NO MORE FUN AND GAMES; TROUBLED TOY COMPANY HEADS FOR NEW JERSEY AFTER HEYDAY IN VALLEY.

Byline: Deborah Adamson Daily News Staff Writer

It's so quiet on the 16th floor of a black obelisk office complex on Oxnard Street in Woodland Hills that the swoosh of elevators opening and closing reverberates loudly. Lining the hallways of the posh, teal-carpeted facility are shiny cherry-wood doors, behind which are companies busy with activity.

Not at suite 1610. For the past five years, Janex International has been slowly dying, a victim of a poor business strategy, product flops and misguided direction from an increasingly isolated board of directors.

Earlier this month, embattled CEO Sheldon Morick resigned from the company. Two former co-owners, who also were creditors and major shareholders, took over.

For years, Morick had stood in the slowly fading embers of the once thriving toy and gift company, trying to stoke the fire. But his well-intentioned missteps have stomped out the flames instead, according to former Janex executives.

``Morick is a nice guy, but he clearly demonstrated in five years of running Janex that his strategies have not worked,'' said Michael Manahan, former chief financial officer and current shareholder. ``Now, the stock has been delisted from Nasdaq, the cash is all gone, and the company is in dire circumstances.''

Two major shareholders - Leslie Friedland, who owns 14 percent of Janex, and Dan Lesnick, who holds 11.5 percent - have become the company's CEO and chief operating officer, respectively. They are moving the two-employee company to New Jersey because 90 percent of company business is conducted east of the Mississippi, and the Garden State is Friedland's base.

They will attempt to revive an 11-year-old company whose stock has fallen from a one-time high of $9 to 6.25 cents.

In July, Nasdaq removed Janex from its main board because the company did not meet minimum requirements of trading at $1 or more per share or maintaining $2 million in capital and surplus. In the first calendar quarter of 1997, Janex had $471,000. Janex is now trading on the OTC Bulletin Board, where there are no capital requirements.

Morick declined to comment for this article, but his critics did.

``The style of management was definitely not in the best interest of Janex,'' said Krish Chalat, a former controller and current shareholder.

Scandal erupts

The decline of this San Fernando Valley company began in 1992 with the discovery that its former president, Barry Benjamin, and CEO, Steve Zuloff, were stealing from the firm. Manahan had discovered the pair's wrongdoings and, despite warnings from associates not to get involved, told investigators about what he found.

As officers of With Design, Zuloff and Benjamin had funneled unearned sales commissions from 1988 to 1992 to a dummy company they set up, called DKJ Sales Inc. They also moved company funds to their personal bank accounts and used the money to pay personal bills. In addition, they made phony payments to a company supplier and diverted royalty payments from a distributor, the Securities and Exchange Commission said.

They were kicked out of the company and eventually pleaded guilty to charges of tax evasion and fraud. They were sentenced to one year in prison and three years of probation, and each was barred from becoming an officer or director of any publicly held firm.

Morick, a former Mattel executive, joined the firm as CEO. He brought in Howard Moore to be his adviser and confidant.

Moore, a Toys `R' Us director but neither an officer nor a director of Janex, would later exert de facto control over the company along with Morick, former associates said.

At the time, the stock was trading in the $2.50 range and the company had $4.5 million in cash, Manahan said. The company was called With Design In Mind and it made science-oriented, high-end gifts for retailers, such as Sharper Image.

It placed its hope on a product called MicroTheatre, a 6-foot-tall unit that showed three-dimensional moving images. But prospects died when Sega Enterprises Ltd., whose purchases constituted most of the revenues for MicroTheatre, decided sales were poor and stopped ordering any.

Deciding there wasn't much of a market for upscale novelty items - sales had dropped to $2.6 million in 1992 from $8.2 million in 1989 - Morick switched to useful children's products such as toothbrushes, according to SEC filings.

Morick and Moore marketed their new line as Great Stuff, with products that included a kiddie clothes hamper. But Great Stuff was a bust, the company said in an SEC filing. No sales figures were given.

In June 1993, they thought they hit upon another good idea. They licensed the product of Deco Disc Industries, which was a pop-out musical compact disc in greeting cards and ornaments - such as a Christmas-song CD in a holiday card.

Deco received a one-time $100,000 license fee, plus warrants to buy half a million shares. With Design was granted a discount of 50 cents to $1 for each greeting card and ornament bought from Deco until it recouped the $100,000.

But Deco Disc products also didn't sell. All of With Design's products ``were not generating sufficient revenues to support the ongoing operations of the company,'' SEC filings show.

A new strategy

The executives, running out of product ideas, embarked upon yet another new strategy: Why not buy a company with a viable product line?

