**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

___________________________________

**FORM 10-K**

(Mark            One)

**xANNUAL REPORT UNDER SECTION 13 OR            15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For            the fiscal year ended: November 24, 2007

 

**oTRANSITION REPORT UNDER SECTION 13 OR            15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For            the transition period from --- to ---

Commission File Number: 001-33342

 

**Novamerican Steel Inc.**

(Exact name of registrant as specified in its charter)

___________________________________

 

| Delaware                                                                                  | 20-4790836                                                                      |
|-------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------|
| (State or Other Jurisdiction of Incorporation or                            Organization) | (I.R.S. Employer Identification No.)                                            |
|                                                                                      |                                                                            |
| 28 West 44th Street, 16th Floor,                            New York, NY 10036            | (646) 429-1505                                                                  |
| (Address of principal executive offices)                                                  | (Registrant's telephone number, including area                            code) |

 

**SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE            ACT:**

 

| Title of each class                      | Name of each exchange on which registered |
|------------------------------------------|-------------------------------------------|
| Common stock, par value $0.001 per share | The Nasdaq Stock Market LLC               |
| Warrants                                 | The Nasdaq Stock Market LLC               |

 

**SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE            ACT:**

None

 

Indicate by check mark if the registrant is a well-known seasoned            issuer, as defined in Rule 405 of the Securities Act.

YesoNox

 

Indicate by check mark if the registrant is not required to file reports            pursuant to Section 13 or Section 15(d) of the Act.

YesoNox

 

Indicate by check mark whether the registrant: (1) has filed all reports            required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934            during the preceding 12 months (or for such shorter period that the registrant was            required to file such reports), and (2) has been subject to such filing requirements            for the past 90 days.      YesxNoo

 

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

 

Indicate by check mark whether the registrant is a large accelerated            filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.            See definitions of "large accelerated filer," "accelerated filer" and "smaller            reporting company" in Rule 12b-2 of the Exchange Act

 

| Large accelerated filero                                                                       | Accelerated filero         |
|------------------------------------------------------------------------------------------------|----------------------------|
| Non-accelerated filerx(Do not check if a                            smaller reporting company) | Smaller reporting companyo |

 

The            aggregate market value of our outstanding common stock held by non-affiliates, computed            by reference to the closing price of our common stock on June 29, 2007, was            approximately $142,036,451. On February 15, 2008, 21,452,304 shares of our common stock            were outstanding

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The            information required under Part III is incorporated by reference from Novamerican Steel            Inc.'s Proxy Statement for the Annual Meeting of Stockholders to be held on May 13,            2008, which will be filed on or about March 24, 2008.

 

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**TABLE OF CONTENTS**

 

|              | Page                                                                                                                            |
|-------------------|---------------------------------------------------------------------------------------------------------------------------------|
| PRELIMINARY NOTES | 1                                                                                                                               |
|              |                                                                                                                            |
| PART I            |                                                                                                                            |
| ITEM 1.           | Business                                                                                                                        | 4 |
|              |                                                                                                                            |   |
| ITEM 1A.          | Risk Factors                                                                                                                    | 9 |
|              |                                                                                                                            |   |
| ITEM 1B.          | Unresolved Staff Comments                                                                                                       | 14 |
|              |                                                                                                                            |   |
| ITEM 2.           | Property                                                                                                                        | 14 |
|              |                                                                                                                            |   |
| ITEM 3.           | Legal Proceedings                                                                                                               | 16 |
|              |                                                                                                                            |   |
| ITEM 4.           | Submission of Matters to a Vote of                            Shareholders                                                      | 17 |
|              |                                                                                                                            |   |
| PART II           |                                                                                                                            |
|              |                                                                                                                            |   |
| ITEM 5.           | Market for Common Equity, Related Shareholder Matters                            and Issuer Purchases of Equity Securities      | 18 |
|              |                                                                                                                            |   |
| ITEM 6.           | Selected Financial Data                                                                                                         | 19 |
|              |                                                                                                                            |   |
| ITEM 7.           | Management's Discussion and Analysis of Financial                            Condition and Results of Operations                | 21 |
|              |                                                                                                                            |   |
| ITEM 7A.          | Quantitative and Qualitative Disclosures About Market                            Risk                                           | 35 |
|              |                                                                                                                            |   |
| ITEM 8.           | Consolidated Financial Statements                                                                                               | 36 |
|              |                                                                                                                            |   |
| ITEM 9.           | Changes in and Disagreements with Accountants on                            Accounting and Financial Disclosure                 | 38 |
|              |                                                                                                                            |   |
| ITEM 9A.          | Controls and Procedures                                                                                                         | 38 |
|              |                                                                                                                            |   |
| ITEM 9B.          | Other Information                                                                                                               | 38 |
|              |                                                                                                                            |   |
| PART III          |                                                                                                                            |
|              |                                                                                                                            |   |
| ITEM 10.          | Directors, Executive Officers and Control Persons;                            Compliance with Section 16(A) of the Exchange Act | 38 |
|              |                                                                                                                            |   |
| ITEM 11.          | Executive Compensation                                                                                                          | 38 |
|              |                                                                                                                            |   |
| ITEM 12.          | Security Ownership of Certain Beneficial Owners and                            Management and Related Stockholder Matters       | 38 |
|              |                                                                                                                            |   |
| ITEM 13.          | Certain Relationships and Related Transactions, and                            Director Independence                            | 38 |
|              |                                                                                                                            |   |
| ITEM 14.          | Principal Accountant Fees and Services                                                                                          | 38 |
|              |                                                                                                                            |   |
| ITEM 15.          | Exhibits                                                                                                                        | 39 |
|              |                                                                                                                            |   |
| SIGNATURES        | 41                                                                                                                              |
|                   |                                                                                                                                 |  |  |

 

 

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**PRELIMINARY NOTES**

 

***Important Terms and Information***

 

"Acquisition" refers to the acquisition of Acquired Company under an            arrangement agreement pursuant to which (i) Symmetry acquired all of the outstanding            common shares of Acquired Company and (ii) certain of Acquired Company's wholly-owned            Canadian subsidiaries were wound-up, amalgamated or otherwise combined with Acquired            Company to form Novamerican Steel Canada Inc., in each case in accordance with the            terms of a court-approved statutory plan of arrangement under the Canada Business            Corporations Act.

 

"Acquired Company" refers to Novamerican Steel Inc., a corporation            incorporated under the laws of Canada, and its subsidiaries before consummation of the            Acquisition. Upon consummation of the Acquisition, Acquired Company became an indirect,            wholly-owned subsidiary of Novamerican Steel.

 

"Novamerican Steel" refers to Novamerican Steel Inc., formerly Symmetry,            a corporation incorporated under the laws of Delaware, and its subsidiaries after            consummation of the Acquisition.

 

"Symmetry" refers to Symmetry Holdings Inc., a corporation incorporated            in Delaware. On December 5, 2007, Symmetry changed its name to Novamerican Steel Inc.            Symmetry is the public parent company of Novamerican Steel Finco Inc. and Novamerican            Steel Holdings Inc.

 

"We," "us," "our" and the "Company" refer collectively to Novamerican            Steel and its subsidiaries after the consummation of the Acquisition and to Acquired            Company before the consummation of the Acquisition, unless the context otherwise            requires.

 

Unless otherwise noted, when we refer to "dollars" or "$," we mean U.S.            dollars.

 

As a result of the consummation of the Acquisition ten days before the            end of Acquired Company's fiscal year end, this Report contains audited financial            information for Novamerican Steel as well as certain historical financial information            for Acquired Company. Specifically, this Report includes audited financial statements            for Symmetry for (a) the period April 26, 2006 (inception) through December 31, 2006            ("fiscal year 2006"), and (b) the period January 1, 2007 through November 24, 2007,            including the financial results of Acquired Company for the ten day period commencing            on the Acquisition date (November 15, 2007) through November 24, 2007 ("fiscal year            2007").

 

This Report also includes selected historical audited financial            information for Acquired Company only for the period November 26, 2005 through November            25, 2006 ("Acquired Company's fiscal year 2006"). This Report also includes other            selected 2007 unaudited financial and other information of Acquired Company ("Acquired            Company's fiscal year 2007"), including sales, market and employee data.

 

This Report also includes unaudited pro forma condensed consolidated            financial information that combines the historical statements of operations of (a)            Acquired Company for the period from November 26, 2006 to November 24, 2007 and for            Novamerican Steel for the period from January 1, 2007 to November 24, 2007, giving            effect to the Acquisition as if it had occurred on January 1, 2007 ("2007 pro formas"),            and (b) Acquired Company for the period November 27, 2005 to November 25, 2006 and for            Novamerican Steel for the period January 1, 2006 (commencing with its inception on            April 26, 2006) to December 31, 2006, giving effect to the Acquisition as if it had            occurred on January 1, 2006 ("2006 pro formas").

 

***Industry and Market Data***

 

We obtained the industry, market and competitive position data used            throughout this Report from our own internal estimates and research as well as from            industry publications and research, surveys and studies conducted by third parties.            Industry publications, studies and surveys generally state that they have been obtained            from sources believed to be reliable, although they do not guarantee the accuracy or            completeness of such information. While we believe that each of these publications,            studies and surveys is reliable, we have not independently verified industry, market            and competitive position data from third-party sources. While we believe our internal            business research is reliable and the market definitions are appropriate, neither such            research nor these definitions have been verified by any independent source. None of            the sources mentioned above has consented to the disclosure or use of data in this            Report. Our estimates involve risks and uncertainties and are subject to change based            on various factors, including those discussed under "Forward-Looking Statements" and            "Risk Factors" in this Report.

 

1

 

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***Forward-Looking Statements***

 

This Report contains forward-looking statements. All statements, other            than statements of historical facts, included in this Report, are forward-looking            statements. In addition, we or our representatives have made or may make            forward-looking statements on telephone or conference calls, by webcasts or e-mails, in            person, in presentations or written materials, or otherwise. These include statements            about matters such as: growth rates for, future prices and sales of, and demand for our            products and our customers’ products; changes in production capacity in our            operations and our customers' operations; costs of materials and production, including            anticipated increases therein; productivity, business process and operational            initiatives, and their impact on us; our position in markets we serve; employment and            contributions of key personnel; employee relations and collective bargaining agreements            covering many of our operations; tax rates; capital expenditures and their impact on            us; nature and timing of restructuring charges and industry market conditions and the            impact thereof; interest rate management activities; currency rate management            activities; deleveraging activities; rationalization, restructuring, realignment,            strategic alliance, raw material and supply chain, technology development and            collaboration, investment, acquisition, venture, consulting, operational, tax,            financial and capital projects; legal proceedings, contingencies, and environmental            compliance; potential offerings, sales and other actions regarding debt or equity            securities of us or our subsidiaries; and future asset sales, costs, working capital,            revenues, business opportunities, debt levels, cash flows, cost savings and reductions,            margins, earnings and growth. When used in this document, the words "believe,"            "expect," "anticipate," "estimate," "project," "plan," "should," "intend," "may,"            "will," "would," "potential" and similar expressions are intended to identify            forward-looking statements.

 

These statements are based on assumptions and assessments made by our            management in light of their experience and their perception of historical trends,            current conditions, expected future developments and other factors they believe to be            appropriate. Any forward-looking statements are not guarantees of our future            performance and are subject to risks and uncertainties that could cause actual results,            developments and business decisions to differ materially from those contemplated by            such forward-looking statements. We disclaim any duty to update any forward-looking            statements. Some of the factors that may cause actual results, developments and            business decisions to differ materially from those contemplated by such forward-looking            statements include the risk factors discussed under the heading "Risk factors" and the            following:

 

|   | **•** | our substantial indebtedness; |
|--------|------------|-------------------------------|

|   | **•** | our ability to service our outstanding indebtedness and                            the impact such indebtedness may have on the way we operate our                            business; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | material adverse changes affecting us or our                            businesses; |
|--------|------------|-------------------------------------------------------------------------------------|

|   | **•** | our failure to continue to comply with government                            regulations; |
|--------|------------|-------------------------------------------------------------------------------------------|

|   | **•** | adoption of or changes in legislation or regulatory                            environments or requirements adversely affecting our                            businesses; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | changes in the financial stability of our major                            customers or in demand for our products and services; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | interruptions in our production capabilities due to                            unexpected equipment failures; |
|--------|------------|---------------------------------------------------------------------------------------------------------------|

|   | **•** | fluctuation of prices for steel and other raw materials                            or a shortage of supply; |
|--------|------------|-------------------------------------------------------------------------------------------------------------|

|   | **•** | changes in generally accepted accounting                            principles; |
|--------|------------|---------------------------------------------------------------------------------|

|   | **•** | geopolitical events; |
|--------|------------|----------------------|

|   | **•** | competition in the industry; |
|--------|------------|------------------------------|

|   | **•** | industry consolidation; |
|--------|------------|-------------------------|

|   | **•** | our ability to implement our business                            strategies; |
|--------|------------|------------------------------------------------------------------------------|

|   | **•** | disruptions in our business; |
|--------|------------|------------------------------|

|   | **•** | currency risks; |
|--------|------------|-----------------|

|   | **•** | our ability to meet our objective of growing revenues                            organically; |
|--------|------------|-----------------------------------------------------------------------------------------------|

|   | **•** | our ability to attract and retain key sales, marketing                            and operations management professionals; |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------|

 

2

 

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|   | **•** | successful consummation and integration of                            acquisitions; |
|--------|------------|-------------------------------------------------------------------------------------|

|   | **•** | matters related to claims, lawsuits and related                            proceedings; |
|--------|------------|-----------------------------------------------------------------------------------------|

|   | **•** | our ability to maintain an effective system of internal                            controls over financial reporting; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------|

|   | **•** | geographic concentration of our business; |
|--------|------------|-------------------------------------------|

|   | **•** | general economic conditions affecting the                            industry; |
|--------|------------|--------------------------------------------------------------------------------|

|   | **•** | work stoppages or our inability to renegotiate labor                            contracts when they expire; |
|--------|------------|-------------------------------------------------------------------------------------------------------------|

|   | **•** | outsourcing by our customers to overseas facilities;                            and |
|--------|------------|-------------------------------------------------------------------------------------|

|   | **•** | other factors as described in this Report, including                            factors set forth under "Risk factors." |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------|

Accordingly, actual results may differ materially from those set forth            in the forward-looking statements. Occurrence of any of the events or circumstances            described above could also have a material adverse effect on our business, financial            condition, results of operations, cash flows or the market price of our common stock or            our warrants.

 

All subsequent written and oral forward-looking statements by or            attributable to us or persons acting on our behalf are expressly qualified in their            entirety by these factors.

 

***Trademarks***

 

The DecalogueTM is a trademark of Dr. Domenico Lepore, our            President, and is licensed to us pursuant to an agreement dated September 15, 2006. All            other trademarks or service marks used herein are trademarks or service marks of the            companies that use them.

 

3

 

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**PART            I**

 

**ITEM 1. BUSINESS**

 

**The Company**

 

The Company was incorporated as Symmetry Holdings Inc. in Delaware on            April 26, 2006 as a development stage company formed for the purpose of acquiring,            through a merger, capital stock exchange, asset acquisition, stock purchase or other            similar business combination, one or more operating businesses. On March 12, 2007, our            initial public offering of 18,750,000 units was consummated, generating aggregate gross            proceeds of $150.0 million. Each unit consisted of one share of common stock and one            warrant. Each warrant entitles the holder to purchase from us one share of our common            stock at an exercise price of $5.50. Our common stock and warrants started trading            separately as of April 4, 2007. On December 5, 2007, the Company filed with the            Secretary of State of the State of Delaware a Certificate of Ownership and Merger            merging a newly formed Delaware company, Novamerican Steel Inc., into the Company            pursuant to Section 253 of the Delaware General Corporation Law. Pursuant to such            Certificate of Ownership and Merger, the Company's Amended and Restated Certificate of            Incorporation was amended to change its name to Novamerican Steel Inc.

 

**Description of the Acquisition**

 

On November 15, 2007, the Company completed the Acquisition. The            Acquisition had been approved by the Company's stockholders on October 25, 2007 and by            Acquired Company's shareholders on October 31, 2007. The Acquisition was carried out            pursuant to an arrangement agreement, dated June 21, 2007, between the Company, its            wholly-owned indirect subsidiary ("Acquisitionco") and Acquired Company (the            "Arrangement Agreement") under a court-approved statutory plan of arrangement governed            by the Canada Business Corporations Act. The Company's stockholders who properly            exercised their conversion rights received $7.84 in cash per share. A total of            3,860,196 shares were converted for an aggregate of $30.3 million in cash. Under the            terms of the Arrangement Agreement, the shareholders of Acquired Company received            $56.00 in cash per share ($585.2 million in cash in the aggregate) for all of the            outstanding shares of Acquired Company.

 

Funding for the Acquisition purchase price and related expenses was            provided by (i) debt financing, including borrowings under a $175.0 million senior            secured asset-based credit facility ("ABL Credit Facility") and proceeds from the sale            of $315.0 million aggregate principal amount of senior secured notes ("Notes"), (ii)            the sale in a private placement of 1,875,000 units of the Company for $15.0 million, or            $8.00 per unit, to certain of the Company's affiliates, with each unit consisting of            one share of common stock and one warrant to purchase one share of common stock at a            price of $5.50, exercisable from March 7, 2008 until expiration on November 15, 2011;            and (iii) approximately $112.0 million of cash held in trust by the Company that was            raised in its initial public offering in March 2007.

 

**Business Overview**

 

We are a well-established steel processor, tubing manufacturer and            service center, operating in the Northeastern, Mid-Atlantic and Mid-Western United            States and in the Canadian provinces of Québec and Ontario. Since the inception            of Acquired Company in 1979, we have grown our business internally through identifying            and capturing niche opportunities in steel manufacturing and processing, and through            selective acquisitions. We operate a network of 22 manufacturing, processing and            distribution facilities in the United States and Canada. This has enabled us to become            a well diversified, multi-process provider of value-added services in several            processing and geographic niches. We believe we are one of the three primary producers            in North America of hydroform quality tubing used by the automotive industry, and one            of only two independent continuous process picklers in Canada. We also believe our            in-line temper mill, which became operational in 2005, makes us the only provider of            this high-precision service in Canada that is not integrated with a primary steel            producer.

 

We process and distribute carbon steel, stainless steel and aluminum            products and operate as an intermediary between primary metal producers and the            manufacturers that require processed metal, often on a just-in-time delivery basis. We            produce steel tubing in various sizes for use in the structural and automotive markets            (including tubing used in hydroforming). We also produce roll formed steel sections and            manufacture heavy equipment parts and accessories. Our flat rolled processing            capabilities include pickling, slitting, blanking, leveling, temper-rolling and            cutting-to-length to precise customer specifications. Additionally, we perform many of            these processing services for customers who provide their own steel, referred to in the            industry as toll processing. For a detailed description of our steel processing            services, see "Products and Services."

 

**Industry Overview**

 

Steel companies typically fall into three categories of business:            primary producers, intermediate processors and service centers. Primary producers            typically sell in bulk, with intermediate processors and service centers comprising a            large part of their

 

4

 

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customer base. However, high-volume downstream customers will at times            purchase from steel companies in each of the three categories. Intermediate processors            are typically positioned in the value chain between primary producers and major            industrial customers of processed steel, which include automobile and appliance            manufacturers and construction companies. Our business model includes activities of            both the processor and service center categories.

 

Steel processors and service centers play a key role in the industry            supply chain, from precision steel and alloy processing to order aggregation,            warehousing and distribution of unprocessed metal products. They respond directly to            customers' needs to meet precise specifications regarding length, width, shape and            surface characteristics on relatively small orders. Specialized equipment is used to            perform processing operations such as cutting-to-length, slitting, shearing, roll            forming, shape correction, surface improvement, blanking, temper rolling, plate burning            and stamping. The consolidation of steel producers and the increasing prevalence of            modern supply chain management practices by downstream steel customers have increased            the importance in the supply chain of larger scale service centers with the operational            resources to efficiently perform value added processing and manage large, diverse            inventory bases. Downstream steel buyers have increasingly sought to purchase steel on            shorter lead times and with more frequent, flexible and reliable deliveries. U.S. and            Canadian service center flat-rolled steel inventories represent an indicator of the            near term supply/demand dynamic of steel service centers. According to the Metals            Service Center Institute, in November 2007, this statistic for U.S. service centers            measured approximately three months of seasonally adjusted supply, approaching the            cyclical low-point of the past 15 years, and suggesting a positive outlook for demand            for steel products over the medium term.

 

Carbon steel production in North America has consolidated significantly            over the last few years. According to Metal Strategies, Inc., the three largest U.S.            steel producers currently account for over 60.0% of U.S. flat rolled production. In            addition, a substantial majority of Canadian steel producers have been acquired by            foreign purchasers, including Stelco (by U.S. Steel), Algoma Steel (by Essar Global of            India), Dofasco (by Arcelor Mittal), IPSCO (by SSAB of Sweden) and Co-Steel (by Gerdeau            of Brazil) adding to the North American consolidation. Consolidation is widely expected            to continue. Steel prices more than doubled during 2004, as a resurgence of global            economic growth led to a sharp increase in demand for steel and the raw materials used            to make it. In particular, steel demand in China grew by an average of 18.0% annually            between 2003 and 2007, due to the country's increasingly rapid growth and development.            Consolidation was also a factor, as increasingly global producers began to exercise            better management practices with respect to capacity management, production scheduling            and marketing. Although steel prices declined somewhat following the spike in 2004,            they have remained elevated relative to the decade preceding 2004. We believe steel            prices have firmed up for the foreseeable future at levels much higher than those            experienced earlier this decade. We expect global hot-rolled coil prices to remain in            the $500-600 per ton range over the medium-to-long term, although current 2008 pricing            in North America appears in excess of these levels. Key drivers for this include            continuing rapid growth in per-capita steel consumption rates in developing regions            (including China and India), tighter global raw material supply (due in part to a            consolidated base of mining companies) and limited greenfield and brownfield            development of new steelmaking capacity. In North America, current supply constraints            and the absence of imports have put additional upward pressure on hot-rolled coil            prices.

 

**Products and Services**

 

Our services include the following traditional service center            processes:

 

|   | **•** | slitting: the cutting of steel to specified widths along                            the length of steel coil; |
|--------|------------|---------------------------------------------------------------------------------------------------------------|

|   | **•** | leveling: a process used to flatten shape deficiencies                            in steel coil; and |
|--------|------------|------------------------------------------------------------------------------------------------------|

|   | **•** | cutting-to-length: cutting steel across the width of                            steel coil. |
|--------|------------|---------------------------------------------------------------------------------------------|

Our services also include higher value-added processes, which process            and transform steel to specified lengths, widths and shapes pursuant to specific            customer orders, including the following:

 

|   | **•** | roll forming: flat rolled coils can be pre-punched,                            in-line welded and formed into sophisticated shapes for specific                            purposes; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | blanking: the cutting of steel into specific shapes with                            close tolerances; |
|--------|------------|-------------------------------------------------------------------------------------------------------|

|   | **•** | plate burning: the process of cutting steel, typically                            in excess of one inch thick, into specific shapes and sizes; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | temper rolling: an in-line process that improves the                            surface finish and flatness of cut-to-length sheet and plate and that                            eliminates coil memory or springback; and |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

5

 

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|   | **•** | pickling: an in-line process for cleaning hot-rolled                            steel coils of rust, scale and dirt. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------|

Tubing is a process by which flat rolled coils are formed into circular,            oval, square or rectangular shapes and the seams are electric resistance welded. We            produce steel tubing in various sizes for use in the structural and automotive markets.            Our tubing operations are presently structured as follows:

 

|   | **•** | five mills, of which three are located in Canada and two                            are located in the United States; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------|

|   | **•** | a majority of our tube production is hollow structural                            sections ("HSS") tubing used largely in construction, agricultural,                            infrastructure, transportation and industrial applications;                            and |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | our tube mills in Mississauga, Ontario, and                            Jeffersonville, Indiana, were constructed specifically to meet the                            needs of high pressure hydroforming for the automotive industry and                            include in-line precision cutting, finishing, testing and packaging                            capabilities. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Our distribution business is coordinated by our U.S. subsidiary,            American Steel and Aluminum Corporation ("ASA"), and:

 

|   | **•** | distributes steel, aluminum and stainless products                            including hot and cold rolled carbon, aluminum, stainless, alloys and                            coated products in sheet, coil, bar, shapes, tubular and plate forms;                            and |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | operates out of nine facilities in the Northeastern and                            Mid-Atlantic United States, strategically located in close proximity to                            our major customers and transportation routes. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Our manufacturing business is primarily handled by our Cresswell            Industries Group ("Cresswell") in Quebec. We produce roll formed steel sections and            manufacture heavy equipment parts and accessories. Cresswell operates out of four            facilities in Canada.

 

**Raw Materials**

 

The principal raw material used in our operations is flat rolled carbon            steel which we typically purchase from steel producers. The steel industry as a whole            is cyclical. At times, pricing and availability of steel can be volatile due to            numerous factors beyond our control, including general, regional and international            economic conditions, production levels, competition, import duties and tariffs and            currency exchange rates.

 

We purchase steel in an effort to maintain our inventory at levels that            we believe to be appropriate to satisfy the anticipated needs of our customers based            upon historical buying practices, contracts with customers and market conditions. We            generally purchase steel at prevailing market prices in effect at the time we place our            orders. In recent years, our steel suppliers have been significantly impacted by the            shortage of raw materials resulting in cost increases affecting scrap, coke, iron ore            and energy. This, together with a number of additional factors, including the strength            of the general economy, the increased consolidation of North American steel producers            and the demands for steel from the Asian markets has affected the availability and            prices of flat rolled carbon steel. During periods of rising prices for steel, we may            be negatively impacted by delays between the time of increases in the cost of metals to            us and increases in the prices that we charge for our products if we are unable to pass            these increased costs on to our customers immediately. In addition, when metal prices            decline, customer demand for lower prices could result in lower sale prices for our            products and, as we use existing inventory that we purchased at higher metal prices,            lower margins. Consequently, during periods in which we use this existing inventory,            the effects of changing metal prices could adversely affect our operating            results.

 

**Suppliers**

 

We purchase flat rolled carbon steel for processing from a number of            North American and international primary steel producers in quantities that we believe            are efficient for such producers. We concentrate on developing relationships with            high-quality North American integrated steel mills and mini-mills, as well as            international primary steel producers, and on becoming a valued customer of such            producers. We are a major customer of flat rolled coil for some of our principal            suppliers but are not dependent on any one supplier. In 2007, our top three steel            suppliers represented approximately 24.5% of our total steel purchasing cost. This            enables us to maintain continued sources of supply at what we believe are competitive            prices. We believe the accessibility and proximity of our facilities to major steel            producers will continue to be an important factor in our maintaining good relationships            with them.

 

6

 

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The steel industry has experienced consolidation in recent years.            Further consolidation could result in a decrease in the number of our major suppliers            or a decrease in the number of alternative supply sources available to us, which could            make it more likely that an inability to obtain steel and other metal products from our            traditional suppliers would result in a material adverse effect on our business,            financial condition or results of operations. Consolidation could also result in price            increases for the steel that we purchase. Such price increases could adversely affect            our results of operations if we were not able to pass these price increases on to our            customers.

 

**Sales and Marketing**

 

Each of our sales and distribution operations maintains its own sales            and marketing staff to serve the specific local needs of our customers. As of November            24, 2007, our combined sales force consisted of 134 salaried inside and outside sales            representatives of which 47 were commissioned representatives. In 2007, our sales            efforts were focused primarily on direct customer contact. We believe that management            selling is essential to our sales and marketing success. Consequently, our managers and            product managers, as well as our chief executive officer and president, are all active            in external sales. We feel that our commitment to quality, service and just-in-time            delivery has enhanced our ability to build and maintain strong customer            relationships.

 

**Customers and Distribution**

 

We serve over 5,100 customers in the United States and Canada. Our            diversified customer and geographic base serves to reduce our exposure to fluctuations            in business and economic cycles in particular industries and regions. In fiscal year            2007, our top 20 customers accounted for less than 36.0% of total net sales and only            one customer, General Motors, accounted for more than 10.0% of sales at 12.6%. No other            single customer accounted for more than 3.0% of total net sales. Our major customers            include automotive parts manufacturers and stampers, other steel service centers,            general fabricators and manufacturers of transportation equipment, material handling            equipment, electrical components, appliances, storage tanks, railway cars, ship            building material, construction and heavy equipment and agricultural equipment. In            fiscal year 2007 our sales to automobile manufacturers and their suppliers combined            with our sales to manufacturers supplying the automotive "after market" components and            parts accounted for approximately 27.3% of total net sales and our sales to other steel            service centers accounted for approximately 13.8% of total net sales.

 

Our facilities are strategically located to serve our broad customer            base, which is largely located in the Northeastern, Mid-Atlantic and Mid-Western United            States as well as Central Canada. These strategic locations allow us to operate an            efficient delivery system capable of handling a high volume of short lead-time orders.            We transport most of our products directly to customers via our own fleet of trucks and            through independent trucking and logistics firms.

 

The following table sets forth the net sales of Acquired Company for the            past two fiscal years:

 

|                  | **November 24,****2007**           |   | **November 25,****2006** |
|-----------------------|------------------------------------|--------|--------------------------|
|                  | **(In thousands of U.S. dollars)** |
| Canadian subsidiaries | $455,518                           |   | $481,278                 |
| U.S. subsidiaries     | 345,830                            |   | 359,520                  |
| Total                 | $801,348                           |   | $840,798                 |

 

**Management Information Systems**

 

We maintain management information systems, including bar coding            systems, which monitor and allocate inventory among our operations. In particular, the            inventory system at American Steel provides information to all sales and management            personnel on a real time basis which enables them to offer a wide range of products to            their customers on a timely basis without the need to maintain an inventory of the full            product line at all locations. Furthermore, our systems generally provide information            with respect to the buying patterns of our customers. Most of our systems have been            developed specifically for the management of our particular operations, such as our            processing and tubing operations. We have designed our systems to provide us with the            ability to adapt quickly to our customers' needs. We actively pursue opportunities to            streamline the cost and time associated with customer and supplier communications,            including electronic data interchange.

