LLP, the Company’s former independent auditor, and certain of the Company’s directors and officers, including Mr. Dennis Crowley, the Company’s former Chief Executive Officer/Chairman, and Mr. William Fletcher, the Company’s former CFO and current acting Chief Executive Officer.

These suits allege essentially the same claims as an SEC suit that was filed on April 15, 2004, in the U.S. District Court for the Southern District of Florida. This suit, filed against the Company and Mr. Crowley, among others, alleged violations of the federal securities laws. These allegations arose 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. The suit was settled on February 15, 2005 following approval by the US District Court.

Lead counsel has now been appointed for the class action suits and a consolidated complaint has been filed. The Company is in the process of formulating its response. It is impossible at this time to ascertain the ultimate legal and financial liability or whether this action will have a material adverse effect on the Company’s financial condition and results of operations.

The defendants filed certain Motions to Dismiss with regard to the Complaint and on October 19, 2005, the U.S. District Court for the Southern District of Florida in In Re Spear & Jackson Securities Litigation entered its Order regarding these Motions. The Order denied the Company’s motion as well as that of Dennis Crowley, the former Chief Executive Officer of Spear & Jackson. The Company is in the process of preparing its answer and defenses to the Complaint. The Court granted the Motion to Dismiss on behalf of William Fletcher, the Company’s interim Chief Executive Officer and also granted the Motion to Dismiss of the Company’s former independent auditor, Sherb & Co., LLP, although the dismissal regarding the latter is now on appeal.

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

— 133 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 20 — COMMITMENTS AND CONTINGENCIES — CONTINUED

On September 6, 2005, the Company was served with a Shareholder Derivative Complaint filed on June 1, 2004 in the Circuit Court for Palm Beach County, Florida (Case No. CA005068). The suit names, in addition to the Company, which is a nominal defendant, present and former directors and the Company’s prior accounting firm as defendants. The suit contains essentially the same factual allegations as the SEC suit, which was filed in April 2004 in the U. S. District Court for the Southern District of Florida and the series of class actions claims initiated in the U.S. District Court, but alleges state law claims of breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment and lack of reasonable care by various or all the defendants. The Company will evaluate the Complaint and file its response at the appropriate time.

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 believed that no specific authorization was afforded to Mr. Morgan to undertake that disposition. An amount of $284 was provided against the recovery of any disposition proceeds. It has now been agreed with Megapro that it will pay Canadian $54 (approximately $41) in settlement of those debts and this is being repaid in monthly installments of Canadian $5 (approximately $4) of which $27 has been received in the year ended September 30, 2005.

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 21 — SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

FISCAL 2005:

				QUARTERS ENDED	QUARTERS ENDED	QUARTERS ENDED	QUARTERS ENDED
	DECEMBER		MARCH			JUNE	SEPTEMBER			TOTAL
Net sales	$24,685		$27,773		$25,954		$22,286		$100,698
Gross profit	$	7,951	$	9,416	$	8,423	$	7,445	$	33,235
Net income (loss)
Continued operations	$	(611)	$	3,529	$	108	$	708	$	3,734
Discontinued operations	$	(37)	$	(335)	$	(43)	$	(224)	$	(639)
Total	$	(648)	$	3,194	$	65	$	484	$	3,095
Net income (loss) per share (Basic and diluted)
Continued operations	$	(0.05)	$	0.30	$	0.02	$	0.15	$	0.42
Discontinued operations	$	(0.01)	$	(0.03)	$	(0.01)	$	(0.02)	$	(0.07)
Total	$	(0.06)	$	0.27	$	0.01	$	0.13	$	0.35

— 134 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 21 — SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED) — CONTINUED

FISCAL 2004:

				QUARTERS ENDED	QUARTERS ENDED	QUARTERS ENDED	QUARTERS ENDED
	DECEMBER		MARCH			JUNE	SEPTEMBER		TOTAL
Net sales	$22,569		$26,985		$25,978		$23,953		$99,485
Gross profit	$	7,033	$	8,554	$	7,900	$	8,424	$31,911
Net income
Continued operations	$	333	$	(12)	$	(233)	$	749	$	837
Discontinued operations	$	(52)	$	(56)	$	(54)	$	(239)	$	(401)
Total	$	281	$	(68)	$	(287)	$	510	$	436
Net income per share (Basic and diluted)
Continued operations	$	0.03	$	—	$	(0.02)	$	0.06	$	0.07
Discontinued operations	$	(0.01)	$	(0.01)	$	—	$	(0.01)	$	(0.03)
Total	$	0.02	$	(0.01)	$	(0.02)	$	0.05	$	0.04

— 135 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

A-2. Form 10-K (Annual Report) for the year ended 30 September 2004 (in US$’000):

SPEAR & JACKSON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT SHARES)

AT SEPTEMBER 30, 2004 AT SEPTEMBER 30, 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	AT SEPTEMBER 30, 2004 AT SEPTEMBER 30, 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	AT SEPTEMBER 30, 2004 AT SEPTEMBER 30, 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
		51,566
	22,114 10,933 160	19,561 8,325 148
	$ 85,756	$ 79,600
	$ 68 8,562 12,948 22 21,600 1,172 33,545 56,317	$ 304 7,552 12,793 50
		20,699
		1,787 25,262
		47,748

— 136 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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

	AT SEPTEMBER 30,	AT SEPTEMBER 30,
	2004	2003
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.

— 137 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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

		FOR THE FISCAL YEARS	FOR THE FISCAL YEARS	FOR THE FISCAL YEARS	ENDED	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 (net of income
taxes of $44 in 2003 and $nil in
2002)		—		(53)		(12)
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.

— 138 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

SPEAR & JACKSON, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (IN THOUSANDS EXCEPT NUMBER OF SHARES)

COMMON NUMBER 3,543,281 8,467,841 12,011,122 (270,000) 11,741,122	COMMON NUMBER 3,543,281 8,467,841 12,011,122 (270,000) 11,741,122	STOCK AD AMOUNT $ 3	DITIONAL PAID IN CAPITAL TREASURY STOCK (COMMON) TRA $ 48,428 $ 0	DITIONAL PAID IN CAPITAL TREASURY STOCK (COMMON) TRA $ 48,428 $ 0	ACCUM COMPREHEN FOREIGN CURRENCY NSLATION $ 29 3,027	ULATED OTHER SIVE INCOME (LOSS) PENSION MIMIMUM LIABILITY UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS $ (10,572) $ 65 (560) (65) 2 (13,211)	ULATED OTHER SIVE INCOME (LOSS) PENSION MIMIMUM LIABILITY UNREALIZED GAINS/ (LOSSES) ON DERIVATIVE INSTRUMENTS $ (10,572) $ 65 (560) (65) 2 (13,211)	RETAINED EARNINGS $ 2,499 (3,512)	TOTAL $ 40,452 (3,512) 2,467 (65) 2 (13,211)
	)	9 12 12	3,162 51,590 51,590	0 (540) (540)	3,056 4,350 7,406 5,023	(24,343) (1,683) (4,178) (30,204) (2,509) (5,317)	2 (2) (15) (15) 15 (61)	(1,013) 4,616 3,603 436	(10,807)
									(14,319) 3,171
12,011,122									29,304
(270,000									4,616 2,667 (2) (15) (4,178)
									(1,528)
									3,088 (540)
11,741,122									31,852
									436 2,514 15 (61) (5,317)
									(2,849)
									(2,413)
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

— 139 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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

		FOR THE FISCAL	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)

— 140 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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

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

— 141 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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

NOTE 1 — BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

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.

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.

— 142 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 2 — ACCOUNTING POLICIES — CONTINUED

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.

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

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.

— 143 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 2 — ACCOUNTING POLICIES — CONTINUED

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 stockbased 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.

— 144 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 2 — ACCOUNTING POLICIES — CONTINUED

REVENUE RECOGNITION — CONTINUED

		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

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.

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.

— 145 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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 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.

— 146 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 2 — ACCOUNTING POLICIES — CONTINUED

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.

NOTE 3 — NATURE OF BUSINESS

— 147 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 3 — NATURE OF BUSINESS — CONTINUED

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.

— 148 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 4 — ACQUISITIONS AND DISPOSITIONS OF BUSINESSES — CONTINUED

(a) ACQUISITIONS — PRIOR YEARS — CONTINUED

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:

	(IN THOUSANDS)	(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)	(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.

— 149 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 4 — ACQUISITIONS AND DISPOSITIONS OF BUSINESSES — CONTINUED

(b) DISPOSITIONS — PRIOR YEARS — CONTINUED

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.

(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	AT SEPTEMBER	AT SEPTEMBER	AT SEPTEMBER
		30, 2004		30, 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:

Allowance for Doubtful Accounts:

— 150 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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

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

	BALANCE	CHARGED	CHARGED
	AT BEGINNING	TO COSTS AND	TO OTHER			BALANCE AT
DESCRIPTION	OF PERIOD	EXPENSES	ACCOUNTS	DEDUCTIONS		END OF	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,	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

— 151 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 7 — INVENTORIES — CONTINUED

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

		BALANCE	CHARGED	CHARGED	CHARGED	CHARGED
	AT BEGINNING		TO COSTS	AND	TO	OTHER			BALANCE AT
DESCRIPTION	OF PERIOD		EXPENSES		ACCOUNTS		DEDUCTIONS		END OF	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.

— 152 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 8 — PROPERTY, PLANT AND EQUIPMENT, NET

		AT SEPTEMBER 30,	AT SEPTEMBER 30,	AT SEPTEMBER 30,	AT SEPTEMBER 30,
			2004		2003
	NOTE	(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).

— 153 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 9 — INVESTMENTS

Investments comprise the following:

		AT SEPTEMBER 30,	AT SEPTEMBER 30,	AT SEPTEMBER 30,	AT SEPTEMBER 30,
			2004		2003
	NOTE	(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.

— 154 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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	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)

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.

— 155 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 10 — INCOME TAXES — CONTINUED

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,	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).

— 156 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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 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,	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).

— 157 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 14 — OTHER LIABILITIES

Other liabilities comprise:

	AT SEPTEMBER 30,	AT SEPTEMBER 30,	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

— 158 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 15 — PENSION PLAN — CONTINUED

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:

		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

— 159 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 15 — PENSION PLAN — CONTINUED

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).

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 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.

— 160 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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:

		%	OF ASSETS	%	OF ASSETS
	TARGET	AT SEPTMBER 30,		AT SEPTMBER 30,
	ALLOCATION		2004		2003
ASSET CATEGORY:
Equities	50%		48%		38%
Bonds	50%		49%		61%
Cash	0%		3%		1%
Total	100%		100%		100%

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 2005		IMPACT ON
	PRE-TAX	IMPACT ON	SEPTEMBER 30,
	PENSION	SEPTEMBER 30,	2004 EQUITY
CHANGE IN ASSUMPTION	EXPENSE	2004 PBO	(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 increase in compensation assumption	+$0.15 million	+$0.69 million	—
25 basis point decrease in compensation assumption	-$0.16 million	-$0.67 million	—
Use of PA90 (-1 for non-pensioners) mortality table	-$1.41 million	-$11.01 million	+$7.47 million

— 161 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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	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	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
	1,509 (81) 1,428 (803)	2,063 (108)
		1,955 (811)
	$ 625	$ 1,144

— 162 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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 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:

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

— 163 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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.

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

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.

— 164 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 22 — SEGMENT DATA — CONTINUED

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.

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 SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	SALES LONG-LIVED ASSETS(a) YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	SALES LONG-LIVED ASSETS(a) YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	SALES LONG-LIVED ASSETS(a) YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	SALES LONG-LIVED ASSETS(a) YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	SALES LONG-LIVED ASSETS(a) YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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
					$18,852
$101,179 —	$91,845 1,093	$87,886 84	$22,114 —	$19,561 —	$18,652 200
$101,179	$92,938	$87,970	$22,114	$19,561	$18,852

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

— 165 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 22 — SEGMENT DATA — CONTINUED

OPERATING INCOME NET INTEREST YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	OPERATING INCOME NET INTEREST YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	OPERATING INCOME NET INTEREST YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	OPERATING INCOME NET INTEREST YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	OPERATING INCOME NET INTEREST YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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	OPERATING INCOME NET INTEREST YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2004 YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 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
					$(236
$ 1,944 $ —	$6,364 $ (17)	$(1,318) $ (10)	$(300) $ —	$(237) $ (10)	$(234 $ (2
$ 1,944	$6,347	$(1,328)	$(300)	$(247)	$(236

(a) Represents property, plant and equipment, net

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

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

— 166 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 22 — SEGMENT DATA — CONTINUED

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

— 167 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 23 — FINANCIAL INSTRUMENTS

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

FINANCIAL ASSETS AND LIABILITIES

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).

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.

— 168 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 24 — COMMITMENTS AND CONTINGENCIES — CONTINUED

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.

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.

— 169 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 24 — COMMITMENTS AND CONTINGENCIES — CONTINUED

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.

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.

NOTE 26 — SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

FISCAL 2004:

				QUARTERS ENDED	QUARTERS ENDED	QUARTERS ENDED	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	QUARTERS ENDED	QUARTERS ENDED	QUARTERS ENDED	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

— 170 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

A-3. Form 10-Q (Quarterly Report) for the period ended 31 March 2006 (in US$’000):

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

	FOR THE	THREE	FOR THE SIX	FOR THE SIX
	MONTHS	ENDED	MONTHS	ENDED
	MARCH 31,	MARCH 31,	MARCH 31,	MARCH 31,
	2006	2005	2006		2005
Net sales	$ 27,572	$ 27,773	$ 50,498	$ 52,458
Cost of goods sold	19,078	18,357	34,975	35,091
Gross profit	8,494	9,416	15,523	17,367
Operating costs and expenses:
Selling, general and administrative
expenses	9,305	7,926	18,423	16,542
Operating (loss) income	(811)	1,490	(2,900)		825
Other income (expense)
Rental income	37	39	74		79
Interest and bank charges (net)	42	(12)	13		(41)
(Loss) income from continuing
operations before unusual or
infrequent items and income taxes	(732)	1,517	(2,813)		863
Unusual or infrequent items:
Manufacturing reorganization costs	(1,228)	—	(1,228)		—
Gain on sale of land and buildings
net of reorganization costs	—	2,503	—		2,503
(Loss) income from continuing
operations before income taxes	(1,960)	4,020	(4,041)		3,366
Income tax (provision) benefit	(103)	(491)	313		(448)
Net (loss) income from continuing
operations	(2,063)	3,529	(3,728)		2,918

— 171 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

		FOR THE	THREE	THREE		FOR THE	FOR THE	SIX
		MONTHS	ENDED			MONTHS	ENDED
	MARCH 31,		MARCH 31,		MARCH 31,		MARCH 31,
		2006		2005		2006		2005
Discontinued operations:
Loss from discontinued operations
(net of income taxes of $nil in
2006 and 2005)		(66)		(335)		(87)		(372)
Adjustment to previously recorded
loss on disposal of discontinued
operations		2		—		9		—
Net loss from discontinued operations		(64)		(335)		(78)		(372)
Net (loss) income	$	(2,127)	$	3,194	$	(3,806)	$	2,546
Basic and diluted (loss) income per
share:
From continuing operations	$	(0.36)	$	0.30	$	(0.65)	$	0.25
From discontinued operations		(0.01)		(0.03)		(0.01)		(0.03)
Total (loss) income per share	$	(0.37)	$	0.27	$	(0.66)	$	0.22
Weighted average shares outstanding		5,735,561		11,741,122		5,735,561		11,741,122

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

— 172 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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

AT MARCH 31, 2006 AT SEPTEMBER 30, 2005 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 5,980 $ 7,289 Trade receivables, net of allowance for doubtful accounts of $1,458 and $1,525 19,982 16,448 Inventories 22,694 24,999 Foreign taxes recoverable 185 — Deferred income tax asset, current portion 2,663 2,623 Other current assets 1,355 1,316 Total current assets 52,859 52,675 Property, plant and equipment, net 17,182 17,568 Deferred income tax asset 12,884 12,690 Investments 380 157 Total assets $ 83,305 $ 83,090 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Notes payable $ 1,408 $ 752 Trade accounts payable 9,606 8,103 Accrued expenses and other liabilities 12,150 11,241 Foreign taxes payable 145 88 Total current liabilities 23,309 20,184 Other liabilities 789 749 Pension liability 37,469 35,954 Total liabilities 61,567 56,887	AT MARCH 31, 2006 AT SEPTEMBER 30, 2005 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 5,980 $ 7,289 Trade receivables, net of allowance for doubtful accounts of $1,458 and $1,525 19,982 16,448 Inventories 22,694 24,999 Foreign taxes recoverable 185 — Deferred income tax asset, current portion 2,663 2,623 Other current assets 1,355 1,316 Total current assets 52,859 52,675 Property, plant and equipment, net 17,182 17,568 Deferred income tax asset 12,884 12,690 Investments 380 157 Total assets $ 83,305 $ 83,090 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Notes payable $ 1,408 $ 752 Trade accounts payable 9,606 8,103 Accrued expenses and other liabilities 12,150 11,241 Foreign taxes payable 145 88 Total current liabilities 23,309 20,184 Other liabilities 789 749 Pension liability 37,469 35,954 Total liabilities 61,567 56,887	AT MARCH 31, 2006 AT SEPTEMBER 30, 2005 (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 5,980 $ 7,289 Trade receivables, net of allowance for doubtful accounts of $1,458 and $1,525 19,982 16,448 Inventories 22,694 24,999 Foreign taxes recoverable 185 — Deferred income tax asset, current portion 2,663 2,623 Other current assets 1,355 1,316 Total current assets 52,859 52,675 Property, plant and equipment, net 17,182 17,568 Deferred income tax asset 12,884 12,690 Investments 380 157 Total assets $ 83,305 $ 83,090 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Notes payable $ 1,408 $ 752 Trade accounts payable 9,606 8,103 Accrued expenses and other liabilities 12,150 11,241 Foreign taxes payable 145 88 Total current liabilities 23,309 20,184 Other liabilities 789 749 Pension liability 37,469 35,954 Total liabilities 61,567 56,887
	52,859 17,182 12,884 380	52,675 17,568 12,690 157
	$ 83,305	$ 83,090
	$ 1,408 9,606 12,150 145 23,309 789 37,469 61,567	$ 752 8,103 11,241 88
		20,184 749 35,954
		56,887

— 173 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

	AT MARCH	AT SEPTEMBER
	31, 2006	30, 2005
	(UNAUDITED)
Stockholders’ equity:
Common stock, 25,000,000 shares authorized $0.001 par
value; 12,011,122 issued and 5,735,561 shares
outstanding	12	12
Additional paid in capital	51,590	51,590
Accumulated other comprehensive income (loss):
Minimum pension liability adjustment, net of tax	(42,902)	(43,751)
Foreign currency translation adjustment, net of tax	10,219	11,765
Unrealized gain (loss) on derivative instruments	31	(7)
Retained earnings	3,328	7,134
Less: 6,275,561 common stock held in treasury, at cost	(540)	(540)
Total stockholders’ equity	21,738	26,203
Total liabilities and stockholders’ equity	$ 83,305	$ 83,090

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

— 174 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

SPEAR & JACKSON, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED) (IN THOUSANDS)

	FOR THE SIX	FOR THE SIX	FOR THE SIX
	MONTHS ENDED
	MARCH 31,	MARCH 31,
	2006		2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income attributable to continuing and discontinued
operations	$ (3,806)	$	2,546
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation	1,084		1,523
Amortization of asset held for sale	—		22
Gain on sale of land and buildings	—		(2,503)
Loss on sale of plant, property and equipment	2		11
Deferred income taxes	(566)		349
Changes in operating assets and liabilities:
Increase in trade receivables	(3,979)		(2,186)
Decrease (increase) in inventories	1,725		(3,665)
Increase in other current assets	(64)		(472)
Contributions paid to pension plan	(1,829)		(1,456)
Increase in other non-current liabilities	4,060		2,027
Increase in trade accounts payable	1,641		782
Increase (decrease) in accrued expenses and other liabilities	1,186		(183)
(Decrease) increase in foreign taxes payable	(116)		46
Increase (decrease) in other liabilities	55		(182)
NET CASH USED IN OPERATING ACTIVITIES	(607)		(3,341)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(1,082)		(642)
Proceeds from sale of property, plant and equipment	44		8,631
Purchase of equity Investment	(229)		—
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES	(1,267)		7,989

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

		FOR THE SIX	FOR THE SIX	FOR THE SIX
		MONTHS ENDED
	MARCH 31,		MARCH			31,
		2006			2005
FINANCING ACTIVITIES:
Increase in overdraft		678				10
NET CASH PROVIDED BY FINANCING ACTIVITIES		678				10
Effect of exchange rate changes on cash and cash equivalents		(113)			176
CHANGE IN CASH AND CASH EQUIVALENTS		(1,309)		4,834
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		7,289		5,090
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	5,980	$	9,924
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	92	$			61
Cash paid for taxes	$	369	$			53

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

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

SPEAR & JACKSON, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT SHARES)

NOTE 1 — BASIS OF PRESENTATION

These condensed consolidated financial statements are expressed in U.S. dollars and have been prepared in accordance with accounting principles generally accepted in the United States. The condensed consolidated financial statements include the accounts of Spear & Jackson Inc. (the Company) and its wholly owned subsidiaries, Mega Tools Ltd., Mega Tools USA, Inc., Megapro Tools, Inc., S and J Acquisition Corp., Spear & Jackson plc and Bowers Group plc. Both Spear & Jackson plc and Bowers Group plc are sub-holding companies and their business is carried out by the following directly and indirectly owned subsidiaries: Bowers Metrology Limited, Bowers Metrology UK Limited, Coventry Gauge Limited (until February 28, 2006), CV Instruments Limited, Eclipse Magnetics Limited, Spear & Jackson (New Zealand) Limited, James Neill Canada Inc., James Neill Holdings Limited, James Neill U.S.A. Inc., Spear & Jackson (Australia) Pty Ltd., Magnacut Limited, Neill Tools Limited, Spear & Jackson Garden Products Limited, Spear & Jackson Holdings Limited, Spear & Jackson France S.A., Societe Neill France S.A., CV Instruments Europe BV and Bowers Eclipse Equipment Shanghai Co. Limited.

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

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

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

It is suggested that these financial statements be read in conjunction with the audited consolidated financial statements and related footnotes of the Company for the year ended September 30, 2005 included in the Company’s annual report filed on Form 10-K for the period then ended.

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

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APPENDIX II

NOTE 1 — BASIS OF PRESENTATION — CONTINUED

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

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

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

NOTE 2 — RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 2 — RECENTLY ISSUED ACCOUNTING STANDARDS — CONTINUED

In November 2005, the Financial Accounting Standards Board (FASB) issued FSP No. 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards.” This pronouncement provides an alternative method of calculating the excess tax benefits available to absorb any tax deficiencies recognized subsequent to the adoption of SFAS No. 123(R). The company has until November 2006 to make a one-time election to adopt the transition method. The company is currently evaluating FSP 123(R)-3 but does not believe that this one-time election will affect operating income or net earnings.

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

NOTE 3 — CRITICAL ACCOUNTING POLICIES

A summary of our critical accounting policies is included in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2005. Management believes that the application of these policies on a consistent basis enables the Company to provide useful and reliable financial information about the Company’s operating results and financial condition.

As disclosed in the annual report on Form 10-K for the fiscal year ended September 30, 2005, the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of the financial statements requires us to make estimates and assumptions and adopt accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses as disclosed in those financial statements. These judgements can be subjective and complex, and consequently actual results could differ from those estimates. Our most critical accounting policies relate to revenue recognition; foreign exchange risk; inventory, the computation of deferred income taxes, the recognition of deferred income tax assets and pension and other post retirement benefit costs. Since September 30, 2005, there have been no changes in our critical accounting policies and no significant changes to the assumptions and estimates related to them.

NOTE 4 — NATURE OF BUSINESS

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

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

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 4 — NATURE OF BUSINESS — CONTINUED

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.

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

On April 21, 2005, Jacuzzi adopted a plan of disposition of the Company’s common stock. On March 23, 2006, Jacuzzi (“the Seller”) entered into a Stock Purchase Agreement with United Pacific Industries Limited, a Bermuda Corporation, (“UPI”), to sell its holding of 3,543,281 shares of the Common Stock of Spear & Jackson, Inc. (“the Shares”) to UPI for $1.40 per share for an aggregate purchase price of $4,960,593.

The representations, warranties and covenants made by Jacuzzi and UPI are typical for this type of transaction, and include a covenant that restricts Jacuzzi from soliciting or negotiating with a third party between the signing date of the Stock Purchase Agreement and the closing date of the transaction. Jacuzzi has also agreed that, in connection with the closing of the transaction, it will, among other things, cause UPI’s designees and one designee of Jacuzzi to be elected to the Board of Directors of Spear & Jackson, Inc. and will use commercially reasonable best efforts so that such UPI designees are in sufficient numbers to give UPI a majority of the Board of Directors of the Spear & Jackson, Inc. UPI has also agreed that neither it, nor any of its affiliates, will purchase any additional Common Stock during the period from the signing date of the Stock Purchase Agreement through one year following the closing at a price less than $1.40 per share.

The purchase of the Shares by UPI contemplated by the Stock Purchase Agreement is subject to the satisfaction of a number of closing conditions, including approval by UPI’s shareholders and the United Kingdom Pensions Regulator, and the receipt of certain other regulatory approvals as well as other customary closing conditions.

