Late last month, Mad Catz expressed doubt about its future in an annual report filing with the Securities and Exchange Commission, as reported by Game Informer.
The peripheral maker reported that it failed to meet the terms of a $25 million revolving line of credit with Wells Fargo earlier this year, when its adjusted earnings for the trailing 12 months fell beneath a certain threshold. It struck a deal to modify the adjusted earnings terms and extend the credit facility until July 31 next year, but Mad Catz' ability to meet those new terms are dependent on meeting its internal forecasts, particularly when it comes to Rock Band 4. If the company fails to meet the terms of the deal and Wells Fargo calls in what it is owed, Mad Catz would need to find new financing with acceptable terms, something which it can't guarantee.
"These uncertainties raise substantial doubt about the Company's ability to continue as a going concern," Mad Catz said in its SEC filing.
Mad Catz CFO Karen McGinnis downplayed the severity of that doubt, telling Game Informer, "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. This is great news. However, for KPMG [which audited Mad Catz' annual report], 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."
Since that initial filing, Mad Catz has secured two new lines of credit. First, the company secured a loan with NewStar Business Credit for a $20 million revolving line of credit that will balloon to $35 million for the Rock Band 4 launch window, with a June 29, 2018 expiration. Additionally, the peripheral maker's Mad Catz Europe subsidiary agreed to a $10 million secured demand credit facility with Faunus Group International on a three-year term (although FGI can terminate it with three months' notice).
Rock Band 4 is set for launch October 6 on Xbox One and PlayStation 4. In addition to producing the guitars, drums, and microphones that go with the game, Mad Catz is co-publishing the title with developer Harmonix.