UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549


___________________________________





FORM
10-Q





(Mark
One)


x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934


For the
quarterly period ended: August 30, 2008





o TRANSITION 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.)1050
      University Avenue, Norwood, MA 02062
            (781)
      762-0123(Address
      of principal executive offices)
            (Registrant’s
      telephone number, including area
code)





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.





Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer x (Do
      not check if a smaller reporting company)
            Smaller
      reporting company o





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





As of
October 1, 2008, 25,642,248 shares of the registrant’s common stock, par value
$0.001 per share, were outstanding.








NOVAMERICAN
STEEL INC.


Table
of Contents








PagePART
      I – FINANCIAL INFORMATIONItem
      1.    Financial Statements
            1Consolidated
      Balance Sheets as of August 30, 2008 and November 24, 2007
            1Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Three and
      Nine Months ended August 30, 2008 and September 30, 2007
            2Consolidated
      Statement of Stockholders’ Equity for the Period from November 24, 2007 to
      August 30, 2008
            3Consolidated
      Statements of Cash Flows for the Nine Months ended August 30, 2008 and
      September 30, 2007
            4Notes
      to Consolidated Financial Statements
            5Item
      2.    Management’s Discussion and Analysis of
      Financial Condition and Results of
              Operations
            23Item
      3.    Quantitative and Qualitative Disclosures about
      Market Risk
            40Item
      4.    Controls and Procedures
            40PART
      II – OTHER INFORMATIONItem
      1.    Legal Proceedings
            41Item
      1A. Risk Factors
            41Item
      2.    Unregistered Sales of Equity Securities and Use
      of Proceeds
            41Item
      3.    Defaults Upon Senior Securities
            41Item
      4.    Submission of Matters to a Vote of Security
      Holders
            41Item
      5.    Other Information
            41Item
      6.    Exhibits
            42SIGNATURES
            43








PART
I – FINANCIAL INFORMATION





Item
1.  Financial Statements.
 Novamerican
Steel Inc. and Subsidiaries
 Consolidated
Balance Sheets
 (In
thousands of U.S. dollars, except share and per share
data)







August
      30, 2008
            
            
            November
      24, 2007(unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            15,302
            
            
            $
            19,638Trade
      accounts receivable, net of allowance $1,443 at August 30,
      2008
              and
      $896 at November 24, 2007
            
            
            121,715
            
            
            
            111,546Income
      taxes receivable
            
            
            1,877
            
            
            
            2,822Inventories
      (Note 7)
            
            
            118,685
            
            
            
            149,894Prepaid
      expenses and other assets
            
            
            9,714
            
            
            
            1,666Deferred
      income taxes
            
            
            4,080
            
            
            
            7,130$
            271,373
            
            
            $
            292,696Investment
      in a joint venture
            
            
            2,598
            
            
            
            1,999Property,
      plant and equipment, net of accumulated depreciation
      $7,209  at
              August
      30, 2008 and $406 at November 24, 2007
            
            
            143,790
            
            
            
            150,436Goodwill
            
            
            150,567
            
            
            
            149,360Intangibles
            
            
            59,917
            
            
            
            68,431Deferred
      financing charges
            
            
            13,338
            
            
            
            14,998Other
      assets
            
            
            59
            
            
            
            257Deferred
      income taxes
            
            
            -
            
            
            
            43$
            641,642
            
            
            $
            678,220LIABILITIESCurrent
      liabilitiesTrade
      accounts payable
            
            $
            70,051
            
            
            $
            81,401Trade
      accounts payable to a joint venture (Note 12)
            
            
            2,220
            
            
            
            1,639Accrued
      liabilities
            
            
            38,440
            
            
            
            18,028Deferred
      income taxes
            
            
            -
            
            
            
            2,921110,711
            
            
            
            103,989Long-term
      debt  (Note 8)
            
            
            372,647
            
            
            
            390,588Deferred
      income taxes
            
            
            51,368
            
            
            
            58,588Other
      long-term liabilities (Note 5)
            
            
            3,765
            
            
            
            3,410538,491
            
            
            
            556,575STOCKHOLDERS’
      EQUITYPreferred
      stock: $0.001 par value; authorized 10,000,000 shares; none
      issued
              or
      outstanding
            
            
            -
            
            
            
            -Common
      stock: $0.001 par value; authorized 100,000,000 shares; issued
      and
              outstanding
      25,642,248 at August 30, 2008 and 21,452,304 at November 24,
      2007
            
            
            25
            
            
            
            21Additional
      paid-in capital
            
            
            128,312
            
            
            
            128,316Accumulated
      deficit
            
            
            (18,001
            )
            
            
            (3,947
            )Accumulated
      other comprehensive loss
            
            
            (7,185
            )
            
            
            (2,745
            )103,151
            
            
            
            121,645$
            641,642
            
            
            $
            678,220





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





1
 Novamerican
Steel Inc. and Subsidiaries
 Consolidated
Statements of Operations and Comprehensive Income ( Loss )
 (In
thousands of U.S. dollars, except per share data)




Three
      months
                ended
              
              
              Nine
      months
                endedAugust
      30,
                2008
              
              
              
              September
      30, 2007
              
              
              
              August
      30,
                2008
              
              
              
              September
      30, 2007(unaudited)Net
      sales
              
              $
              230,919
              
              
              $
              -
              
              
              $
              667,884
              
              
              $
              -Cost
      of sales
              
              
              183,209
              
              
              
              -
              
              
              
              543,157
              
              
              
              -Gross
      margin
              
              
              47,710
              
              
              
              -
              
              
              
              124,727
              
              
              
              -Operating
      expensesPlant
              
              
              14,221
              
              
              
              -
              
              
              
              41,199
              
              
              
              -Delivery
              
              
              7,345
              
              
              
              -
              
              
              
              21,834
              
              
              
              -Selling
              
              
              2,706
              
              
              
              -
              
              
              
              9,819
              
              
              
              -Administrative
      and general
              
              
              9,792
              
              
              
              -
              
              
              
              28,188
              
              
              
              -Amortization
      of intangibles
              
              
              1,901
              
              
              
              -
              
              
              
              5,906
              
              
              
              -Restructuring
      costs (Note 14)
              
              
              4,002
              
              
              
              -
              
              
              
              8,915
              
              
              
              -Formation
      and operating costs
              
              
              -
              
              
              
              365
              
              
              
              -
              
              
              
              94539,967
              
              
              
              365
              
              
              
              115,861
              
              
              
              945Operating
      income (loss)
              
              
              7,743
              
              
              
              (365
              )
              
              
              8,866
              
              
              
              (945
              )Interest
      expense
              
              
              10,169
              
              
              
              -
              
              
              
              32,398Interest
      income
              
              
              (174
              )
              
              
              (1,928
              )
              
              
              (475
              )
              
              
              (4,261
              )Share
      in income of a joint venture
              
              
              (209
              )
              
              
              -
              
              
              
              (599
              )
              
              
              -9,786
              
              
              
              (1,928
              )
              
              
              31,324
              
              
              
              (4,261
              )Income
      (loss) before income taxes
              
              
              (2,043
              )
              
              
              1,563
              
              
              
              (22,458
              )
              
              
              3,316Income
      tax (benefit) expense (Note 5)
              
              
              (239
              )
              
              
              622
              
              
              
              (8,404
              )
              
              
              1,258Net
      income (loss)
              
              $
              (1,804
              )
              
              $
              941
              
              
              $
              (14,054
              )
              
              $
              2,058Net
      income (loss) per share (Note 6)Basic
              
              
              (0.08
              )
              
              
              0.04
              
              
              
              (0.64
              )
              
              
              0.11Diluted
              
              
              (0.08
              )
              
              
              0.03
              
              
              
              (0.64
              )
              
              
              0.09Comprehensive
      income (loss)Net
      income (loss)
              
              
              (1,804
              )
              
              
              941
              
              
              
              (14,054
              )
              
              
              2,058Changes
      in cumulative translation adjustment
              
              
              (5,635
              )
              
              
              -
              
              
              
              (4,440
              )
              
              
              -$
              (7,439
              )
              
              $
              941
              
              
              $
              (18,494
              )
              
              $
              2,058




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





2
 Novamerican
Steel Inc. and Subsidiaries
 Consolidated
Statement of Stockholders’ Equity
 (unaudited)
 (In
thousands of U.S. dollars, except share data)




Common
      stock
            
            Additional
              paid-in
      capital
            
            Accumulated
              deficit
            
            Accumulated
              other
              comprehensive
      loss
            
            Total
              stockholders’
              equityNumber
            
            AmountBalance
      at November 24, 2007
            
            21,452,304
            
            $
            21
            
            $
            128,316
            
            $
            (3,947
            )
            $
            (2,745
            )
            $
            121,645Net
      loss
            
            
            
            
            
            
            
            
            
            
            (14,054
            )
            
            
            
            
            (14,054
            )Conversion
      of 15,964,883 warrants into common shares
            
            4,189,944
            
            
            4
            
            
            (4
            )
            
            -
            
            
            -
            
            
            -Changes
      in cumulative translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,440
            )
            
            (4,440
            )Balance
      at August 30, 2008
            
            25,642,248
            
            $
            25
            
            $
            128,312
            
            $
            (18,001
            )
            $
            (7,185
            )
            $
            103,151





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











3
 Novamerican
Steel Inc. and Subsidiaries
 Consolidated
Statements of Cash Flows
 (In
thousands of U.S. dollars)





Nine
      months endedAugust
      30, 2008
            
            
            September
      30, 2007(unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
            
            $
            (14,054
            )
            
            $
            2,058Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activitiesDepreciation
            
            
            10,406
            
            
            
            5Amortization
            
            
            7,566
            
            
            
            -Deferred
      income taxes
            
            
            (5,660
            )
            
            
            (1
            )Gain
      on disposal of property, plant and equipment
            
            
            (236
            )
            
            
            -Share
      in income of a joint venture
            
            
            (599
            )
            
            
            -Changes
      in working capital itemsTrade
      accounts receivable
            
            
            (15,927
            )
            
            
            -Income
      taxes receivable
            
            
            855
            
            
            
            -Inventories
            
            
            26,322
            
            
            
            -Prepaid
      expenses and other assets
            
            
            (8,218
            )
            
            
            (148
            )Accounts
      payable
            
            
            (11,350
            )
            
            
            (124
            )Accrued
      liabilities
            
            
            25,137
            
            
            
            196Accrued
      income taxes
            
            
            (40
            )
            
            
            260Other
      long-term liabilities
            
            
            803
            
            
            
            -Net
      cash provided by operating activities
            
            
            15,005
            
            
            
            2,246CASH
      FLOWS FROM INVESTING ACTIVITIESCash
      deposited to trust
            
            
            -
            
            
            
            (143,700
            )Increase
      in investments in trust
            
            
            -
            
            
            
            (3,182
            )Increase
      in investments in escrow
            
            
            -
            
            
            
            (1,250
            )Proceeds
      from disposal of property, plant and equipment
            
            
            304
            
            
            
            -Increase
      in acquisition
            
            
            -
            
            
            
            (1,134
            )Additions
      to property, plant and equipment
            
            
            (8,207
            )
            
            
            (37
            )Net
      cash used in investing activities
            
            
            (7,903
            )
            
            
            (149,303
            )CASH
      FLOWS FROM FINANCING ACTIVITIESGross
      proceeds from public offering – common stock and warrants
            
            
            -
            
            
            
            150,000Gross
      proceeds from private placements – warrants
            
            
            -
            
            
            
            4,750Payment
      of offering costs
            
            
            -
            
            
            
            (6,180
            )Proceeds
      from revolving credit facility
            
            
            28,249
            
            
            
            -Repayments
      of revolving credit facility
            
            
            (39,417
            )
            
            
            -Repayment
      of note payable to a related party
            
            
            -
            
            
            
            (500
            )Refund
      of deposit
            
            
            200
            
            
            
            -Net
      cash (used in) provided by financing activities
            
            
            (10,968
            )
            
            
            148,070Effect
      of exchange rate changes on cash and cash equivalents
            
            
            (470
            )
            
            
            -Net
      (decrease) increase in cash and cash equivalents
            
            
            (4,336
            )
            
            
            1,013Cash
      and cash equivalents, beginning of period
            
            
            19,638
            
            
            
            262Cash
      and cash equivalents, end of period
            
            $
            15,302
            
            
            $
            1,275SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONDeferred
      underwriting fees and expenses
            
            
            -
            
            
            $
            6,000Accrued
      acquisition costs
            
            
            -
            
            
            $
            1,998Interest
      paid
            
            $
            22,103
            
            
            $
            17Income
      taxes paid
            
            $
            3,432
            
            
            $
            999





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


4
 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 )
 (Unaudited)


1
- INTERIM FINANCIAL PRESENTATION





The
accompanying interim financial statements of Novamerican Steel Inc.
(“Novamerican,” the “Company” or the “Successor”) should be read in conjunction
with the financial statements for the period January 1, 2007 to November 24,
2007 and notes thereto contained in the Company’s Annual Report on Form 10-K as
amended for the fiscal year ended November 24, 2007.  The November 24,
2007 amounts were derived from the Company’s audited financial
statements.  The financial statements presented herein are unaudited
but, in the opinion of management, include all necessary adjustments (which
comprise only normal recurring items) required for a fair statement of financial
position, results of operations and cash flows for the periods
presented.  However, interim results of operations may not be
indicative of results for the full fiscal year.  The accompanying
interim consolidated financial statements of the Company have been prepared in
conformity with accounting principles generally accepted in the United States of
America for interim financial statements.





Certain
amounts in the Consolidated Financial Statements for the three and nine months
ended September 30, 2007 have been reclassified to conform with current period
presentation.





2
- ORGANIZATION





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 (“Acquired Company” or the “Predecessor”), a corporation
incorporated under the laws of Canada (the “Acquisition”). 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 and two private placements.





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. and changed Acquired
Company’s name to Novamerican Steel Canada Inc.  On December 7, 2007, the
Company’s Board of Directors approved the change of the Company’s fiscal year
end from December 31 to the last Saturday of November.





3
- SIGNIFICANT ACCOUNTING POLICIES





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





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





Fiscal
period





On
December 7, 2007, the Company changed its fiscal year end from December 31, to
the last Saturday of November. Therefore, the Company’s current and future
interim quarterly financial statements will be reported on a fiscal year basis
with each three month period ending on the last Saturday of February, May and
August, respectively.  The Company previously reported its financial
results on the basis of calendar quarterly periods ending March 31, June 30 and
September 30, 2007. As there were no operating activities of Symmetry prior to
the Acquisition of Acquired Company on November 15, 2007, the prior year’s
financial statements used for comparative purposes are the historical periods of
Symmetry previously filed with the Securities and Exchange
Commission.





