Good afternoon, and welcome to the Reed's Second Quarter 2015 Earnings Conference Call. My name is Harman Koi, and I will be your conference call operator today. Participating in today's call, we have Chris Reed, the CEO and Founder of Reed's; and Dan Miles, the Chief Financial Officer. Before we begin today's call, I have Safe Harbor statement to read to our listeners. I would like to remind our listeners that during today's call, management's remarks may contain forward-looking statements that are subject to risks and uncertainties, and that management may have additional forward-looking statements in response to your questions. Therefore, the company claims protection of the Safe Harbor of forward-looking statements that are contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today due to such risks, but not limited to risks relating to demand for the company's products, dependence on 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 represents management's estimates as of today, August 13, 2015. Reed's Inc. assumes no obligations to update these projections in the future as market conditions change. I will now turn the call over to Mr. Miles, who will begin with his prepared remarks. Please go ahead, sir.

Thank you. Hello, everyone. And thank you for your interest in Reed's Inc., and thank you for joining us today on Reed's 2015 second quarter earnings call. My name is Dan Miles, I am the CFO of Reed's. In addition to the press release issued today, we filed our 10-Q for the second quarter of 2015. Let's turn to the results. Demand was strong for Reed's beverages. Total net sales for the second quarter ending June 30, 2015, were a record $12.2 million, an increase of 9% versus the second quarter of 2014. We believe that sales could have been higher by at least $2 million if it were not for out-of-stock issues driven largely by significant lower than expected production at our East Coast co-pack facilities. Our promotional expenses for the second quarter, which includes such items as promotional spends with retailers and slotting fees decreased 18%, and accounted for 7.5% gross sales or $1 million for the quarter compared to $1.2 million or 9% of gross sales in the second quarter of 2014. We believe this speaks to the continued strength of the brand after more than 25 years in the marketplace. Gross sales were driven by a 22% increase in Reed's Ginger Brew and represented 46% of gross sales. Total Kombucha sales increased 15% and represented 12% of gross sales. Sales of other product categories that includes candy and non-core beverage sales increased 41% and represented 6% of gross sales. These sales -- these increases were partially offset by a 4% decrease in Virgil’s craft sodas which represented 33% of gross sales and 9% increase in private label sales that represented only 5% of gross sales. During the second quarter, we made strategic decisions to produce private label Kombucha for a major grocery chain. We've included these…

Well, thanks, Dan. The second quarter definitely -- there is a lot that doesn't show up in the numbers. We try to estimate exactly how much sales because [indiscernible] we had our third facility onboard which we were scrambling to bring on and is still getting very close to coming onboard at this time. This impacted obviously net sales but also impacted the freight costs, so we had much higher freight costs due to shipping less than full truckloads to customers because we didn’t have the full availability of products that they were ordering. So it kind of snowballed a bit. Obviously cash was tight during the quarter, but we have a couple million dollars of raw materials that we build up for private label projects in the third and fourth quarter and the opening of our new facility and anticipate the unwinding of the $2 million back into working cash out of inventory by the end of the year. The plants -- the both plants, the West Coast renovation and the East Coast new facility are moving forward quickly, and we are getting down to the last few steps to be up and operational on the East Coast plant and what turns out is that -- in order to get the West Coast plant fully operational, we need to have the East Coast, second East Coast plant up and running, so we can defer our productions during the period of time where we are installing new equipment. So, to shut down here we actually need the East Coast plant up and running, so that's a high priority for the company right now. About 90% to 95% of the equipment needed for the startup of the new three times faster production bottling lines in LA have already been purchased. Most…

[Operator Instructions] Our first question comes from the line of Paul Johnson as a Private Investor.

Yes, good afternoon. I had a couple questions. Can you talk a little bit more about the very large increase in accounts receivable, looks about -- looks like about 24% over last year. And a very large increase in inventory you talked about little bit, but it is up 62% if I did my math correctly. I also wanted to ask it seems like the Kombucha sales have slowed way down, and the pace of growth is a lot slower, and finally when do we get to hear from Mark Beaton, he has been onboard since March, and I think a lot of investors are hoping to hear from him. Thank you.

All right. I appreciate that. So I am going to write this down, the Kombucha down was one of the questions. The inventory and receivables up. And then there was a comment on hearing from Mark Beaton.

Correct.

So Kombucha was down approximately I think 33% in the first quarter of this year. We attributed to in the first quarter of the slowdown in spend on the marketing dollars, so we basically let the brand kind of sit on its own for a bit without a heavy spend on advertising and promotional, and we saw the sales down in the second quarter year-over-year approximately 16%. Overall, we were up 15% and that was because we started a large private label Kombucha project for one of the larger supermarket chains in America. As I have been mentioning in prior calls that Kombucha - it is crowded category, we are not the leader of that category such as we are with craft sodas in the natural soda business. So it is a more difficult thing. We are at number two; I believe we are still number two. There has been a number of launches of new Kombucha companies they have been heavily funded including Kevita and Healthy Kombucha, what's it called, oh my god, it is not right. Both of those companies have been heavily fueled on a big cash burn as they are promoting their Kombuchas. And we have kind of - right now the Ginger Brew for us is taking off particularly with the Moscow Mule and Absolute Vodka and just in general. Our Ginger Brews have been growing quarter-over-quarter in a very - it seems to be accelerating here over last year. So we are kind of going with the flow on that. Kombucha, by no means is something that we have written off. We are going to have periods of time where we focus on it and then we let it be a little bit. I mean the continual driving promotional spend is not even healthy…

No. In fact that's a very remarkable strength of Reed’s is we have almost zero bad debt year-to-year, it is less than 100th of a percent. The increase in AR has already been realized in cash and payments through now. So the bump is most likely due to major increases as we got very close to the end of the month.

