Ladies and gentlemen, welcome to the 2012 year-end results conference call. Your host today Mr. Jim Linesch will now begin.

Good afternoon everyone. My name is Jim Linesch, the Chief Financial Officer of Reed’s. I would like to welcome all of you to our year-end earnings conference call. With me today is Mr. Chris Reed, Reed’s Chairman and CEO; and Neal Cohane, our Senior VP of Sales. I would like to remind our listeners that in this call management’s remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore the company claims to protection of the Safe Harbor for forward-looking statements that are contained in the Private Securities Litigation Reform Act of 1995. Actually results may differ from those discussed today due to such risks, but not limited to risks related to demand for the company’s products, attendance of third party distributors, changes in the competitive environment, access to capital and other information detailed from time-to-time in the company’s filings with the United States Securities and Exchange Commission. In addition, any projections as to the company’s future performance represent management’s estimates as of today, March 25, 2013. Reed’s Inc. assumes no obligation to update these projections in the future as market conditions change. Now I’d like to make a few brief comments about our financial performance for the year and for the fourth quarter. This will be followed by Chris Reed, who will give us an outlook of the company’s business at this time. Our 2012 results continue to reflect the strength in momentum throughout our business in primary areas. Revenues continue to increase broadly among our brands. The cost of our premium products are being managed well in relation to our sales prices. We have two primary long-term brands that are healthy and growing, while we also introduce new brands with the capability of…

Thanks Jim. Jim, can I ask for one clarification. When you said the branded sales for 2012, it almost sounded like they were flat year-over-year, but I don’t think that’s what you meant. I think they…

Oh no, they’ve grown at a rate of over 20% and what I meant was that they are split pretty much evenly between our Reed’s Ginger Beer and our Virgil’s line.

Okay, thanks. I just wanted to make sure and clarify that. Thanks for coming to the Reed’s conference call for the year-end 2012. I appreciate everybody taking the time. Also this will be recorded and up on our website or our IR site for anyone who wants to go over more closely or share it. So definitely an exciting time for Reed’s. I’m proud of another great year of growth here. Obviously you can never grow enough to totally make all of the path you would – nothing we’ve seen about 20% growth and even more growth with the gross profit, which is probably the higher focus here. As we want to fuel more and more growth of our company here, you got to do it both ways, revenue and gross profit. The Kombucha is probably the highlight of what’s going on here. Although the branded business continues to surprise us, actually I think the January was our record-breaking month for the extra Ginger Brew one. January is not seasonally a really strong month for our soft drink sales, so we are very excited to see the brand’s really still being and continuing to be the driving force of the company. We have some very exciting things going on. Private label that were coming as slow, the slow long lead private label projects; we should see a number of them dip in 2013 that will be material. So we are excited about what’s going on with private label. We love it for what it does for gross profits, but definitely we like the relationships that we build with key retailers around the country and I think we have one new one that’s with a $12 billion company. It’s just nice to marry up with these large enterprises that can be…

(Operator Instructions). Our first question will come from Ken Moss (ph) with Moss Management (ph). Ken Moss (ph) - Moss Management (ph): Hello. Good evening fellows. Interesting quarter, interesting with what’s going on with the Kombucha. I guess I have a series of questions and if I get too long please tell me and I’ll get back into the queue. Number one, how many shares are really outstanding at this point in time after your call with the preferred.

A little over 12 million. Ken Moss (ph) - Moss Management (ph): Excuse me.

A little over 12 million. Ken Moss (ph) - Moss Management (ph): Oh Okay. Are you selling to COSCO at this point in time?

Yes, we are currently selling to COSCO. Ken Moss (ph) - Moss Management (ph): Well, I doubt it that you are working on the label, which I haven’t been complaint with. When you introduced that (a) when did you expect to introduce that, and (b) do you expect that you’ll recoil the ones that are out there already and have a right there (inaudible) or will you just let that one fluid that you do not know at this point in time.