Basis
of consolidation





The
consolidated financial statements for the three and nine months ended September
30, 2007 include only the financial results of Symmetry. The financial
statements for the three and nine months ended August 30, 2008 include the
financial results of Novamerican, its wholly-owned subsidiaries Novamerican
Steel Holdings Inc., Novamerican Steel Finco Inc., Novamerican Steel Canada
Inc. and Novamerican Steel U.S. Inc.  All material intercompany
balances and transactions have been eliminated in the consolidated financial
statements.





5
 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 )
 (Unaudited)


3
- SIGNIFICANT ACCOUNTING POLICIES (Continued)





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 quarter. Gains
and losses arising from translation are included in accumulated other
comprehensive loss.





Transactions
conducted in foreign currencies by the Company are translated as follows:
monetary assets and liabilities are translated at the exchange rate in effect at
quarter 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. Gains amounted to $628,629
and $1,143,429 in the three and nine months ended August 30, 2008, respectively,
and zero in the three and nine months ended September 30, 2007.





Restructuring
and Other Charges




In April
2008, Novamerican announced a restructuring plan to close its Cambridge, Ontario
facility and implement organizational changes, especially in the replenishment,
processing, distribution and sales processes. As a result of this plan, the
Company has recorded restructuring charges comprised principally of severance
and associated employee termination costs related to the reduction of its
workforce, plant closure, and contract termination costs related to facility
lease obligations. These activities have been accounted for primarily in
accordance with Statement of Financial Accounting Standards (“SFAS”)
No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS No. 146 requires
that a liability for costs associated with an exit or disposal activity be
recognized when the liability is incurred, as opposed to when management commits
to an exit plan. SFAS No. 146 also requires that:
(i) liabilities associated with exit and disposal activities be measured at
fair value; (ii) one-time termination benefits be expensed at the date the
entity notifies the employee, unless the employee must provide future service,
in which case the benefits are expensed ratably over the future service period;
and (iii) costs to terminate a contract (specifically an operating lease)
before the end of its term be recognized at the cease use date.  See
Note 15 for further information.





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.





Current
and Pending Accounting Changes





Current





Fair
Value Measurements





Effective
November 25, 2007, the Company adopted SFAS No. 157, Fair Value Measurements,issued by the FASB in
September 2006, only for its financial assets and liabilities required or
permitted to be stated or disclosed at fair value. This statement defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements.  Accordingly, SFAS No. 157 does
not require any new fair value measurements.





As of
August 30, 2008, the Company did not carry any of its assets and liabilities at
fair value on a recurring basis and did not recognize any unrealized amounts in
earnings related to changes in fair value for the nine months ended August 30,
2008.  The Company’s fair value measurement disclosure requirements
are currently limited to annual fair value disclosure of its financial
instruments.


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 )
 (Unaudited)


3 - SIGNIFICANT ACCOUNTING POLICIES
(Continued)





The
Company did not adopt SFAS 157 with respect to its non-financial assets and
liabilities that do not require fair value statement on a recurring basis. 
Under FASB Staff Position (FSP) SFAS 157-2, the Effective Date of SFAS 157
fair value requirements for non-financial assets and liabilities not required to
be stated at fair value on a recurring basis are deferred until the fiscal year
beginning November 30, 2008.  Primarily this deferral impacts assets such
as property, plant and equipment, intangible assets, goodwill upon non-recurring
events such as business combinations, asset impairments and goodwill impairment,
among others.





Also
effective November 25, 2007, the Company adopted SFAS No. 159,Fair Value Option for Financial
Assets and Financial Liabilities,issued by the FASB in
April 2007. 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. Additionally, the
statement establishes presentation and disclosure requirements to help financial
statement users understand the effect of the entity’s election on its earnings.
Currently, the Company has not elected to treat any of its financial assets or
liabilities under the fair value option.





Pending





In
February 2008, the FASB issued FSP SFAS 157-2.  This statement defers
fair value requirements for non-financial assets and liabilities not required to
be stated at fair value on a recurring basis until the fiscal year beginning
November 30, 2008. This deferral primarily impacts assets such as property,
plant and equipment, intangible assets and goodwill upon non-recurring events
such as business combinations, asset impairments and goodwill impairment, among
others.





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.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivatives and
Hedging Activities.  This statement amends SFAS No. 133 to
require enhanced disclosures about an entity’s derivative and hedging activities
and thereby improves the transparency of financial reporting.  This
statement requires entities to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedging items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance and cash
flows.  SFAS No. 161 is effective for the Company’s fiscal year
beginning November 30, 2008.  The Company has not yet determined the
impact, if any, that SFAS No. 161 will have on its consolidated financial
statements.





In April
2008, the FASB issued FASB Staff Position (FSP) FAS No.
142-3, "Determination of the Useful Life of Intangible
Assets."  This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142,
"Goodwill


7
 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 )
 (Unaudited)


and Other
Intangible Assets." The intent of this FSP is
to improve  the  consistency  between  the
useful  life of a  recognized intangible  asset
under Statement 142 and the period of expected cash flows used to measure the
fair value of the asset under FASB Statement No. 141  (Revised 2007),
"Business  Combinations," and other U.S. generally
accepted  accounting principles  (GAAP).  This FSP
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal
years.  Early adoption is prohibited.  The Company does not
expect the adoption of FSP No. 142-3 to have a material effect on its results of
operations and financial condition.





In May
2008, the FASB issued SFAS No. 162,"The Hierarchy of Generally
Accepted Accounting Principles", SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting principles to
be used in the preparation of financial statements of nongovernmental entities
that are presented in conformity with generally accepted accounting principles
in the United States. This statement is effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board's amendments to AU
section 411, “The Meaning of
Present Fairly in Conformity with Generally Accepted Accounting
Principles.” The Company is currently evaluating the impact of
SFAS No. 162, but does not expect the adoption of this pronouncement to have a
material impact on its financial position, results of operations or cash
flows.





4
- BUSINESS ACQUISITION





The
following unaudited pro forma financial information for 2007 presents the
combined results of operations as if the Acquisition had occurred at January 1,
2007. 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:








Three
      months ended
              September
      30, 2007
            
            
            Nine months
      ended
              September
      30, 2007(unaudited)
            
            
            (unaudited)Net
      sales
            
            $
            191,480
            
            
            $
            591,117Net
      loss
            
            $
            (287
            )
            
            $
            (1,919
            )Loss
      per share – Basic
            
            $
            (0.01
            )
            
            $
            (0.09
            )Loss
      per share – Diluted
            
            $
            (0.01
            )
            
            $
            (0.09
            )





5
- INCOME TAXES





Provision
for income taxes was a benefit of $239,000 and $8,404,000 for the three and nine
months ended August 30, 2008, respectively.  The provision for income
taxes was a charge of $622,000 and $1,258,000 for the three and nine months
ended September 30, 2007, respectively.





The
effective income tax rates were 12% and 37% for the three and nine months ended
August 30, 2008, respectively.  The effective income tax rates were
40% and 38% for the three and nine months ended September 30, 2007,
respectively.





Income
taxes for the three and nine months ended August 30, 2008 and September 30, 2007
reflect an estimated annual effective income tax rate of approximately 35% and
40%, respectively.  The effective income tax rate for the three months
ended August 30, 2008 is lower than the estimated rate due to additional tax
expense of $255,000 resulting from adjusting certain original estimates to
actual from filing the fiscal 2007 U.S. tax returns and the cumulative effect of
a lower annual effective tax rate.  The effective income tax rate for
the nine months ended August 30, 2008 is higher than the estimated rate by
approximately $545,000 in net income tax benefit.  The benefit is
comprised of $1,310,000 from a statutory rate reduction in Canada, partially
offset by the additional $750,000 in tax expense resulting from the filing of
the fiscal 2007 U.S. and Canadian tax returns.





Management
is required to estimate the annual effective tax rate based upon its estimate of
annual pre-tax income for domestic and foreign operations. To the extent that
actual pre-tax results for the year differ from the estimates applied at the end
of the most recent interim period, the actual tax rate recognized in fiscal 2008
could be materially different from the estimated rate for the nine months ended
August 30, 2008.





8
 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 )
 (Unaudited)


The
Company accrues interest and penalties associated with tax liabilities in income
tax expense in the Consolidated Statements of Operations and in other long term
liabilities in the Consolidated Balance Sheets. The expense for interest and
penalties reflected in the Consolidated Statements of Operations for the three
and nine months ended August 30, 2008 was $51,000 and $124,000, respectively.
The corresponding liabilities in the Consolidated Balance Sheets were $3,246,000
at August 30, 2008 and $3,410,000 at November 24, 2007, which are included
within other long-term liabilities in the Consolidated Balance
Sheets.





6
- EARNINGS (LOSS) 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 the three and nine months ended August 30, 2008, 9,614,186 warrants
outstanding at August 30, 2008 have been excluded from the calculation of
diluted loss per share because of their anti-dilutive effect.





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





Three
      months ended
            
            
            Nine
      months endedAugust
      30,
              2008
            
            
            September
      30, 2007
            
            
            August
      30,
              2008
            
            
            September
      30, 2007Net
      income (loss)
            
            $
            (1,804
            )
            
            $
            941
            
            
            $
            (14,054
            )
            
            $
            2,058Weighted
      average number of common stock outstanding
            
            
            22,620,418
            
            
            
            23,437,500
            
            
            
            21,831,911
            
            
            
            18,784,722Effect
      of dilutive warrants
            
            
            -
            
            
            
            6,401,647
            
            
            
            -
            
            
            
            4,537,357Weighted
      average number of diluted common stock outstanding
            
            
            22,620,418
            
            
            
            29,839,147
            
            
            
            21,831,911
            
            
            
            23,322,079Net
      income (loss) per shareBasic
            
            $
            (0.08
            )
            
            $
            0.04
            
            
            $
            (0.64
            )
            
            $
            0.11Diluted
            
            $
            (0.08
            )
            
            $
            0.03
            
            
            $
            (0.64
            )
            
            $
            0.09





9
 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 )
 (Unaudited)


7
- INVENTORIES





The
following summarizes the Company’s inventories:





August
      30, 2008
            
            November
      24, 2007Raw
      materials
            
            $
            79,226
            
            $
            82,095Finished
      goods
            
            
            39,459
            
            
            67,799$
            118,685
            
            $
            149,894





8
- LONG-TERM DEBT





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





Maturity
            
            August
      30, 2008
            
            
            November
      24, 2007ABL
      Credit Facility
            2012
            
            $
            57,647
            
            
            $
            75,58811.5%
      Senior Secured Notes
            2015
            
            
            315,000
            
            
            
            315,000$
            372,647
            
            
            $
            390,588





For the
three and nine months ended August 30, 2008, the weighted-average interest
rates of funds borrowed under the Company’s ABL credit facility (“ABL
Credit Facility”) were 5.36% and 5.89%, respectively.





As of
August 30, 2008, the aggregate borrowing base was $152,674,000 (including the
$15,000,000 availability block), of which $1,883,000 was utilized for letter of
credit obligations and approximately $57,647,000 was outstanding under the ABL
Credit Facility.  At August 30, 2008, approximately $93,145,000 was
available for future borrowings.





9 – ORGANIZATION
AND INITIAL PUBLIC OFFERING





In April
2006 and June 2006, in connection with the formation of the Company, the Company
issued in a private placement to the founding stockholders, prior to the
commencement of any operational activities or the receipt of any other capital
or commitments therefor, an aggregate of 937.5 shares of common stock at a
purchase price per share equal to the par value per share, or an aggregate
purchase price of $4,687.50.  On June 26, 2006, the Company effected a
5,000-to-1 split of its common stock and reduced the par value
thereof.  Following the stock split, there were 4,687,500 shares of
common stock outstanding, effectively reducing the purchase price paid to $0.001
per share, the post-split par value of its common stock.  The
Company’s Board of Directors determined that, since the Company had no assets or
operational activities at that time, the fair value for a share was equal to the
capital being invested (which was the same as the par value).





On March
12, 2007, the Company consummated an initial public 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 9,614,186 public warrants
outstanding at August 30, 2008. 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 10), 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 initial public 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.





10
 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 )
 (Unaudited)


10
- 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. The Company’s Board of Directors
determined, based on its assessment of historical and then current trading
prices of warrants of similarly situated special purpose acquisition
corporations, that the fair value for a warrant at that time was equal to such
purchase price per warrant.





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, being 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 on the later of the consummation of the initial business
combination or March 7, 2008 until expiration on June 21, 2011 or earlier upon
redemption. The Company’s Board of Directors determined, based on such average
trading price, that the fair value for a warrant at that time was equal to such
purchase price per warrant.





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 June
21, 2007, in connection with arranging for the financing of the acquisition of
Acquired Company, the Company and its Chairman entered into an agreement
pursuant to which the Chairman agreed to purchase in a private placement
1,875,000 units for a purchase price of $8.00 per unit, or an aggregate of $15.0
million.  Each unit was substantially the same as the units sold in
the Company’s initial public offering at the same purchase price per unit and
consisted of one share of its 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.  The Company’s Board of
Directors determined, based on purchase price per unit in the Company's initial
public offering, the purposes of such offering and the absence of any change in
such purposes, as well as the trading prices of the Company’s common stock and
warrants at that time, that the fair value for a unit at that time was equal to
such purchase price per unit.  On November 15, 2007, the units were
issued to affiliates of the Chairman and former special adviser pursuant to such
agreement.




11
–WARRANTS





Between
August 1, 2008 and August 27, 2008, pursuant to Exchange Agreements between the
Company and holders of an aggregate of 15,964,883 warrants to purchase common
stock of the Company, the Company issued an aggregate of 4,189,944 shares of
common stock to such holders in exchange for their surrender of such warrants,
which were cancelled upon such surrender. The exchanges were privately
negotiated, and included an aggregate of 1,643,526 shares issued to certain
officers and directors of the Company (at an exchange ratio based upon the
consolidated closing bid prices for the common stock and warrants of the Company
on July 23, 2008, in accordance with Nasdaq regulations) and an aggregate of
2,546,418 shares issued to certain non-affiliates of the Company.  The
shares of common stock issued on such exchange are exempt from registration
under section 3(a)(9) of the Securities Act of 1933, as amended, as the
exchanges were between existing security holders and no commissions or other
remuneration was paid or given directly or indirectly for soliciting such
exchanges. As of August 30, 2008, 9,614,186 warrants remain
outstanding.





