4
The Company’s prospects should be viewed in light of the risks, expenses, and
uncertainties frequently related to start- up operations in a new industrial field. Industry and
economic factors that may affect such prospects include the unpredictability of the
manufacturing process and related efficiencies, the ability of the Company to service new
customers efficiently, the ability to attract and retain qualified personnel, present and future
cash needs, and timing of cash break-even.
The Company’s financial statements have been prepared on a going-concern basis, which
presumes that the Forterra will continue in operation for the foreseeable future and will be
able to realize assets and discharge liabilities in the normal course of its operations. At
September 30, 2010, Forterra continued to be unable to pay its suppliers within normal
trade terms and has a significant working capital deficiency. To remain a going concern,
Forterra must become profitable and be able to rely on financial assistance from lenders.
The Company also is in the process of attempting to raise capital. It cannot be determined
at this time whether these efforts will be successful. In the meanwhile, Forterra is
dependent on the cash that it can generate from sales of its products and financial support
being provided by certain Directors of the Company.
The Company has found that the process of carrying out trials with potential new major
customers and subsequently negotiating supply or sales agreements is considerably
lengthier than it had anticipated. As well, the Company has found that its sales success
depends on Forterra’s ability to provide significant marketing support to its principal
distributors. However, the Company lacks the financial capacity to fund this marketing
support and this has resulted in disappointing sales levels through these channels.
The much lower level of sales than had been projected by the Company’s management has
resulted in a significant shortfall in revenues and working capital. The Company has taken
steps to reduce its cash requirements in the near term, including postponing planned capital
investments and reducing operating expenses.
While the Company is experiencing pressure on its financial liquidity, management
continues to believe in the value of its products and the longer-term opportunities for its
business. However, the Company will not be able realize these opportunities unless it is
able to raise additional working capital.