Well the four new flavors are launching now and they are already selling and moving to the market place, so they have the new label, and the existing products, the first four flavors will be getting a new label when they run through the labels and we’ll be changing it out. But if we do anything, we won’t recall the product. We may touch some of the older labels just to get into the new look and feel, but as much as we can see that in the cooler they look dark, out in the sunshine, they look gorgeous and shiny. The lighting in the cooler, if you are not on the top shelf where the light bulbs are, you are two or three down, we kind of start to get lost, but even with that sales are running somewhere around 15 to 20 cases a month in an A-account. Ken Moss (ph) - Moss Management (ph): How are you going to beat what we’re trying to receive and (Inaudible). I would appreciate if you put the new labels up on the website, so I could actually see what it looks like. I agree with what your saying is that you do get lost in the dark at the moment and I think it you really rate the service to the company in the thought of things, you labeling it and how it quickly it has (inaudible) for a new age foodie type. Do you expect a gather of your serious investments in the kombucha line or kombucha? What is it that you’ve had the possibility in for instance, was that a normal fourth quarter to adjust the core business of your current business and your private label. Was there something in your facility running up say what’s left in those two (inaudible) and the balance in just the light of your reinvestment into Kombucha and in the lack of (inaudible) and do you expect that we can get to profitability and maintain it with a sustainable rate just in any coming quarter that you can speak in.

I know my CFO wants to answer that, but I’d like to take a stab at it. First of all, the way I look at the second quarter of last year, I think it was a $0.04 earning and I would say that probably $0.03 of that were what you would expect and $0.01 of it was things, just kind of perfect storming, additional things that happened during that quarter and probably weren’t there all the time. So that’s from a very elevated height, giving you kind of an overview. We definitely feel that if you grasp – I think I even have these slides up on the IR component of our site. If you graph the $5 million loss to where we are now, you can see that there is a steep line and it’s moving to profitability. Just the fact that it started way below zero shouldn’t scare you, you could still graph it up; its significant and this year we would really have to have some strange things go on this year to not be significantly profitably. And the only reason we would be significantly profitably is we are looking at an opportunity to get to a run rate of not $7 million a year, but $15 million a year. If we spent $1 million, we’d have a return on investment of $20 million or $30 million. So I’m just trying not to say yes, we are going to do it exactly this way. I’m just going to continue to say I’m a very long term player here and if instead of selling stock, if I could take some earnings and have a tremendous return on investment, I’m not just talking one or two times return on investments, we are going to be opportunistic with a situation…

Okay I’m just telling you I’m balancing it. I’m not just going to spend everything; because there’s always too much you can spend on an advertising and marketing. Ken Moss (ph) - Moss Management (ph): I agree.

There will be a balance, because there is actually a lot of value in paying down debt, because that doesn’t hit future earnings. So there’s a real interesting balance that I think we’ll try to be balanced here; that’s all I can say. Ken Moss (ph) - Moss Management (ph): Okay, thank you again.

Our next question will come from Joe Mondillo with Sidoti. Please go ahead. Joe Mondillo – Sidoti: Hey Chris, thanks for taking my question. As one of the people that are valuing that company, I’d like to talk a little bit about the gross margin in the quarter and you talked a little bit about the decline, but I’d like to get a little bit more granularity there as to what happened as far as gross margin is concerned. I mean was it the loss of Fresh & Easy as a customer.

Well, first of all Fresh & Easy is out in the market place looking for a solution and that solution is someone to acquire or a private venture group to get involved and spin it off, but they are running full-bore and they are pretty enthusiastic about what’s going on there in their prospects and that’s maybe they are just talking to us trying to sound happy, but they are doing a really good job of faking it, if that’s the case. But they are… Joe Mondillo – Sidoti: Are you seeing any decline in the orders from them?

No, not really. We are not counting on it this year. We picked up new private label business that kind of covers that piece of it at least, but its not going away right now and they don’t seem to think that it is. They seems to think that there’s going to be someone private equity wise who will be interested in the prospects, because the parent company Tesco doesn’t have the stomach for the investment with their shareholders screaming about the chain loosing money, but there are other people that aren’t necessarily against the opportunity. Joe Mondillo – Sidoti: And then as far as gross margins concern.

Jim, why don’t you jump in and you speak for...

As I mentioned in the beginning our gross margins before promotion are up. So really what’s happening for the most part is that of course that promotional dollar come off of our revenue and that impact how the margins look. And then to a lesser extent we did have to liquidate some commodities at a loss in December. I guess the most important things is that the underlying margin from product sales are up.

Well, one minute. The one thing I know for certain from my own engineering time in the plant here over the last three months is that we went from a labeling situation where we were trying to do curved labels that were a first company to commercially do this convex or concave, I don’t know what it is, a curved in label with a new material from Avery, we were hand labeling that and the Kombucha filling was gong horribly and we were running up a lot more expanse in the third or fourth quarter. I don’t know if you figured out how much that is Jim, but quite frankly the plant now is running at 2.3 times faster than it was in the fourth quarter and the labeling is gong phenomenally. So we don’t have an army of people sticking labels on by hand just to get the orders filled. We had a lot of inefficiencies going on during that time. Did you try quantifying that?