 

**Quality Standards**

 

Our quality control systems establish controls and procedures covering            all aspects of our products from the time the material is ordered by us through our            receipt, production and shipment to our customers. These controls and procedures            encompass periodic supplier audits, inspection criteria, traceability and            certification. From time to time, we have successfully

 

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undergone quality audits by certain of our larger customers. As of            November 24, 2007, 12 of our facilities have obtained ISO 9001:2000 certification, a            universal industrial quality control standard set by the International Organization for            Standardization. Furthermore, four of our facilities are TS16949 certified, the quality            standard established for the automotive industry. Our remaining facilities are seeking            ISO certification.

 

We provide a variety of processing services which have undergone            considerable evolution in the area of quality assurance to meet the stringent demands            of our customers, and in particular, the Ontario automotive market.

 

**Backlog**

 

Because of the just-in-time delivery policies of our customers and the            short lead-time nature of our business, we do not believe the information on backlog of            orders is material to an understanding of our metals service center            business.

 

**Competition**

 

The principal markets we serve are highly competitive. Our industry is            highly fragmented, consisting of numerous small and mid-sized companies, as well as a            few larger publicly traded companies. Our geographic market encompasses the            Northeastern, Mid-Atlantic and Mid-Western United States and the Canadian provinces of            Québec and Ontario. Within this geographic market, we compete with other            regional and national steel service centers, single location service centers and, to a            certain degree, primary steel producers and intermediate steel processors on a regional            basis. We have different competitors for each of our products and within each            geographic region.

 

We compete on the basis of price, product selection and availability,            customer service, quality processing capabilities, timely delivery and geographic            proximity. Our competitors may foresee the course of market development more accurately            than we do, produce similar products at a lower cost than we can or adapt more quickly            to new technologies or industry and customer requirements. In addition, certain of our            competitors have financial and operating resources in excess of our financial and            operating resources and may have less leverage than we do. As a result, these            competitors may be better positioned to respond to downward pricing pressures or other            adverse economic or industry conditions or to identify and acquire companies or product            lines compatible with their business.

 

In addition, our marketplace, particularly in structural tubing, is            becoming increasingly global, and lower cost imports may adversely affect our sales and            profit margins.

 

Although we have been able to successfully compete in the past, we may            not be able to continue to do so. Increased domestic and foreign competition could harm            our net sales and profitability in the future.

 

**Environmental**

 

Our operations and facilities are subject to comprehensive and            frequently changing federal, state, provincial and local laws and regulations in the            United States and Canada relating to the protection of the environment, including those            related to air emissions, wastewater discharges, treatment, storage and disposal of            hazardous substances and other materials and wastes, and in general, the emissions of            pollutants into the environment. Our Stoney Creek, Ontario processing facility and our            Cresswell, St. Hubert, Quebec manufacturing facility have obtained ISO 14000            certification.

 

We believe that we are in material compliance with all currently            applicable environmental laws and regulations. We do not anticipate any material            expenditure to meet environmental requirements and do not believe that continued            compliance with such existing laws and regulations will have a material adverse effect            on our operations or financial condition. However, we cannot predict the environmental            laws or regulations that may be enacted in the future or how existing or future laws            and regulations will be administered or interpreted. Compliance with more stringent            laws or regulations, as well as more vigorous enforcement policies of the regulatory            agencies or stricter interpretations of existing laws and regulations, may require            significant additional expenditures by us which could vary substantially from those            currently anticipated.

 

Our subsidiary ASA was named as one of 19 defendants in an action            brought in October 2001 by two private parties under the Comprehensive Environmental            Response Compensation and Liability Act, or CERCLA, to recover costs incurred and to be            incurred in connection with a waste disposal facility in Cumberland, RI, which has been            categorized as a Superfund site by federal authorities. The complaint was subsequently            amended twice to add additional defendants, aggregating to a total of 57 defendants.            The plaintiffs claim that ASA is liable based upon alleged shipments to the site by            ASA. The plaintiffs have identified over 100 potentially responsible parties, or PRPs,            and the Environmental Protection Agency, or EPA, has issued claim notice letters to 63            parties, some of which are defendants in the lawsuit. ASA received, on or about April            25, 2003, an EPA claim letter seeking reimbursement of costs incurred and to be            incurred at the site. ASA responded to the claim by denying liability for            the

 

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site. During 2006, ASA and approximately 25 other defendants in the            litigation entered into a settlement with the plaintiffs, with the approval of the EPA,            resolving the settling defendants' alleged liability for all claims for past and future            response and oversight costs in connection with the Remedial Investigation/Feasibility            Study for the site. The litigation remains pending against the non-settling defendants.            The settlement does not address future remediation costs, and we do not believe it is            currently possible to estimate our share, if any, of such costs, should claims for            their recovery be pursued against us. We believe that we have meritorious defenses            against any such claims, and we intend to defend our position vigorously should they be            pursued against us. However, we may not prevail in such event, and any significant loss            could have an adverse effect on our financial results.

 

Certain of the facilities that we occupy have been in operation for many            years and, over such time, we and the prior owners or operators of such properties may            have generated and disposed of wastes which are or may be in the future considered            hazardous. Although we are not aware of any such sites as to which material outstanding            obligations exist, it is possible that the discovery of additional contamination at            these or other sites could result in additional environmental liabilities.

 

**Governmental Regulation**

 

In addition to environmental laws and regulations our operations are            governed by many other laws and regulations, including, without limitation, those            relating to workplace safety and employee health. In addition, our subsidiaries and            affiliates own and lease trucks for transporting products at various facilities. The            operation and maintenance of these vehicles is governed by various safety regulations.            We believe that we are in compliance with these laws and regulations in all material            respects and we do not believe that continued compliance with such laws and regulations            will have a material adverse effect on our business, results of operations or financial            condition.

 

**Hedging**

 

We do not use derivative commodity instruments to hedge our exposure to            the impact of price fluctuations on our principal raw materials. We have in the past            and may in the future utilize forward contracts, from time to time, to hedge our            exposure to Canadian dollar exchange rate fluctuations in connection with future sales            and purchases denominated in U.S. dollars. Forward contracts are entered into with            reputable financial institutions and we do not enter or hold foreign exchange forward            contracts for trading purposes. There were no forward foreign exchange contracts            outstanding at November 24, 2007.

 

**Employees**

 

As of November 24, 2007, we employed approximately 954 employees, of            which approximately 13.8% were categorized as administrative employees, 64.2% as            production and warehouse, 14.1% as sales personnel and 7.9% as truck drivers.            Approximately 26.0% of our total employees, representing certain employees at nine of            our 22 facilities are organized by the United Steelworkers, the Teamsters, the Sheet            Metal Workers and independent employee associations. We are currently party to nine            collective bargaining agreements. Our labor contracts expire on staggered dates            beginning in June 2008. Specifically, the labor contract with the United Steel Workers            covering 11 employees at our Cumberland facility will expire in June 2008 and the labor            contract with employee associations covering 17 employees at our Norwood facility will            expire in December 2008. We do not presently anticipate that any work stoppages will            occur prior to renegotiation of these contracts. We believe that our relations with our            employees are satisfactory. We have not experienced a work stoppage by any of our            unions or employee associations in over 20 years.

 

**Seasonality**

 

Due to the impact of seasons and climate in the regions we predominantly            serve and the related seasonality of the businesses of our customers, demand for            certain of our products fluctuates during the winter months.

 

**ITEM 1A. RISK FACTORS**

 

*An investment in our securities involves a high degree of risk. The            risks described below are not the only ones facing us. Additional risks not presently            known to us, or that we currently deem immaterial, may also have a material adverse            effect on us. If any of the following risks actually occur, our financial condition,            results of operations, cash flows or business could be harmed. In that case, the market            price of our securities could decline, and you could lose part or all of your            investment.*

 

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**Risks Relating to Our Business**

 

***The prices we pay for steel and the prices we are able to charge            our customers for our products may fluctuate due to a number of factors beyond our            control, which could negatively affect the prices of our products, reduce our margins            of profitability and weaken our financial condition.***

 

The principal raw material used in our operations is flat rolled carbon            steel which we typically purchase from steel producers. The steel industry as a whole            is cyclical. At times, pricing and availability of steel can be volatile due to            numerous factors beyond our control, including general, regional and international            economic conditions, production levels, competition, import duties and tariffs and            currency exchange rates. This volatility can affect the availability and costs of raw            materials for us, and may therefore adversely affect our net sales, operating margin            and net income.

 

The cost of steel and other raw materials represented 75.7% and 79.1% of            our total net sales in fiscal year 2006 and 2007, respectively. We purchase steel in an            effort to maintain our inventory at levels that we believe to be appropriate to satisfy            the anticipated needs of our customers based upon historical buying practices,            contracts with customers, customer indications and market conditions. We generally            purchase steel at prevailing market prices in effect at the time we place our orders.            In recent years, our steel suppliers have been significantly affected by the shortage            of raw materials resulting in cost increases affecting scrap, coke, iron ore and            energy. This, together with a number of additional factors, including the strength of            the general economy, the increased consolidation of North American steel producers and            the demands for steel from the Asian markets has affected the availability and prices            of flat rolled carbon steel. During periods of rising prices for steel, we may be            negatively affected by delays between the time of increases in the cost of metals to us            and increases in the prices that we charge for our products if we are unable to pass            these increased costs on to our customers immediately. In addition, when metal prices            decline, customer demand for lower prices could result in lower sale prices for our            products and, as we use existing inventory that we purchased at higher metal prices,            lower margins. Consequently, during periods in which we use this existing inventory,            the effects of changing metal prices could adversely affect our operating results. Our            results of operations were adversely affected for fiscal year 2007 by the decrease in            prices of our products resulting from the decrease in prevailing market prices of            steel.

 

***Our business may be affected by the general economic conditions of            the industries that purchase our products. Reduced demand from any one of these            industries could result in lower operating income and profitability.***

 

Our profitability depends in part on the varying economic and other            conditions of the end-user markets we serve. Certain of our products are sold to            industries, including automotive, transportation and manufacturing, that experience            significant fluctuations in demand based on general economic conditions, energy prices,            seasonality, consumer demand and other factors beyond our control. As a result, our            customers' demand for our products may change and our customers may delay purchase            orders, extend seasonal shutdowns or discontinue operations at certain of their            manufacturing facilities and otherwise reduce production levels. We may have difficulty            increasing or maintaining our level of sales or profitability if we are not able to            divert sales of our products to customers in other industries when one or more of our            customers' industries experiences a decline. Any of these events would adversely affect            our profitability and cash flows.

 

Sales of our products for use in the automotive industry accounted for            approximately 23.6% of our net sales in fiscal year 2006 and approximately 27.3% of our            net sales for fiscal year 2007. Such sales include sales directly to the automobile            manufacturers and to their components and parts suppliers, as well as to manufacturers            supplying the automotive "after market" components and parts. The automobile industry            experiences fluctuation in demand based on numerous factors such as general economic            conditions and consumer confidence. The automobile industry is also subject, from time            to time, to labor problems, which may result in reduced demand for our products during            work stoppages.

 

In addition, although we do not generally sell our products directly to            customers outside of North America, our financial performance is nonetheless dependent            on a healthy economy outside North America. Our customers sell their products abroad            and some of our suppliers buy their raw materials outside North America. As a result,            our business is affected by general economic conditions and other factors outside North            America.

 

***An interruption in sources of steel supply could have a material            adverse effect on our results of operations.***

 

We purchase our raw materials, including flat rolled carbon steel and a            variety of other metals, on a frequent basis from a number of North American and            international primary steel producers. In 2007, our top three steel suppliers            represented approximately 24.5% of our total steel purchasing cost. If we are unable to            obtain sufficient amounts of steel and other metal products at competitive prices or on            a timely basis from our traditional suppliers (including by reason of the termination            of one or more of our relationships with our major suppliers), we may not be able to            obtain such products from alternative sources at competitive prices to satisfy our            customers' delivery schedules, which could materially adversely affect our business,            financial condition, results of operations and cash flows.

 

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In addition, the global steel industry has experienced significant            consolidation in recent years. Further consolidation could result in a decrease in the            number of major suppliers or a decrease in the number of alternative supply sources            available to us, which could make it more likely that an inability to obtain steel and            other metal products from our traditional suppliers would result in a material adverse            effect on our business, financial condition, results of operations and cash            flows.

 

***We are subject to product liability claims and other damage claims            with respect to the products we produce.***

 

In our business, we are exposed to product liability claims with respect            to defects in the products we produce, including those of our products that are            incorporated into the products of our customers, such as our customers in the            automotive and construction industries. In addition, we may be subject to liability to            our customers for damages incurred by them in the event that a defect or other            nonconformity in one of our products results in a recall of, or delay or other            disruption in the production of, a product of our customer into which our product is            incorporated. Any such claims or liabilities for which we are ultimately determined to            be responsible could materially adversely affect our financial condition and results of            operations, and could materially affect our reputation and relationships with our            customers.

 

***We extend trade credit to certain of our customers in the ordinary            course of business. Our results of operations may be adversely affected if these            customers are unable to repay this credit.***

 

We extend trade credit to our customers in the ordinary course of our            business, in some cases for large purchases and for extended periods of time. We are            therefore exposed to the risk that some of our customers may be unable to repay us,            whether as a result of conditions in the applicable end market or otherwise.            Significant defaults by our customers could adversely affect our financial condition            and results of operations.

 

***We may not be able to grow our business in the future or to manage            our growth effectively.***

 

Historically, we have managed to grow our business internally and            through selective acquisitions. In the future, we may not be able to identify and            capture growth opportunities and therefore we may not be able to grow our business at            the rate we have in the past, or at all. Further, acquisitions involve risks that the            businesses acquired will not perform in accordance with expectations and that business            judgments concerning the value, strengths and weaknesses of businesses acquired will            prove incorrect. Any new facility or operation or any future acquisitions, if            completed, may adversely affect our profitability by creating operating inefficiencies            that could increase our operating expenses as a percentage of sales and reduce our            operating income. In addition, the expansion of an existing facility or the            construction of a new facility could hinder our results of operations due to the effect            of start-up costs and the potential for underutilization in the start-up phase of a            facility. Acquisitions could also result in unforeseen difficulties in integrating the            acquired businesses with our existing business and could divert a disproportionate            amount of management time and attention which could decrease the time that they have to            service and attract customers and develop new products and services. We may not be able            to retain the management, key employees or significant customers of an acquired            business. Our inability to complete the integration of new businesses in a timely and            orderly manner may increase costs and otherwise adversely affect our financial            condition and results of operations.

 

Restrictions contained in the ABL Credit Facility and in the indenture            governing our Notes might also inhibit our ability to make certain investments,            including acquisitions and participation in joint ventures. Future acquisitions may            result in the incurrence of indebtedness and contingent liabilities and an increase in            interest and amortization expense or periodic impairment charges related to goodwill            and other intangible assets as well as significant charges relating to integration            costs. The incurrence of additional indebtedness to pay for expansion costs or            acquisition costs could harm our liquidity and financial stability. Although we            evaluate, from time-to-time, potential acquisitions, we currently have no            understandings, agreements or commitments to make any acquisitions.

 

***Our Canadian operations subject us to currency translation risk            which could cause our reported results to fluctuate significantly from period to            period.***

 

We receive a material portion of our revenue from our Canadian            operations in Canadian dollars. For each reporting period, we translate the results of            operations and financial condition from our Canadian operations into U.S. dollars.            Therefore, our reported results of operations and financial condition are subject to            changes in the exchange relationship between the two currencies. For example, as the            Canadian dollar strengthens against the U.S. dollar, our revenue, as reported, is            favorably affected and, conversely, expenses are unfavorably affected. Similarly, as            the relationship of the Canadian dollar weakens against the U.S. dollar, our revenue,            as reported, is unfavorably affected and, conversely, expenses are favorably affected.            Fluctuations in the relative values of the U.S. dollar and the Canadian dollar could            negatively affect our results of operations and assets and liabilities as reported in            our financial statements.

 

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***We could incur substantial costs in order to comply with, or to            address any violations or liabilities under, environmental and occupational health and            safety laws, significantly increasing our operating expenses and reducing our operating            income.***

 

Our operations and facilities, primarily our processing centers and            manufacturing facilities, are subject to comprehensive and frequently changing federal,            state, provincial and local laws and regulations in the United States and Canada            relating to the protection of the environment, including those related to air            emissions, wastewater discharges, treatment, storage and disposal of hazardous            substances and other materials and wastes, and in general, the emissions of pollutants            into the environment. We are also subject to occupational health and safety laws and            regulations. We have made, and will continue to make, significant expenditures to            comply with such laws and regulations. We cannot predict the environmental laws or            regulations that may be enacted in the future or how existing or future laws and            regulations will be administered or interpreted. Compliance with more stringent laws or            regulations, as well as more vigorous enforcement policies of the regulatory agencies            or stricter interpretations of existing laws and regulations, may require significant            additional expenditures by us which could vary substantially from those currently            anticipated.

 

We also could incur substantial costs, including cleanup costs, fines            and civil and criminal sanctions and third-party claims for property damage and            personal injury, as a result of violations of or liabilities under environmental laws            and regulations. For example, our subsidiary, ASA was named as one of 19 defendants in            an action brought in October 2001 by two private parties under the Comprehensive            Environmental Response Compensation and Liability Act, or CERCLA, to recover costs            incurred and to be incurred in connection with a waste disposal facility in Cumberland,            RI, which has been categorized as a Superfund site by federal authorities. The            complaint was subsequently amended twice to add additional defendants, aggregating to a            total of 57 defendants. The plaintiffs claim that ASA is liable based upon alleged            shipments to the site by ASA. The plaintiffs have identified over 100 potentially            responsible parties, or PRPs, and the Environmental Protection Agency, or EPA, has            issued claim notice letters to 63 parties, some of which are defendants in the lawsuit.            ASA received, on or about April 25, 2003, an EPA claim letter seeking reimbursement of            costs incurred and to be incurred at the site. ASA responded to the claim by denying            liability for the site. During 2006, ASA and approximately 25 other defendants in the            litigation entered into a settlement with the plaintiffs, with the approval of the EPA,            resolving the settling defendants' alleged liability for all claims for past and future            response and oversight costs in connection with the Remedial Investigation/Feasibility            Study for the site. The litigation remains pending against the non-settling defendants.            The settlement does not address future remediation costs, and we do not believe it is            currently possible to estimate our share, if any, of such costs, should claims for            their recovery be pursued against us. We believe that we have meritorious defenses            against any such claims, and we intend to defend our position vigorously should they be            pursued against us. However, we may not prevail in such event, and any significant loss            could have an adverse effect on our financial results.

 

Certain of the facilities that we occupy have been in operation for many            years and, over such time, we and the prior owners or operators of such properties may            have generated and disposed of wastes which are or may be in the future considered            hazardous. Although we are not aware of any such sites as to which material outstanding            obligations exist, it is possible that the discovery of contamination at these or other            sites could result in future environmental liabilities.

 

***Unexpected equipment failures may lead to production curtailments            or shutdowns.***

 

Interruptions in our production capabilities would increase our            production costs and reduce our sales and earnings for the affected period. In addition            to periodic equipment failures, our facilities are also subject to the risk of            catastrophic loss due to unanticipated events such as fires, explosions or violent            weather conditions. Our manufacturing processes are dependent upon critical pieces of            steel processing and manufacturing equipment, such as an in-line temper mill,            cut-to-length line, slitting line, pickling line, tube mill and roll forming and            stamping equipment, and this equipment may, on occasion, incur downtime as a result of            unanticipated failures. In particular, we do not have redundant capabilities with            respect to the output of our hydroform tubing lines in Mississauga, Ontario and            Jeffersonville, Indiana, or our pickling line in Stoney Creek, Ontario. We may in the            future experience material plant shutdowns or periods of reduced production as a result            of such equipment failures. Unexpected interruptions in our production capabilities            would adversely affect our productivity and results of operations. Moreover, any            interruption in production capability may require us to make significant capital            expenditures to remedy the problem, which would reduce the amount of cash available for            our operations. Our insurance may not cover our losses. In addition, long-term business            disruption could harm our reputation and result in a loss of customers, which could            adversely affect our business, results of operations and financial            condition.

 

***We operate in a highly fragmented and competitive industry and            increased competition could reduce our sales and profitability.***

 

The principal markets that we serve are highly competitive. Our industry            is highly fragmented, consisting of numerous small and mid-sized companies, as well as            a few larger publicly-traded companies. Our geographic market encompasses the            Northeastern, Mid-Atlantic and Mid-Western United States and the Canadian provinces of            Québec and Ontario. Within this

 

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geographic market, we compete with other regional and national steel            service centers, single location service centers and, to a certain degree, primary            steel producers and intermediate steel processors on a regional basis. We have            different competitors for each of our products and within each geographic            region.

 

We compete on the basis of price, product selection and inventory            availability, customer service, quality processing capabilities, timely delivery and            geographic proximity. Our competitors may foresee the course of market development more            accurately than we do, produce similar products at a lower cost than we can or adapt            more quickly to new technologies or industry and customer requirements. In addition,            certain of our competitors have financial and operating resources in excess of our            financial and operating resources and may have less financial leverage than we do. As a            result, these competitors may be better positioned to respond to downward pricing            pressures or other adverse economic or industry conditions or to identify and acquire            companies or product lines compatible with their business.

 

In addition, our marketplace is becoming increasingly global, and lower            cost imports may adversely effect our sales and profit margins. For instance, our            results of operations for fiscal year 2007 were negatively affected by a decline in            sale volume of structural tubing due to an increase of imported products.

 

Although we have been able to successfully compete in the past, we may            not be able to continue to do so. Increased competition could harm our net sales and            profitability in the future.

 

***If our customers, which are primarily North American manufacturing            and industrial companies, relocate operations or outsource functions overseas, we could            lose their business.***

 

Our customer base is located in the United States and Canada and            consists primarily of manufacturing and industrial companies. Some of our customers            operate in industries that are undergoing consolidation through acquisition and merger            activity. In addition, some of our customers operate in industries, including the            automotive industry, that are considering or have begun relocating production            operations overseas or outsourcing particular functions overseas. We do not currently            operate facilities outside of North America. To the extent our customers cease North            American operations, relocate their production operations or outsource particular            functions overseas, we could lose their business. Acquirers of manufacturing and            industrial companies may have suppliers of choice that do not include us. These events            could have an adverse effect on our results of operations and financial            condition.

 

***Our operations may be impacted by future labor negotiations or            work stoppages and our inability to renegotiate labor contracts when they            expire.***

 

As of November 24, 2007, we employed approximately 954 persons, of which            approximately 13.8% were categorized as administrative employees, 64.2% as production            and warehouse, 14.1% as sales personnel and 7.9% as truck drivers. Approximately 26.0%            of our total employees, representing certain employees at nine of our 22 facilities,            are organized by the United Steelworkers, the Teamsters, the Sheet Metal Workers and            independent employee associations. We are currently party to nine collective bargaining            agreements. Our labor contracts expire on staggered dates beginning in June 2008.            Specifically, the labor contract with the United Steel Workers covering 11 employees at            our Cumberland facility will expire in June 2008 and the labor contract with            employee associations covering 17 employees at our Norwood facility will expire in            December 2008. We may not be able to successfully negotiate extensions of these            agreements or new labor contracts for these employees without any labor disruption.            Work stoppages could have a direct negative impact on our ability to conduct business            and continue production, and on our results of operations.

 

***We depend on our operating management team and the loss of a            number of the members of our management team could prevent us from implementing our            operating methodology.***

 

The success of our business is dependent upon the management and            leadership of our operating management team. With the consummation of the Acquisition,            we have begun to implement our operating methodology, The DecalogueTM, which            proposes operating the Company as a system or a group of interdependent components            working together. Acquired Company previously operated with a decentralized, autonomous            structure. Our operating methodology may not be accepted by the existing operating            management team and its implementation may be disruptive, resulting in the loss of            members of the operating management team. The loss of a number of these individuals or            our inability to attract, retain and maintain additional personnel could adversely            affect our ability to conduct, manage and grow our business.

 

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***Failure to successfully implement our operating methodology, The            DecalogueTM, may impede our plans to increase revenues and cash            flow.***

 

Our revenues and cash flows will not increase as planned if we fail to            implement the key elements of our operating methodology. For example, if we are not            successful in implementing our operating methodology, The DecalogueTM, we may not            enable higher operating capacities, lower cycle times and related inventory management            goals and lower fixed operating expenses. Also, if we are unable to identify and pursue            new market segments for our products, we may not be able fully utilize our production            capacity and increase our sales.

 

***The Acquisition could result in disruptions in business, loss of            customers or contracts or other adverse effects.***

 

The Acquisition may cause disruptions in our business, which could have            a material adverse effect on our business and operations. Our customers, and other            business partners, in response to the Acquisition, may adversely change or terminate            their relationships with us, which could have a material adverse effect on our business            and operations.

 

***Damage to our information technology infrastructure could harm our            business.***

 

The unavailability of any of our management information systems for any            significant period of time could have a material adverse effect on our operations. In            particular, our ability to manage inventory levels successfully largely depends on the            efficient operation of our computer hardware and software systems. We use management            information systems to track inventory information at individual facilities,            communicate customer information and aggregate daily sales, margin and promotional            information. These systems are vulnerable to, among other things, damage or            interruption from fire, flood, tornado and other natural disasters, power loss,            computer system and network failures, operator negligence, physical and electronic loss            of data, or security breaches and computer viruses.

 

***The unaudited pro forma condensed consolidated financial            statements are not an indication of the combined company's financial condition or            results of operations following the Acquisition.***

 

The unaudited pro forma condensed consolidated financial statements            contained in this Report are not an indication of the Company's financial condition or            results of operations following the consummation of the Acquisition. The unaudited pro            forma condensed consolidated financial statements have been derived from the historical            financial statements of Symmetry and Acquired Company, and many adjustments and            assumptions have been made regarding the combined company after giving effect to the            Acquisition. As a result, the actual financial condition and results of operations of            the Company following the consummation of the Acquisition may not be consistent with,            or evident from, the unaudited pro forma condensed consolidated financial            statements.

 

**ITEM 1B. UNRESOLVED STAFF COMMENTS**

 

None.

 

**ITEM 2. PROPERTY**

 

The following chart describes each of our Canadian            facilities:

 

| **Subsidiary/location**                                              | **Description of operations and products**                                                                                                                                                                                                                                                                                    | **Title**                                                                                                                                                                     |
|----------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Novamerican Steel Canada Inc.**

LaSalle, Québec            | **•**    160,000                            sq. ft.

**•**    Temper                            mill

**•**    Two                            cut-to-length lines

**•**    Two                            slitting lines | **•**    Hot-rolled,                            hot-rolled pickled and oiled and tubing                                                              | Leased to November 2019 |
| **Novamerican Steel Canada Inc.**

Cambridge, Ontario                | **•**    49,100                            sq. ft.

**•**    Two                            slitting lines                                                                                                                                                                  | **•**    Hot-rolled,                            hot-rolled pickled and oiled, cold-rolled and coated slit                            coils           | Leased to November 30, 2009 |
| **Delta Tube Inc.**

LaSalle, Québec (60% Owned)              | **•**    100,000                            sq. ft.

**•**    HSS                            tube mill, up to 5"  ́ 5"  ́                             1¤4"                                                                             | **•**    Toll                            rolling of HSS tubing for Novamerican Steel and pipe for Mittal                            Canada Inc. | Owned |
| **Novamerican Steel Canada Inc.**

Baie d'Urfé, Québec | **•**    47,100                            sq. ft.

**•**    Hot-rolled                            tube mill up to 3" O.D.                                                                                                                                                  | **•**    Toll                            rolling of tubing for the structural market                                                                 | Leased to May 31, 2008 |

 

 

14

 

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| **Novamerican Steel Canada Inc.**

Mississauga, Ontario      | **•**    90,000                            sq. ft.

**•**    Cold-rolled                            tube mill up to 4" O.D.                                                                                                                                                                                                                                            | **•**    High                            quality mechanical tubing targeting hydroformed automobile components                            and other automotive and general manufacturing applications | Leased to April 30, 2012    |
|--------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
| **Novamerican Steel Canada Inc.**

Stoney Creek, Ontario     | **•**    171,000                            sq. ft.

**•**    Pickling                            line

**•**    Two                            slitting lines                                                                                                                                                                                | **•**    Pickling                            and slitting of coils on a toll rolling basis                                                                                                            | Owned                            |
| **Novamerican Steel Canada Inc.**

Dorval, Québec     | **•**    75,500                            sq. ft.

**•**    Slitting                            line

**•**    Two                            precision multi-blanking cut-to-length lines                                                                                                                                                   | **•**    Hot-rolled,                            cold-rolled and galvanized products for general manufacturing                            applications                                                 | Leased to November 30, 2009 |
| **Novamerican Steel Canada Inc.**

Granby, Québec     | **•**    71,600                            sq. ft.

**•**    15                            roll forming lines

**•**    Seven                            punch presses

**•**    Stamping                            and manufacturing

**•**    In-line                            welding | **•**    Variety                            of sophisticated roll formed sections on customer demand                                                                                                  | Owned                            |
| **Novamerican Steel Canada Inc.**

Granby, Québec     | **•**    72,500                            sq. ft.

**•**    Electrostatic                            powder coating                                                                                                                                                                                                                                                   | **•**    Pallet                            racking                                                                                                                                                    | Owned                            |
| **Novamerican Steel Canada Inc.**

St. Hubert, Québec | **•**    118,300                            sq. ft.