Closing is reported to occur no later than July 31, 2006.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 4 — NATURE OF BUSINESS — CONTINUED

Brian C. Beazer, the Chairman of UPI, is a director of Jacuzzi and holds approximately 24.56% of the shares of UPI. David H. Clarke, the Chairman and Chief Executive Officer of Jacuzzi, is a director of UPI and holds approximately 22.88% of the shares of UPI. Mr. Clarke also holds approximately 28,350 shares of common stock of Spear & Jackson, Inc., representing approximately 0.49% of the shares of Spear & Jackson, Inc. but the shares of Spear & Jackson, Inc. owned by Mr. Clarke are not being purchased at the time of the sale of the Shares by the Seller to UPI.

NOTE 5 — DISCONTINUED OPERATIONS

The following table presents the results of the Company’s operations that have been reclassified as discontinued and the (loss) income that has been recorded in connection with the disposal of these businesses:

			FOR THE	THREE			FOR THE SIX	FOR THE SIX
			MONTHS	ENDED			MONTHS	ENDED
		MARCH 31,		MARCH 31,		MARCH 31,		MARCH 31,
			2006		2005		2006		2005
			(IN		(IN		(IN		(IN
	Note	THOUSANDS)		THOUSANDS)		THOUSANDS)		THOUSANDS)
Revenues reclassified to discontinued
operations:
Thread gauge measuring division	(a)	$	235	$	428	$	590	$	850
		$	235	$	428	$	590	$	850
Loss from discontinued operations:
Loss from operations of thread gauge
measuring division	(a)	$	(66)	$	(335)	$	(87)	$	(372)
		$	(66)	$	(335)	$	(87)	$	(372)
Adjustment to previously recorded loss on
disposal of discontinued operations:
Megapro screwdrivers division	(b)	$	2	$	—	$	9	$	—
		$	2	$	—	$	9	$	—
Total loss from discontinued operations
net of taxes		$	(64)	$	(335)	$	(78)	$	(372)

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

(a) During the fourth quarter of fiscal 2005, the Company began marketing for sale certain assets associated with its Coventry Gauge thread gauge measuring business that is located in the United Kingdom. On February 28, 2006,

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 5 — DISCONTINUED OPERATIONS — CONTINUED

the Company concluded the sale of these assets for a nominal consideration. The assets sold comprised plant and equipment, inventories and goodwill. The acquirer paid (pound)1 and assumed certain liabilities in respect of the leased premises from which the trade operates. The carrying values of the assets relating to this entity were written down to the lower of depreciated cost or estimated fair value after consideration of selling costs in the quarters ended March 31, 2005 and September 30, 2005. No further losses or gain on disposal are required to be recognized in the current period. The assets and liabilities of discontinued operations held for sale have not been reported separately in the consolidated balance sheets of the Company as the net book amounts involved are not considered material.

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

Having considered the future financial position of Megapro, the directors of Spear & Jackson, Inc. provided $97 against the recoverability of the balance of the sales proceeds which was outstanding at September 30, 2003. A further $187 was provided against this debt in the year ended September 30, 2004. It has now been agreed with Megapro that it will pay Canadian $54 (approximately $41) in settlement of those debts and this is being repaid in monthly installments of Canadian $5 (approximately $4) of which $27 was received in the year ended September 30, 2005. A further $9 has been received in the six months ended March 31, 2005.

NOTE 6 — RETIREMENT BENEFIT PLAN

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

Pension costs amounted to $2,033 for the quarter ending March 31, 2006 and $1,019 for the same quarter last year. Pension costs for the six months ending March 31, 2006 were $4,060 compared with $2,027 for the equivalent period last year. The net periodic costs include the following components:

		FOR THE	THREE			FOR THE SIX	FOR THE SIX
		MONTHS	ENDED			MONTHS	ENDED
	MARCH 31,		MARCH 31,		MARCH 31,		MARCH 31,
		2006		2005		2006		2005
		(IN		(IN		(IN		(IN
	THOUSANDS)		THOUSANDS)		THOUSANDS)		THOUSANDS)
Sevice cost	$	524	$	460	$	1,049	$	916
Interest cost		2,609		2,570		5,209		5,114
Expected return on plan assets		(2,466)		(2,704)		(4,925)		(5,378)
Recognition of actuarial loss		1,366		693		2,727		1,375
Total Benefit cost	$	2,033	$	1,019	$	4,060	$	2,027

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 6 — RETIREMENT BENEFIT PLAN — CONTINUED

The Company’s funding policy with respect to the Plan is to contribute annually not less than the minimum required by applicable UK law and pension regulations. Amounts payable are determined on the advice of the Plan’s actuaries. The Company has contributed $945 to the Plan in the quarter to March 31, 2006 (2005 $727) and $1,829 in the six month period ended on that date (2005 $1,456). The Company anticipates that contributions of $3.3 million will be made in the year ending September 30, 2006 (2005 $10.2 million of which $3.0 million was in respect of annual ongoing employer contributions and $7.2 million related to a one-off special contribution into the Plan).

Accounting standards require a minimum pension liability be recorded when the value of pension assets is less than the accumulated benefit obligation (“ABO”) at the annual measurement date. As of September 30, 2005, our most recent measurement date for pension accounting, the value of the ABO exceeded the market value of investments held by the pension plan by approximately $35.95 million. In accordance with accounting standards, the charge against stockholders’ equity will be adjusted in the fourth quarter to reflect the value of pension assets compared to the ABO as of the end of September 2006. If the level of pension assets exceeds the ABO as of a future measurement date, the full charge against stockholders’ equity would be reversed.

NOTE 7 — PROPERTY, PLANT AND EQUIPMENT, NET

		AT	MARCH	AT SEPTEMBER	AT SEPTEMBER
			31, 2006		30, 2005
		(IN THOUSANDS)		(IN THOUSANDS)
Assets held and used:
Land and buildings, at cost		$	15,612	$	15,799
Machinery, equipment and vehicles, at cost			30,479		35,331
Furniture and fixtures, at cost			1,149		1,256
Computer hardware, at cost			1,358		1,244
Computer software, at cost			295		342
Assets held under finance leases, at cost	(a)		2,227		2,883
			51,120		56,855
Accumulated Depreciation			(33,938)		(39,287)
Net		$	17,182	$	17,568

(a) Included in property, plant and equipment at March 31, 2006 are capital leases with a net book value of $0.9 million (September 30, 2005 $0.9 million). The cost of these assets held under capital leases was $2.2 million (September 30, 2005 $2.9 million) and the accumulated depreciation relating to these assets was $1.3 million (September 30, 2005 $2.0 million).

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 8 — INVENTORIES

	AT	MARCH	AT SEPTEMBER	AT SEPTEMBER
		31, 2006		30, 2005
	(IN THOUSANDS)		(IN THOUSANDS)
Finished products	$	17,599	$	19,740
In-process products		5,032		6,481
Raw materials		4,912		5,320
Less: allowance for slow moving and obsolete inventories		(4,849)		(6,542)
	$	22,694	$	24,999

NOTE 9 — UNUSUAL OR INFREQUENT ITEMS

(a) GAIN ON SALE OF LAND AND BUILDINGS NET OF REORGANIZATION COSTS

WEDNESBURY ENGLAND BOCA RATON FLORIDA TOTAL (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) Sale proceeds net of selling, professional and other costs $ 5,174 $ 3,427 $ 8,601 Less: net book value 2,223 3,168 5,391 Gross profit on disposal 2,951 259 3,210 Less: related reorganisation costs (see below) 707 — 707 $ 2,244 $ 259 $ 2,503	WEDNESBURY ENGLAND BOCA RATON FLORIDA TOTAL (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) Sale proceeds net of selling, professional and other costs $ 5,174 $ 3,427 $ 8,601 Less: net book value 2,223 3,168 5,391 Gross profit on disposal 2,951 259 3,210 Less: related reorganisation costs (see below) 707 — 707 $ 2,244 $ 259 $ 2,503	WEDNESBURY ENGLAND BOCA RATON FLORIDA TOTAL (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) Sale proceeds net of selling, professional and other costs $ 5,174 $ 3,427 $ 8,601 Less: net book value 2,223 3,168 5,391 Gross profit on disposal 2,951 259 3,210 Less: related reorganisation costs (see below) 707 — 707 $ 2,244 $ 259 $ 2,503	WEDNESBURY ENGLAND BOCA RATON FLORIDA TOTAL (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) Sale proceeds net of selling, professional and other costs $ 5,174 $ 3,427 $ 8,601 Less: net book value 2,223 3,168 5,391 Gross profit on disposal 2,951 259 3,210 Less: related reorganisation costs (see below) 707 — 707 $ 2,244 $ 259 $ 2,503
	2,951 707	259 —	3,210 707
	$ 2,244	$ 259	$ 2,503

(b) MANUFACTURING REORGANIZATION COSTS

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

The closure and relocation of the Wednesbury facility are expected to take approximately six months and the costs of this exercise are anticipated to be circa. (pound)1.2 million ($2.1 million). These costs include employee severance payments, site closure expenses, factory reorganization expenses, plant transfer costs and associated capital expenditure. Negotiations are

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 9 — UNUSUAL OR INFREQUENT ITEMS — CONTINUED

currently in progress regarding the sale of the Wednesbury site to a non-related third party. It is expected that the sales price of the site will be in excess of its net book amount and the Company has not therefore made any provision against the balance sheet carrying value of this property at March 31, 2006. Funds realized from any disposal will be used to finance the closure costs with any excess sale proceeds being reinvested in the business.

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

As explained in (a), above, a surplus element of the Wednesbury site was sold in 2005 and provision was made at March 31, 2005 for various site reorganization costs that were to be incurred as a result of that partial sale. Certain of these costs will not now be incurred following the decision to close the remainder of the site and market the property for resale and such excess provisions have been released in the current quarter.

Costs provided in respect of the site closure as at March 31, 2006 and amounts credited in respect of the release of excess provisions from prior periods are as follows:

	(IN THOUSANDS)	(IN THOUSANDS)
Severance costs	$	1,185
Site closure costs		367
		1,552
Release of excess provisions accrued in prior periods		(324)
Net reorganization costs		1,228

In addition to the costs of $1.6 million provided at March 31, 2006 it is anticipated that a further $0.5 million will be incurred in respect of the Wednesbury site closure on or before November 30, 2006 for which provision will be made in accordance with applicable financial reporting standards as and when liabilities for such charges crystallize.

(c) SUMMARY OF PROVISIONS IN RESPECT OF THE UK REORGANIZATION PROGRAM

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

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

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 9 — UNUSUAL OR INFREQUENT ITEMS — CONTINUED

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

(ii) $0.4 million of severance costs relating to the closure and down scaling of certain manufacturing processes at the Company’s Sheffield and Wednesbury locations in the UK.
(iii) $0.8 million of impairment write-downs in respect of the plant and machinery involved in the restructured operations.
(iv) As discussed in (b), above, $1.6 million has been provided in respect of the Wednesbury site closure at March 31, 2006.
(v) The Company also has further provisions of $1.7 million in respect of other UK manufacturing reorganization and relocation costs that were set up in prior periods.

In the quarter ended March 31, 2006, $0.2 million has been spent in respect of employee severance costs and other reorganization expenses for which provision was made at September 30, 2005 and, as noted above, additional provisions of $1.6 have been made in the period. The following is a summary of the liability balance as at October 1,2005, January 1, 2006 and March 31, 2006 together with movements in the three and six month periods ended March 31, 2006.

						AMOUNTS	AMOUNTS
		AT	JANUARY	EXCHANGE		PROVIDED/				AT	MARCH
			1, 2006	MOVEMENTS		(RELEASED) AMOUNTS			PAID		31, 2006
		_(IN THOUSANDS) _		(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
(a)	Included in Accrued Expenses
	and Other Liabilities:
	Wednesbury move costs	$	400	$	9	$	(324)	$	(85)	$	—
	Employee severance costs		118		3		0		(121)		—
	Other UK reorganization costs		1,638		17		—		—		1,655
	Wednesbury closure costs		—		(59)		1552		(39)		1,454
		$	2,156	$	(30)	$	1,228	$	(245)	$	3,109
(b)	Included in Property,
	Plant and Equipment:
	Asset impairments	$	779	$	8	$	—	$	—	$	787
	Total	$	2,935	$	(22)	$	1,228	$	(245)	$	3,896

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 9 — UNUSUAL OR INFREQUENT ITEMS — CONTINUED

The movement in the liability balance between October 1, 2005 and March 31, 2006 is as follows:

						AMOUNTS	AMOUNTS
		AT OCTOBER		EXCHANGE		PROVIDED/				AT	MARCH
			1, 2005	MOVEMENTS		(RELEASED) AMOUNTS			PAID		31, 2006
		_(IN THOUSANDS) _		(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
(a)	Included in Accrued Expenses
	and Other Liabilities:
	Wednesbury move costs	$	444	$	(4)	$	(324)	$	(116)	$	—
	Employee severance costs		402		(8)		0		(394)		—
	Other UK reorganization costs		1,687		(32)		—		—		1,655
	Wednesbury closure costs		—		(59)		1,552		(39)		1,454
		$	2,533	$	(103)	$	1,228	$	(549)	$	3,109
(b)	Included in Property,
	Plant and Equipment:
	Asset impairments	$	803	$	(16)	$	—	$	—	$	787
	Total	$	3,336	$	(119)	$	1,228	$	(549)	$	3,896

NOTE 10 — INCOME TAXES

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

	FOR THE THREE MONTHS ENDED	FOR THE THREE MONTHS ENDED	FOR THE SIX MONTHS ENDED	FOR THE SIX MONTHS ENDED
	MARCH 31, 2006	MARCH 31, 2005	MARCH 31, 2006	MARCH 31, 2005
	IN THOUSANDS	IN THOUSANDS	IN THOUSANDS	IN THOUSANDS
Current tax provision	$ (103)	$ (51)	$ (253)	$ (99)
Deferred tax (provision) benefit	—	(440)	566	(349)
	$ (103)	$ (491)	$ 313	$ (448)

— 187 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 10 — INCOME TAXES — CONTINUED

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

	FOR THE THREE MONTHS	FOR THE THREE MONTHS	FOR THE THREE MONTHS	ENDED	FOR THE SIX MONTHS ENDED	FOR THE SIX MONTHS ENDED	FOR THE SIX MONTHS ENDED	FOR THE SIX MONTHS ENDED
	MARCH 31, 2006		MARCH	31, 2005	MARCH 31, 2006		MARCH	31, 2005
	(IN THOUSANDS)		(IN THOUSANDS)		(IN THOUSANDS)		(IN THOUSANDS)
Tax at US federal statutory
income tax rate	$	708	$	(1,290)	$	1,441	$	(1,048)
Overseas tax at rates different
to effective rate		(189)		165		(336)		122
Adjustment to prior year
overseas tax provisions		—		—		(89)		—
Gain on sale of UK property
covered by losses brought
forward		—		885		—		885
Permanent differences		36)		(40)		(72)		(79)
Valuation allowance		(586)		(211)		(631)		(328)
	$	(103)	$	(491)	$	313	$	(448)

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

Deferred income tax expense or benefit is based on the changes in the asset or liability from period to period.

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

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

— 188 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 11 — COMPREHENSIVE INCOME

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

	FOR THE	THREE MONTHS	THREE MONTHS	ENDED	FOR THE SIX MONTHS ENDED	FOR THE SIX MONTHS ENDED	FOR THE SIX MONTHS ENDED	FOR THE SIX MONTHS ENDED
	MARCH	31, 2006	MARCH	31, 2005	MARCH 31, 2006		MARCH	31, 2005
	(IN THOUSANDS)		(IN THOUSANDS)		(IN THOUSANDS)		(IN THOUSANDS)
Total net (loss) income	$	(2,127)	$	3,194	$	(3,806)	$	2,546
Other comprehensive income
(loss)
Additional minimum pension
liability		(445)		658		849		(1,929)
Foreign currency translation
adjustments		434		(1,389)		(1,546)		3,277
Unrealized gains on
derivative instruments		24		16		38		57
Total comprehensive (loss)
income	$	(2,114)	$	2,479	$	(4,465)	$	3,951

NOTE 12 — SEGMENT DATA

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

The 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.

— 189 —

FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 12 — SEGMENT DATA — CONTINUED

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

									LONG-LIVED	LONG-LIVED	LONG-LIVED								LONG-LIVED	LONG-LIVED	LONG-LIVED
			SALES						ASSETS(a)						SALES				ASSETS(a)
		THREE MONTHS						THREE MONTHS							SIX MONTHS				SIX MONTHS
			ENDED						ENDED						ENDED				ENDED
	MARCH 31,			MARCH		31,	MARCH 31,			MARCH			31,	MARCH 31,		MARCH 31,		MARCH 31,		MARCH 31,
			2006		2005				2006			2005			2006		2005		2006			2005
Hand & garden tools	$		20,795	$	20,891		$		5,003	$		6,633		$	37,053	$	39,315	$	5,003	$		6,633
Metrology tools			4,203		4,383				2,825			2,601			8,624		8,400		2,825			2,601
Magnetic products			2,809		2,927				244				737		5,411		5,593		244			737
Corporate			—			—			9,110		10,123				—		—		9,110		10,123
Total	$		27,807	$	28,201		$		17,182	$	20,094			$	51,088	$	53,308	$	17,182	$	20,094
Attributable to:
Continuing operations	$		27,572	$	27,773		$		17,182	$	20,094			$	50,498	$	52,458	$	17,182	$	20,094
Discontinued operations			235			428			—				—		590		850		—			—
	$		27,807	$	28,201		$		17,182	$	20,094			$	51,088	$	53,308	$	17,182	$	20,094
									CAPITAL										CAPITAL
			DEPRECIATION						EXPENDITURE						DEPRECIATION				EXPENDITURE
		THREE MONTHS						THREE MONTHS							SIX MONTHS				SIX MONTHS
			ENDED						ENDED						ENDED				ENDED
	MARCH 31,			MARCH		31,	MARCH 31,			MARCH			31,	MARCH 31,		MARCH 31,		MARCH 31,		MARCH 31,
			2006		2005				2006			2005			2006		2005		2006			2005
Hand & garden tools	$		356	$		483	$		175	$			294	$	734	$	945	$	538	$		572
Metrology tools			14			172			327				10		99		285		537			66
Magnetic products			69			88			—				—		150		172		7			4
Corporate			51			63			—				—		101		121		—			—
Total	$		490	$		806	$		502	$			304	$	1,084	$	1,523	$	1,082	$		642
Attributable to:
Continuing operations	$		490	$		806	$		502	$			304	$	1,084	$	1,523	$	1,082	$		642

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

— 190 —

APPENDIX II

FINANCIAL INFORMATION OF S&J GROUP

NOTE 12 — SEGMENT DATA — CONTINUED

OPERATING (LOSS) INCOME NET INTEREST OPERATING (LOSS) INCOME NET INTEREST THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 Hand & garden tools $ (306) $ 850 $ 2 $ (58) $ (2,534) $ 153 $ (36) $ (103 Metrology tools 217 311 (3) (4) 612 603 (13) (7 Magnetic products 119 318 (1) (2) 195 541 (3) (5 Corporate (905) (324) 44 52 (1,251) (844) 65 74 Total $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41 Attributable to: Continuing operations $ (811) $ 1,490 $ 42 $ (12) $ (2,900) $ 825 $ 13 $ (41 Discontinued operations (64) (335) — — (78) (372) — — $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41	OPERATING (LOSS) INCOME NET INTEREST OPERATING (LOSS) INCOME NET INTEREST THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 Hand & garden tools $ (306) $ 850 $ 2 $ (58) $ (2,534) $ 153 $ (36) $ (103 Metrology tools 217 311 (3) (4) 612 603 (13) (7 Magnetic products 119 318 (1) (2) 195 541 (3) (5 Corporate (905) (324) 44 52 (1,251) (844) 65 74 Total $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41 Attributable to: Continuing operations $ (811) $ 1,490 $ 42 $ (12) $ (2,900) $ 825 $ 13 $ (41 Discontinued operations (64) (335) — — (78) (372) — — $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41	OPERATING (LOSS) INCOME NET INTEREST OPERATING (LOSS) INCOME NET INTEREST THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 Hand & garden tools $ (306) $ 850 $ 2 $ (58) $ (2,534) $ 153 $ (36) $ (103 Metrology tools 217 311 (3) (4) 612 603 (13) (7 Magnetic products 119 318 (1) (2) 195 541 (3) (5 Corporate (905) (324) 44 52 (1,251) (844) 65 74 Total $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41 Attributable to: Continuing operations $ (811) $ 1,490 $ 42 $ (12) $ (2,900) $ 825 $ 13 $ (41 Discontinued operations (64) (335) — — (78) (372) — — $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41	OPERATING (LOSS) INCOME NET INTEREST OPERATING (LOSS) INCOME NET INTEREST THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 Hand & garden tools $ (306) $ 850 $ 2 $ (58) $ (2,534) $ 153 $ (36) $ (103 Metrology tools 217 311 (3) (4) 612 603 (13) (7 Magnetic products 119 318 (1) (2) 195 541 (3) (5 Corporate (905) (324) 44 52 (1,251) (844) 65 74 Total $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41 Attributable to: Continuing operations $ (811) $ 1,490 $ 42 $ (12) $ (2,900) $ 825 $ 13 $ (41 Discontinued operations (64) (335) — — (78) (372) — — $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41	OPERATING (LOSS) INCOME NET INTEREST OPERATING (LOSS) INCOME NET INTEREST THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 Hand & garden tools $ (306) $ 850 $ 2 $ (58) $ (2,534) $ 153 $ (36) $ (103 Metrology tools 217 311 (3) (4) 612 603 (13) (7 Magnetic products 119 318 (1) (2) 195 541 (3) (5 Corporate (905) (324) 44 52 (1,251) (844) 65 74 Total $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41 Attributable to: Continuing operations $ (811) $ 1,490 $ 42 $ (12) $ (2,900) $ 825 $ 13 $ (41 Discontinued operations (64) (335) — — (78) (372) — — $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41	OPERATING (LOSS) INCOME NET INTEREST OPERATING (LOSS) INCOME NET INTEREST THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 Hand & garden tools $ (306) $ 850 $ 2 $ (58) $ (2,534) $ 153 $ (36) $ (103 Metrology tools 217 311 (3) (4) 612 603 (13) (7 Magnetic products 119 318 (1) (2) 195 541 (3) (5 Corporate (905) (324) 44 52 (1,251) (844) 65 74 Total $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41 Attributable to: Continuing operations $ (811) $ 1,490 $ 42 $ (12) $ (2,900) $ 825 $ 13 $ (41 Discontinued operations (64) (335) — — (78) (372) — — $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41	OPERATING (LOSS) INCOME NET INTEREST OPERATING (LOSS) INCOME NET INTEREST THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 Hand & garden tools $ (306) $ 850 $ 2 $ (58) $ (2,534) $ 153 $ (36) $ (103 Metrology tools 217 311 (3) (4) 612 603 (13) (7 Magnetic products 119 318 (1) (2) 195 541 (3) (5 Corporate (905) (324) 44 52 (1,251) (844) 65 74 Total $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41 Attributable to: Continuing operations $ (811) $ 1,490 $ 42 $ (12) $ (2,900) $ 825 $ 13 $ (41 Discontinued operations (64) (335) — — (78) (372) — — $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41	OPERATING (LOSS) INCOME NET INTEREST OPERATING (LOSS) INCOME NET INTEREST THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 Hand & garden tools $ (306) $ 850 $ 2 $ (58) $ (2,534) $ 153 $ (36) $ (103 Metrology tools 217 311 (3) (4) 612 603 (13) (7 Magnetic products 119 318 (1) (2) 195 541 (3) (5 Corporate (905) (324) 44 52 (1,251) (844) 65 74 Total $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41 Attributable to: Continuing operations $ (811) $ 1,490 $ 42 $ (12) $ (2,900) $ 825 $ 13 $ (41 Discontinued operations (64) (335) — — (78) (372) — — $ (875) $ 1,155 $ 42 $ (12) $ (2,978) $ 453 $ 13 $ (41
							$ (41
$ (811) (64)	$ 1,490 (335)	$ 42 —	$ (12) —	$ (2,900) (78)	$ 825 (372)	$ 13 —	$ (41 —
$ (875)	$ 1,155	$ 42	$ (12)	$ (2,978)	$ 453	$ 13	$ (41

The following table presents certain data by geographic areas (in thousands):

