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Staff and equipment are photographed at North (then named Thalmic Labs) in Waterloo, Ont., on Oct. 9, 2018.Fred Lum/the Globe and Mail

North Inc. was once heralded as a gem of the Canadian tech scene and the future of wearable computing. There was just one problem for the Kitchener smart glasses maker: No one really wanted what it was selling.

The eight-year-old company is now in the final stages of selling itself to Google’s parent, Alphabet Inc., sources say. The deal is expected to be worth about US$180-million, though it is not clear if that is the company’s value or if debt payments factor into the price. The Globe and Mail is not identifying its sources because they were not authorized to discuss the deal. North had raised more than US$180-million in venture capital, government investment and convertible debt over the past eight years.

Formed in 2012 as Thalmic Labs, the Kitchener, Ont.-based company first made wearable armbands called Myo, which let users control devices through gestures. In 2018, it rebranded as North as it pivoted to making glasses that use a laser in their right arm to shoot alerts for e-mails, meetings and other notifications onto a holographic film in the lens.

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Photo illustration; source image: Fred Lum/The Globe and MailThe Globe and Mail

North won acclaim and attracted investors as Canada’s startup sector boomed last decade. Some of the biggest names in tech and venture capital invested, including Inc. founder Marc Benioff and Sam Altman, the former president of influential Bay Area incubator Y Combinator. They were later joined by Intel Capital and Amazon’s Alexa Fund.

But North has stumbled over the past 18 months. The company laid off about a third of its staff of nearly 500 in February, 2019; its production and fitting processes had many problems; and sales of its Focals brand glasses were minuscule. One person close to the sales operations says it’s unlikely North sold many more than 1,000 pairs. Its only retail stores, in Toronto and Brooklyn, N.Y., often went days without a single sale.

The company was close to running out of money. Last December, North halted production and sales of Focals altogether in preparation for the launch of a new line of smart glasses. Over the years, the company raised more than US$180-million in equity and debt. But one person close to the company said it had been spending about US$3-million a month recently, down from as much as US$6-million a month.

North chief executive Stephen Lake and the company’s media-relations team did not respond to numerous phone calls and e-mails with detailed questions about this story. Google’s media-relations team similarly did not respond to comment requests.

Alphabet has had its own struggles with smart glasses over the past decade. Google introduced Google Glass in 2013, but abandoned them as a consumer product in 2015 to focus on industrial customers.

North’s engineering team and patents would give Alphabet a significant advantage in re-entering the still-small consumer smart-glasses market, and the cost for the company is relatively minimal. Alphabet had nearly US$120-billion in cash and equivalents at the end of last year, and could use its deep pockets to invest much more into smart glasses than North ever could.

North is now effectively being stripped for parts. In interviews, many former employees and people close to the company describe its co-founders as visionary technologists who stumbled badly in the marketplace. Now it leaves a legacy of products few people wanted, plus a trail of aggravated staffers and investors who once bought into its vision.

Mr. Lake and fellow University of Waterloo alumni Aaron Grant and Matthew Bailey co-founded North in 2012. As augmented-reality technology gained momentum in the early 2010s, its Myo armband became one of Canada’s coolest pieces of hardware.

The company was one of the most high-profile alumni of the University of Toronto’s Creative Destruction Lab accelerator. And as the Kitchener-Waterloo area reckoned last decade with the collapse of BlackBerry handsets, North became one of the highest-profile examples of the region’s resilience and growth as a startup hub.

But a copy of North’s consolidated financial statements for 2016 obtained by The Globe shows that it took in just US$1.1-million in revenue that year while absorbing a US$18.5-million loss. Its Myo armband did not have widespread uptake. Even so, that year, the company raised one of the then-biggest venture financing rounds in Canadian history at US$120-million, led by Intel Capital, the Alexa Fund and Fidelity Investments Canada.

Despite Myo’s low demand, North convinced investors it could build a consumer case for smart glasses where others had failed. The arms on its Focals were wider than those on traditional glasses, but the tech was largely hidden. Executives hoped this would differentiate them from previous attempts at smart glasses, such as the clunky-looking Google Glass. Intel Corp. had tried to launch more standard-looking glasses called Vaunt, but axed them, too, in 2018.