**•**    Manufacturing                                                                                                                                                                                                                                                                                            | **•**    Front                            loader buckets                                                                                                                                              | Leased to December 31, 2011 |
| **Novamerican Steel Canada Inc.**

Shawinigan, Québec | **•**    19,322                            sq. ft.

**•**    Five                            punch presses

**•**    Stamping

**•**    Assembly                                                                                                                                                                     | **•**    Hardwood                            flooring nails, nailers and accessories                                                                                                                  | Leased to February 28, 2009 |

 

The following chart describes our two tubing facilities in the United            States:

 

| **Subsidiary/location**                                                            | **Description of operations and products**                                                                                                                                                                                                                                                                                                                                                                                      | **Title**                                                                                                                                                                                        |
|------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Nova Tube and                            Steel,** **Inc.**

Morrisville, PA | **•**    163,300                            sq. ft.

**•**    HSS                            tube mill up to 6"  ́ 6"  ́                             3¤8"

**•**    Heavy                            gauge slitter

**•**    Heavy                            gauge cut-to-length line | **•**    Hot-rolled                            HSS tubing up to 6" square

**•**    Hot-rolled                            sheet and plate coil | Owned |
| **Nova Tube Indiana, LLC**

Jeffersonville, IN                                     | **•**    108,000                            sq. ft.

**•**    Mechanical                            tube mill up to 7" O.D.                                                                                                                                                                                                                                                   | **•**    High                            quality mechanical tubing targeting hydroformed automobile and truck                            frame components               | Owned |

 

The following chart describes each of our other nine facilities in the            United States:

 

| **Subsidiary/location**                           | **Description of operations and products**                                                                                                                                                       | **Title**                                                                                                                                                                                                                                                                                     |   |
|---------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **American Steel and Aluminum Corp.**

Albany, NY | **•**    40,000                            sq. ft.

**•**    Shearing

**•**    Bar                            sawing | **•**    All                            carbon steel products and galvanized sheet

**•**    Stainless                            steel and aluminum products

**•**    Tubing                            and pipe | Owned  |   |
|                                                   |                                                                                                                                                                                                  |                                                                                                                                                                                                                                                                                               |        |  |

 

 

15

 

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| **American Steel and Aluminum Corp.**

Ashland, VA    | **•**    45,000                            sq. ft.

**•**    Shearing

**•**    Bar                            sawing                                                                                                                                         | **•**    All                            carbon steel products and galvanized sheet

**•**    Stainless                            steel and aluminum products

**•**    Tubing                            and pipe                                                                                                                                                          | Owned |   |
|-------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------|--------|
| **American Steel and Aluminum Corp.**

Auburn, MA     | **•**    105,000                            sq. ft.

**•**    Four                            slitting lines

**•**    Leveling                            and cut-to-length line

**•**    Blanking                            line | **•**    Supplier                            of cold-rolled and high carbon strip steel

**•**    Processing                            of coated sheets and bright finished materials

**•**    Processing                            of cold-rolled, galvanized, aluminum and stainless coils to supply                            sheets to all American Steel divisions | Owned |   |
| **American Steel and Aluminum Corp.**

Cumberland, RI | **•**    49,000                            sq. ft.

**•**    Shearing

**•**    Bar                            sawing                                                                                                                                         | **•**    All                            carbon steel products and galvanized sheet

**•**    Stainless                            steel and aluminum products

**•**    Tubing                            and pipe                                                                                                                                                          | Owned |   |
| **American Steel and Aluminum Corp.**

Harrisburg, PA | **•**    104,000                            sq. ft.

**•**    Shearing

**•**    Bar                            sawing                                                                                                                                        | **•**    All                            carbon steel products and galvanized sheet

**•**    Stainless                            steel and aluminum products

**•**    Tubing                            and pipe                                                                                                                                                          | Owned |   |
| **American Steel and Aluminum Corp.**

Hartford, CT   | **•**    36,000                            sq. ft.

**•**    Shearing

**•**    Bar                            sawing                                                                                                                                         | **•**    All                            carbon steel products and galvanized sheet

**•**    Stainless                            steel and aluminum products

**•**    Tubing                            and pipe                                                                                                                                                          | Owned |   |
| **American Steel and Aluminum Corp.**

Norwood, MA    | **•**    55,000                            sq. ft.

**•**    Shearing

**•**    Bar                            sawing                                                                                                                                         | **•**    All                            carbon steel products and galvanized sheet

**•**    Stainless                            steel and aluminum products

**•**    Tubing                            and pipe                                                                                                                                                          | Owned |   |
| **American Steel and Aluminum Corp.**

Portland, ME   | **•**    59,000                            sq. ft.

**•**    Shearing

**•**    Bar                            sawing                                                                                                                                         | **•**    All                            carbon steel products and galvanized sheet

**•**    Stainless                            steel and aluminum products

**•**    Tubing                            and pipe                                                                                                                                                          | Owned |   |
| **American Steel and Aluminum Corp.**

Syracuse, NY   | **•**    53,000                            sq. ft.

**•**    Shearing

**•**    Bar                            sawing                                                                                                                                         | **•**    All                            carbon steel products and galvanized sheet

**•**    Stainless                            steel and aluminum products

**•**    Tubing                            and pipe                                                                                                                                                          | Owned |   |

 

**ITEM 3. LEGAL PROCEEDINGS**

 

In addition to the claims mentioned in the "Environmental" section of            "Item 1. Business," we are a party to various legal actions that we believe are            ordinary in nature and incidental to the operation of our business. In our opinion, the            outcome of these additional proceedings is not likely to have a material adverse effect            upon our business, results of operations or financial condition.

 

16

 

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**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF            SHAREHOLDERS**

 

On October 25, 2007, the Company held a special meeting of stockholders.            At the meeting, the stockholders voted to approve the Acquisition. Proxies for the            meeting were solicited pursuant to Regulation 14A under the Exchange Act and shares            present at the meeting were voted for the proposal, against the proposal or abstained            as set forth below:

 

|   | Votes for the Proposal | Votes Against the Proposal | Abstentions  |   |
|--------|------------------------|----------------------------|--------------|--------|
|   | 16,711,126 shares      | 4,000,479 shares           | 1,000 shares |   |

 

 

 

17

 

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**PART II**

 

| **ITEM 5.** | **MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS                            AND ISSUER PURCHASES OF EQUITY SECURITIES** |
|-------------|--------------------------------------------------------------------------------------------------------------------------------|

 

**Common Stock**

 

On March 12, 2007, our initial public offering of 18,750,000 units was            consummated. Each unit consisted of one share of common stock and one warrant. Each            warrant entitles the holder to purchase from us one share of our common stock. On April            4, 2007 our common stock began trading separately from the warrants on the American            Stock Exchange ("AMEX"). Our common stock, warrants and units traded publicly on the            American Stock Exchange ("AMEX") under the trading symbols "SHJ," "SHJ.WS" and "SHJ.U,"            respectively, until the close of business on December 28, 2007, at which time each of            the common stock, warrants and units were delisted. Effective December 31, 2007, the            Company's common stock and warrants began trading publicly on the Nasdaq Capital Market            ("NASDAQ"), under the trading symbols "TONS" and "TONW," respectively. The Company's            units which had traded as a separate class of security, ceased to trade as such and all            outstanding units were automatically separated into common stock and warrants. The            following table shows the high and low sales prices per share of our common stock, per            warrant and per unit as reported by the AMEX for the periods indicated:

 

|   |               | **Common Stock** |   | **Warrants** |   | **Units** |   |    |
|--------|--------------------|------------------|--------|--------------|--------|-----------|--------|---------|
|   | **Quarter Ended**  | **HIGH**         |   | **LOW**      |   | **HIGH**  |   | **LOW** |   | **HIGH** |   | **LOW** |   |   |
|   | June 30, 2006      |             | n/a    |         |   | n/a       |   |    | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   |
|   | September 30, 2006 |             | n/a    |         |   | n/a       |   |    | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   |
|   | December 31, 2006  |             | n/a    |         |   | n/a       |   |    | n/a |   |   | n/a |   |   | n/a |   |   | n/a |   |   |
|   | March 31, 2007     |             | n/a    |         |   | n/a       |   |    | n/a |   |   | n/a |   | $ | 8.10 |   | $ | 7.82 |   |   |
|   | June 30, 2007      | $                | 7.70   |         | $      | 7.05      |   | $       | 1.50 |   | $ | 0.86 |   | $ | 9.10 |   | $ | 7.89 |   |   |
|   | September 30, 2007 | $                | 7.67   |         | $      | 7.40      |   | $       | 1.51 |   | $ | 0.85 |   | $ | 9.10 |   | $ | 8.70 |   |   |
|   | November 24, 2007  | $                | 8.10   |         | $      | 6.80      |   | $       | 2.30 |   | $ | 1.30 |   | $ | 9.68 |   | $ | 8.60 |   |   |

 

The last reported closing price per share of our common stock as            reported by NASDAQ on February 15, 2008 was $3.05 per share. As of February 15, 2008,            there were 13 holders of record of our common stock.

 

**Dividend Policy and Restrictions**

 

It is the current policy of our Board of Directors to retain earnings to            repay debt and other obligations, finance strategic plans, conduct business operations            and fund acquisitions. Any declaration and payment of cash dividends or repurchases of            common stock will be subject to the discretion of our Board of Directors, the            limitations contained in the ABL Credit Facility and the Notes, and will be dependent            upon our financial condition, results of operations, cash requirements, future            prospects and other factors deemed relevant by our Board of Directors. Novamerican            Steel did not pay any cash dividends or purchase common shares in the fiscal year ended            November 24, 2007. Subject to the restrictions set forth below, we may from time to            time use our liquidity or cash flow to repurchase our debt or equity            securities.

 

Under the ABL Credit Facility, in general, we are permitted to pay            dividends and repurchase common stock so long as after paying such dividend or            repurchasing the common stock, at least $65.0 million is available to be drawn by our            subsidiary borrowers under the ABL Credit Facility and we would be able to meet certain            fixed charge coverage ratio requirements. In addition, we are permitted to make            payments not to exceed $275,000 to redeem the outstanding warrants.

 

Under the indenture for the Notes, in general, we are permitted to pay            dividends and repurchase common stock if certain consolidated interest coverage ratio            requirements are satisfied plus, regardless of compliance with such ratio requirements,            an amount of up to the sum of 50.0% of certain consolidated net income (cumulative from            the commencement of fiscal year 2008), 100.0% of net cash proceeds from certain sales            of common stock (subsequent to November 14, 2007) and certain investment returns. In            addition, we are permitted to make payments not to exceed $275,000 to redeem the            outstanding warrants.

 

18

 

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**Performance Graph**

 

The following graph compares the total return provided to shareholders            of our common stock since inception to the AMEX Composite Index and the Russell            Microcap Index. An investment of $100 is assumed to be made in our stock and each index            at inception on April 4, 2007 and its relative performance is tracked through November            23, 2007, the last trading day of fiscal year 2007.

 

 

**Issuances of Our Securities**

 

The Company has not issued any securities during the fiscal year ended            November 24, 2007, other than those issuances disclosed in the Company's Quarterly            Report on Form 10-Q for the period ended June 30, 2007 and in the Company's Current            Report on Form 8-K, filed with the SEC on November 20, 2007.

 

**Use of Proceeds**

 

On March 12, 2007, we consummated our initial public offering of            18,750,000 units, each consisting of one share of common stock, $.001 par value per            share, and one warrant to purchase one share of common stock at $5.50 per share. The            units were sold at an offering price of $8.00 per unit, generating aggregate gross            proceeds of $150.0 million. The gross proceeds of $150.0 million, plus interest income,            net, earned on the funds deposited in the trust account (of approximately $3.3            million), were used for offering expenses of approximately $0.6 million, underwriting            discounts and expenses of approximately $10.4 million, and conversion payments for the            converted shares of common stock of approximately $30.3 million. The net proceeds of            approximately $112.0 million were used to finance the Acquisition.

 

**ITEM            6. SELECTED FINANCIAL DATA**

 

The data set forth below should be read in conjunction with "Item 7.            Management's Discussion and Analysis of Financial condition and Results of Operations"            and the Consolidated Financial Statements and Notes thereto.

 

The consolidated financial statements for the fiscal year ended December            31, 2006 include only the financial results of Symmetry commencing with its inception            on April 26, 2006. The financial statements for the period January 1, 2007 through            November 24, 2007, include the financial results of Novamerican Steel, its wholly-owned            subsidiaries Novamerican Steel

 

19

 

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Holdings Inc. ("Novamerican Holdings"), Novamerican Steel Finco Inc.            ("Novamerican Finco") and 10 days of Acquired Company (the period from November 15,            2007 until November 24, 2007).

 

The Company changed its fiscal year from December 31 to the last            Saturday of November. The fiscal period ending November 24, 2007 includes financial            results from January 1, 2007 and the fiscal period ending on December 31, 2006 includes            financial results from April 26, 2006 (the date of inception of the            Company).

 

|                                                                                       |   | **Years Ended**                                                       |      |
|--------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|-----------|
|                                                                                       |   | **December 31,****2006**                                              |      | **November** **24,****2007** |   |
|                                                                                       |   | **(in thousands of U.S. dollars****except share and per share data)** |      |
| **Statement of Operations Data:**                                                          |   |                                                                  |      |   |   |   |   |
| Net sales (a)                                                                              |   | $                                                                     | —   |   | $ | 16,304 |   |
| Net loss (b)                                                                               |   |                                                                  | (148      | ) |   | (3,799 | ) |
| Net loss per share                                                                         |   |                                                                  |      |   |   |   |   |
| Basic                                                                                      |   | $                                                                     | (0.03     | ) | $ | (0.20 | ) |
| Diluted                                                                                    |   | $                                                                     | (0.03     | ) | $ | (0.20 | ) |
| Weighted average number of common stock outstanding                            (c)         |   |                                                                  | 4,687,500 |   |   | 19,375,451 |   |
| Weighted average number of diluted common stock                            outstanding (c) |   |                                                                  | 4,687,500 |   |   | 19,375,451 |   |
|                                                                                       |   |                                                                  |      |   |   |   |   |
| **Balance Sheet Data (at period end):**                                                    |   |                                                                  |      |   |   |   |   |
|                                                                                       |   |                                                                  |      |   |   |   |   |
| Total assets (d)                                                                           |   | $                                                                     | 714       |   | $ | 678,220 |   |
| Total long term debt (e)                                                                   |   |                                                                  | —   |   |   | 390,588 |   |

 

(a)            For 2006, includes only the financial results of Symmetry commencing with its inception            on April 26, 2006. For 2007, includes net sales for 10 days of Acquired            Company.

 

(b)            For 2007, includes $2.3 million of formation and operating costs and $4.4 million of            transaction expenses associated with the Acquisition.

 

(c)            For 2007, weighted average shares outstanding include 4,687,500 shares issued to the            funding stockholders, initial public offering of 18,750,000 shares on March 12, 2007,            the subsequent exercise of conversion rights for 3,860,196 shares on November 15, 2007            and the private placement of 1,875,000 units, consisting of one share of common stock            and one warrant, also occurring on November 15, 2007. As a result of the net loss            reported for 2007, 25,579,069 of potential common shares underlying dilutive securities            have been excluded from the calculation.

 

(d)            For 2007, includes assets of Acquired Company. Financial information for the business            acquisition is provided in "Item 8 - Financial Statements and Supplementary Data -            Notes to Consolidated Financial Statements - Note 3 - Business Acquisition" of this            Annual Report on Form 10-K. That financial information is incorporated herein by            reference.

 

(e)            For 2007, includes $75.6 million outstanding on the Company's $175.0 million, five            year, asset based revolving credit facility and senior secured notes in an aggregate            principal amount of $315.0 million. Financial information for long-term debt is            provided in "Item 8 - Financial Statements and Supplementary Data - Notes to            Consolidated Financial Statements - Note 11 - Long-Term Debt" of this Annual Report on            Form 10-K. That financial information is incorporated herein by reference.

 

|                        |   | **First****Quarter**                                                                |    | **Second****Quarter** |   | **Third****Quarter** |   | **Fourth****Quarter** |    |
|-----------------------------|--------|-------------------------------------------------------------------------------------|---------|-----------------------|--------|----------------------|--------|-----------------------|---------|
| **2007**                    |   | **(in thousands of U.S. dollars except per share                            data)** |    |
| Net sales (a)               |   | $                                                                                   | — |                  | $      | —              |   | $                     | — |   | $ | 16,304 |   |
| Net income (loss) (b)       |   |                                                                                | 185     |                  |   | 932                  |   |                  | 941     |   |   | (5,857 | ) |
| Net income (loss) per share |   |                                                                                |    |                  |   |                 |   |                  |    |   |   |   |   |
| Basic                       |   | $                                                                                   | 0.02    |                  | $      | 0.04                 |   | $                     | 0.04    |   | $ | (0.25 | ) |
| Diluted                     |   | $                                                                                   | 0.02    |                  | $      | 0.03                 |   | $                     | 0.03    |   | $ | (0.25 | ) |
|                             |        |                                                                                     |         |                       |        |                      |        |                       |         |  |  |  |  |  |  |  |  |

 

(a) The            2007 fourth quarter includes net sales for ten days of Acquired Company.

 

(b)            The 2007 first, second and third quarters include formation and operating costs of $0.1            million, $0.5 million and $0.4 million, respectively and interest income, net, of $0.4            million, $1.9 million and $1.9 million, respectively. Interest income, net, was earned            on the net proceeds from Symmetry's initial public offering held in trust until the            closing of the Acquisition of Acquired Company on November 15, 2007. The 2007 fourth            quarter includes 10 days of Acquired Company. The 2007 fourth quarter also includes            $1.4 million of formation and operating costs, $4.4 million of transaction expenses and            $0.5 million of interest income, net.

 

 

20

 

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

 

You should read the following discussion and analysis of our            consolidated financial condition and results of operations together with "Item 6.            Selected Financial Data," "Pro Forma Financial Statements" and Novamerican's            Consolidated Financial Statements and Notes thereto that appear elsewhere in this            Report. This discussion and analysis contains forward looking statements that involve            risks, uncertainties and assumptions. Actual results may differ materially from those            anticipated in these forward looking statements.

 

**Corporate Overview**

 

***The Company***

 

The Company was incorporated as Symmetry Holdings Inc. in Delaware on            April 26, 2006 as a development stage company formed for the purpose of acquiring,            through a merger, capital stock exchange, asset acquisition, stock purchase or other            similar business combination, one or more operating businesses. On March 12, 2007, our            initial public offering of 18,750,000 units was consummated, generating aggregate gross            proceeds of $150.0 million. Each unit consisted of one share of common stock and one            warrant. Each warrant entitles the holder to purchase from us one share of our common            stock at an exercise price of $5.50. Our common stock and warrants started trading            separately as of April 4, 2007. On December 5, 2007, the Company filed with the            Secretary of State of the State of Delaware a Certificate of Ownership and Merger            merging a newly formed Delaware company, Novamerican Steel Inc., into the Company            pursuant to Section 253 of the Delaware General Corporation Law. Pursuant to such            Certificate of Ownership and Merger, the Company's Amended and Restated Certificate of            Incorporation was amended to change its name to Novamerican Steel Inc.

 

***Description of the Acquisition***

 

On November 15, 2007, the Company completed the Acquisition. The            Acquisition had been approved by the Company's stockholders on October 25, 2007 and by            Acquired Company's shareholders on October 31, 2007. The Acquisition was carried out            pursuant to an arrangement agreement, dated June 21, 2007, between the Company, its            wholly-owned indirect subsidiary ("Acquisitionco") and Acquired Company (the            "Arrangement Agreement") under a court-approved statutory plan of arrangement governed            by the Canada Business Corporations Act. The Company's stockholders who properly            exercised their conversion rights received $7.84 in cash per share. A total of            3,860,196 shares were converted for an aggregate of $30.3 million in cash. Under the            terms of the Arrangement Agreement, the shareholders of Acquired Company received            $56.00 in cash per share ($585.2 million in cash in the aggregate) for all of the            outstanding shares of Acquired Company.

 

Funding for the Acquisition purchase price and related expenses was            provided by (i) debt financing, including borrowings under a $175.0 million ABL Credit            Facility and proceeds from the sale of $315.0 million aggregate principal amount of            Notes, (ii) the sale in a private placement of 1,875,000 units of the Company for $15.0            million, or $8.00 per unit, to certain of the Company's affiliates, with each unit            consisting of one share of common stock and one warrant to purchase one share of common            stock at a price of $5.50, exercisable from March 7, 2008 until expiration on November            15, 2011; and (iii) approximately $112.0 million of cash held in trust by the Company            that was raised in its initial public offering in March 2007.

 

**Overview of financial results for audited financial            statements**

 

***Components of financial presentation***

 

Novamerican's consolidated financial statements include the accounts and            transactions of its U.S. affiliates and its Canadian affiliates at historical cost,            except that all material intercompany balances and transactions have been eliminated.            Novamerican's interest in a joint venture is accounted for by the equity method.            Accordingly, Novamerican's share in the income of its joint venture is included in            consolidated net income. The Company has accounted for the Acquisition as a purchase            and the purchase price was allocated to all tangible and intangible assets based upon a            preliminary valuation of their respective fair values. The preliminary valuation            analysis included analyses of historical operating results of the Company, research of            the industry in which the Company operates, benchmarking data of prior merger and            acquisition activity in the same general industry of the Company, research of publicly            traded guideline companies and other economic and financial analyses, where applicable.            The Company is in the process of obtaining third-party valuations for certain of these            assets, including property, plant and equipment and certain intangibles. Accordingly,            the allocation of the purchase price is subject to refinement.

 

We sell a broad range of products and toll processing services, which            contribute different gross margin dollars. The dollar amount of contribution varies            depending on the type of customer and the level of processing or value-added services            we

 

21

 

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perform. Products that have undergone more value-added processing, as            well as manufactured products, generally have a higher dollar amount of contribution.            Toll processing generally results in lower selling prices per ton but higher gross            margins as a percentage of net sales than direct sales since our steel costs in respect            of toll processing are zero. Accordingly, our overall gross margin in any one period is            affected by product mix and the amount of toll processing performed, as well as            volatility in selling prices and material purchase costs. However, we estimate that            approximately 72% of our volume is either toll processed or contracted through fixed            margin or fixed price contracts and has limited raw material price risk. Net sales            include direct sales and toll processing revenues. Costs of goods sold consist            primarily of raw material, typically hot rolled carbon steel, and related            freight-in.

 

We sell products in Canada and the United States. All of our sales and            payments are made in either Canadian dollars or U.S. dollars, and we conduct our            operations generally on the basis of short-term orders. Our customers typically release            orders on a just-in-time basis and generally use one-week forecasts for placement of            orders, which are subject to frequent additions and cancellations. Because our firm            orders are so variable and have such short lead times, backlog, in the traditional            sense, at any point in time is not a meaningful indicator of the trend in our overall            business or our future performance.

 

We operate as an intermediary between steel producers and our customers.            As described below, increasing or decreasing trends in steel prices will temporarily            have an impact on our accounts receivable and inventories, and thereby on our working            capital and liquidity. Our accounts receivable, as recorded on our balance sheet,            typically reflect invoices which are dated within three months prior to, and which are            unpaid at, the date of the balance sheet. The amount of our accounts receivable as            recorded on our balance sheet therefore reflects the recent increasing or decreasing            trends in selling prices as well as in sales volumes. Similarly, our inventories, which            we report on a first-in, first-out basis, reflect recent inventory replacement costs.            At November 15, 2007, our inventories also included a purchase price adjustment to fair            value of approximately $7.8 million. As our inventory replacement costs increase or            decrease, based on similar inventory volumes, our inventories as recorded on our            balance sheet will increase or decrease accordingly. Our inventories at year end will            reflect more current pricing for steel, whereas net sales for the year reflect pricing            through the full 12 month period. Where there is a period during which steel            prices rise, based on similar volumes, inventories have historically increased at a            greater rate than sales. Similarly, when steel prices decrease, based on similar            volumes, inventories have historically decreased at a greater rate than sales. During            periods of increasing prices, we face increased working capital demands as we sell off            lower priced inventory but must purchase steel at the increasing prices. Similarly,            when prices are decreasing, we face the challenge of selling the inventory that we            acquired at a relatively higher cost as we replace our inventory at the decreasing            prices. We believe that funds available under our ABL Credit Facility together with the            funds from our operations will be sufficient to provide us with the liquidity necessary            to fund our anticipated working capital requirements and capital expenditure            requirements over the next 12 months. See "—Liquidity and capital            resources."

 

***Drivers of our results of operations***

 

*End-user market demand*

 

Our results of operations depend in part on the varying economic and            other conditions of the end-user markets we serve. All of the end-user markets we            serve, particularly the general manufacturing, non-residential construction and            automotive industries in North America, are subject to volatility and, as a result, our            customers' demand for our products may change due to changes in general and regional            economic conditions, consumer confidence, fuel and energy prices, employment and income            growth trends and interest rates, each of which are beyond our control. These factors            cause a significant increase or decrease in the demand for our products, which would            impact our shipment volume and our results of operations. While no single end-user            market drives our overall performance, individual end-user markets are influenced by            conditions in their respective industries. Demand for our products in the end markets            we serve generally correlates positively with the overall economy and particularly the            overall steel industry. For example, during the downturn in the North American Steel            industry from 2000 to 2001, manufacturers of steel experienced significant volatility            in demand and market prices for their products. In the period of increased worldwide            demand for steel that began in fiscal 2004, we experienced an over 400% increase in our            operating income from fiscal 2003. Demand for our products in the general manufacturing            and non-residential construction end-user markets is driven by overall economic            conditions and new non-residential construction activity, which are impacted by            interest rate levels and overall economic conditions. The number of new automotive            units sold drives sales of our products in the automotive industry, particularly by the            traditional domestic producers or "Big Three." Any continued declines in the domestic            automotive market share by the Big Three or the general overall economic conditions            that affect consumer confidence and consumer spending could have a negative impact on            the automotive industry and therefore on our future results of operations.

 

*Competition*

 

The principal markets that we serve are highly competitive. Our            geographic market encompasses the Northeastern, Mid-Atlantic and Mid-Western United            States and the Canadian provinces of Québec and Ontario. Within this geographic            market, we compete with other foreign, regional and national steel service centers,            single location service centers and, to a certain degree,

 

22

 

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primary steel producers in North America and abroad and intermediate            steel processors on a regional basis. We have different competitors for each of our            products and within each geographic region. Our industry is highly fragmented,            consisting of numerous small and mid-sized companies, as well as a few larger            publicly-traded companies.

 

We compete on the basis of quality, price, product selection and            availability, customer service and geographic proximity. Our competitors may foresee            the course of market development more accurately than we do, produce similar products            at a lower cost than we can or adapt more quickly to new technologies or industry and            customer requirements. In addition, certain of our competitors have financial and            operating resources in excess of our financial and operating resources and may have            less leverage than we do. As a result, these competitors may be better positioned to            respond to downward pricing pressures or other adverse economic or industry conditions            or to identify and acquire companies or product lines compatible with their            business.

 

*Steel pricing and margin*

 

The principal raw material we use is hot rolled carbon steel. Hot rolled            carbon steel is a commodity and, as such, is valued based upon a variety of market            driven factors, including the price of steel scrap and iron ore. We manage the price of            our main raw material using the following methods:

 

|   | **•** | Approximately 41.7% of our shipment volume (in fiscal                            year 2007) is on the basis of toll processing whereby the customer                            procures the steel, sends it to our facilities and pays a fixed amount                            for the processing. Accordingly, we are not exposed to any raw material                            price fluctuation on this volume. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | With respect to an additional 32.0% of our shipment                            volume (in fiscal year 2007), either (i) we enter into fixed                            margin contracts with our customers whereby they arrange the terms for                            us to procure the steel and pay a predetermined margin for our                            services, or (ii) our customer agrees to a fixed purchase price                            with estimated volumes. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | The remaining 26.3% of our shipment volume (in fiscal                            year 2007) is on the basis of the prevailing market pricing at the time                            the customer purchases from us and at the time we procure the steel. We                            procure our steel from key suppliers with which we have established                            relationships. Because of the competitive nature of the business, when                            metal prices increase due to product demand, mill surcharges, supplier                            consolidation or other factors that in turn lead to supply constraints                            or longer mill lead times, we may not be able to pass our increased                            material costs fully to customers. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

We purchase steel in an effort to maintain our inventory at levels that            we believe to be appropriate to satisfy the anticipated needs of our customers based            upon historical buying practices, contracts with customers and market conditions. When            raw material prices are decreasing, we face the challenge of selling the inventory that            we acquired at a relatively higher cost at the decreasing prices. Additionally, during            periods of rapid price decreases we may be unable to lower our prices quickly enough to            remain price competitive, which could have a material adverse effect on our sales            volume. Thus, decreases in raw material prices could result in lower sale prices and            lower margins for our products, particularly for our distribution business.

 

Significant short-term increases in prices can have, depending upon            economic conditions, a dampening effect on demand. In the future, we may not be able to            pass on these price increases to our customers, which could have a material adverse            effect on our business, results of operations and financial condition in one or more            future reporting periods.

 

We believe that the gains in hot rolled carbon steel prices which have            been achieved since 2003 and 2004 are sustainable due to the higher, robust global            demand and the resultant higher cost of inputs used in the production of steel, such as            scrap, iron ore, coke and energy. In the past few years and continuing into 2007, we            have noticed a trend of consolidation of steel producers, which we believe will            continue in the North American and global markets. We believe that this type of            consolidation is contributing to better control over the production of steel relative            to the demand for steel, which in turn should lead to more price stability. We also            believe that the increasing demands for steel from the Asian markets, particularly            China and India, will continue to influence steel prices.

 

*Transportation costs*

 

Our costs to transport our products to our customers was 3.1% of our net            sales and represented approximately 20.3% of our total operating expenses in fiscal            2007 and are affected by fluctuations in energy costs. These transportation costs are            mitigated by the distribution of our 22 facilities throughout the Northeastern,            Mid-Atlantic and Mid-Western United States and the Canadian provinces of Ontario and            Québec, which gives us a presence near many of our customers.