11
 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 )
 (Unaudited)


12
- 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:





Three
      months ended
            
            Nine
      months ended


August
      30,
              2008
            
            September
      30,
              2007
            
            August
      30,
              2008
            September
      30,
              2007Processing
      revenue from a joint venture
            
            $
            19
            
            -
            
            $
            155
            
            -Processing
      charges paid to a joint venture
            
            $
            971
            
            -
            
            $
            3,068
            
            -Repayment
      in full of note plus interest charges to a director and a principal
      stockholder
            
            
            -
            
            -
            
            
            -
            $
            517Consulting
      fees paid to an entity owned by an officer and director
            
            $
            505
            
            -
            
            $
            1,427
            $
            75Legal
      fees paid to a firm of which a director is a partner
            
            $
            88
            
            -
            
            $
            1,976
            $
            500





At August
30, 2008, the Company had accounts payable and accrued liabilities of $608,000
for legal fees.


12
 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 )
 (Unaudited)


13
- 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 Tube and Company, Limited Partnership (“Delta Tube”), is located
in LaSalle, Quebec, Canada.





Condensed
financial information of the joint venture is summarized below:





Three
      months ended
              August
      30, 2008
            
            
            Nine
      months ended
              August
      30, 2008OperationsNet
      sales
            
            $
            1,420
            
            
            $
            4,135Operating
      income
            
            $
            308
            
            
            $
            893





At August
30, 2008, the Company had a trade accounts payable to Delta Tube in the amount
of $2,220,000 relating to processing services.





14
- CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF GUARANTOR
SUBSIDIARIES





On
November 15, 2007, Novamerican Steel Finco Inc. (“Issuer”), a direct,
wholly-owned subsidiary of Novamerican Steel Holdings Inc. (“Novamerican
Holdings”), issued Senior Secured Notes (“Senior Secured Notes”) in an aggregate
principal amount of $315,000,000.  Interest on the notes accrues at
the rate of 11.5% per annum.  The Senior Secured Notes mature on
November 15, 2015. Novamerican Holdings is a direct, 100%-owned subsidiary of
Novamerican Steel Inc. (“Parent” or the “Company”).  The notes are
guaranteed on a senior secured basis by Parent, Novamerican Holdings and by the
following 100%-owned direct and indirect subsidiaries of
Issuer:  Novamerican Steel U.S. Inc. (“Novamerican U.S.”), American Steel and
Aluminum Corporation, Nova Tube and Steel, Inc., Novamerican Tube Holdings, Inc.
and Nova Tube Indiana, LLC (collectively the “U.S. Guarantor
Subsidiaries”).  All of the guarantees are full, unconditional, joint
and several. The non-guarantor subsidiaries include all direct and indirect
foreign subsidiaries of Issuer (collectively the “Non-Guarantor
Subsidiaries”).





The
Company 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
completing valuations for certain of these assets, including plant, property and
equipment and certain intangibles, and expects the purchase price allocation to
be completed by November 2008. Accordingly, the allocation of the purchase price
is subject to refinement.





The
following tables contain condensed consolidating balance sheets at November 24,
2007 and August 30, 2008, the condensed consolidating statements of operations
for the three and nine months ended September 30, 2007 and August 30,
2008 and the condensed consolidating statement of cash flows for the nine
months ended September 30, 2007 and August 30, 2008 of Parent, Issuer, the U.S.
Guarantor Subsidiaries and the Non-Guarantor Subsidiaries.





The
condensed consolidating financial information for the three and nine months
ended September 30, 2007 includes only the financial results of
Symmetry.  There were no subsidiaries during this time period and
there was no debt outstanding that was guaranteed at September 30, 2007 or at
any time during the three and nine months ended September 30, 2007.





13
 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 )





Novamerican
Steel Inc. and Subsidiaries


Condensed
Consolidating Balance Sheet


at
November 24, 2007





Parent
            
            
            Issuer
            
            
            U.S.
              Guarantor
              Subsidiaries
            
            
            Non-
              Guarantor
              Subsidiaries
            
            
            Consolidation
              /Eliminations
            
            
            ConsolidatedASSETSCurrent
      AssetsCash
      and cash equivalents
            
            $
            2,343
            
            
            $
            230
            
            
            $
            6,077
            
            
            $
            10,988
            
            
            $
            -
            
            
            $
            19,638Trade
      accounts receivable, net
            
            
            -
            
            
            
            -
            
            
            
            40,716
            
            
            
            72,310
            
            
            
            (1,480
            )
            
            
            111,546Income
      taxes receivable
            
            
            (108
            )
            
            
            -
            
            
            
            1,177
            
            
            
            1,753
            
            
            
            -
            
            
            
            2,822Inventories
            
            
            -
            
            
            
            -
            
            
            
            74,086
            
            
            
            75,808
            
            
            
            -
            
            
            
            149,894Prepaid
      expenses and other assets
            
            
            138
            
            
            
            -
            
            
            
            1,101
            
            
            
            427
            
            
            
            -
            
            
            
            1,666Deferred
      income taxes
            
            
            -
            
            
            
            1,199
            
            
            
            970
            
            
            
            4,961
            
            
            
            -
            
            
            
            7,1302,373
            
            
            
            1,429
            
            
            
            124,127
            
            
            
            166,247
            
            
            
            (1,480
            )
            
            
            292,696Investment
      in subsidiaries
            
            
            122,274
            
            
            
            265,608
            
            
            
            126,968
            
            
            
            -
            
            
            
            (514,850
            )
            
            
            -Investment
      in a joint venture
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,999
            
            
            
            -
            
            
            
            1,999Property,
      plant and equipment, net
            
            
            29
            
            
            
            -
            
            
            
            84,104
            
            
            
            66,303
            
            
            
            -
            
            
            
            150,436Advance
      to company(s) under common control
            
            
            -
            
            
            
            158,501
            
            
            
            6,400
            
            
            
            3,186
            
            
            
            (168,087
            )
            
            
            -Goodwill
            
            
            1,712
            
            
            
            1,177
            
            
            
            105,298
            
            
            
            41,173
            
            
            
            -
            
            
            
            149,360Intangibles
            
            
            -
            
            
            
            -
            
            
            
            28,280
            
            
            
            40,151
            
            
            
            -
            
            
            
            68,431Deferred
      financing charges
            
            
            -
            
            
            
            14,998
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            14,998Other
      assets
            
            
            -
            
            
            
            -
            
            
            
            257
            
            
            
            -
            
            
            
            -
            
            
            
            257Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            43
            
            
            
            -
            
            
            
            43$
            126,388
            
            
            $
            441,713
            
            
            $
            475,434
            
            
            $
            319,102
            
            
            $
            (684,417
            )
            
            $
            678,220LIABILITIESCurrent
      liabilitiesTrade
      accounts payable and accrued liabilities
            
            $
            1,898
            
            
            $
            3,277
            
            
            $
            26,989
            
            
            $
            66,626
            
            
            $
            2,278
            
            
            $
            101,068Deferred
      income taxes
            
            
            
            
            
            
            
            
            
            
            2,562
            
            
            
            359
            
            
            
            -
            
            
            
            2,9211,898
            
            
            
            3,277
            
            
            
            29,551
            
            
            
            66,985
            
            
            
            2,278
            
            
            
            103,989Long-term
      debt
            
            
            -
            
            
            
            315,000
            
            
            
            -
            
            
            
            75,588
            
            
            
            -
            
            
            
            390,588Due
      to parent
            
            
            101
            
            
            
            1,162
            
            
            
            33,429
            
            
            
            133,395
            
            
            
            (168,087
            )
            
            
            -Deferred
      income taxes
            
            
            -
            
            
            
            -
            
            
            
            33,249
            
            
            
            24,644
            
            
            
            695
            
            
            
            58,588Other
      long-term liabilities
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,410
            
            
            
            -
            
            
            
            3,4101,999
            
            
            
            319,439
            
            
            
            96,229
            
            
            
            304,022
            
            
            
            (165,114
            )
            
            
            556,575STOCKHOLDERS’
      EQUITY (DEFICIT)Capital
      stock
            
            
            21
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            21Additional
      paid-in capital
            
            
            128,315
            
            
            
            126,968
            
            
            
            379,847
            
            
            
            20,720
            
            
            
            (527,534
            )
            
            
            128,316Retained
      earnings (deficit)
            
            
            (3,947
            )
            
            
            (4,694
            )
            
            
            (642
            )
            
            
            (2,895
            )
            
            
            8,231
            
            
            
            (3,947
            )Accumulated
      other comprehensive loss:Cumulative
      translation adjustment
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,745
            )
            
            
            -
            
            
            
            (2,745
            )124,389
            
            
            
            122,274
            
            
            
            379,205
            
            
            
            15,080
            
            
            
            (519,303
            )
            
            
            121,645$
            126,388
            
            
            $
            441,713
            
            
            $
            475,434
            
            
            $
            319,102
            
            
            $
            (684,417
            )
            
            $
            678,220


14
 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 )
 (Unaudited)




Novamerican
Steel Inc. and Subsidiaries


Condensed
Consolidating Balance Sheet


at
August 30, 2008









Parent
              
              
              Issuer
              
              
              U.S.
                Guarantor
                Subsidiaries
              
              
              Non-
                Guarantor
                Subsidiaries
              
              
              Consolidation
                /Eliminations
              
              
              ConsolidatedASSETSCurrent
      AssetsCash
      and cash equivalents
              
              $
              24
              
              
              $
              481
              
              
              $
              7,159
              
              
              $
              7,638
              
              
              $
              -
              
              
              $
              15,302Trade
      accounts receivable, net
              
              
              4
              
              
              
              
              
              
              
              45,704
              
              
              
              76,007
              
              
              
              -
              
              
              
              121,715Accrued
      interest
              
              
              -
              
              
              
              3,511
              
              
              
              -
              
              
              
              
              
              
              
              (3,511
              )
              
              
              -Income
      taxes receivable
              
              
              363
              
              
              
              -
              
              
              
              706
              
              
              
              808
              
              
              
              -
              
              
              
              1,877Inventories
              
              
              -
              
              
              
              -
              
              
              
              55,284
              
              
              
              63,401
              
              
              
              -
              
              
              
              118,685Prepaid
      expenses and other assets
              
              
              1,002
              
              
              
              10,657
              
              
              
              (5,411
              )
              
              
              3,496
              
              
              
              (30
              )
              
              
              9,714Deferred
      income taxes
              
              
              -
              
              
              
              -
              
              
              
              1,191
              
              
              
              2,889
              
              
              
              
              
              
              
              4,0801,393
              
              
              
              14,649
              
              
              
              104,633
              
              
              
              154,239
              
              
              
              (3,541
              )
              
              
              271,373Investment
      in subsidiaries
              
              
              107,709
              
              
              
              267,540
              
              
              
              126,968
              
              
              
              -
              
              
              
              (502,217
              )
              
              
              -Investment
      in a joint venture
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,598
              
              
              
              -
              
              
              
              2,598Property,
      plant and equipment
              
              
              -
              
              
              
              -
              
              
              
              87,126
              
              
              
              56,664
              
              
              
              -
              
              
              
              143,790Advance
      to company(s) under common control
              
              
              -
              
              
              
              158,501
              
              
              
              31,610
              
              
              
              (13,513
              )
              
              
              (176,598
              )
              
              
              -Goodwill
              
              
              1,712
              
              
              
              1,176
              
              
              
              105,922
              
              
              
              41,757
              
              
              
              -
              
              
              
              150,567Intangibles
              
              
              -
              
              
              
              -
              
              
              
              26,469
              
              
              
              33,448
              
              
              
              -
              
              
              
              59,917Deferred
      financing charges
              
              
              -
              
              
              
              13,338
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13,338Other
      assets
              
              
              -
              
              
              
              -
              
              
              
              59
              
              
              
              -
              
              
              
              -
              
              
              
              59110,814
              
              
              
              455,204
              
              
              
              482,787
              
              
              
              275,193
              
              
              
              (682,356
              )
              
              
              641,642LIABILITIESCurrent
      liabilitiesTrade
      accounts payable and accrued liabilities
              
              
              56
              
              
              
              11,371
              
              
              
              34,724
              
              
              
              59,745
              
              
              
              4,815
              
              
              
              110,71156
              
              
              
              11,371
              
              
              
              34,724
              
              
              
              59,745
              
              
              
              4,815
              
              
              
              110,711Long-term
      debt
              
              
              -
              
              
              
              315,000
              
              
              
              -
              
              
              
              57,647
              
              
              
              -
              
              
              
              372,647Due
      to parent
              
              
              869
              
              
              
              21,124
              
              
              
              33,429
              
              
              
              125,010
              
              
              
              (180,432
              )
              
              
              -Deferred
      income taxes
              
              
              (447
              )
              
              
              -
              
              
              
              31,738
              
              
              
              20,077
              
              
              
              -
              
              
              
              51,368Other
      long-term liabilities
              
              
              -
              
              
              
              -
              
              
              
              181
              
              
              
              3,584
              
              
              
              -
              
              
              
              3,765478
              
              
              
              347,495
              
              
              
              100,072
              
              
              
              266,063
              
              
              
              (175,617
              )
              
              
              538,491STOCKHOLDERS’
      EQUITY (DEFICIT)Capital
      stock
              
              
              25
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              25Additional
      paid-in capital
              
              
              128,312
              
              
              
              126,968
              
              
              
              379,847
              
              
              
              20,720
              
              
              
              (527,535
              )
              
              
              128,312Retained
      earnings (deficit)
              
              
              (18,001
              )
              
              
              (19,259
              )
              
              
              2,868
              
              
              
              (4,405
              )
              
              
              20,796
              
              
              
              (18,001
              )Accumulated
      other comprehensive loss:Cumulative
      translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (7,185
              )
              
              
              -
              
              
              
              (7,185
              )110,336
              
              
              
              107,709
              
              
              
              382,715
              
              
              
              9,130
              
              
              
              (506,739
              )
              
              
              103,151$
              110,814
              
              
              $
              455,204
              
              
              $
              482,787
              
              
              $
              275,193
              
              
              $
              (682,356
              )
              
              $
              641,642






15
 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 )
 (Unaudited)




Novamerican
Steel Inc. and Subsidiaries


Condensed
Consolidating Statements of Operations


Three
months ended September 30, 2007





Parent
            
            
            Issuer
            
            
            U.S.
      Guarantor
              Subsidiaries
            
            
            Non-Guarantor
              Subsidiaries
            
            
            Consolidation
              /
      Eliminations
            
            
            ConsolidatedOperating
      expensesFormation
      and operating costs
            
            $
            365
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            365365
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            365Operating
      loss
            
