Chatsworth Firm Hopes 3-D Video System Hits Home : Technology: With Design has a license for a system to create images seemingly in thin air. Company officials say it could have widespread consumer applications.

Until recently, With Design in Mind International Inc.’s biggest claims to fame were such nonsensical toys as PinPressions, which molds itself to the shape of objects with thousands of tiny pins; a device that simulates liquid pouring from a spout and another gizmo that creates a laser light show when hooked up to a stereo.

Those products might be cute, but the Chatsworth-based company’s finances are no laughing matter. In its fiscal year that ended Sept. 30, 1990, With Design lost $543,901 on a 26% decline in sales to $6.1 million. It lost an additional $683,181 in the nine months that ended June 30, while sales fell 28% to $3.6 million.

The company blamed its problems largely on lackluster retail sales last Christmas and a lack of capital that kept it from buying enough goods to keep its volume up. Also included in the latest nine-month results was $424,590 that With Design spent developing a new product.

But now, tiny With Design might be onto something big.

Called Micro Theatre, With Design’s video-based technology creates three-dimensional images seemingly in thin air. The patent for Micro Theatre is held by Dentsu, a giant Japanese advertising concern; With Design, which helped Dentsu refine and lower the cost of producing Micro Theatre systems, has an exclusive, 15-year license to market the technology.

With Design contends that Micro Theatre could revolutionize the consumer electronics market--and in the process, transform the obscure maker of novelty gift items into a much larger concern.

Micro Theatre “is going to change home entertainment,” declared Steven Zuloff, With Design’s chairman and co-founder.

Now that’s a tall order. But Zuloff envisions that within a few years consumers will be able to buy tabletop Micro Theatre units for their homes for about $600. With these units, consumers would pop videocassettes into their VCRs and--instead of watching the action on their televisions--see tiny 3-D figures come to life on their coffee tables.

Among the investors who are betting that Zuloff is right are some members of the Los Angeles Dodgers baseball team, including pitcher Orel Hershiser. “I just got excited about the technology and all of its different uses,” Hershiser said.

But is Micro Theatre destined to be an electronic hula hoop--here today and gone tomorrow? Or will it indeed be the next step in the evolution of consumer electronics, such as the VCR or compact disc player?

“It’s too early to say whether this is going to catch on that way,” said Alan Haber, spokesman for the Electronic Industries Assn.’s consumer electronics group. “But it certainly has that potential.”

Even if Zuloff does hit a home run with Micro Theatre, it won’t be with revolutionary technology, according to others in the 3-D field.

“Its foundations are in something that was developed a while ago, and they’ve built on that,” said Monty Lunde, president of Technifex, a Sun Valley special-effects company.

Optical techniques for creating 3-D images have been around for years. At Disneyland’s Haunted Mansion ride, a common technique known as Pepper’s ghost is used to make apparitions appear. Another existing method, known as Grand Mirage, involves images reflected off a parabolic mirror.

“What they have is a higher-tech, more expansive version of a Grand Mirage,” Lunde said.

Even so, Steve Hines, president of 3-D ImageTek Corp., a Glendale company that develops 3-D products, said Zuloff is smart to market the technology aggressively.

“I think he just made the right move by commercializing it,” Hines said. “I think whoever can run with it the farthest and fastest is the winner.”

Like a hologram, Micro Theatre projects lifelike, 3-D images into empty space. But a hologram is a static, film-based image. Micro Theatre’s video images are more like the scene in the movie “Star Wars” in which small creatures suddenly appear and move across a chessboard. Micro Theatre images can move, talk and “interact” with the viewer--by touching the image, a viewer can choose from various options what he will see next.

Micro Theatre works by generating images from a laser videodisc and bouncing the images several times off a black-coated mirror housed inside a half-dome-shaped unit. In the middle of the blackened half-dome, the images converge into empty space, creating the illusion that they are three-dimensional.

Micro Theatre is already the basis for a new video arcade game that was introduced in July by Japan’s Sega Enterprises. To produce the game for Sega, With Design teamed up in a joint venture with Allen Design Group of Oceanside--the company behind Dragon Slayer, the first video game to be recorded on a laser disc. The computer software for the game was produced by a subsidiary of GTE Corp. So far, Sega has ordered $2.4 million worth of the games from the joint venture.

The new Sega game, called Hologram Time Traveler, has been touted in arcade industry circles as the most innovative offering in the stagnant arcade business since Pac Man in the early 1980s.

Micro Theatre is also being used on a limited basis by such companies as Warner Bros., Walt Disney Co. and athletic-shoe maker K-Swiss Inc. to promote their products at trade shows and retail outlets. The units developed for these companies by With Design cost $10,000 to $15,000, but K-Swiss spokeswoman Marianne Beene said the final price tag actually runs much higher because of the expense of producing the software.

“Unfortunately, it’s so expensive we don’t have the ability to purchase a lot of these units,” Beene said.

And as With Design attempts to break into the consumer market, the biggest challenge will be “coming out with a system that most people could afford,” said Rick Dyer, president of Allen Design Group.

Mark Matheson, an analyst at the investment banking firm Cruttendon & Co. in Newport Beach, said the cost of Micro Theatre will eventually come down, just as prices of other consumer electronics products, such as VCRs, have fallen over time. But he predicted that the day when Micro Theatre units are as affordable as VCRs is at least several years away.

“I wouldn’t look for it before the turn of the century,” he said.

In the meantime, Zuloff and With Design co-founder Barry Benjamin, who serves as president, said they’ve been bolstering their traditional line of novelty gift items with some new products, including String Ray, a contraption that creates colored light sculptures with a twisting, vibrating string; Universe Ball, a globe that plays 24 national anthems, and Cookie Time, a cookie jar with a clock built into the lid.

In addition, the company’s cash crunch was alleviated in May when it raised $8.5 million through a secondary public offering of stock and warrants that entitle their holders to buy additional stock. With the cash from the offering, the company has been able to ready its new products in time for the Christmas buying season.

But the company is still betting that Micro Theatre will be “our home run,” Benjamin said.

With Design became involved with Micro Theatre in 1989 when a Dentsu executive approached Zuloff about creating a novelty gift item--a clock that seemed to be suspended in midair. With Design then used similar principles to help Dentsu refine Micro Theatre, which Dentsu had been working on for several years.

With Design also managed to lower the cost of producing Micro Theatre by contracting with an American defense contractor--which Zuloff declined to identify--to use its knowledge of aircraft canopy designs to produce a cheaper optical package.

Despite the skeptics, Zuloff argued that it’s already possible to make Micro Theatre cheaply enough for individual consumers and said he’s now looking for a big consumer electronics company that will finance Micro Theatre’s push into the home.

“We can do it today,” he said. “We’re just waiting to see what the right deal is.”