That’s correct, and I believe that its approximately 200,000 during the fourth quarter.

Yes, I could see that. Joe Mondillo – Sidoti: Yes, but I’m a little confused, you are saying the promotional is coming out of the gross margin, the promotional.

Yes, that’s a standard for our industry, when we grant promotions, which is our main type of adverting, which are deductions from gross revenues and so that does effect our margins. Joe Mondillo – Sidoti: So, it’s just a normalized rate going forward to make it to high 20 rates.

Well, it depends on what period you are looking at. But say if you are looking at Q4, it’s running higher than what we hoped for the future. A lot of its coming through with the Kombucha and some of these are the initial flow that we are putting into the stores and that’s not recurring and we tried in different types of promotions and its not necessarily standard. We believe that that part of that yield is, although we are still doing the rollout, but I don’t want to say that its gong to go away or go away again, but its certainly changing and I think there is strengths in there. Joe Mondillo – Sidoti: Okay. And Chris, what’s the current capacity utilization at the plant?

Currently for the first two quarters of this year we are running two shifts five days a week. So we can go to three shifts seven days a week. I mean I can do the math on my calculator on that, but there’s defiantly another shift and there’s anther six shifts, plus five – there’s 11 shifts that we could be doing and we are doing 10, so we are at 50%. But in the third and fourth quarter we will be running 75% to 90%, just based on the volumes that we are going on right now and the fact that we do a lot of private label in the later part of the year. Joe Mondillo – Sidoti: Okay. You said Kombucha was rough with $2.5 million of revenue in the fourth quarter.

No, the annual run rate and it was $600,000 in the fourth quarter. So annual run rate is about $2.5 million. We are hoping by the end of this year to be running at three times that, which would be about $7.5 million run rate for the year 2013. But if you add those two figures up, that’s $10 million divided by two, we are figuring we’ll get somewhere between $3.5 million and $5 million of new business this year just form Kombucha. Joe Mondillo – Sidoti: So, if you back out Kombucha you guys are down year-over-year in the quarter, revenues contracting quarter-over-quarter.

Possibility. Joe Mondillo – Sidoti: You are at $7.75 million for the fourth quarter in revenues, is that right.

$7.8 million.

$7.8 million. Joe Mondillo – Sidoti: You back out…

$6 million it will be $7.6 million. It will be flat year-over-year and we had an $800,000 non-recurring private label from the prior year that did not hit this year, in 2012.

Yes, in Q4 private label revenues were down somewhat, but our branded continues to grow. There is nothing flat about it. Joe Mondillo – Sidoti: All right, what was branded revenue in the quarter?

Well, there is not much to say we are breaking that out.

Just the fist quarter is quite – I mean we are pretty pleased with what’s going on with the first quarter, I mean it’s running at a very nice clip, so…

Our next question will come from Torin Eastburn with Monte Sol Capital. Please go ahead.

Hi, good afternoon Chris. I have a couple of questions. First one you mentioned, we’ll pick up the sales trend at some of the stores that have adopted and particularly Kombucha in the very beginning and I was hoping you could provide a little bit more detail on those stores. Specifically what would the volumes and revenue in some of the stores look like relative to the rest of your brand new portfolio and what kind of share on the shelf space in Kombucha do you think you are getting in those stores.