            
            (365
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (365
            )Interest
      income
            
            
            (1,928
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (1,928
            )Income
      before income taxes
            
            
            1,563
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            1,563Income
      taxes
            
            
            622
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            622Net
      income
            
            $
            941
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            941





16
 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 )
 (Unaudited)


Novamerican
Steel Inc. and Subsidiaries


Condensed
Consolidating Statements of Operations


Three
Months Ended August 30, 2008




Parent
              
              
              Issuer
              
              
              U.S.
                Guarantor
                Subsidiaries
              
              
              Non-
                Guarantor
                Subsidiaries
              
              
              Consolidation
                /Eliminations
              
              
              ConsolidatedNet
      sales
              
              $
              -
              
              
              $
              -
              
              
              $
              112,737
              
              
              $
              125,832
              
              
              $
              (7,650
              )
              
              $
              230,919Cost
      of Sales
              
              
              -
              
              
              
              -
              
              
              
              88,210
              
              
              
              102,575
              
              
              
              (7,576
              )
              
              
              183,209Gross
      margin
              
              
              -
              
              
              
              -
              
              
              
              24,527
              
              
              
              23,257
              
              
              
              (74
              )
              
              
              47,710Plant
              
              
              -
              
              
              
              -
              
              
              
              6,560
              
              
              
              7,661
              
              
              
              -
              
              
              
              14,221Delivery
              
              
              -
              
              
              
              -
              
              
              
              3,634
              
              
              
              3,711
              
              
              
              -
              
              
              
              7,345Selling
              
              
              -
              
              
              
              -
              
              
              
              1,883
              
              
              
              823
              
              
              
              -
              
              
              
              2,706Administrative
      and general
              
              
              123
              
              
              
              329
              
              
              
              4,587
              
              
              
              4,753
              
              
              
              -
              
              
              
              9,792Amortization
      of intangibles
              
              
              -
              
              
              
              -
              
              
              
              589
              
              
              
              1,312
              
              
              
              -
              
              
              
              1,901Restructuring
      costs
              
              
              -
              
              
              
              -
              
              
              
              1,951
              
              
              
              2,051
              
              
              
              -
              
              
              
              4,002123
              
              
              
              329
              
              
              
              19,204
              
              
              
              20,311
              
              
              
              -
              
              
              
              39,967-Operating
      income (loss)
              
              
              (123
              )
              
              
              (329
              )
              
              
              5,323
              
              
              
              2,946
              
              
              
              (74
              )
              
              
              7,743Interest
      expense
              
              
              -
              
              
              
              9,806
              
              
              
              423
              
              
              
              1,233
              
              
              
              (1,293
              )
              
              
              10,169Interest
      income
              
              
              (86
              )
              
              
              (1,297
              )
              
              
              (31
              )
              
              
              (53
              )
              
              
              1,293
              
              
              
              (174
              )Share
      in income of a joint venture
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (209
              )
              
              
              -
              
              
              
              (209
              )(86
              )
              
              
              8,509
              
              
              
              392
              
              
              
              971
              
              
              
              -
              
              
              
              9,786Income
      (loss) before income taxes
              
              
              (37
              )
              
              
              (8,838
              )
              
              
              4,931
              
              
              
              1,975
              
              
              
              (74
              )
              
              
              (2,043
              )Income
      taxes
              
              
              (846
              )
              
              
              (2,409
              )
              
              
              2,689
              
              
              
              327
              
              
              
              -
              
              
              
              (239
              )Equity
      in the earnings of subsidiaries, net of tax
              
              
              (2,613
              )
              
              
              3,816
              
              
              
              -
              
              
              
              -
              
              
              
              (1,203
              )
              
              
              -Net
      income (loss)
              
              $
              (1,804
              )
              
              $
              (2,613
              )
              
              $
              2,242
              
              
              $
              1,648
              
              
              $
              (1,277
              )
              
              $
              (1,804
              )




17
 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 )
 (Unaudited)


Novamerican
Steel Inc. and Subsidiaries


Condensed
Consolidating Statements of Operations


Nine
months ended September 30, 2007





Parent
            
            
            Issuer
            
            
            U.S.
              Guarantor
              Subsidiaries
            
            
            Non-
              Guarantor
              Subsidiaries
            
            
            Consolidation
              /
      Eliminations
            
            
            ConsolidatedOperating
      expensesFormation
      and operating costs
            
            $
            945
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            945945
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            945Operating
      loss
            
            
            (945
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (945
            )Interest
      expenseInterest
      income
            
            
            (4,261
            )
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            (4,261
            )Income
      before income taxes
            
            
            3,316
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            3,316Income
      taxes
            
            
            1,258
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            –
            
            
            
            1,258Net
      income
            
            $
            2,058
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            –
            
            
            $
            2,058














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 )
 (Unaudited)


Novamerican
Steel Inc. and Subsidiaries


Condensed
Consolidating Statements of Operations


Nine
Months Ended August 30, 2008





Parent
            
            
            Issuer
            
            
            U.S.
      Guarantor Subsidiaries
            
            
            Non-Guarantor
      Subsidiaries
            
            
            Consolidation
              /Eliminations
            
            
            ConsolidatedNet
      sales
            
            $
            $-
            
            
            $
            $-
            
            
            $
            $306,102
            
            
            $
            $378,236
            
            
            $
            $(16,454
            )
            
            $
            $667,884Cost
      of Sales
            
            
            -
            
            
            
            -
            
            
            
            246,479
            
            
            
            313,064
            
            
            
            (16,386
            )
            
            
            543,157Gross
      margin
            
            
            -
            
            
            
            -
            
            
            
            59,623
            
            
            
            65,172
            
            
            
            (68
            )
            
            
            124,727Plant
            
            
            -
            
            
            
            -
            
            
            
            17,626
            
            
            
            23,573
            
            
            
            -
            
            
            
            41,199Delivery
            
            
            -
            
            
            
            -
            
            
            
            10,641
            
            
            
            11,193
            
            
            
            -
            
            
            
            21,834Selling
            
            
            -
            
            
            
            -
            
            
            
            6,216
            
            
            
            3,603
            
            
            
            -
            
            
            
            9,819Administrative
      and general
            
            
            633
            
            
            
            961
            
            
            
            12,271
            
            
            
            14,323
            
            
            
            -
            
            
            
            28,188Amortization
      of intangibles
            
            
            -
            
            
            
            -
            
            
            
            1,812
            
            
            
            4,094
            
            
            
            -
            
            
            
            5,906Restructuring
      costs
            
            
            -
            
            
            
            -
            
            
            
            2,407
            
            
            
            6,508
            
            
            
            -
            
            
            
            8,915Operating
      expenses
            
            
            633
            
            
            
            961
            
            
            
            50,973
            
            
            
            63,294
            
            
            
            
            
            
            
            115,861Operating
      income (loss)
            
            
            (633
            )
            
            
            (961
            )
            
            
            8,650
            
            
            
            1,878
            
            
            
            (68
            )
            
            
            8,866Interest
      expense
            
            
            -
            
            
            
            29,840
            
            
            
            1,294
            
            
            
            6,056
            
            
            
            (4,792
            )
            
            
            32,398Interest
      income
            
            
            (94
            )
            
            
            (4,847
            )
            
            
            (115
            )
            
            
            (211
            )
            
            
            4,792
            
            
            
            (475
            )Share
      in income of a joint venture
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (599
            )
            
            
            -
            
            
            
            (599
            )(94
            )
            
            
            24,993
            
            
            
            1,179
            
            
            
            5,246
            
            
            
            -
            
            
            
            31,324Income
      (loss) before income taxes
            
            
            (539
            )
            
            
            (25,954
            )
            
            
            7,471
            
            
            
            (3,368
            )
            
            
            (68
            )
            
            
            (22,458
            )Income
      taxes
            
            
            (1,050
            )
            
            
            (9,457
            )
            
            
            3,961
            
            
            
            (1,858
            )
            
            
            -
            
            
            
            (8,404
            )Equity
      in the earnings of subsidiaries, net of tax
            
            
            (14,565
            )
            
            
            1,932
            
            
            
            -
            
            
            
            -
            
            
            
            12,633
            
            
            
            -Net
      income (loss)
            
            $
            (14,054
            )
            
            $
            (14,565
            )
            
            $
            3,510
            
            
            $
            (1,510
            )
            
            $
            12,565
            
            
            $
            (14,054
            )





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 )
 (Unaudited)


Novamerican
Steel Inc. and Subsidiaries


Condensed
Consolidating Statements of Cash Flows


Nine
months ended September 30, 2007





Parent
            
            
            Issuer
            
            
            U.S.
              Guarantor
              Subsidiaries
            
            
            Non-
              Guarantor
              Subsidiaries
            
            
            Consolidation
              /Eliminations
            
            
            ConsolidatedNET
      CASH PROVIDED BY OPERATING ACTIVITIES
            $
            2,246
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,246CASH
      FLOWS FROM INVESTING ACTIVITIESCash
      deposited to trust
            
            (143,700
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (143,700
            )Increase
      in investments in trust
            
            (3,182
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,182
            )Increase
      in investments in escrow
            
            (1,250
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,250
            )Increase
      in acquisition
            
            (1,134
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,134
            )Additions
      to property, plant and equipment
            
            (37
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (37
            )Net
      cash used in investing activities
            
            (149,303
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (149,303
            )CASH
      FLOWS FROM FINANCING ACTIVITIESGross
      proceeds from public offering – common stock and warrants
            
            150,000
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            150,000Gross
      proceeds from private offering –warrants
            
            4,750
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            4,750Payment
      of offering costs
            
            (6,180
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (6,180
            )Repayment
      of note payable to a related party
            
            (500
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (500
            )Net
      cash provided by financing activities
            
            148,070
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            148,070Net
      increase in cash and cash equivalents
            
            1,013
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,013Cash
      and cash equivalents at beginning of period
            
            262
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            262Cash
      and cash equivalents at end of period
            $
            1,275
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            1,275





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 )
 (Unaudited)


Novamerican
Steel Inc. and Subsidiaries


Condensed
Consolidating Statements of Cash Flows


Nine
Months Ended August 30, 2008





Parent
            
            
            Issuer
            
            
            U.S.
      Guarantor Subsidiaries
            
            
            Non-Guarantor
      Subsidiaries
            
            
            Consolidation
      /Eliminations
            
            
            ConsolidatedNET
      CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES
            
            $
            (3,102
            )
            
            $
            (19,710
            )
            
            $
            33,091
            
            
            $
            4,726
            
            
            $
            -
            
            
            $
            15,005CASH
      FLOWS FROM INVESTING ACTIVITIESProceeds
      from disposal of property, plant and equipment
            
            
            15
            
            
            
            -
            
            
            
            -
            
            
            
            289
            
            
            
            -
            
            
            
            304Additions
      to property, plant and equipment
            
            
            -
            
            
            
            -
            
            
            
            (7,000
            )
            
            
            (1,207
            )
            
            
            -
            
            
            
            (8,207
            )Net
      cash used in investing activities
            
            
            15
            
            
            
            -
            
            
            
            (7,000
            )
            
            
            (918
            )
            
            
            -
            
            
            
            (7,903
            )CASH
      FLOW FROM FINANCING ACTIVITIESProceeds
      from revolving credit facility
            
            
            -
            
            
            
            15,300
            
            
            
            -
            
            
            
            12,949
            
            
            
            -
            
            
            
            28,249Repayments
      of revolving credit facility
            
            
            -
            
            
            
            (15,300
            )
            
            
            -
            
            
            
            (24,117
            )
            
            
            -
            
            
            
            (39,417
            )Refund
      of deposit
            
            
            -
            
            
            
            -
            
            
            
            200
            
            
            
            -
            
            
            
            -
            
            
            
            200Advances
      to / from parent subsidiaries
            
            
            768
            
            
            
            19,961
            
            
            
            (25,209
            )
            
            
            4,480
            
            
            
            -
            
            
            
            -Net
      cash provided by (used in) financing activities
            
            
            768
            
            
            
            19,961
            
            
            
            (25,009
            )
            
            
            (6,688
            )
            
            
            -
            
            
            
            (10,968
            )Effect
      of exchange rate changes on cash and cash equivalents
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (470
            )
            
            
            -
            
            
            
            (470
            )Net
      increase (decrease) in cash and cash equivalents
            
            
            (2,319
            )
            
            
            251
            
            
            
            1,082
            
            
            
            (3,350
            )
            
            
            -
            
            
            
            (4,336
            )Cash
      and cash equivalents, beginning of period
            
            
            2,343
            
            
            
            230
            
            
            
            6,077
            
            
            
            10,988
            
            
            
            -
            
            
            
            19,638Cash
      and cash equivalents, end of period
            
            $
            24
            
            
            $
            481
            
            
            $
            7,159
            
            
            $
            7,638
            
            
            $
            -
            
            
            $
            15,302





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 )
 (Unaudited)


15
- RESTRUCTURING CHARGES





In April
2008, the Company announced a limited restructuring program associated with the
closure of the Cambridge, Ontario facility and the implementation of
organizational changes, especially in the replenishment, processing,
distribution and sales processes. The program will result in the termination of
certain employees, the possible relocation or reassignment of other employees
and other exit costs associated with the closure of the Cambridge
facility.




For the
three and nine months ended August 30, 2008, the Company recognized a
restructuring charge of $4,002,000 and $8,915,000, respectively, relating to
this program. The charge is included in the line item “Restructuring costs” in
the accompanying Consolidated Statement of Operations.




The
following table summarizes the components of the
restructuring charge for the nine months ended August 30, 2008:







Severance,
      payroll and other related costs (1)
            
            $8,534Lease
      termination obligations and related costs (2)
            
            294Other
      exit costs (3)
            
            87Total
      restructuring charge
            
            $8,915











(1)
            Represents
      severance for 116 employees; 53 employees related to the Cambridge plant
      closing and an additional 63 salaried
personnel.


(2)
            Represents
      the remaining fair value of lease obligations for the Cambridge facility,
      as determined at the cease-use date of the facility, net of estimated
      sublease income that could be reasonably obtained in the future, and will
      be paid out over the remaining lease term, which ends in fiscal year 2009.
      Projected sublease income is based on management's estimates, which are
      subject to change.


(3)
            Consists
      primarily of cost to relocate inventory from the Cambridge facility to
      other facilities.





The
Company currently expects to complete the program in the first fiscal quarter of
2009 and expects to incur approximately $5.0 million in additional restructuring
costs consisting primarily of severance costs for approximately 75
employees.





