Skinny Water's uphill run

Skinny Water doesn't make you thinner. Can it make its Philadelphia creators rich?

Skinny Nutritional Corp. of Bala Cynwyd, which distributes brightly-colored, fruit-flavored "zero calorie, zero sugar, zero guilt" Skinny Water at discounters and drug stores and supermarkets, is an over-the-counter penny stock, trading recently at 6 cents a share, down from highs of 14 cents last year and 45 cents the year before.

Boosted by promotions from country singer Brad Paisley and former Sixers front man Pat Croce, Skinny sales topped $2.2 million for the three months ended June 30, from $1.8 million in the first quarter and $1.2 million a year ago. But losses are growing, too, in a tough market dominated by by Coca-Cola and Pepsico.

After raising $1.4 million from wealthy investors in private placements last year, Skinny last week reported it had just $60,000 in cash left as of June 30, plus a credit line from United Capital Funding Corp. That money "will only be sufficient to fund our anticipated levels of operations for a minimal period," the company said in a Securities and Exchange Commission filing last week. (Revised)

How can Skinny Water survive, let alone get to the $25 million a year sales (at $1.49 a bottle, retail) that chief financial officer Donald McDonald figures is its break-even point? "The company is raising additional capital," asking more private investors to fund deals with new distributors, chief executive Michael Salaman told me yesterday. Skinny is also extending its reach by signing up distributors for No. 3 soft drink maker Dr. Pepper Snapple Group, including Philadelphia-based Honickman Affiliates Ltd. and other soda-movers in New England and the West Coast,  McDonald says.

Dr. Pepper sometimes signs up brands its contract distributors like, including Big Red and Fiji Water, to its own larger distribution system, giving them potentially much higher sales, Dr. Pepper spokesman Chris Barnes told me. No decision has been made in Skinny's case.

Michael Zuckerman, whose family was partners with the Honickman family in a King of Prussia-based soda-bottle business, sits on Skinny Water's board, along with some other prominent Philadelphians.
Those include William R. Sasso, chairman of the Stradley Ronon Stevens & Young law firm, who told me he's known McDonald since they were Catholic school kids up at Broad and Duncannon; John J. Hewes, the Norwood, Delaware County native who's a top executive at student lender Sallie Mae Corp. in Wilmington; retired Susquehanna International Group trading chief Francis W. Kelly, a longtime friend of Hewes, according to McDonald; and Ronald Wilson, a former head of Philadelphia Coca-Cola Bottling Co., who served as Skinny's president last year, and remains a consultant, according to Salaman.

Salaman and McDonald have long business resumes. McDonald, a Villanova graduate and the oldest son of a prominent Philadelphia doctor, worked for infomercial maker National Media Corp. in the 1980s and early 1990s, and was also head of direct marketing at nude-movie distributor Spice Direct Entertainment Co., among other jobs.  In 1982, he was convicted of bank fraud against another former employer, Beneficial Savings Bank, and spent three years in the federal prison in Allenwood, Pa. Federal securities law doesn't require him to list that on company filings because it's been more than 10 years. "It was a long time ago," McDonald told me. Sasso's firm represented the bank at the trial.

Salaman, a Temple graduate, is a son of Abraham Salaman, a veteran Philadelphia investor in troubled companies who was twice barred from the securities business for his involvement in questionable deals involving Magic Marker and other companies. He later endowed a building at his alma mater, Philadelphia University, where he told his son he scrimmaged against future NBA star Wilt Chamberlain.

The younger Salaman worked with McDonald at National Media and then at Web TV develoepr American Interactive Media Inc., before buying control of Skinny Water's corporate predecessor and steering it into the water business "because," he told me, "there's this convergence between the water trend, and the health trend."

"We're definitely in the right place," McDonald told me. "We're a virtual company, we don't own a bottler... We're two guys from Philadelphia who are taking on the Cokes and Pepsis of the world. That's our challenge, to be one of the major beverage companies, in this enhanced-water category, which is where the market has moved."