SALES(a) LONG-LIVED ASSETS(b) SALES(a) LONG-LIVED ASSETS(b) THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 United Kingdom $ 12,901 $ 11,971 $ 15,341 $ 18,145 $ 22,509 $ 22,621 $ 15,341 $ 18,145 Europe 6,580 7,035 1,130 1,272 11,255 11,760 1,130 1,272 Australasia 3,334 3,404 411 677 7,067 7,402 411 677 North America 1,735 1,898 — — 3,524 3,519 — — China and Rest of World 3,257 3,893 300 — 6,733 8,006 300 — Total $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094 Atributable to: Continuing operations $ 27,572 $ 27,773 $ 17,182 $ 20,094 $ 50,498 $ 52,458 $ 17,182 $ 20,094 Discontinued operations 235 428 — — 590 850 — — $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094	SALES(a) LONG-LIVED ASSETS(b) SALES(a) LONG-LIVED ASSETS(b) THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 United Kingdom $ 12,901 $ 11,971 $ 15,341 $ 18,145 $ 22,509 $ 22,621 $ 15,341 $ 18,145 Europe 6,580 7,035 1,130 1,272 11,255 11,760 1,130 1,272 Australasia 3,334 3,404 411 677 7,067 7,402 411 677 North America 1,735 1,898 — — 3,524 3,519 — — China and Rest of World 3,257 3,893 300 — 6,733 8,006 300 — Total $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094 Atributable to: Continuing operations $ 27,572 $ 27,773 $ 17,182 $ 20,094 $ 50,498 $ 52,458 $ 17,182 $ 20,094 Discontinued operations 235 428 — — 590 850 — — $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094	SALES(a) LONG-LIVED ASSETS(b) SALES(a) LONG-LIVED ASSETS(b) THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 United Kingdom $ 12,901 $ 11,971 $ 15,341 $ 18,145 $ 22,509 $ 22,621 $ 15,341 $ 18,145 Europe 6,580 7,035 1,130 1,272 11,255 11,760 1,130 1,272 Australasia 3,334 3,404 411 677 7,067 7,402 411 677 North America 1,735 1,898 — — 3,524 3,519 — — China and Rest of World 3,257 3,893 300 — 6,733 8,006 300 — Total $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094 Atributable to: Continuing operations $ 27,572 $ 27,773 $ 17,182 $ 20,094 $ 50,498 $ 52,458 $ 17,182 $ 20,094 Discontinued operations 235 428 — — 590 850 — — $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094	SALES(a) LONG-LIVED ASSETS(b) SALES(a) LONG-LIVED ASSETS(b) THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 United Kingdom $ 12,901 $ 11,971 $ 15,341 $ 18,145 $ 22,509 $ 22,621 $ 15,341 $ 18,145 Europe 6,580 7,035 1,130 1,272 11,255 11,760 1,130 1,272 Australasia 3,334 3,404 411 677 7,067 7,402 411 677 North America 1,735 1,898 — — 3,524 3,519 — — China and Rest of World 3,257 3,893 300 — 6,733 8,006 300 — Total $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094 Atributable to: Continuing operations $ 27,572 $ 27,773 $ 17,182 $ 20,094 $ 50,498 $ 52,458 $ 17,182 $ 20,094 Discontinued operations 235 428 — — 590 850 — — $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094	SALES(a) LONG-LIVED ASSETS(b) SALES(a) LONG-LIVED ASSETS(b) THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 United Kingdom $ 12,901 $ 11,971 $ 15,341 $ 18,145 $ 22,509 $ 22,621 $ 15,341 $ 18,145 Europe 6,580 7,035 1,130 1,272 11,255 11,760 1,130 1,272 Australasia 3,334 3,404 411 677 7,067 7,402 411 677 North America 1,735 1,898 — — 3,524 3,519 — — China and Rest of World 3,257 3,893 300 — 6,733 8,006 300 — Total $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094 Atributable to: Continuing operations $ 27,572 $ 27,773 $ 17,182 $ 20,094 $ 50,498 $ 52,458 $ 17,182 $ 20,094 Discontinued operations 235 428 — — 590 850 — — $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094	SALES(a) LONG-LIVED ASSETS(b) SALES(a) LONG-LIVED ASSETS(b) THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 United Kingdom $ 12,901 $ 11,971 $ 15,341 $ 18,145 $ 22,509 $ 22,621 $ 15,341 $ 18,145 Europe 6,580 7,035 1,130 1,272 11,255 11,760 1,130 1,272 Australasia 3,334 3,404 411 677 7,067 7,402 411 677 North America 1,735 1,898 — — 3,524 3,519 — — China and Rest of World 3,257 3,893 300 — 6,733 8,006 300 — Total $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094 Atributable to: Continuing operations $ 27,572 $ 27,773 $ 17,182 $ 20,094 $ 50,498 $ 52,458 $ 17,182 $ 20,094 Discontinued operations 235 428 — — 590 850 — — $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094	SALES(a) LONG-LIVED ASSETS(b) SALES(a) LONG-LIVED ASSETS(b) THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 United Kingdom $ 12,901 $ 11,971 $ 15,341 $ 18,145 $ 22,509 $ 22,621 $ 15,341 $ 18,145 Europe 6,580 7,035 1,130 1,272 11,255 11,760 1,130 1,272 Australasia 3,334 3,404 411 677 7,067 7,402 411 677 North America 1,735 1,898 — — 3,524 3,519 — — China and Rest of World 3,257 3,893 300 — 6,733 8,006 300 — Total $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094 Atributable to: Continuing operations $ 27,572 $ 27,773 $ 17,182 $ 20,094 $ 50,498 $ 52,458 $ 17,182 $ 20,094 Discontinued operations 235 428 — — 590 850 — — $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094	SALES(a) LONG-LIVED ASSETS(b) SALES(a) LONG-LIVED ASSETS(b) THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 MARCH 31, 2006 MARCH 31, 2005 United Kingdom $ 12,901 $ 11,971 $ 15,341 $ 18,145 $ 22,509 $ 22,621 $ 15,341 $ 18,145 Europe 6,580 7,035 1,130 1,272 11,255 11,760 1,130 1,272 Australasia 3,334 3,404 411 677 7,067 7,402 411 677 North America 1,735 1,898 — — 3,524 3,519 — — China and Rest of World 3,257 3,893 300 — 6,733 8,006 300 — Total $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094 Atributable to: Continuing operations $ 27,572 $ 27,773 $ 17,182 $ 20,094 $ 50,498 $ 52,458 $ 17,182 $ 20,094 Discontinued operations 235 428 — — 590 850 — — $ 27,807 $ 28,201 $ 17,182 $ 20,094 $ 51,088 $ 53,308 $ 17,182 $ 20,094
							$ 20,094
$ 27,572 235	$ 27,773 428	$ 17,182 —	$ 20,094 —	$ 50,498 590	$ 52,458 850	$ 17,182 —	$ 20,094 —
$ 27,807	$ 28,201	$ 17,182	$ 20,094	$ 51,088	$ 53,308	$ 17,182	$ 20,094

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

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

— 191 —

APPENDIX II

FINANCIAL INFORMATION OF S&J GROUP

NOTE 12 — SEGMENT DATA — CONTINUED

									CAPITAL	CAPITAL										CAPITAL	CAPITAL
		DEPRECIATION							EXPENDITURE				DEPRECIATION							EXPENDITURE
	THREE MONTHS							THREE MONTHS					SIX MONTHS							SIX MONTHS
		ENDED							ENDED				ENDED							ENDED
	MARCH 31,		MARCH				31,	MARCH 31,		MARCH	31,	MARCH 31,		MARCH 31,					MARCH 31,		MARCH 31,
		2006				2005			2006	2005			2006				2005			2006		2005
United Kingdom	$	403		$			707	$	359	$	269	$	902		$	1,335			$	849	$	368
Europe		36					32		7		20		73					56		34		40
Australasia		48					67		20		15		106					132		20		234
China and Rest of World		3					—		116		—		3					—		179		—
Total	$	490		$			806	$	502	$	304	$	1,084		$	1,523			$	1,082	$	642
Atributable to:
Continuing operations	$	490		$			806	$	502	$	304	$	1,084		$	1,523			$	1,082	$	642
	OPERATING (LOSS)											OPERATING (LOSS)
		INCOME							NET INTEREST				INCOME							NET INTEREST
	THREE MONTHS							THREE MONTHS					SIX MONTHS							SIX MONTHS
		ENDED							ENDED				ENDED							ENDED
	MARCH 31,		MARCH				31,	MARCH 31,		MARCH	31,	MARCH 31, MARCH						31<	MARCH 31,		MARCH 31,
		2006				2005			2006	2005			2006				2005			2006		2005
United Kingdom	$	(1,014)		$			830	$	(9)	$	26	$	(2,949)		$			506	$	(32)	$	17
Europe		399					478		(4)		(61)		360					355		(42)		(102)
Australasia		(11)					47		13		11		(15)					117		25		29
North America		(137)				(200)			42		12		(250)					(525)		62		15
China and Rest of World		(112)					—		—		—		(124)
Total	$	(875)		$	1,155			$	42	$	(12)	$	(2,978)		$			453	$	13	$	(41)
Atributable to:
Continuing operations	$	(811)		$	1,490			$	42	$	(12)	$	(2,900)		$			825	$	13	$	(41)
Discontinued operations		(64)				(335)			—		—		(78)					(372)		—		—
	$	(875)		$	1,155			$	42	$	(12)	$	(2,978)		$			453	$	13	$	(41)

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NOTE 13 — LEGAL PROCEEDINGS

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

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

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

Following extensive settlement negotiations with both the SEC and Mr. Crowley, the Company reached a resolution with both parties. On September 28, 2004, Mr. Crowley signed a Consent to Final Judgment of Permanent Judgment with the SEC, without admitting or denying the allegations included in the complaint, which required a disgorgement and payment of civil penalties by Mr. Crowley consisting of a disgorgement payment of $3,765,777 plus prejudgment interest in the amount of $304,014, as well as payment of a civil penalty in the amount of $2,000,000. In May 2005, the SEC applied to the Court for the appointment of an administrator for the distribution of these funds to the victims of Mr. Crowley’s actions, pursuant to the Fair Funds provisions of the Sarbanes-Oxley Act of 2002.

On November 18, 2004, the Company signed a Consent to Final Judgment of Permanent Injunction with the SEC pursuant to which the Company, without admitting or denying the allegations included in the Complaint filed by the Commission, consented to a permanent injunction from violation of various sections and rules under the Securities Act of 1933 and the Securities Exchange Act of 1934.

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

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

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APPENDIX II

NOTE 13 — LEGAL PROCEEDINGS — CONTINUED

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

These various class action suits were subsequently consolidated. Thereafter, the defendants filed certain Motions to Dismiss with regard to the Complaint and on October 19, 2005, the U.S. District Court for the Southern District of Florida in Re Spear & Jackson Securities Litigation entered its Order regarding these Motions. The Order denied the Company’s motion as well as that of Mr. Crowley, the former Chief Executive Officer of Spear & Jackson. The Company responded to the Complaint having filed answer and defenses and is proceeding with the discovery phase of the case. A trial date has been set for October 2006.

The Court granted the Motion to Dismiss on behalf of Mr. Fletcher, the Company’s acting Chief Executive Officer, and also granted the Motion to Dismiss on behalf of the Company’s former independent auditor, Sherb & Co., LLP. The class plaintiff has since filed an appeal regarding the trial court’s decision to dismiss the case against Sherb & Co., LLP, which appeal is presently pending. No appeal was filed with respect to the decision to dismiss the case against Mr. Fletcher.

On September 6, 2005, the Company was served with a Shareholder Derivative Complaint filed on June 1, 2004 in the Circuit Court for Palm Beach County, Florida (Case No. CA005068). The suit names, in addition to the Company, which is a nominal defendant, present and former directors and the Company’s prior independent auditors, Sherb & Co. LLP., as defendants. The suit contains essentially the same factual allegations as the SEC suit, which was filed in April 2004 in the U.S. District Court for the Southern District of Florida, and the series of class actions claims initiated in the U.S. District Court, but alleges state law claims of breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment and lack of reasonable care by various or all the defendants. The Company will evaluate the Complaint and file its response at the appropriate time.

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

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.

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APPENDIX II

B. MANAGEMENT DISCUSSION AND ANALYSIS

The following management discussions and analyses have been extracted from Forms 10-K & Forms 10-Q for the relevant reporting periods filed by S&J with the SEC.

B-1. For the year ended 30 September 2005:

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.

In evaluating any forward-looking statements, you should consider various risk factors, including those summarized above under ITEM 1A and those described in other sections of this report, in the other reports the Company files with the SEC and in the Company’s press releases. Such factors may cause the Company’s actual results to differ materially from any forward-looking statement. The Company disclaims any obligation to publicly update the statements, or disclose any difference between its actual results and those reflected in the statements. With respect to all such forward-looking statements, the Company seeks the protection afforded by the Private Securities Litigation Reform Act of 1995.

SUMMARY OVERVIEW

Although sales of $100.7 million for the year ended 30 September, 2005 show an increase of $1.2 million when compared to those for the equivalent period last year, operating profit has fallen from $2.2 million in 2004 to $1.8 million in 2005. In the year to September 30, 2005 income before taxes has benefited significantly from a reduction in net interest payable of $0.3 million and from net income of $2.1 million relating to unusual or infrequent items. The infrequent items comprise a $3.3 million gain arising on the sale of the surplus element of the Company’s Wednesbury facility and the disposal of its warehouse and office facility in Boca Raton less charges of $1.1 million in respect of a UK manufacturing reorganization program that was initiated in the year. No similar income arose in the comparable period in 2004.

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APPENDIX II

DISCUSSION OF OPERATING RESULTS

While sales for the year increased by $1.2 million (1.2%) this was primarily due to favorable currency exchange fluctuations in the year of $4.0 million offset by sales volume decreases of $2.3 million and increased sales rebates of $0.5 million. Improvements in volumes were recorded in our Metrology and Magnetics divisions, but these were offset by volume decreases in our other businesses attributable to soft domestic demand in the UK, challenging business conditions in many of our end markets, increasing pressure from cheap, Far Eastern imports and the weak US dollar.

Gross profit was 33.0% for the year ended September 30, 2005 compared to 32.08% in the previous year. Direct costs are still being adversely affected in the cost prices of our principal raw materials of steel, plastic, cobalt and nickel, and increases in basic utility costs. Nevertheless, margins have shown signs of improvement as various divisions witnessed favorable sales mixes and benefited from favorable exchange gains on imported factored products, increased gross margins on items sourced from the Far East and India that were formerly manufactured in the UK and the sale of obsolete inventories at prices higher than their written down value.

Selling, general and administrative expenses have increased by $1.7 million (5.6%) in the year. Reasons for the increase include: unfavorable US$ sterling cross rates in the year; increased FAS 87 pension costs; continuing high level of UK distribution costs following the move to a “direct to market” sales approach; and general inflationary increases. These adverse effects have, however, been mitigated by the $0.8 million release of the excess element of a provision relating to severance compensation payable to the former Managing Director of Spear & Jackson plc. In addition the Company has benefited from the local reorganization and cost cutting measures (particularly in the Company’s Australian subsidiary) which have further reduced expenses.

While improvements have been made in the overall levels of general and administration overheads incurred this year, the company is pursuing various initiatives to reduce the levels of sales and distribution costs in future periods. Additionally, settlement of the Company’s SEC litigation suit should result in decreases in administration costs in future periods following the reduction in legal and professional costs. However, other head office legal costs associated with the ongoing class action and the role of the corporate monitor are likely to be incurred until the resolution of this matter. Despite these cost-reduction efforts, administration costs will increase significantly in the year ended September 30, 2006 as a result of the non-cash FAS 87 pension charge increasing from $4.0 million to $8.2 million.

As a result of the decrease in sales volume and higher overhead costs being only partially offset by gross margin improvements, the Company’s operating income has decreased by $0.4 million (18.2%) from $2.2 million in 2004 to $1.8 million in 2005.

The Company has benefited in the year from the $3.3 million gain arising on the sale of the surplus element of its UK manufacturing facility at Wednesbury and the disposal of its US warehouse facility in Boca Raton. The impact on pre-tax profits has been negatively impacted by the provision of $1.1 million manufacturing reorganization costs. As a result of the sale of the surplus element of the Wednesbury property referred to above, the Company was contractually obliged to vacate office and warehouse facilities located on those parts of the site that have been sold and provision has been

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

made for the costs in connection with the required on site reorganization. Additionally, in the final quarter of the year, the Company performed a review of its UK manufacturing operations. A number of strategies are to be implemented to reduce its ongoing cost basis and accrual has been made for severance costs, restructuring charges and fixed asset impairment charges relating to those initiatives.

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

OTHER MATTERS

In the quarter ended March 31, 2005, the actuarial advisers to the Company’s defined benefit pension plan (“the Plan”) completed an actuarial valuation of the Plan, effective as at December 31, 2004. This valuation showed an increase in the Plan’s deficit compared to that calculated at April 5, 2002, the date of the last full actuarial valuation. Following discussions between the Company and the Trustees of the Plan regarding methods by which the asset shortfall could be reduced, it was agreed, in early May, that the Company would make a special contribution to the Plan of (pound)4 million (approximately $7.2 million). (pound)2 million (approximately $3.6 million) was paid to the Plan in June 2005 and the remaining (pound)2 million (approximately $3.6 million) was paid in September 2005. In addition, from May 2005, the Company’s annual pension contributions to the Plan increased from (pound)1.5 million (approximately $2.7 million) to (pound)1.9 million (approximately $3.4 million). This rate of annual contribution will remain in place, subject to certain conditions, until April 2007 when it will be reviewed by the Plan actuary. This agreement with regard to the future funding commitments of the Plan will enable the Company to plan future cash flows with greater certainty and will also avoid any re-negotiation of contribution rates in September 2005 when new pension legislation is enacted in the UK.

On February 15, 2005 the SEC suit, which was filed on April 15, 2004 in the US District Court of the Southern District of Florida, was settled following extensive negotiations. This suit, filed against the Company and Mr. Dennis Crowley, the Company’s former Chief Executive Officer and Chairman, and others, alleged violations of Federal security laws.

Although the SEC litigation has now been satisfactorily resolved, the class action lawsuits that 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, still remain. The defendants filed certain Motions to Dismiss with regard to the Complaint and on October 19, 2005, the U.S. District Court for the Southern District of Florida entered its Order regarding these motions. The Order denied the Company’s motion as well as that of Dennis Crowley. The Company is in the process of preparing its answer and defenses to the Complaint. The Court granted the Motion to Dismiss on behalf of William Fletcher, The Company’s interim Chief Executive Officer and also granted the Motion to Dismiss of

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FINANCIAL INFORMATION OF S&J GROUP

the Company’s former auditor, Sherb & Co. LLP. The class plaintiff has since filed an appeal regarding the trial court’s decision to dismiss the case against Sherb & Co. LLP, which appeal is presently pending. No appeal was filed with respect to the decision to dismiss the case against William Fletcher. It is impossible at this time to ascertain the ultimate legal and financial liability or whether this action will have a material adverse effect on the Company’s financial condition and results of operations.

RESULTS OF OPERATIONS

GENERAL

The results discussed below compare the years and quarters ended September 30, 2005, 2004 and 2003. 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.

The operating results of Megapro Tools, Inc. and its subsidiary companies, and those of the thread gauge measuring division of Spear & Jackson, Inc., which is currently being actively marketed for resale, are disclosed under discontinued operations.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

SUMMARY

A summary of the results of operations is as follows:

Sales Gross profit Operating costs Operating income Other income/(expenses) Provision for taxes Unusual or infrequent events Discontinued operations	Years Ended September 30 2005 2004 2003 $m $m $m 100.7 99.5 90.1 33.2 31.9 28.3 31.4 29.7 21.9 1.8 2.2 6.4 0.2 (0.2) (0.1) (0.5) (1.2) (1.5) 2.2 — — (0.6) (0.4) (0.2) 3.1 0.4 4.6	Quarters Ended September 30 2005 2004 2003 $m $m $m 22.3 24.0 19.4 7.5 8.4 5.6 7.0 7.2 5.6 0.5 1.2 — 0.1 — (0.1) 0.2 (0.5) 0.3 (0.1) — — (0.2) (0.2) (0.2) 0.5 0.5 0.0

SALES

2005 COMPARED TO 2004

Sales from continued activities increased by $1.2 million (1.2%) from $99.5 million in the year ended September 30, 2004 to $100.7 million for the year ended September 30, 2005. Sales of $22.3 million for the quarter ended September 30, 2005 were $1.7 million (6.9%) lower than sales of $24.0 million recorded for the comparable period last year.

The net increase in sales for the year and the decrease in the quarter ended September 30, 2005 over the comparable periods in the prior year are analyzed as follows:

			Quarter
		Year ended	ended
		September	September
		30, 2005	30, 2005
	Note	$m	$m
Effect of exchange rate movements	(a)	4.0	0.3
Sales volumes decreases	(b)	(2.3)	(1.6)
Increased rebates	(c)	(0.5)	(0.4)
		1.2	(1.7)

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

Analyzed by principal business segment, the net revenue increases and decreases over prior periods can be summarized as follows:

				Quarter
			Year ended	ended
			September	September
			30, 2005	30, 2005
		Note	$m	$m
a)	Hand and garden tools
	Effect of exchange rate movements	(a)	3.1	0.3
	Sales volume decreases	(b)	(4.7)	(2.0)
	Rebates	(c)	(0.5)	(0.4)
			(2.1)	(2.1)
b)	Metrology tools
	Effect of exchange rate movements	(a)	0.5	—
	Sales volume increases	(b)	1.4	0.4
			1.9	0.4
c)	Magnetic products
	Effect of exchange rate movements	(a)	0.4	—
	Sales volume increases	(b)	1.0	—
			1.4	0.0
	Total		1.2	(1.7)

Notes:

(a) The functional currencies of the group’s revenues are sterling, the Euro and the Australian and New Zealand dollar. The principal functional currency is sterling and the variation in the US$/(pound) cross rate in the year, and to a lesser extent, the quarter ended September 30, 2005 compared to the comparable periods last year has had a significant favorable impact on the US dollar value of the group’s sales. The average US$/(pound) cross rates in the periods under review can be summarized as:

		Average Cross	Rates
	2005	2004	%	Movement
Year ended September 30	1.851	1.787		+3.6%
Quarter ended September 30	1.785	1.788		(0.2%)

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APPENDIX II

FINANCIAL INFORMATION OF S&J GROUP

Although in the quarter ended 30 September, 2005 the US$/(pound) cross rate decreased when compared to the previous year, the Company still benefited from favorable exchange gains. This is due to the fact that there was a significant movement in the $/Aus $ cross rate in the last quarter when compared to last year which has had a significant effect on the translation of the Australian division’s sales from Australian dollars to $. The $0.4 million favorable variance on the $/Aus $ cross rate more than compensated for the adverse US$/(pound) exchange variances in the UK based operating divisions.

(b) Business conditions in many of our end markets remained challenging as a result of continued competition from rival suppliers in a number of our product ranges, increasing pressure from cheap Far Eastern imports, the weak US dollar and poor retailing conditions in the UK and Australasia.

Within the UK, Neill Tools witnessed increasingly difficult trading conditions in the fourth quarter of the fiscal year where sales were 11.1% lower than the comparable period last year. Buoyant hand tools demand from the Middle East in previous quarters has eased and UK sales of garden tools have been adversely affected by depressed order intake from major retail outlets. Likewise, Australia and New Zealand continue to show volume decreases ($3.0 million for the year and $0.8 million in the last quarter) which are primarily attributable to increased levels of competition from foreign imports and a slow down in consumer spending.

While similar market pressures have been experienced over the year in the Metrology and Magnetics products divisions, volume increases over the prior period of $2.4 million for the year and $0.4 for the quarter were still achieved. This was attributable to growth in the Metrology distribution facility in Maastricht and increases in export sales in Eclipse Magnetics following the establishment of new distribution channels.

(c) Sales rebates charged in the year ended September 30, 2005 amounted to $4.4 million and $0.9 million of rebates were expensed in the quarter ending on that date. The level of rebates in the year ended September 30, 2005 has increased by 13.6% over the comparable period last year. This is due to: increased trading volumes in France; the offering of increased rebates in the UK in the Company’s Neill Tools division as an additional customer incentive in a highly competitive sales market; and adverse movement in the (pound)/US$ cross rate.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

2004 COMPARED TO 2003

Sales from continuing activities increased by $9.4 million (10.2%) from $90.1 million in the year ended September 30, 2003 to $99.5 million for the year ended September 30, 2004. Sales of $24.0 million for the quarter ended September 30, 2004 were $4.6 million (23.2%) higher than sales of $19.4 million recorded for the comparable prior year period.

The net increase in sales for both the year and quarter ended September 30, 2004 over the comparable periods in the year ended September 30, 2003 is analyzed as follows:

		Year ended	Quarter ended
		September	September
		30, 2004	30, 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

The net revenue increases over prior periods can be summarized by principal business segment as follows:

Year ended September 30, Quarter ended 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)/increases (b) (3.4) 2.0 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	Year ended September 30, Quarter ended 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)/increases (b) (3.4) 2.0 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	Year ended September 30, Quarter ended 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)/increases (b) (3.4) 2.0 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
	6.6 1.6 0.2 1.8	3.6
		0.4 0.2
		0.6

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Year ended September 30, Quarter ended September 30, 2004 2004 Note $m $m 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	Year ended September 30, Quarter ended September 30, 2004 2004 Note $m $m 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	Year ended September 30, Quarter ended September 30, 2004 2004 Note $m $m 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
	1.0	0.4
	9.4	4.6

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 were as follows:

		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 difficult as a result of depressed demand, the intense competition from competing suppliers in a number of our product ranges and the adverse effect of a weak US dollar in certain of our export markets. Additionally, although the Company strategy to aggressively promote our product continued, increased expenditure in 2004 on expanding and strengthening the sales and marketing infrastructure was 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 t the comparable period last year. Furthermore, the Neill Tools 2004 sales volume increase was achieved despite the cessation of trade with 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 the level of sales achieved in 2003 is primarily due to the loss of a major customer to whom significant sales were made in the first three-quarters of fiscal 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.

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APPENDIX II

(c) The level of rebates 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 charged in the quarter ending on that date.

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

2005 COMPARED TO 2004

Sales for the year to September 30, 2005 of $43.9 million showed a reduction of $0.5 million (1%) over last year’s sales of $44.4 million. The decrease was attributable to adverse volumes of $1.7 million and increased rebates of $0.3 million offset by favorable exchange movements of $1.5 million.

Despite a promising start in the first half of the year Neill Tools witnessed particularly difficult trading conditions in the third and fourth quarters of the year. The UK retail market continued a downward trend, especially in the multiple retail sector, and market indicators recorded UK retail sales at their lowest for over 20 years. Additionally, export sales, which in the first half of the year had exceeded expectations, have seen an easing in demand. Our strong export sales performance at the beginning of the year was bolstered by the demand generated by the huge construction programs that were put in place following the conflicts in the Middle East, but this demand has now begun to slow. In addition Neill Tools experienced a weakening of its order book with Middle Eastern countries during quarters three and four. The continued worldwide terrorist activity has affected the appetite for business travel and as a consequence sales orders have declined.