The
following table summarizes the liability related to the
2008 restructuring program:





Balance
              at
              November
      24, 2007
            
            
            Charges
            
            
            Payments
            
            
            Other
            
            
            Balance
              at
              August
      30,
              2008Severance,
      payroll and other related costs
            
            $
            —
            
            
            $
            8,534
            
            
            $
            (2,821
            )
            
            $
            —
            
            
            $
            5,713Lease
      termination obligations and related
            
            
            —
            
            
            
            294
            
            
            
            (66
            )
            
            
            —
            
            
            
            228Other
      facility exit costs
            
            
            —
            
            
            
            87
            
            
            
            (62
            )
            
            
            —
            
            
            
            25Foreign
      exchange
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (248
            )
            
            
            (248
            )Total
            
            $
            —
            
            
            $
            8,915
            
            
            $
            (2,949
            )
            
            $
            (248
            )
            
            $
            5,718





The
Company also accelerated depreciation expense on property, plant and equipment
at the Cambridge facility in the amount of $0 and $518,000 in the three and nine
months ended August 30, 2008, respectively.








22


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





Outlook





U.S.
steel service center hot-rolled inventories rose sharply in August to
approximately 3.3 months on hand coming off the slowest non-December shipment
month since November 2007. We believe that underlying consumption in the U.S.
and Canada has continued to weaken from the already sluggish pace of the past
year, with a particularly weak automotive outlook.  In the U.S., the
automotive, residential construction and related sectors are in a
recessionary-like environment and have been over the last 18
months.  Canadian manufacturing, including automotive, has also
experienced shrinkage.  The strength of the Canadian dollar versus the
U.S. dollar has continued placing pressure on our Canadian customers that export
into the U.S.  Globally, demand and pricing in markets outside of
North America has weakened and, along with some strengthening in the U.S.
currency, has increased imports for our market as demonstrated in recent month
to month comparisons;  imports, however, remain below year ago
levels.  The combination of higher imports into both the U.S. and
Canada from other jurisdictions and relatively higher service center inventory
levels has increased North American supply and, when combined with lower raw
material costs for our suppliers, particularly much lower scrap prices in
August, has resulted, in September, in the first sign of lower 2008 steel prices
from steel mills.





Flat
rolled carbon steel sheet prices continued their upward trend into July 2008,
although price gains in July were more disparate among the steel mills and were
relatively weaker than prior increases during this upward pricing
cycle.  North American steel suppliers had pushed prices for hot
rolled coil to about $1,100 per ton, with world spot export market prices as
high as about $1,175 per ton.  In September, there was a reduction
from these historically high levels with flat rolled carbon steel sheet prices
decreasing to about $1,000 per ton and with some smaller mills offering even
more aggressive pricing.  While mill costs remain high, easing scrap
and freight costs will facilitate these decreases. We believe increasing supply
and higher inventory levels should continue resulting in softening prices, at
least through the end of 2008.  The outlook for the U.S. dollar,
freight rates and other world steel sheet markets indicate that import pressures
are likely to increase, providing for potentially lower prices in the near term.
We experienced price increases peaking in July 2008, mainly in our structural
tubing, steel sheet and distribution channels.  Although our ability
to raise prices depends on multiple market factors, we have been successfully
passing along price increases of steel on a timely basis through July but have
begun experiencing declining prices through August.  Our profitability
typically expands during inclining price cycles and contracts during declining
price cycles.





We
experienced a softening in demand in our structural tubing and distributed
products toward the end of the third fiscal quarter. Continued high gasoline
prices, tighter consumer credit conditions and overall broader economic weakness
have weakened an already low demand outlook for steel sheet and tubular products
used in large truck and SUV vehicles.





We expect
our volumes in the fourth fiscal quarter of 2008 to be lower than the third
fiscal quarter of 2008, including continued softening demand from our
distribution and structural tubing customers. Our automotive business should be
flat in the fourth fiscal quarter when compared to the third fiscal quarter
despite the return from extended summer shutdowns, with a negative outlook based
on further weakening of demand because of tighter credit conditions for auto
buyers. Overall, our 2008 fourth fiscal quarter is expected to result in
comparable revenue, lower operating expenses and lower operating profit when
compared to our 2008 third fiscal quarter. Cash flows from operations, however,
will remain strong, resulting primarily from higher sources of cash from the
liquidation of non-replenishable inventories and overall improved inventory
cycle times.





We have
significantly progressed our project plans for implementing our operating
methodology, The Decalogueä, at the Company. This
transformation allows us to operate as one system versus 21 separate facilities,
and will (a) enable the system to operate at much faster cycle times, enabling
us to maximize the throughput from the sale of our enhanced capacity, (b)
experience a permanent cash inventory reduction of at least $60.0 million
primarily from this faster replenishment and operating cycle, and (c) implement
organizational changes, especially in our replenishment, processing,
distribution and sales processes.





We have
defined our future business model based on the predictability, reliability and
speed of our material flow.  We have reached agreement with our key
suppliers for operating on an actual, usage-based replenishment model with
reliable, expedient delivery of materials.  We have calculated our
inventory buffers based on statistical methods.   To date this
has resulted in the generation of $26.3 million of cash from inventory
reductions.  We will permanently liquidate all remaining inventory
that does not fit in our replenishment model.  We expect that these
reductions will result in a source of cash of at least $60 million.





23


We have
designed our organization systemically, with replenishment representing the
strategically defined internal constraint of our system.  This will
result in the reduction of approximately 200 employees, primarily in the areas
of administration and general management, purchasing, inside sales and
accounting, offset by the addition of approximately 50 new employees of
substantially different competencies, educational backgrounds and cultural
diversities. To date, we have hired professionals in the areas of Statistical
Studies, Quality, Material Science, New Product Development, Marketing,
Logistics, Safety, Process Engineering, Synchronized Manufacturing, Human
Development, Information Services and Sales, among others, of which over 30 have
post-graduate degrees, including 7 PhDs.  We are becoming a
Decalogueä company,
that is, a knowledge-based organization.





We expect
total restructuring charges for this organizational redesign of approximately
$14.0 million, primarily for the severance and related costs for terminated
employees. We recorded a restructuring charge of approximately $4.0 million and
$8.9 million for the three and nine months ended August 30, 2008,
respectively.  We made cash restructuring payments of $1.9 million and
$2.9 million, for the three and nine months ended August 30, 2008, respectively.
These organizational changes and the closure of the Cambridge facility will
result in approximately $10.0 million, net, in annual operating expense
reductions, with that resulting run rate realized by the end of
2008.  We anticipate incurring additional restructuring charges of
approximately $5.0 million in the fourth fiscal quarter of 2008.





We
incurred approximately $2.0 million in the 2008 third fiscal quarter for
operating expenses associated with hiring, training and development required for
these changes and certain other redundant organizational expenses resulting from
increasing certain resources in advance of other reductions.





We have
defined new, throughput-based, operational measurements companywide that measure
the speed of our cash generation on a daily basis.





Three
Months Ended August 30, 2008 as compared to Three Months Ended September 30,
2007





The
consolidated financial statements for the three months ended September 30, 2007
(the “third fiscal quarter of 2007”) include only the financial results of
Symmetry Holdings Inc. (“Symmetry”). The financial statements for the three
months ended August 30, 2008 (the “third fiscal quarter of 2008”) include the
financial results of Novamerican, its wholly-owned subsidiaries Novamerican
Steel Holdings Inc., Novamerican Steel Finco Inc., Novamerican Steel Canada Inc.
(including the former Novamerican Steel Inc. (“Acquired Company” or the
“Predecessor”)), and Novamerican Steel U.S. Inc. All intercompany balances
and transactions have been eliminated in the consolidated financial
statements.





In the
third fiscal quarter of 2008, net sales increased to $230.9 million. Total tons
directly sold and toll processed were 365,822.  Direct sales tons were
190,255 while toll processing tons were 175,567. The effects of changes in the
exchange rate of the Canadian dollar had a positive impact on sales of
approximately $2.8 million. In the third fiscal quarter of 2007, both net sales
and tons directly sold and processed were nil.





Cost of
sales was $183.2 million, or 79.3% of net sales, for the third fiscal quarter of
2008.





Gross
margin was $47.7 million, or 20.7% of net sales, for the third fiscal quarter of
2008, primarily from higher average selling prices relative to cost of steel
sold.





Operating
expenses were $40.0 million for the third fiscal quarter of 2008, an increase of
$39.6 million from the third fiscal quarter of 2007.  For the third
fiscal quarter of 2008, operating expenses included $14.2 million, or 6.1% of
net sales, in plant expenses, $7.3 million, or 3.2% of net sales, for delivery,
$2.7 million, or 1.2% of net sales, for selling expenses, and $9.8 million, or
4.2% of net sales, in general and administrative expenses. Operating expenses
also included a restructuring charge of $4.0 million, or 1.7% of net sales,
associated with the implementation of organizational changes.  Plant
operating expenses included approximately $1.1 million for additional
depreciation associated with the purchase price allocation to property, plant
and equipment at our Cambridge facility.  General and administrative
expenses included $2.0 million for hiring, training and development during the
quarter for more than 75 employees associated with the DecalogueTM
implementation. Less favorable exchange rates resulted in an increase of $0.3
million in operating expenses.  Operating expenses also included $1.9
million of amortization associated with the purchase price allocation to
intangible assets other than goodwill.  Excluding the impact of
exchange rates, additional depreciation, amortization, training and development,
and the restructuring charge, operating expenses would have been $30.7
million.  For the third fiscal quarter of 2007, operating expenses
included operating costs of Symmetry.





In the
third fiscal quarter of 2008, interest income was $0.2 million while interest
expense was $10.2 million.  Interest expense on our Senior Secured
Notes and the ABL Credit Facility was $9.3 million and $0.2 million,
respectively,


24


for the
third fiscal quarter of 2008.  Interest on the Senior Secured Notes
during such period included $0.2 million in additional interest expense
resulting from the delayed registration of the Senior Secured Notes . The
remaining $0.7 million of interest expense primarily represented the
amortization of deferred financing charges. The average balance of debt
outstanding on the ABL Credit Facility for the third fiscal quarter was $77.7
million with an average interest rate of 5.36%.  The Senior Secured
Notes outstanding are $315.0 million with a fixed interest rate of 11.5%. In the
third fiscal quarter of 2007, the Company recorded interest income of $1.9
million, substantially all of which was earned on offering proceeds held in
trust from March 31, 2007 through September 30, 2007.





Loss
before income taxes in the third fiscal quarter of 2008 was $2.0 million, as
compared to income before taxes in the third fiscal quarter of 2007 of $1.6
million.  The third fiscal quarter loss before income taxes includes
$4.0 million for the restructuring charge, $1.9 million for the amortization
associated with the purchase price allocation to intangible assets other than
goodwill, and $1.1 million for additional depreciation associated with the
purchase price allocation to property, plant and equipment at our Cambridge
facility.





Income
taxes were a benefit of $0.2 million and expense of $0.6 million for the third
fiscal quarter of 2008 and the third fiscal quarter of 2007, respectively, and
reflect an estimated effective income tax rate of approximately 35% and 40%,
respectively. The effective income tax rate for the three months ended August
30, 2008 is lower than the estimated rate due to additional tax expense of $0.3
million resulting from adjusting certain original estimates to actual from
filing the fiscal 2007 U.S. tax returns and the cumulative effect of a lower
effective tax rate.





Net loss
was $1.8 million in the third fiscal quarter of 2008, or net loss of $0.08 per
basic and diluted share outstanding, as compared to net income of $0.9 million
in the third fiscal quarter of 2007, or net income of $0.04 per basic and $0.03
per diluted share outstanding.





Three
Month Pro Forma Financial Statements





This
Report includes unaudited pro forma condensed combined financial information
that combines the historical statements of operations of Acquired Company, also
known as the Predecessor, for the period from May 27, 2007 to August 25, 2007
and for Novamerican Steel for the period from July 1, 2007 to September 30,
2007, giving effect to the Acquisition as if it had occurred on January 1,
2007.  The consolidated financial statements of Acquired Company, for
the three months ended August 25, 2007 are included in Exhibit 99.1 to this
filing.





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.  The pro forma information is included in this
Report for both consistency and relevance.





25


Unaudited
Pro Forma Condensed Combined Statement of Operations


For
the Fiscal Three Months Ended September 30, 2007


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





Novamerican
              9/30/07
            
            
            Acquired
      Company
              8/25/07
            
            
            Pro
      Forma
              Adjustments
            
            
            Pro
      Forma
              Combined
            
            
            NotesNet
      sales
            
            $
            -
            
            
            $
            191,480
            
            
            $
            -
            
            
            $
            191,480Cost
      of sales
            
            
            -
            
            
            
            155,019
            
            
            
            -
            
            
            
            155,019Gross
      margin
            
            
            -
            
            
            
            36,461
            
            
            
            -
            
            
            
            36,461Operating
      expensesPlant
            
            
            -
            
            
            
            10,517
            
            
            
            622
            
            
            
            11,139
            
            
            
            (1
            )Delivery
            
            
            -
            
            
            
            5,762
            
            
            
            -
            
            
            
            5,762Selling
            
            
            -
            
            
            
            3,305
            
            
            
            -
            
            
            
            3,305Formation
      and operating costs
            
            
            365
            
            
            
            -
            
            
            
            -
            
            
            
            365Amortization
      of intangibles
            
            
            -
            
            
            
            -
            
            
            
            1,996
            
            
            
            1,996
            
            
            
            (1
            )Administrative
      and general
            
            
            -
            
            
            
            5,838
            
            
            
            (2,385
            )
            
            
            3,453
            
            
            
            (2
            )365
            
            
            
            25,422
            
            
            
            233
            
            
            
            26,020Operating
      income (loss)
            
            
            (365
            )
            
            
            11,039
            
            
            
            (233
            )
            
            
            10,441Interest
      income, net
            
            
            (1,928
            )
            
            
            -
            
            
            
            1,928
            
            
            
            -
            
            
            
            (3
            )Interest
      expense, net
            
            
            -
            
            
            
            (350
            )
            
            
            11,258
            
            
            
            10,908
            
            
            
            (4
            )Share
      in income of joint venture
            
            
            -
            
            
            
            (39
            )
            
            
            -
            
            
            
            (39
            )(1,928
            )
            
            
            (389
            )
            
            
            13,186
            
            
            
            10,869Income
      (loss) before income taxes
            
            
            1,563
            
            
            
            11,428
            
            
            
            (13,419
            )
            
            
            (428
            )Income
      taxes (benefit)
            
            
            622
            
            
            
            4,063
            
            
            
            (4,826
            )
            
            
            (141
            )
            
            
            (5
            )Net
      income (loss)
            
            $
            941
            
            
            $
            7,365
            
            
            $
            (8,593
            )
            
            $
            (287
            )Net
      income (loss)
            
            $
            941
            
            
            $
            7,365
            
            
            $
            (8,593
            )
            
            $
            (287
            )Interest
      expense (income)
            
            
            (1,928
            )
            
            
            (350
            )
            
            
            13,186
            
            
            
            10,908Depreciation
      and amortization
            
            
            2
            
            
            
            2,680
            
            
            
            2,286
            
            
            
            4,968Income
      tax
            
            
            622
            
            
            
            4,063
            
            
            
            (4,826
            )
            
            
            (141
            )EBITDA
            
            $
            (363
            )
            
            $
            13,758
            
            
            $
            2,053
            
            
            $
            15,448Weighted
      average number of shares:Basic
            
            
            23,437,500
            
            
            
            10,450,000
            
            
            
            (12,435,196
            )
            
            
            21,452,304
            
            
            
            (6
            )Diluted
            
            
            29,839,147
            
            
            
            10,450,000
            
            
            
            (18,836,843
            )
            
            
            21,452,304
            
            
            
            (7
            )Earnings
      (loss) per shareBasic
            
            $
            0.04
            
            
            
            0.70
            
            
            
            
            
            
            $
            (0.01
            )Diluted
            
            $
            0.03
            
            
            
            0.70
            
            
            
            
            
            
            $
            (0.01
            )








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.


