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PixelOptics leaves ex-CEO with broken dreams

PixelOptics leaves ex-CEO with broken dreams

Bankruptcy a cautionary tale for other tech startups

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Ron Blum still walks around his Roanoke house in an old pair of emPower, the electronic eyeglasses he invented more than a decade ago. He’s never been one to miss an opportunity to show off the technology that he said took off “like a rocket” in 2011 and carried billion-dollar revenue opportunities.

But now his tone has changed from that of a pitchman to someone sticking up for his reputation and clinging to an idea he desperately still believes in.

The round, professor-like frames once represented nearly limitless possibilities and were hailed by industry types as the invention that would “change the market for eyeglasses” and become “technology that could put Roanoke on the map.”

But within three years of emPower’s launch, PixelOptics, the company built around the invention, declared bankruptcy. In January, courts approved the distress sale of all its assets to Connecticut-based Horizon Technology Corporation for a lowly $3.7 million, a pittance of the billions once promised by the revolutionary patents.

Courtroom litigation, which began in 2012, answers some of the questions as to how a global media sensation like Pixel could go belly-up so quickly.

The documents show a series of malfunctioning lenses, legal battles and investor weariness that have lurked just below the surface for years and ultimately led to the downfall of one of Roanoke’s most promising companies.

The first version of the electronic glasses was riddled with design mistakes that kept many lenses from leaving the factory and caused others to be returned after they were sold. If Pixel was crafting your prescription, at one point it likely would have made three pairs of lenses before it found one that worked properly.

The company did design a generation-two product that former Pixel leaders say fixed many of the bugs, but the company didn’t survive long enough to find out how it would fare in the marketplace.

Pixel, which once employed as many as about 70 workers, had just two employees left when it declared bankruptcy on Nov. 4, 2013.

Blum says the story of how it got there could fill a book — one he plans to write when the dust settles.

“When you have such a transformational product that could benefit so many people around the world, for it to have ended this way is very sad and emotionally devastating,” Blum said.

“In a young company like we were, momentum is credibility and it helps you with everything about growing your company. … The only way I know that you could get hurt by having too much momentum is if you can’t fill the demand. Quite candidly, we had a little bit of that problem.”

The Golden Egg

Since 1999, The Egg Factory in Roanoke has been Blum’s playground where he launches innovations on a regular basis. The optometrist-turned-inventor promotes each as a potential game-changer for one industry or another, and several have hit the marketplace with varying degrees of success.

Electronic lenses were supposed to be what Blum has called his next “golden egg” when he began filing patents the same year The Egg Factory opened.

Also in 1999, Blum launched E-Vision, a spinoff company that would work on developing lenses that focus electronically rather than mechanically.

In 2005, PixelOptics spun out of E-Vision and began using the electronic focusing concept in eyeglasses.

By 2010, Pixel had signed an exclusive license agreement with Aspex Eyewear, a well-known eyeglass frame company with a knack for introducing innovative products.

Florida-based Aspex would be the only company that could make the electronic frames and sell the emPower glasses in the United States. Meanwhile Pixel would provide the lenses, batteries and chargers.

Pixel was paid $10 million up front and promised future payments based on royalties and certain sales goals.

By 2011, Pixel was getting ready to launch emPower, and the concept started to go viral when it appeared at the annual Consumer Electronics Show in Las Vegas.

Blum said he still remembers feeling a little out of place at the event, sitting behind a card table with neighbors like Sony and Panasonic.

“They [reporters] tried on the glasses, then after that a few more came and it just started building,” he said. “When the show was over and they started turning out the lights and shutting everything down, all the other booths were empty. Our booth was mobbed. The press didn’t want to leave our booth. From that point on, it was just unbelievable what happened.”

The invention was featured by media like USA Today, The New York Times, PC Magazine, CNN, ABC’s “Good Morning America” and CNBC. Even Kelly Ripa, on “Live! With Regis and Kelly” couldn’t help saying, “That is incredible,” when she saw a pair of emPower glasses.

It worked by using a thin pocket of “liquid crystals” in the lower portion of the lens. An electric current would change the optical qualities of the crystals, making a portion well suited for reading.