UK trading conditions, especially in the garden tools market, have deteriorated due to increasingly soft demand in the multiple retail sector. Despite the resultant sales shortfalls in our gardening business, the “Predator” woodsaw range, which was so successful last year, has continued to sell strongly. As previously reported, capital investment of approximately $0.9 million in new woodsaw and hacksaw blade plant has been approved and is now almost fully operational. This will ensure that the record levels of productivity experienced in the year can be sustained.

The threat to the business from low-cost, Far Eastern economies continues unchanged. These competitive pressures have been exacerbated by the weakness of the US dollar, price increases imposed by our steel, plastics and utility suppliers, and the difficulty within a competitive market place of passing on these increases to customers. Despite this, margins have been maintained when compared to last year, as divisional profitability has benefited from favorable sales mixes, the sale of obsolete inventories at amounts above NRV and the successful implementation of a number of strategic initiatives to reduce the cost of manufacturing and distribution.

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During the year the division announced a reorganization in connection with the closure of part of one of its manufacturing facilities, and carried out a review of its UK manufacturing operations, for which costs of $1.5 million have been provided. These initiatives will reduce the division’s reliance on own-manufactured items and will enable the division to progress the sourcing of componentry for UK assembly to further reduce costs and improve profitability.

Given the depressed trading conditions, focus has been directed towards tight overhead cost control and reorganizations of certain sales and administrative functions have been undertaken to reduce these costs.

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 the 2003 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 experienced a demanding year, the decision implemented in July 2003 to cease trading with its major UK wholesale customer and to deal with its customers on a direct basis, reaped benefits and enabled the division to re-establish links with its customer base. The increased UK sales were partially offset, however, by the weakening dollar that continued to have a detrimental effect on sales into certain export markets that were linked to that currency. To counteract this decline in price competitiveness, margins were reduced in some regions in order to achieve substantial fixed volume orders. In other areas, such as the Middle East, 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 conflicts in Iraq.

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

The ‘Predator’ woodsaw range was revitalized in the year and sales order intake exceeded all expectations with the woodsaw department operating on a three shift basis to meet demand. Likewise, the division 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 generated approximately $1.8 million of sales in the year.

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

The control of costs, especially increased distribution costs associated with the change in customer delivery requirements, became a major priority.

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APPENDIX II

ECLIPSE MAGNETICS

2005 COMPARED TO 2004

Revenues for the year increased by $1.4 million (14.8%) from $9.3 million in 2004 to $10.7 million in 2005. This increase was due, in the main, to improved trading volumes of $1.0 million and favorable exchange differences of $0.4 million.

Sales of both the distribution range of products and the engineered products line have shown a marked improvement when compared to last year helped by new distribution channels in Europe and new initiatives in South America.

The higher technology area of the division, “Applied Magnetic Systems”, has continued to design and develop new products, mainly driven by the material handling and separation business. New products have been designed, developed and installed within the food and automation industries, covering liquid processing, conveying and materials handling industry. In particular, the division has been successful in developing a new range of patented filtration products, ‘Micromag’, which is designed to protect expensive pumps and valves.

In the industrial sector, reduced demand was experienced from key sales accounts as certain customers migrated to Far Eastern manufacturers.

As previously reported, the standard low technology area of the business has continued to be eroded by good quality imports at low price points from our competitors in China and the Far East. This is directly impacting on our distribution and industrial markets where customers are switching supply sources to the Far East or redesigning systems and applications to accommodate newer magnetic materials.

Despite sales price erosion, increases in steel prices and the cost of utilities, 2005 gross margins have not been eroded thanks to the stabilization of raw material prices for nickel and cobalt (two major alloys used in magnet manufacturing), an improved mix of products sold within the engineering products division and improvements in manufacturing costs.

The main challenges to the business continue to be the delivery of a lower manufacturing cost base, delivering added value to customers, the continued development of new products through the Applied Magnetics Systems division and increasing market share within key product segments.

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 was due primarily to favorable exchange differences with sales volumes remaining static.

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

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APPENDIX II

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 witnessed a 60% increase in the raw material prices of nickel and cobalt, two major alloys used in magnet manufacturing, which inevitably resulted in margin erosion.

The division’s higher added value Applied Magnetics operation continued to flourish, however, showing an 18% sales growth in the year. During the year the Company refocused 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 continued 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 offered 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 increased its 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.

ROBERT SORBY

2005 COMPARED TO 2004

Robert Sorby sales for the year showed no overall movement from last year ($5.0 million in both years), although favorable exchange movements of $0.2 million were offset by a volume decrease of $0.2 million.

Robert Sorby has suffered from a very challenging market place, especially in the second half of the year. UK home retail market sales fell by 7% compared to last year, reflecting the competitive trading conditions and reduced consumer demand. To resist sales dilution the division’s UK marketing effort has centered on the attendance at national, regional and dealer shows, supported by specialist magazine advertising. Additionally, Robert Sorby’s mail order operation has now become firmly established and continuing focus is to be placed here in the future. As a result of strong demand in this sector an e-commerce web site is currently under construction.

Overseas sales have also been disappointing, especially in the US. We have continued to maintain a strong overseas promotional activity, which is essential in retaining market share and resisting the efforts of competitors to consolidate their own market positions.

As well as flat UK and overseas markets, Robert Sorby, in common with other of the Company’s business units, faces the issue of escalating raw material costs. Whilst increases in steel prices have hitherto been resisted, we are now being forced to accept that cost revisions are inevitable and any such price increases may adversely affect sales volume going forward.

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APPENDIX II

2004 COMPARED TO 2003

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

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

In the soft UK market, the main thrust continued to be the promotion of lathes, lathe chisels and lathe chucks where the division occupied an increasingly strong position. The introduction of the new DVR lathe in the first quarter impacted very strongly on subsequent periods’ results. 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 was compensated by an increase in business with other dealers.

BOWERS

2005 COMPARED TO 2004

Sales for the year showed an increase of $1.9 million (14.3%) from $13.7 million in 2004 to $15.6 million in 2005. $1.4 million of this increase is attributable to increased sales volume with the remaining $0.5 million due to favorable exchange rate variances.

Quarter 4 results were in line with forecast but a larger than normal slowdown in sales to the USA over the summer months and manufacturing capacity issues in the UK resulted in the division being unable to recover trading profit shortfalls in quarters 1 and 2.

The new sales and distribution facility set up in Maastricht, Holland, is now fully operational and has continued to have a favorable impact on trading volumes. This new facility, specializing in the distribution of portable hardness testing equipment manufactured in China and the sale of general engineers’ hand tools, has excellent connections in mainland Europe. The division’s earnings have been depressed by considerable set-up costs but it is anticipated that its profitability will be increased once these one-time charges are eliminated. An allied manufacturing, quality control and distribution centre is being established in Shanghai, China and this is expected to improve divisional margins further once the business is fully functional during Q2 of fiscal 2006. Currently the quality control operation for these hand tools is being carried out in Maastricht but this will be transferred to Shanghai where the division will benefit from lower labor costs.

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APPENDIX II

Other successes in the year include solid performances in the USA, although the growth experienced during the first three quarters of the year slowed down in the last quarter. High sales levels of the new Smart Plug 2-point product have also been encouraging. Good progress has been made in new markets throughout the year and new or additional distributors have been appointed in Turkey, Australia, Mexico, Hong Kong and Russia.

Overheads were strictly controlled throughout the year, which helped to compensate for lower than expected revenues. A restructuring of the UK sales operation in Q4 will also reduce overheads for the new financial year.

Margins showed marginal deteriorations due to efficiency problems at one of the UK manufacturing sites but this will be addressed through a new capital expenditure initiative that is to be implemented in Q1 of fiscal 2006. Mitigating these adverse margin impacts was the slight strengthening of the $ which lowered the cost of factored items purchased from the Far East.

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

2004 COMPARED TO 2003

Sales for the year increased by $1.8 million (13.3%), rising from $11.9 million in 2003 to $13.7 million in 2004. The increase was 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 was attributable 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.

With regard to UK sales, the final quarter of 2004 saw some improvements although the year finished well behind expectations. The main successes were in the Aerospace sector, with several projects signed with blue-chip manufacturers. Likewise the systems side of the business continued to expand and the new Moore & Wright brand of digital products achieved important listings in several of the large UK catalog distribution companies.

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APPENDIX II

The capital products within the range continued to disappoint, due to the hesitancy of key customers to invest, but some signs of recovery were experienced, led mainly by demand from UK based aerospace manufacturers.

The successful launch of the new Smart Plug 2-point range far exceeded expectations.

S&J FRANCE

2005 COMPARED TO 2004

Sales in the year increased by $0.8 million (7.8%) from $9.6 million in 2004 to $10.4 million in 2005, the increase being attributable to favorable exchange rate variances of 0.5 million and volume increases of $0.3 million.

On a macro level the French economy has remained depressed with increased unemployment rates, lower consumer confidence and reduced spending levels. Business conditions in the company’s markets have reflected the sluggish retail environment with price competition and consolidation of competitors putting pressure on margins. Additionally, the company suffers from a large amount of French garden product turnover being concentrated in a small number of retail outlets, which makes price negotiations very difficult. As a result of this, the company has been forced to offer higher rebate levels to stimulate sales.

Significant marketing activity has been undertaken during the year to promote the Company’s principal brands and new listings have continued to make an important impact especially brass ornaments, thermometer and weather station ranges, culture products, extensions to the garden product and hand tool range and plastic shovels. Given the seasonal nature of garden product sales, the marketing and promotional activity undertaken in the year (new design and packaging for the company’s principal brands; creation of new web site) together with the impact of new ranges have played an important role in the French division.

Gross margins in the year to September 30, 2005 have improved by two percentage points over the comparable period last year as a result of production efficiencies and the negotiation of more favorable supplier terms. An overhead reduction program has also been successfully implemented.

Further range expansions and the set up of a mail order service for garden products and accessories are planned to enhance the Company’s market position.

2004 COMPARED TO 2003

Sales 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 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.

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APPENDIX II

Despite the flat trading conditions several new listings were 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 crystallized as additional sales revenues.

Production improvements were introduced in the year in the assembly and paint area with the involvement of UK manufacturing management.

AUSTRALASIA

2005 COMPARED TO 2004

Sales decreased from $17.4 million in 2004 to $15.0 million in 2005, the $2.4 million (13.8%) decrease being attributable to sales volume decreases of $3.0 million and increased sales rebate levels of $0.3 million offset by favorable exchange variances of $0.9 million.

The sales revenues of the Australian division have continued to suffer in comparison to the prior year due to the loss of business with a major Australian retailer, increased levels of competition and a softening in retail demand spurred by increases in domestic interest rates which have negatively impacted on consumer spending.

In New Zealand, lower than expected sales levels are attributable to increased levels of competition from Asian imported power and air tool products and the loss of business with a major retail group. As in Australia, increased domestic interest rates and speculation concerning further rate hikes have dented consumer confidence and slowed demand.

Margins in both Australia and New Zealand have remained under pressure given the sluggish retail demand, the increased promotional and marketing costs necessary to maintain sales levels, unfavorable sales mixes and reduced exchange gains from a weakening Australian dollar. These adverse effects have been mitigated, where possible, by improved product sourcing.

Mitigating the margin dilution have been overhead reductions over the prior year in excess of 20% across all cost centers in the two Australasian units.

Competition from imported Asian products and the increasing trend of the large Australian retailers to import and develop their own home brands continues to place pressure on the sales and margins of the business. To counter this trend, the division has instigated aggressive pricing policies to ensure it can maintain and improve existing sales volumes and market share in all categories in which it competes. The division also remains focused on re-establishing and consolidating its trading relationships with retail customers and suppliers and on maximizing the selling opportunities of the Spear & Jackson branded products. In this regard, management has now introduced a number of new and extended ranges and promotional programs across the digging, garden cutting, handsaw and air tool ranges. In addition, the division has concentrated on improved product sourcing to ensure that all S&J branded product meets customers’ expectations and is positioned within the appropriate price

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APPENDIX II

points. To date, not all of these initiatives have reached their full potential but we do anticipate that incremental sales and margin growth will be forthcoming. In addition, management has initiated a series of cost cutting measure, including the restructuring of the workforce, in order to meet the slow down in sales demand.

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 2003 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.
(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.

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APPENDIX II

COSTS OF GOODS SOLD AND GROSS PROFIT

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

	Years	ended September 30,	ended September 30,	Qtrs.	ended September 30,	ended September 30,
	2005	2004	2003	2005	2004	2003
	%	%	%	%	%	%
Cost of goods sold as a
% of sales	66.99	67.92	68.61	66.59	64.83	71.32
Gross profit margin	33.01	32.08	31.39	33.41	35.17	28.68

Costs of goods sold decreased marginally to $67.5 million in the year to September 30, 2005 from $67.6 million in 2004. In the quarter to September 30, 2005 the cost of goods sold was $14.8 million compared to $15.6 million in 2004, an increase of 12.1%.

COMPARISON OF 2005 TO 2004

Despite continuing raw material (principally steel and plastic) and utility price increases, together with increases in the cost of fuel used to operate our manufacturing processes, gross margins have continued to show improvements over last year, as a result of:

exchange gains realized on the purchase of factored products denominated in US dollars from suppliers in the Far East;
a more favorable and advantageous sales mix;
further increase in selling directly to customers rather than via intermediaries;
improved product sourcing and increased factoring and production efficiencies;
negotiated price increases; and
sale of slow moving inventories at amounts in excess of their net realizable value.

We continue to monitor and evaluate means of maintaining and improving current sales mixes and of further reducing costs of goods sold across all of our principal trading operations to avoid margin erosion. The highly price sensitive markets in which we operate make it prohibitive to pass on adverse variances to certain of our customers. This, and the upward pressure on steel prices caused by strong demand from China, will continue to have an adverse influence on our margins in the short term, as will increasing utility costs.

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APPENDIX II

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

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

COMPARISON OF 2004 TO 2003

Margins were 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 were mitigated, however, by the following factors which has meant that overall gross profit margins improved over the 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. As in previous years these provisions had been accrued in the first three quarters of the year based on management’s estimates of the expected ongoing level of stock losses. The excess portion was identified following the completion of the year-end inventory counts.

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APPENDIX II

EXPENSES

2005 COMPARED TO 2004

Selling, general and administrative (SG&A) expenses increased by $1.7 million (5.6%) from $29.7 million in the year ended September 30, 2004 to $31.4 million in the year ended September 30, 2005. SG&A expenses for the quarter ended September 30, 2005 were $7.0 million, a decrease of $0.2 million (3.3%) over the expenses charged in the equivalent period last year.

The principal reasons for the movements are as follows:

		Increase/(Decrease)	Increase/(Decrease)
		over Prior Years
		Year ended	Quarter ended
		September	September
		30, 2005	30,	2004
		$m		$m
a)	Impact of movements in average US$/sterling cross
	rates in the period	1.10		(0.1)
b)	Increased FAS87 pension costs	2.69		0.63
c)	Inflationary increases net of foreign exchange gains
	and losses on trading transactions	0.50		0.10
d)	Decreased head office costs relating to reduced
	legal and professional fees, monitor fees and
	associated costs	(0.7)		(0.3)
e)	Increased UK warehouse and distribution costs
	following the change to direct sales	0.40		0.10
f)	Release of excess provision associated with
	settlement of severance compensation payable to
	former Managing Director	(0.75)		(0.25)
g)	Cost savings in Australia	(1.1)		(0.3)
h)	Other net decreases in SG&A expenses	(0.44)		(0.08)
Total	increase (decrease) in SG&A expenses	1.70		(0.2)

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APPENDIX II

2004 COMPARED TO 2003

SG&A expenses increased by $7.8 million (35.8%) from $21.9 million in the year ended September 30, 2003 to $29.7 million in the year ended September 30, 2004. SG&A expenses for the quarter ended September 30, 2004 were $7.2 million, an increase of $1.6 million (29.6%) over the expenses charged in the equivalent period last year.

Major reconciling items were as follows:

		Increase over Prior Years	Increase over Prior Years
		Year ended	Quarter ended
		September	September
		30, 2004	30, 2004
		$m	$m
a)	Impact of movements in average US$/sterling cross
	rates in the period	2.5	0.6
b)	Increased FAS87 pension costs	1.0	0.2
c)	Inflationary increases and set up costs of Florida
	US sales infrastructure	0.6	0.2
d)	Increased head office costs relating to legal and
	professional fees, monitor fees and associated costs	1.1	0.3
e)	Increased UK warehouse and distribution costs
	following the change to direct sales	0.6	—
f)	Settlements of senior and other employees’
	severance liabilities in 2002/3 for amounts less than
	anticipated. There are no comparable items in
	2003/4	0.6	—
g)	Exceptional bad debt recoveries in Q1 2002/3 that
	were not repeated in 2003/4	0.1	—
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	—
k)	Current year expansion of UK and Australasian
	selling and administration functions, increased
	property depreciation and other costs	0.5	0.2
l)	Increased audit and other compliance costs	0.2	0.1
Total	increase in expenses	7.8	1.6

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

OTHER INCOME AND EXPENSES

Other income and expenses has moved from a charge in both 2003 and 2004 ($0.1 million and $0.2 million respectively) to a credit of $0.2 million in 2005.

This improvement is attributable to higher 2005 bank interest receivable in the Company’s UK businesses. During 2004 cash balances in the UK were negatively impacted by the cash outflows relating to the purchase of land and buildings at Wednesbury, England for $3.2 million. This resulted in increased interest charges during 2004. The sale of the excess element of the Wednesbury site for $5.2 million in January 2005 and the $3.4 million derived from the disposition of the Company’s warehouse in Boca Raton have increased cash balances and generated higher interest income.

INCOME FROM CONTINUING OPERATIONS BEFORE UNUSUAL ITEMS AND INCOME TAXES

Our profit from continuing activities before income taxes in the year ended September 30, 2005 amounted to $2.0 million (2004: $2.0 million, 2003 $6.3 million). In the quarter ended September 30, 2005 the profit from continuing operations before tax was $0.6 million (2004: $1.2 million, 2003: $0.1 million (loss)).

UNUSUAL OR INFREQUENT ITEMS

GAIN ON SALE OF LAND AND BUILDINGS

In the year to September 30, 2005 the Company has recorded net gains of $3.3 million on the sale of land and buildings. On January 28, 2005 the Company completed the sale of part of its industrial site at St. Paul’s Road, Wednesbury, England and on February 15, 2005 the Company also concluded the disposal of its warehouse and office facility in Boca Raton, Florida. Details of these sales are as follows:

Wednesbury England Boca Raton Florida $m $m Sale proceeds 5.2 3.5 Less net book value (2.2) (3.2) 3.0 0.3	Total $m 8.7 (5.4) 3.3

In the results for the nine months ended June 30, 2005 the Company deducted $0.7 million of reorganization costs from the gain on sale relating to the Wednesbury property. These costs are now presented within Manufacturing Reorganization costs below.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

MANUFACTURING REORGANIZATION COSTS

Manufacturing reorganization costs comprise:

Note Manufacturing reorganization and relocation (i) Severance costs (ii) Fixed asset impairment write-downs (iii) Release of provisions (iv)	$m 0.4 0.5 0.8 (0.6) 1.1

(i) As a result of the sale of the surplus element of the Wednesbury property, the Company is contractually obliged to vacate office and warehouse facilities located on these parts of the site that have been sold. A provision of $0.4 million has been made for costs in connection with this obligation. The provision principally relates to office and factory refurbishment and reorganization expenses together with expenditure in respect of departmental relocations within the remainder of the site. Following the sale, elements of the Wednesbury manufacturing operation have been closed or transferred and costs in connection with these initiatives are dealt with in (ii) and (iii) below.

(ii) Severance costs relating to the closure and down scaling of certain manufacturing processes at the Company’s Sheffield and Wednesbury locations in the UK.
(iii) The ongoing usage and remaining asset lives of the plant and machinery involved in the restructured operations have been reviewed and impairment write-downs made where necessary.
(iv) Certain provisions made in prior periods relating to manufacturing initiatives that will not now be implemented following the finalization of the Company’s UK manufacturing reorganization strategy have been released in the year.

INCOME TAX

Income taxes of $0.5 million were provided in the year ended September 30, 2005 (2004: 1.2 million, 2003: $1.5 million). In the quarter ended September 30, 2005 there was a tax credit of $0.2 million (2004: $0.5 million charge, 2003: $0.3 million credit).

Income taxes represented 11.1% of profit before tax in 2005 (2004: 59%, 2003: 23.8%).

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.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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) 2005

The effective rate in the year ended September 30, 2005 was less than the expected statutory rate for the following reasons:

i) The $3.0 million profit on the sale of the Company’s excess land at Wednesbury, England, is not subject to taxation due to the availability of capital tax losses brought forward not recognized in the deferred tax computation. This has reduced the theoretical tax charge by $0.9 million.
ii) Income within certain overseas subsidiaries within the Spear & Jackson Group is taxed at different rates from the effective rate. The typical non-US taxation rate suffered by the Company’s US overseas subsidiaries is approximately 30% compared to a US Federal Statutory rate of 35%. The effect of applying a rate of 30% as opposed to 35% to the Company’s results is a tax credit of approximately $0.1 million.
iii) Certain adjustments were made to prior year estimates resulting in a $0.2 million credit to the taxation charge.
iv) The utilization of certain tax losses that are not recognized within the deferred tax computation has further reduced the tax charge by $0.1m.

The above were only partially offset by items which contributed to a higher than expected statutory rate such as:

i) Permanent differences between accounting and taxable income as a result of non-deductible expenses. (tax effect $0.1 million)
ii) In addition the effective rate of tax has been increased as a result of losses that have been incurred in the United States for which no utilization against future projects is envisaged in the short term and to which a valuation allowance has therefore been applied. (tax impact $0.2 million)

Because of the availability of tax net operating losses, other tax credits and the benefit of a tax deduction (spread over four years) in respect of the special contribution of $7.2 million that was made to the Company Pension Plan in the year, it is not anticipated that any significant element of the taxation provision for the year will result in the payment of income tax.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

b) 2004

The effective rate in the year ended September 30, 2004 was greater than the expected statutory rate for the following principal 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.
c) 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 of $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 that 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.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

NET INCOME FROM CONTINUING OPERATIONS AFTER INCOME TAXES

Our net profit after income taxes from continuing operations was $3.7 million for the year to September 30, 2005. This compares to a profit after income taxes of $0.8 million for the year ended September 30, 2004, and $4.8 million in 2003.

DISCONTINUED OPERATIONS

Discontinued operations relate to the thread gauge measuring division of the Metrology Division, based in the UK, and the Megapro screwdriver division of Spear & Jackson, Inc.

During the fourth quarter of fiscal 2005, the company began marketing for sale the thread gauge measuring business that is located in the United Kingdom. The carrying values of the assets relating to this entity have been written down to estimated fair value.

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

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

Total losses attributable to discontinued operations were $0.6 million in the year ended September 30, 2005 and $0.4 million and $0.2 million in the years ended September 30, 2004 and September 30, 2003 respectively.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

LIQUIDITY AND CAPITAL RESOURCES

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

	September 30,	September 30,	September 30,
	2005	2004	2003
	$ m	$ m	$ m
Cash and cash equivalents	7.3	5.1	9.2
Overdrafts	(0.8)	(0.1)	(0.3)
Working capital (excluding deferred tax)	29.9	28.8	28.3
Stockholders’ equity	26.2	29.4	31.9
Net cash (used in) provided by operating
activities	(5.8)	3.4	6.6
Cash provided by (used in) investing
activities	7.3	(7.1)	(1.7)
Cash provided by (used in) financing
activities	0.7	(0.3)	(2.1)
Effect of exchange rate changes	—	(0.1)	(0.1)
Changes in cash and cash equivalents	2.2	(4.1)	2.7

DISCUSSION OF CASH FLOWS

2005 COMPARED TO 2004

Net cash used by operating activities in the year ended September 30, 2005 was $5.8 million (2004: $3.4 million cash generation). This represents a year on year adverse movement of $9.2 million (271%) which arose primarily from the following:

increase in net outflows from other assets and liabilities of $5.6m (194%)
decrease in trade working capital inflows of $3.3 million (196%)
Reduction in net income (adjusted for depreciation, gain on sale of land and buildings and deferred income taxes, etc) of $0.3 million (8.4%) as dealt with in the commentary of results above.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

The reasons for these variances in the cash flow movements associated with other assets and liabilities and trading working capital are summarized below:

(a) Variances in cash flows attributable to other assets and liabilities
i) The major contributory factor is the payment of the special contribution of $7.2 million to the UK Pension Plan that was made in two equal installments in June and September 2005. Additionally, annual employer pension contributions increased by $0.3 million, from May 2005, following agreement between the company and the Trustees of the UK Pension Plan.
ii) The $0.8 million of additional legal and professional fees, monitor costs and related expenses accrued in the US Holding Company at September 30, 2004 have been partially defrayed in the year under review thereby giving rise to a cash outflow. Further costs will continue to be incurred until the monitor’s duties are curtailed and the various litigation issues are resolved.
iii) Release of a $0.6 million restructuring provision (as discussed in manufacturing reorganization costs, above) that was made in prior periods.

The adverse effect of the above has been mitigated by:

i) Reduced lease payments in the year payable on the UK car fleet of $0.2 million.
ii) The inclusion of UK reorganization and severance provisions at September 30, 2005 which will not be paid until fiscal 2006.
iii) An increase in the non-cash FAS 87 pension charge of $2.7 million.

(b) Trade working capital variances.