Yes, we only have four items out, except for recently the launch of four more. So they are all practice purposes. We are four and the main competitor I believe has 26 items. So we generally speaking, you walk into a store you’ll see four full shelves of GT or Synergy Kombucha and you’ll see a small footprint for the Reed’s Culture Club Kombucha. And if you listen to Ken Moss’s question, and they are dark and they are hard to see and it’s not really that exciting yet, and another thing we have to correct. But before any correction, before anything serious going on, the running about a case or case and a half of flavor per week, and when we talk to stores a lot of times in the top items the top four or five of the GT Kombucha are doing upwards of 3.5 to 5 cases a week. This is a leader. This guy has been out there, started it and has been rolling at an amazing clip now on the seventh, eight, ninth year. And so we are pretty damn pleased with the results and one of the chains that we are in, 25-store chain in North Carolina, they have shared the information in our top items, there’s about one-third, they are a top item of GT. And just to be playing in there, I mean that, their top item, they have five or six items that do, I don’t know if they do 80% of their line, but they do a bit more that’s heavily weighted towards their top five and they tend to be ginger oriented, which is one of the reasons we jumped into this category. Its kind of like instead of drinking Ginger Brew, not that we are loosing sales, not that we can figure out what sales we lost to Kombucha over the years or how it slowed down the growth of Ginger Brew, although its still doing very robust in its growth; they marry ginger up and basically jumped into our category and the way I’m justifying this is I’m just making you Ginger Brews, they are now just probates and live. People are respecting what’s going on with it and once we get the packaging married up right and the marketing, a little more time in the market place and the more skews out there to expand this little four skews mix to the monster shelves of the main guy, I think that will only help us from here. But even if we just stop right now, the four skews, and just got it out into the market place, and did nothing to improve the packaging, did nothing to market any better and just ran at the steady cliff that we are seeing unprompted, you’ll are looking at $10 million to $15 million on that rollout alone. So we are definitely, our numbers for Kombucha are beyond that level with four more items coming out.

Okay, and the level of sales that you are seeing in some of the early adopter space, specifically for Kombucha on a dollar basis, how are those compared to the rest of the portfolio products assignments please.

Well, I have a chain local here that shares their data and they had a month of data for four stores. They ran 145 cases of sales of everything combined and 84 of them were Kombucha. But we’ve seen other accounts where that’s kind of fair assessment, because Ginger Brew and a good whole foods account, an extra Ginger Brew is going to do about a case a week. That translates to a brand that’s doing a couple of million or an item that’s doing a couple of million a year. So each of these products are doing at lease a case a week in an A-accounts, the whole food supplies account. So there’s four of them, there’s more of the other products and at one point. I mean on this store alone, this four store chain in Southern California, each of the cases are running roughly $20 a piece. So they are pretty much equivalent. So we are doing more Kombucha sales than we are of everything else combined in the store. Is that happening everywhere? I’ve seen numbers here we are doing a third of what we are doing with the Reed’s brand in the stores and I’ve seen it as high as two times what we are doing with other, the rest of Reed’s Inc. products from all those years of development. But we’d still kind of around the – it’s a pretty bit variance in what’s gong on. I will say that we expect to get the next four items, the eight skews going in the stores here. So we are really basing our expectation on just four in the store. But as we get to eight, I believe that Kombucha sales ultimately will, the natural food stores not necessary main stream, but the natural food stores, we expect it to go beyond the rest of the products combined at some point.

And another question, what kind of gross margin do you think you are going to run once a lot of the promotional incentives will allow to indicate better production efficiencies.

Somewhere between 5% and 10% better than we currently get on our soft drinks.

Okay. And then last question, are you willing or able to give a revenue expectation for private label for 2013.

My senses is that we are gong to increase it by a couple of million at this year over last year. And the branded, my guess is we are going to bring in somewhere between three and five million more and Kombucha is somewhere between tree and five. So we would love to, somewhere between $8 million and $10 million worth of new business would be what we expect, what we are shooting for based on the numbers, but of course our goal is to try to reach $45 million, something beyond that. But its hard for us to tell as we sit here and we are spending a lot more time on Kombucha and that may affect sales at some point in the year of our branded items, having that attention diverted from the poor brands. But do far I don’t believe we’ve seen a degradation in the first quarter, but it’s still a long year ahead of us. But many exciting things are completely signed that are game changers for Reed’s here. So we are all hopping that we’ve been daunting and running the first a lot, but we hope to get some homers here that will be significant for the company as we mature and get more respect and credibility amongst the larger players out there. They are looking more and more at us for our unique capabilities, for development and packaging. So we are not seeing a deceleration here of interest from people for many of the things we do. So ultimately we expect a tremendous amount, more private label and we know the brands are really at their infancy in terms of what they can do in the market place.

Okay, thank you Chris.

Thank you.

Our next question will come from Peter Nielsen with Citigroup. Please go ahead. Mr. Nielsen, please go ahead with your question.

He may have disconnected.

Okay.

Well, if there are no further questions at this time, I appreciate everybody’s time and I really am looking forward to reporting what’s going to happen later in this year. I think one of the good first quarter, but I think we are going to have an acceleration through the year here and thanks for listening and we look forward to talking to you guys in the future.

Thank you. Ladies and gentlemen, this concludes your call. You may all disconnect.