This is the "Sonic Project a Sketch" light tool. It's made by the same company as the Grab n Glow light below, as well as the Project-a-Lite which is very similar. It seems to be licensed out by 4Kids. It's basically a special light stand that holds a flashlight type device. When you set it up, it can project the image from one of its disks (included) onto a wall or...onto a paper so you can trace it. The selection has Amy, Sonic, Knuckles ...another Sonic & for some reason Cream & Cheese. (Where is Tails or Shadow?) Were there meant to be more packs with disk accessories?
This turned out to be an uncommon item. No one reported seeing it in a store, and there are (as of yet) no fan photos by anyone who did manage to buy one. Did it work well?