Right because your aging is not anymore than - it is normally under 30, right?

That's correct.

Yes, so that's just timing thing. Is there any more questions?

There are no more questions at this time. However, [Operator Instructions] And our next question comes from the line of [Jeff Briggs] [ph] from Singular Research. Please go ahead.

Hi, guys, how is it going?

Great. How are you doing Jeff?

Good. So quick questions for you. I know with all the updates to the plant and [indiscernible] shipping cost and things of that nature, how do you see gross margin sort of leveling out as all that stuff gets integrated?

All right. That's a big subject. So one of the things you noted during the quarter is we went from 4% to 5.5% of backwards crawl on our idle plant, so 4% of net sales in 2014 to 5.5% in 2015 second quarter. So that 1.5% increase is directly affecting the gross profit. We envision that unwinding relatively quickly as we move into the final stages of installation and that’s a tremendous amount of reorganization of the 80,000 square feet here and just support infrastructure that goes in. So we not - and then additionally as the new facility comes on board and a very large component of the idle plant cost is labor -, the labor efficiencies, I think conservatively, labor is going to go in half and it is somewhere around a couple of hundred thousand, 210,000 a month. So we - and the freight savings – okay, let's not get ahead of ourselves, freight is not part of the gross profit margin. So we envision going to zero eventually on our idle plant. So for 5.5% to some point 12 to 18 months out to zero is my plan and I believe it is a viable plan, some assumptions based on continual growth at the pace we are doing, et cetera, but it seems like our private label something will fill this plant. I mean you build it they will come. Surely we turned away a lot of opportunities here because we haven't been able to run more than we have. This additional thing that was eroding margins from 33% to 30% year-over-year was the product mix went from more heavily Virgil's to more heavily Reed’s. And intrinsically we have less margin with Reed’s. So we calculated we lost somewhere about 3.4% from the shift in the…

No, that's it. It is really helpful. And it’s actually a little better than I was projecting out. So it is good to hear. And yes, looking forward to hearing something on the fountain side next quarter or two.

We actually have one more question. It comes from the line of Mike Olberding, is a private investor. Please go ahead.

Thank you. I was wondering on the last conference call Mark Beaton was referring to 75% of the equipment being procured for the West Coast plant and expecting delivery in early July and then maybe reaching what he called Phase 1 which was the 66% increase in speed by mid-September. So I am assuming some of that didn't happen and it is all getting moved back. Do you have a new estimate on when it might reach that goal?

Well, everything that can move forward right now on the peripheral is moving forward. Currently we are at - we needed a third facility up and running, the new facility on the East Coast, up and running so that we can turn off the [indiscernible] in LA for initially a one week period to do an install and an additional two weeks in the following month to have the full plant installed. So to have that three weeks off we need - we don't want to be shutting down the 100,000 cases a month that we can run here at the detriment of not filling orders. I mean you could see in the second quarter we project conservatively somewhere between $1.5 million to $2 million of business that we left on the table by not having product produced. So the plant coming online will save us a ton of money but at the expense of screwing up our products in the marketplace by being out of stock anymore than we have been, we are just not willing to do that. So the equipment is ordered, we have a great design, we’ve worked with one of the world class designers of plants, Mark immediately jumped in and added his flavor to it by bringing in some contacts. And we have a significant improvement of design over what I was proposing with my people. So we are excited about the new plant and we are getting close to having the third facility up and running properly. We hoped to have it next week. But we've been saying that for the last two or three weeks now. Here so we are trying not to hold our breath but hopefully August will see our new facility onboard and we can start looking in the third quarter later - well probably in the fourth quarter obviously in the fourth quarter at this point in October and November and December to having the West Coast facility come fully on board.

Okay, thank you. And then one other question. This fountain program you are developing and hoping to get, if the plant is on board like you were just saying, [indiscernible], could you still move forward with that fountain program or is that also need to have West Coast, East Coast and West Coast… ?

The logistics or the ability to produce bag in a box or to make your syrup concentrate and put it into the box, the bag that goes into the box that feeds the fountain equipment is 100 times easier than producing a bottle with counter pressure, carbonation and pasteurization and labeling. So we are not utilizing our current facilities to produce our bag in a box. We have outsourced facilities that have already lined up capability for a million bags in a box a year or approximately $35 million, $40 million of business a year.

