Bad timing sidetracks firm

Hey there, time traveller!
This article was published 22/12/2009 (5763 days ago), so information in it may no longer be current.

This past spring after two years of work, Sidetrack Technologies achieved technical approval to install its unique subway tunnel advertising in the New York subway system. But even the promise of access to the largest advertising market on the continent was not enough to save the company.

Out of funds and running up against a brutal credit market, the company was unable to raise the $2 million it needed to install the system in New York and leave enough money in the bank to keep operating.

Now, one of the best little Winnipeg technology companies of the last decade is basically an orphaned entity.

In late August, a small Toronto company called Bassett Media Group announced it had a letter of intent to acquire Sidetrack’s assets.

That deal — which would have meant Sidetrack shareholders would have received only pennies on the dollar — has still not closed.

Matthew Bassett, CEO of Basset Media, said that although they are "still evaluating opportunities," negotiations have stalled.

"The problem is, Sidetrack needs about $7 million to $10 million to make it work," Bassett said. "We could come up with about $1 million but that’s it."

Meanwhile, the mostly local investors who invested more than $6 million in 10 small Sidetrack debenture offerings are still left wondering what, if anything, that paper is worth now.

Tom Liewicki, a retired investor, has been stymied for the past month-and-a-half in his efforts to try to understand the status of the $10,000 in Sidetrack debentures he bought in April 2005.

"I just want to get a phone call returned," a frustrated Liewicki said.

Blaine Coates, a vice-president at Wellington West and a senior investment adviser, said, "Some of our clients have invested in Sidetrack so we are concerned about the company and are following developments."

At least three interest payments have been missed on his bonds and according to one corporate finance professional familiar with the securities who asked that his name not be used, all the bonds are in default.

Asked what bondholders might do, he said, "They could move to collect on their securities."

But it seems clear there would be nothing to collect on.

Renaissance Partners, a venture capital company controlled by Wellington West Capital — also the underwriter of most of the bond offerings — owned a little more than 25 per cent of Sidetrack’s equity.

Rob Walker, the founder of the company, owned about 10 per cent.

Wellington West has remained quiet about the disposition of the company.

After several weeks of silence, Walker agreed to be interviewed recently. He resigned from the company just as the New York deal received technical clearance. Although he is still an owner of the company he also has no knowledge of what’s going on to keep it alive.

"If I had another million dollars on top of what I had already spent I would have sunk it in," he said, adding he just couldn’t squeeze any more mortgage financing out of his house.

Walker said the New York agreement was fully drawn up, just waiting for a signature.

The CBS outdoor media company had an agreement on the table to become Sidetrack’s exclusive sales reps effectively increasing the firm’s sales force to 33, from one.

"The sales were definitely going to come in," Walker said. "We ran out of local capital and we were unable to pull the trigger on the big capital."

Walker remains convinced that the concept has staying power.

Sidetrack’s problems essentially resulted from serial bad timing.

The company was regularly seeking capital to fund installations in the subway systems it signed up in various cities across the western world, including Rio de Janeiro, Monterrey, Mexico, London, Boston, San Francisco and Los Angeles.

By the end of 2007 it released a prospectus in the hopes of going public and raising $35 million.

That came right at the end of the bull market when equity markets were starting to go cold and when there was price resistance to the offering, it was pulled.

The equity markets hit rock bottom later in the year followed by a collapse in the advertising market.

"We had a ton of ads cut on us," Walker said.

He may be right to think that a year from now when the advertising market has returned to a more normal state, ads will be running in Sidetrack’s systems. Unfortunately it will probably not be a Winnipeg company that benefits from it by then.

martin.cash@freepress.mb.ca