 

23

 

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*Labor costs*

 

We had approximately 954 employees as of November 24, 2007, of which            approximately 26.0% working at nine of our 22 facilities are organized by the United            Steelworkers, the Teamsters, the Sheet Metal Workers and independent employee            associations. We are currently party to nine collective bargaining agreements. Our            labor contracts expire on staggered dates beginning in June 2008. Specifically, the            labor contract with the United Steel Workers covering 11 employees at our Cumberland            facility will expire in June 2008 and the labor contract with employee associations            covering 17 employees at our Norwood facility will expire in December 2008. We do not            presently anticipate that any work stoppages will occur prior to renegotiation of these            contracts. We believe that our relations with our employees are satisfactory. In            addition, we have not experienced a work stoppage by any of our unions or employee            associations in over 20 years. Our approximately 954 employees are categorized as            follows: production and warehouse employees (64.2%), sales personnel (14.1%), truck            drivers (7.9%) and administrative employees (13.8%). The wages, incentive compensation            and fringe benefits (including medical benefits) we pay are another significant            component of our operating expenses. These costs tend to rise with inflation. Our            incentive compensation costs, which consist primarily of bonuses paid based on our            performance, generally rise when our net sales, operating margin and net income margin            rise. We record most of our costs for employees in operating expenses.

 

**Outlook**

 

U.S. steel service center hot-rolled inventories continued declining            through November of 2007 to historical lows, just under a seasonally adjusted average            of approximately three months on hand, typically a leading indicator of future            increases in shipping volumes. We believe that underlying consumption in the U.S. and            Canada has not materially worsened, except for auto-related demand. Overall, demand            seems to continue at the same sluggish pace of the past year. Globally, stronger demand            and pricing in markets outside of North America, as well as the weaker U.S. currency,            has kept most imports into our market subdued since mid-2007. The combination of low            imports and low inventory levels tightened North American supply and, when combined            with higher raw material costs for our suppliers, has resulted in higher prices from            steel mills in early 2008.

 

In early February 2008, North American steel suppliers announced a            fourth consecutive month of increases, pushing the cost for hot-rolled coil as high as            $650-$670 per ton. While cost increases may have prompted these increases, we believe            tight supply is supporting their success and low inventory levels will sustain these            increases, at least until the middle of 2008. We experienced a pick-up in demand in            late January 2008 as steel purchasers attempted to secure their needs for 2008. Our            pricing also remained soft through January until the increases from the mills became            generally accepted in the marketplace and we began to realize price            increases.

 

We expect our volumes in the first quarter of 2008 to be lower than in            the fourth quarter of 2007, mainly due to seasonality-related lower demand from our            customers and lower than expected processing and tubing for the automotive sector.            Overall, our 2008 first quarter will result in lower revenue and operating profit than            our 2007 fourth quarter but the last month of the 2008 first quarter has shown strong            improvement in all areas over the first two months of that quarter.

 

We have validated our plans for integrating our operating methodology            into Acquired Company, effectively operating it as one system versus 22 separate            facilities and believe that during 2008 we will (a) enable the system to operate at            much faster cycle times, expanding practical capacity to approximately 2.5 million            tons, (b) experience a permanent reduction of inventory of approximately $50.0 million            primarily from this faster operating cycle, and (c) change the organizational design,            especially in our replenishment processes, including some realignment of steel            processing, resulting in approximately $10.0 million, net, in annual operating expense            reductions, with that resulting run rate realized by the end of 2008. We expect to            incur approximately $1.0 million in the 2008 first quarter for operating expenses            associated with training and development required for these changes and approximately            $3.0 million in other exit costs associated with the organizational changes that would            be incurred over the last three quarters of fiscal 2008. The plan also includes            increasing resources in certain areas such as replenishment, production scheduling,            statistical process control and human resources. The cost of these resources is            included in our estimated net operating expense reductions.

 

**Results of operations**

We have set forth in the following tables for each of the periods            presented certain statement of operations data expressed in dollars.

 

 

24

 

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|                             |   | **Fiscal Year Ended**              |   |
|----------------------------------|--------|------------------------------------|--------|
|                             |   | **November 24, 2007**              |   | **December 31, 2006** |   |
|                             |   | **(In thousands of U.S. dollars)** |   |
|                             |   |                               |   |   |   |   |   |
| Net sales                        |   | $                                  | 16,304 |   | $ | — |   |
| Cost of sales                    |   |                               | 14,792 |   |   | — |   |
| Gross margin                     |   |                               | 1,512  |   |   | — |   |
| Operating expenses               |   |                               | 6,665  |   |   | 145 |   |
| Operating loss                   |   |                               | (5,153 | ) |   | (145 | ) |
| Transaction expenses             |   |                               | 4,438  |   |   | — |   |
| Interest (income) expense, net   |   |                               | (3,507 | ) |   | 3 |   |
| Share in income of joint venture |   |                               | (12    | ) |   | — |   |
| Loss before income taxes         |   |                               | (6,072 | ) |   | (148 | ) |
| Income taxes                     |   |                               | (2,273 | ) |   | — |   |
| Net loss                         |   | $                                  | (3,799 | ) | $ | (148 | ) |

 

 

***Fiscal year 2007 compared to fiscal year 2006***

The consolidated financial statements for the fiscal year ended December            31, 2006, include only the financial results of Symmetry ("fiscal year 2006"). The            financial statements for the period January 1, 2007 through November 24, 2007, include            the financial results of Novamerican Steel, its wholly-owned subsidiaries Novamerican            Holdings, Novamerican Finco and Acquired Company for the period from the date of the            Acquisition to the fiscal year end, that is, the ten-day period from November 15, 2007            until November 24, 2007 ("fiscal year 2007"). However, the ten-day results of            operations that have been included for Acquired Company may not be indicative of            results for a full quarter of a full fiscal year. All intercompany balances and            transactions have been eliminated in the consolidated financial statements.

In fiscal year 2007, net sales increased by $16.3 million,            representing the sales of Acquired Company for the ten-day period following the            Acquisition. These sales represent a lower than average level of shipments for a            typical 10-day period primarily due to lower direct processing primarily in Canada and            in part due to continued cautious inventory management by our steel distributor            customers and lower automotive production in late 2007.

Cost of sales was $14.8 million, or 90.7% of total sales for the same            ten-day period. The cost of sales includes $1.1 million of additional costs associated            with the amortization for the ten-day period of approximately $7.8 million of purchase            price that was allocated to inventory to increase certain acquired inventories up to            their fair market value on the date of the Acquisition. Excluding the amortization for            the ten-day period, cost of sales represented 84.0% of total sales.

Gross margin was $1.5 million, representing the ten-day period            following the Acquisition. Gross margin dollars were reduced by the $1.1 million of            additional costs associated with the amortization for the ten-day period. The remaining            $6.7 million of purchase price that was allocated to inventory to increase certain            inventories up to their fair market value on the date of the Acquisition will be            amortized as these inventories are sold, substantially all of which should occur in the            2008 first quarter.

Operating expenses, in absolute dollars, increased by $6.6 million,            from $0.1 million in 2006 to $6.7 million in 2007. For fiscal year 2007, operating            expenses included $4.3 million in plant, distribution, selling and general and            administrative expenses for the ten-day period following the Acquisition. The operating            expenses also included formation and operating costs of $2.4 million associated with            Novamerican Steel (formerly Symmetry). These costs consist primarily of compensation            for the corporate officers, travel, legal, accounting and other costs associated with            the formation and administration of the corporate activities. The Company also incurred            transaction expenses of $4.4 million associated with the Acquisition of Acquired            Company. These expenses were primarily for legal, banking and other advisory services            associated with due diligence, regulatory reporting and capital structure planning and            financing requirements for the Acquisition.

In fiscal year 2007, the Company recorded interest income, net of            interest expense, of $3.5 million. Interest income was $4.8 million, substantially all            of which was interest income earned on the offering proceeds held in trust from March            12, 2007 until November 14, 2007. Interest expense was $1.3 million. Interest expense            on the Notes and the ABL Credit Facility was $1.0 million and $0.2 million,            respectively, for the ten-day period following the Acquisition. The remaining $0.1            million of interest expense represents the amortization of deferred financing charges            for the ten-day period following the Acquisition.

 

25

 

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Loss before income taxes in fiscal year 2007 was $6.1 million, an            increase of $6.0 million over 2006. The loss resulted primarily due to formation,            operating and transactional expenses associated with the start up of the Company and            the Acquisition of Acquired Company.

Income taxes in fiscal year 2007 were a benefit of $2.3 million and            represent 37.4% of loss before income taxes. The Company recorded income taxes            receivable of $2.8 million at November 24, 2007, resulting from this income tax benefit            for fiscal year 2007 and overpayment of income taxes during fiscal year 2007 related            thereto. The Company also has deferred income tax assets associated with prior net            operating losses of Acquired Company of $6.1 million.

Net loss was $3.8 million in fiscal year 2007, or a net loss of $(0.20)            per basic and diluted share outstanding, as compared to $0.1 million in fiscal year            2006, or a net loss of $(0.03) per basic and diluted share outstanding.

**Pro            Forma Financial Statements**

 

This Report includes unaudited pro forma condensed consolidated            financial information that combines the historical statements of operations of (a)            Acquired Company for the period from November 26, 2006 to November 24, 2007 and for            Novamerican Steel for the period from January 1, 2007 to November 24, 2007, giving            effect to the Acquisition as if it had occurred on January 1, 2007 ("2007 pro formas"),            and (b) Acquired Company for the period November 27, 2005 to November 25, 2006 and for            Novamerican Steel for the period January 1, 2006 (commencing with its inception on            April 26, 2006) to December 31, 2006, giving effect to the Acquisition as if it had            occurred on January 1, 2006 ("2006 pro formas").

 

26

 

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**Unaudited Pro Forma Condensed Consolidated Statement            of**

**Operations for the Fiscal Year Ended December 31, 2006**

 

|                              |   | **Novamerican Steel****12/31/06** |    | **Acquired Company****11/25/06** |   | **Pro Forma****Adjustments** |   | **Pro Forma****Combined** |    | **Notes** |   |
|-----------------------------------|--------|-----------------------------------|---------|----------------------------------|--------|------------------------------|--------|---------------------------|---------|-----------|--------|
|                              |   |                              |    |                             |   |                         |   |                      |    |      |   |   |   |   |   |
| Net sales                         |   | $                                 | — |                             | $      | 840,798                      |   | $                         | — |      | $      | 840,798 |   |   |   |
| Cost of sales                     |   |                              | — |                             |   | 655,659                      |   |                      | — |      |   | 655,659 |   |   |   |
| Gross margin                      |   |                              | — |                             |   | 185,139                      |   |                      | — |      |   | 185,139 |   |   |   |
| Operating expenses                |   |                              |    |                             |   |                         |   |                      |    |      |   |   |   |   |   |
| Plant                             |   |                              | — |                             |   | 45,233                       |   |                      | 2,488   |      |   | 47,721 |   | (1 | ) |
| Delivery                          |   |                              | — |                             |   | 25,586                       |   |                      | — |      |   | 25,586 |   |   |   |
| Selling                           |   |                              | — |                             |   | 13,886                       |   |                      | — |      |   | 13,886 |   |   |   |
| Formation and operating costs     |   |                              | 144     |                             |   |                         |   |                      | — |      |   | 144 |   |   |   |
| Amortization of intangible assets |   |                              | — |                             |   |                         |   |                      | 7,983   |      |   | 7,983 |   | (1 | ) |
| Administrative and general        |   |                              | — |                             |   | 31,034                       |   |                      | (5,882  | )         |   | 25,152 |   | (2 | ) |
|                              |   |                              | 144     |                             |   | 115,739                      |   |                      | 4,589   |      |   | 120,472 |   |   |   |
|                              |   |                              |    |                             |   |                         |   |                      |    |      |   |   |   |   |   |
| Operating income                  |   |                              | (144    | )                                |   | 69,400                       |   |                      | (4,589  | )         |   | 64,667 |   |   |   |
|                              |   |                              |    |                             |   |                         |   |                      |    |      |   |   |   |   |   |
| Interest income, net              |   |                              | — |                             |   | —                      |   |                      | — |      |   | — |   |   |   |
| Interest expense, net             |   |                              | 4       |                             |   | 1,139                        |   |                      | 42,247  |      |   | 43,390 |   | (3 | ) |
| Share in income of joint venture  |   |                              | — |                             |   | (743                         | )      |                      | — |      |   | (743 | ) |   |   |
|                              |   |                              | 4       |                             |   | 396                          |   |                      | 42,247  |      |   | 42,647 |   |   |   |
|                              |   |                              |    |                             |   |                         |   |                      |    |      |   |   |   |   |   |
| Income before income taxes        |   |                              | (148    | )                                |   | 69,004                       |   |                      | (46,836 | )         |   | 22,020 |   |   |   |
| Income taxes                      |   |                              | — |                             |   | 24,706                       |   |                      | (17,439 | )         |   | 7,267 |   | (4 | ) |
| Net Income                        |   | $                                 | (148    | )                                | $      | 44,298                       |   | $                         | (29,396 | )         | $      | 14,754 |   |   |   |
|                              |   |                              |    |                             |   |                         |   |                      |    |      |   |   |   |   |   |
|                              |   |                              |    |                             |   |                         |   |                      |    |      |   |   |   |   |   |
| Net income                        |   | $                                 | (148    | )                                | $      | 44,298                       |   | $                         | (29,396 | )         | $      | 14,754 |   |   |   |
| Interest expense (income)         |   |                              | 4       |                             |   | 1,139                        |   |                      | 42,247  |      |   | 43,390 |   |   |   |
| Depreciation and Amortization     |   |                              | 5       |                             |   | 10,697                       |   |                      | 9,183   |      |   | 19,885 |   |   |   |
| Income Tax                        |   |                              | — |                             |   | 24,706                       |   |                      | (17,439 | )         |   | 7,267 |   |   |   |
| **EBITDA**                        |   | $                                 | (139    | )                                | $      | 80,840                       |   | $                         | 4,594   |      | $      | 85,296 |   |   |   |

 

**Note            1**

Represents the change in depreciation and amortization from purchase            accounting adjustments, assuming the Acquisition occurred on January 1, 2006. The            depreciation and amortization are calculated on a straight line basis assuming a useful            life of 30 years, 12 years, two years and 15 years for buildings, customer            relationships, non-compete agreements and all other property, plant and equipment,            respectively.

 

| Property, plant and equipment depreciation | $      | 2,488  |   |
|--------------------------------------------|--------|--------|--------|
| Amortization—intangible assets       |   | 7,983  |   |
| Total                                      | $      | 10,471 |   |

 

**Note            2**

Adjustment to eliminate non-recurring compensation expenses related to            certain senior management that left Acquired Company immediately after closing of the            Acquisition, to reflect Novamerican Steel's projected administrative and general            expenses incurred as if the Acquisition occurred as of January 1, 2006, to eliminate            operating expenses relating to assets that were sold or sold and leased back upon the            consummation of the Acquisition as part of Acquired Company's asset sales and the sale            leaseback, and to add the lease payment for the property subject to the sale            leaseback.

 

 

27

 

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| Administrative and general                            expenses—compensation                            | $      | (5,797) |   |
|--------------------------------------------------------------------------------------------------------------|--------|---------|--------|
| Administrative and general expenses—operating                            expenses for assets sold, net |   | (2,085) |   |
| Administrative and general expenses—Novamerican                            Steel projected costs       |   | 2,000   |   |
| Total                                                                                                        | $      | (5,882) |   |

 

**Note            3**

To            reflect interest expense on the Notes, amounts borrowed under the ABL Credit Facility            which would have been applied to the financing of the Acquisition as of January 1,            2006, and the fees on the undrawn portion of the ABL Credit Facility as if obtained at            January 1, 2006, to reflect amortization of deferred financing fees into interest            expense as if the Acquisition occurred January 1, 2006 and to reverse Acquired            Company's interest expense on debt, which would have been repaid upon the closing of            the Acquisition as of January 1, 2006. The interest rate on the ABL Credit Facility            used to calculate the pro forma interest expense was the daily average LIBOR rate plus            175 basis points. In addition, the $175.0 million ABL Credit Facility has a facility            fee calculated as 30 basis points of the undrawn portion. The interest rate used to            calculate pro forma interest expense on the Notes was 11.5%. Deferred financing costs            were l.0% of the total availability under the ABL Credit Facility ($175.0 million) and            2.5% of the Notes ($315.0 million). A hypothetical 0.l25% increase in the applicable            interest rate would increase the pro forma interest expense under the ABL Credit            Facility by $85,141.

 

| Interest expense—ABL Credit Facility                                         | $      | 4,680   |   |
|------------------------------------------------------------------------------------|--------|---------|--------|
| ABL Credit Facility facility fee                                                   |   | 321     |   |
| Interest expense—Notes                                                       |   | 36,225  |   |
| Financing fees                                                                     |   | 2,164   |   |
| Interest expense—historical Novamerican                            Steel     |   | (4)     |   |
| Interest expense, net—historical Acquired                            Company |   | (1,139) |   |
| Total                                                                              | $      | 42,247  |   |

 

**Note            4**

To            adjust the provision for income taxes for the effect of pro forma income for the year            ended November 25, 2006.

 

| Income tax expense | $ | (17,439) |   |
|--------------------|---|----------|--------|
| Total              | $ | (17,439) |   |

 

 

28

 

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**Unaudited Pro Forma Condensed Consolidated Statement            of**

**Operations for the Fiscal Year Ended November 24, 2007**

 

|                             |   | **Novamerican**

**Steel**

**11/24/07** |    | **Acquired**

**Company**

**11/24/07** |   | **Pro Forma****Adjustments** |   | **Pro Forma****Combined** |    | **Notes** |   |
|----------------------------------|--------|------------------------------------------|---------|-----------------------------------------|--------|------------------------------|--------|---------------------------|---------|-----------|--------|
| Net sales                        |   | $                                        | — |                                    | $      | 801,348                      |   | $                         | — |      | $      | 801,348 |   |   |   |
| Cost of sales                    |   |                                     | — |                                    |   | 652,540                      |   |                      | — |      |   | 652,540 |   |   |   |
| Gross margin                     |   |                                     | — |                                    |   | 148,808                      |   |                      | — |      |   | 148,808 |   |   |   |
| Operating expenses               |   |                                     |    |                                    |   |                         |   |                      |    |      |   |   |   |   |   |
| Plant                            |   |                                     | — |                                    |   | 43,023                       |   |                      | 2,488   |      |   | 45,511 |   | (1 | ) |
| Delivery                         |   |                                     | — |                                    |   | 24,689                       |   |                      | — |      |   | 24,689 |   |   |   |
| Selling                          |   |                                     | — |                                    |   | 13,893                       |   |                      | — |      |   | 13,893 |   |   |   |
| Formation and operating costs    |   |                                     | 2,110   |                                    |   | —                      |   |                      | — |      |   | 2,110 |   |   |   |
| Amortization of intangibles      |   |                                     | — |                                    |   | —                      |   |                      | 7,983   |      |   | 7,983 |   | (1 | ) |
| Administrative and general       |   |                                     | 1,650   |                                    |   | 39,896                       |   |                      | (24,347 | )         |   | 17,199 |   | (2)(6 | ) |
|                             |   |                                     | 3,760   |                                    |   | 121,501                      |   |                      | (13,876 | )         |   | 111,385 |   |   |   |
|                             |   |                                     |    |                                    |   |                         |   |                      |    |      |   |   |   |   |   |
| Operating income                 |   |                                     | (3,760  | )                                       |   | 27,307                       |   |                      | 13,876  |      |   | 37,423 |   |   |   |
|                             |   |                                     |    |                                    |   |                         |   |                      |    |      |   |   |   |   |   |
| Interest income, net             |   |                                     | (5,105  | )                                       |   | —                      |   |                      | 5,105   |      |   | — |   | (3 | ) |
| Interest expense, net            |   |                                     | — |                                    |   | (1,671                       | )      |                      | 45,217  |      |   | 43,546 |   | (4 | ) |
| Share in income of joint venture |   |                                     | — |                                    |   | (251                         | )      |                      | — |      |   | (251 | ) |   |   |
|                             |   |                                     | (5,105  | )                                       |   | (1,922                       | )      |                      | 50,322  |      |   | 43,295 |   |   |   |
|                             |   |                                     |    |                                    |   |                         |   |                      |    |      |   |   |   |   |   |
| Income before income taxes       |   |                                     | 1,345   |                                    |   | 29,229                       |   |                      | (36,446 | )         |   | (5,872 | ) |   |   |
| Income taxes                     |   |                                     | 451     |                                    |   | 11,430                       |   |                      | (13,819 | )         |   | (1,938 | ) | (5 | ) |
|                             |   |                                     |    |                                    |   |                         |   |                      |    |      |   |   |   |   |   |
| Net Income                       |   | $                                        | 894     |                                    | $      | 17,799                       |   | $                         | (22,627 | )         | $      | (3,934 | ) |   |   |
|                             |   |                                     |    |                                    |   |                         |   |                      |    |      |   |   |   |   |   |
|                             |   |                                     |    |                                    |   |                         |   |                      |    |      |   |   |   |   |   |
| Net income                       |   | $                                        | 894     |                                    | $      | 17,799                       |   | $                         | (22,627 | )         | $      | (3,934 | ) |   |   |
| Interest expense (income)        |   |                                     | (5,105  | )                                       |   | (1,671                       | )      |                      | 50,322  |      |   | 43,546 |   |   |   |
| Depreciation and Amortization    |   |                                     | 7       |                                    |   | 10,695                       |   |                      | 9,137   |      |   | 19,839 |   |   |   |
| Income Tax                       |   |                                     | 451     |                                    |   | 11,430                       |   |                      | (13,819 | )         |   | (1,938 | ) |   |   |
| **EBITDA**                       |   | $                                        | (3,753  | )                                       | $      | 38,253                       |   | $                         | 23,013  |      | $      | 57,513 |   |   |   |

 

**Note            1**

Represents the change in depreciation and amortization from purchase            accounting adjustments, assuming the Acquisition occurred on January 1, 2007. The            depreciation and amortization are calculated on a straight line basis assuming a useful            life of 30 years, 12 years, two years and 15 years for buildings, customer            relationships, non-compete agreements and all other property, plant and equipment,            respectively.

 

| Property, plant and equipment depreciation | $      | 2,488  |   |
|--------------------------------------------|--------|--------|--------|
| Amortization—intangible assets       |   | 7,983  |   |
| Total                                      | $      | 10,471 |   |

 

**Note            2**

Adjustment to eliminate non-recurring compensation expense related to            certain senior management that left Acquired Company immediately after closing of the            Acquisition, to reflect Novamerican Steel's projected administrative and general            expenses incurred as if the Acquisition occurred as of January 1, 2007, to eliminate            operating expenses relating to assets that were sold or sold and leased back upon the            consummation of the Acquisition as part of Acquired Company's asset sales and the sale            leaseback, to add the lease payment for the property subject to the sale leaseback and            to eliminate transaction costs incurred by Novamerican in connection with the            Acquisition.

 

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| Administrative and general                            expenses—compensation                                                   | $      | (2,244)  |   |
|-------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|
| Administrative and general expenses—Novamerican                            Steel actual costs                                 |   | (1,650)  |   |
| Administrative and general expenses—Novamerican                            Steel projected costs                              |   | 2,000    |   |
| Administrative and general expenses—operating                            expenses for assets sold, net                        |   | (1,943)  |   |
| Administrative and general expenses—Novamerican                            Steel incurred transaction costs (not capitalized) |   | (3,358)  |   |
| Administrative and general expenses—Acquired                            Company incurred transaction costs                    |   | (12,782) |   |
| Total                                                                                                                               | $      | (19,977) |   |

 

**Note            3**

To            eliminate interest income earned on cash accounts and the trust account through            November 15, 2007, which would have been applied to the Acquisition as of January 1,            2007.

 

| Interest income—Trust and Cash Accounts | $ | 5,105 |   |
|-----------------------------------------------|---|-------|--------|
| Total                                         | $ | 5,105 |   |

 

**Note            4**

To            reflect interest expense on the Notes and amounts borrowed under the ABL Credit            Facility which would have been applied to the financing of the Acquisition as of            January 1, 2007 and the fees on the undrawn portion of the ABL Credit Facility as if            obtained at January 1, 2007, to reflect amortization of deferred financing fees into            interest expense as if the Acquisition occurred January 1, 2007 and to reverse Acquired            Company's interest expense on debt, which would have been repaid upon the closing of            the Acquisition as of January 1, 2007. The interest rate on ABL Credit Facility used to            calculate the pro forma interest expense was the daily average LIBOR rate plus 175            basis points. In addition, the $175.0 million ABL Credit Facility has a facility fee            calculated as 30 basis points of the undrawn portion. The interest rate used to            calculate pro forma interest expense on the Notes was 11.5%. Deferred financing costs            were 1.0% of the total availability under the ABL Credit Facility ($175.0 million) and            2.5% of the Notes ($315.0 million).

 

| Interest expense— ABL Credit Facility                                       | $      | 4,836  |   |
|-----------------------------------------------------------------------------------|--------|--------|--------|
| ABL Credit Facility facility fee                                                  |   | 321    |   |
| Interest expense—Notes                                                      |   | 36,225 |   |
| Financing fees                                                                    |   | 2,164  |   |
| Interest income, net—historical Acquired                            Company |   | 1,671  |   |
| Total                                                                             | $      | 45,217 |   |

 

**Note            5**

To            eliminate the provision for income taxes on interest income described in Note 3 and to            adjust the provision for income taxes for the effect of pro forma income for the twelve            months ended November 24, 2007.

 

| Income tax expense on sale of aircraft | $      | (3,698)  |   |
|----------------------------------------|--------|----------|--------|
| Income tax expense                     |   | (10,120) |   |
| Total                                  | $      | (13,819) |   |

 

**Note            6**

To            eliminate foreign exchange loss from the liquidation of the Annaco legal entity in            conjunction with the new legal structure of the Company.

 

| Foreign exchange loss | $ | (4,370) |   |
|-----------------------|---|---------|--------|
| Total                 | $ | (4,370) |   |

 

***Pro forma Company's fiscal year 2007 compared to Pro forma fiscal            year 2006***

In fiscal year 2007, net sales decreased by $39.5 million, or 4.7%, to            $801.3 million, compared with $840.8 million in fiscal year 2006. The decrease in sales            for fiscal 2007 was due to lower average selling prices, a decline in sales volume of            structural tubing and toll processing resulting from an increase in imports and            decreased demand in the automotive and general manufacturing sectors,            respectively.

 

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Total tons directly sold and toll processed decreased by 17.1% to            1,450,300 tons in fiscal year 2007 from 1,749,100 tons for the same period in 2006.            Total tons in the fiscal year 2007 include 845,700 tons from direct sales and 604,600            tons from toll processing. Direct sale tons decreased by 4.7% to 845,700 tons in fiscal            year 2007 from 887,100 tons for the same period in 2006. The decrease in direct sale            tons in 2007 was due to a decline in sales volume of structural tubing due to an            increase in imports and decreased demand in the automotive and general manufacturing            sectors. The decrease in tons toll processed in 2007 was primarily due to a decline in            demand in the Canadian automotive and general manufacturing sectors.

Gross margin decreased from $185.1 million to $148.8 million            and from 22.0% to 18.6% as a percentage of net sales, respectively, in the fiscal year            2007 as compared to the same period in 2006. In addition to the reasons described in            the discussion above for revenues, tons sold and tons processed, the decreases in gross            margin dollars and gross margin as a percentage of sales during the 2007 fiscal year            and three months ended November 24, 2007 were attributable to lower pricing relative to            higher costs of inventory sold including approximately $1.0 million write down of            stainless steel inventory and a lower percentage of toll processing. In 2007, toll            processing accounted for 41.7% of total tons as compared to 49.2% for 2006.

Pro forma operating expenses decreased by $9.1 million or 7.5%, and also            decreased to 13.9% from 14.3% as a percentage of net sales for the fiscal year 2007 as            compared to 2006. The decreases result primarily from certain plant operating and            general and administrative expenses, including lower incentive compensation due to            lower operating performance. Pro forma adjustments resulted in the exclusion from            administrative costs actually incurred in 2007, the following: $2.2 million in            compensation for the former officers of Novamerican, $1.9 million in operating costs            for associated with the disposed assets, including the aircraft, $12.8 million in            transaction related costs incurred by Acquired Company before the acquisition,            including investment banking, legal and accounting services and change in control and            related termination benefits and $4.4 million from realized losses on dissolution of an            entity. The pro forma adjustments also exclude $3.4 million of transaction costs            incurred by Symmetry that were not capitalized but include $2.0 million of ongoing            costs for Symmetry's principal executive officers of which $1.7 million was incurred in            2007.

Pro forma interest expense was $43.5 million for 2007, represents $36.2            million of interest on the senior secured notes, $5.1 million of interest on the            revolving line of credit and $2.2 million in related amortization of deferred financing            fees.

**Liquidity and capital resources**

*Overview of Cash Flow and Plans to Manage Liquidity.*

Historically, Acquired Company used cash generated from operations and            revolving credit borrowings under its credit facilities to finance its working capital            requirements, strategic acquisitions, green field projects, the construction of related            facilities and the purchase and upgrading of processing equipment.

On November 15, 2007, the Company and its affiliates entered into a            $175.0 million, five year, asset based revolving credit facility ("ABL Credit            Facility"). The $175.0 million available under the ABL Credit Facility is subject to a            borrowing base consisting of certain eligible accounts receivable and inventory and a            permanent $15.0 million availability block. The ABL Credit Facility includes borrowing            capacity available for letters of credit and for short-term borrowings referred to as            swingline borrowings. In addition, the Company has the option, subject to certain            conditions, to increase the commitments under the ABL Credit Facility in an aggregate            principal amount of up to $50.0 million.

