Good afternoon and welcome to Reed’s Third Quarter Earnings Conference Call for the period ending September 30, 2016. My name is Benjamin and I will be your conference operator today. Participating in today’s call, we have Chris Reed, the CEO and Founder of Reed’s Inc; and Dan Miles, Reed’s Chief Financial Officer. Following management’s remarks, they will take your questions. Before we begin today’s call, I have a Safe Harbor statement to read to our listeners. I would like to remind our listeners that during this call, management’s remarks may contain forward-looking statements that are subject to risks and uncertainties, and that management may make additional forward-looking statements in response to your questions. Additionally, please note, non-GAAP financial measures referenced during this call are reconciled to their comparable GAAP financial measures in the press release and supplemental materials filed with the SEC. Non-GAAP financial information is not meant as a substitute for GAAP results, but is included solely for informational and comparative purposes. The Company believes that the presentation of non-GAAP financial measures provides useful information regarding the Company’s financial condition and results of operations. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements that are contained in the Private Securities Legislation Reform Act of 1995. Actual results may differ from those discussed today due to such risks, but not limited to risks relating to the demand for the Company’s product, dependency on third-party manufacturers and 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, October 13, 2016. 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.

Thank you, Benjamin. And thank you for your interest in Reed’s Inc., thank everyone on the call for joining us today in our third quarter’s earnings call. My name is Daniel Miles. I’m the CFO of Reed’s Inc. In addition to the press release issued today, we will also file an 8-K with this press release with the SEC. As in the past, I’ll start with the recap of our results, highlight the financial activity and then turn the call over to Chris, the Founder of Reed’s Inc. The Company continues to be fully engaged in regaining the growth of Reed’s products. After discussing the results of Q3 today, we believe it would be appropriate to put the supply chain problems from Q3 2015 in our rear view mirror and focus on moving the great brand forward. With that in mind, let’s talk about the performance. During the quarter, gross sales of 8-ounce volume grew18%, while net sales revenue increased 15% over the same quarter in 2015. Specifically, Reed’s Ginger brand products increased 14%; Virgil’s brand products increased 13%, other Reed’s branded products that includes our Flying Cauldron Non-Alcoholic Butterscotch Beer increased 68% and private label brands manufactured by Reed’s increased an additional 36%. Discounts for 8-ounce decreased 5%, reflecting a decrease in promotional dollars over a significant increase in volume. Non-beverage products such as candy, glassware and mail order are not in the proceeding volume discussions. These items as a group totaled $440,000 in gross sales, a decrease of $228,000. The Company began shipping all bulk candy SKUs in the late second quarter and started shipping mail order just week. We believe the candy volume will return to the past levels by the year-end. In recent quarters, we discussed external impacts that affected the margins in those specific quarters.…

Thanks, Dan, I appreciate that. Well, I’ll give you -- that was very thorough analysis from Dan. I’ll give a little additional color on my perspective on sales. Reed’s was up 13%, Virgil’s was up 12%, Kombucha which during the supply chain issues of last year we preferentially kept Reed’s as well supported as we could without the production plants up. And then second priority was Virgil’s. The third priority was Kombucha. Private label at that time was all we’ve got, it was committed to and it got a pretty good preferential there. We didn’t want to burn relationships with the largest retailers in the U.S. who effectively said things like we don’t produce during this time; we’ll throw everything out, including your brand. So, there was less leverage that we had in that situation. But Kombucha was out for six months and its sales are down about 50% year-over-year. But the interesting thing about the sales being up is we -- the supply chain issues of last year, we lost some distribution during that time. So, we lost approximately somewhere between 15% to 20% of our distribution in the marketplace during the outages and year-over-year we brought back about a quarter of that and there’s been an acceleration more recently as we’ve fully been in stock. The lead time with large national retailers, it takes time to get back into the marketplace. But the fact that we’re up in the growth on our core brands at a time we’re also recovering accounts. And we’re down from the account that we had prior basically implies that the sales of our products per account are up significantly over where they were a year ago. So, that’s actually a positive. The stronger Ginger Brew which we consider probably the best product in…

[Operator Instructions] Our first question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

The LA plant, I know that you’re still looking to finish the final renovation or the final rollout of the new equipment in there. Is that scheduled to happen still in December and for how many weeks will it be partially down to implement the remaining improvements?

