New Choice of Toys Helps Janex Come Back : Turnaround: A new CEO has led the shift from a scandal-ridden money-loser to a growing, profitable company.

Lots of companies have their low points, but it would be hard to beat the one toy maker Janex International Inc. hit a couple years ago, when its top two executives were targeted in an embezzlement scandal.

Now, though, it’s the company’s comeback that is hard to beat. The Woodland Hills concern, formerly known as With Design In Mind, has adopted a new name, new management and a new business. And for the first nine months of 1994, earnings were $1.08 million on sales of $11.6 million. This, for a company that had lost more than $7 million in the prior two years.

Janex owes its turnaround to a successful shift from offbeat gifts to so-called practical toys, a change brought by the new CEO, Sheldon Morick, a former sales executive with Mattel.

The company’s rebirth has been so dramatic that it’s almost made a believer out of Kevin O’Rourke--no small feat considering that O’Rourke was among the shareholders who lost thousands of dollars when With Design In Mind’s stock crashed. O’Rourke now sees Janex in a new light. “Maybe this is naive on my part,” he said, “but I’ve nearly bought some more of their stock. . . . I thought maybe I could average my losses down.”

O’Rourke couldn’t quite bring himself to do it. But Janex’s recent success has helped trigger a rise in the company’s stock price, up from 97 cents a share at the start of 1994 to a closing price of $4.50 per share on Monday.

Janex’s previous troubles began in 1992 when former president Steven Zuloff and former treasurer Barry Benjamin were ousted by the board of directors. In September, they pleaded guilty in Los Angeles federal court to tax evasion and securities fraud in connection to siphoning off more than $1 million from the company. The pair awaits sentencing.

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Morick and chief financial officer Michael Manahan were left to clean up what Manahan calls “a horrendous mess” beginning in June, 1992. A series of shareholder lawsuits were pending. The company’s stock price had nose-dived from its peak above $8, and the more the two officers looked, the more problems they found. For example, the company’s novelty gifts were so poorly made that more than a third were being returned as defective, Manahan said.

Morrick decided to dump Janex’s former product line, a strange assemblage of the expensive, faddish and supremely pointless. It included nifty items in the spirit of lava lamps--wave machines, for example, and moldable sculptures made out of thousands of tiny pins.

By contrast, the new products are less expensive and more useful, and capitalize on the popularity of famous cartoon characters. Flashlights in the shape of Mighty Morphin Power Rangers, gum ball banks festooned with characters from Disney’s “The Lion King,” and electric toothbrush sets in the shape of the Genie from “Aladdin” are some examples.

“What we didn’t want to do is be another Mattel, because if we went head to head with Mattel, we would lose,” explained Manahan. “So we thought we’d make things that aren’t just toys, but also have a functional use.”

Janex acquired a small company in the practical-toy business in 1993, and has expanded its distribution. Nearly all the items are made in China and Macao, and sold through Toys R Us, Target, Wal-Mart and K mart. Morick has set up a new network of independent sales people who have helped add new retailers, mostly regional dime store chains.

But it’s Janex’s license arrangements that have really propelled its comeback, particularly those allowing it to use characters from “The Lion King” and the “Mighty Morphin Power Rangers.”

Luckily for Janex, “The Lion King” has been a blockbuster even by Disney standards. It’s already become the fourth-largest-grossing film of all time. And the Power Rangers, based on a children’s television show, are a toy maker’s dream. Sales of all Power Ranger-related products may top $700 million this year, according to toy-industry analyst Michael Davies, director of equity research at New York-based Utendahl Capital Partners.

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Manahan concedes that the company has benefited from some “strong licenses” this year. But he says the relationship with Walt Disney Co. virtually guarantees that more product-sensations will come Janex’s way in the future. To make sure, Janex is broadening its cast of character licenses to include Spiderman and others, and adding new merchandise.

Moreover, Janex has “a beautiful balance sheet,” says David McCune, vice president of investments at Kemper Securities in Burbank. Manahan said last week that Janex had about $1.8 million in cash and cash equivalents, in part because the company netted about $7 million in a public stock offering shortly before the 1992 ouster of Zuloff and Benjamin.

But much like the fashion industry, toy sales can suffer sudden changes in popularity, and analysts say it’s hard to know what new toy crazes may lurk on the horizon. “Some of these items can be one-hit blunders--in vogue one year and out the next,” warned analyst Davies. The Power Rangers, for example, were a dark horse, emerging from amid hundreds of licenses for children’s characters filed each year.

After three troubled years, though, it’s easy for the executives at Janex to be optimistic. Manahan, who played a key role in discovering the misdeeds of former executives Zuloff and Benjamin, said friends used to urge him to just keep quiet and leave the firm. Instead, he stayed, secretly compiling a paper trail that eventually led to his bosses’ dismissal.

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Today he has no regrets: “What an opportunity,”’ he said. “Usually you have to mold yourself to a job. We suddenly had the ability to mold a corporation.”

If Janex’s fortunes and its stock price keep improving, Morick and Manahan will be enriched as well. Morick, has stock options on 250,000 shares, and Manahan, has options on 100,000 shares.

Meanwhile, most lingering problems from the embezzlement case have cleared. Janex has agreed in principle to pay $75,000 to settle the only remaining class-action lawsuit brought by shareholders led by O’Rourke. But that agreement has yet to be finalized.

In the meantime, Benjamin, reached by phone last week, confirmed that he and Zuloff have started a new company called Can You Imagine Corp., which is registered with a Chatsworth mailing address. He declined to comment further.