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

		Note	$ million
Increased	inventory outflows	(i)	(6.7)
Increased	trade receivable inflows	(ii)	4.0
Increased	trade payable outflows	(iii)	(0.6)
			(3.3)

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

i) In the year ended September 30, 2005 inventories increased by $3.6 million compared to a decrease of $3.1 million in the year ended September 30, 2005. During 2004 a rigorous inventory reduction program had been initiated. In addition, stock levels at September 30, 2003 were particularly high with one-off stock builds in the Company’s Australian subsidiary and the bulk purchase of new ranges of factored products in the UK. These stock-builds reversed in 2004 thereby contributing to the cash inflows in 2004. Not only were they not repeated during 2005 but inventory levels have been adversely impacted by poor UK final quarter sales. Additionally, purchases of stock in the new Metrology Division in Holland have also had an adverse effect on inventory flows, as have strategic stock builds in those sectors of the UK business that are undergoing reorganization.
ii) UK sales in August and September 2004 benefited from increased turnover of approximately $1.8 million when compared to the equivalent period in 2003. The inflow from trade receivables in the year ended September 30, 2005 therefore benefits from cash received from these sales. Sales levels in the last quarter of 2005 across the majority of divisions have been lower than those witnessed in the last quarter of 2004. This has therefore reduced trade receivables and further contributed to the favorable movement in trade receivables when compared to last year.
iii) Decreased trade payable inflows of $0.6 million have arisen in the year due to increasing levels of purchases from overseas on reduced payment terms.

Cash inflow from investing activities in the year ended September 30, 2005 was $7.3 million compared to an outflow of $7.1 million in 2004. The year ended September 30, 2005 includes $5.2 million relating to the sale of land at Wednesbury, England and $3.5 million relating to the warehouse and office facility at Boca Raton, Florida. Purchases of plant and equipment were $1.4 million including $0.4 million on leased motor vehicles. The net outflow in 2004 relates primarily to $3.2 million that was paid to purchase the land and buildings at Wednesbury, England and $3.3 million paid in respect of the acquisition of the warehouse and office facilities at Boca Raton, Florida.

Net cash provided by financing activities was $0.7 million compared to an outflow of $0.3 million in 2004. The 2004 outflow principally represents the repayment of the overdrafts in the company’s French subsidiary. The 2005 inflow relates to the utilization of the United Kingdom bank overdraft facility. Despite the receipt, in January 2005, of $5.2 million in relation to the sale of the land and buildings at Wednesbury, the special pension contribution of $7.2 million paid in June and September 2005 and the payment, in quarter 4, of various UK reorganization costs, has led to a utilization of part of the UK bank overdraft facility.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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%) that arose primarily from the factors discussed below:

reduction in net income (adjusted for depreciation and deferred taxes) of $4.0 million (47.5%) as dealt with in the commentary of the 2004 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 Company’s principal UK distributor, 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 the UK distributor 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.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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 2002 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 that 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.
(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 have 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. Fiscal 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. The 2003 comparatives include $2.9 million of 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 was not repeated in 2004.

Net cash absorbed by financing activities was $0.3 million in 2004 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.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

BANK FACILITIES

The UK subsidiaries of Spear & Jackson plc and Bowers Group plc maintain a line of credit of $8.0 million. This is secured by fixed and floating charges on the assets and undertakings of these businesses. Of the total facility, $5.3 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 1%. At September 30, 2005 the company had $0.8 million (2004: $nil) outstanding under the overdraft line and $0.6 million in outstanding letters of credit (2004: $1.5 million).

As a consequence of the special pension contributions of $7.2 million that was paid in two installments in June and September 2005, and the additional funding which will be required to finance the forthcoming restructuring initiatives, an open-ended, on demand bridging loan of $5.3 million has been secured with the company’s UK bankers. The facility is denominated in British pounds and is secured by a first legal charge over the remaining Wednesbury land and property. It carries interest at UK base rates plus 1%. This facility had not been utilized at September 30, 2005 and has not yet been used in Q1 of Fiscal 2006.

The French and Australian subsidiaries of Spear & Jackson plc maintain short-term credit facilities of $2.8 million denominated in Euros and Australian dollars. The facilities comprise bank overdraft lines, with interest rates ranging from 6.8% to 12.6%, together with facilities for letters of credit and the discount of bills receivable. There was nothing outstanding under the overdraft lines at September 30, 2005 (2004: $0.07 million) and $0.1 million of letters of credit and bills were outstanding under these facilities at September 30, 2005 (September 30, 2004: $0.9 million).

The UK facilities were renewed in December 2005, the Australian facilities were renewed in October 2005 and the French facilities fall for renewal at various dates in 2006. These lines of credit are subject to the Company’s and its subsidiaries’ continued credit worthiness and compliance with the applicable terms and conditions of the various facilities. Assuming that the Company maintains compliance with these conditions it is anticipated that all the facilities will continue to be renewed on comparable terms and conditions.

The Company’s bank accounts held with the HSBC Bank plc by UK subsidiaries of Spear & Jackson plc and Bowers Group plc form a pooled fund. As part of this arrangement the companies involved have entered into a cross guarantee with HSBC Bank plc to guarantee any bank overdraft of the entities in the pool. At September 30, 2005 the extent of this guarantee relating to gross bank overdrafts was $20.4 million (September 30, 2004 $20.5 million). The overall pooled balance of the bank accounts within the pool at September 30, 2005 was a net overdrawn balance of $0.8 million (September 30, 2004 $1.6 million cash in hand).

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.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

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

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

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

OUTLOOK

The first two months of Quarter 1 2006 are in line with expectations and show a break even position before consideration of FAS 87 charges. We anticipate that because of the seasonal nature of our garden products businesses in the UK and France and the low sales level in December, a trading loss will be recorded in that month and for the first quarter as a whole. This trading pattern is consistent with the prior year. The base trading loss will be exacerbated by a significant increase in the non-cash FAS 87 pension charge. The Company’s actuaries anticipate that the charge will rise by $4.2 million from $4.0 million in 2005 to $8.2 million in the year ended September 30, 2006. After deduction of the revised pensions charge a loss for the first quarter of $1.6 million is forecast. The increase of $4.2 million in the SFAS 87 pension charge will clearly have a significant adverse effect on the Company’s earnings in fiscal 2006. Management will consider all available operational strategies to mitigate the negative impact of this increased expense so that any trading losses in the year ended September 30, 2006 which arise as a result of the increase in pension costs are reduced as far as possible.

Within the hand and garden business, competition remains fierce from cheap foreign imports and the softening of demand in the UK retail sector is having an adverse effect on sales as our major UK retailers instigate aggressive inventory reduction programs to counter falling consumer interest. Demand from our export markets, particularly the Far and Middle East has also begun to slacken as the intensive purchasing activity resulting from building projects in the aftermath of the Iraqi conflict has now started to decline.

Other elements of the UK hand and garden business have performed encouragingly. In the woodsaw and hacksaw blades sectors, significant capital investment has been carried out to ensure that production can keep pace with demand and future growth prospects. It is unlikely, however, that the high level of demand for these products will be sufficient to fully offset the adverse effects of the general downturn in demand in the UK retail sector.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

In response to the poor sales performance and increased competition at ever lower price points from Far Eastern markets, the Company performed a detailed review of its UK manufacturing operations in Q4 of 2005 and has now begun implementation of a number of strategies to reduce its ongoing cost base.

Our Australasian subsidiaries have also continued to experience difficult trading conditions because of flat demand in certain market sectors, increased levels of competition within the power and air tool segments and reduced consumer spending. Competition from imported Asian products and the increasing trend of some retail groups to expand their own import programs have also placed sales and margin pressures on the Australian business.

To counteract this trend, management of the Australian and New Zealand operations has developed and introduced a number of new and extended ranges and promotional programs under the S&J brand across the digging, garden cutting, hand saw, masonry and air tool ranges and these have been supplemented with new ranges of electrical generator battery charges and drainage products. Going forward these ranges should deliver incremental sales and margin growth.

Additionally, an overhead reduction program, including the restructuring of the sales and distribution workforce, initiated in Australia and New Zealand during fiscal 2005, was successfully implemented and management will continue to focus on the removal of all excess costs from the business.

Within the Metrology division the new selling and distribution outlet in Maastricht is now fully operational. The entity’s trading results in 2005 were depressed because of the incidence of pre-time start up costs. No similar items are anticipated in 2006 and profitability should increase through the elimination of these one-time costs and through incremental sales growth. This earnings growth will be enhanced by the division’s quality control and distribution centre which has been established in Shanghai, China and which is expected to become fully functional in Q2 of fiscal 2006.

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

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, and wherever possible, these increases will be passed on though sales price increases.

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

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

In addition, we plan to continue to look at initiatives to rationalize underperforming areas of the business and to monitor operational infrastructures in the United Kingdom, particularly overhead costs, to ensure that these are as cost efficient as possible and at a level appropriate to the needs of the business. In conjunction with this, an inventory reduction program is now taking place to reduce stock levels, especially in those divisions witnessing a softening on sales demand.

Outside the UK, the level of overhead expenses, particularly legal and professional costs, incurred by our US corporate head office has reduced following the settlement of the SEC suit during 2005. However, any future savings will be offset by the professional costs that are anticipated to be incurred in relation to the Class Action law suit and the $4.4 million increase in the FAS 87 pension charge referred to above.

In the forthcoming year we will continue to focus on improving cash generation. 2005 has benefited significantly from the sale, in January 2005, of the excess element of the Company’s Wednesbury manufacturing site for approximately $5.2 million and further funds were generated via the disposal of the Company’s warehouse and office premises at Boca Raton, Florida in February 2005 for approximately $3.4 million.

The proceeds of these sales have enabled us to fund operational restructuring initiatives and other capital projects, finance both the $7.2 million special contribution into the UK defined benefit pension plan (paid in two equal installments in June and September 2005), and the increase of approximately $0.7 million in annual pension contributions. Such payments will enable the current deficit in the plan to be reduced, and will, subject to certain conditions fix our pension payment commitments until April 2007. As a consequence of the special pension contribution referred to above and the additional funding which will be required to finance the forthcoming restructuring initiatives, an open-ended, on demand bridging loan of $5.3 million has been secured with the Company’s UK bankers.

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

As noted previously, the SEC announced on February 10, 2005 that it had settled its securities fraud charges against Mr. Dennis Crowley, the Company’s former CEO and Chairman, the Company and others. The Company has been able to deal with the significant business disruptions and distractions which the SEC legal action has caused and the formal resolution of this litigation has enabled the Company move forward in a more focused and structured manner so that both its short ad long term strategies can be formulated and delivered. Inevitably, however, uncertainties will still impact upon the Company’s operations until the financial effects of the Class Action and Derivative Complaint, explained in detail in ITEM 3, “Legal Proceedings”, are quantified and resolved.

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APPENDIX II

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, 2005:

Total Amount Committed Contractual obligation ($m) Capital lease obligations 1.0 Operating leases (note a) 6.9 7.9	Payments due by period ($m) 1 year or less 1-3 years 4-5 years 5 years or more 0.6 0.4 — — 1.0 2.0 1.7 2.2 1.6 2.4 1.7 2.2	Payments due by period ($m) 1 year or less 1-3 years 4-5 years 5 years or more 0.6 0.4 — — 1.0 2.0 1.7 2.2 1.6 2.4 1.7 2.2
		2.2

(a) Amounts represent the minimum rental commitments under non-cancelable operating leases.
(b) Excluded from the above tables are the amounts payable by the Company to the UK defined benefit pension plan as future funding obligations over the five year term shown above cannot be accurately forecast. The annual contribution rate is set annually by the actuary in accordance with the applicable UK regulatory legislation. In the year ended September 30, 2005 the Company paid $10.2 million into the plan including a special contribution of $7.2 million. In the years ended September 30, 2006 and September 30, 2007, providing certain criteria are met, the annual contributions will be fixed at (pound)1.9 million (approximately $3.3 million).
(c) As at September 30, 2005, the Company had letters of credit of $0.7 million outstanding that are secured by the UK and Australian credit facilities.

At September 30, 2005, 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, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ significantly from those estimates under different assumptions and conditions. 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 judgments, 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.

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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:

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.

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Comparable stock values are as follows:

Gross Stock — raw materials and consumables — work in progress — finished goods Less — slow moving, obsolete and net realizable value provisions Net Stock Valuation	2005 $m 5.3 6.4 19.8 (6.5) 25.0	2004 $m 5.9 5.2 16.8 (5.9) 22.0

The overall increase in the net value of inventory is $3 million which is stated using year end US$ cross rates. The year end cross rate at September 30, 2005 was 1.7688 compared to 1.7976 at September 30, 2004. Restating the 2004 inventory at the 2005 closing cross rate would have the effect of reducing the 2004 inventories by $0.4 million. The total stock movement, excluding currency fluctuations, is therefore an increase of $3.4 million. This increase is attributable to:

(i) Rigorous stock reduction programs initiated during the year to September 30, 2004 were not repeated in the year to September 30, 2005.
(ii) Poor retail sales in the UK in the last quarter of the year lead to higher than usual stock-builds.
(iii) Strategic stock builds in those sectors of the UK business that are undergoing reorganization.
(iv) Stock held at the Company’s operation in Maastricht which was established during the year.

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

Balance brought forward Provisions released following disposal of inventory Additional provisions made Exchange movements Balance carried forward	2005 $m 5.9 (0.5) 0.9 0.2 6.5	2004 $m 5.8 (0.7) 0.4 0.4 5.9

While the Company has benefited in income terms from selling considerable volumes of stock previously written down, the inventory reserve has increased during the year. This is primarily due to inventory write-downs that were required in discontinued operations in order to restate inventories at their estimated net realizable value.

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 the Company 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.

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The rebates charge 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, 2005 was $0.4 million (September 30, 2004 $0.03 million).

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, Dutch, New Zealand and Australian subsidiaries’ financial results into US dollars for the purposes of reporting the consolidated financial results.

The process by which each foreign subsidiary’s financial results are translated into US dollars is as follows: income statement accounts are translated at average exchange rates for the period; balance sheet asset and liability accounts are translated at end of period exchange rates; and equity accounts are translated at historical exchange rates.

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 that do not affect cash flow in the medium term.

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PENSION AND POST-RETIREMENT BENEFIT OBLIGATIONS

A. ACTUARIAL BACKGROUND

The Company operates a contributory defined benefit pension plan (“The Plan”) covering certain of its employees in the United Kingdom based subsidiaries of Spear & Jackson plc.

The overall funding objective of the Plan is to hold assets that are sufficient to cover the Plan’s past service and 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 Plan was carried out at December 31, 2004. This showed the following:

Value of past service ongoing liabilities Market value of assets Past service deficit Funding ratio	$M (190.0) 150.0 (40.0) 79%

Under the United Kingdom Pensions Act 1995, plans must satisfy a minimum funding test known as the Minimum Funding Requirement (MFR). This is based on the benefits which 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 89%.

The previous full actuarial valuation was performed at April 5, 2002. The Plan funding and MFR funding ratios at that date and at September 30 financial year ends thereafter have been:

	Funding	Ratios
	Plan %	_MFR _	%
April 5, 2002	94		94
September 30, 2002	78		91
September 30, 2003	89		96
September 30, 2004	81		92

At September 30, 2005 (the latest date at which information is available for the current year annual filing), the base funding ratio and MFR funding ratio had strengthened to 85% and 96% respectively.

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Company pension contributions are determined by the Trustees of the Plan with the agreement of the principal employer and after consultation with the actuary. Contribution levels are set with the intention of eliminating the past service deficit in the long term.

Following the December 2004 actuarial valuation of the Plan, the rate of employer contribution fell due for re-certification on or before May 31, 2005. After discussion between the Plan trustees and the Company it was agreed that the Company would make a special contribution to the Plan of (pound)4 million (approximately $7.2 million) payable in two installments of (pound)2 million (approximately $3.6 million) in June and September 2005. It was also agreed that from June 2005 the Company’s annual rate of pension contribution would increase to (pound)1.9 million (approximately $3.3 million).

The actuary has confirmed that this contribution rate, which will remain fixed until September 30, 2007 providing certain funding criteria are met, is adequate for the purpose of securing that the MFR funding ratio will be returned to 100% by the end of 10 years. The Company believes that payments at the current level will be adequately funded from future annual operating cash generation.

Contributions depend on the future experience of the Plan subsequent to the valuation date, particularly the investment returns. The next valuation of the Plan will be carried out no later than December 31, 2007. It is intended that the contribution rate will be reviewed in 2007 and any adjustments to the rate agreed at that time. Should such agreement not, however, be reached by August 31, 2007, then the Company’s contribution will increase to (pound)3 million (approximately $5.3 million).

Contributions will therefore be subject to review, upwards or downwards, at future actuarial valuations. Company contribution rates, which in previous years have been expressed as a percentage of relevant pensionable earnings, have been as follows:

	Rate
	%
Prior to June 1, 2000	5.0
June 1, 2000 to July 31, 2001	28.5
August 1, 2001 to October 30, 2002	24.8
October 31, 2002 to May 31, 2005	21.2

The amounts of employer contributions paid at these rates in recent accounting periods are:

Year Ended	$ million
September 30, 2003	2.7
September 30, 2004	2.8
September 30, 2005	10.2

The contributions paid in the year ended September 30, 2005 include a special contribution of $7.2 million.

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B. PRESENTATION OF PENSION AND POST RETIREMENT BENEFITS UNDER SFAS 87

Several statistical and other factors which attempt to anticipate future events are used in calculating the expense and liabilities relating to the Plan. These factors include assumptions about the discount rate, expected return on Plan assets and rate of future compensation increases as determined by us, within certain guidelines, and in conjunction with our actuarial consultants and auditors. In addition, our actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate the expense and liability related to the Plan. 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.

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 5.0% at September 30, 2005, and 5.5% at September 30, 2004 and September 30, 2003.

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 2.9% and 6.5% in the year ended September 30, 2005 (2004: 2.8% and 7.0% respectively, 2003: 2.5% 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 SFAS 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 SFAS 87.

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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 SFAS 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:

		Impact on
		September 30,	Impact on
	Impact on 2006	2005 Projected	September 30,
	Pre-Tax Pension	Benefit	2005 Equity
Change in Assumption	Expense	Obligation	(Net of tax)
25 basis point decrease in discount rate	+$0.74 million	+$9.09 million	-$6.08 million
25 basis point increase in discount rate	-$0.71 million	-$8.67 million	+$5.84 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 increase in
compensation assumption	+$0.16 million	+$0.78 million	—
25 basis point decrease in
compensation assumption	-$0.16 million	-$0.76 million	—
Use of PA80C2010 Mortality table	-$1.38million	-$10.44million	+$7.04million

Given below, in tabular format, is a summary of the assumptions used in the preparation of the SFAS 87 pension calculations in the years ended September 30, 2005, 2004, 2003 and 2002.

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ASSUMPTIONS SUMMARY

	SEPTEMBER	SEPTEMBER	SEPTEMBER	SEPTEMBER
	2005	2004	2003	2002
WEIGHTED AVERAGE
ASSUMPTIONS
Discount rate	5.00%	5.50%	5.50%	5.75%
Rate of compensation increase	2.90%	2.80%	2.50%	2.25%
Expected return on assets	6.50%	7.00%	7.50%	7.50%
Fixed pension increase	5.00%	5.00%	5.00%	5.00%
LPI pension increase	2.70%	2.70%	2.50%	2.25%
Post 1988 GMP increase	2.40%	2.40%	2.00%	1.85%
Inflation	2.80%	2.80%	2.50%	2.25%
Mortality table	—	PA80	PA90	PA90
Mortality table — current
pensioners	PA92C2005	—	—	—
Mortality table — future pensioners	PA92C2015	—	—	—

Using the assumptions referred to above, the funded status of the Plan under FAS 87 at September 30, 2005, 2004, 2003 and 2002 was as follows:

	9/30/05	9/30/04	9/30/03	9/30/02
	$’000	$’000	$’000	$’000
Projected benefit obligation	(213,471)	(180,375)	(154,105)	(132,953)
Fair value of plan assets	170,110	141,257	124.355	109,141
Projected benefit obligation
in excess of plan assets	(43,361)	(39,118)	(29,750)	(23,812)
Unrecognized actuarial loss	69,907	59,902	47,637	38,146
Net amount recognized	26,546	20,784	17,887	14,334

As at September 30, 2002, 2003, 2004 and 2005 the projected benefit obligation is in excess of Plan assets. The impact of this underfunding has not been recognized in its entirety in the above tabulations but has, instead, been deferred or spread over the assumed future working lifetime of 13 years for active Plan members in years 2002 to 2004 and 12 years in 2005.

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 a significant proportion of pensions increase has a fixed 5% element when in payment.

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APPENDIX II

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 2002, September 30, 2003 and 2004 exceeded the fair value of plan assets by $20.4 million, $25.3 million and $33.5 million respectively. At September 30, 2005, the ABO again exceeded the market value of plan assets. The excess at the 2005 period end was $36.0 million and a net of tax comprehensive loss of $6.3 million has been charged against shareholders’ equity in 2005. Cumulative amounts recognized in the consolidated balance sheet at September 30, 2005, together with comparative disclosures for 2002, 2003 and 2004 are therefore as follows:

	2005	2004	2003	2002
	$’000	$’000	$’000	$’000
Accrued pension liability (disclosed in
other liabilities)	(35,954)	(33,545)	(25,262)	(20,442)
Other comprehensive income (disclosed
in shareholders’ equity)	62,500	54,329	43,149	34,776
Net amount recognized	26,546	20,784	17,887	14,334

Unless Plan experience is significantly more favorable than expectations then it is anticipated that the accumulated benefit obligation at September 30, 2006 will again exceed the fair value of plan assets.

Under SFAS 87, the following amounts have been charged against earnings in the years ended September 30, 2005, 2004 and 2003.

	$m
2005	4.0
2004	1.3
2003	0.3

The Company has been advised by its actuaries that the comparable SFAS87 pension charge for the year ended September 30, 2006 will be approximately $8.2 million.

The increase of approximately $4.2 million is primarily due to an increase in the projected benefit obligation relative to the increase in the market related value of assets. The market related value of assets, which is used to calculate the deferred losses in the Plan and the expected return on assets, smoothes the movements in the fair value of assets over a five year period.

During the year ended September 30, 2005 the fair value of assets increased by around 20%. This increase was broadly in line with the increase in the projected benefit obligation over the same period. However, the impact of the increase in the fair value of assets on the pension cost is to be spread over five years. For illustrative purposes, if the full impact of the increase in the fair value was to be taken into account in the SFAS 87 pension charge calculation, the pension cost for the year ending

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APPENDIX II

September 30, 2006 would be approximately $3.0 million lower. Therefore, a significant part of the increase in the pension charge is attributable to the market related value calculation. Recognition of the deferred gain over the next four years would, if Plan experience is broadly in line with expectations, lead to a corresponding decrease in the pension charge over that time.

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 consolidated balance sheet.

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 that is 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 that 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.

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c) Higher or lower levels of profit arising in entities having the benefit of NOLs which have not been capitalized 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.

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.

The Company has recorded significant deferred tax assets in its current and prior year consolidated balance sheets. SFAS 109, “Accounting for Income Taxes”, requires a valuation allowance to be established when it is “more likely than not” that all or a portion of a deferred tax asset will not be realized. A review of all available positive and negative evidence is undertaken by the Company each year to determine the likelihood of realizing the deferred tax benefits that potentially arise on its property, plant and equipment, the UK pension benefit plan, accruals and allowances, inventories and tax loss carry forwards.

Such reviews consider the available positive and negative evidence, and comprise all those factors believed to be relevant, including the Company’s recent operating results and its expected future profitability, including the impact of its manufacturing restructuring strategies. Based on these reviews, the Company can then determine whether there is a reasonable expectation that it will generate sufficient future taxable income such that its gross deferred tax assets relating to property, plant and equipment, the UK pension benefit plan, accruals and allowances and inventories are “more-likely-than-not” to be realized under the SFAS 109 criteria.

The gross deferred tax assets in respect of tax loss carry forwards and other tax credits currently relate to operating loss carry forwards (“NOLS”) in the Company’s UK, US and Australian companies and to other UK tax credits. The Company’s NOLs arising in the UK, France and Australia can be carried forward without time expiration while the US tax losses expire at various dates between 2017 and 2020. A recent history of operating losses in the entities concerned and other factors has precluded the Company from demonstrating that it is more likely than not that the benefits of these domestic and foreign operating loss carry forwards and other tax credits will be realized. Accordingly, at September 30, 2005 and prior years, a full valuation allowance has been recorded against these items.

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.

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B-2. For the period ended 31 March 2006:

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

General

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

Forward Looking Statements

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

Risk Factors

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

Although we believe that our expectations are based on reasonable assumptions within the bounds of our knowledge of our business and operations, actual results may differ materially from our expectations. Uncertainties and factors that could cause actual results or events to differ materially from those set forth or implied include:

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

achieving planned revenue and profit growth in each of the Company’s business units;
changes in customer requirements and in the volume of sales to principal customers;

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APPENDIX II

renewal of material contracts in the Company’s business units consistent with past experience;
the timing of orders and shipments;
emergence of new competitors or consolidation of existing competitors;
continued absence of consolidation among key customers;
Industry demand fluctuations.

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

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

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

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

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

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

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

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

RISKS CONCERNING THE MAINTAINING AND IMPROVEMENT OF CURRENT PRODUCT MIX:

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

RISKS RELATING TO INCREASING PRICE, PRODUCTS AND SERVICES COMPETITION:

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

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RISKS IN CONNECTION WITH CHANGES IN COMPANY INVENTORY LEVELS:

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

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

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

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

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

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

unexpected changes in, or the imposition of, additional legislative or regulatory requirements in the various geographical regions where the Company operates;
fluctuating exchange rates;
tariffs and other barriers;
difficulties in staffing and managing foreign sales operations;
import and export restrictions;

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greater difficulties in accounts receivable collection and longer payment cycles;
potentially adverse tax consequences;
potential hostilities and changes in diplomatic and trade relationships.