I believe we’ve scheduled one week in November, one week in December to bring the new facility on line. I don’t think it’s going to be a big interruption. Most of the private label -- that puts a huge pressure on the plant. And I think we’ve gone over time here and we’re having everything get out of our schedule here from private label. And we can produce on the East Coast to ship to the West Coast, so it shouldn’t be any interruption. We don’t anticipate with this much notice and planning any interruption at all with the sales and keeping everything in stock.

And in terms of the rollout into targeting CVS, it looks like it’s just the beginning, right, starting with a couple of products. You’re in a lot of the stores but with CVS, there is a still -- in CVS, it’s not most the stores and target, it’s most or greater than 50% but with CVS, there is still chance to rollout into other stores. Can you talk about what that rollout -- what do you expect that rollout to look like as we move into the remainder this year into next year?

Well, our experience is that once we get our foot in the door, the products perform very well. I mean, the good news is when you get-in on the shelf, it gets customers and it moves. Long time ago, we would be too exotic for the world. Nowadays we’re almost to mainstream, I wouldn’t say that, but with Target and Safeway bringing in these very cutting-edge brand new enterprises, it makes total sense for them to bring in the coke of natural foods number one products there. So, we have a lot of confidence that we’ll do very well in these accounts. We’ll support it with the market it needs. And we’ve rarely seen ourselves be held to lose or to be held to the footprint we’re given. We will just continue to expand once that door is open. I can’t imagine it not continuing.

And your private label, I think Dan you’ve mentioned, it was up 36% this quarter. Is that a trend that we expect to continue or is that going to vary quite a lot from quarter-to-quarter?

I’d like to answer that. I just think that what’s going to happen is private label is a thing -- the reason we’re up this year is because the people who bought it last year, blew through the product, they were highly successful and they just doubled their orders. Now, the reality is management has been holding back. Sales has been holding back because A, there has been supply chain issues. They didn’t want -- nobody has been feeling real comfortable and putting more pressure on our supply issues. But once the plant is up in LA that runs three times faster with the same labor, we can triple what we can run. We’re running about 1 million cases a year right now; we can run up to 3 million cases here. And with the new production partners in the East Coast, we’re not going to be held back as much. And my sales force has been very reluctant to bring on any new clients. I think there is going to be a little bit more sales push for private label and not to the detriment of our branded but we strategically use this private label to build relationships. And I think you’ll see some announcements coming up here shortly of another a big national chain that started with private label that brought our branded. So, we still like it and it will probably expand, even though our branded focus will be the primary focus. And as we move more and more into profitability here, as margins are improving dramatically and the volume recovery et cetera, et cetera, we will probably start accelerating brand marketing. So, you’ll -- but every once in a while, there is going to be a strategic need or desire or just a lot of profits that can be grabbed from a private label transaction.

Is there a breakeven point in terms of revenues and where you need to be at in terms of revenues or gross margin, so that you will be at profitability? I know there is a lot of leverage once you get up there in the gross margin range of the 30% to 33% that you’re talking. But, is there a level you need to be at in terms of revenues that gets you there?

