The financial statements of Tecnotree Oyj are prepared in accordance with the Finnish Accounting Act (1997/1336) and Ordinance (1997/1339) and with other legislation and regulations concerning financial statements. The financial statements are also prepared on a going concern basis. On 5 March 2015 Tecnotree Corporation filed an application for restructuring proceedings with the district court of Espoo, which the District Court confirmed the amended restructuring programme proposal on 15 November 2016. Additional information about the restructurng proceedings is given in note 20, and the basis for applying the going concern principle is disclosed in the accounting principles of the Group.
The consolidated financial statements of Tecnotree Corporation have been prepared in accordance with the going concern principle. This is justified on the following grounds:
Tecnotree has significant uncertainty factors relating to the continuity of its operations. The company’s risks and uncertainties in the near future relate to financing, projects, to their timing, to trade receivables and receivables from construction contracts and to changes in foreign exchange rates. Having sufficient cash funds is the biggest single risk. The financing agreement contains covenants that create risk.
The company has sales in several countries where the country’s central bank has a shortage of foreign currency. This causes additional delays in payments, costs and even the risk of not receiving payment at all.
In addition Tecnotree has a risk affected by the negative shareholders’ equity of the parent company.
The uncertainty factors relating to Tecnotree’s operations are explained in more detail in section “Risks and uncertainty factors” in the Board of Directors’ report. Financial risk management is described in note 24 of the consolidated financial statements. Information about the restructuring proceedings is disclosed in note 29.
Tecnotree’s business operations have been loss-making for several years. One key reason for this has been the decline in sales of old products and no corresponding decrease in operating expenses. In 2017 Tecnotree will continue to focus on stringent control of operating expenses while launching its new open source products.
The company is well underway in its own internal transformation journey of moving from a services company to a fully-fledged digital services product company. The advantage of a product company is that they attract exceptional talent, being able to sell license, which increases the revenue and enhances the cash inflows. Product companies have shorter revenue turnaround time which increases the revenue and cash flow. In addition to garnering top talent the necessary to continuously scale resources to deliver customized projects across the globe so that increased risk and costs are further eliminated.
The company has complied with the restructuring payment programme and made debt payments worth of EUR 6.3 million under the programme during the financial period 2017. In the end of 2017, the company’s interest payments due under restructuring proceedings amounted to a total of EUR 1.1 million, which the company paid in January 2018.
Viking Acquisitions Corp committed on 8 March 2018 to make a voluntary public cash tender offer to purchase all of the issued and outstanding shares in Tecnotree. The tender offer is realized only if 90% of shareholders approve the offer. The offeror is the biggest debtor of the company having receivables of approximately EUR 21.6 million from the company. The receivables consist of both secured and unsecured loans under the restructuring payment programme. During the preparation of the financial statements, according to the preliminary results of the tender offer on 13 April 2018, the shares tendered in the tender offer represent approximately 59.9% of all the shares and votes in Tecnotree on a fully diluted basis as defined in the terms and conditions of the tender offer. The offeror has acquired 23,393,197 shares of Tecnotree outside the tender offer, representing approximately 19.1% of all the shares and votes in Tecnotree. These shares together with the shares tendered in the tender offer amount to a total of approximately 79.0% of all the shares and votes in Tecnotree. The acceptance period of the tender offer has been extended and will expire on 30 April 2018. According to the company’s estimate, the compliance with the going concern principle is based on the assumption that the tender offer is approved or the company finds some other short-term solution to its difficult cash situation.
The Board of Directors of Tecnotree published on 13 March 2018 its statement on the tender offer of Viking Acquisitions Corp and recommended unanimously that the shareholders of Tecnotree accept the tender offer.
The going concern assumption contains significant uncertainty.
Items denominated in foreign currencies
Transactions in foreign currencies are recorded at the rates of exchange prevailing on the transaction dates. Foreign currency receivables and liabilities in the financial statements, including those hedged with derivative contracts, are translated into euros at the average exchange rate quoted by the European Central Bank on the closing date.
