PhillyDeals: Skinny Water creators seeking a big piece of the pie

Skinny Water

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

Stock investors aren't betting on it. Skinny Nutritional Corp., of Bala Cynwyd, which distributes brightly colored, fruit-flavored "zero calorie, zero sugar, zero guilt" Skinny Water to discount department stores and supermarkets, is a penny stock, trading over the counter at about 6 cents a share, down from highs of 14 cents last year and 45 cents the year before.

Sales are up. 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 earlier.

But losses are growing, too, in a tough market dominated by Coca-Cola Co. and PepsiCo Inc. waters. 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," Skinny said in a Securities and Exchange Commission filing last week.

How can Skinny Water survive, let alone get to the $25 million a year sales level (at $1.49 a bottle) that Donald McDonald, the company's president, figures is its break-even point?

"The company is raising additional capital," appealing to private investors, Michael Salaman, cofounder of the company with McDonald, told me Thursday. Skinny is also trying to boost sales by signing up distributors for No. 3 soft-drink-maker Dr Pepper Snapple Group Inc., including Philadelphia-based Honickman Affiliates Ltd. and others in New England and the West Coast, along with chain stores such as CVS Caremark Corp. and Target Corp., McDonald says.

Dr Pepper sometimes signs up brands that its outside distributors like, such as Fiji Water and Big Red, for its own larger direct-sales network, 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 prominent Philadelphians.

Those include William R. Sasso, chairman of the Stradley, Ronon Stevens & Young L.L.P. law firm, who told me he's known McDonald since they were kids at Our Lady of Hope Parish up near La Salle University; John J. Hewes, the Norwood, Delaware County, native who's a top executive at student-lender Sallie Mae in Wilmington; retired Susquehanna International Group L.L.P. stock-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, Salaman said.

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 Entertainment Cos. Inc., among other jobs.

In 1982, McDonald was convicted of bank fraud against an earlier employer, Beneficial Savings Bank, and spent three years in federal prison. Federal securities law doesn't require him to list that on company filings because "it was a long time ago," as McDonald told me. Sasso's firm represented Beneficial at the trial.

Salaman, a Temple graduate, is a son of Abraham Salaman, a veteran investor in troubled companies who has endowed a building at his alma mater, Philadelphia University (the old College of Textile and Sciences), 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 developer American Interactive Media Inc., before buying control of Skinny Water's corporate predecessor and steering it into the water business.

"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."