When it’s off, the crystals have the same prescription as the rest of the lens. But when the wearer swipes a finger down the arm of the glasses, electricity activates the reading zone and creates a bifocals-like experience.

EmPower captured the country’s imagination and was hailed as the spectacles that turn into readers when you look down and your regular prescription when you look up.

Cloudy outlook

But even as the country was falling in love with the idea behind emPower, those who actually purchased the $1,200 devices were finding out the description on the box didn’t always match the product inside. The relationship between Pixel and Aspex began to deteriorate when customers started complaining of technical issues, and many eyeglass dealers canceled orders.

Aspex filed complaints against Pixel in 2012, claiming it wasn’t able to sell enough lenses, and those it had sold were hurting its reputation because they didn’t work as Pixel had promised. The argument eventually reached the New York Supreme Court, the state whose laws both parties agreed would govern the license agreement.

Court documents lay out a laundry list of problems, including a high rate of return, battery issues and liquid crystal pockets that became hazy and couldn’t be shipped from the factory. Pixel was forced to keep remaking lenses until they got enough that worked, which slowed down the manufacturing process.

According to Aspex’s filings, Pixel once expected 66 percent of lenses that rolled off the assembly line to be unusable. At the same time, 46 percent of eye care professionals who were initially interested in carrying emPower glasses in one region had backed out, according to the documents.

Other issues arose when wearers’ perspiration began damaging the electronic glasses, even though Blum said he and other company insiders had worn them without any issues for about a year before releasing them to the public. Blum said they had tested for rain and water, but the salt in sweat ended up being the culprit.

“None of us [the early testers] were out there working in a field, digging dirt and sweating. And our glasses were working beautifully. It was spring time, no issues at all,” Blum said. “When the summer came and it got hot and we had people perspiring in the glasses, that’s when we started realizing we had some reliability issues with perspiration. But who would have known that? We didn’t know that. We tried to test for everything.”

Pixel found a way to mitigate the sweat problem with sealers and began fixing the broken sets and returning them to customers at its own expense, Blum said.

“In the spring time, when we were having no problems … we were doing really well. But by summer, without question every time we sold a pair of glasses we probably lost money,” he said.

“This was caused by many issues that we were dealing with due to it being a first generation product with first generation manufacturing. But we had already committed to the launch. We had doctors and customers we wanted to keep happy. I felt then and still do today, that it was the right thing to do to honor their orders and do what we had to do even though it cost us money. My belief was that we would solve these problems, which we ultimately did.”

Blum stepped down as CEO of Pixel in January 2012, a change he said he anticipated as his expertise is in young companies, not large corporations.

Brett Craig took over with experience as the former president of Transitions Optical, the company that introduced lenses that change tint in response to lighting conditions.

Blum stayed on Pixel’s board till the end, but in a more peripheral role outside the company’s management team.

Craig in turn made the decision to pull emPower from shelves as the company began work on a generation-two product that would attempt to fix the problems.

In an email exchange with The Roanoke Times, Craig wrote that the launch was already in place with its “technology shortcomings” when he came to Pixel. But under “different leadership,” the team developed a generation-two product that was much improved.

However, Craig said, he thinks it was already too late to rescue the emPower launch by the time he came aboard. He declined to provide further details.

Even after the bobbled launch, Pixel felt it was entitled to $15 million it claimed Aspex owed because emPower had reached certain sales milestones, according to court filings.

When Aspex refused to pay, Pixel claimed breach of contract and tried to get out of its exclusive license agreement. The two companies eventually agreed to enter arbitration to settle the dispute.

In the meantime, Aspex petitioned New York courts to enforce an injunction against Pixel that blocked the company from licensing the eyeglass technology to anyone else until arbitration was finished.

Pixel argued this would jeopardize the company, but the judge sided with Aspex.

According to court documents filed by Pixel, by this point its investors had “substantial reservations” as a result of the ongoing dispute with Aspex and weren’t willing to put up enough money to fund daily operations. When it attempted to raise $22 million from its investors to get the company through the end of 2012, the company could muster up only $14 million.

