Engineers at $4 billion Magic Leap 'are scrambling' ahead of a big board meeting next week

The future of Magic Leap, a quickly expanding startup valued at $4.5 billion that's developing a futuristic pair of computer glasses, depends on releasing its still-in-development and secret product to the public.

For years, Magic Leap has been promising to release a set of smart glasses that overlays computer graphics into the real world, a technology usually referred to in Silicon Valley as "augmented reality."

Ahead of a board meeting planned for next week, Magic Leap's "whole engineering group is scrambling" to produce a working prototype of Magic Leap's all-in-one glasses, a prototype that the company has been calling the "PEQ," a person familiar with Magic Leap's development process told Business Insider.

The prototype will be presented to board members, and sources say the meeting is being viewed as a milestone in the product's development, a chance to prove that Magic Leap can shrink its technology to fit inside the smaller form factor that will be released to the public. They add that the demo is currently in "decent" shape.

But as recently as January, the glasses prototype that is supposed to represent Magic Leap's all-in-one prototype is non-functioning and empty, according to people who have seen presentations from Magic Leap.

The current prototype that Magic Leap is showing has two "belt packs" attached to the glasses by wire. One pack contains the device's battery and the other has its computing power. Magic Leap decided to split the two packs due to thermal concerns, according to a source present during a demonstration. Former Magic Leap employees have said that thermal issues have been an issue with the device.

The packs were described to Business Insider as "pretty bulky," or about the size of a soda can, and larger than the patent drawings that Magic Leap has included in filings.

The Information reported in December that a prototype of the "PEQ" device Magic Leap's CEO showed its reporter was hollow, and that the company gave its demos through a headset hooked up to a desktop computer, raising questions whether Magic Leap's technology could be sufficiently miniaturized and productized to meet the company's promises.

"Our PEQ systems (Product Equivalent) are in both hardware and software agile build cycles," Magic Leap CEO Rony Abovitz wrote in a blog post in January. "Our first system will be the first step towards a really cool dream. Of flying squirrels and sea monkeys and rainbow powered unicorns. Of most anything you can imagine."

The computer-driven demos are very compelling, former employees said. One demo Magic Leap gives to potential employees and partners includes one Star Wars-themed demo in which the user is placed on Hoth, the ice planet, among giant AT-AT robots.

The price for the final device, which could be launched a year after a developer's kit, is likely to be between $1000 and $2000, according to former employees. One former employee said that the device will likely cost slightly more than a "fully-loaded iPad Pro."

Former employees say they expect the company to release a developer's kit this year, the first step towards a commercial release, although some have noted that an internal "this year" timeline goes back to 2014.

A Magic Leap spokesperson declined to comment for this article.

How much runway?

The size and complexity of Magic Leap's operations suggest that the company may need to raise more money before bringing its product to market, even after it's raised $1.39 billion from investors including Google, according to former employees.

Magic Leap has sprawling operations - it said it had at least 800 employees in November, and it continues to grow at a rapid pace.

Magic Leap has multiple offices in southern Florida and Silicon Valley as well as outposts in Seattle, Boulder, Colorado, Dallas, Texas, Austin, Texas, and Israel.

Focus may be an issue for the company, former employees said. For example, Magic Leap is investigating businesses related to healthcare, although Magic Leap's underlying technology is not yet finished. Several patent applications related to healthcare applications were published earlier this year.

Magic Leap is not only seeking to launch a hardware product, the glasses, but also develop the software and content that runs on it. Hundreds of its employees are working on content, such as videos and games for the still-unreleased device.

Other former employees describe a culture that caters to VIPs. Magic Leap leadership would clear out its Dania Beach office, sometimes multiple times per month, to give demos to celebrities, investors, and other important people.

Some who saw the device, like Steven Spielberg, were pitched to make content for the device. But others, like Beyonce, who received a personalized Magic Leap demo - and was bored by it - that the team created on short notice, were more of a reflection of Abovitz' desire to connect with celebrities than anything directly related to the company's business, former employees said.

Additional fundraising might also allow current and former employees to sell their shares to secondary investors. Magic Leap had secondary liquidity events after its last two fundraising rounds. The Information reported in January that private investors have been rethinking the price they're willing to pay for Magic Leap stock.

In some cases, the stock is trading for less than the $23 per share that it was valued at during Magic Leap's last round of funding in February 2016. Magic Leap is reluctant to approve transfers of its stock.

Magic Leap is the most well-capitalized augmented reality startup, and is being watched by rivals including ODG, Meta, and Microsoft, which have released and demoed their smart glasses publicly, as well as companies like Facebook and Google, which have AR ambition of their own. One AR executive told Business Insider last month that he thinks that Magic Leap is "smoke and mirrors," pointing out that the technology has never been publicly seen.

Editing and additional reporting by Steven Tweedie. Contact the author at kleswing@businessinsider.com.