Exchange rate gains and losses relating to business operations are treated as adjustments to net sales or purchasing and manufacturing. Exchange rate gains and losses relating to financing operations are entered under financing income and expenses. Exchange rate gains and losses arising from the translation of balance sheet items are charged to the income statement.
Derivatives entered into by the company comprise currency forward contracts to hedge against changes in the cash flows from purchase and sales agreements denominated in foreign currencies. The company policy is to hedge the net foreign currency exposure over the following 12 months at a maximum.
Those derivatives entered into for hedging purposes are initially recognized at cost equivalent to their fair value. Subsequently derivatives are measured at fair value based on the forward rates quoted at the balance sheet date.
Exchange rate differences on derivative contracts made for hedging purposes are charged to the income statement under other operating income and expenses.
At Tecnotree net sales comprise revenue recognized from project deliveries and goods and service deliveries from which indirect taxes, discounts and exchange rate differences have been deducted.
Revenue from project deliveries is mainly recognized according to the stage of completion. Project revenue and expenses are recognized in the income statement in proportion to the stage of completion on the balance sheet date, once the outcome of the project can be estimated reliably. The outcome of a project can be reliably estimated when the anticipated revenue and costs from the contract and the progress of the project can be estimated reliably and when it is probable that the economic benefits associated with the project will flow to the company.
The stage of completion of a project is determined for each contract by the proportion of the estimated total contract costs accounted for by the costs incurred for work performed to date (cost-to-cost method). The revenue recognition for the project will start when the outcome of the project can be estimated reliably. Typically this happens when the management has approved the project and the first delivery to the customer has been made. The stage of completion method of revenue recognition is based on estimates of the expected revenue and expenses associated with the contract and on estimating the progress of the project. The cost estimates for the projects are monitored quarterly in the management’s revenue review and the revenue and expenses recognized in the income statement are revised in the estimates of the outcome of the project change. The accumulated effect due to the change in the estimates is recognized in the period when the change is known for the first time and its amount can be estimated.
If the outcome of the project cannot be estimated reliably, revenue is only recognized to the extent of project costs incurred. This method of recognition is typically applied in first delivery projects for new products or when a delivery project contains a significant amount of customisation for individual customers. The margin on the project is recognized on final acceptance.
A project is considered onerous if its costs exceed total project revenue. The expected loss is recognized as an expense immediately.
Revenue from the sale of products and services is recognized when the significant risks and benefits of ownership have been transferred to the buyer and when the amount of the revenue can be measured reliably and it is probable that the economic benefits will flow to the enterprise. The revenue from services is recognized when the service has been rendered. Supplementary deliveries such as maintenance, licences, training, documentation and spare parts are examples of goods and service deliveries. Revenue from fixed-term maintenance contracts is normally recognized over the contract period on a straight-line basis.
Statutory pension and supplementary pension obligations in Finland are covered through payments to pension insurance organisations. Expenses related to pension arrangements are recognized in the income statement in the period on the accrual basis.
Leasing payments have been entered as rentals. Contractual leasing fees remaining on the balance sheet date are presented in the financial statements under contingent liabilities.
Research and development expenses
Research and development expenses are expensed as incurred, apart from machinery purchases, which are depreciated over three years on a straight-line basis.
Valuation of inventories
Inventories are valued using the FIFO principle at the lowest of acquisition cost, repurchase price and probable selling price.
Valuation of non-current assets
Non-current assets have been capitalised at the acquisition cost. Planned depreciation and amortization is calculated on a straight-line basis over the useful life of the fixed assets. The periods for planned depreciation and amortization are as follows:
Derivative financial instruments
The derivative contracts entered into by the Company are currency forward contracts and options as well as interest rate swaps. The derivative contracts are fair valued. The fair value is determined by using market rates of the counterparty for instruments with similar maturity. Gains and losses arising from changes in the fair values are recognised in the income statement in the period in which they arise.