26





Plant
      depreciation
            
            $
            622Amortization—intangible
      assets
            
            
            1,996Total
            
            $
            2,618





Based on
a preliminary valuation of acquired property, plant and equipment, the
incremental value over net book value of the assets placed into service and the
increased depreciation has been calculated as follows:





Step Up
              inValue
            
            
            Depreciable
              life
            
            
            Increased
              DepreciationBuildings
            
            $
            6,635
            
            
            
            30
            
            
            $
            55Machinery
      and equipment
            
            
            33,999
            
            
            
            15
            
            
            
            567$
            622





Based on
the preliminary valuation of the acquired intangible assets, intangible assets
and the related amortization have been calculated as follows:








Step Up
              in Value
            
            
            Amortizable
              life
            
            
            AmortizationTrade
      name
            
            $
            17,500
            
            
            indefinite
            
            
            $
            -Customer
      relationships
            
            
            43,600
            
            
            
            12
            
            
            
            908Non-compete
      agreements
            
            
            8,700
            
            
            
            2
            
            
            $
            1,0881,996








Note
2


Adjustments
to (a) eliminate the salaries of $0.566 million and bonuses of $0.593 million
paid to five senior management employees of Acquired Company who terminated
their employment immediately after closing of the Acquisition, (b) eliminate
$0.815 million in operating costs of a building and aircraft sold immediately
after closing of the Acquisition as required under the arrangement agreement
relating to the Acquisition (net of $0.391 million in lease payments associated
with the leaseback of the building), (c) report the estimated salaries and
benefits of Novamerican’s new executive management team and (d) eliminate
transaction and consulting fees incurred and expensed by
Novamerican.





Administrative
      and general expenses—compensation
            
            $
            (1,159
            )Administrative
      and general expenses—Novamerican projected costs
            
            
            500Administrative
      and general expenses—operating expenses for assets sold,
    net
            
            
            (425
            )Administrative
      and general expenses—Novamerican incurred transaction costs (not
      capitalized)
            
            
            (215
            )Administrative
      and general expenses—Acquired Company incurred transaction costs (not
      capitalized)
            
            
            (1,086
            )Total
            
            $
            (2,385
            )





Note
3


To
eliminate interest income earned on cash accounts and the Symmetry 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
            
            $
            1,928Total
            
            $
            1,928





Note
4


To
reflect interest expense on the Senior Secured 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 the ABL Credit Facility used to calculate the pro
forma interest expense was the daily average LIBOR rate plus 175 basis points.
In


27


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 Senior Secured Notes was 11.50%. Deferred financing
costs were 1.0% of the total availability under the ABL Credit Facility ($175.0
million) and 2.5% of the Senior Secured Notes ($315.0 million). A 1/8% increase
in the interest rate would have correspondingly increased pro forma interest
expense by approximately $21,000, and a 1/8% decrease in the interest rate would
have correspondingly decreased pro forma interest expense by approximately
$21,000.





Interest
      expense—ABL Credit Facility
            
            $
            1,230ABL
      Credit Facility fee
            
            
            81Interest
      expense—Senior Secured Notes
            
            
            9,056Financing
      fees
            
            
            541Interest
      income, net—historical Acquired Company
            
            
            350Total
            
            $
            11,258





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 three months ended September 30, 2007.








Income
      tax expense
            
            $
            (4,826
            )Total
            
            $
            (4,826
            )





Note
6


Reflects
the elimination of Acquired Company's shares and presentation of Novamerican’s
shares as if the shares issued in Novamerican’s initial public offering had
occurred at the beginning of the period presented.





Note
7


Reflects
the elimination of Acquired Company's shares and exclusion of the potentially
dilutive impact of 23,704,069 of Novamerican’s warrants convertible into common
stock, because they would be anti-dilutive on a pro forma basis as a result of
the pro forma loss per share.








28


Company's
Actual three months ended August 30, 2008 compared to Pro Forma three months
ended September 30, 2007





In the
third fiscal quarter of 2008, net sales increased by $39.4 million, or 20.6%, to
$230.9 million, compared with $191.5 million in the pro forma third fiscal
quarter of 2007. The impact of exchange rates on sales was an increase of $2.8
million.  Excluding the impact of exchange rates, net sales would have
increased by $36.6 million, or 19.1%, compared with the pro forma third fiscal
quarter of 2007.  Increased sales were primarily driven by higher
structural tube volumes and prices and higher sheet volumes, somewhat offset by
lower automotive sheet and tubular products.





Total
tons directly sold and toll processed increased by 8.0% to 365,822 tons in the
third fiscal quarter of 2008 from 338,738 tons for the pro forma third fiscal
quarter of 2007. Total tons in the third fiscal quarter of 2008 included 190,255
tons from direct sales and 175,567 tons from toll processing. Direct sale tons
decreased by 2.0% to 190,255 tons in the third fiscal quarter of 2008 from
194,074 tons for the pro forma third fiscal quarter of 2007. The decrease in
direct sale tons resulted from lower automotive sheet and tubular
products.   Toll processed tons increased by 21.4% to 175,567
tons in the third fiscal quarter of 2008 from 144,664 tons for the pro forma
third fiscal quarter of 2007.  The increase in tons toll processed in
the third fiscal quarter of 2008 was primarily driven by increased market share
with certain major customers, somewhat offset by weaker processing for steel
mills and processing centers, primarily resulting from weaker Canadian
automotive and manufacturing sectors.





Gross
margin increased to $47.7 million from $36.5 million, or to 20.7% from 19.1% as
a percentage of net sales, in the third fiscal quarter of 2008 as compared to
the pro forma third fiscal quarter of 2007, primarily from higher average
selling prices relative to cost of steel sold.  Changes in exchange
rates resulted in an increase of $0.2 million in gross
margin.  Excluding the impact of exchange rates, gross margin would
have increased by $11.0 million to $47.5 million, or 20.8% as a percentage of
net sales.





Operating
expenses increased $14.0 million, or 53.8%, and increased to 17.3% from 13.6% as
a percentage of net sales, for the third fiscal quarter of 2008 as compared to
the pro forma third fiscal quarter of 2007.  The increase was
primarily attributed to plant operating expenses of $14.2 million, or 6.1% of
net sales, as compared to $11.1 million, or 5.8% of net sales and general and
administrative expenses of $9.8 million, or 4.2% of net sales, as compared to
$3.5 million, or 1.8% of net sales. Operating expenses also included a
restructuring charge of $4.0 million, or 1.7% of net sales, associated with the
implementation of organizational changes.  Plant operating expenses
included approximately $1.1 million for additional depreciation associated with
the purchase price allocation to property, plant and equipment at our Cambridge
facility.  General and administrative expenses included $2.0 million
for hiring, training and development during the quarter for more than 75
employees associated with the DecalogueTM implementation.  Less
favorable exchange rates resulted in an increase of $0.3 million in operating
expenses.  Operating expenses also included $1.9 million of
amortization associated with the purchase price allocation to intangible assets
other than goodwill.  Excluding the impact of exchange rates,
additional depreciation, amortization, hiring, training and development expenses
and the restructuring charge, operating expenses would have increased $4.7
million.  Pro forma adjustments resulted in the exclusion from
administrative costs actually incurred in the pro forma third fiscal quarter of
2007, of the following: $1.2 million in compensation for the former officers of
Acquired Company, $0.4 million in operating costs associated with the assets
disposed as part of the Acquisition, including the aircraft and $1.3 million for
expenses associated with the Acquisition. The pro forma adjustments also include
$0.5 million of ongoing costs for Novamerican’s principal executive
officers.





In the
third quarter of 2008, interest income was $0.2 million as compared to $0.0
million in the pro forma third fiscal quarter of 2007.  Interest
expense was $10.2 million, a decrease of $0.7 million as compared to $10.9
million in the pro forma third fiscal quarter of 2007.  Interest
expense on the Senior Secured Notes and ABL Credit Facility was $9.3 million and
$0.2 million, respectively, for the third fiscal quarter of 2008 and $9.1
million and $1.2 million, respectively, for the pro forma third fiscal quarter
of 2007. The remaining $0.7 million and $0.6 million of interest expense for the
third fiscal quarter of 2008 and pro forma third fiscal quarter of 2007,
respectively, primarily represents the amortization of deferred financing
charges.





Loss
before income taxes in the third fiscal quarter of 2008 was $2.0 million, as
compared to loss before taxes in the pro forma third fiscal quarter of 2007 of
$0.4 million.  The third fiscal quarter loss before income taxes
includes $4.0 million for the restructuring charge, $1.9 million for the
amortization associated with the purchase price allocation to intangible assets
other than goodwill, $1.1 million for additional depreciation associated with
the purchase price allocation to property, plant and equipment at our Cambridge
facility.





Income
taxes were a benefit of $0.2 million and expense of $0.1 million for the third
fiscal quarter of 2008 and the pro forma third fiscal quarter of 2007,
respectively, and reflect an estimated annual effective income tax rate
of


29


approximately
35.0% and 33.0%, respectively.  The effective income tax rate for the
three months ended August 30, 2008 is lower than the estimated rate due to
additional tax expense of $0.3 million resulting from adjusting certain original
estimates to actual from filing the fiscal 2007 U.S. tax returns and the
cumulative effect of a lower effective tax rate.





Net loss
was $1.8 million in the third fiscal quarter of 2008, or net loss of $0.08 per
basic and diluted share outstanding, as compared to net loss of $0.3 million in
the pro forma third fiscal quarter of 2007, or net loss of $0.01 per basic and
diluted share outstanding.





Nine
Months Ended August 30, 2008 as compared to Nine Months Ended September 30,
2007





The
consolidated financial statements for the nine months ended September 30, 2007
(the “first three fiscal quarters of 2007”) include only the financial results
of Symmetry. The financial statements for the nine months ended August 30, 2008
(the “first three fiscal quarters of 2008”) include the financial results of
Novamerican, its wholly-owned subsidiaries Novamerican Steel Holdings Inc.,
Novamerican Steel Finco Inc., Novamerican Steel Canada Inc., and Novamerican
Steel U.S. Inc.   All intercompany balances and transactions have
been eliminated in the consolidated financial statements.  The first
three fiscal quarters of 2008 included 40 weeks of operations whereas the first
three fiscal quarters of 2007 included 39 weeks.





In the
first three fiscal quarters of 2008, net sales increased to $667.9million.  Total
tons directly sold and toll processed were 1,139,287.  Direct sales tons
were 625,251 while toll processing tons were 514,036.  In the first
three fiscal quarters of 2007, both net sales and tons directly sold and
processed were nil.





Cost of
sales was $543.2 million, or 81.3% of net sales, for the first three fiscal
quarters of 2008.  Cost of sales included the remaining $6.7 million
of the total $7.8 million of purchase price that was allocated to certain
acquired inventories to reflect their fair market value on the date of the
Acquisition.  Excluding the purchase price allocation to inventory,
cost of sales represented 80.3% of net sales.





Gross
margin for the first three fiscal quarters of 2008 was $124.7 million or 18.7%
of net sales.  Gross margin was reduced by $6.7 million of additional
costs associated with the purchase price allocation to
inventory.  Excluding the purchase price allocation to inventory,
gross margin was $131.4 million and 19.7% of net sales.  All of the
remaining purchase price allocation to inventory was included in the first two
fiscal quarters of 2008 as acquired inventories were sold.





Operating
expenses were $115.9 million for the first three fiscal quarters of 2008, an
increase of $115.0 million from the first three fiscal quarters of
2007.  For the first three fiscal quarters of 2008, operating expenses
included plant expenses of $41.2 million, or 6.2% of net sales, delivery
expenses of $21.8 million, or 3.3% of net sales, selling expenses of $9.8
million, or 1.5% of net sales, and general and administrative expenses of $28.2
million, or 4.2% of net sales. Operating expenses also included a restructuring
charge of $8.9 million, or 1.3% of net sales, associated with the closure of the
Cambridge facility and the implementation of organizational changes. Plant
operating expenses included approximately $2.8 million in higher depreciation
expense associated with the purchase price allocation to property, plant and
equipment and $0.5 million for accelerated depreciation on assets at our
Cambridge facility.  General and administrative expenses included $3.7
million for hiring, training and development during the first three fiscal
quarters of 2008 for more than 175 employees associated with The DecalogueTM
implementation.  Less favorable exchange rates resulted in an increase
of $5.2 million in operating expenses.  Operating expenses also
included $5.9 million of amortization associated with the purchase price
allocation to intangible assets other than goodwill.  The impact of an
extra week in the first three fiscal quarters of 2008 as compared to the first
three fiscal quarters of 2007 was an increase of $2.5
million.  Excluding the additional depreciation, amortization,
training, the restructuring charge, and after adjusting for the extra week in
the first two fiscal quarters, operating expenses would have been $86.4
million.  For the first three fiscal quarters of 2007, operating
expenses included formation and operating costs of Symmetry.





