Independent auditor KPMG has said there is a substantial doubt about Mad Catz’s ability to continue as a going concern”, although the company says it has already secured the funding needed to secure its future.
Game Informer reports that a recent ‘going concern’ note says that the company’s ability to repay some of its debts is dependent on considerably” increasing net sales and gross profit, or else risk creditor Wells Fargo calling in its debts.
However, the company has said that it has accessed $30m in additional funding ($20m in credit and $10m secured on Mad Catz Europe)and expects the required growth to be delivered by Harmonix’s Rock Band 4, for which Mad Catz is co-publisher.
In fact, the funding was acquired specifically to allow the launch of the game.
As we have stated, we are anticipating significant growth in sales and gross profit from Rock Band 4 this year,” chief financial officer Karen McGinnis said. 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 pre-orders. 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.”
The auditor note had previously warned about the consequences of not funding additional funding, warning that there can be no assurance that alternative financing can be obtained on substantially similar or acceptable terms, or at all” and that this failure to promptly obtain alternate financing could limit our ability to implement our business plan and have an immediate, severe and adverse impact on our business, results of operations, financial condition and liquidity”.
Added the note: 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.
These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.”