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We know that Tim Cook loves augmented reality. He loves it so much that he declared the technology might be Japanese sex moviesas big as an idea as the smartphone.

Now, a new report from Bloombergsheds some light on what, exactly, Apple is working on in the field of AR, and what it might mean for the company's upcoming iPhone.

According to the report, which cites multiple sources familiar with Apple's plans, Apple has built a large team of engineers—a combination of their own experts and teams that joined through acquisitions of smaller AR companies such as Metaio—to work on both hardware and software augmented reality products and solutions.

The team, lead by Mike Rockwell (a previous chief of hardware and new technologies at Dolby), now numbers "hundreds of engineers," the report claims.

On the hardware front, the team's effort might result in augmented reality glasses, which the report says won't arrive very soon, as they require a new OS and, maybe, a new chip.

But a number of AR features might arrive on the next iteration of the iPhone. These include the ability to change the depth of a photograph after it was taken, the ability to isolate and manipulate an object in an image, and adding virtual masks to faces, as seen on Snapchat or Facebook-owned Masquerade.

Does that mean we'll see any of these on this year's iPhone? The report doesn't say, but it's definitely possible; we've also seen claims that the new iPhone's camera will be quite a bit more powerful than the current one.

This February, KGI analyst Ming Chi-Kuo said the new iPhone's selfie camera will work in tandem with an infrared sensor to create a 3D image of your face, which might be used in an AR context. And a patent granted to Apple in Nov. 2016 showed an AR system which could place an additional layer of information—such as street names or GPS navigation pointers—over live video on the iPhone.

As for that killer app for augmented reality, one needn't look further than last year's surprise hit, Pokemon Go. The game, which required players to traverse real-life locations in order to capture virtual creatures, has lost a bit of its luster since its launch, but it showed that building an AR-based hit app is absolutely possible.

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