In September 1993, the company bought MJL Marketing Inc. of New Jersey, a manufacturer of licensed products for children marketed under the name Janex. Friedland and Lesnick had owned MJL.

After the merger, With Design In Mind changed its name to Janex, but in the long run couldn't change its fortunes.

The company's first year of operations as Janex went off with a bang. Its Mighty Morphin Power Rangers and Lion King licenses - whose characters were plastered on flashlights, toothbrushes and anything else children would use - gave a jolt to sagging sales and earnings.

After four years of losses, Janex reported earnings of $530,000, or 11 cents a share, on sales of $4.8 million for the second quarter ended June 30, 1994, compared with a net loss of $429,000 on sales of $138,000 a year ago.

But when the power of the Rangers died down and the lion's roar subsided, so did business.

Back to square one, Janex decided in August 1995 to buy another firm, Malibu Fun Stuffed, which made pool and bath toys.

The company made more sales, but - after all its bills were paid - earnings fell and soon became losses. In 1995, Janex lost $1.14 million on sales of $9.4 million. Last year, the loss widened to $2.87 million on sales of $7.1 million. Operating cash flow was negative, increasing from $690,506 in 1995 to $712,787 last year.

Janex got a revolving loan that allowed it to borrow up to $900,000 at 9.5 percent from April 1996 to September 1998 from the Howard Moore Associates Inc. Retirement Trust, SEC filings show. The loan is secured by Janex's assets. The trust also received warrants to buy up to 900,000 shares of Janex.

As of Dec. 31, 1996, Janex's debt totaled $4.16 million, of which $1.1 million was collectively owed to Moore, Friedland and Lesnick, according to SEC filings.

Moore's loan wasn't exactly charity: His family benefited from his relationship with Janex.

In 1995, the company licensed two concepts from Moore's son, Michael, SEC records show.

The company also pays a 4 percent sales commission to a company owned by Moore's former son-in-law, Friedland, to handle clients in the East Coast. In 1995, Janex paid the firm $190,000. In 1996, it was $114,000.

Janex rented showroom space from Friedland's firm at a competitive rate, according to SEC filings, and until recently leased space in a Baltimore warehouse owned by his father. Moore declined to comment for this article.

Morick's complicated relationship with Moore should have raised concerns. But there wasn't much of a board of directors left to take on the task.

When Benjamin and Zuloff left, the number of directors dwindled down to three. Then two board members left and were replaced by Renee White Fraser, an advertising executive, and Manahan. Fraser did not return calls for comment.

Manahan left the board when he quit the company, unhappy with Janex's direction.

He said he urged Morick to bring in more directors but was told that Janex couldn't get anyone. Manahan said he offered to stay on as a director even if he quit as CFO, but said Morick wasn't keen on the idea.

Other Janex executives tried to persuade Morick to put up a better board of directors to guide the company. But their efforts failed.

``I think it's a travesty of our system that a publicly traded company can operate as a one-man show at the expense and to the detriment of the individual stockholders,'' Manahan said of Morick, who continued to draw a six-figure salary even as the company sank deeper in debt.

In 1996, for example, he made $228,250, SEC records show.

Friedland believes the company will prosper because he and Lesnick have taken back control. They made MJL into a thriving business and hope to bring Janex back to health. Their first task: Cut costs and raise sales.

``I have a lot invested in the company,'' said Friedland. ``I feel that the company has a lot of challenges in the future but these should be overcome. With proper management along with new product and marketing, Dan and I believe we can turn this into a profitable company.''

The two executives will not take salaries this year.

The new Janex will put together an independent board of directors and resume holding annual shareholders' meetings, Friedland said.

Still, long-time shareholders will need to be convinced.

``They haven't notified shareholders about anything,'' said Al Yablon of Oxnard, who owns 300 shares of Janex, which he bought for $6.50 each. ``They haven't had a shareholders' meeting in two years.''

Yablon said he has given up on Janex. He wants to write off his shares as a loss but the proceeds aren't enough to cover his broker's commission.

``I look at the stock price, and it keeps going down and down and down,'' he said. ``It's not like the Energizer Bunny that keeps going and going.''

Manahan has much more to lose than his 7,500 shares, bought at $2 plus each. He's jaded, feeling that he jeopardized his career for naught.

``I risked a great deal to expose Zuloff and Benjamin at a time when friends and associates told me to keep my mouth shut and not get involved. I did it because I thought it was the right thing to do,'' he said. ``Given the way things have turned out at Janex, it all seems to have been a wasted effort.''

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Photo

Photo: (Color) Michael Manahan, left, was financial officer and Sheldon Morick top executive in better times at Janex International.

Roger W. Vargo/Daily News