We have one question come from the line of Sam Gravina. Please go ahead.

Hello, Chris. How are you doing? In past calls you probably – in some past calls, my memory is not so good, but you’ve given some guidance for profitability for the year. I didn’t hear anything about that this year? Do you think this year will be profitable, 2015?

That's a good question, but I think it will be profitable. Fourth quarter traditionally with us, last fourth quarter was rough and we believe we have corrected a bit of the issues that created the difficulties in margin in the fourth quarter but there is some part of it that it was lot of private label that tends to shrink margins. Third quarter will depend a lot on our ability to get the third facility up and running so that we can start to fill some of this backlog demand for our products which – if we have our luck and the next week is the week that we get up and running we can start - we will have six weeks to fly some production into and take advantage of some of the demands that's here right now. But I would say that I think that obviously EBITDA, I expect to be EBITDA positive, I expect to pick up some positive EBITDA in the third and fourth quarter for the end of the year, but I think profitability may be questionable for us. I mean it is a good question. I don’t think we have really - we have a moving situation right now. I think we haven't really gone through to see exactly what our projections are, that kind of work, that kind of analysis is going on right now. So we can't really answer that well. And there is a lot of balls in the air that will change things dramatically here. So I don't know, I think though it is going to be - it is less - right now because of the missed opportunities in it - in this second and part of the third quarter, I think it is going to be a little bit attenuated from where we were projecting it to be.

Mixed feelings, because out here in East Coast I have been seeing empty shelfs and your call kind of explains that. And when the products come in it just it just empties the shelf again. So it seems like you left money on the floor by not being able to fill these orders.

That's accurate.

Is East Coast more of a problem than West Coast or is it like the same everywhere else?

I agree - I think the East Coast is more of a problem because right now for instance we’re just running the plant 24x7 here on Virgil's Root Beer. And right now we've been out for three or four weeks on Virgil's Root Beer on the East Coast. So we are scrambling and bringing on production right now but you are absolutely right. For a while not only are our distributors once we’ve produced the product evaporating it the day after a production. If it shows up on a shelf and hasn't been there for a few weeks, our cult following passionate consumers are going to and we have seen in the past, they are going to strip that shelf, if they haven't seen a product for a three or four weeks and they see it, it is gone. One customer, it is gone. You can't have a big enough shelf for our situation right now. And it is probably going to be that way for a - people are going to hoard this product for a while until they feel comfortable again. We never function well - we’ve never - the shelf has never been an appropriate place for our product because generally speaking they will give us a lot of placement on the shelf for like extra Ginger Brew at a Whole Foods. You show up at noon and the product is gone. It is gone all the time. The customers are complaining. We tell the stores you can't just fit us on a shelf, you have to build a permanent display, pile of goodies on the floor or you are never going to have your customers happy because you got people who come in here and if they see it, it is empty all the time on the shelf. So even when we were in stock at the distributor, at the warehouse, it is still oftentimes out of stock on the shelf.

It seems we have one more question and it comes from the line of Alex Colcernian, is a private investor.

Hi, Chris. Congratulation on the quarter and the demand for the Ginger Brew. I have tried the product all across the country, I have seen it in a lot of different store shelves. I was wondering if you might be able to provide a little bit of color on the different flavors of Ginger Brew and how the demand may vary across the extra, premium, Raspberry and so on.

Maybe pull out some paperwork here, so let me take a look at the actual SKUs for the quarter. Actually Ginger Brew was up 20%, Premium was flat and Ginger Brew was flat. So it seems to me, I mean actually that's not fair because I have Extra Ginger Brew was sold at Costco which added another $0.5 million in sales - what’s that going to be, so it was like 4.2 versus 3, that's like 40% up, something like that. Anyway it was up $1.2 million a quarter. So I would say that our Extra Ginger Brew is on fire. And it is the preferred item and I will say that, that’s just a quarter Original and Premium are generally growing in low double digits, somewhere between 10 and 15 and our Extra has been running in the 30s for a while right now. So - but we of course with the relationship like Absolute Vodka coming onboard, just coming onboard, and there is a few more things going on with Extra we see nothing but acceleration for Ginger - oh yes, how can I forget? With a stronger Ginger Brew coming onboard, just being produced last week for the first commercial batches and that first batch evaporated immediately. We are seeing the Extra Ginger Brew is preferred 9 or 10 to 1 on our Extra which is our number one SKU. So we have our number one SKU coming in right now was stronger. So that's a very, very exciting piece of it. Yes, will it scavenge Extra, sure, will it not - will it send it backward, absolutely not, it will just accelerate beyond - every time we added another Ginger Brew we just get more business. So and plus it is going to have a unique…

There are no more questions, sir, at this time.

All right. So I am going to call it quits after an hour. I don't want to hold people up waiting to hear what else I am going to say. Thank you very much for your time. And I think that we look forward to some very significant quarters and I can't wait to report next year the second quarter after two new facilities are onboard or economics that bring to the company and a significant growth that seems to be appearing here. So thank you for your time and interest in Reed's.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation. And please disconnect your line