Nevertheless, nine former North employees told The Globe the company made many questionable decisions in the rollout of Focals, including rushing them to market before they worked for everyone.

Focals were announced in October, 2018. Customers had to stop by one of the two retail stores for a 3-D head scan – dimensions from which would be plugged into an algorithm to determine the best fit. The glasses would then be custom manufactured.

But the fitting process had severe limitations. The technology disproportionately struggled to find a fit for Asian customers, as well as Black and other dark-skinned people, which some former employees said was because their facial structures did not always match sizes North made available. People with long eyelashes or who wore mascara couldn’t always see the display. Problems making prescription lenses also resulted in months of delays and dissuaded consumers.

One person who was part of conversations with executives said company leaders were aware of this, and concluded roughly one in five people simply couldn’t wear Focals. There was a long-term plan to fix these problems with future generations of the product, but those products were never released.

The target market also wasn’t clear. North hoped consumers would buy Focals to avoid staring at their phones and be more efficient with their time. But former employees said North’s internal research and in-store experience revealed there was little consumer understanding or interest.

Former retail staff described often-empty stores—one said each outlet saw about 10 purchases a week. People who did pick up Focals were often competitors or influencers who North had invited to help market the glasses. Employees themselves found the displays for Focals distracting, and said the glasses’ hardware-filled arm sometimes got too hot to be comfortable.

Glasses tech is a tough market. Toronto brainwave-sensing wearables company InteraXon Inc. tried making smart glasses last decade to help with meditation and stress relief, but soon gave up. It sold tens of thousands of pairs, but CEO Derek Luke says demand just wasn’t strong enough. He believes North’s custom-fitting process might have made it even harder for Focals to succeed.

“It’s hard to go viral with any new product, but must be near impossible if you can’t let your friends and family try it without custom fitting,” Mr. Luke said.

North executives began to discuss their worry about revenue in January, 2019, three months after Focals were announced, said a person who was close to those discussions.

This prompted North to start fitting customers in mobile outlets on trucks that travelled across North America, expanding beyond just Toronto and Brooklyn. North also began letting users scan their heads with their own phones – though one person familiar with the technology said that the vast majority of those who did so had problems and needed to return their glasses.

In November, 2018, North received a $24-million investment from Ottawa’s Strategic Innovation Fund to create as many as 230 jobs. But with minimal revenue by February, 2019, it lowered its price point on Focals to US$599 from US$999 and laid off more than 100 employees.

Innovation Minister Navdeep Bains said at the time that the company would have to pay back the investment. North had only received $9.5-million of Ottawa’s investment by then, but a federal spokesperson this month said that, 16 months after the layoffs, North had not yet paid it back, and was in “active discussions” to do so.

Having burned through much of its venture funding, the company sought new investors but none came through, said the person close to executive discussions. Previous backers, including Amazon, Intel and Fidelity, instead gave North an additional US$40-million in convertible debt, which The Globe first reported in May, 2019. This was meant to be a bridge to more equity financing, but that never materialized.

In the interim, North had bought Intel’s smart-glasses patents in late 2018, adding value to the company’s store of intellectual property. But last December, North halted sales of Focals, cutting off product revenue altogether as it prepped for a second generation in 2020.

The second generation never materialized. Instead, the company began hunting for a buyer early this year as its cash was running out.

Alphabet is a natural buyer for North. It hasn’t given up on its dream of smart glasses, despite the backlash against its Glass project last decade. Wearers received the nickname “glassholes” for wearing such an intrusive-looking piece of technology on their faces. The design put priority on a tiny screen just above the eye, unlike Focals’s laser projection into a lens. Glass’s ability to discreetly record the wearer’s surroundings also unleashed a significant privacy backlash.

After backing out of the consumer market in 2015, Alphabet has since released two “enterprise” versions of Glass, meant to help workers in factories or on construction sites visualize project details.

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