As of November 24, 2007, the aggregate borrowing base was $139.9 million            (including the $15.0 million availability block), of which $1.0 million was utilized            for letter of credit obligations, resulting in excess availability of approximately            $138.9 million. Of this amount, approximately $75.6 was outstanding under the ABL            Credit Facility at November 24, 2007, with approximately $63.3 million in availability            for future borrowings.

On November 15, 2007, the Company, through Novamerican Finco, issued            senior secured notes ("Notes") in an aggregate principal amount of $315.0 million.            Interest on the Notes will accrue at the rate of 11.5% per annum and will be payable            semi-annually in arrears on May 15 and November 15, commencing on May 15, 2008. The            Notes mature on November 15, 2015. The Company also had approximately $15.0 million of            accrued tax and other liabilities, including transaction-related liabilities that were            unpaid at November 24, 2007.

On November 24, 2007, our total long-term debt was approximately $390.6            million and we had approximately $19.6 million of cash and cash equivalents (or a net            debt of approximately $371.0 million). On February 20, 2008, our long-term debt was            approximately $373.5 million and we had approximately $13.7 million of cash and cash            equivalents (or a net debt of approximately $359.8 million and no material unpaid            transaction liabilities remaining). Our high leverage and other substantial obligations            could have a material impact on our liquidity. Cash flow from operations services            payment of our debt and other

 

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obligations. Our leverage and these obligations make us more vulnerable            to economic downturns in the event that these obligations are greater or timing of            payment is sooner than expected.

As a result of our significant leverage and other obligations, our            business strategies place the highest priority on accelerating the amount and speed of            cash generated every day. Our efforts include leveraging the Novamerican system, that            is, our processing, distribution and manufacturing network, by driving higher            utilization rates and more productivity from our existing assets, accelerating external            marketing and selling initiatives across all of our potential markets and realizing            other global efficiencies.

We expect cash flow from operations to be positively impacted by our            plans for integrating our operating methodology, the DecalogueTM, into Acquired            Company effectively operating it as one system versus 22 separate facilities and we            believe that during 2008 we will (a) enable the system to operate on much faster cycle            times, enabling practical capacity to approximately 2,500,000 tons, (b) experience a            permanent reduction of inventory of approximately $50.0 million primarily from this            faster operating cycle, and (c) change the organizational design, especially related to            our replenishment processes, including some realignment of steel processing, resulting            in approximately $10.0 million, net, in annual operating expense reductions, with that            resulting run rate realized by the end of 2008. We expect to incur approximately $1.0            million in the 2008 first quarter for operating expenses associated with training and            development required for these changes and approximately $3.0 million in other exit            costs associated with these organizational changes that would be incurred over the last            three quarters of fiscal 2008.

Typically, our cash flow from operations fluctuates significantly            between quarters due to various factors. These factors include customer and seasonal            order patterns, fluctuations in working capital requirements, timing of capital            investments and other factors.

In order to seek to minimize our credit risks, we reduced our sales of            steel to some customers and potential customers in the U.S. and Canada (except for cash            on delivery). We cannot assure you that we will not be materially adversely affected by            accounts receivable losses in the future.

We may from time to time and at any time, as allowed under the ABL            Credit Facility and Notes, repurchase our debt or equity securities in open market or            privately negotiated transactions, opportunistically and on terms that we believe to be            favorable.

In fiscal year 2007, we used a net $2.1 million in cash from operations            primarily due to formation, operating and transactional expenses associated with the            start up of the Company and the Acquisition of Acquired Company. In fiscal year 2006,            we used a net $0.1 million in cash from operations primarily due to initial formation            and operating expenses.

***Historical cash flows***

*Cash Flow (Used In) Provided by Operating            Activities*. Cash used in operating activities was $5.4            million in 2007. Net loss, after deducting a net deferred tax benefit of $3.1 million            and adding back the net effect from non-cash items, amounted to a $6.9 million. Such            loss was offset by cash provided by operating activities primarily for the operations            of the ten-day period of Acquired Company as follows: a decrease in taxes payable of            $5.4 million due primarily to timing of period-end estimated tax payments more than            offset by a decrease in accounts receivables of $3.7 million, primarily from a            relatively lower sales rate than the previous two months, and a decrease in inventories            of $2.6 million primarily for seasonal order patterns and decreases of $0.7 million for            accounts payable and accrued liabilities.

*Cash Flow (Used In) Provided by Investing            Activities*. Cash flow used in investing activities was $478.6            million in fiscal year 2007 for the investment in Acquired Company of $491.1 million,            net, representing a gross purchase price of $585.2 million net against cash provided by            the acquisition that was on hand at November 15, 2007 of $94.1 million. Additional cash            was provided by the disposal of acquired property, plant and equipment, primarily the            sale of the aircraft and certain non-productive land totaling $15.4 million. This cash            was partially offset by the payment of acquisition costs totaling $2.9            million.

*Cash Flow (Used In) Provided by Financing            Activities*. Cash provided by financing activities was $503.6            million in fiscal year 2007. During fiscal year 2007, we received gross proceeds of            $150.0 million (less offering costs of $11.2 million) from the issuance and sale of            units through an initial public offering and gross proceeds of $19.8 million from two            private placements of common stock and warrants. On November 15, 2007, we paid $30.3            million to common stockholders who exercised their conversion right and returned their            common shares to us. On November 15, 2007, we also received gross proceeds of $383.1            million (less offering costs of $15.1 million) from the issuance and sale of our Notes            ($315.0 million) and our ABL Credit Facility ($68.1 million). We used these proceeds,            along with our remaining $112.0 million of equity to fund the

 

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Acquisition of Acquired Company. We borrowed an additional $7.6 million            under the ABL Credit Facility during the 2007 fiscal year.

***Debt and commitments***

As a result of the Acquisition, we have significant debt service            obligations. As of November 24, 2007, we had outstanding debt of approximately            $390.6 million in aggregate indebtedness, with an additional $63.3 million of            unutilized capacity under the ABL Credit Facility, net of $1.0 million of            outstanding and undrawn letters of credit, which reduces availability under the ABL            Credit Facility. Our liquidity requirements will be significant, primarily due to debt            service requirements and the cyclicality of our business. We anticipate cash payments            for interest in fiscal 2008 of approximately $40.0 million.

We believe that the funds available from operations will be sufficient            to provide us with the liquidity necessary for anticipated working capital            requirements, capital expenditure requirements and interest payments associated with            our ABL Credit Facility and the Notes. Our ability to continue to fund these items may,            however, be affected by general economic, financial, competitive, legislative and            regulatory factors beyond our control.

Prior to maturity, to the extent permitted by the terms of the ABL            Credit Facility and permitted or required by the terms of the Notes, we may redeem a            portion of the Notes with the proceeds of the issuance of capital stock, may offer to            purchase Notes from the proceeds of certain asset dispositions and may acquire Notes in            market transactions or, subject to limitations, redeem Notes with cash from operations.            We expect to repay the principal amount of the Notes outstanding at maturity from cash            generated from operations and/or the proceeds of equity or debt financing.

The ABL Credit Facility and the indenture governing the Notes contain            covenants which restrict our ability to incur additional indebtedness, although we are            not restricted from engaging in common equity financing.

***Capital expenditures***

Our capital requirements are subject to change as business conditions            fluctuate and opportunities arise. We anticipate spending approximately            $7.5 million on certain projects in the 2008 fiscal year, with approximately $3.0            million for capital maintenance and the remainder for the completion of an expansion in            our Morrisville, Pennsylvania tubing facility scheduled for completion in the late            third or early fourth quarter.

 

***Off-balance sheet arrangements***

 

As of, and for the fiscal year ended, November 24, 2007, we had no            off-balance sheet arrangements that had, or are reasonably likely to have, a material            current or future effect on our financial condition, revenues or expenses, liquidity,            capital expenditures or capital resources.

 

***Long-Term Contractual, Commercial and Other Obligations and            Commitments***

 

The following table summarizes our long-term contractual obligations and            commitments at November 24, 2007:

 

|                    | **Payments due by period**         |
|-------------------------|------------------------------------|
|                    | **Total**                          |   | **Less than****1 year** |   | **1 to****3 years** |   | **3 to****5 years** |   | **More than****5 years** |
|                    | **(In thousands of U.S. dollars)** |
| Notes (1)               | $                                  | 315,000 |   |   | — |   |   | — |   |   | — |   | $ | 315,000 |
| ABL Credit Facility (1) |                               | 75,588 |   |   | — |   |   | — |   |   | 75,588 |   |   | — |
| Operating leases        |                               | 23,881 |   |   | 4,973 |   |   | 7,558 |   |   | 4,675 |   |   | 6,675 |
| Purchase obligations    |                               | 50,249 |   |   | 50,249 |   |   | — |   |   | — |   |   | — |
|                    | $                                  | 464,718 |   | $ | 55,222 |   | $ | 7,558 |   | $ | 80,263 |   | $ | 321,675 |

 

| (1) | The above table assumes principal payments only and does                            not reflect interest expense. |
|-----|-------------------------------------------------------------------------------------------------------------------|

 

The amount of purchase obligations included in the above table reflects            our estimate of steel on order, in production and unshipped with respect to which we            believe we would have an obligation to pay. Most of our purchase orders may be            cancelled without penalty upon giving sufficient notice. In the normal course of            business, we purchased approximately $697.6 million of

 

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steel for the fiscal year 2007. We estimate no more than approximately            $50.2 million of steel purchase orders were outstanding at November 24, 2007 in            the form of firm purchase orders.

 

We have no defined benefit or other post-retirement employee benefit            obligations.

 

**Changes in accounting policies**

 

***Current***

 

Effective January 1, 2007, we adopted FASB Interpretation No. ("FIN")            48,*Accounting for Uncertainty in Income Taxes.*This interpretation clarifies the accounting for uncertainty in income            taxes recognized in an enterprise's financial statements in accordance with Statement            of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. It            prescribes a recognition threshold and measurement attribute for the financial            statement recognition and measurement of an income tax position taken or expected to be            taken in an income tax return. It also provides guidance on derecognition,            classification, interest and penalties, accounting in interim periods, disclosure, and            transition. Result of initial adoption was nil. There were no significant uncertain tax            positions requiring recognition the financial statements as of January 1,            2007.

 

Effective January 1, 2007, we adopted SFAS No. 154,*Accounting Changes and Error Corrections*—*a replacement of APB Opinion No. 20 and            FASB Statement No. 3.*This statement replaces Accounting            Policy Board ("APB") Opinion No. 20,*Accounting            Changes,*and SFAS No. 3,*Reporting            Accounting Changes in Interim Financial Statements,*and            changes the requirements for the accounting for and reporting of a change in accounting            principle. It applies to all voluntary changes in accounting principle. It also applies            to changes required by an accounting pronouncement in the unusual instance that the            pronouncement does not include specific transition provisions.

 

In May 2007, the FASB issued FASB Statement of Position ("FSP") FIN            48-1, which clarifies when a tax position is considered settled under FIN 48,*Accounting for Uncertainty in Income*Taxes.            The FSP explains that a tax position can be effectively settled on the completion of an            examination by a taxing authority without being legally extinguished. For tax positions            considered effectively settled, an enterprise would recognize the full amount of tax            benefit, even if (1) the tax position is not considered more likely than not to be            sustained solely on the basis of its technical merits and (2) the statute of            limitations remains open. The guidance in the FSP should be applied on the initial            adoption of FIN 48.

 

***Pending***

 

In September 2006, the Financial Accounting Standards Board ("FASB")            issued SFAS No. 157,*Fair Value Measurements.*This statement defines fair value, establishes a framework for measuring            fair value, and expands disclosures about fair value measurements. It applies under            other accounting pronouncements that require or permit fair value measurements.            Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No.            157 is effective for us at the beginning of fiscal 2008. The impact resulting from the            adoption of SFAS No. 157 has not yet been determined.

 

In April 2007, the FASB issued SFAS No.*159,            Fair Value Option for Financial Assets and Financial Liabilities.*This statement's objective is to improve financial reporting by allowing            entities to mitigate volatility in reported earnings caused by the measurement of            related assets and liabilities using different attributes, without having to apply            complex hedge accounting provisions. Under SFAS No. 159, entities that elect the fair            value option will report unrealized gains and losses in earnings at each subsequent            reporting date. The new statement establishes presentation and disclosure requirements            to help financial statement users understand the effect of the entity's election on its            earnings. SFAS No. 159 is effective for us as of the beginning of the 2008 fiscal year.            The impact resulting from the adoption of SFAS No. 159 has not yet been            determined.

 

In December 2007, the FASB issued SFAS No. 141(R),*Business Combinations.*This Statement            replaces SFAS No. 141,*Business Combinations.*This Statement retains the fundamental requirements in SFAS No. 141 that            the acquisition method of accounting (which SFAS No. 141 called the purchase method) be            used for all business combinations and for an acquirer to be identified for each            business combination. This Statement also establishes principles and requirements for            how the acquirer: a) recognizes and measures in its financial statements the            identifiable assets acquired, the liabilities assumed, and any noncontrolling interest            in the acquiree; b) recognizes and measures the goodwill acquired in the business            combination or a gain from a bargain purchase; and c) determines what information to            disclose to enable users of the financial statements to evaluate the nature and            financial effects of the business combination. SFAS No. 14 1(R) will apply            prospectively to business combinations for which the acquisition date is on or after            our fiscal year beginning November 29, 2009. While we have not yet evaluated this            statement for the impact, if any, that SFAS No. 141(R) will have on our consolidated            financial statements, we will be required to expense costs related to any acquisitions            after November 30, 2009.

 

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In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated Financial            Statements.*This Statement amends Accounting Research            Bulletin 51 to establish accounting and reporting standards for the noncontrolling            (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It            clarifies that a noncontrolling interest in a subsidiary is an ownership interest in            the consolidated entity that should be reported as equity in the consolidated financial            statements. We have not yet determined the impact, if any, that SFAS No. 160 will have            on our consolidated financial statements. SFAS No. 160 is effective for our fiscal year            beginning November 29, 2008.

 

**Application of critical accounting policies**

 

The preparation of our consolidated financial statements in conformity            with accounting principles generally accepted in the United States of America requires            us to make estimates and assumptions that affect the amounts reported in the financial            statements. The estimates are based on our historical experience and past performance.            Actual results could differ from those estimates under different assumptions or            conditions. On an ongoing basis, we review our estimates based on currently available            information. The following critical accounting policies are those that we believe            require our most difficult, subjective or complex judgments:

 

*Revenue recognition.*Revenue from product            sales is recognized when there is persuasive evidence of an arrangement, the amount is            fixed or determinable, delivery of the product to the customer has occurred, there are            no uncertainties surrounding product acceptance and collection of the amount is            considered probable. Title to the product generally passes and revenue is recognized            upon delivery of the product at the customer's destination. Sales returns and            allowances are treated as reductions to sales and are provided for based on historical            experience and current estimates.

 

We charge the customer for the complete product delivered to the            customer's designated location and we do not charge separately for shipping and            handling costs. Shipping and handling costs are recorded under the "Delivery" caption            on our consolidated statement of operations and comprehensive loss and amounted to $0.6            million for the year ended November 24, 2007 and nil for the year ended December            31, 2006.

 

*Goodwill.*Goodwill represents the excess of            the purchase price over the fair value of the net assets acquired. Goodwill is not            amortized and is tested for impairment annually or more frequently if events or changes            in circumstances indicate that it is impaired. Goodwill is allocated to reporting units            and any potential goodwill impairment is identified by comparing the carrying amount of            a reporting unit with its fair value. If any potential impairment is identified, it is            quantified by comparing the carrying amount of goodwill to its fair value.

 

*Allowance for doubtful accounts.*We            maintain an allowance for doubtful accounts for estimated losses resulting from the            inability of its customers to make required payments. If the financial condition of            customers were to deteriorate, resulting in an impairment of their ability to make            payments, increases to the allowance would be required.

 

*Income taxes.*The provision for income            taxes is computed on the pretax income of the consolidated subsidiaries located within            each taxing jurisdiction based on the current income tax laws. Deferred income taxes            are provided, based upon currently enacted income tax rates, for temporary differences            in the recognition of assets and liabilities on the financial statements and for income            tax purposes.

 

Deferred income taxes include the benefit of losses carried forward when            it is reasonably likely that future profits will result. Should the opportunity to            realize the benefit of these losses expire, such amounts would result in additional            deferred income tax expense.

 

**ITEM            7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Although our financial results are reported in U.S. dollars, a            substantial portion of our revenues are received in, and our expenses are incurred in,            Canadian dollars. In determining our results of operations, we convert the sales made            by Canadian subsidiaries into the United States, which are denominated in U.S. dollars,            into Canadian dollars based upon the average monthly exchange rate at the time of            sale.

 

Exchange rate fluctuations are beyond our control and although we            partially hedge our currency exposure, there can be no assurance that changes in the            rate of exchange between the Canadian dollar and the U.S. dollar will not adversely            affect our business, results of operations, financial condition or cash            flows.

 

We are exposed to market risk from changes in interest rates and            exchange rates. From time to time, and only upon approval by certain of our executive            officers, we enter into financial contracts in the ordinary course of business in order            to hedge these exposures. We do not use financial instruments for trading or            speculative purposes.

 

35

 

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*Interest rate risk*. Our exposure to            interest rate risk is as follows, indicated in thousands of U.S. dollars:

 

|                 |   | **November 24, 2007**   |
|----------------------|--------|-------------------------|
|                 |   | **Debt****outstanding** |   | **Weighted****average effective****interest rate** |
|                 |   |                    |   |   |   |
| ABL Credit Facility  | $      | 75,588                  |   | 7.0% |
| Senior Secured Notes |   | 315,000                 |   | 11.5% |
|                 | $      | 390,588                 |   |   |

 

 

|                 |   | **November 24, 2007**  |
|----------------------|--------|------------------------|
|                 |   | **Carrying****Amount** |   | **Fair****Value** |
| ABL Credit Facility  | $      | 75,588                 |   | $ | 75,588 |
| Senior Secured Notes |   | 315,000                |   |   | 291,911 |
|                 | $      | 390,588                |   | $ | 367,499 |

 

A 100 basis point movement in the Canadian prime rate or LIBOR would            result in an approximate $0.8 million, annualized, for the period ended November 24,            2007, increase or decrease in interest expense and cash flows.

             

*Exchange rate risk.*From time to time, we            utilize forward exchange contracts to hedge our exposure to exchange rate fluctuations            in connection with future sales and purchases by certain of our Canadian subsidiaries,            denominated in U.S. dollars. Forward exchange contracts are entered into with reputable            financial institutions. At December 31, 2006 and November 24, 2007, we had no forward            foreign currency exchange contracts outstanding.

             

We estimate that a 10 percent movement in the value of the Canadian            dollar would affect our net sales by approximately $46.0 million annually, based on our            2007 Canadian dollar net sales, without giving effect to any hedging instruments. The            modeling technique used was to determine the difference between the conversions of our            net sales in Canadian dollars for the period ended November 24, 2007 using the average            exchange rate for the year and the what-if exchange rate. In 2007, the average exchange            rate was $1.0846 Canadian.

             

*Commodity price risk.*We do not use            derivative commodity instruments to hedge our exposure to the impact of price            fluctuations on our principal raw materials.

 

**ITEM            8. CONSOLIDATED FINANCIAL STATEMENTS**

 

*(Unless otherwise noted, all dollars are presented in            thousands)*

36

 

----

 

| **Novamerican Steel Inc. and                            Subsidiaries****Consolidated Financial Statements****November 24, 2007** |
|----------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                             |

 

| Reports of Independent Registered Public Accounting                            Firms    | F-1 – F-2       |   |
|-----------------------------------------------------------------------------------------|-----------------------|--------|
| Financial Statements                                                                    |                  |   |
| Consolidated Balance Sheets                                                             | F-3                   |   |
| Consolidated Statements of Operations and Comprehensive                            Loss | F-4                   |   |
| Consolidated Statements of Stockholders'                            Equity              | F-5                   |   |
| Consolidated Statements of Cash Flows                                                   | F-6                   |   |
| Notes to Consolidated Financial Statements                                              | F-7 – F-29 |   |

 

 

 

 

37

 

----

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING            FIRM**

 

Board            of Directors and Stockholders

Novamerican Steel Inc. (formerly Symmetry Holdings Inc.)

We            have audited the accompanying consolidated balance sheet of Novamerican Steel Inc. (a            Delaware Corporation) and Subsidiaries (the "Company") as of November 24, 2007 and the            related consolidated statements of operations and comprehensive loss, stockholders'            equity and cash flows for the period from January 1, 2007 to November 24, 2007. These            financial statements are the responsibility of the Company's management. Our            responsibility is to express an opinion on these financial statements based on our            audit.

We            conducted our audit in accordance with the standards of the Public Company Accounting            Oversight Board (United States). Those standards require that we plan and perform the            audit to obtain reasonable assurance about whether the financial statements are free of            material misstatement. The Company is not required to have, nor were we engaged to            perform an audit of its internal control over financial reporting. Our audit included            consideration of internal control over financial reporting as a basis for designing            audit procedures that are appropriate in the circumstances, but not for the purpose of            expressing an opinion on the effectiveness of the Company's internal control over            financial reporting. Accordingly, we express no such opinion. An audit also includes            examining, on a test basis, evidence supporting the amounts and disclosures in the            financial statements, assessing the accounting principles used and significant            estimates made by management, as well as evaluating the overall financial statement            presentation. We believe that our audit provides a reasonable basis for our            opinion.

In            our opinion, the consolidated financial statements referred to above present fairly, in            all material respects, the financial position of Novamerican Steel Inc. and            Subsidiaries as of November 24, 2007, and the results of their operations and their            cash flows for the period from January 1, 2007 to November 24, 2007, in conformity with            accounting principles generally accepted in the United States of America.

/s/Raymond Chabot Grant Thornton LLP

Chartered Accountants

Montreal, Canada

February 20, 2008

 

F-1

 

----

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING            FIRM**

 

Board            of Directors and Stockholders:

 

We have audited the accompanying balance sheet of Symmetry Holdings Inc.            (a development stage company) (the "Company") as of December 31, 2006 and the related            statements of operations, stockholders' deficit and cash flows for the period from            April 26, 2006 (date of inception) through December 31, 2006. These financial            statements are the responsibility of the Company's management. Our responsibility is to            express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present            fairly, in all material respects, the financial position of the Company as of December            31, 2006 and the results of its operations and its cash flows for the period from April            26, 2006 (date of inception) through December 31, 2006 in conformity with U.S.            generally accepted accounting principles.

/s/Miller, Ellin & Company LLP

New            York, New York

January            3, 2007

 

F-2

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Consolidated Balance Sheets**

(In            thousands of U.S. dollars)

 

|   |
|--------|

|                                                                                                                                                                                  |   | **November 24,****2007** |   | **December 31,****2006** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|--------------------------|--------|
|                                                                                                                                                                                  |   | $                        |   | $                        |   |
| **ASSETS**                                                                                                                                                                            |   |                     |   |                     |   |
| Current assets                                                                                                                                                                        |   |                     |   |                     |   |
| Cash and cash equivalents                                                                                                                                                             |   | 19,638                   |   | 262                      |   |
| Trade accounts receivable, net (Note 6)                                                                                                                                               |   | 111,546                  |   | —                  |   |
| Income taxes receivable                                                                                                                                                               |   | 2,822                    |   | —                  |   |
| Inventories (Note 7)                                                                                                                                                                  |   | 149,894                  |   | —                  |   |
| Prepaid expenses and other                                                                                                                                                            |   | 1,666                    |   | 9                        |   |
| Deferred income taxes (Note 4)                                                                                                                                                        |   | 7,130                    |   | —                  |   |
|                                                                                                                                                                                  |   | 292,696                  |   | 271                      |   |
| Investment in a joint venture (Note 19)                                                                                                                                               |   | 1,999                    |   | —                  |   |
| Property, plant and equipment (Note 8)                                                                                                                                                |   | 150,436                  |   | —                  |   |
| Goodwill                                                                                                                                                                              |   | 149,360                  |   | —                  |   |
| Intangibles (Note 9)                                                                                                                                                                  |   | 68,431                   |   | —                  |   |
| Deferred financing charges (Note 12)                                                                                                                                                  |   | 14,998                   |   | —                  |   |
| Deferred offering costs                                                                                                                                                               |   | —                  |   | 443                      |   |
| Other assets                                                                                                                                                                          |   | 257                      |   | —                  |   |
| Deferred income taxes (Note 4)                                                                                                                                                        |   | 43                       |   | —                  |   |
|                                                                                                                                                                                  |   | 678,220                  |   | 714                      |   |
| **LIABILITIES**                                                                                                                                                                       |   |                     |   |                     |   |
| Current liabilities                                                                                                                                                                   |   |                     |   |                     |   |
| Trade accounts payable                                                                                                                                                                |   | 64,350                   |   | 357                      |   |
| Trade accounts payable to a joint venture (Note                        19)                                                                                                            |   | 1,639                    |   | —                  |   |
| Accrued liabilities (Note 10)                                                                                                                                                         |   | 35,079                   |   | —                  |   |
| Note payable to a related party (Note 11)                                                                                                                                             |   | —                  |   | 500                      |   |
| Deferred income taxes (Note 4)                                                                                                                                                        |   | 2,921                    |   | —                  |   |
|                                                                                                                                                                                  |   | 103,989                  |   | 857                      |   |
| Long-term debt (Note 12)                                                                                                                                                              |   | 390,588                  |   | —                  |   |
| Deferred income taxes (Note 4)                                                                                                                                                        |   | 58,588                   |   | —                  |   |
| Other long term liabilities (Note 4)                                                                                                                                                  |   | 3,410                    |   | —                  |   |
|                                                                                                                                                                                  |   | 556,575                  |   | 857                      |   |
| Contingencies and commitments (Notes 20 and 21)                                                                                                                                       |   |                     |   |                     |   |
|                                                                                                                                                                                  |   |                     |   |                     |   |
| **STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                                                                    |   |                     |   |                     |   |
| Preferred stock: $0.001 par value; authorized 10,000,000                        shares; none issuedor outstanding (Note 16)                                                           |   |                     |   |                     |   |
| Common stock: $0.001 par value; authorized 100,000,000                        shares; issued andoutstanding 21,452,304 in 2007 and 4,687,500 in 2006 (Note                        15) |   | 21                       |   | 5                        |   |
| Additional paid-in capital                                                                                                                                                            |   | 128,316                  |   | —                  |   |
| Accumulated deficit                                                                                                                                                                   |   | (3,947                   | )      | (148                     | )      |
| Accumulated other comprehensive loss                                                                                                                                                  |   | (2,745                   | )      | —                  |   |
|                                                                                                                                                                                  |   | 121,645                  |   | (143                     | )      |
|                                                                                                                                                                                  |   | 678,220                  |   | 714                      |   |

 

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

 

F-3

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Consolidated Statements of Operations and Comprehensive            Loss**

(In            thousands of U.S. dollars, except per share data)

 

|   |
|--------|

|                                         |   |   |   | **Period from****January 1, 2007 to****November 24, 2007** |   |   |   | **Period from****April 26, 2006 to****December 31, 2006** |   |
|----------------------------------------------|--------|--------|--------|------------------------------------------------------------|--------|--------|--------|-----------------------------------------------------------|--------|
|                                         |   |   |   | $                                                          |   |   |   | $                                                         |   |
| **Net sales**                                |   |   |   | 16,304                                                     |   |   |   | —                                                   |   |
| Cost of sales                                |   |   |   | 14,792                                                     |   |   |   | —                                                   |   |
| **Gross margin**                             |   |   |   | 1,512                                                      |   |   |   | —                                                   |   |
| Operating expenses                           |   |   |   |                                                       |   |   |   |                                                      |   |
| Plant                                        |   |   |   | 1,355                                                      |   |   |   | —                                                   |   |
| Delivery                                     |   |   |   | 574                                                        |   |   |   | —                                                   |   |
| Selling                                      |   |   |   | 263                                                        |   |   |   | —                                                   |   |
| Administrative and general                   |   |   |   | 2,139                                                      |   |   |   | 145                                                       |   |
| Formation and operating costs                |   |   |   | 2,334                                                      |   |   |   | —                                                   |   |
|                                         |   |   |   | 6,665                                                      |   |   |   | 145                                                       |   |
| **Operating loss**                           |   |   |   | (5,153                                                     | )      |   |   | (145                                                      | )      |
|                                         |   |   |   |                                                       |   |   |   |                                                      |   |
| Transaction expenses (Note 3)                |   |   |   | 4,438                                                      |   |   |   | —                                                   |   |
| Interest expense                             |   |   |   | 1,290                                                      |   |   |   | 13                                                        |   |
| Interest income                              |   |   |   | (4,797                                                     | )      |   |   | (10                                                       | )      |
| Share in income of a joint venture           |   |   |   | (12                                                        | )      |   |   | —                                                   |   |
|                                         |   |   |   | 919                                                        |   |   |   | 3                                                         |   |
| Loss before income taxes                     |   |   |   | (6,072                                                     | )      |   |   | (148                                                      | )      |
| Income taxes (Note 4)                        |   |   |   | (2,273                                                     | )      |   |   | —                                                   |   |
| **Net loss**                                 |   |   |   | (3,799                                                     | )      |   |   | (148                                                      | )      |
|                                         |   |   |   |                                                       |   |   |   |                                                      |   |
| Net loss per share (Note 5)                  |   |   |   |                                                       |   |   |   |                                                      |   |
| Basic                                        |   |   |   | (0.20                                                      | )      |   |   | (0.03                                                     | )      |
| Diluted                                      |   |   |   | (0.20                                                      | )      |   |   | (0.03                                                     | )      |
|                                         |   |   |   |                                                       |   |   |   |                                                      |   |
| **Comprehensive loss**                       |   |   |   |                                                       |   |   |   |                                                      |   |
| Net loss                                     |   |   |   | (3,799                                                     | )      |   |   | (148                                                      | )      |
| Changes in cumulative translation adjustment |   |   |   | (2,745                                                     | )      |   |   | —                                                   |   |
|                                         |   |   |   | (6,544                                                     | )      |   |   | (148                                                      | )      |