Well, look, yes. 23.4 is nowhere near acceptable. The recovery to 27 and 28, 29 is when you count the mix or where we were. That’s a given to get back to that. And if we’re running 28s with all of the discipline and improvements in delivery and handling costs, the discipline that’s been going into the expense reductions in G&A, the selling expenses might have been low, not we would expect those to accelerate some with the accelerated profitability. And then, as we produce better financials and the interest rates coming down, I mean, I think we’re moving target right now, but I would say that at 45 million, you’re profitable under the new scenario of what we’re doing; if not actually you’re probably pretty profitable. But with what you’d expect traditionally, when weren’t hiccupping, we were running 15% to 20% growth without having a marketing budget or not being profitable. So, once we’re -- next year we’d expect some kind of modest good growth just by the pushing of the market push into the marketplace and recovery et cetera. But what we really like to see the acceleration is going to come from just being a lot more profitable and being able to drive more of that -- some of that money going to the bottom-line, but some of it going into all the opportunities we have as a leader of the craft soda industry. So, I think that we’re definitely at breakeven and we should be able to morph into a significantly profitable, more profitable company here over 2017. And obviously, if we get a big private -- not private label, but a fast casual job to supply their soda fountain, then all bets are off; we’re to races and we’re making phenomenal amounts of money. So, our goal is inflection point right now. I know we’ve been saying it for a number of years. The last year’s supply chain thing didn’t help, otherwise you would have seen us in the 16s million to 18 million this year with significant profitability. So, we’re still going to get that. We’re on track for that and we have stuff that we never dreamed of in addition coming on line.

Can you just talk about the test market in one fast casual for the Bag in the Box that happened in September; how did that go, any feedback yet on that?

No, we’re scheduled to go in here and it did not happen in the third quarter. But we’ve been set up in the system and all the dotting Is, crossing Ts and barcodes and all that packaging have been done. And it wasn’t really a delay from Reed’s; it was a delay from the equipment people. And actually we’ve been asked at the last minute to -- because management’s gotten involved and they’ve asked for a flavor shift. So, we’re probably going to be spending a couple of weeks in R&D here as we finalize final flavor. So, the good news, it’s moving forward. You know this is a big gig and there is a lot of pressure from the other guys saying no, no, you don’t need to go with Reed’s, we’ve got your solution, but they don’t. And we’re very excited that we stay way ahead of this. And now with the equipment solution that came from Reed’s, it’s really exciting. We’ve just become a very valuable partner to this client.

So, most likely, it looks like it will be a November test [Multiple Speakers] stuff?

Yes.

And then there is a last question for Dan. You talked about a lot of line items, OpEx coming down looks like in total about $250,000 this quarter sequentially. Should that be now the new run rate around 2.7 million or so a quarter for operating expenses?

I believe 2.7 is the optimal number. What we didn’t have or we don’t have experienced in a while are one-time charges from regulatory agencies while they seek additional revenue and no bad debt from a large customer; we don’t foresee any of that. And with that in mind, that would keep the G&A, which is the one that is most susceptible to significant changes.

No. I like the way on that Anthony. I appreciate you guys keeping cost down. I think that fairly 2.7, 2.85 is probably -- I’d give that more of that range. Have you guys -- have you taken me from 3 or 3 plus, down to 2.7. I’m thrilled because that makes a lot easier to do what I’m trying to do here. But yes, I think that we had a tremendous quarter. I’m pretty impressed with my guys. But, actually there’s a lot of things coming down with the new plant that’ll be improved. Anyway, I’m glad you’re saying 2.7. I just caveat it.

It sounds like obviously that could be -- obviously not going to hold you to it directly, it sounds like you obviously there could some fluctuations on a quarterly basis, based on some unforeseen expenses and some things you might want to increase for a particular quarter due to rollout or some extra R&D or plant improvements or something like that but in general that’s a good -- that’s an optimal number to look at?

The expenses are going to go up, because we’re going to make more money here and we’re going to accelerate our selling expenses. We’re not going to ignore the opportunity sitting here. We’re not here just to generate tons of profits. We’re at the leading edge of a revolution in the soda industry right now, and we’re not going to go to sleep on that.

We have no further questions from the phone lines at this time.

I am giving it a second. If anyone has a question -- that’s not too many questions. Maybe we were very thorough today. I definitely appreciate everybody’s time today and I think it’s kind of fun that we didn’t keep you on the line forever. So, if there aren’t any more questions. I’d like to say we look forward to seeing you all on the call in another three months.

Thank you. Ladies and gentlemen, that does conclude today’s conference call. We thank you for your participation and ask you please disconnect your lines.