So for months Pixel wasn’t getting money from customers because emPower eyeglasses were no longer for sale, or from its licensee because it was deadlocked in a legal battle, or from investors because they had had enough.

With its back against the wall, Pixel was forced to trim operations and reduce staff, according to the documents. The young company was unsure if it would even survive through the end of the year.

At the time, Pixel was still working on its second generation of emPower. Most of the redesign was complete, and both Blum and Craig agree it was a significant improvement. They had moved the battery, fixed the moisture problem and found out what was causing the hazy lenses.

A few pairs of the new frames were shown to potential buyers in Europe, and Blum said they were receiving rave reviews just like the first version had initially.

Pixel began looking to be purchased in the spring 2013, believing a larger company with deeper pockets would be able to support the company as it kept producing new versions of emPower until all the kinks were worked out.

When it was unable to find a buyer, bankruptcy loomed.

In an email to The Roanoke Times written last week, Aspex Vice President Thierry Ifergan said that the company still considers emPower’s launch a success because of the amount of support it drummed up from potential customers.

Even after the bankruptcy, Aspex still has a claim to the license and could continue to work with the product under its new ownership. It wouldn’t hesitate to relaunch emPower once it’s confident that all the glitches have been fixed, Ifergan wrote.

“The technology has significant advancements over anything else currently in the marketplace,” he wrote. “We believe the next generation will be fully operational and when the time comes it will correct any shortcomings of the initial lenses. The main issue here was the lack of funding of PixelOptics.”

Moving on

Blum admits the PixelOptics team made mistakes, but he says a new company can never get everything right the first time it tries to launch this kind of “transformational” product.

He listed major advancements in eye care technology that all had problems when they were first introduced, like anti-reflective coatings, Transitions Lenses and Progressive Addition Lenses.

“All of those gen-one products were horrible products in a gen-one state,” he said. “They all had severe limitations. Every one of them, if it wasn’t for the fact those companies were huge companies and could afford to keep refining and have a gen-two, they wouldn’t be in existence today.

“We really thought we were going to take this across the goal line. It was devastating from an emotional standpoint. … Of all the Pixel employees, you would be hard pressed to find somebody who doesn’t believe in it. That’s why it hurts so much.”

On Jan. 14, Craig was named the new president and CEO of Georgia-based QSpex Technologies, a company that developed machines that let eye doctors produce lenses in their offices.

The future of emPower, or even who now owns the product, is still up in the air.

Blum doesn’t think Horizon, the investment firm looking to purchase Pixel’s assets, has any intentions of resurrecting emPower itself, but it may sell the technology to someone who does.

Meanwhile, E-Vision, another one of Blum’s golden eggs, is protesting Horizon’s purchase under the claim that it owns many of the patents included in Pixel’s portfolio.

If he were younger, Blum said, he wouldn’t hesitate to buy back his patents and try again with emPower. He’s confident he could make it work, but he said he knows it’s probably too late for him.

The courts have yet to sort out which company owns which patents, but if E-Vision is successful there is a chance electronic eyeglasses could stay in the family.

Attempts to reach Horizon representatives for this story were unsuccessful.

An E-Vision executive opted not to comment for this story.

Blum is back to his old routine at The Egg Factory, already working on his next batch of “golden eggs.” One of them, which uses eye drops to restore up close vision blurred by age, he says has the potential to win a Nobel Prize.

He can only hope one of these innovations will hit it big and wipe away the black eye Pixel left on his reputation.

“There’s no question that because of this, my name is going to be associated [with the bankruptcy] because I was the early inventor,” he said. “But I don’t think the invention was the issue. The company ended up having its issues for other reasons. It would be nice to see the invention rise out of the ashes and become a very successful selling product someday.

“I would take great pride, it would just thrill me to death to see a global company grab onto emPower, make it a reality so we can at least have the comfort and the satisfaction of knowing that it’s the product we thought it could be. We really believe in it.”

Contact Jacob Demmitt at 381-1661 or Follow him on Twitter @JDemmitt.

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