 

 

F-4

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Consolidated Statements of Stockholders' Equity**

(In            thousands of U.S. dollars, except share data)

 

|   |
|--------|

 

|                                                                                                         |   |             |   |   |                                 |   |   |                       |   |   |                                              |   |   |                                 |   |   |    |   |
|--------------------------------------------------------------------------------------------------------------|--------|------------------|--------|--------|--------------------------------------|--------|--------|----------------------------|--------|--------|---------------------------------------------------|--------|--------|--------------------------------------|--------|--------|---------|--------|
|                                                                                                         |   | **Common stock** |        |   | **Additional****paid-in****capital** |   |   | **Accumulated****deficit** |   |   | **Accumulated****other****comprehensive****loss** |   |   | **Total****stockholders'****equity** |   |
| **Number**                                                                                                   |   | **Amount**       |
|                                                                                                         |   |             |   |   | $                                    |   |   | $                          |   |   | $                                                 |   |   | $                                    |   |   | $       |   |
| Balance at April 26, 2006(date of inception)                                                                 |   |             |   |   |                                 |   |   |                       |   |   |                                              |   |   |                                 |   |   |    |   |
| Issuance of common stock                                                                                     |   | 4,687,500        |   |   | 5                                    |   |   | —                    |   |   |                                              |   |   | —                              |   |   | 5       |   |
| Net loss                                                                                                     |   | —          |   |   | —                              |   |   | —                    |   |   | (148                                              | )      |   | —                              |   |   | (148    | )      |
| Balance at December 31, 2006                                                                                 |   | 4,687,500        |   |   | 5                                    |   |   |                       |   |   | (148                                              | )      |   |                                 |   |   | (143    | )      |
| Issuance of warrants on March 5, 2007                                                                        |   | —          |   |   | —                              |   |   | 3,750                      |   |   | —                                           |   |   | —                              |   |   | 3,750   |   |
| Issuance of common stock and warrants on March 12, 2007,                            net of offering expenses |   | 18,750,000       |   |   | 18                                   |   |   | 138,827                    |   |   | —                                           |   |   | —                              |   |   | 138,845 |   |
| Issuance of warrants on June 21, 2007                                                                        |   | —          |   |   | —                              |   |   | 1,000                      |   |   | —                                           |   |   | —                              |   |   | 1,000   |   |
| Conversion of common stock by public stockholders to                            cash on November 15, 2007    |   | (3,860,196       | )      |   | (4                                   | )      |   | (30,259                    | )      |   | —                                           |   |   | —                              |   |   | (30,263 | )      |
| Issuance of common stock and warrants on November 15,                            2007                        |   | 1,875,000        |   |   | 2                                    |   |   | 14,998                     |   |   | —                                           |   |   | —                              |   |   | 15,000  |   |
| Net loss                                                                                                     |   | —          |   |   | —                              |   |   | —                    |   |   | (3,799                                            | )      |   | —                              |   |   | (3,799  | )      |
| Changes in cumulative translation adjustment                                                                 |   | —          |   |   | —                              |   |   | —                    |   |   | —                                           |   |   | (2,745                               | )      |   | (2,745  | )      |
| Balance at November 24, 2007                                                                                 |   | 21,452,304       |   |   | 21                                   |   |   | 128,316                    |   |   | (3,947                                            | )      |   | (2,745                               | )      |   | 121,645 |   |

 

|   |
|--------|

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

 

F-5

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Consolidated Statements of Cash Flows**

(In            thousands of U.S. dollars)

 

|   |
|--------|

|                                                                                             |   |   |   | **Period from****January 1, 2007****to November 24, 2007** |     |   |   | **Period from****April 26, 2006 to****December 31, 2006** |   |    |   |
|--------------------------------------------------------------------------------------------------|--------|--------|--------|------------------------------------------------------------|----------|--------|--------|-----------------------------------------------------------|--------|---------|--------|
| **CASH FLOWS FROM OPERATING ACTIVITIES**                                                         |   |   |   |                                                       | $        |   |   |                                                      |   | $       |   |   |   |
| Net loss                                                                                         |   |   |   |                                                       | (3,799   | )      |   |                                                      |   | (148    | )      |   |   |
| Adjustments to reconcile net income to net cash from                        operating activities |   |   |   |                                                       |     |   |   |                                                      |   |    |   |   |   |
| Depreciation and amortization                                                                    |   |   |   |                                                       | 644      |   |   |                                                      |   | — |   |   |   |
| Deferred income taxes                                                                            |   |   |   |                                                       | (3,114   | )      |   |                                                      |   | — |   |   |   |
| Gain on disposal of property, plant and equipment                                                |   |   |   |                                                       | (108     | )      |   |                                                      |   | — |   |   |   |
| Share in income of a joint venture                                                               |   |   |   |                                                       | (12      | )      |   |                                                      |   | — |   |   |   |
| Changes in working capital items                                                                 |   |   |   |                                                       |     |   |   |                                                      |   |    |   |   |   |
| Trade accounts receivable                                                                        |   |   |   |                                                       | 3,724    |   |   |                                                      |   | — |   |   |   |
| Income taxes receivable                                                                          |   |   |   |                                                       | (480     | )      |   |                                                      |   | — |   |   |   |
| Inventories                                                                                      |   |   |   |                                                       | 2,566    |   |   |                                                      |   | — |   |   |   |
| Prepaid expenses and other                                                                       |   |   |   |                                                       | 1,224    |   |   |                                                      |   | — |   |   |   |
| Accounts payable and accrued liabilities                                                         |   |   |   |                                                       | (665     | )      |   |                                                      |   | 8       |   |   |   |
| Income taxes payable                                                                             |   |   |   |                                                       | (5,425   | )      |   |                                                      |   | — |   |   |   |
| Net cash used for operating activities                                                           |   |   |   |                                                       | (5,445   | )      |   |                                                      |   | (140    | )      |   |   |
|                                                                                             |   |   |   |                                                       |     |   |   |                                                      |   |    |   |   |   |
| **CASH FLOWS FROM INVESTING ACTIVITIES**                                                         |   |   |   |                                                       |     |   |   |                                                      |   |    |   |   |   |
| Business acquisitions, net (Note 3)                                                              |   |   |   |                                                       | (491,110 | )      |   |                                                      |   | — |   |   |   |
| Proceeds from disposal of property, plant and                        equipment                   |   |   |   |                                                       | 15,423   |   |   |                                                      |   | — |   |   |   |
| Payment of acquisition costs                                                                     |   |   |   |                                                       | (2,889   | )      |   |                                                      |   | — |   |   |   |
| Additions to property, plant and equipment                                                       |   |   |   |                                                       | (72      | )      |   |                                                      |   | — |   |   |   |
| Net cash used for investing activities                                                           |   |   |   |                                                       | (478,648 | )      |   |                                                      |   | — |   |   |   |
|                                                                                             |   |   |   |                                                       |     |   |   |                                                      |   |    |   |   |   |
| **CASH FLOWS FROM FINANCING ACTIVITIES**                                                         |   |   |   |                                                       |     |   |   |                                                      |   |    |   |   |   |
| Issuance of common stock                                                                         |   |   |   |                                                       | —  |   |   |                                                      |   | 5       |   |   |   |
| Gross proceeds from public offering – common stock and                        warrants     |   |   |   |                                                       | 150,000  |   |   |                                                      |   | — |   |   |   |
| Gross proceeds from private placements –                        warrants                   |   |   |   |                                                       | 4,750    |   |   |                                                      |   | — |   |   |   |
| Gross proceeds from private placement – common stock                        and warrants   |   |   |   |                                                       | 15,000   |   |   |                                                      |   | — |   |   |   |
| Conversion of shares into cash                                                                   |   |   |   |                                                       | (30,263  | )      |   |                                                      |   | — |   |   |   |
| Payment of offering costs                                                                        |   |   |   |                                                       | (11,159  | )      |   |                                                      |   | (103    | )      |   |   |
| Borrowings from senior secured notes                                                             |   |   |   |                                                       | 315,000  |   |   |                                                      |   | — |   |   |   |
| Borrowings from revolving credit agreement                                                       |   |   |   |                                                       | 75,807   |   |   |                                                      |   | — |   |   |   |
| Proceeds from note payable to a related party                                                    |   |   |   |                                                       | —  |   |   |                                                      |   | 500     |   |   |   |
| Payment of debt financing costs                                                                  |   |   |   |                                                       | (15,057  | )      |   |                                                      |   | — |   |   |   |
| Repayment of note payable to a related party                                                     |   |   |   |                                                       | (500     | )      |   |                                                      |   | — |   |   |   |
| Net cash from financing activities                                                               |   |   |   |                                                       | 503,578  |   |   |                                                      |   | 402     |   |   |   |
|                                                                                             |   |   |   |                                                       |     |   |   |                                                      |   |    |   |   |   |
| Effect of exchange rate changes on cash and cash                        equivalents              |   |   |   |                                                       | (109     | )      |   |                                                      |   | — |   |   |   |
| **Net increase in cash and cash equivalents**                                                    |   |   |   |                                                       | 19,376   |   |   |                                                      |   | 262     |   |   |   |
| Cash and cash equivalents, beginning of year                                                     |   |   |   |                                                       | 262      |   |   |                                                      |   | — |   |   |   |
| Cash and cash equivalents, end of year                                                           |   |   |   |                                                       | 19,638   |   |   |                                                      |   | 262     |   |   |   |
|                                                                                             |   |   |   |                                                       |     |   |   |                                                      |   |    |   |   |   |
| **SUPPLEMENTAL DISCLOSURE OF CASH FLOW                        INFORMATION**                      |   |   |   |                                                       |     |   |   |                                                      |   |    |   |   |   |
| Interest paid                                                                                    |   |   |   |                                                       | 17       |   |   |                                                      |   | — |   |   |   |
| Income taxes paid                                                                                |   |   |   |                                                       | 7,522    |   |   |                                                      |   | — |   |   |   |

|   |
|--------|

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

 

F-6

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**1 -            ORGANIZATION AND NATURE OF OPERATIONS**

 

Symmetry Holdings Inc. ("Symmetry") was incorporated in Delaware on            April 26, 2006, as a development stage company formed for the purpose of acquiring,            through a merger, capital stock exchange, asset acquisition, stock purchase or other            similar business combination, one or more operating businesses. On November 15, 2007,            Symmetry completed the acquisition of Novamerican Steel Inc. and its subsidiaries (the            "Acquired Company"), a corporation incorporated under the laws of Canada. Symmetry's            activities from April 26, 2006 (inception) through November 15, 2007, were limited to            organizational activities, Symmetry's initial public offering, identifying and            evaluating prospective acquisition candidates, general corporate matters and, since            April 21, 2007, discussions and negotiations with Acquired Company regarding an initial            business combination. Until November 15, 2007, Symmetry did not engage in any            operations and did not generate any revenues, other than interest income earned on the            proceeds from its initial public offering (as described in Note 13) and two private            placements (as described in Note 14).

The            registration statement for Symmetry's initial public offering of units (the "Offering")            was declared effective on March 6, 2007. On March 7, 2007, the units began trading on            the American Stock Exchange ("Amex") under the symbol SHJ.U. Each unit consisted of one            share of common stock and one warrant to purchase one share of common stock. On March            12, 2007, the Offering of 18,750,000 units was consummated, generating aggregate gross            proceeds of $150,000,000. Net proceeds of $143,700,000, inclusive of deferred            underwriting costs were held in a trust account at JPMorgan Chase Bank, N.A. maintained            by Continental Stock Transfer & Trust Company, as trustee, until the closing of the            acquisition of Acquired Company on November 15, 2007. On April 4, 2007, Symmetry's            common stock and warrants began to trade separately on the Amex under the symbols SHJ            and SHJ.WS, respectively.

On            June 21, 2007, Symmetry and its wholly owned indirect subsidiary, 632422 N.B. LTD., a            corporation existing under the laws of the Canadian province of New Brunswick, entered            into an arrangement agreement with Acquired Company to acquire all of its outstanding            common shares in exchange for cash by way of a court-approved statutory plan of            arrangement under the Canada Business Corporations Act (the "Acquisition").

On            November 15, 2007, Symmetry completed the Acquisition and the other transactions            contemplated by the arrangement agreement after receiving the approval of the            stockholders of Acquired Company holding at least 66 2/3% of votes cast at the special            meeting of stockholders, the approval of the stockholders of Symmetry pursuant to its            amended and restated certificate of incorporation, the approval of the Acquisition            pursuant to the Investment Canada Act, the approval of the Acquisition under the            Competition Act (Canada), and the expiration of the waiting period under the            Hart-Scott-Rodino Antitrust Improvements Act of 1976. Following completion of the            Acquisition on November 15, 2007, Acquired Company became a wholly owned indirect            subsidiary of Symmetry.

 

On December 5, 2007, Symmetry changed its name to Novamerican Steel Inc.            ("Novamerican Steel" or the "Company") and changed Acquired Company's name to            Novamerican Steel Canada Inc. ("Novamerican Canada"). On December 7, 2007, the            Company's Board of Directors approved the change of its fiscal year end from December            31 to the last Saturday of November. On December 28, 2007, the Company's common stock,            warrants and units ceased trading on the Amex and, on December 31, 2007, its common            stock and warrants commenced trading on The Nasdaq Capital Market ("Nasdaq") under the            symbols TONS and TONSW, respectively. The Company's units, which had traded as a            separate class of security, ceased to trade as such and all outstanding units were            automatically separated into common stock and warrants.

 

F-7

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**1 -            ORGANIZATION AND NATURE OF OPERATIONS (Continued)**

 

The Company, through its wholly-owned, indirect subsidiaries, processes            and distributes carbon steel, stainless steel and aluminium products, including carbon            steel tubular products, and operates as an intermediary between primary metal producers            and manufacturers that require processed metal. The Company also manufactures heavy            equipment parts and accessories and produces rolled formed steel sections at its            Cresswell facilities. The Company operates 22 facilities, including 11 locations in the            Northeastern, Mid-Atlantic and Mid-Western United States and 11 locations in the            Canadian provinces of Québec and Ontario.

 

**2 -            ACCOUNTING POLICIES**

 

The accompanying consolidated financial statements have been prepared in            accordance with accounting principles generally accepted in the United States of            America.

 

A summary of significant accounting policies consistently applied in the            preparation of the accompanying consolidated financial statements follows.

 

**Fiscal period**

The Company changed its fiscal year end from December 31 to the last            Saturday of November. The fiscal period ending November 24, 2007 includes            financial results from January 1, 2007 and the fiscal period ending on December 31,            2006 includes financial results from April 26, 2006 (the date of inception of the            Company).

 

**Basis of consolidation**

The consolidated financial statements for the fiscal year ended December            31, 2006 include only the financial results of Symmetry. The financial statements for            the period January 1, 2007 through November 24, 2007, include the financial results of            Novamerican Steel, its wholly-owned subsidiaries Novamerican Steel Holdings Inc.            ("Novamerican Holdings"), Novamerican Steel Finco Inc. ("Novamerican Finco") and ten            days of Acquired Company (the period from the date of the Acquisition to the fiscal            year end). However, the ten-day results of Acquired Company may not be indicative of            results of a full fiscal year. All intercompany balances and transactions have been            eliminated in the consolidated financial statements.

 

**Joint venture**

The Company's interest in a joint venture is accounted for by the equity            method. Accordingly, the Company's share in income of the joint venture is included in            consolidated net income.

 

**Translation of foreign currencies**

The non-consolidated financial statements of the Company and its            subsidiaries are prepared based on their respective functional currencies, which are            the U.S. dollar for U.S. operations and the Canadian dollar for Canadian operations. As            a result, in the Company's consolidated financial statements, the financial statements            of the Canadian operations are translated into U.S. dollars using the current rate            method. Under this method, assets and liabilities are translated using the exchange            rate in effect at the balance sheet date. Revenues and expenses are translated at the            average rate in effect during the year. Gains and losses arising from translation are            included in accumulated other comprehensive loss.

 

F-8

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**2 - ACCOUNTING POLICIES (Continued)**

 

Transactions concluded in foreign currencies by the Company are            translated into their respective functional currency as follows: monetary assets and            liabilities are translated at the exchange rate in effect at year-end and revenues and            expenses are translated at the average exchange rate for the month in which they occur.            Exchange gains and losses arising from transactions denominated in foreign currencies            are included in the consolidated statements of operations and comprehensive income.            Losses amounted to $46,000 in fiscal 2007 and to nil in fiscal 2006.

 

**Accounting estimates**

The preparation of financial statements in conformity with accounting            principles generally accepted in the United States of America requires management to            make estimates and assumptions that affect the reported amounts of assets and            liabilities and disclosure of contingent assets and liabilities at the date of the            financial statements and the reported amounts of revenues and expenses during the            reporting period. On an ongoing basis, management reviews its estimates based on            currently available information. Management believes the most sensitive estimates            include the allowance for doubtful accounts, the recoverability of goodwill and other            intangibles, and the provision for income taxes. Actual results could differ from these            estimates.

 

**Revenue recognition**

Revenue from product sales is recognized when there is persuasive            evidence of an arrangement, the amount is fixed or determinable, delivery of the            product to the customer has occurred, there are no uncertainties surrounding product            acceptance and collection of the amount is considered probable. Title to the product            generally passes and revenue is recognized upon delivery of the product at the            customer's destination. Sales returns and allowances are treated as reductions to sales            and are provided for based on historical experience and current estimates.

 

The customer is invoiced for the complete product delivered to the            customer's designated location and shipping and handling charges are not invoiced            separately. Shipping and handling costs are recorded under the "Delivery" caption on            the consolidated statements of operations and comprehensive loss.

 

**Cash            and cash equivalents**

The            Company considers all highly liquid instruments with an original maturity of three            months or less when purchased to be cash equivalents.

 

F-9

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**2 - ACCOUNTING POLICIES (Continued)**

 

**Trade accounts receivable**

Credit is extended based on evaluation of a customer's financial            condition and, generally, collateral is not required. Trade accounts receivable are            stated at amounts due from customers based on agreed upon payment terms net of an            allowance for doubtful accounts. Accounts outstanding longer than the agreed upon            payment terms are considered past due. The Company determines its allowance by            considering a number of factors, including the length of time trade accounts receivable            are past due, the customer's current ability to pay its obligation to the Company, and            the condition of the general economy and the industry as a whole. The Company writes            off trade accounts receivable when they are determined to be uncollectible, and any            payments subsequently received on such receivables are credited to the bad debt            expense.

 

**Inventories**

Inventories are stated at the lower of cost or market and include the            cost of purchased steel and freight. Cost is determined using the specific            identification method or the moving average cost method.

 

**Property, plant and equipment**

Property, plant and equipment are stated at cost and are reviewed for            possible impairment whenever events or changes in circumstances indicate that the            carrying amount may not be recoverable. If changes in circumstances indicate that the            carrying amount of an asset that the Company expects to hold and use may not be            recoverable, future cash flows expected to result from the use of the asset and its            disposition are estimated. If the undiscounted value of the future cash flows is less            than the carrying amount of the asset, impairment is recognized. Management believes            that there has been no impairment of the Company's property, plant and equipment as at            November 24, 2007.

 

Property, plant and equipment are depreciated over their estimated            useful lives using the following methods:

 

| Buildings and building improvements | Straight-line | 10 to 40 years |   |
|-------------------------------------|---------------|----------------|--------|
| Machinery and equipment             | Straight-line | 5 to 20 years  |   |
| Furniture and fixtures              | Straight-line | 5 to 15 years  |   |
| Transportation equipment            | Straight-line | 3 to 7 years   |   |
| Computer equipment                  | Straight-line | 3 to 5 years   |   |
| Leasehold improvements              | Straight-line | 5 to 10 years  |   |
|                                |          |           |   |

 

No depreciation is recorded on assets under construction.

 

Depreciation expense was approximately $374,000, for fiscal 2007 and nil            for fiscal 2006. Gains on disposal of property, plant and equipment were approximately            $108,000, for fiscal 2007 and nil for fiscal 2006.

 

F-10

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**2 - ACCOUNTING POLICIES (Continued)**

 

**Intangible assets**

The intangible assets consist of a trade name, customer relationships            and a non-compete agreement acquired in a business acquisition. The costs are            capitalized and amortized based on their estimated useful lives according to the            following methods and rates:

 

| Trade name             | Indefinite life                                                               |
|------------------------|-------------------------------------------------------------------------------|
| Customer relationships | Straight-line over a period not exceeding 12                            years |
| Non-compete agreement  | Straight-line over a period not exceeding 2                            years  |

 

**Deferred financing charges**

Deferred financing charges are recorded at cost and are related to the            issuance of debt and are deferred and amortized over the term of the related            debt.

 

**Goodwill**

Goodwill represents the excess of the purchase price over the fair value            of the net assets acquired. Goodwill is not amortized and is tested for impairment            annually or more frequently if events or changes in circumstances indicate that it is            impaired. Goodwill is allocated to reporting units and any potential goodwill            impairment is identified by comparing the carrying amount of a reporting unit with its            fair value. If any potential impairment is identified, it is quantified by comparing            the carrying amount of goodwill to its fair value.

 

**Income taxes**

The provision for income taxes is computed on the pre-tax income of the            consolidated subsidiaries located within each taxing country based on the current            income tax law. Deferred income taxes are provided based upon currently enacted income            tax rates for temporary differences in the recognition of assets and liabilities on the            financial statements and for income tax purposes.

 

Deferred income taxes include the benefit of losses carried forward when            it is more likely than not that future profits will result. Should the opportunity to            realize the benefit of these losses expire, such amounts would result in additional            deferred income tax expense.

 

Taxes have not been provided on undistributed earnings of foreign            subsidiaries because our intention is to reinvest these undistributed earnings            indefinitely. To the extent that our circumstances change or future earnings are            repatriated, we will provide for income tax on the earnings of the affected foreign            subsidiaries.

 

F-11

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**2 - ACCOUNTING POLICIES (Continued)**

 

In            July 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation            No. ("FIN") 48,*Accounting for Uncertainty in Income            Taxes*. FIN 48 is an interpretation of Statement of Financial            Accounting Standard ("SFAS") No. 109,*Accounting for            Income Taxes.*FIN 48 provides interpretive guidance for the            financial statement recognition and measurement of a tax position taken, or expected to            be taken, in a tax return. FIN 48 requires the affirmative evaluation that it is more            likely than not, based on the technical merits of a tax position, that an enterprise is            entitled to economic benefits resulting from positions taken in income tax returns. If            a tax position does not meet the "more-likely-than-not" recognition threshold, the            benefit of that position is not recognized in the financial statements. FIN 48 also            requires companies to disclose additional quantitative and qualitative information in            their financial statements about uncertain tax positions. FIN 48 was effective for            fiscal year beginning January 1, 2007. There were no significant uncertain tax            positions requiring recognition in the financial statements as of January 1, 2007. As a            result of the business acquisition, the Company increased its liability for            unrecognized tax benefits by approximately $3,410,000, which was accounted for as an            adjustment to goodwill.

 

**Comprehensive loss**

Components of comprehensive loss include net loss and changes in            cumulative translation adjustment.

 

**Current and pending accounting changes**

*Current*

Effective January 1, 2007, the Company adopted FIN 48,*Accounting for Uncertainty in Income Taxes*.            This interpretation clarifies the accounting for uncertainty in income taxes recognized            in an enterprise's financial statements in accordance with SFAS No. 109,            Accounting for Income Taxes. It prescribes a recognition threshold and measurement            attribute for the financial statement recognition and measurement of an income tax            position taken or expected to be taken in an income tax return. It also provides            guidance on derecognition, classification, interest and penalties, accounting in            interim periods, disclosure, and transition. Result of initial adoption was nil. There            were no significant uncertain tax positions requiring recognition in the financial            statements as of January 1, 2007.

 

Effective January 1, 2007, the Company adopted SFAS No. 154,*Accounting Changes and Error Corrections – a replacement of APB            Opinion No.* *20 and FASB            Statement No.* *3*. This statement replaces Accounting            Policy Board ("APB") Opinion No. 20,*Accounting            Changes*, and SFAS No. 3,*Reporting Accounting Changes in Interim Financial            Statements*, and changes the requirements for the accounting            for and reporting of a change in accounting principle. It applies to all voluntary            changes in accounting principle. It also applies to changes required by an accounting            pronouncement in the unusual instance that the pronouncement does not include specific            transition provisions.

 

In May 2007, the FASB issued FASB Statement of Position ("FSP") FIN            48-1, which clarifies when a tax position is considered settled under FIN 48,*Accounting for Uncertainty in Income Taxes*.            The FSP explains that a tax position can be effectively settled on the completion of an            examination by a taxing authority without being legally extinguished. For tax positions            considered effectively settled, an enterprise would recognize the full amount of tax            benefit, even if (1) the tax position is not considered more likely than not to be            sustained solely on the basis of its technical merits and (2) the statute of            limitations remains open. The guidance in the FSP should be applied on the initial            adoption of FIN 48.

 

*Pending*

In September 2006, the FASB issued SFAS No. 157,*Fair Value Measurements*. This statement            defines fair value, establishes a framework for measuring fair value, and expands            disclosures about fair value measurements. It applies

 

F-12

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

under other accounting pronouncements that require or permit fair value            measurements. Accordingly, SFAS No. 157 does not require any new fair value            measurements. SFAS No. 157 is effective for the Company at the beginning of fiscal            2008. The impact resulting from the adoption of SFAS No. 157 has not yet been            determined.

 

**2 - ACCOUNTING POLICIES (Continued)**

 

In April 2007, the FASB issued SFAS No. 159,*Fair Value Option for Financial Assets and Financial            Liabilities*. This statement's objective is to improve            financial reporting by allowing entities to mitigate volatility in reported earnings            caused by the measurement of related assets and liabilities using different attributes,            without having to apply complex hedge accounting provisions. Under SFAS No. 159,            entities that elect the fair value option will report unrealized gains and losses in            earnings at each subsequent reporting date. The new statement establishes presentation            and disclosure requirements to help financial statement users understand the effect of            the entity's election on its earnings. SFAS No. 159 is effective for the Company as of            the beginning the 2008 fiscal year. The impact resulting from the adoption of SFAS No.            159 has not yet been determined.

 

In December 2007, the FASB issued SFAS No. 141(R),*Business Combinations*. This Statement            replaces SFAS No. 141,*Business            Combinations*. This Statement retains the fundamental            requirements in SFAS No. 141 that the acquisition method of accounting (which SFAS No.            141 called the purchase method) be used for all business combinations and for an            acquirer to be identified for each business combination. This Statement also            establishes principles and requirements for how the acquirer: a) recognizes and            measures in its financial statements the identifiable assets acquired, the liabilities            assumed, and any noncontrolling interest in the acquiree; b) recognizes and measures            the goodwill acquired in the business combination or a gain from a bargain purchase;            and c) determines what information to disclose to enable users of the financial            statements to evaluate the nature and financial effects of the business combination.            SFAS No. 141(R) will apply prospectively to business combinations for which the            acquisition date is on or after the Company's fiscal year beginning November 29, 2009.            While the Company has not yet evaluated this statement for the impact, if any, that            SFAS No. 141(R) will have on its consolidated financial statements, the Company will be            required to expense costs related to any acquisitions after November 29,            2009.

 

In December 2007, the FASB issued SFAS No. 160,*Noncontrolling Interests in Consolidated Financial            Statements*. This Statement amends Accounting Research            Bulletin 51 to establish accounting and reporting standards for the noncontrolling            (minority) interest in a subsidiary and for the deconsolidation of a subsidiary. It            clarifies that a noncontrolling interest in a subsidiary is an ownership interest in            the consolidated entity that should be reported as equity in the consolidated financial            statements. The Company has not yet determined the impact, if any, that SFAS No. 160            will have on its consolidated financial statements. SFAS No. 160 is effective for the            Company's fiscal year beginning November 29, 2009.

 

**3 -            BUSINESS ACQUISITION**

 

On            November 15, 2007, the Company acquired all of the outstanding common stock of Acquired            Company for $56.00 per share. The purchase consideration for the Acquisition was            $585,200,000. In addition, the Company incurred acquisition costs of approximately            $7,327,000 of which approximately $2,889,000 were direct costs capitalized as part of            the purchase price consideration and approximately $4,438,000 were indirect and general            costs expensed as incurred.

