Beverage penny stocks are always going to be a treasure hunters stock where all the voyages and journeys may bring you to that Monster Beverage (MNST). So, when Skinny Nutritional Corp. (SKNY), the maker of Skinny Water®, announced a $15 million financing deal, why didn’t penny stock traders do the math? SKNY stock price actually dropped -6.25% Monday to 0.0075 on volume of 4,643,851 shares when it actually should have had a rally trading session. SKNY should be a 2 cent stock, period. (see below)
Skinny Nutritional Corp. and Trim Capital LLC agreed to a financing deal involving the issuance of $9 million of preferred and common stock coupled with a $6 million senior secured credit facility, everyone saw only one word: Dilution. However, they could not have been more wrong in their understanding.
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SKNY Stock Chart
Shares Outstanding: 714.41M
Revenue (ttm): 5.38M
Operating Cash Flow (ttm): -2.43M
The $15 million deal more than covers the cash flow for Skinny Water® for the next 12 months. With product currently distributed by 50 distributors across the U. S., as well as Bahamas and Bermuda, sales have remained consistent. A year ago, SKNY entered into a trademark license agreement to authorize their licensee to distribute and sell “Skinny”-branded products in Brazil, Argentina and Costa Rica. The licensee is expected to introduce product in the those countries later this year which is additional royalties for SKNY.
We’re talking about a Company with established relationships with national retailers like Target, SuperValu, Ahold, Harris Teeter, Wegmans, Shop Rite, CVS, Draegers, D’Agastino, Walgreens and 7-Eleven stores for the retail sale of Skinny Water. You can buy a Skinny Water® product at any one of approximately 14,000 store locations throughout the U. S.
For the most recent quarter ended March 31, 2012, net revenues were $1.33 million (net of billbacks of $117,858), as compared to $1.61 million for the three months ended March 31, 2011 (net of billbacks of $206,847 and slotting fees of $40,271). The decrease was directly connected to inadequate available capital to fund inventory purchases to meet customer demand during the first quarter 2012. Also, Skinny Nutritional reduced its sale price last year to limit the amount of billbacks which assists managing their tight cash flow.
Gross profit was $416,598 compared to $551,157 for the three months ended March 31, 2011. When you decrease revenue, you decrease gross profit. Adding to the decrease was increased costs in bottling, raw material costs and freight, which should be reduced through the manufacturing agreement the Company has with Cott Corp.
What is most interesting is that Skinny Nutritional doesn’t have any one major purchaser who weighs heavily on their Revenues or Accounts Receivable. However, one customer accounted for 23% of Q1 revenues and 44% of accounts receivable. For the same period last year, that same customer accounted for less than 10% of revenues and 31% of accounts receivable. That is an incredible change to consider as this customer has become a very important portion of the company’s gross profit and cash flow issue.
Until this deal for $15 million with Trim Capital LLC. the Company has been forced to rely upon selling equity and debt securities in private placements to generate cash and the issuance of common stock for services to implement their plan of operations. What investors are failing to recognize is that actual deal and the value that Trim Capital has placed upon SKNY stock price. (see PR here)
The financing is structured to occur in three separate closings, with each of the second and third closings subject to certain conditions. Upon the Third Closing, Trim Capital will acquire $9,000,000 of equity units consisting of shares of a newly authorized series of redeemable senior preferred stock and shares of common stock equal to 65% of the fully diluted shares of common stock of the Company. In addition, at the third closing Trim Capital will provide the Company with a $6,000,000 senior secured credit facility.
This is why when Skinny Nutritional filed their 8-K June 13th (see here), it allowed for this financing deal to take place.
About SKNY Stock
Skinny Nutritional Corp. is the exclusive worldwide owner of several trademarks for the use of the term “Skinny.” The Company develops and markets a line of beverages, all branded with the name “Skinny” that are marketed and distributed primarily to calorie and weight conscious consumers.
Skinny Water® is formulated with a proprietary blend of electrolytes, vitamins and antioxidants. The product line currently includes seven flavors, consisting of Acai Grape Blueberry (Hi-Energy), Raspberry Pomegranate (Crave Control), Orange Cranberry Tangerine (Wake Up) and Lemonade Passionfruit (Total-V) and as part of our “Sport” line: Blue Raspberry (Fit), Pink Berry Citrus (Power), and Goji Black Cherry (Shape). The introduction of the “Sport” line of waters began during Q2 of fiscal 2010. Currently, the Company is also developing new product extensions with zero calories, sugar and sodium with no preservatives.
To view the SEC filings for SKNY, click here.
Bottom Line: SKNY is one of the most undervalued penny stocks you will find right now. Do the math: The deal with Trim Capital LLC is $9M for 65% of SKNY O/S, therefore, if $9M equals 65% value of O/S, then SKNY PPS is calculated to be 0.01938, nearly .02 per share. At its current 0.0075, that’s a 158.40% gain and with a real product. Translation: Buy SKNY stock
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