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

In the course of its evaluation of internal control over financial reporting, as required by Section 404 of the US Sarbanes-Oxley Act of 2002, the Company may identify areas of internal control that need improvement or rectification or may identify other conditions that could result in significant deficiencies or material weaknesses in internal control. If the Company is unable to implement the requirements of Section 404 in a timely manner or with adequate compliance, its independent auditors may not be able to attest to the effectiveness of its internal control over financial reporting and it may be subject to sanctions or investigation by regulatory authorities. Any failure to strengthen internal controls, as necessary, could result in accounting errors or misstatements that could harm the reliability of the Company’s financial statements and which could, in turn, adversely affect investor confidence and the price of the Company’s common stock.

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

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

RISKS IN CONNECTION WITH ATTRACTING AND RETAINING QUALIFIED KEY EMPLOYEES:

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

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

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and

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fairly reflect the Company’s transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of the financial statements; providing reasonable assurance that receipts and expenditures of the Company’s assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of the Company assets that could have a material effect on the financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s financial statements would be prevented or detected. Any failure to maintain an effective system of internal control over financial reporting could limit the Company’s ability to report its financial results accurately and timely or to detect and prevent fraud.

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

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

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

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

RISKS RELATED TO RAW MATERIAL AND ENERGY COSTS:

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

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

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

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

RISKS ASSOCIATED WITH FOREIGN SUPPLIERS:

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

increases in transportation costs;
new or increased import duties;
transportation delays;
foreign work stoppages;
potential war, terrorism and political unrest;
exchange rate fluctuations that could increase the cost of foreign manufactured goods.

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

We believe that our existing balances of cash, cash equivalents, our cash flow from operations, and the existing credit facilities negotiated for the Company’s UK and other operations will be sufficient to meet our cash needs for working capital and capital expenditures for at least the next 12 months. We may, however, require additional financing to fund our operations in the future. Although

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we expect existing debt financing arrangements and cash flows generated from operating activities to be sufficient to fund operations at the current and projected levels in the future, there is no assurance that our operating plan will be achieved. We may need to take actions to reduce costs and to seek alternative financing arrangements.

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

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

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

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

THE POTENTIAL ACQUISITION OF THE COMPANY OR ITS PRINCIPAL ASSETS:

As detailed in the footnotes to the condensed consolidated financial statements, in April 2005 the Company’s majority shareholder, Jacuzzi Brands, Inc., (“Jacuzzi”) formally announced a plan of disposition with regard to the shares it holds in the Company. In March 2006, Jacuzzi entered into a Stock Purchase Agreement with United Pacific Industries Limited, a Bermuda Corporation, to sell its holding of shares in the Company. Any resulting change in ownership or control of the Company may have a significant impact on its future strategy, the way that it conducts its operations and the size and composition of its earnings and net assets.

RISK FACTORS THAT MAY NEGATIVELY IMPACT OUR STOCK PRICE:

Our revenues and operating results may vary significantly from quarter to quarter due to a number of factors particular to the Company, its industry and the markets in which it operates. Not

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all of these factors are in our control. These factors may include: sales falling below anticipated levels because of the timing of orders or weakening demand; adverse sales mixes; regional economic and governmental conditions; raw material price volatility; and benefits from restructuring initiatives falling below forecast. Such factors may therefore cause our operating results for future periods to be below the expectations of management and the Company’s advisers and this may cause a decline in the price of our common stock.

There has been no material change in our risk factors from those described on pages 12 to 16 in our Form 10-K for the fiscal year ended September 30, 2005. In evaluating any forward-looking statements, you should consider various risk factors, including those summarized above, and, those described in the other sections of this report, in the other reports the Company files with the SEC and in the Company’s press releases. Such factors may cause the Company’s actual results to differ materially from any forward-looking statement. The Company disclaims any obligation to publicly update the statements, or disclose any difference between its actual results and those reflected in the statements. With respect to all such forward-looking statements, the Company seeks the protection afforded by the Private Securities Litigation Reform Act of 1995.

CORPORATE ORGANIZATION

OVERVIEW

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

Incorporation of Megapro Tools, Inc.

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

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

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

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

On September 30, 1999 Mega Tools Ltd was acquired from Mrs. Maria Morgan, Envision Worldwide Products Ltd, Mr. Robert Jeffrey, Mr. Lex Hoos and Mr. Eric Paakspuu in exchange for the issue of 6,200,000 restricted shares in the common stock of Megapro Tools, Inc. These shares were valued at $275 for accounting purposes, representing the total paid-in-capital of the Mega Tools Ltd shares acquired. Mega Tools USA, Inc. was acquired from Mega Tools Ltd in exchange for the

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payment of $340,000 which was satisfied by the issuance of a promissory note to Mega Tools Ltd. The acquisition of Mega Tools USA, Inc. was completed immediately prior to the acquisition of Mega Tools Ltd. Megapro Tools, Inc. had no business assets prior to the acquisition of the two companies.

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

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

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

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result of the closing of the Transaction and the Private Placement, and upon the effectuation of all post closing matters, Megapro had 12,011,122 shares of common stock outstanding, 6,005,561 shares of which were beneficially owned by PNC. The shares issued to PNC was subject to the terms of a Stockholder’s Agreement and a Registration Rights Agreement. In the Stockholders’ Agreement dated as of September 6, 2002 by and among Megapro Tools, Inc., USI Mayfair Limited, PNC and Crowley (the “Stockholders”) it was agreed that, other than certain “unrestricted transfers”, the parties involved would not transfer any Company securities for the two years beginning on September 6, 2002. On September 6, 2002, under an unrestricted transfer relating to the transfer of stock from a permitted affiliate, USI Mayfair Limited transferred all of the Company securities owned by it, along with all of its rights under the Stockholders’ Agreement, to USI Global Corp. Since the date of the Transaction, the Company has not issued any shares of its stock except under a limited number of options and has not engaged in any financing using its stock.

Change of Name to Spear & Jackson, Inc.

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

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

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

FURTHER CHANGES TO CORPORATE ORGANIZATION

During the year ended September 30, 2005 the Company set up a new sales and distribution facility, CV Instruments BV, in Maastricht, Holland. This new facility specializes in the distribution of portable hardness testing equipment manufactured in China and the sale of general engineers hand tools. Additionally, an allied manufacturing, quality control and distribution centre, Bowers Eclipse Equipment Shanghai Co. Limited, has been established in Shanghai, China.

EXIT FROM SCREWDRIVER AND THREAD GAUGE MEASURING OPERATIONS

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

The disposition of the trade and assets of the screwdriver division was undertaken by Neil Morgan who was then heading up the division. The Company believed that no specific authorization was afforded to Mr. Morgan to undertake that disposition. The disposition proceeds were in the form of $284,000 of loan notes and other receivables and the discharge of a loan of $100,000 owed by the

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Company to the managing director of the screwdriver division. Full provision was made in the Company’s financial statements against the recoverability of these disposition proceeds. It has now been agreed with Megapro that it will pay Canadian $ 53,900 (approximately $41,000) in settlement of those debts and this is being paid in monthly installments of Canadian $5,000 (approximately $3,800).$27,000 was received in the year ended September 30, 2005 and a further $7,000 has been received in the three months to December 31, 2005.

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

RECENT DEVELOPMENTS

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

Following extensive settlement negotiations with both the SEC and Mr. Crowley, the Company reached a resolution with both parties. On September 28, 2004 Mr. Crowley signed a Consent to Final Judgment of Permanent Judgment with the SEC, without admitting or denying the allegations included in the complaint, which required a disgorgement and payment of civil penalties by Mr. Crowley consisting of a disgorgement payment of $3,765,777 plus prejudgment interest in the amount of

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$304,014, as well as payment of a civil penalty in the amount of $2,000,000. In May 2005, the SEC applied to the Court for the appointment of an administrator for the distribution of these funds to the victims of Mr. Crowley’s actions, pursuant to the Fair Funds provisions of the Sarbanes-Oxley Act of 2002.

On November 18, 2004 the Company signed a Consent to Final Judgment of Permanent Injunction with the SEC pursuant to which the Company, without admitting or denying the allegations included in the Complaint filed by the Commission, consented to a permanent injunction from violation of various sections and rules under the Securities Act of 1933 and the Securities Exchange Act of 1934.

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

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

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The representations, warranties and covenants made by Jacuzzi and UPI are typical for this type of transaction, and include a covenant that restricts Jacuzzi from soliciting or negotiating with a third party between the signing date of the Stock Purchase Agreement and the closing date of the transaction. Jacuzzi has also agreed that, in connection with the closing of the transaction, it will, among other things, cause UPI’s designees and one designee of Jacuzzi to be elected to the Board of Directors of Spear & Jackson, Inc. and will use commercially reasonable best efforts so that such UPI designees are in sufficient numbers to give UPI a majority of the Board of Directors of the Spear &Jackson, Inc. UPI has also agreed that neither it nor any of its affiliates will purchase any additional Common Stock during the period from the signing date of the Stock Purchase Agreement through one year following the closing at a price less than $1.40 per share.

The purchase of the Shares by UPI contemplated by the Stock Purchase Agreement is subject to the satisfaction of a number of closing conditions, including approval by UPI’s shareholders and the United Kingdom Pensions Regulator, and receipt of certain other regulatory approvals as well as other customary closing conditions.

Closing is reported to occur no later than July 31, 2006.

SUMMARY OF PRINCIPAL OPERATIONS

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

Spear & Jackson — garden tools;
Neill — hand tools;
Bowers — bore gauges and precision measuring tools;

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CV — precision measuring instruments;
Robert Sorby — wood turning tools;
Moore & Wright — precision tools;
Eclipse — blades and magnetic equipment;
Elliot Lucas — pincers and pliers; and
Tyzack — builders’ tools.

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

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

1) NEILL TOOLS, which consists of Spear & Jackson Garden Tools and Neill Tools, manufactures, among other products, hand hacksaws, hacksaw blades, hacksaw frames, builders’ tools, riveter guns, wood saws and lawn, garden and agricultural tools, all non-powered. In addition, Neill Tools has supplemented its UK manufactured products with factored products and bought in components from Far Eastern and Indian suppliers. Neill Tools product offering now includes a full range of hand power tools and, from January 1, 2005, Spear & Jackson Garden Tools’ range has been supplemented by a portfolio of electric powered garden tools.
2) ECLIPSE MAGNETICS’ key products are permanent magnets (cast alloy), magnetic tools, machine tools, magnetic chucks and turnkey magnetic systems. Products range from very simple low-cost items to technically complex high value added systems. In addition, Eclipse Magnetics engages in the trading of other magnetic material, sourced from the Far East, both in the form of sales of complete factored items to end-customers as well as sales of component parts to UK manufacturers. Eclipse is also involved in applied magnetics and supplies many areas of manufacturing with products such as separators, conveyors, lifting equipment and material handling solutions.
3) The Company’s metrology division comprises:

MOORE & WRIGHT and, until February 28, 2006, COVENTRY GAUGE which manufacture a wide variety of products including: low technology measuring tools and hand held gauges for checking the threads, diameters and tapers of machined components. This division has supplemented its manufactured products with a range of factored items.

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

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

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

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

The Company’s continuing operations can be analyzed into three business segments, hand and garden tools, magnetic products and metrology tools. For further detailed financial information by reportable segment, including sales, profit and loss, and total asset information, see Note 12 in the “Notes to the condensed consolidated financial statements” included within this Quarterly Report on Form 10-Q. Also included within Note 12 is a detailed geographical analysis including sales, profit and loss, and total asset information.

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

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

Name/Location	Name/Location	Name/Location	Products Manufactured
A	UK
	a)	Neill Tools Atlas Site, Sheffield	Hand tools
	b)	Spear & Jackson Garden Products Wednesbury, West
		Midlands	Garden tools
	c)	Robert Sorby Sheffield	Wood turning tools
	d)	Eclipse Magnetics Vulcan Road, Sheffield	Magnetic products
	e)	Bowers Metrology Bradford	Precision measuring tools
B	France
	a)	Spear & Jackson France	Assembly of garden tools

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

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

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

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

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

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

(a) Maintaining and heightening the profile of our existing quality brand names Such activity will comprise trade, general and TV advertising, extensive promotional work at trade shows, the development of corporate web sites, etc.
(b) Continuous product improvement and innovation.
(c) Increasing market share by offering highly competitive product offerings.
(d) The launch of new and innovative product and product ranges.
(e) Improving manufacturing efficiencies and continually reviewing other cost saving measures.

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

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The Company’s policy is to support its core product offering with a pipeline of new products and range extensions. In the period from January 1, 2006 to March 31, 2006 new product range launches and other significant product related business developments have included:

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

Robert Sorby completed the development of the e-commerce site for its retail store and this went live at the end of the quarter.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

Management’s Discussion and Analysis or Plan of Operation in the Company’s 10-K filing for the year ended September 30, 2005 included a detailed discussion which addressed our most critical accounting policies. The quarterly financial statements for the period ended March 31, 2006, attached hereto, should therefore be read in conjunction with that discussion.

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

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

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

OVERVIEW

When compared to the equivalent periods last year, the results for the quarter and six months ended March 31, 2006 show a decrease in both net sales and operating profitability.

Sales revenues for the quarter ended March 31, 2006 decreased by approximately $0.20 million (0.7%) from the comparable period last year. This decrease is primarily due to adverse currency exchange fluctuations which have only partially been offset by increased trading volumes. Amongst

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FINANCIAL INFORMATION OF S&J GROUP

the principal factors driving the increased volumes were the increased sales in our Neill Tools division, which arose from an exclusive deal with a major UK retail chain for the new range of Spear & Jackson garden power tools. For the six months ended March 31, 2006 sales were approximately $1.96 million (3.74%) lower than last year with the negative impact of adverse currency exchange fluctuations being mitigated by sales volume increases.

Gross profit was $8.49 million for the quarter ended 31 March 2006 compared to $9.42 million for the comparative period last year. For the six months ended 31 March 2006 gross profit was $15.52 million (2005: $17.37 million). Gross margins were 30.81% in the three months ended March 31, 2006 (2005: 33.90%) and 30.74% in the six months ended on that date (2005: 33.11%)

Gross profit continued to be adversely affected by increases in prices for our principal raw materials of steel, plastic, cobalt and nickel and increases in utility costs. Margins were further diluted by the mix switch in the hand and garden division towards factored garden power tools at the expense of better margins on industrial hand tool product lines.

Selling, general and administrative expenses have increased by $1.37 million (17.40%) to $9.3 million in the three months ended March 31, 2006. In the six month period under review, costs have increased by $1.88 million (11.37%)to $18.42 million. This is primarily due to increases in the non-cash FAS 87 pension charge ($2.03 million and $1.01 million, respectively, for the six months and three months ended March 31, 2006). Additionally, inflationary increases, one-time costs in setting up our Shanghai facility, and higher variable selling and distribution costs associated with increased trading volumes in March 2006 have caused these costs to rise. Such increases have been partially offset, however, by the beneficial movement in the US$/Sterling cross rate, reduced head office legal costs and the effects of local reorganization and cost-cutting measures.

While cost reduction programs will continue to be implemented to control the level of overhead expenses, administrative costs for the full year will show a significant increase over the prior year largely as a result of the $4.2 million increase in the FAS 87 pension charge. Additionally, while settlement of the Company’s SEC litigation suit has resulted in decreases in administrative costs, head office legal expenses associated with the Class and Derivative Action litigation and the role of the Corporate Monitor will continue to be incurred until a resolution of those legal issues.

On January 25, 2006 the Company announced the closure of the remaining element of its manufacturing site at Wednesbury, England. The site closure forms part of the Company’s UK manufacturing reorganization program that has been initiated to regenerate and modernize key areas of the hand and garden tools business. Costs provided in respect of the site closure as at March 31, 2006 were $1.56 million and it is anticipated that a further $0.5 million will be incurred in the period to November 30, 2006. Net manufacturing reorganization costs of $1.23 million recorded in the quarter comprise $1.56 million of Wednesbury closure expenses less a credit of $0.33 million representing the release of provisions associated with a reorganization of the Wednesbury site that was initiated in March 2005 and which are now no longer required.

While the Company has incurred net manufacturing reorganization costs of $1.23 million in the quarter to March 2006, in the quarter to March 2005 it benefited from a $2.5 million gain relating to the sale of its warehouse and office facility in Boca Raton, Florida, and the part-sale of its industrial site at Wednesbury, England.

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As a result of lower margins, higher overhead costs and manufacturing reorganization provisions, the Company’s operating result from continuing activities has moved from a $3.53 million income in the quarter to March 31, 2005 to a $2.06 million loss in the quarter to March 31, 2006. Likewise, a $3.73 million loss incurred in the six months to March 31, 2006 compares to a $2.92 million profit in the same period last year.

RESULTS OF OPERATIONS

The following discussion provides a review of results for the three and six months ended March 31, 2006 versus the three and six months ended March 31, 2005.

Summary Profit and Loss Account Data:

Three Months ended March 31 2006 2005 $m $m 27.57 27.77 (19.08) (18.35)	Three Months ended March 31 2006 2005 $m $m 27.57 27.77 (19.08) (18.35)	Six Months ended March 31 2006 2005 $m $m 50.50 52.46 (34.98) (35.09) 15.52 17.37 (18.42) (16.54) (2.90) 0.83 0.09 0.04 (2.81) 0.87 — 2.50 (1.23) — (4.04) 3.37 0.31 (0.45) (3.73) 2.92 (0.08) (0.37) (3.81) 2.55 (7.60%) 14.96%	Six Months ended March 31 2006 2005 $m $m 50.50 52.46 (34.98) (35.09) 15.52 17.37 (18.42) (16.54) (2.90) 0.83 0.09 0.04 (2.81) 0.87 — 2.50 (1.23) — (4.04) 3.37 0.31 (0.45) (3.73) 2.92 (0.08) (0.37) (3.81) 2.55 (7.60%) 14.96%
8.49 (9.30) (0.81) 0.08 (0.73) — (1.23) (1.96) (0.10) (2.06) (0.07)	9.42 (7.93) 1.49 0.03 1.52 2.50 — 4.02 (0.49) 3.53 (0.34)	15.52 (18.42) (2.90) 0.09 (2.81) — (1.23) (4.04) 0.31 (3.73) (0.08)	17.37 (16.54
			0.83 0.04
			0.87 2.50 —
			3.37 (0.45
			2.92
			(0.37
(2.13) 5.09%	3.19 13.32%	(3.81) (7.60%)

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APPENDIX II

	Three	Months	Six Months	ended
	ended March 31		March	31
	2006	2005	2006	2005
	$m	$m	$m	$m
Comparisons as a % of net sales:
Gross profit	30.81%	33.90%	30.74%	33.11%
Selling, general and
Administration expenses	33.75%	28.54%	36.48%	31.53%
Operating (loss) income	(2.94%)	5.36%	(5.74%)	1.57%
(Loss) income from continuing
operations before income taxes	(7.11%)	14.47%	(8.00%)	6.42%
Net (loss) income	(7.71%)	11.50%	(7.54%)	4.85%

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

NET SALES

Sales decreased by $1.96 million (3.74%) from $52.46 million in the six months ended March 31, 2005 to $50.50 million for the six months ended March 31, 2005. Sales of $27.57 million in the quarter ended March 31, 2006 were $0.20 million (0.07%) lower than sales of $27.77 million recorded for the comparable period last year.

The increase is analyzed as follows:

		Six Months	Three Months
		ended March	ended March
		31, 2006	31, 2006
	Note	$m	$m
Effect of exchange rate movements	(a)	(3.44)	(2.01)
Sales volumes movements	(b)	1.76	1.99
Increased rebates	(c)	(0.28)	(0.18)
		(1.96)	(0.20)

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APPENDIX II

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

			Six Months	Three Months
			ended March	ended March
			31, 2006	31, 2006
		Note	$m	$m
i)	Hand and garden tools
	Effect of exchange rate movements	(a)	(2.52)	(1.55)
	Sales volume increases	(b)	0.54	1.64
	Rebates	(c)	(0.28)	(0.18)
			(2.26)	(0.09)
ii)	Metrology tools
	Effect of exchange rate Movements	(a)	(0.53)	(0.24)
	Sales volume increases	(b)	1.01	0.25
			0.48	0.01
iii)	Magnetic products
	Effect of exchange rate Movements	(a)	(0.39)	(0.22)
	Sales volume increases	(b)	0.21	0.10
			(0.18)	(0.12)
	Total net sales increase		(1.96)	(0.20)

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 the three and six month periods ending March 31, 2006 compared to the comparable period last year has had a significant impact on the US dollar value of the group’s sales. The average cross rates in the period under review can be summarized as:

						Cross	Rates
					2006	2005	%	Movement
6	months	ended	March	31	1.750	1.878		-6.82%
3	months	ended	March	31	1.752	1.889		-7.25%

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(b) In general, business conditions in many of our markets remained challenging as a result of sluggish consumer demand and continuing intense competition from rival suppliers across a number of product ranges.
Despite this however, there have been some significant sales volume increases. Within the UK hand and garden division, performance for the quarter was better than last year, mainly driven by an exclusive deal with a major retail chain for Spear & Jackson powered garden tools. Likewise, both France and Australia showed aggregate sales volume increases for the quarter. Within the Metrology division, incremental sales growth continued via our selling and distribution facility in Maastricht, together with a strong performance in the US.
(c) The level of rebates has increased overall in 2006 by $0.18 million in the three month period and $0.28 million in the six month period when compared to 2005. The increases are attributable to increased trading volumes in France and in our Neill Tools division as a result in changes in customer profiles, which have arisen following the set up of the direct to market sales route.

SEGMENT REVIEW OF SALES REVENUES

We aim to maintain and develop the revenues of our businesses through the launch of new products, the enhancement of existing items and the continued marketing of the Company’s brands in order to retain and gain market share.

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

NEILL TOOLS

Sales for the quarter ended March 31, 2006 of $12.73 million showed an improvement of $0.31 (2.46%) million over last year’s sales of $12.42 million. This increase was attributable to increased volumes of $1.38 million offset by adverse exchange movements of $0.98 million and increased sales rebates of $0.09 million. In the six months ended March 31, 2006 sales of $22.01 million were $1.31 (5.62%) million less than last year’s sales of $23.32 million. This decrease comprised adverse exchange movements of $1.61 million and increased sales rebates of $0.09 million offset by increased volumes of $0.39 million.

Overall, the division’s sales for the second quarter were 2.46% better than last year and in line with forecast. UK performance was better than last year, mainly driven by an exclusive deal with a major retail chain for the new Spear & Jackson lawn mowers. Export sales, however, were down on last year, mainly attributable to the timing of a key account order being delayed into April.

Despite the improvement in sales performance over last year, the UK retail sector once again reported a year on year downturn in consumer spending. This increasingly soft retail demand has a direct impact on our Hand & Garden sales in the UK and remains a cause for concern. Within the industrial tools business, export markets continue to be driven by demand for our hacksaw blades. Sales of these products now represent 60% of our industrial tools’ revenues and strategies are being prepared to spread this sales concentration risk through the development of higher margin product ranges, brand presence and new product development.

Gross margins were again depressed. The main drivers behind this reduction were a mix switch towards Garden Power products at the expense of the higher margins, the consumption of key raw materials purchased at high prices in quarter 1, and increases of more than 50% in gas & electricity

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APPENDIX II

supply costs. The price surcharge relating to primary raw materials did, however, show a slight reduction during the quarter and we have further mitigated the effect of the price increases imposed by our steel, plastics and utility suppliers by passing a proportion of these costs onto our customers from March.

Improvements in manufacturing costs continue to be the focus of the management to improve competitiveness for new markets. On January 25, 2006 the company announced the closure of the remaining element of its manufacturing site at Wednesbury, England. The site closure forms another key part of the Company’s UK manufacturing strategy to regenerate and modernize key areas of the hand and garden tools businesses. The transfer of operations from Wednesbury to Sheffield is progressing on time and in budget, and when integrated will ensure that the UK hand and garden business will deliver improved customer service and satisfaction.

The main challenges for the business revolve around reducing the manufacturing cost base and driving innovation and new product development in line with our core brands and competences. In addition, the Company is recruiting key people with the experience and skills to deliver new product development strategy and focused product and brand management.

Quarter 3 performance is expected to deliver a profit compared to an operating loss last year. The demand for the new Woodsaw range (Predator) continues to drive manufacturing as we look to improve our output to satisfy the demand from our markets. Much also depends on retail demand and favorable UK weather. The UK climate is key in the level of garden sales for the next quarter as the April and May budgets reflect increased consumer spending around the national holidays that occur in the period.

ECLIPSE MAGNETICS

Sales for the quarter showed a $0.12 million (4.03%) decrease over last year’s figures (2006 $2.81 million, 2005 $2.93 million) with adverse exchange movements of $0.22 million only partially offset by increased volumes of $0.10 million. Likewise for the six months ended March 31, 2006 sales showed a 3.26% decrease of $0.18 million (2006, $5.41 million, 2005, $5.59 million) attributable to adverse exchange movements of $0.39 million mitigated by increased volumes of $0.21 million.

Overall, sales volumes for the second quarter were higher than the comparable period last year. Improved sales into the UK market were mainly attributable to listings gained for our new filtration range and by sales generated from separation equipment for use in the food processing industry. Gains in the UK were, however, diluted by a decline in export sales, largely as a result of the prior year benefiting from a one off order within the materials handling division. Despite this reduction in total export sales, our US performance continued to prosper as we continued to increase our US market share through the introduction of new products and close key account management.

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

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APPENDIX II

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

Gross margins were the same as in the equivalent period last year. The sales mix improved towards the higher added value products, however, this was reduced by a poor mix within the Industrial sector. Key primary materials, steel, nickel and cobalt remained stable during the period but any beneficial impact has been restricted by higher utility costs. Improvements in manufacturing costs continue, therefore, to be the focus of the management to improve competitiveness in new markets.

Looking forward, the main challenge continues to be the distancing of rival Far East manufacturers from our key customer base. Our commodity-based business is under continued threat. To counter this, we continue to promote the attractiveness of our product by offering added value to our customers. At the same time, however, we are taking positive steps to improve our manufacturing process and product sourcing. As part of this strategy, the division enhanced its presence in China in January 2006 when it paid $0.2 million for a 25% equity participation in a recently formed Chinese Venture.