 

F-13

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**3            - BUSINESS ACQUISITION (Continued)**

 

The            purchase price was allocated to the assets acquired and liabilities assumed based upon            a preliminary valuation of respective fair values. The Company is in the process of            obtaining third-party valuations of certain assets; thus, the allocation of the            purchase price is subject to refinement.  The identifiable intangible assets            consisted of a trade name with a value of $17,500,000 (indefinite useful life),            customer relationships with a value of $43,600,000 (12 year estimated useful life) and            a non-compete agreement with a value of $8,700,000 (2 year useful life). The excess            consideration over fair value recorded as goodwill aggregated to approximately            $149,360,000, which is not deductible for tax purposes. The allocation of purchase            consideration to the assets acquired and the liabilities assumed is as            follows:

 

|                                                                                   | **November 15,****2007** |    |   |
|----------------------------------------------------------------------------------------|--------------------------|---------|--------|
| Tangible assets acquired                                                               |                     | $       |   |   |
| Cash                                                                                   |                     | 94,090  |   |   |
| Accounts receivable                                                                    |                     | 117,440 |   |   |
| Inventories                                                                            |                     | 154,636 |   |   |
| Property, plant and equipment                                                          |                     | 168,338 |   |   |
| Other                                                                                  |                     | 7,329   |   |   |
|                                                                                   |                     | 541,833 |   |   |
| Liabilities Assumed                                                                    |                     |    |   |   |
| Accounts payable and accrued liabilities                                               |                     | 106,181 |   |   |
| Deferred income tax credits and other                            liabilities           |                     | 66,981  |   |   |
|                                                                                   |                     | 173,162 |   |   |
| Net tangible assets acquired                                                           |                     | 368,671 |   |   |
|                                                                                   |                     |    |   |   |
| Goodwill                                                                               |                     | 149,360 |   |   |
| Customer relationships                                                                 |                     | 43,600  |   |   |
| Trade name                                                                             |                     | 17,500  |   |   |
| Non-compete agreement                                                                  |                     | 8,700   |   |   |
| Other                                                                                  |                     | 258     |   |   |
| Total consideration paid including direct acquisition                            costs |                     | 588,089 |   |   |

 

 

F-14

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**3 - BUSINESS ACQUISITION (Continued)**

 

The            following unaudited pro forma financial information for 2006 and 2007 presents the            combined results of operations as if the acquisition had occurred at January 1, 2006            and January 1, 2007, respectively. The pro forma information includes certain            adjustments, including depreciation expense, interest expense and certain other            adjustments, together with related income tax effects. The pro forma amounts may not be            indicative of the results that actually would have been achieved had the acquisition            occurred as of the beginning of the period and are not necessarily indicative of future            results of the combined companies:

 

|                               | **Period from****January 1,****2007 to****November 24,****2007** |    | **Period from****April 26,****2006 to****December 31,****2006** |
|------------------------------------|------------------------------------------------------------------|---------|-----------------------------------------------------------------|
|                               | (Unaudited)                                                      |    | (Unaudited)                                                     |
|                               |                                                             | $       |                                                            |   | $ |
| Net sales                          |                                                             | 801,348 |                                                            |   | 840,798 |
| Net income (loss)                  |                                                             | (3,934  | )                                                               |   | 14,754 |
| Earnings per share – Basic   |                                                             | (0.18   | )                                                               |   | 0.69 |
| Earnings per share – Diluted |                                                             | (0.18   | )                                                               |   | 0.69 |
|                                    |                                                                  |         |                                                                 |  |  |  |  |

 

**4 -            INCOME TAXES**

 

The following summarizes the Company's income taxes on the earnings of            its Canadian and U.S. operations.

 

Loss before income taxes by local jurisdiction:

 

|          | **Period from****January 1,****2007 to****November 24,****2007** |   | **Period from****April 26,****2006 to****December 31,****2006** |   |    |
|---------------|------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|---------|
|          |                                                             | $      |                                                            |   | $       |   |   |
| United States |                                                             | (1,639 | )                                                               |   | (148    | ) |   |
| Canada        |                                                             | (4,433 | )                                                               |   | — |   |   |
|          |                                                             | (6,072 | )                                                               |   | (148    | ) |   |

 

The income tax provision is composed of the following:

 

|          | **Period from****January 1,****2007 to****November 24,****2007** |   | **Period from****April 26,****2006 to****December 31,****2006** |   |    |
|---------------|------------------------------------------------------------------|--------|-----------------------------------------------------------------|--------|---------|
|          |                                                             | $      |                                                            |   | $       |   |   |
| Current       |                                                             |   |                                                            |   |    |   |   |
| United States |                                                             | 511    |                                                            |   | — |   |   |
| Canada        |                                                             | 330    |                                                            |   | — |   |   |
|          |                                                             | 841    |                                                            |   | — |   |   |
| Deferred      |                                                             |   |                                                            |   |    |   |   |
| United States |                                                             | (1,276 | )                                                               |   | — |   |   |
| Canada        |                                                             | (1,838 | )                                                               |   | — |   |   |
|          |                                                             | (3,114 | )                                                               |   | — |   |   |

 

 

F-15

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

 

|   |   | (2,273 | ) |   | — |   |   |
|--------|--------|--------|---|--------|---------|--------|--------|

             

 

F-16

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**4 - INCOME TAXES (Continued)**

 

The components of the Company's net deferred income tax liability are as            follows:

 

|                                          | **November 24,****2007** |   | **December 31,****2006** |   |
|-----------------------------------------------|--------------------------|--------|--------------------------|--------|
|                                          | $                        |   |                     |   | $ |   |
| Assets                                        |                     |   |                     |   |   |   |
| Current deferred income taxes                 |                     |   |                     |   |   |   |
| Inventories                                   | 592                      |   |                     |   | — |   |
| Trade accounts receivable                     | 93                       |   |                     |   | — |   |
| Net operating losses                          | 6,067                    |   |                     |   | — |   |
| Other items                                   | 378                      |   |                     |   | — |   |
|                                          | 7,130                    |   |                     |   | — |   |
| Long-term deferred income taxes               |                     |   |                     |   |   |   |
| Other items                                   | 43                       |   |                     |   | 60 |   |
| Gross deferred income tax assets              | 7,173                    |   |                     |   | 60 |   |
| Less: Valuation allowance                     | —                  |   |                     |   | (60 | ) |
| Deferred income tax assets                    | 7,173                    |   |                     |   | — |   |
|                                          |                     |   |                     |   |   |   |
| Liabilities                                   |                     |   |                     |   |   |   |
| Current deferred income taxes                 |                     |   |                     |   |   |   |
| Inventories                                   | 2,606                    |   |                     |   | — |   |
| Other                                         | 315                      |   |                     |   | — |   |
|                                          | 2,921                    |   |                     |   | — |   |
|                                          |                     |   |                     |   |   |   |
| Long-term deferred income taxes               |                     |   |                     |   |   |   |
| Property, plant and equipment                 | 13,505                   |   |                     |   | — |   |
| Property, plant and equipment – Step up | 21,300                   |   |                     |   | — |   |
| Intangibles – Step up                   | 23,753                   |   |                     |   | — |   |
| Other                                         | 30                       |   |                     |   | — |   |
|                                          | 58,588                   |   |                     |   | — |   |
| Total deferred income tax liabilities         | 61,509                   |   |                     |   | — |   |
|                                          |                     |   |                     |   |   |   |
| Net deferred income tax liability             | (54,336                  | )      |                     |   | — |   |

 

Income tax benefit attributable to income from continuing operations            differed from the amounts computed by applying the federal income tax rate of 35% to            pretax loss from operations as set forth in the following table:

 

F-17

 

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**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**4 - INCOME TAXES (Continued)**

 

|                                                                                    | **Period from****January 1,****2007 to****November 24,****2007** |   | **Period from****April 26,****2006 to****December 31,****2006** |    |
|-----------------------------------------------------------------------------------------|------------------------------------------------------------------|--------|-----------------------------------------------------------------|---------|
|                                                                                    | $                                                                |   |                                                            | $       |   |
| U.S. federal statutory income tax                                                       | (2,125                                                           | )      |                                                            | (52     | ) |
| Impact of rate change on deferred taxes                                                 | 166                                                              |   |                                                            | — |   |
| Jurisdictional and state rate differential                                              | (80                                                              | )      |                                                            | (8      | ) |
| Tax effects of permanent items                                                          | (171                                                             | )      |                                                            | — |   |
| Adjustments to deferred income tax asset valuation                            allowance | (60                                                              | )      |                                                            | 60      |   |
| Other items                                                                             | (3                                                               | )      |                                                            | — |   |
|                                                                                    | (2,273                                                           | )      |                                                            | — |   |

 

On            January 1, 2007, the Company adopted the provisions of FIN 48. There were no            significant uncertain income tax positions requiring recognition in the financial            statements as of January 1, 2007. As a result of the business acquisition, the Company            increased its liability for unrecognized income tax benefits by approximately            $3,410,000, which was accounted for as an adjustment to goodwill.

 

Unrecognized income tax benefits are as follows:

 

|                                       |   | **November 24, 2007** |
|--------------------------------------------|--------|-----------------------|
|                                       |   | $                     |
| Balance at January 1, 2007            |   | —               |
| Tax positions related to prior years       |   | —               |
| Tax positions related to the current year  |   | 3,410                 |
| Lapse of applicable statute of limitations |   | —               |
| Balance at November 24, 2007               |   | 3,410                 |

 

The            total liabilities associated with unrecognized income tax benefits that, if recognized,            would impact the effective income tax rates were nil at January 1, 2007 and            November 24, 2007.

The Company accrues interest and penalties associated with unrecognized            tax benefits in income tax expense in the Consolidated Statements of Operations, and            the corresponding liability in income taxes payable or income taxes receivable,            net in the Consolidated Balance Sheets. The expense for interest and penalties            reflected in the Consolidated Statements of Operations for the year ended November 24,            2007 was nil (interest net of related income tax benefits). The corresponding            liabilities in the Consolidated Balance Sheets were $3,410,000 and nil at November            24, 2007 and January 1, 2007, respectively.

The Company and its subsidiaries file income tax returns in the U.S.            federal jurisdiction, various state jurisdictions, Canadian federal jurisdiction and            various provincial jurisdictions. The Company is subject to U.S. federal income tax            examination for tax years 2003 through 2006. The Company is subject to various state            income tax examinations for tax years 2002 through 2006. The Company is subject to            Canadian federal income tax examination for tax years 2002 through 2006. The Company is            subject to various provincial income tax examinations for tax years 2001 through            2006.

 

F-18

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**5 -            EARNINGS PER SHARE**

 

The basic loss per share is computed by dividing the net loss applicable            to common stock by the weighted average number of common stock outstanding during the            period.

 

The diluted loss per share is computed by dividing the net loss            applicable to common stock by the weighted average number of common stock outstanding            during the period, plus the effects of dilutive warrants. The diluted loss per share is            computed using the treasury method, which assumes that all warrants are exercised at            the beginning of the period and that the funds obtained are used to purchase common            stock of the Company at the average trading price of the common stock during the            period. As a result of the net loss reported for 2007, 25,579,069 of potential common            shares underlying dilutive securities have been excluded from the calculation of            diluted loss per share because their effect would reduce the loss per share.

 

The following table provides the reconciliation between basic and            diluted income per share:

 

|                                                                                   |   | **Period from****January 1,****2007 to****November 24,****2007** |       | **Period from****April 26,****2006 to****December 31,****2006** |   |
|----------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|------------|-----------------------------------------------------------------|--------|
|                                                                                   |   |                                                             | $          |                                                            |   | $ |   |
| Net loss                                                                               |   |                                                             | (3,799     | )                                                               |   | (148 | ) |
|                                                                                   |   |                                                             |       |                                                            |   |   |   |
| Weighted average number of common stock                            outstanding         |   |                                                             | 19,375,451 |                                                            |   | 4,687,500 |   |
| Effect of dilutive warrants                                                            |   |                                                             | —    |                                                            |   | — |   |
| Weighted average number of diluted common stock                            outstanding |   |                                                             | 19,375,451 |                                                            |   | 4,687,500 |   |
|                                                                                   |   |                                                             |       |                                                            |   |   |   |
| Net loss per share                                                                     |   |                                                             |       |                                                            |   |   |   |
| Basic                                                                                  |   |                                                             | (0.20      | )                                                               |   | (0.03 | ) |
| Diluted                                                                                |   |                                                             | (0.20      | )                                                               |   | (0.03 | ) |

 

 

**6 -            TRADE ACCOUNTS RECEIVABLE**

 

Trade accounts receivable consist of the following:

 

|                            |   | **November 24,****2007** |    | **December 31,****2006** |    |   |
|---------------------------------|--------|--------------------------|---------|--------------------------|---------|--------|
|                            |   |                     | $       |                     | $       |   |   |
| Trade accounts                  |   |                     | 112,442 |                     | — |   |   |
| Allowance for doubtful accounts |   |                     | (896    | )                        | — |   |   |
|                            |   |                     | 111,546 |                     | — |   |   |
|                                 |        |                          |         |                          |         |        |  |  |  |  |

 

The            Company was a development stage company at the beginning of the period and accordingly            had no estimate for an allowance for doubtful accounts. The allowance for doubtful            accounts of Acquired Company was $896,000 on acquisition and remained unchanged at            November 24, 2007.

 

F-19

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**7 -            INVENTORIES**

 

The following summarizes the Company's inventories:

 

|           |   | **November 24,****2007** |    |   | **December 31,****2006** |    |
|----------------|--------|--------------------------|---------|--------|--------------------------|---------|
|           |   |                     | $       |   |                     | $       |   |
| Raw materials  |   |                     | 82,095  |   |                     | — |   |
| Finished goods |   |                     | 67,799  |   |                     | — |   |
|           |   |                     | 149,894 |   |                     | — |   |

 

 

**8 -            PROPERTY, PLANT AND EQUIPMENT**

 

The following summarizes the Company's property, plant and            equipment:

 

|                                |   | **November 24,****2007** |    | **December 31,****2006** |
|-------------------------------------|--------|--------------------------|---------|--------------------------|
|                                |   |                     | $       |                     | $ |
| Land                                |   |                     | 7,757   |                     | — |
| Buildings and building improvements |   |                     | 44,641  |                     | — |
| Machinery and equipment             |   |                     | 91,168  |                     | — |
| Furniture and fixtures              |   |                     | 711     |                     | — |
| Transportation equipment            |   |                     | 958     |                     | — |
| Computer equipment                  |   |                     | 848     |                     | — |
| Leasehold improvements              |   |                     | 897     |                     | — |
| Assets under construction           |   |                     | 3,862   |                     | — |
|                                |   |                     | 150,842 |                     | — |
| Accumulated depreciation            |   |                     | 406     |                     | — |
|                                |   |                     | 150,436 |                     | — |

 

**9 -            INTANGIBLES**

 

The            following summarizes the Company's intangibles:

 

|                     | **November 24,****2007** |   | **December 31,****2006** |
|--------------------------|--------------------------|--------|--------------------------|
|                     |                     | $      |                     | $ |
| Trade name               |                     | 17,500 |                     | — |
| Customer relationships   |                     | 43,600 |                     | — |
| Non-compete agreement    |                     | 8,700  |                     | — |
|                     |                     | 69,800 |                     | — |
| Accumulated amortization |                     | 1,369  |                     | — |
|                     |                     | 68,431 |                     | — |

 

 

F-20

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**10 -            ACCRUED LIABILITIES**

 

|                | **November 24,****2007** |   | **December 31,****2006** |
|---------------------|--------------------------|--------|--------------------------|
|                |                     | $      |                     | $ |
| Accrued expenses    |                     | 29,534 |                     | — |
| Accrued payroll     |                     | 3,721  |                     | — |
| Sales taxes payable |                     | 759    |                     | — |
| Accrued interest    |                     | 1,006  |                     | — |
| Other               |                     | 59     |                     | — |
|                |                     | 35,079 |                     | — |

 

**11 -            NOTE PAYABLE TO A RELATED PARTY**

 

The following summarizes the Company's note payable to a related            party:

 

|                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   | **November 24,****2007** |   | **December 31,****2006** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------------------------|--------|--------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   | $                        |   | $                        |
| Promissory note from a director and a principal                            stockholder which bore interest at 4.5% per annum, was secured by the                            assets of the Company, matured upon consummation of the private                            placement of warrants to the founding stockholders and was repaid on                            March 5, 2007. |   |   |   | —                  |   | 500                      |

 

 

**12 -            LONG-TERM DEBT**

 

The following summarizes the Company's long-term debt:

 

|                         |   | **Maturity** |   | **November 24,****2007** |   | **December 31,****2006** |
|------------------------------|--------|--------------|--------|--------------------------|--------|--------------------------|
|                         |   |         |   |                     |   | $                        |   | $ |
| Revolving line of credit (a) |   |         | 2012   |                     |   | 75,588                   |   | — |
| Senior secured notes (b)     |   |         | 2015   |                     |   | 315,000                  |   | — |
|                         |   |         |   |                     |   | 390,588                  |   | — |

 

(a)         On            November 15, 2007, the Company, Novamerican Finco and Novamerican Canada entered into            $175,000,000, five year, asset based revolving credit agreement. Subject to a U.S.            borrowing base consisting of certain eligible accounts receivable and inventory, an            amount up to $175,000,000 is available to Novamerican Finco, as U.S. borrower, in U.S.            dollars, and, subject to a U.S. and a Canadian borrowing base consisting of certain            eligible accounts receivable and inventory of our Canadian subsidiaries, an amount up            to $125,000,000 is available to Novamerican Canada, as Canadian borrower, in U.S.            dollars or Canadian dollars. The $175,000,000 available under the credit agreement is            subject to a $15,000,000 availability block. The credit agreement includes borrowing            capacity available for letters of credit and for short-term borrowings referred to as            swingline borrowings. In addition, the Company has the option, subject to certain            conditions, to increase the commitments under the credit agreement in aggregate            principal amount of up to $50,000,000.

 

F-21

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**12 -            LONG-TERM DEBT (Continued)**

 

As            of November 24, 2007, the aggregate borrowing base was $139,909,000 (including the            $15,000,000 availability block), of which $999,000 was utilized for letter of credit            obligations, resulting in excess availability of $138,910,000. Of this amount,            $75,588,000 ($72,555,600 CAD) was outstanding under the credit agreement at November            24, 2007.

 

U.S.            dollar borrowings will bear interest, at the Company’s option, at a rate equal to            a margin over either LIBOR (5.04% at November 24, 2007) or the U.S. base rate (7.50% at            November 24, 2007). The applicable margins for borrowings may be reduced or increased            depending upon the excess availability under the revolving credit facility. Canadian            dollar borrowings will bear interest, at the Company’s option, at Canadian prime            rate (6.25% at November 24, 2007) or, in case of borrowings in the form of            bankers’ acceptances, a customary bankers’ acceptance discount rate for the            contract period relevant to such borrowing plus stamping fees equal to the applicable            margin for LIBOR based loans.

 

The            obligations under the credit agreement are guaranteed by the Company's U.S.            subsidiaries and the obligations of Novamerican Canada under the credit agreement are            guaranteed by the Canadian subsidiaries of the Company, in each case subject to certain            exceptions. The obligations under the credit agreement are secured by perfected first            priority security interests in substantially all the cash, deposit accounts, accounts            receivable and inventory of the Company and its U.S. subsidiary guarantors and            perfected second priority security interests in substantially all of the remaining            assets of the Company and its U.S. subsidiary guarantors. The obligations of            Novamerican Canada under the credit agreement are secured by perfected first priority            security interests in substantially all the cash, deposit accounts, accounts receivable            and inventory of Novamerican Canada and its subsidiary guarantors and perfected second            priority security interests in substantially all of the remaining assets of Novamerican            Canada and its subsidiary guarantors.

 

The            credit agreement permits voluntary prepayments (without reducing availability for            future revolving borrowings) and voluntary commitment reductions at any time, in each            case without premium or penalty.

 

Under the credit agreement, in general, we are permitted to pay            dividends and repurchase common stock so long as after paying such dividend or            repurchasing such common stock, at least $65,000,000 is available to be drawn by our            subsidiary borrowers under the credit agreement and we would be able to meet certain            fixed charge ratio requirements. In addition, we are permitted to make payments not to            exceed $275,000 to redeem outstanding warrants.

 

The            credit agreement contains a number of covenants that restrict our corporate activities.            The covenants may restrict the Company’s ability to repurchase or redeem the            senior secured notes. In addition, at any time when excess availability under the            credit agreement is less than $20,000,000 for five consecutive business days or there            is an event of default under the credit agreement, there will be a sweep of all cash            proceeds from U.S. and Canadian bank accounts of the U.S. borrower, the Canadian            borrower, Novamerican Steel and the other guarantors of obligations under the credit            agreement to repay or cash collateralize any credit extensions outstanding. Such cash            sweep would only terminate when excess availability under the credit agreement is            greater than $20,000,000 for 30 consecutive days or such event of default is cured. In            addition, the credit agreement includes a financial covenant under which the Company            will be required to maintain a 1.0 to 1.0 fixed charge coverage ratio whenever excess            availability under the credit agreement is less than $20,000,000.

 

(b)       On November 15, 2007, the            Company, through Novamerican Finco, issued senior secured notes in an aggregate            principal amount of $315,000,000. Interest on the notes will accrue at the rate of            11.5% per annum and will be payable semi-annually in arrears on May 15 and November 15,            commencing on May 15, 2008. The senior secured notes mature on November 15,            2015.

 

F-22

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

 

**12 -            LONG-TERM DEBT (Continued)**

 

The            notes are guaranteed on a senior secured basis by Novamerican Steel and by each US            subsidiary other than certain inactive subsidiaries and, in the future, with certain            exceptions, by subsidiaries which guarantee the obligations under the revolving credit            facility (other than foreign subsidiaries which guarantee only the obligations of other            foreign subsidiaries) and by foreign subsidiaries which guarantee the debt of            Novamerican Steel or any of its US subsidiaries.

 

The            obligations under the senior notes are secured by a second priority lien on the cash,            deposit accounts, accounts receivable and inventory of Novamerican Steel, Novamerican            Finco and the US subsidiary guarantors and a first priority lien on the remaining            assets of each guarantor, including, subject to certain limitations, an intercompany            demand promissory notes issued by Novamerican Canada to Novamerican Finco which are            secured by a second priority lien on the cash, deposit accounts, accounts receivable            and inventory of Novamerican Canada and by a first priority lien on substantially all            of its remaining assets.

 

Under the indenture for the notes, in general, we are permitted to pay            dividends and repurchase common stock if certain consolidated interest coverage ratio            requirements are satisfied plus, regardless of compliance with such ratio requirements,            an amount of up to the sum of 50% of certain consolidated net income (cumulative from            the beginning of fiscal year 2008), plus 100% of net cash proceeds from certain sales            of common stock and certain investment returns. In addition, we are permitted to make            payments not to exceed $275,000 to redeem outstanding warrants.

 

On            and after November 15, 2011, the Company will be entitled at its option to redeem all            or a portion of the notes upon not less than 30 and not more than 60 days' notice, at            105.750% if redeemed during the 12-month period commencing on November 15, 2011, at            102.875% if redeemed during the 12-month period commencing on November 15, 2012, and at            par if redeemed during the 12-month period commencing on November 15, 2013 and            thereafter, plus accrued and unpaid interest on such notes to the redemption date. In            addition, any time prior to November 15, 2010, the Company will be entitled at its            option on one or more occasions to redeem notes in an aggregate principal amount not to            exceed 35% of the aggregate principal amount of the notes originally issued at a            redemption price of 111.5%, plus accrued and unpaid interest on such notes to the            redemption date.

 

**13 -            INITIAL PUBLIC OFFERING**

 

On            March 12, 2007, the Company consummated the Offering of 18,750,000 units at an offering            price of $8.00. Each unit consisted of one share of common stock and one warrant            ("public warrants"). There were 18,750,000 of public warrants outstanding at November            24, 2007. Each warrant entitles the holder to purchase from the Company one share of            common stock at an exercise price of $5.50 commencing on March 7, 2008. The public            warrants expire on March 7, 2011. The Company may redeem the outstanding public            warrants, as well as the warrants that were issued in the private placement (as            described in Note 14), in whole, but not in part, at a price of $0.01 per warrant at            any time after the warrants become exercisable, upon a minimum of 30 days' prior            written notice of redemption, if (and only if), the last sales price of the common            stock equals or exceeds $11.00 per share for any 20 trading days within a 30 day            trading period ending three business days before the Company sends the notice of            redemption. The Company paid the underwriters of the Offering fees equal to            $10,389,737, including expenses, or 7.0% of the gross proceeds (net of amount reduced            for conversion). On December 31, 2007, the Company's securities began trading on Nasdaq            under the symbols TONS for the common stock and TONSW for the warrants. The Company's            units ceased to trade as a separate class of securities and all outstanding units were            separated into common stock and warrants.

 

F-23

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**13 -            INITIAL PUBLIC OFFERING (Continued)**

 

The            public warrants will not be exercisable unless at the time of exercise a prospectus            relating to common stock issuable upon exercise of the warrants is current and the            underlying common stock has been registered or qualified, or is exempt therefrom under            the securities laws of the state of residence of the holder of the warrants. Under the            terms of the warrant agreement, the Company has agreed to use its best efforts to            maintain a current prospectus relating to common stock issuable upon exercise of the            warrants until the expiration of the warrants. In no event shall the Company be liable            for, or any registered holder of any warrant be entitled to receive, (a) physical            settlement in securities unless the conditions and requirements set forth in the            warrant agreement have been satisfied or (b) any net cash settlement or other            consideration in lieu of physical settlement in securities. The warrants may be            deprived of any value and the market for the warrants may be limited if the prospectus            relating to the common stock issuable upon the exercise of the warrants is not current            or if the common stock is not qualified or exempt from qualification in the            jurisdictions in which the holders of the warrants reside, and in such event the            warrants may expire worthless. The Company intends to make the prospectus current            during the second quarter.

**14 -            PRIVATE PLACEMENTS**

 

Certain of the Company's founding stockholders purchased an aggregate of            4,166,667 warrants in a private placement, which was consummated on March 5, 2007, at a            price of $0.90 per warrant, or an aggregate purchase price of $3,750,000. Each warrant            entitles the holder to purchase one share of common stock at a price of $5.50 and is            exercisable commencing on March 7, 2008 until expiration on March 5, 2011 or earlier            upon redemption.

 

To            further fund the Company's working capital requirements, an affiliate of the Company's            Chairman purchased, on June 21, 2007, in a private placement, 787,402 warrants for            $1,000,000, or $1.27 per warrant, the volume-weighted average price for the 20 trading            days prior to the placement. Each warrant entitles the holder to purchase one share of            common stock at a price of $5.50 and is exercisable commencing on March 7, 2008 until            expiration on June 21, 2011 or earlier upon redemption.

 

These warrants are identical to the public warrants, except as otherwise            necessary to reflect the fact that they were sold in a private placement, to permit            delivery of unregistered shares upon exercise and permit net cashless exercise so as            to, among other reasons, permit tacking of holding periods under Rule 144. Subject to            limited exceptions (such as a transfer to relatives and trusts and controlled entities            for estate and tax planning purposes), these warrants were not transferable until            consummation of the Company's initial business combination. The underwriters did not            receive any underwriting discounts or commissions on the sale of these            warrants.

 

On            November 15, 2007, affiliates of the Company's Chairman and Special Advisor purchased            in a private placement 1,875,000 units for $15.0 million, or $8.00 per unit. Each unit            consisted of one share of common stock and one warrant. Each warrant entitles the            holder to purchase one share of common stock at a price of $5.50 and is exercisable            commencing on March 7, 2008 until expiration on November 15, 2011 or earlier upon            redemption.

**15 -            COMMON STOCK**

At            November 24, 2007, the Company had reserved 25,579,069 shares of common stock for            issuance upon exercise of warrants.

 

F-24

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**15 -            COMMON STOCK (Continued)**

 

**Stock splits**

On            June 26, 2006, the Company filed an amended and restated certificate of incorporation            with the Secretary of the State of Delaware in order to (i) increase the number of            shares of its common stock authorized by 99,999,000 shares to a total number of            authorized shares of 100,000,000, (ii) effect a stock split of its common stock on a            5,000 for 1 basis, (iii) create a new class of preferred stock, consisting of            10,000,000 shares, par value $0.001, (iv) designate the rights and preferences of the            common stock and the preferred stock; and (v) integrate into one instrument all of the            provisions of its amended and restated certificate of incorporation, as            amended.

On            October 3, 2006, the Company filed an amended and restated certificate of incorporation            with the Secretary of the State of Delaware in order to, among other things, (i) effect            a reverse stock split of its common stock on a 4 for 5 basis, resulting in 3,750,000            shares issued and outstanding, and (ii) integrate into one instrument all of the            provisions of its amended and restated certificate of incorporation, as            amended.

On            October 13, 2006, the Company filed an amended and restated certificate of            incorporation with the Secretary of the State of Delaware in order to, among other            things, (i) effect a reverse stock split of its common stock on a 5 for 6 basis,            resulting in 3,125,000 shares issued and outstanding, and (ii) integrate into one            instrument all of the provisions of its amended and restated certificate of            incorporation, as amended.

On            January 12, 2007, the Company filed an amended and restated certificate of            incorporation with the Secretary of the State of Delaware in order to, among other            things, (i) effect a stock split of its common stock on a 3 for 2 basis, resulting in            4,687,500 shares issued and outstanding, and (ii) integrate into one instrument all            provisions of its amended and restated certificate of incorporation, as amended. All            amounts have been restated for all periods presented.

**Exercise of conversion rights**

Pursuant to the Company's amended and restated certificate of            incorporation, a public stockholder who voted against the Acquisition at the Company's            special meeting of stockholders held on October 25, 2007 was entitled to request that            the Company convert each of his shares into cash equal to the conversion price per            share. Public stockholders of the Company owning 3,860,196 shares of common stock (out            of 25,312,500 issued and outstanding on October 25, 2007) voted against the Acquisition            and converted these shares into cash at a conversion price per share of $7.84 or            $30,263,936 in the aggregate.

On            November 24, 2007, the Company had 21,452,304 shares of common stock outstanding,            representing 4,687,500 shares issued to the founding stockholders, plus 18,750,000            shares issued as part of the units in the Offering, plus 1,875,000 shares issued as            part of the units in the private placement consummated on November 15, 2007, less            3,860,196 shares converted to cash as part of the stockholders' approval of the            Acquisition.

On            November 24, 2007, the Company had 25,579,069 warrants outstanding, representing            18,750,000 warrants issued as part of the units in the Offering, plus 4,166,667            warrants issued in the private placement consummated on March 5, 2007, plus 787,402            warrants issued in the private placement consummated June 21, 2007, plus 1,875,000            warrants issued as part of the units in the private placement consummated on November            15, 2007.

**16 -            PREFERRED STOCK**

 

The            Company is authorized to issue 10,000,000 shares of preferred stock with such            designations, voting and other rights and preferences as may be determined from time to            time by the board of directors.