In the
first three fiscal quarters of 2008, interest income was $0.5 million while
interest expense was $32.4 million.  Interest expense on the Senior
Secured Notes and the ABL Credit Facility was $28.2 million and $2.5 million,
respectively, for the first three fiscal quarters of 2008. Interest on the
Senior Secured Notes includes $0.2 million in higher interest expense resulting
from the delayed registration of the Senior Secured Notes. The average balance
of debt outstanding on the ABL Credit Facility for the first three fiscal
quarters was $72.9 million with an average interest rate of
5.89%.  The Senior Secured Notes outstanding are $315.0 million with a
fixed interest rate of 11.5%.  The remaining $1.7 million of interest
expense primarily represented the amortization of deferred financing charges. In
the first three fiscal quarters of 2007, the Company recorded interest income of
$4.3 million, substantially all of which was earned on offering proceeds held in
trust from March 12, 2007 through September 30, 2007.


30





Loss
before income taxes in the first three fiscal quarters of 2008 was $22.5
million, versus income before taxes in the first three fiscal quarters of 2007
of $3.3 million.  The loss includes $6.7 million of purchase price
that was allocated to certain acquired inventories, $8.9 million for the
restructuring charge, $5.9 million for the amortization associated with the
purchase price allocation to intangible assets other than goodwill, $3.3 million
higher depreciation associated with the purchase price allocation and
accelerated depreciation associated with the closure of the Cambridge
facility.





Income
taxes were a benefit of $8.4 million and expense of $1.3 million for the nine
months ended August 30, 2008 and the nine months ended September 30, 2007,
respectively, and reflect an estimated annual effective income tax rate of
approximately 35% and 33%, respectively.  The effective income tax
rate for the nine months ended August 30, 2008 is higher than the estimated rate
by approximately $0.5 million in net income tax benefit.  The benefit
is comprised of a $1.3 million benefit from a statutory rate reduction in
Canada, partially offset by the additional $0.8 million in tax expenses
resulting from the filing of the fiscal 2007 Canadian tax returns.





Net loss
was $14.1 million in the first three fiscal quarters of 2008, or net loss of
$0.64 per basic and diluted share outstanding, as compared to net income of $2.1
million in the first three fiscal quarters of 2007, or a net income of $0.11 per
basic and $0.09 per diluted share outstanding.





Nine
Month Pro Forma Financial Statements





This
Report includes unaudited pro forma condensed combined financial information
that combines the historical statements of operations of Acquired Company for
the period from November 26, 2006 to August 25, 2007 and for Novamerican for the
period from January 1, 2007 to September 30, 2007, giving effect to the
Acquisition as if it had occurred on January 1, 2007.  The
consolidated financial statements of Acquired Company, also known as the
Predecessor, for the nine months ended August 25, 2007 are included in Exhibit
99.1 to this filing.





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.  The pro forma information is included in this
Report for both consistency and relevance.





31


Unaudited
Pro Forma Condensed Combined Statement of Operations


For
the Fiscal Nine Months Ended September 30, 2007


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





Novamerican
              9/30/07
            
            
            Acquired
      Company
              8/25/07
            
            
            Pro
      Forma
              Adjustments
            
            
            Pro
      Forma
              Combined
            
            
            NotesNet
      sales
            
            $
            -
            
            
            $
            591,117
            
            
            $
            -
            
            
            $
            591,117Cost
      of sales
            
            
            -
            
            
            
            478,295
            
            
            
            -
            
            
            
            478,295Gross
      margin
            
            
            -
            
            
            
            112,822
            
            
            
            -
            
            
            
            112,822Operating
      expensesPlant
            
            
            -
            
            
            
            31,742
            
            
            
            1,866
            
            
            
            33,608
            
            
            
            (1
            )Delivery
            
            
            -
            
            
            
            17,964
            
            
            
            -
            
            
            
            17,964Selling
            
            
            -
            
            
            
            10,480
            
            
            
            -
            
            
            
            10,480Formation
      and operating costs
            
            
            945
            
            
            
            -
            
            
            
            -
            
            
            
            945Amortization
      of intangibles
            
            
            -
            
            
            
            -
            
            
            
            5,988
            
            
            
            5,988
            
            
            
            (1
            )Administrative
      and general
            
            
            -
            
            
            
            19,717
            
            
            
            (5,566
            )
            
            
            14,151
            
            
            
            (2
            )945
            
            
            
            79,903
            
            
            
            2,288
            
            
            
            83,136Operating
      income
            
            
            (945
            )
            
            
            32,919
            
            
            
            (2,288
            )
            
            
            29,686Interest
      income, net
            
            
            (4,261
            )
            
            
            -
            
            
            
            4,261
            
            
            
            -
            
            
            
            (3
            )Interest
      expense, net
            
            
            -
            
            
            
            (918
            )
            
            
            33,601
            
            
            
            32,683
            
            
            
            (4
            )Share
      in income of joint venture
            
            
            -
            
            
            
            (133
            )
            
            
            -
            
            
            
            (133
            )(4,261
            )
            
            
            (1,051
            )
            
            
            37,862
            
            
            
            32,550Income
      (loss) before income taxes
            
            
            3,316
            
            
            
            33,970
            
            
            
            (40,150
            )
            
            
            (2,864
            )Income
      taxes (benefit)
            
            
            1,258
            
            
            
            11,349
            
            
            
            (13,552
            )
            
            
            (945
            )
            
            
            (5
            )Net
      income (loss)
            
            $
            2,058
            
            
            $
            22,621
            
            
            $
            (26,598
            )
            
            $
            (1,919
            )Net
      income (loss)
            
            $
            2,058
            
            
            $
            22,621
            
            
            $
            (26,598
            )
            
            $
            (1,919
            )Interest
      expense (income)
            
            
            (4,261
            )
            
            
            (918
            )
            
            
            37,862
            
            
            
            32,683Depreciation
      and amortization
            
            
            5
            
            
            
            7,947
            
            
            
            6,794
            
            
            
            14,746Income
      tax
            
            
            1,258
            
            
            
            11,349
            
            
            
            (13,552
            )
            
            
            (945
            )EBITDA
            
            $
            (940
            )
            
            $
            40,999
            
            
            $
            4,506
            
            
            $
            44,565Weighted
      average Number of shares:Basic
            
            
            18,784,722
            
            
            
            10,450,000
            
            
            
            (7,782,418
            )
            
            
            21,452,304
            
            
            
            (6
            )Diluted
            
            
            23,322,079
            
            
            
            10,450,000
            
            
            
            (12,319,775
            )
            
            
            21,452,304
            
            
            
            (7
            )Earnings
      (loss) per shareBasic
            
            $
            0.11
            
            
            $
            2.16
            
            
            
            
            
            
            $
            (0.09
            )Diluted
            
            $
            0.09
            
            
            $
            2.16
            
            
            
            
            
            
            $
            (0.09
            )





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.





Plant
      depreciation
            
            $
            1,866Amortization—intangible
      assets
            
            
            5,988Total
            
            $
            7,854





Based on
a preliminary valuation of acquired property, plant and equipment, the
incremental value over net book value of the assets placed into service and the
increased depreciation has been calculated as follows:





32





Step Up
              inValue
            
            
            Depreciable
              life
            
            
            Increased
              DepreciationBuildings
            
            $
            6,635
            
            
            
            30
            
            
            $
            166Machinery
      and equipment
            
            
            33,999
            
            
            
            15
            
            
            
            1,700$
            1,866





Based on
the preliminary valuation of the acquired intangible assets, intangible assets
and the related amortization have been calculated as follows:





Step Up
              in Value
            
            
            Amortizable
              life
            
            
            AmortizationTrade
      name
            
            $
            17,500
            
            
            indefinite
            
            
            $
            -Customer
      relationships
            
            
            43,600
            
            
            
            12
            
            
            
            2,725Non-compete
      agreements
            
            
            8,700
            
            
            
            2
            
            
            $
            2,2635,988





Note
2


Adjustments
to (a) eliminate the salaries of $1.6 million and bonuses of $2.5 million paid
to five senior management employees of Acquired Company who terminated their
employment immediately after closing of the Acquisition, (b) eliminate $2.6
million in operating costs of a building and aircraft sold immediately after
closing of the Acquisition as required under the arrangement agreement relating
to the Acquisition (net of $1.2 million in lease payments associated with the
leaseback of the building), (c) report the estimated salaries and benefits of
Novamerican’s new executive management team and (d) eliminate transaction and
consulting fees incurred and expensed by Novamerican.





Administrative
      and general expenses—compensation
            
            $
            (4,116
            )Administrative
      and general expenses—Novamerican projected costs
            
            
            1,500Administrative
      and general expenses—operating expenses for assets sold,
    net
            
            
            (1,411
            )Administrative
      and general expenses—Novamerican incurred transaction costs (not
      capitalized)
            
            
            (453
            )Administrative
      and general expenses—Acquired Company incurred transaction costs (not
      capitalized)
            
            
            (1,086
            )Total
            
            $
            (5,566
            )





Note
3


To
eliminate interest income earned on cash accounts and the Symmetry 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
            
            $
            4,261Total
            
            $
            4,261





Note
4


To
reflect interest expense on the Senior Secured 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 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 Senior Secured Notes was 11.50%.
Deferred financing costs were 1.0% of the total availability under the ABL
Credit Facility ($175.0 million) and 2.5% of the Senior Secured Notes ($315.0
million).  A 1/8% increase in the interest rate would have
correspondingly increased pro forma interest expense by approximately $63,000,
and a 1/8% decrease in the interest rate would have correspondingly decreased
pro forma interest expense by approximately $63,000.


33





Interest
      expense—ABL Credit Facility
            
            $
            3,650ABL
      Credit Facility fee
            
            
            241Interest
      expense—Senior Secured Notes
            
            
            27,169Financing
      fees
            
            
            1,623Interest
      income, net—historical Acquired Company
            
            
            918Total
            
            $
            33,601





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 nine months ended August 25, 2007.





Income
      tax expense
            
            $
            (13,552
            )Total
            
            $
            (13,552
            )





Note
6


Reflects
the elimination of Acquired Company's shares and presentation of the
Novamerican’s shares as if the shares issued in Novamerican’s initial public
offering had occurred at the beginning of the period presented.





Note
7


Reflects
the elimination of Acquired Company's shares and exclusion of the potentially
dilutive impact of 23,704,069 of Novamerican’s warrants convertible into common
stock, because they would be anti-dilutive on a pro forma basis as a result of
the pro forma loss per share.





34


Company's
Actual nine months ended August 30, 2008 compared to Pro Forma nine months ended
September 30, 2007





In the
first three fiscal quarters of 2008, net sales increased by $76.8 million, or
13.0%, to $667.9 million, compared with $591.1 million in the pro forma first
three fiscal quarters of 2007. The impact of exchange rates on sales was an
increase of $35.7 million.  Excluding the impact of exchange rates,
net sales would have increased by $41.1 million, or 7.0%, compared with the pro
forma first three fiscal quarters of 2007.  Increased sales were
primarily driven by higher structural tube volumes and prices and higher sheet
volumes, somewhat offset by lower automotive sheet and tubular
products.





Total
tons directly sold and toll processed increased by 5.4% to 1,139,287 tons in the
first three fiscal quarters of 2008 from 1,081,248 tons for the pro forma first
three fiscal quarters of 2007. Total tons in the first three fiscal quarters of
2008 included 625,251 tons from direct sales and 514,036 tons from toll
processing. Direct sale tons increased by 0.2% to 625,251 tons in the first
three fiscal quarters of 2008 from 624,153 tons for the pro forma first three
fiscal quarters of 2007, primarily from higher structural tube and distribution
shipments, somewhat offset by lower automotive sheet and tubular
products.  Toll processed tons increased by 12.5% to 514,036 tons in
the first three fiscal quarters of 2008 from 457,095 tons for the pro forma
first three fiscal quarters of 2007.  The increase in tons toll
processed in the first three fiscal quarters of 2008 was primarily driven by
increased market share with certain major customers somewhat offset by weaker
processing for steel mills and processing centers, primarily resulting from
weaker Canadian automotive and manufacturing sectors.





Gross
margin increased to $124.7 million from $112.8 million, and decreased from 19.1%
to 18.7% as a percentage of net sales, in the first three fiscal quarters of
2008 as compared to the pro forma first three fiscal quarters of
2007.  The increase in gross margin is primarily from higher average
selling prices relative to cost of steel sold, partially offset by $6.7 million
of additional costs associated with the purchase price allocation to inventory.
The impact of exchange rates on gross margin was an increase of $6.0
million.  Excluding the impact of exchange rates and the purchase
price allocation to inventory, gross margin would have increased by $12.6
million to $125.4 million, or 19.8% as a percentage of net sales.





Operating
expenses increased by $32.7 million, or 39.4%, to 17.3% from 14.1% as a
percentage of net sales for the first three fiscal quarters of 2008 as compared
to the pro forma first three fiscal quarters of 2007.  The increase
was primarily attributed to plant operating expenses of $41.2 million, or 6.2%
of net sales, as compared to $33.6 million, or 5.7% of net sales and general and
administrative expenses of $28.2 million, or 4.2% of net sales, as compared to
$14.2 million, or 2.4% of net sales. Operating expenses also included a
restructuring charge of $8.9 million, or 1.3% of net sales, associated with the
closure of the Cambridge facility and the implementation of organizational
changes.  Plant operating expenses included approximately $2.8 million
in higher depreciation expense associated with the purchase price allocation to
property, plant and equipment and $0.5 million for accelerated depreciation on
assets at our Cambridge facility. General and administrative expenses included
$3.7 million for hiring, training and development during the quarter for more
than 175 employees associated with The DecalogueTM implementation. The impact of
exchange rates on operating expenses was an increase of $5.2
million.  Operating expenses also included $5.9 million of
amortization associated with the purchase price allocation to intangible assets
other than goodwill.  The impact of an extra week in the first three
fiscal quarters was an increase of $2.5 million.  Excluding the impact
of exchange rates, the additional depreciation, amortization, training and
development expenses, the restructuring charge, and after adjusting for the
extra week in the first three fiscal quarters, operating expenses would have
increased by $3.3 million.  Pro forma adjustments resulted in the
exclusion from administrative costs actually incurred in the pro forma first
three fiscal quarters of 2007, of the following: $4.1 million in compensation
for the former officers of Acquired Company, $1.4 million in operating costs
associated with the assets disposed as part of the Acquisition, including the
aircraft and $1.6 million for costs associated with the Acquisition. The pro
forma adjustments also include $1.5 million of ongoing costs for Novamerican’s
principal executive officers.