The management continues to follow a strategy of new product development, increasing market share within key product segments and manufacturing improvements.

ROBERT SORBY

Sales for the quarter decreased by $0.16 (11.41%) million when compared to last year (2006 $1.21 million, 2005 $1.37 million) as a result of sales volume decreases of $0.06 million and adverse exchange variances of $0.1 million. In the six month period ending March 31, 2006, sales have decreased by $0.23 million (8.32%) from $2.75 million in 2005 to $2.52 million in 2006 primarily due to adverse exchange variances of $0.18 million and reduced volumes of $0.05 million.

During the quarter Robert Sorby has faced a very challenging time with sales declining amid softening demand in the UK trade and US markets.

The background in the UK is one of a very subdued market place. Almost without exception our retail customers report very testing times and, indeed, we have seen two of our dealers close down. It has been noticeable that there is an increasing consumer resistance to the purchase of high price point items which, in the recent past, have made a major contribution to the development of the business.

To counteract this, last quarter we focused heavily on manufactured product and in particular those product lines that were under competitive pressure. As a result we have seen a significant improvement in sales of those products but at a reduced individual gross margin. To mitigate the dilution in margins we have reduced marketing costs, especially consumer advertising and dealer support. In addition, a new product launch is planned for the UK in May that we anticipate will generate incremental business.

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APPENDIX II

In contrast to other dealers, our own retail store has bucked the trend showing an 8% gain in sales with a reduced manning level. The growth has largely come through increased mail order business.

During the quarter the store made a major effort to reduce inventory levels and to complete, in-house, its e-commerce site. The site went live at the end of March and, although it is too early to estimate the impact that the site will have on the business, it is hoped that it will deliver further sales growth.

In overseas markets our main thrust continues to be in North America. After gaining momentum during the first quarter we have seen sales slide back during quarter two and we are running 15% below the same quarter in 2005. We see this as a reflection of our market position rather than a loss of market share.

In the light of this shortfall, initiatives are in place with major customers. One of these customers placed a $40k order in advance of a Father’s Day promotion. This is entirely incremental business. With another customer we are planning a demonstration tour of their stores for the first time during the summer months. New listings have been gained with other customers and an additional sales initiative will be in place for the start of the new season in the autumn.

Towards the end of 2005 we had suffered as a result of the dramatically escalating price of steel, which is our prime raw material. Those prices have now dropped significantly from their peak.

Looking forward the business climate remains uncertain. The UK retail sales in general remain in the doldrums. The US gives a more positive picture but success in this market will, in part, be dependent on our own initiatives.

BOWERS METROLOGY

Sales for the second quarter show a marginal increase of $0.01 million (0.3%) over last year ($3.97 million 2006, $3.96 million 2005) due to increased sales volumes of $0.25 million being offset by adverse exchange variances of $0.24 million. Cumulatively, sales have increased by $0.48 million (6.41%) from $7.55 million in 2005 to $8.03 million in 2006. This is attributable to increased volumes of $1.01 million and adverse exchange movements of $0.53 million.

As anticipated in the report for Quarter 1 of Fiscal 2006, trading was more difficult during Quarter 2, mainly because of a slowdown in the UK market. Revenues were at a similar level to last year but EBIT was reduced because of significant set-up costs being incurred with our new facility in Shanghai, China.

The disposal of the loss making Coventry Gauge thread gauging division was completed during the quarter. This disposal will now enable management to focus on the developing businesses in the Netherlands and China, which both offer significant opportunities for growth.

The Shanghai facility is currently operating as a quality control and administration centre for products being shipped to Europe. During Quarter 3 it is anticipated that sales to external customers in Asia will increase significantly and in Quarter 4 the commencement of manufacturing is scheduled to commence. The key products that are being developed are a range of bench hardness testers and these will be sold worldwide under the company’s CV Instruments and Eseway brands.

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APPENDIX II

The core Bowers export business has been positive with the USA and German markets running in line with forecast. The French and Italian markets are, however, still depressed but growth in Eastern Europe and Asia is compensating for this. The recent weakening of Sterling has also improved our competitiveness in Europe.

Margins are as budgeted, despite significant percentage increases in energy costs. Cash is also in line with budget with the recent capital expenditure projects for the Bowers Bradford facility now complete and running well. These new machine tools have improved the accuracy of the products whilst also reducing the unit costs.

Our main concern is the poor state of the UK industrial market. 2005 saw a slow but steady recovery but 2006 has started disappointingly in virtually all sectors. The announcement by BAE Systems to sell its 20% stake in Airbus is also likely to result in reduced investment in the lucrative Aerospace sector. Good growth is being experienced in the sales of products being sourced from China but the UK Systems division is running behind budget because of a slowdown in investment intentions.

Promotional activity is high and with May seeing our two key tradeshows of the year, we anticipate that Quarter 3 should show a small improvement on Quarter 2.

SPEAR & JACKSON FRANCE

Overall, sales for the second quarter of $3.58 million have seen a $0.17 million decrease (4.43%) with adverse exchange variances of $0.3 million only partially offset by sales volume increases of $0.13 million. For the six month period ended March 31, 2006 sales have decreased by $0.38 million (6.41%) from $5.89 million in 2005 to $5.51 million in 2006. Here, favorable volumes of $0.1 were exceeded by adverse exchange movements of $0.48 million.

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

Competition remains intense in the French market with a large proportion of garden product turnover being concentrated in a small number of retail outlets. This makes price negotiations difficult and can result in additional incentives, e.g. rebates being offered, as a matter of course, in order to secure orders.

We continue to feel the effects from the increasing flow of cheap Asian and Far Eastern imports which puts pressure on turnover and margins. This margin dilution could be further exacerbated by the opening of specialist cut-price garden stores later in the year.

In order to combat increased competition from cheap imports and to combat the negative effects of the seasonality of garden product sales, the Company concentrates on marketing activity to promote its principal brands and to secure new listings. In the last quarter the Company has created a private range of cutting tools and revised other private range garden, wood and grass tools. The launch of the bonsai tool range last quarter is proving to be successful with listings secured in garden centers.

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APPENDIX II

It is clear, however, that in order to increase the success of new product ranges is essential that we are able to offer quality products at lower price points.

AUSTRALASIA

Sales for the quarter for Spear & Jackson Australia and Spear & Jackson New Zealand were $0.08 million (2.32%) lower than last year (2006 $3.28 million, 2005 $3.36 million), due to adverse exchange variances of $0.18 million, increased sales rebates of $0.11 million compensated by increased sales volumes of $0.21 million. Cumulatively for the six months to March 31, 2006 sales have decreased by $0.34 million (4.67%) from $7.34 million in 2005 to $7.0 million in 2006. Adverse exchange movements of $0.26 million and increased rebates of $0.18 million were only partially compensated by increased volumes of $0.1 million.

The Australian market continued to experience a downturn in retail trading and economic activity during the second quarter. Government intervention last year to slow economic growth and inflation by an increase in domestic interest rates has curtailed new housing starts, property investment and consumer spending. These are now well down on the levels of the previous year. The weakening Australian dollar and the significant increases in petrol costs (+30%) have also impacted consumer confidence and discretionary spending. The recent employment growth data in Australia also suggests that the Reserve Bank (RBA) may take a more aggressive stance on interest rates in the second half of 2006, which will further slow economic growth and inflation.

Likewise, the New Zealand economy contracted during the second quarter with GDP falling for the first time in more than 5 years and sparking speculation that the New Zealand economy may be heading into recession.

In addition, the Australian and New Zealand markets continue to be extremely price competitive with many of our retail customers sourcing their “house brands” directly from Asia in direct competition with S&J. This practice has placed, and will continue to place, added pressure on our sales, margins and market share.

Increased competition, declining price points, the losses of a garden range with a major retail customer and a major agency line were offset by incremental sales gains within our air, hand tool and metals categories.

Overall, sales to our major customers reflect the continued expansion and domination of the market by the major corporate retailers who continue to expand their market share at the expense of the traditional independent retail groups. As such, our sales mix reflects this trend with sales growth continuing in the corporate sector whilst sales within the independents continue to decline. Our objective going forward is to spread our exposure to the corporate sector by increasing our sales and market share in the independent and industrial markets.

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COSTS OF GOODS SOLD AND GROSS PROFIT

Costs of goods sold increased by 3.93% from $18.35 million in the three month period ended March 31, 2005 to $19.08 million in the three months ended March 31, 2006. In the six month period under review, costs of goods sold decreased by 0.31% from $35.09 million in the six months ended March 31, 2005 to $34.98 million in the six months ended March 31, 2006.

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

	Three Months Ended	Three Months Ended	Six Months	Ended
	March 31	March 31	March 31	March 31
	2006	2005	2006	2005
Cost of goods sold as a % of sales	69.19	66.09	69.26	66.89
Gross Profit Margin	30.81	33.90	30.74	33.11

Margins have continued to suffer from the adverse effects of raw material (principally steel) and utility price hikes together with increases in the cost of fuel used to operate our manufacturing processes. In the Neill Tools division a main driver behind decreased margins has been the mix switch towards factored garden power tools at the expense of better margins on industrial hand tool product lines.

We continue to monitor and evaluate means of maintaining and improving current sales mixes and of further reducing costs of goods sold across all of our principal trading operations to avoid margin erosion. The highly price sensitive markets in which we operate make it prohibitive to pass on cost increases to certain of our customers. This, and the upward pressure on steel prices caused by strong demand from China, will continue to have an adverse influence on our margins in the short term.

Improvements in manufacturing costs continue to be the focus of the management to improve competitiveness for new markets. The manufacturing reorganization program, initiated in the last quarter of 2005, and continued in the second quarter with the announcement of the closure of our manufacturing site at Wednesbury in the UK, will have a beneficial effect on margins. Ownmanufactured product will be progressively replaced with factored items sourced from overseas thereby reducing costs and increasing profitability.

OPERATING COSTS AND EXPENSES

Selling, general and administrative (SG&A) expenses increased by $1.37 million (17.27%) from $7.93 million in the three months ended March 31, 2005 to $9.3 million in the three months ended March 31, 2006. In the six months ended March 31, 2006 costs of $18.42 million have increased by $1.88 million (11.37%) from $16.54 million in the six months to March 31, 2005.

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The principal reasons for the changes in the levels of SG&A expenses in the three and six month periods ended March 31, 2006 over their prior year comparatives can be summarized as follows:

		Increases Over Prior Year	Increases Over Prior Year
		Six Months ended	Three Months	ended
		March 31, 2006	March 31, 2006
		$m		$m
a)	Impact of movements in average
	US$/sterling cross rates in the period	(0.90)		(0.40)
b)	Increased FAS 87 pension costs	2.03		1.01
c)	Inflationary increases	0.40		0.20
d)	Decreased head office costs relating to
	legal and professional fees, monitor fees
	and associated costs	(0.28)		(0.08)
e)	One-time costs in setting up the China
	facility	0.10		0.10
f)	Other net increases including increases in
	variable selling and distribution costs
	associated with higher level of March
	2006 sales	0.53		0.54
	Total increase in SG&A expenses	1.88		1.37

OTHER INCOME AND EXPENSES

Other income and expenses moved from a net credit of $0.03 million in the three months ended March 31, 2005 to a net credit of $0.08 million in the three months ended March 31, 2006. For the six month period under review other income and expenses has moved from a $0.04 million credit in the six months to March 31, 2005 to a $0.09 million credit in the six months to March 31, 2006.

This improvement is attributable to higher 2005 bank interest credits in the Company’s American business and lower bank interest charges in the French business.

INFREQUENT AND UNUSUAL ITEMS

(a) MANUFACTURING REORGANIZATION COSTS

The closure and relocation of the Wednesbury facility are expected to take approximately six months and the costs of this exercise are anticipated to be circa. (pound)1.2 million ($2.1 million).

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These costs include employee severance payments, site closure expenses, factory reorganization expenses, plant transfer costs and associated capital expenditure. Negotiations are currently in progress regarding the sale of the Wednesbury site to a non-related third party. It is expected that the sales price of the site will be in excess of its net book amount and the Company has not therefore made any provision against the balance sheet carrying value of this property at March 31, 2006. Funds realized from any disposal will be used to finance the closure costs with any excess sale proceeds being reinvested in the business.

Costs provided in respect of the site closure as at March 31, 2006 were $1.56 million. In addition to these costs it is anticipated that a further $0.5 million will be incurred on or before November 30, 2006 for which provision will be made in accordance with applicable financial reporting standards as and when liabilities for such charges crystallize.

As explained below, a surplus element of the Wednesbury site was sold in 2005 and provision was made at March 31, 2005 for various site reorganization costs that were to be incurred as a result of that partial sale. Certain of these costs will not now be incurred following the decision to close the remainder of the site and market the property for resale and such excess provisions, amounting to $0.33 million, have been released in the current quarter.

(b) PROFIT ON SALE OF LAND AND BUILDINGS

Wednesbury England Boca Raton Florida $m $m Net sale proceeds 5.2 3.4 Less net book value (2.3) (3.1) Gross profit on disposal 2.9 0.3 Less related reorganization costs (0.7) 0.0 Net profit on sale 2.2 0.3	Wednesbury England Boca Raton Florida $m $m Net sale proceeds 5.2 3.4 Less net book value (2.3) (3.1) Gross profit on disposal 2.9 0.3 Less related reorganization costs (0.7) 0.0 Net profit on sale 2.2 0.3	Wednesbury England Boca Raton Florida $m $m Net sale proceeds 5.2 3.4 Less net book value (2.3) (3.1) Gross profit on disposal 2.9 0.3 Less related reorganization costs (0.7) 0.0 Net profit on sale 2.2 0.3	Total $m 8.6 (5.4) 3.2 (0.7) 2.5
	2.9 (0.7)	0.3 0.0	3.2 (0.7
	2.2	0.3

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Following the sale of the surplus element of the Wednesbury facility, provision was made for costs to be incurred in connection with the consolidation of the current manufacturing operation into the smaller site. These costs comprised factory refurbishment, factory reorganization and departmental relocations within the site. As noted in (a), above, certain of these provisions will no longer be required following the decision to close the remainder of the site and all excess provisions have accordingly been released in the quarter ended March 31, 2006.

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

Our loss before income taxes in the three months ended March 31, 2006 amounted to $1.96 million compared to an income before taxes for the three months ended March 31, 2005 of $4.02 million. The loss before income taxes in the six month period ended March 31, 2006 was $4.04 million compared to $3.37 million profit in the comparable six month period last year.

The movements are attributable to:

	Six Months ended	Three Months ended
	March 31, 2006	March 31, 2006
	$m	$m
Manufacturing reorganization costs	(1.23)	(1.23)
Profit on sale of land and buildings in 2005	(2.50)	(2.50)
Decreased gross margins	(1.85)	(0.93)
Increased SG&A costs	(1.88)	(1.37)
Increased other income	0.05	0.05
	(7.41)	(5.98)

INCOME TAXES

An income tax charge of $0.1 million arose in the three months ended March 31, 2006 compared to a $0.49 million income tax charge in the three months ended March 31, 2005. For the six month period to March 31, 2006 an income tax benefit of $0.31 million arose compared to a $0.45 million charge in the comparative period last year.

Income taxes were 5.09% of the loss before tax in the three months ended March 31, 2006 compared to 13.32% of the income before tax in the three months ended March 31, 2005. Income taxes were 7.60% of losses in the six months ended March 31, 2006 compared to 14.96% of income in the comparable period last year.

Differences between the effective rate and the statutory rate of taxation of 35% result from income and losses in certain subsidiaries within the Spear & Jackson group being taxed at rates

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APPENDIX II

different from the effective rate, the utilization of tax losses which are not recognized within the deferred tax computation and permanent differences between accounting and taxable income as a result of non-deductible expenses and non-taxable income. Additional factors behind the divergence in effective tax rates in the periods under review were as follows:

i) For the three months ended March 31, 2006 valuation allowances have been applied to the costs associated with the closure of the Wednesbury site. Additionally, valuation allowances have been applied to losses incurred certain UK divisions in the quarter. The effect of the above has resulted in a current tax charge for the three months ended March 31, 2006.
ii) For the three months ended March 31, 2005 the $2.2 million profit on the sale of the Company’s excess land at Wednesbury was not subject to taxation due to the availability of capital tax losses brought forward which were not recognized within the deferred tax computation.

NET (LOSS) INCOME FROM CONTINUING OPERATIONS AFTER TAXATION

Our net loss from continuing activities after income taxes was $2.06 million for the three months ended March 31, 2006 (2005: $3.53 million profit) and for the six months ended March 31, 2006 it was a $3.73 million loss compared to a $2.92 million profit in the previous year.

DISCONTINUED OEPRATIONS

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

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

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

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

Total losses attributable to discontinued operations were $0.07 million in the three months ended March 31, 2006 (2005: $0.34 million), and were $0.08 million in the six months ended March 31, 2006 (2005: $0.37 million).

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FINANCIAL CONDITION

Liquidity and Capital Resources

Our cash and cash equivalents amounted to $5.98 million at March 31, 2006 ($7.29 million at September 30, 2005), working capital (excluding deferred taxes) totaled $26.89 million at March 31, 2006 ($29.87 million at September 30, 2005) and our stockholders’ equity was $21.74 million at March 31, 2006 ($26.20 million at September 30, 2005).

Net cash used in operating activities in the six month period ended March 31, 2006 was $0.61 million compared to $3.34 million in the six months ended March 31, 2005. This decrease in net cash used of $2.73 million primarily arises from:

increased trading working capital inflows of $4.46 million (note a)
increase in net inflows from other assets and liabilities of $3.67 million (note b)

Offset by:

the reduction in net income (adjusted for depreciation, and deferred taxes) of $5.4 million as explained in the commentary on trading results above.

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

a) Trade Working Capital Variances

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

Note Increased inventory inflows (i) Increased trade payable inflows (ii) Reduced trade receivable inflows (iii) Net increase in trade working capital inflows	$million 5.39 0.86 (1.79) 4.46

i) In the six months ended March 31, 2005 inventories increased by $3.67 million compared to a decrease of $1.72 million in the period ended March 31, 2006. Within most of the UK divisions, and especially in the UK hand tool division, the period to March 31, 2006 witnessed a rigorous inventory reduction program, whereas in the comparable period last year stock levels increased. This trend was also mirrored in the Australia and New Zealand divisions. Such decreases were offset, however, by higher than usual seasonal inventory increases in our French business.

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ii) Increased trade payable inflows have arisen in the six months under review despite inventory reductions. With the increased dependence upon externally sourced factored goods rather than own-manufactured product, certain divisions such as Neill Tools, have witnessed a higher level of trade payables at the period end. This, in conjunction with extended settlement terms and payment timing issues, has resulted in increased trade payable inflows.
iii) Trade receivable inflows for the six months to March 31, 2005 benefited by $0.7 million from customer receipts relating to increased sales levels in August and September 2004. As this trend was not repeated in August and September 2005, cash flows for the six months to March 31, 2005 did not benefit to the same extent from the collection of receivables from prior period sales. Additionally, trade receivable balances at March 31, 2006 were inflated by higher than usual revenues in the month of March 2006. Collection of these debts will not be made until Quarter 3.
b) Variances in Cash Flows attributable to Other Assets and Liabilities

With regard to the net inflows from other assets and liabilities, the main factors contributing to the $3.67 increased inflows are:

i) An increase in the non-cash FAS 87 pension charge of $2.03 million;
ii) The inclusion, at March 31, 2006 of a restructuring provision of $1.5 million in relation to the closure of the Wednesbury site;
iii) Increased accrual levels, especially in the month of March 2006, reflecting the increase in trading levels in certain of our operations.

The beneficial effect of the above has been diluted by:

i) Increased annual employer pension contributions of $0.37 million to the UK pension scheme;
ii) Payments of $0.5 million in respect of the UK manufacturing reorganization program.

Cash outflow from investing activities was $1.27 million in the period ended March 31, 2006 compared to an inflow of $7.99 million in the period ended March 31, 2005. The 2005 comparative period included receipts of $8.6 million relating to the net sale proceeds of the property at Boca Raton, Florida and to the partial sale of excess land at our Wednesbury manufacturing site. The 2006 figures include purchases of property, plant and equipment relating to the partial renewal of our UK motor fleet and start up capital expenditure in our newly formed Chinese operation. Additionally, the 2006 cash outflow also includes the purchase of a 25% equity participation in a recently incorporated Chinese magnetic products company.

Net cash provided by financing activities was $0.68 million in the period ended March 31, 2006 (2005: $0.001 million). The March 2006 increase represents the utilization of the UK bank overdraft facility to meet cyclical demands in the UK, increased pension plan contributions and the payment of restructuring costs associated with the manufacturing reorganization program.

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BANK FACILITIES

The UK subsidiaries of Spear & Jackson plc and Bowers Group plc maintain a line of credit of $7.81 million. This is secured by fixed and floating charges on the assets and undertakings of these businesses. Of the total facility, $5.20 million relates to bank overdrafts and $2.61 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 March 31, 2006 the Company had $1.14 million of borrowings outstanding under the overdraft line (September 30, 2005 $0.75 million) and had $0.12 million in outstanding letters of credit (September 30, 2005: $0.6 million).

As a consequence of the special pension contribution of $7.2 million that was paid in two installments in June and September 2005, and the additional funding which will be required to finance the ongoing restructuring initiatives, an open-ended, on demand bridging loan of $5.20 million has also been negotiated with the Company’s UK bankers. The facility is denominated in British pounds and is secured by a first legal charge over the Company’s land and property at Wednesbury, England. It carries interest at UK base rate plus 1%. This facility has not yet been utilized.

The French and Australian subsidiaries of Spear & Jackson plc maintain short-term credit facilities of $2.78 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 $0.27 million outstanding under the overdraft lines at March 31, 2006 (September 30, 2005: nil). At that date $1.78 million of letters of credit and bills were outstanding under these facilities (September 30, 2005: $0.9 million).

The UK facilities were renewed in December 2005, the Australian facilities were renewed in October 2005, and the French facilities fall due for renewal at various dates in 2006. These lines of credit are subject to the Company’s and its subsidiaries’ continued credit worthiness and compliance with the applicable terms and conditions of the various facilities. Assuming that the Company maintains compliance with these conditions it is anticipated that all the facilities will be renewed on comparable terms and conditions.

The Company’s bank accounts held with the HSBC Bank plc by UK subsidiaries of Spear & Jackson plc and Bowers Group plc form a pooled fund. As part of this arrangement the companies involved have entered into a cross guarantee with HSBC Bank plc to guarantee any bank overdraft of the entities in the pool. At March 31, 2006 the extent of this guarantee relating to gross bank overdrafts was $21.13 million (September 30, 2005 $20.4 million). The overall pooled balance of the bank accounts within the pool at March 31, 2006 was an overdraft balance of $1.14 million (September 30, 2005 in hand pooled balance of $1.6 million).

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FINANCIAL INFORMATION OF S&J GROUP

banking facilities supplemented, where necessary, by temporary increases to sustain our current business operations and normal operating requirements for the foreseeable future. As the Company continues to focus its efforts on improving the competitiveness of its worldwide operations, additional funding may be required to finance the restructuring of the non-profitable areas of the Company’s divisions and to meet items of significant one-off expenditure. Such expenditure may include: costs associated with the closure and relocation of the Company’s manufacturing facility in Wednesbury, England; investment in new capital equipment; further special contribution payments to reduce the pension plan deficit; further set up costs, and investment in our business ventures in China; and any other expansion of the Spear & Jackson or Bowers operations.

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

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

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

Contractual obligation Total Amount Committed Capital lease obligations 0.97 Operating leases (note a) 6.15 7.12	Payments due by period ($m) 1 year or less 1-3 years 4-5 years 5 years or more 0.54 0.27 0.16 — 0.98 1.89 1.58 1.70 1.52 2.16 1.74 1.70	Payments due by period ($m) 1 year or less 1-3 years 4-5 years 5 years or more 0.54 0.27 0.16 — 0.98 1.89 1.58 1.70 1.52 2.16 1.74 1.70
		1.70

(a) Amounts represent the minimum rental commitments under non-cancelable operating leases.
(b) Excluded from the above tables are the amounts payable by the Company to the UK defined benefit pension plan as future funding obligations cannot be accurately forecast beyond the short term. In the years ended September 30, 2006 and September 30, 2007, providing that certain criteria are met, the annual contributions will be fixed at (pound) 1.9 million sterling (approximately $3.3 million).
(c) As at March 31, 2006, the Company had letters of credit of $0.29 million outstanding which are secured under the UK and Australian credit facilities. In addition, the Company’s French subsidiary had discounted $1.61 million of bills of exchange with recourse.

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

OUTLOOK

Operating losses were incurred in both quarter 1 and quarter 2 and this trend is anticipated to continue into quarter 3. As in previous quarters, the Company’s base trading profit will be eliminated by the non-cash FAS 87 expense which has increased significantly over the comparable charge recognized in the period ended March 31, 2005.

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As previously explained, the Company’s actuaries have calculated that the annual pension charge will rise by $4.2 million from $4.0 million in 2005 to $8.2 million in the year ended September 30, 2006. Before consideration of pension costs, base trading profit for the third quarter is currently anticipated to be approximately $1.6 million and after deduction of the quarter’s pension charge of $2.1 million an operating loss (before unusual items and taxation) of $0.5 million is forecast.

Earnings in quarter three will also be negatively impacted by the provision of a further $0.3 million of costs in connection with the closure of the Company’s manufacturing site in Wednesbury, England and other UK reorganization initiatives. The adverse effect of these costs would, however, be offset by any gain arising on the subsequent disposal of the Wednesbury site.