 

F-25

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**17 -            RELATED PARTY TRANSACTIONS**

 

The following transactions with related parties were concluded in the            normal course of business and were measured at their respective exchange values, which            are the amounts established and agreed to by the related parties:

 

|                                                                                          |   | **Period from****January 1,****2007 to****November 24,****2007** |   | **Period from****April 26,****2006 to****December 31,****2006** |    |
|-----------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|--------|-----------------------------------------------------------------|---------|
|                                                                                          |   |                                                             | $      |                                                            | $       |   |   |
| Processing revenue from a joint venture                                                       |   |                                                             | 18     |                                                            | — |   |   |
| Processing charges paid to a joint venture                                                    |   |                                                             | 200    |                                                            | — |   |   |
| Interest charges paid to a director and a principal                            stockholder    |   |                                                             | 17     |                                                            | — |   |   |
| Consulting fees paid to an entity owned by an officer                            and director |   |                                                             | 75     |                                                            | — |   |   |

 

**18 -            FINANCIAL INSTRUMENTS**

 

**Fair            value of financial instruments**

The fair value of financial instruments has been estimated using data            which management considers the best available methodology deemed suitable for the            pertinent category of financial instruments as follows:

 

| – | Due to their short-term maturity, the carrying value of                            certain financial instruments was assumed to approximate their fair                            value. These financial instruments include cash and cash equivalents,                            trade accounts receivable, trade accounts payable and accrued                            liabilities, trade accounts payable to a joint venture and note payable                            to a related party. |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| – | The carrying value of the revolving credit facility                            approximates fair value because it bears interest at variable rates.                            The fair value of the senior secured notes is based on market prices                            for similar debt instruments of companies in similar industries with                            similar debt structures: |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|                      | **November 24,****2007** |    |   | **December31,****2006** |
|---------------------------|--------------------------|---------|--------|-------------------------|
|                      | Carryingamount           |    |   | Fairvalue               |   |   |   | Carryingamount |   |   | Fairvalue |
|                      |                     | $       |   |                    | $ |   |   |   | $ |   |   | $ |
| Revolving credit facility |                     | 75,588  |   |                    | 75,588 |   |   |   | — |   |   | — |
| Senior secured notes      |                     | 315,000 |   |                    | 291,911 |   |   |   | — |   |   | — |
|                      |                     | 390,588 |   |                    | 367,499 |   |   |   | — |   |   | — |

 

 

F-26

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**18 -            FINANCIAL INSTRUMENTS (Continued)**

 

**Exchange rate risk**

Although the Company's financial results are reported in U.S. dollars, a            substantial portion of the Company's revenues is received in, and expenses are incurred            in, Canadian dollars. The Company may in the future utilize forward exchange contracts            to hedge its exposure to exchange rate fluctuations in connection with future sales and            purchases denominated in U.S. dollars by certain of its Canadian subsidiaries. At            November 24, 2007 and December 31, 2006, the Company had no such forward            foreign currency contracts outstanding.

 

**Interest rate risk**

The            Company's exposure to interest rate risk is as follows:

 

| Cash and cash equivalents                | Floating rate        |          |
|------------------------------------------|----------------------|---------------|
| Trade accounts receivable                | Non-interest bearing |          |
| Accounts payable and accrued liabilities | Non-interest bearing |          |
| Income and other taxes                   | Non-interest bearing |          |
| Long-term debt                           | Fixed rate:          | $ 315,000,000 |
|                                     | Floating rate:       | $ 75,588,000  |

 

**Concentration risk**

The Company does not have a concentration of available sources of            supply, labor, service or other rights that, if suddenly eliminated, could severely            impact its operations.

 

Financial instruments which potentially subject the Company to a            concentration risk principally consist of cash and cash equivalents. The Company has            its cash and cash equivalents placed with high quality, financial institutions. The            balances at such institutions at November 24, 2007 and periodically throughout the year            are in excess of federally insured limits. As part of its cash management process, the            Company performs periodic evaluation of the relative credit standing of these            institutions. The Company has not experienced any losses related to this concentration            of risk. At November 24, 2007, the amount in excess of federal insured limits was            approximately $12,840,000 for the U.S. Subsidiaries and $12,450,000 for the Canadian            Subsidiaries. At November 24, 2007, a portion of this amount was invested by a            financial institution in overnight daily deposit in pooled U.S. Government backed            securities approximating $9,506,000.

 

**Credit risk**

Concentration of credit risk with respect to sales and accounts            receivable is limited due to the large number of customers comprising the Company's            customer base and their dispersion across different geographies, except for one            customer that accounted for 12.6% of sales in 2007. No customer accounted for more than            10% of sales in 2006. No customer accounted for more than 10% of trade accounts            receivable in fiscal 2007 and 2006. The Company generally does not require collateral            or other security to support customer receivables.

 

**Commodity price risk**

In the normal course of business, the Company is exposed to market risk            or price fluctuations related to the purchase, production or sale of steel products.            The Company's market risk strategy has generally been to obtain competitive

 

F-27

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

prices for its products and services and allow operating results to            reflect market price movements dictated by supply and demand.

 

**19 -            INVESTMENT IN A JOINT VENTURE**

 

The Company holds a 60% equity interest and a 50% voting interest in a            joint venture with Mittal Canada, Inc., that processes carbon steel into tubing. The            joint venture, Delta Tubes and Company, Limited Partnership ("Delta Tube"), is located            in LaSalle, Quebec, Canada.

 

Condensed financial information of the joint venture is summarized            below:

 

|             |   | **Period from****January 1, 2007 to****November 24,****2007** |   |   |   | **Period from****April 26, 2006 to****December 31,****2006** |    |
|------------------|--------|---------------------------------------------------------------|--------|--------|--------|--------------------------------------------------------------|---------|
|             |   |                                                          | $      |   |   |                                                         | $       |   |   |
| Operations       |   |                                                          |   |   |   |                                                         |    |   |   |
| Net sales        |   |                                                          | 106    |   |   |                                                         | — |   |   |
| Operating income |   |                                                          | (19    | )      |   |                                                         | — |   |   |

 

|                                   |   | **November 24,****2007** |   |   | **December 31,****2006** |    |
|----------------------------------------|--------|--------------------------|--------|--------|--------------------------|---------|
|                                   |   |                     | $      |   |                     | $       |   |
| Balance sheet                          |   |                     |   |   |                     |    |   |
| Assets                                 |   |                     |   |   |                     |    |   |
| Current assets                         |   |                     | 2,368  |   |                     | — |   |
| Property, plant and equipment          |   |                     | 1,727  |   |                     | — |   |
|                                   |   |                     | 4,095  |   |                     | — |   |
| Liabilities                            |   |                     |   |   |                     |    |   |
| Current liabilities                    |   |                     | 368    |   |                     | — |   |
|                                   |   |                     |   |   |                     |    |   |
| Joint venture investment               |   |                     |   |   |                     |    |   |
| Capital contributions                  |   |                     | 2,504  |   |                     | — |   |
| Undistributed earnings                 |   |                     | 628    |   |                     | — |   |
| Accumulated other comprehensive income |   |                     | 595    |   |                     | — |   |
|                                   |   |                     | 4,095  |   |                     | — |   |

 

At            November 24, 2007, the Company had a trade accounts payable to Delta Tube in the amount            of $1,639,000, relating to processing services.

 

F-28

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**20 -            CONTINGENCIES**

 

During 2006, the Company's subsidiary American Steel and Aluminum            Corporation settled its alleged liability for all claims for past and future response            and oversight costs in connection with a Remedial Investigation/Feasibility Study under            the Comprehensive Environmental Response Compensation and Liability Act for a waste            disposal facility in Cumberland, RI. However, the settlement does not address further            remediation costs and the Company does not believe it is currently possible to estimate            its share, if any, of such costs, should claims for their recovery be pursued against            the Company.

 

The Company is involved in various other lawsuits, claims, demands, and            other legal proceedings and investigations arising out of or incidental to the conduct            of its business. While it is not possible to determine the ultimate disposition of each            of these matters, the Company does not believe that their ultimate disposition will            have a material adverse effect on its financial position, results of operations or cash            flows.

 

**21 - COMMITMENTS**

 

The Company has entered into operating leases for certain facilities and            equipment which expire at various dates until 2019. The following schedule outlines the            future minimum rental payments under these commitments as at November 24,            2007:

 

|                   |   | **$**  |   |
|------------------------|--------|--------|--------|
|                   |   |   |   |
| 2008                   |   | 4,973  |   |
| 2009                   |   | 4,369  |   |
| 2010                   |   | 3,189  |   |
| 2011                   |   | 2,949  |   |
| 2012                   |   | 1,726  |   |
| Thereafter             |   | 6,675  |   |
| Total minimum payments |   | 23,881 |   |

 

Rental expense under the operating leases amounted to approximately            $248,000 for the period ended November 24, 2007 and nil for the period ended December            31, 2006.

 

**22 - RETIREMENT PLAN**

 

A U.S. subsidiary makes available to substantially all of its employees            a defined contribution plan under the Internal Revenue Code Section 401(k). The plan            allows employees to contribute a portion of their pre-tax income in accordance with            specified guidelines. Investment elections are made at the discretion of the employees            and the plan is administered by an independent third party. The U.S. subsidiary matches            a percentage of the employee contributions up to a certain limit. Costs incurred under            the 401(k) plan amounted to approximately $15,200 for the period ended November 24,            2007 and nil for the period ended December 31, 2006.

 

A Canadian subsidiary makes available to all of its employees a defined            contribution plan. The Canadian subsidiary contributes a percentage of the employees'            salaries to the plan. Investment elections are made at the discretion of the employees            and the plan is administered by an independent third party. Costs incurred under the            plan amounted to approximately $20,000 for the period ended November 24, 2007 and nil            for the period ended December 31, 2006.

 

F-29

 

----

 

**Novamerican Steel Inc. and Subsidiaries**

**Notes to Consolidated Financial Statements**

(In            U.S. dollars; tabular amounts in thousands of U.S. dollars, except share and per share            data)

 

|   |
|--------|

 

 

**23 -            INFORMATION ABOUT GEOGRAPHIC AREAS**

 

The Company operates in one reportable segment as an intermediate            processor and distributor of carbon steel, stainless steel and aluminum products. Sales            are attributed to countries based on the location of the external customer.

 

The following table summarizes the Company's financial information by            geographic area:

 

| **`**             |   |   | **United States** |    |   |   | **Canada** |   |    |   | **Total** |   |
|-------------------|--------|--------|-------------------|---------|--------|--------|------------|--------|---------|--------|-----------|--------|
|              |   |   |              | $       |   |   |       |   | $       |   |      |   |   | $ |   |
| 2007              |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Net sales         |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Domestic          |   |   |              | 6,362   |   |   |       |   | 9,013   |   |      |   |   | 15,375 |   |
| Export            |   |   |              | 228     |   |   |       |   | 701     |   |      |   |   | 929 |   |
| Total             |   |   |              | 6,590   |   |   |       |   | 9,714   |   |      |   |   | 16,304 |   |
|              |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Operating loss    |   |   |              | (3,602  | )      |   |       |   | (1,551  | )      |      |   |   | (5,153 | ) |
|              |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Depreciation      |   |   |              | 158     |   |   |       |   | 216     |   |      |   |   | 374 |   |
|              |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Long-lived assets |   |   |              | 269,099 |   |   |       |   | 114,383 |   |      |   |   | 383,482 |   |
| 2006              |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Net sales         |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Domestic          |   |   |              | — |   |   |       |   | — |   |      |   |   | — |   |
| Export            |   |   |              | — |   |   |       |   | — |   |      |   |   | — |   |
| Total             |   |   |              | — |   |   |       |   | — |   |      |   |   | — |   |
|              |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Operating loss    |   |   |              | (145    | )      |   |       |   | — |   |      |   |   | (145 | ) |
|              |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Depreciation      |   |   |              | — |   |   |       |   | — |   |      |   |   | — |   |
|              |   |   |              |    |   |   |       |   |    |   |      |   |   |   |   |
| Long-lived assets |   |   |              | — |   |   |       |   | — |   |      |   |   | — |   |

 

             

F-30

 

----

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

 

None.

 

**ITEM            9A.** **CONTROLS AND            PROCEDURES**

 

Management is responsible for establishing and maintaining adequate            disclosure controls and procedures at a reasonable assurance level. Disclosure controls            and procedures are designed to ensure that information required to be disclosed by a            reporting company in the reports that it files or submits under the Exchange Act is            recorded, processed, summarized and reported within the time periods specified in the            SEC's rules and forms. Disclosure controls and procedures include, without limitation,            controls and procedures designed to ensure that information required to be disclosed by            it in the reports that it files under the Exchange Act is accumulated and communicated            to management, including the chief executive officer and the chief financial officer,            as appropriate to allow timely decisions regarding required disclosure.

 

Under the supervision and with the participation of our management,            including our Chief Executive Officer, we have evaluated the effectiveness of the            design and operation of our disclosure controls and procedures as of November 24, 2007,            and based on that evaluation, our Chief Executive Officer has concluded that these            controls and procedures are effective at the reasonable assurance level as of November            24, 2007.

             

As a non-accelerated filer and a newly public company, the Company is            not required to provide a management's report on internal control over financial            reporting until it files its annual report for its first fiscal year ending on or after            December 15, 2007 (that is, its annual report for fiscal year 2008). In addition, a            non-accelerated filer is not required to file the auditor's attestation report on            internal control over financial reporting until it files an annual report for its first            fiscal year ending on or after December 15, 2008 (that is, its annual report for fiscal            year 2009).

 

**ITEM            9B.** **OTHER            INFORMATION**

 

None.

 

**PART III**

 

| **ITEM 10.** | **DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS;                            COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT** |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------|

| **ITEM 11.** | **EXECUTIVE COMPENSATION** |
|--------------|----------------------------|

| **ITEM 12.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND                            MANAGEMENT AND RELATED SHAREHOLDER MATTERS** |
|--------------|-------------------------------------------------------------------------------------------------------------------------------|

| **ITEM 13.** | **CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND                            DIRECTOR INDEPENDENCE** |
|--------------|----------------------------------------------------------------------------------------------------------|

| **ITEM 14.** | **PRINCIPAL ACCOUNTANT FEES AND SERVICES** |
|--------------|--------------------------------------------|

             

Except as set forth below, the information required by Items 10, 11, 12,            13 and 14 will appear in the Novamerican Steel Inc. Proxy Statement for the Annual            Meeting of Stockholders to be held on May 13, 2008, which will be filed pursuant to            Regulation 14A under the Securities Exchange Act of 1934 and is incorporated by            reference into this Report pursuant to General Instruction G(3) of Form 10-K (other            than the portions thereof deemed to be filed for the purpose of Section 18 of the            Securities Exchange Act of 1934).

 

**Code of Ethics**

 

We have adopted a code of ethics applicable to all members of our Board            of Directors, executive officers and employees. Such code of ethics is available on our            Internet website, www.novamerican.com. We intend to disclose any amendment to, or            waiver of, a provision of our code of ethics by filing a Form 8-K with the            SEC.

 

38

 

----

| **ITEM 15.** | **EXHIBITS** |
|--------------|--------------|

 

| (a)    | (1)                                                                                                     | Financial Statements          |
|--------|---------------------------------------------------------------------------------------------------------|-------------------------------|
|   | See Index to Consolidated Financial Statements at page                            37 of this Report.    |
|   | (2)                                                                                                     | Financial Statement Schedules |
|   | None                                                                                                    |                          |
| (b)    | Exhibits                                                                                                |
|   | The exhibits listed in the following table have been                            filed with this Report. |
|        |                                                                                                         |                               |  |

 

**EXHIBIT INDEX**

 

| Exhibit   |   |                                                                                                                                                                                       |
|-----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number    |   | Description of Document                                                                                                                                                                    |
|      |   |                                                                                                                                                                                       |
| 3.1.1(1)  |   | Amended and Restated Certificate of                            Incorporation                                                                                                               |
| 3.1.2(2)  |   | Certificate of Ownership and Merger, dated December 5,                            2007                                                                                                     |
| 3.2*      |   | Amended and Restated By-laws of the registrant, as                            amended on December 7, 2007                                                                                  |
| 4.1(1)    |   | Specimen certificate representing common                            stock                                                                                                                  |
| 4.2(1)    |   | Specimen certificate representing warrants issued in the                            registrant's initial public offering                                                                   |
| 4.3(1)    |   | Specimen certificate representing warrants issued in the                            private placement                                                                                      |
| 4.4(3)    |   | Warrant Agreement, dated March 5, 2007, between                            Continental Stock Transfer & Trust Company, as warrant agent, and                            the Company    |
| 10.1.1(4) |   | Credit Agreement, dated November 15, 2007                                                                                                                                                  |
| 10.1.2*   |   | Amendment No. 1, dated December 14, 2007, to Credit                            Agreement, dated November 15, 2007                                                                          |
| 10.2(4)   |   | Guarantee and Collateral Agreement (ABL), dated November                            15, 2007                                                                                               |
| 10.3(4)   |   | Canadian Guarantee and Collateral Agreement (ABL), dated                            November 15, 2007                                                                                      |
| 10.4(4)   |   | Lien Subordination and Intercreditor Agreement, dated                            November 15, 2007                                                                                         |
| 10.5(4)   |   | Purchase Agreement (Senior Notes), dated November 14,                            2007                                                                                                      |
| 10.6(4)   |   | Collateral Agreement (Senior Notes), dated November 15,                            2007                                                                                                    |
| 10.7(4)   |   | Registration Rights Agreement dated November 15,                            2007                                                                                                           |
| 10.8.1*   |   | Indenture, dated November 15, 2007                                                                                                                                                         |
| 10.8.2*   |   | First Supplemental Indenture, dated December 3,                            2007                                                                                                            |
| 10.9(4)   |   | Intercompany Notes, dated November 15, 2007                                                                                                                                                |
| 10.10(4)  |   | Canadian Collateral Agreement (Intercompany Notes) dated                            November 15, 2007                                                                                      |
| 10.11(5)  |   | Warrant Subscription Agreement, dated June 21, 2007, by                            and between the registrant and Gilbert E. Playford                                                      |
| 10.12(5)  |   | Unit Subscription Agreement, dated June 21, 2007, by and                            between the registrant and Gilbert E. Playford                                                         |
| 10.13(5)  |   | Arrangement Agreement, dated as of June 21, 2007, by and                            between the registrant, 632422 N.B. Ltd., and Novamerican Steel                            Inc.        |
| 10.14(5)  |   | Lock-Up Agreement, dated as of June 21, 2007, by and                            between the registrant, 632422 N.B. Ltd., and D. Bryan Jones and Scott                            B. Jones |

 

 

39

 

----

 

| 10.15(5) |   | Non-Competition Agreement, dated as of June 21, 2007,                            between the registrant, Novamerican Steel Inc., 632422 N.B. Ltd., and                            Scott B. Jones |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.16(5) |   | Non-Competition Agreement, date as of June 21, 2007,                            between the registrant, Novamerican Steel, Inc., 632422 N.B. Ltd., and                            D. Bryan Jones |
| 10.19(6) |   | Letter Agreement, dated March 6, 2007, between the                            registrant and Playford SPAC Portfolio Ltd.                                                                        |
| 10.20(6) |   | Letter Agreement, dated March 6, 2007, between the                            registrant and Mr. Playford                                                                                        |
| 10.21(6) |   | Registration Rights Agreement, dated March 5, 2007,                            among the registrant and the signatories thereto                                                                  |
| 10.22(6) |   | Stock Escrow Agreement, dated March 12, 2007, between                            Continental Stock Transfer & Trust Company, as escrow agent, and                            the registrant  |
| 10.23(6) |   | Letter Agreement, dated March 6, 2007, between the                            registrant and Mr. Bailey                                                                                          |
| 10.24(1) |   | Services Agreement, dated June 15, 2006, between the                            registrant and ILUT, Sr.                                                                                         |
| 10.25(1) |   | Trademark License Agreement, dated September 15, 2006,                            between the registrant and Domenico Lepore                                                                     |
| 21.1*    | --     | List of Subsidiaries                                                                                                                                                                             |
| 24.1*    | --     | Powers of Attorney (Contained on signature                            page)                                                                                                                      |
| 31.1*    | --     | Officer's Certificate Pursuant to 15 U.S.C. Section                            7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of                            2002             |
| 31.2*    | --     | Officer's Certificate Pursuant to 15 U.S.C. Section                            7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of                            2002             |
| 32*      | --     | Certification Pursuant to 18 U.S.C. Section 1350, as                            Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of                            2002                     |

 

* Filed            herewith.

 

(1)            Incorporated by reference to the Registration Statement of registrant on Form S-1            (Registration No. 333-135353).

(2)            Incorporated by reference to the Current Report of registrant on Form 8-K filed on            December 6, 2007 (SE File No. 001-33342).

(3)            Incorporated by reference to the Quarterly Report of registrant on Form 10-Q for the            quarter ended March 31, 2007 (File No. 001-33342).

(4)            Incorporated by reference to the Current Report of registrant on Form 8-K filed            November 20, 2007 (File No. 001-33342).

(5)            Incorporated by reference to the Quarterly Report of registrant on Form 10-Q for the            quarter ended June 30, 2007 (File No. 001-33324).

(6)            Incorporated by reference to the Quarterly Report of registrant on Form 10-Q for the            quarter ended March 31, 2007 (File No. 001-33324).

 

40

 

----

**SIGNATURES**

 

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

             

|   |              |   |  

**NOVAMERICAN STEEL INC** |
|--------|-------------------|--------|-----------------------------------|
|   |              |   |                              |   |   |
| Date:  | February 22, 2008 |   | By:                          | /s/ Corrado De Gasperis |   |
|   |              |   |                              | Corrado De Gasperis

Chief Executive Officer

*(Principal Executive Officer and Principal Financial                            Officer)* |   |
|   |              |   |                              |   |   |

 

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature            appears below hereby constitutes and appoints Corrado De Gasperis and Karen G. Narwold,            and each of them individually, his or her true and lawful agent, proxy and            attorney-in-fact, with full power of substitution and resubstitution, for him or her            and in his or her name, place and stead, in any and all capacities, to (i) act on, sign            and file with the Securities and Exchange Commission any and all amendments to this            Report together with all schedules and exhibits thereto, (ii) act on, sign and file            with the Securities and Exchange Commission any and all exhibits to this Report and any            and all exhibits and schedules thereto, (iii) act on, sign and file any and all such            certificates, notices, communications, reports, instruments, agreements and other            documents as may be necessary or appropriate in connection therewith and (iv) take any            and all such actions which may be necessary or appropriate in connection therewith,            granting unto such agents, proxies and attorneys-in-fact, and each of them            individually, full power and authority to do and perform each and every act and thing            necessary or appropriate to be done, as fully for all intents and purposes as he or she            might or could do in person, and hereby approving, ratifying and confirming all that            such agents, proxies and attorneys-in-fact, any of them or any of his, her or their            substitute or substitutes, may lawfully do or cause to be done by virtue            hereof.

 

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

 

| **Signatures**             |   | **Titles**                                                                               | **Date**          |   |
|----------------------------|--------|------------------------------------------------------------------------------------------|-------------------|--------|
|                       |   |                                                                                     |              |   |
| /s/ Gilbert E. Playford    |   | Chairman of the Board                                                                    | February 19, 2008 |   |
| Gilbert E. Playford        |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |
| /s/ Corrado De Gasperis    |   | Chief Executive Officer and Director                                                     | February 22, 2008 |   |
| Corrado De Gasperis        |   | (Principal Executive Officer and Principal Financial                            Officer) |              |   |
|                       |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |
| /s/ Domenico Lepore        |   | President and Director                                                                   | February 22, 2008 |   |
| Domenico Lepore            |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |
| /s/ M. Ridgway Barker, Jr. |   | Director                                                                                 | February 22, 2008 |   |
| M. Ridgway Barker, Jr.     |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |
| /s/ Scott C. Mason         |   | Director                                                                                 | February 22, 2008 |   |
| Scott C. Mason             |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |
| /s/ Robert W. Ramage, Jr.  |   | Director                                                                                 | February 22, 2008 |   |
| Robert W. Ramage, Jr.      |   |                                                                                     |              |   |
|                       |   |                                                                                     |              |   |

 

 

41

 

----

**EXHIBIT INDEX**

 

| Exhibit   |   |                                                                                                                                                                                             |
|-----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Number    |   | Description of Document                                                                                                                                                                          |
|      |   |                                                                                                                                                                                             |
| 3.1.1(1)  |   | Amended and Restated Certificate of                            Incorporation                                                                                                                     |
| 3.1.2(2)  |   | Certificate of Ownership and Merger, dated December 5,                            2007                                                                                                           |
| 3.2*      |   | Amended and Restated By-laws of the registrant, as                            amended on December 7, 2007                                                                                        |
| 4.1(1)    |   | Specimen certificate representing common                            stock                                                                                                                        |
| 4.2(1)    |   | Specimen certificate representing warrants issued in the                            registrant's initial public offering                                                                         |
| 4.3(1)    |   | Specimen certificate representing warrants issued in the                            private placement                                                                                            |
| 4.4(3)    |   | Warrant Agreement, dated March 5, 2007, between                            Continental Stock Transfer & Trust Company, as warrant agent, and                            the Company          |
| 10.1.1(4) |   | Credit Agreement, dated November 15, 2007                                                                                                                                                        |
| 10.1.2*   |   | Amendment No. 1, dated December 14, 2007, to Credit                            Agreement, dated November 15, 2007                                                                                |
| 10.2(4)   |   | Guarantee and Collateral Agreement (ABL), dated November                            15, 2007                                                                                                     |
| 10.3(4)   |   | Canadian Guarantee and Collateral Agreement (ABL), dated                            November 15, 2007                                                                                            |
| 10.4(4)   |   | Lien Subordination and Intercreditor Agreement, dated                            November 15, 2007                                                                                               |
| 10.5(4)   |   | Purchase Agreement (Senior Notes), dated November 14,                            2007                                                                                                            |
| 10.6(4)   |   | Collateral Agreement (Senior Notes), dated November 15,                            2007                                                                                                          |
| 10.7(4)   |   | Registration Rights Agreement dated November 15,                            2007                                                                                                                 |
| 10.8.1*   |   | Indenture, dated November 15, 2007                                                                                                                                                               |
| 10.8.2*   |   | First Supplemental Indenture, dated December 3,                            2007                                                                                                                  |
| 10.9(4)   |   | Intercompany Notes, dated November 15, 2007                                                                                                                                                      |
| 10.10(4)  |   | Canadian Collateral Agreement (Intercompany Notes) dated                            November 15, 2007                                                                                            |
| 10.11(5)  |   | Warrant Subscription Agreement, dated June 21, 2007, by                            and between the registrant and Gilbert E. Playford                                                            |
| 10.12(5)  |   | Unit Subscription Agreement, dated June 21, 2007, by and                            between the registrant and Gilbert E. Playford                                                               |
| 10.13(5)  |   | Arrangement Agreement, dated as of June 21, 2007, by and                            between the registrant, 632422 N.B. Ltd., and Novamerican Steel                            Inc.              |
| 10.14(5)  |   | Lock-Up Agreement, dated as of June 21, 2007, by and                            between the registrant, 632422 N.B. Ltd., and D. Bryan Jones and Scott                            B. Jones       |
| 10.15(5)  |   | Non-Competition Agreement, dated as of June 21, 2007,                            between the registrant, Novamerican Steel Inc., 632422 N.B. Ltd., and                            Scott B. Jones |
| 10.16(5)  |   | Non-Competition Agreement, date as of June 21, 2007,                            between the registrant, Novamerican Steel, Inc., 632422 N.B. Ltd., and                            D. Bryan Jones |
| 10.19(6)  |   | Letter Agreement, dated March 6, 2007, between the                            registrant and Playford SPAC Portfolio Ltd.                                                                        |
| 10.20(6)  |   | Letter Agreement, dated March 6, 2007, between the                            registrant and Mr. Playford                                                                                        |
| 10.21(6)  |   | Registration Rights Agreement, dated March 5, 2007,                            among the registrant and the signatories thereto                                                                  |
| 10.22(6)  |   | Stock Escrow Agreement, dated March 12, 2007, between                            Continental Stock Transfer & Trust Company, as escrow agent, and                            the registrant  |

 

 

42

 

----

 

| 10.23(6) |   | Letter Agreement, dated March 6, 2007, between the                            registrant and Mr. Bailey                                                                              |
|----------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.24(1) |   | Services Agreement, dated June 15, 2006, between the                            registrant and ILUT, Sr.                                                                             |
| 10.25(1) |   | Trademark License Agreement, dated September 15, 2006,                            between the registrant and Domenico Lepore                                                         |
| 21.1*    | --     | List of Subsidiaries                                                                                                                                                                 |
| 24.1*    | --     | Powers of Attorney (Contained on signature                            page)                                                                                                          |
| 31.1*    | --     | Officer's Certificate Pursuant to 15 U.S.C. Section                            7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of                            2002 |
| 31.2*    | --     | Officer's Certificate Pursuant to 15 U.S.C. Section                            7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of                            2002 |
| 32*      | --     | Certification Pursuant to 18 U.S.C. Section 1350, as                            Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of                            2002         |

 

* Filed            herewith.

 

(1)            Incorporated by reference to the Registration Statement of registrant on Form S-1            (Registration No. 333-135353).

(2)            Incorporated by reference to the Current Report of registrant on Form 8-K filed on            December 6, 2007 (SE File No. 001-33342).

(3)            Incorporated by reference to the Quarterly Report of registrant on Form 10-Q for the            quarter ended March 31, 2007 (File No. 001-33342).

(4)            Incorporated by reference to the Current Report of registrant on Form 8-K filed            November 20, 2007 (File No. 001-33342).

(5)            Incorporated by reference to the Quarterly Report of registrant on Form 10-Q for the            quarter ended June 30, 2007 (File No. 001-33324).

(6)            Incorporated by reference to the Quarterly Report of registrant on Form 10-Q for the            quarter ended March 31, 2007 (File No. 001-33324).

 

 

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