Mad Catz denies serious financial difficulties

Peripherals giant Mad Catz has denied that it is in dire financial straits, even as it files a warning with the Securities and Exchange Commission (SEC) that it has 'substantial doubt about the Company's ability to continue as a going concern.'

In an SEC filing made last last month, Mad Catz warned that its credit facility with Wells Fargo was under threat. 'If the Company is unable to comply with the revised Adjusted EBITDA covenants contained in the Credit Facility, Wells Fargo could declare the outstanding borrowings under the facility immediately due and payable,' the statement warned - meaning that if Mad Catz violates the debt covenant by missing income targets, Wells Fargo could demand immediate repayment. The outcome for Mad Catz in such an event would be dire: 'In the event that no alternative financing is available, the Company would be forced to drastically curtail operations, or dispose of assets, or cease operations altogether,' the filing warns.

The company has, however, denied that it is in serious trouble. 'This language was added because our debt covenants are tied to our budget and, as we have stated, we are anticipating significant growth in sales and gross profit from Rock Band 4 this year,' explained chief financial officer Karen McGinnis in a statement to GameInformer, which was the first to publicise the filing. 'However, for KPMG, there was not enough audit evidence for them to conclude that it is probable we will make those projections since we just started taking preorders. If we don’t meet the projections, we will violate a debt covenant, which means the bank has the right to call the loan. However, we have violated debt covenants several times in the past, and Wells Fargo has always provided us with a waiver of default. Unfortunately, KPMG cannot just assume Wells Fargo will provide a waiver, which is why they were required to include this language.'

Announced by developer Harmonix back in March, Rock Band 4 is the latest entry in the popular music-simulation franchise, and includes a partnership with Mad Catz to produce the official instruments - a wireless Fender Stratocaster, wireless drum kit, and wireless microphone, sold together as the Band in a Box bundle - which the peripherals company is hoping will spell financial success, especially given that last-generation hardware has not yet been guaranteed to be supported on current-generation consoles, leaving fans with the possibility that they'll have to re-buy the instruments all over again.