In the
first three fiscal quarters of 2008, interest income was $0.5 million as
compared to $0 million in the pro forma first three fiscal quarters of
2007.  Interest expense was $32.4 million, a decrease of $0.3 million
as compared to the pro forma first three fiscal quarters of
2007.  Interest expense on the Senior Secured Notes and ABL Credit
Facility was $28.2 million and $2.5 million, respectively, for the first three
fiscal quarters of 2008 and $27.2 million and $3.7 million, respectively, for
the pro forma first three fiscal quarters of 2007. The remaining $1.7 million
and $1.6 million of interest expense in the first three fiscal quarters of 2008
and the pro forma first three fiscal quarters of 2007, respectively, represents
the amortization of deferred financing charges.





Income
taxes were a benefit of $8.4 million and benefit of $0.9 million for the nine
months ended August 30, 2008 and the pro forma nine months ended September 30,
2007, respectively, and reflect an estimated annual effective


35


income
tax rate of approximately 35% and 33%, respectively.  The effective
income tax rate for the nine months ended August 30, 2008 is higher than the
estimated rate by approximately $0.5 million in net income tax
benefit.  The benefit comprises a $1.3 million benefit from a
statutory rate reduction in Canada, partially offset by the $0.8 million in tax
expenses resulting from the filing of fiscal 2007 U.S. and Canadian tax
returns.





Net loss
was $14.1 million in the first three fiscal quarters of 2008, or net loss of
$0.64 per basic and diluted share outstanding, as compared to net loss of $1.9
million in the pro forma first three fiscal quarters of 2007, or net loss of
$0.09 per basic and diluted share.





Effect
of Exchange Rates





We incur
costs in U.S. dollars and Canadian dollars, the currency of our manufacturing
and distribution facilities, and we sell our products in both U.S. dollars and
Canadian dollars. In general, our results of operations, cash flows and
financial condition are affected by changes in the Canadian dollar relative to
the U.S. dollar.





We cannot
predict changes in currency exchange rates in the future or whether those
changes will have net positive or negative impacts on our net sales, cost of
sales or net income. We cannot assure you that we would be able to mitigate any
adverse effects of such changes.





During
the third fiscal quarter of 2008, the average exchange rate of the Canadian
dollar versus the U.S. dollar was 1.0255 compared to 1.0582 for the third fiscal
quarter of 2007.





The
impact of these events in the third fiscal quarter of 2008 was an increase of
$2.8 million in net sales, $2.6 million in cost of goods sold and $0.3 million
in operating expenses.





We have
Canadian dollar denominated long term debt under the ABL Credit Facility. At
August 30, 2008, the entire $57.7 million in principal outstanding under the ABL
Credit Facility was denominated in Canadian dollars.





In the
third fiscal quarter of 2008, we had a net total of $0.6 million in currency
gains.  In the third fiscal quarter of 2007, currency gains and losses
were nil.





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. 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 of the calculated borrowing base. 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
August 30, 2008, the aggregate borrowing base was $152.7 million (net of the
$15.0 million availability block), of which $1.9 million was utilized for letter
of credit obligations and approximately $57.7 million was outstanding under the
ABL Credit Facility.  Since the borrowing base under the ABL Credit
Facility consists of certain eligible accounts receivable and inventory, some of
which are denominated in Canadian dollars, a change in the exchange rate could
affect our borrowing base. At August 30, 2008, approximately $93.1 million was
available for future borrowings.  For the three and nine months ended
August 30, 2008, the weighted-average interest rates of borrowed ABL Credit
Facility funds were 5.36% and 5.89%, respectively.





On
November 15, 2007, the Company, through its subsidiary Novamerican Steel Finco
Inc., issued Senior Secured Notes in an aggregate principal amount of $315.0
million. Interest on the Senior Secured Notes accrues at the rate of 11.5% per
annum and is payable semi-annually in arrears on May 15 and November 15, with
the first interest payment having been due and paid on May 15,
2008.  The Senior Secured Notes mature on November 15,
2015.


36





On August
30, 2008, our total long-term debt was $372.6 million and we had $15.3 million
of cash and cash equivalents (or a net debt of $357.3 million).  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
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.





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 replenishment, processing, distribution and
manufacturing network, by accelerating the speed that we replenish, process and
sell across all of our potential markets.





We expect
cash flow from operations to be positively impacted by our plans for
implementing our operating methodology, the DecalogueTM, at
Novamerican.  We have significantly progressed our project plans for
implementing our operating methodology, The Decalogueä, at the Company. This
transformation allows us to operate as one system versus 21 separate facilities,
and will (a) enable the system to operate at much faster cycle times, enabling
us to maximize the throughput from the sale of our enhanced capacity, (b)
experience a permanent cash inventory reduction of at least $60.0 million
primarily from this faster replenishment and operating cycle, and (c) implement
organizational changes, especially in our replenishment, processing,
distribution and sales processes.These organizational changes and the closure of
the Cambridge facility will result in approximately $10.0 million, net, in
annual operating expense reductions, with that resulting run rate realized by
the end of 2008.





We expect
total restructuring charges for this organizational redesign of approximately
$14.0 million, primarily for the severance and related costs for terminated
employees. We recorded a restructuring charge of approximately $4.0 million and
$8.9 million for the three and nine months ended August 30, 2008,
respectively.  We made cash restructuring payments of $1.9 million and
$2.9 million, for the three and nine months ended August 30, 2008,
respectively.  We anticipate incurring additional restructuring
charges of approximately $5.0 million in the fiscal fourth quarter of 2008, from
the costs associated with the termination of an additional 75
employees.





The plan
also includes increasing resources in certain areas such as replenishment,
production scheduling, statistical process control, sales, marketing and human
resources.  These organizational changes will increase the speed of
our cycle time improvements and resultant inventory reductions.  The
cost of these resources is included in our estimated net operating expense
reductions.  We incurred approximately $2.0 million in the 2008 third
fiscal quarter for operating expenses associated with hiring, training and
development required for these changes and certain other redundant
organizational expenses resulting from increasing certain resources in advance
of other reductions.





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, interest payments, timing of
capital investments and other factors.  Our interest payments on the
Senior Secured Notes total $36.2 million per annum with installments of $18.1
million paid on each of May 15th and November 15th. We generated cash from
inventory reductions through the fiscal quarter ended August 30, 2008, of $26.3
million, and expect total net cash generated from inventory of at least $60.0
million this fiscal year.





We expect
cash interest payments to be approximately $41.5 million in fiscal 2008 with
approximately $19.5 million expected in the fourth fiscal quarter of
2008.  We spent $8.0 million in capital expenditures in the first
three fiscal quarters of 2008, including $6.5 million for the Morrisville,
Pennsylvania structural tubing facility expansion.  We expect capital
expenditures of approximately $11.0 million in fiscal 2008, with an additional
$2.0 million in the fiscal fourth quarter for the completion of the expansion at
our Morrisville, Pennsylvania structural tubing facility.  We believe
the completion of this expansion should result in an additional market demand
for us of up to 50,000 tons of structural tubing.  We expect cash
restructuring payments of approximately $6.0 million in fiscal 2008, with $3.0
million expected in the fiscal fourth quarter.





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
the Senior Secured Notes, repurchase our debt or equity securities, for cash,
common stock or other securities or a combination thereof, in open market or
privately negotiated transactions, opportunistically and on terms that we
believe to be favorable.





37


Historical
cash flows





Cash Flow (Used In) Provided by
Operating Activities. Cash provided by operating activities was $15.0
million in the first three fiscal quarters of 2008. Net loss, after deducting a
net deferred tax benefit of $5.7 million and adding back the net effect from
non-cash items amounted to a negative $2.6 million. Such loss was increased by
cash used in operating activities as follows: an increase in accounts receivable
of $15.9 million, an increase in prepaid expenses and other of $8.2 million and
a decrease of income taxes receivable of $0.9 million.  The resulting
cash used was offset by cash provided by operations from an increase in accounts
payable and accrued liabilities of $13.8 million and a decrease in inventory of
$26.3 million.  The increase in accounts receivable results primarily
from higher net sales in the third fiscal quarter of 2008.  The
increase in accounts payable and accrued liabilities relates primarily to an
increase in inventory purchases, restructuring and other operating expenses. The
decrease in inventory resulted from improved cycle time for inventory relative
to sales.  Cash flow provided by operating activities was $2.2 million
in the first three fiscal quarters of 2007.  In addition to net income
of $2.1 million in the first three fiscal quarters of 2007, cash inflows from
working capital were $0.1 million.





Cash Flow Used In Investing
Activities. Cash flow used in investing activities was $7.7 million in
the first three fiscal quarters of 2008, primarily for $8.2 million in additions
to property, plant and equipment, including $6.5 million for expansion of our
Morrisville, Pennsylvania structural tubing facility, partially offset by $0.3
million in proceeds on disposal of property and equipment. Cash used in
investing activities was $149.3 million in the first three fiscal quarters of
2007, primarily for $143.7 million cash deposited to trust, and $4.4 million
increase in investments and $1.1 million increase in acquisition
costs.





Cash Flow Provided by Financing
Activities.  Cash used in financing activities was $11.0
million in the first three fiscal quarters of 2008.  We received
proceeds from borrowings of $28.2 million and repaid $39.4 million of borrowings
under the ABL Credit Facility during the first three fiscal quarters of
2008.  This was partially offset by $0.2 million from a refund of
deposit.  Cash provided by financing activities was $148.1 million in
the first three fiscal quarters of 2007, primarily from gross proceeds of $150.0
million (less offering costs of $6.2 million) from the issuance and sale of
units through our initial public offering and $4.8 million from private
placements of warrants.  In the first three fiscal quarters of 2007,
we also repaid a $0.1 million note to a related party.





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, but are not exclusive means of identifying such
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. 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 set forth in the Company’s Annual Report on Form 10-K as amended for the
fiscal year ended November 24, 2007 and the following:





38


•
            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;





•
            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; and





•
            outsourcing
      by our customers to overseas
facilities.





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.





All
forward-looking statements in this report are based upon information available
to us on the date of this report.  We undertake no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events, changed circumstances or
otherwise.


39





Item
3.  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 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 we may 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.





Interest Rate Risk.A 100
basis point movement in the Canadian prime rate or LIBOR would result in an
approximate $0.6 million, annualized, for the fiscal quarter ended August 30,
2008, increase or decrease in interest expense and cash flows.





Exchange Rate Risk.At August
30, 2008 and November 24, 2007, we had no forward foreign currency exchange
contracts outstanding.  We estimate that a 10% movement in the value
of the Canadian dollar would affect our net sales by approximately $34.0 million
annually, based on our annualized Canadian dollar net sales for the first three
fiscal quarters of 2008.





Item
4.  Controls and Procedures.





As of
August 30, 2008, we, including our chief executive officer, who also serves as
our principal financial officer, evaluated the effectiveness of the design and
operation of our disclosure controls and procedures.  Based upon that
evaluation, our management, including our chief executive officer, concluded
that our disclosure controls and procedures were effective in timely alerting
management, including the chief executive officer, of material information about
us required to be included in periodic Securities and Exchange Commission
filings.





There has
not been any change in our internal control over financial reporting that
occurred during the fiscal quarter ended August 30, 2008, that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.





40


PART
II – OTHER INFORMATION





Item
1.  Legal Proceedings.





Our
subsidiary American Steel and Aluminum Corporation 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 American Steel and Aluminum
Corporation is liable based upon alleged shipments to the site by American Steel
and Aluminum Corporation.  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.  American Steel and Aluminum Corporation
received, on or about April 25, 2003, an EPA claim letter seeking reimbursement
of costs incurred and to be incurred at the site.  American Steel and
Aluminum Corporation responded to the claim by denying liability for the
site.  During 2006, American Steel and Aluminum Corporation 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.





In
addition, 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.





Item
1A.  Risk Factors





In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual
Report on Form 10-K as amended for our fiscal year ended November 24, 2007. The
risks discussed in our Annual Report on Form 10-K could materially affect our
business, financial condition and future results. The risks described in our
Annual Report on Form 10-K are not the only risks facing us.




There
have been no material changes to the disclosures relating to this item from
those set forth in our Annual Report on Form 10-K as amended for the fiscal year
ended November 24, 2007.





Item
2.   Unregistered Sales of Equity Securities and Use of
Proceeds





Between
August 1, 2008 and August 27, 2008, pursuant to Exchange Agreements between the
Company and holders of an aggregate of 15,964,883 warrants to purchase common
stock of the Company, the Company issued an aggregate of 4,189,944 shares of
common stock to such holders in exchange for their surrender of such warrants,
which were cancelled upon such surrender. The exchanges were privately
negotiated, and included an aggregate of 1,643,526 shares issued to certain
officers and directors of the Company (at an exchange ratio based upon the
consolidated closing bid prices for the common stock and warrants of the Company
on July 23, 2008, in accordance with Nasdaq regulations) and an aggregate of
2,546,418 shares issued to certain non-affiliates of the Company.  The
shares of common stock issued on such exchange are exempt from registration
under section 3(a)(9) of the Securities Act of 1933, as amended, as the
exchanges were between existing security holders and no commissions or other
remuneration was paid or given directly or indirectly for soliciting such
exchanges. As of August 30, 2008, 9,614,186 warrants remain
outstanding.





Item
3.  Defaults Upon Senior Securities





Not
applicable.





Item
4.  Submission of Matters to a Vote of Security Holders





None.





Item
5.  Other Information





Not
applicable.


41








Item
6.  Exhibits.





10.1
            Form
      of Exchange Agreement (Affiliates)10.2
            Form
      of Exchange Agreement (Non-Affiliates)31.1
            Section
      302 Certification of Chief Executive Officer31.2
            Section
      302 Certification of Principal Financial Officer32.1
            Section
      906 Certification99.1
            Novamerican
      Steel Inc. and Subsidiaries Consolidated Financial Statements
      (Predecessor)








42


SIGNATURES





Pursuant to the requirements of Section
13 or 15(d) 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:
      October 10, 2008
            
            By:
            /s/
      Corrado De GasperisCorrado
      De GasperisChief
      Executive Officer (Principal Executive Officer and Principal Financial
      Officer)








43





Item
      6.
            Exhibits.10.1
            Form
      of Exchange Agreement (Affiliates)10.2
            Form
      of Exchange Agreement (Non-Affiliates)31.1
            Section
      302 Certification of Chief Executive Officer31.2
            Section
      302 Certification of Principal Financial Officer32.1
            Section
      906 Certification99.1
            Novamerican
      Steel Inc. and Subsidiaries Consolidated Financial Statements
      (Predecessor)





44