As a result of these increased pension charges and closure costs the Company does not anticipate returning a profit before taxation in fiscal 2006. Management will consider all available operational strategies to mitigate the negative impact of these items so that any trading losses in the year ended September 30, 2006 which arise as a result of the increase in pension costs and one-time reorganization expenditure will be reduced as far as possible. In addition, the level of losses incurred would be reduced if the sale of the Wednesbury property is concluded during the year at an amount in excess of its book value.

Although other elements of the UK hand and garden business have performed encouragingly, it is unlikely that the level of demand for these products will be sufficient to fully offset the adverse effects of the general downturn in demand in the UK retail sector and the fierce competition from cheap foreign imports. Demand from our export markets, particularly the Far and Middle East, has also softened as the intensive purchasing activity resulting from building projects in the aftermath of the Iraqi conflict has declined.

As explained above, the Company performed a detailed review of its UK manufacturing operations in quarter four of 2005 to identify initiatives to combat declining sales performance and the increase in low price point imports from Far Eastern markets. The implementation of a number of strategies to reduce its ongoing cost base was started in that quarter. This has continued into quarter two of fiscal 2006 and will be further developed in quarter three and beyond.

The closure and relocation of the Wednesbury facility are expected to take approximately six months with completion expected in November 2006. The costs of this exercise, which are anticipated to amount to approximately $2.1 million, comprise employee severance payments, site closure expenses, factory reorganization expenses, plant transfer costs and associated capital expenditure. Negotiations continue regarding the sale of the Wednesbury site to a non-related third party. It is expected that the sale price of the site will be in excess of the property’s net book amount and the Company has not therefore made any provision against its balance sheet carrying value at March 31, 2006. Funds realized from any disposal will be used to finance the closure costs with any excess sale proceeds being reinvested in the business.

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FINANCIAL INFORMATION OF S&J GROUP

We will continue to look at further initiatives to rationalize underperforming areas of the business and to monitor operational infrastructures in the United Kingdom, particularly overhead costs, to ensure that these are as cost efficient as possible and at a level appropriate to the needs of the business. In conjunction with this, the inventory reduction program that was implemented in quarters one and two will continue, although temporary increases in inventories will occur as a result of inventory builds that will be necessary during the closure of the Wednesbury manufacturing site.

As with the Company’s UK hand and garden tool businesses, our Australasian and French subsidiaries continue to experience difficult trading conditions because of flat retail demand, increased levels of competition from Far East imports, reduced consumer spending and the increasing trend of some retail groups to expand their own direct import programs.

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

Within the Metrology division the new selling and distribution outlet in Maastricht is now fully operational, and incremental revenue growth is forecast for the rest of the fiscal year. In the future, this revenue and earnings growth will be enhanced by the division’s quality control and distribution centre which has been established in Shanghai, China and which is expected to become fully functional in quarter three of fiscal 2006. In the short term, however, profitability will be negatively impacted by the one-time costs associated with the start up of the business.

Looking forward, demand for our own manufactured metrology hand tools will continue to face further pressure from Far East suppliers. The Company therefore recognizes the need to focus its UK manufacturing sites on producing more high technology products and measuring solutions. In order to make the Company more competitive in the low technology sectors, various initiatives are being explored including the start up and establishment of its manufacturing and distribution centre in Shanghai.

Our businesses will again face the issues of increased costs and margin erosion as a result of raw material, fuel and other utility price increases, interest rate increases, the $4.2 million increase in the FAS 87 pension charge and a weak dollar. This will continue to put pressure on our margins and overhead costs, and wherever possible, these increases will be passed on though sales price increases.

Any strengthening of the US dollar would impact favorably on the business as this would ease the pressure on margins and increase our competitiveness. Current trends, however, suggest a continued weakening which will place additional pressure on our sales into a number of export markets.

The level of overhead expenses, particularly legal and professional costs, incurred by our US corporate head office has reduced following the settlement of the SEC suit during 2005. However, any future savings will be offset by the professional costs that are anticipated to be incurred in relation to the Class and Derivative Action lawsuits and legal expenses in connection with the appraisal of offers from potential acquirers to purchase all, or part, of the Company’s common stock.

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In future quarters we will continue to focus on improving cash generation. As explained above, on January 25, 2006 the Company announced the closure of the remaining element of its manufacturing site at Wednesbury, England. In addition, therefore, to normal trading cash requirements, in the next six months costs of approximately $2.1 million will be incurred in the relocation of the Wednesbury manufacturing operation and its consolidation into the Company’s principal UK manufacturing site in Sheffield and elsewhere. These costs will be funded from existing core and, where necessary, additional temporary UK bank facilities.

To restrict the pressure that this expenditure will have on the Company’s bank facilities, focus will be maintained on the working capital reduction program that has already been initiated. The benefits of this initiative can be seen in the favorable inventory movements in the quarter and emphasis will continue to be placed on strict working capital control in the forthcoming months. Additionally, the Company continues to be in negotiation with an external third party in connection with the sale of the Wednesbury site. Utilization of the Company’s UK core and additional temporary additional banking facilities will not be necessary if a sale is concluded in the short term as disposal proceeds will be available to fund the reorganization costs. Any residual sale proceeds will be reinvested in the business.

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

Much will also depend on the level of retail demand in our UK, French and Australasian markets. The results for quarters one and two were adversely affected by softening demand and a further deterioration in consumer confidence could significantly impact on our earnings levels in quarter three and subsequent periods. A favorable climate in the UK will also be crucial to the performance of garden product sales in the next quarter as the April and May forecasts reflect increased consumer spending around national holidays that occur in the period. Poor weather could significantly reduce anticipated demand.

As previously reported, the formal resolution of the SEC legal action in fiscal 2005 enabled the Company to move forward so that both short and long term commercial strategies could be formulated and implemented. Uncertainties will still remain, however, until the financial effects of the Class Action and Derivative Complaint, explained in detail in PART II Item 1 (“Legal proceedings”), below, are quantified and settled and until all issues regarding the potential change in control of the Company are resolved.

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C. INDEBTEDNESS

As at the close of business on 31 March 2006, being the most recent date financial information of the S&J Group is publicly available, the information presented in S&J’s Form 10-Q for the quarter ended 31 March 2006 shows that the S&J Group had no material bank loan and off balance sheet arrangements and contractual obligations other than bank facilities and trade financing in the ordinary course of business as described on pages 132 to 133 thereof which are reproduced on pages 227 and 231 of this circular under the sections headed “Bank Facilities” and “Off Balance Sheet Arrangements and Contractual Obligations” respectively.

D. QUALITATIVE ANALYSIS OF DIFFERENCES BETWEEN US GAAP AND HK GAAP

Summary of Certain Differences Between US GAAP and Hong Kong GAAP

The audited consolidated financial statements of Spear & Jackson, Inc. (“S&J”) and its subsidiaries (collectively hereinafter referred to a “S&J Group”) for each of the three years ended 30 September 2003, 2004 and 2005 and the unaudited consolidated financial statements of S&J Group for the six-month periods ended 31 March 2005 and 2006 (altogether the “S&J US Financial Information”) set forth herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”), which differ in certain respects from generally accepted accounting principles in Hong Kong (“HK GAAP”). Such differences include the methods for measuring amounts shown in the S&J US Financial Information, as well as certain additional disclosures, which S&J has not made. Certain differences between US GAAP and HK GAAP relevant to the S&J US Financial Information are summarised below. This summary should not be construed to be exhaustive. No attempt has been made to quantify the impact of those differences.

Defined Benefit Pension Liability

S&J Group maintains a defined benefit pension plan for certain employees in United Kingdom (“UK”). Under US GAAP, the defined benefit element of the pension plan is recognised as a charge to the income statement over the employees’ approximate service period, in accordance with United States Statement of Financial Accounting Standard 87 “Employers’ Accounting for Pensions” (“SFAS 87”). SFAS 87 focuses on the pension plan’s benefit formula as the basis for determining the benefit earned, and therefore the cost incurred, in each financial year. The determination of the benefit earned is actuarially determined and includes components for service cost, time value of money, return on pension plan assets and gains and losses from changes in previous assumptions.

Under HK GAAP, the cost of providing pension benefits is determined using the smoothing method, with actuarial valuation being carried out at each balance sheet date in accordance with Hong Kong Accounting Standard 19 “Employee benefits”. Actuarial gains and losses which exceed 10% of the greater of the present value of the S&J Group’s pension obligations and the fair value of pension plan assets are amortised over the expected average remaining working lives of the participating employees. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight line basis over the average period until the amended benefits become vested.

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Deferred Tax

Deferred tax assets and liabilities are recognised for the estimated future tax effects of temporary differences between the financial statements carrying amounts of assets and liabilities and their respective tax bases under US GAAP and HK GAAP.

Under US GAAP, all deferred tax assets are recognised. A valuation allowance is recognised when it is “more likely than not” that some portion or all of the deferred tax assets will not be realised. “More likely than not” is defined as a likelihood of more than 50%.

Under HK GAAP, deferred tax assets are recognised to the extent that it is probable that future profits will be available to offset the deductible temporary differences of carry forward of unused tax losses and unused tax credits.

Under HK GAAP, deferred tax assets and liabilities may only be classified as non-current. Under US GAAP, deferred tax assets and liabilities must either be classified as current or non-current based on the classification of the related non-tax asset or liability for financial reporting. Tax assets not associated with an underlying asset or liability are classified based on the expected reversal period.

With respect of the measurement of the deferred taxation, HK GAAP requires recognition of the effects of a change in tax laws when the change is “substantively enacted”. However, US GAAP requires measurement using tax laws and rates enacted at the balance sheet date.

Provision for Employee Severance Packages

Under US GAAP, the elements of the severance packages that are payable only in the event of employees rendering service beyond a minimum retention period are recognised rateably over that agreed future service period.

Under Hong Kong GAAP, the provision for severance packages should been recognised in full with effect from the date of decision or announcement of closure of the factory, office or operating unit and no element of this cost to be spread over the future accounting periods.

Amounts Provided in respect of Employee Severance Packages

Following the announcement of the closure of the Company’s UK manufacturing plant in Wednesbury, provision was made for severance packages payable to the employees affected by the site closure. Under US GAAP, those elements of the severance packages that are payable only in the event of employees rendering service beyond a minimum retention period are recognised rateably over that agreed future service period. Under Hong Kong GAAP the provision for future service payments has been recognised in full with effect from the date of announcement of closure of the site and no element of this cost has therefore been spread over future periods.

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FINANCIAL INFORMATION OF S&J GROUP

APPENDIX II

Balance Sheet Reclassification

The following balance sheet reclassifications have been made in conformity with Hong Kong GAAP reporting requirements.

a) Deferred Taxation — the entire deferred taxation asset is now shown as recoverable after more than one year.
b) Stockholders Equity — the categorisation of stockholders’ equity has been simplified to reclassify those US GAAP captions that have no equivalent under Hong Kong GAAP.

— 286 —

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, collectively and individually, accept full responsibility for the accuracy of the information contained in this circular, except in relation to information on the S&J Group, and confirm, having made all reasonable enquiries, to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts the omission of which would make any statement herein misleading.

The information on the S&J Group in this circular has been extracted from or based on public sources including the S&J Forms 10-K & Forms 10-Q. The Directors, jointly and severally, take full responsibility for the correct reproduction or presentation of such information but accept no further responsibility in respect of such information.

2. DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

Save as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executive (if any) of the Company had interests or short positions in the shares, underlying shares or debentures of the Company and its associated companies (within the meaning of Part XV of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they have taken or were deemed to have under the provisions of the SFO), or (b) were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange (together, “Discloseable Interests”):

(i) Long position in the issued shares of the Company

			Number of	Percentage of
			issued shares	issued share
		Capacity in which the issued	in the	capital in the
Name	of Director	shares in the Company are held	Company held	Company
Brian	C Beazer	Beneficial owner	400,000
		Interest of controlled corporation(1)	136,427,775
		Total:	136,827,775	24.56%
David	H Clarke	Interest of controlled corporation(2)	127,439,723	22.88%
Simon	N Hsu	Interest of controlled corporation(3)	3,787,158	0.68%

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GENERAL INFORMATION

APPENDIX III

Notes:

(1) 136,427,775 shares are held by BC Beazer Asia Pte Ltd, a company in which Mr. Beazer has 50% shareholding interest. Therefore, Mr. Beazer is deemed to hold such shares by virtue of the SFO.
(2) All these shares are held by GSB Holdings, Inc, a wholly-owned subsidiary of Great South Beach Improvement Co., in which Mr. Clarke has 61.4% shareholding interest. Therefore, Mr. Clarke is deemed to hold such shares by virtue of the SFO.
(3) All these shares are held by Strategic Planning Assets Limited which is wholly-owned by Mr. Hsu. Therefore, Mr. Hsu is deemed to hold such shares by virtue of the SFO.

(ii) Long position in underlying shares of the Company

As at the Latest Practicable Date, the following Directors held outstanding share options granted under the share option scheme adopted by the Company in April 1994 entitling them to subscribe for such numbers of Shares as set out below:

			Number of Option
			Shares Outstanding
		Exercise Price	as at the Latest
Name of Director	Date of Grant	(HK$)	Practicable Date
Mr. Brian C Beazer	23 July 2003	0.36	2,000,000
Mr. Simon N Hsu	23 July 2003	0.36	3,000,000
Total			5,000,000

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GENERAL INFORMATION

APPENDIX III

As at the Latest Practicable Date, the following Directors held outstanding share options granted under the share option scheme adopted by the Company on 30 August 2004 entitling them to subscribe for such numbers of Shares as set out below:

			Number of Option
			Shares Outstanding
		Exercise Price	as at the Latest
Name of Director	Date of Grant	(HK$)	Practicable Date
Mr. Brian C Beazer	28 September 2004	0.242	1,638,407
	20 December 2004	0.250	1,392,646
Mr. David H Clarke	28 September 2004	0.242	819,204
	20 December 2004	0.250	696,323
Mr. Simon N Hsu	28 September 2004	0.242	3,276,814
	20 December 2004	0.250	2,785,292
Total			10,608,686

Save as disclosed above, none of the Directors had any Discloseable Interests as at the Latest Practicable Date.

3. SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

Save as disclosed below, as at the Latest Practicable Date, according to the register of interests kept by the Company pursuant to Section 336 of the SFO, and so far as was known to any Director or chief executive (if any) of the Company, no person other than a Director or chief executive (if any) of the Company or a member of the UPI Group, had any interest or short position in the shares or the underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or was directly or indirectly interested in 10%

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GENERAL INFORMATION

APPENDIX III

or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the UPI Group, together with particulars of any options in respect of such capital:

Name of Company: United Pacific Industries Limited

		Number of
		underlying
		ordinary shares
		in the Company
		held under
	Number of ordinary	equity	Total number	Percentage of
	shares in the	derivatives and	of ordinary	shareholding to
Name of	Company held and	capacity in	shares in the	total issued
Substantial	capacity in which	which they are	Company held	share capital of
Shareholder	they are held	held	(long position)	the Company
Investor AB	74,836,000	Nil	74,836,000	13.43%
	(interest of controlled
	corporation)(1)
Asian Corporate	65,000,400	Nil	65,000,400	11.67%
Finance Fund,	(interest of controlled
L.P.	corporation)(2)

Notes:

(1) These shares are held indirectly by Investor AB through its wholly-owned subsidiary, Investor (Guernsey) II Ltd. Therefore, Investor AB is deemed to hold such shares by virtue of SFO.
(2) These shares are held indirectly by Asian Corporate Finance Fund, L.P. through its wholly-owned subsidiary, Payawal Capital Limited. Therefore, Asian Corporate Finance Fund, L.P. is deemed to hold such shares by virtue of SFO.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the UPI Group since 31 March 2006, the date to which the latest audited consolidated financial statements of the UPI Group were made up.

5. LITIGATION

As at the Latest Practicable Date, so far as the Directors are aware, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance, and no litigation or arbitration of material importance was pending or threatened against the Company or any of its subsidiaries.

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GENERAL INFORMATION

APPENDIX III

As disclosed in the annual report of S&J in the S&J Form 10-K 2005 in respect of financial year ended 30 September 2005 and in the latest S&J Form 10-Q in respect of the quarter ended 31 March 2006, S&J is involved in a shareholders’ class action and a derivative action brought by shareholders (see “ Information on Spear & Jackson — Shareholders’ Litigation ” at page 23 of this circular).

S&J stated in its latest Form 10-Q filed in respect of the quarter ended 31 March 2006 that, from time to time, it is 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 matter, and that while it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities including lawsuits, S&J 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 S&J.

As at the Latest Practicable Date, so far as the Directors are aware, there has been no material development in the Shareholders’ Litigation or other litigation affecting S&J other than as disclosed in the SEC filings of S&J, including the abovereferenced Forms 10-K & Forms 10-Q.

6. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with the Company or any of its subsidiaries, excluding contracts that can be terminated by the Company within one year without payment of compensation other than statutory compensation.

7. MATERIAL CONTRACTS

The following contract (not being a contract entered into the ordinary course of business carried on by the UPI Group) has been entered into by the Company or its subsidiaries within the two years immediately preceding the date of this circular and is or may be material:

(i) The Stock Purchase Agreement dated as of 23 March 2006 between the Company and Jacuzzi Brands, Inc., as amended as of 4 May 2006 and further amended as of 10 July 2006.

8. EXPERTS

The following is the qualification of the expert who has given opinions or advice contained in this circular:

Name

Qualification

Watson Wyatt Limited (“Watson Wyatt”) Actuaries

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GENERAL INFORMATION

APPENDIX III

Watson Wyatt has given and has not withdrawn its written consent to the issue of this circular with references to its name in the form and context in which it appears.

As at the Latest Practicable Date, Watson Wyatt was not beneficially interested in the share capital of any member of the UPI Group nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the UPI Group, or any interest, either direct or indirect, in any assets which have been, since 31 March 2006, the date to which the latest published audited consolidated financial statements of the UPI Group were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the UPI Group.

9. COMPETING INTERESTS

(a) As at the Latest Practicable Date, none of the Directors or their associates had any direct or indirect interest in any assets which have been, since 31 March 2006 (being the date to which the latest published audited consolidated financial statements of the UPI Group were made up), acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the UPI Group.
(b) Save as disclosed in this circular, as at the Latest Practicable Date, none of the Directors or their associates was materially interested in any contract or arrangement entered into by any member of the UPI Group and subsisting at the date of this circular which was significant in relation to the business of the UPI Group (see “ Interests of Mr. Beazer and Mr. Clarke ” at page 16 of this circular).
(c) As at the Latest Practicable Date, none of the Directors or their associates had any interests in a business, apart from the business of the UPI Group, which competes or is likely to compete, either directly or indirectly, with the business of the UPI Group.

10. PROCEDURES FOR DEMANDING A POLL AT THE SGM

Pursuant to Bye-Law 73 of the Bye-Laws of the Company, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

(i) by the Chairman of the meeting; or
(ii) by at least three Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(iii) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all the Shareholders having the right to vote at the meeting; or

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GENERAL INFORMATION

APPENDIX III

(iv) by any Shareholder or Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the Shares conferring that right.

11. GENERAL

The transfer office and branch share registrar of the Company in Hong Kong is Secretaries Limited, located at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
The company secretary and qualified accountant of the Company is Ms. Maria Lam. She is a qualified member of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants.

12. LANGUAGE

In the event of inconsistency, the English text of this circular will prevail over the Chinese text.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the office of the Company at Unit 2705-6, 27th Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong from the date of this circular up to and including 28 July 2006 and at the SGM:

(a) the memorandum and Bye-laws of the Company;
(b) the annual reports of the Company for the three years ended 31 March 2006;
(c) the Stock Purchase Agreement together with Amendment No. 1 dated as of 4 May 2006 and Amendment No. 2 dated as of 10 July 2006;
(d) Forms 10-K filed with the SEC by S&J in respect of the financial years ended 30 September 2003, 2004 and 2005, and Forms 10-Q filed with the SEC by S&J in respect of the quarters ended 31 March 2006 and 31 March 2005;
(e) the letter from Trustees of the Pension Plan to Mr. Brian Beazer dated 17 May 2006;
(f) the comfort letter from the Pensions Regulator to the Company and Jacuzzi dated 5 July 2006;
(g) the letter from Trustees of the Pension Plan to the Pensions Regulator dated 6 July 2006; and
(h) the consent letter from Watson Wyatt referred to in the paragraph headed “Experts” in this appendix.

— 293 —

NOTICE OF SGM

==> picture [36 x 36] intentionally omitted <==

United Pacific Industries

UNITED PACIFIC INDUSTRIES LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 00176)

website:http://www.irasia.com/listco/hk/upi/index.htm

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting of the shareholders of United Pacific Industries Limited (the “ Company ”) will be held at The Laurel, Level 3, of Renaissance Kowloon Hotel at 22 Salisbury Road, Tsim Sha Tsui, Kowloon, Hong Kong on 28 July 2006 at 10:30 a.m. (or so soon thereafter following the conclusion or adjournment of the annual general meeting of the Company to be held at 10:00 a.m. on the same day at the same place) for the purpose of considering and, if thought fit, passing with or without modifications, the following resolution

AS AN ORDINARY RESOLUTION:

“ THAT the Stock Purchase Agreement (as defined in the circular dated 13 July 2006 (the “Circular”) despatched to the shareholders of the Company), a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for identification purpose, and the transactions contemplated therein, be and are hereby generally and unconditionally approved and the Directors of the Company be and are hereby authorized to do such things as they may consider necessary to give effect to such transactions.”

By order of the Board UNITED PACIFIC INDUSTRIES LIMITED Brian C Beazer Executive Chairman

Hong Kong, 13 July 2006

Registered office:

Clarendon House Church Street Hamilton HM 11 Bermuda

Principal Place of Business in Hong Kong: Unit 2705-6, 27/F., Vicwood Plaza 199 Des Voeux Road Central Hong Kong

Notes:

Any member entitled to attend and vote at the SGM is entitled to appoint up to two proxies to attend and vote in his stead. A proxy need not be a member of the Company.

— 294 —

NOTICE OF SGM

To be valid, a form of appointment of proxy and/or corporate representative, together with a power of attorney or other authority, if any, under which it is signed, or a notarially certified copy thereof, must be delivered to the Company’s principal place of business in Hong Kong at Unit 2705-6, 27/F., Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong not later than 48 hours before the time appointed for holding the SGM or any adjournment thereof.
The Register of Members will be closed from Monday, 24 July 2006 to Friday, 28 July 2006 (both days inclusive), during which period no transfer of shares will be registered. In order to determine who are entitled to attend and vote at the Meeting, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Hong Kong share registrar in Hong Kong, Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not later than 4:00 p.m. on Friday, 21 July 2006.

— 295 —

AI assistant

Richly Field China Development Limited — Proxy Solicitation & Information Statement 2006

49117_rns_2006-07-13_c8059c15-8e1f-4c63-b617-bf3605ba2cd8.pdf

United Pacific Industries

UNITED PACIFIC INDUSTRIES LIMITED

PROPOSED VERY SUBSTANTIAL ACQUISITION OF A CONTROLLING INTEREST IN SPEAR & JACKSON, INC.

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

United Pacific Industries

UNITED PACIFIC INDUSTRIES LIMITED

PROPOSED VERY SUBSTANTIAL ACQUISITION OF A CONTROLLING INTEREST IN SPEAR & JACKSON, INC.

1. INTRODUCTION

LETTER FROM THE BOARD

2. SUMMARY TERMS OF THE STOCK PURCHASE AGREEMENT

Parties

3. CONSIDERATION

LETTER FROM THE BOARD

4. FINANCING

5. CONDITIONS PRECEDENT

LETTER FROM THE BOARD

6. REASONS FOR AND BENEFITS OF THE ACQUISITION

● Distribution channels

● Market penetration

● China insight and experience

● Collaborative engineering

There is no assurance that all or any of the above synergies will be achieved in whole or in

7. VERY SUBSTANTIAL ACQUISITION

8. INTERESTS OF MR. BEAZER AND MR. CLARKE

9. INFORMATION ON JACUZZI BRANDS, INC.

LETTER FROM THE BOARD

10. FURTHER INFORMATION AND WAIVER FROM STRICT COMPLIANCE WITH THE LISTING RULES

LETTER FROM THE BOARD

11. INFORMATION ON SPEAR & JACKSON

(A) Spear & Jackson, Inc.

Background

LETTER FROM THE BOARD

Board of Directors

Nevada Statutes

SEC Enforcement Proceedings

Corporate Monitor

Shareholders’ Litigation

(B) Spear & Jackson UK

History

Business

LETTER FROM THE BOARD

Pension Plan Liabilities

Cash contributions

Accounting position

Cash Contribution Deficit as at 31 May 2006

LETTER FROM THE BOARD

Pensions Regulator’s Comfort Letter and Company’s Indemnity to Jacuzzi

LETTER FROM THE BOARD

12. FINANCIAL AND TRADING PROSPECTS OF THE UPI GROUP

13. FINANCIAL EFFECTS OF ACQUISITION

(a) Net assets

(b) Earnings

(c) Liabilities

14. DIRECTORS AND MANAGEMENT

LETTER FROM THE BOARD

Maria Yuen Man Lam Senior Director of Finance and Company Secretary, UPI

Brian C Beazer — Chairman, UPI

15. GENERAL

16. SPECIAL GENERAL MEETING

LETTER FROM THE BOARD

17. RECOMMENDATION

18. FURTHER INFORMATION

A. FINANCIAL INFORMATION

Summary of Consolidated Income Statement

Consolidated Balance Sheet

Consolidated Balance Sheet

B. SUMMARY OF AUDITED FINANCIAL RESULTS

Consolidated Income Statement

Consolidated Balance Sheet

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

Consolidated Cash Flow Statement

NOTES TO THE FINANCIAL STATEMENTS

Richly Field China Development Limited Proxy Solicitation & Information Statement 2006