Ladies and gentlemen, thank you for joining First Quarter 2012 Earnings Call. Your host for today, James Linesch. Mr. Linesch, you may begin.

Hi. Good afternoon, everyone. My name is Jim Linesch, the Chief Financial Officer of Reed’s. I’d like to welcome all of you to our quarterly earnings conference call. With me today is Mr. Chris Reed, Reed’s Chairman and CEO. 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 the protection of the Safe Harbor 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 dependent 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 represent Management’s estimates as of today, May 14, 2012. Reed’s assumes no obligation to update these projections in the future as market conditions change. And now I’d like to take a few moments to have a few comments about our financial performance which will be followed by Chris Reed who will give us an overview of the company’s business today. Our 2012 first quarter financial results reflect strong growth in revenues from both of our primary brands. Our Ginger Brew line expanded a little bit ahead of our Virgil’s line during the first quarter with both contributing approximately equal portions of our overall branded revenues. Our Virgil’s line extensions in ZERO and other sodas are performing well. Our overall revenues are up over 27% in 2012, driven mostly by branded product revenue growth supported by approximately 15% private label revenues. We anticipate that private label revenues will probably be around 17% to 20% of our total 2012 overall sales, based on the current contracts that we have. Our gross profits are expanding faster than our sales with a gross profit increase of 40% to about $2 million in our first quarter. Our gross margin percentage went from 28% last year to 30% in our first quarter, based on cost reductions that we have achieved in the first quarter, we believe that further margin improvements will be recorded throughout 2012. Delivery and handling costs increased by 23% to $479,000 in the first quarter. As a percent of sales, delivery and handling costs were about 7%, compared to 8% last year, and we anticipate that they will run about the 7% to 8% range throughout the year. Sales and marketing costs increased by 25% to $722,000. The increase is primarily due to our return to the important Expo West national food trade show this year and to our participation in an elite marketing program with UNFI, our largest customers, which is providing us with marketing support services in a number of areas. G&A expenses increased by 13% to $740,000 during the first quarter, which is mostly due to increased loan fees and certain professional fees and depreciation. Our total G&A compensation costs decreased by 7%. Overall, our net loss in the first quarter reduced to a $124,000 from $365,000 in 2011. Our EBITDA income, up $392,000, exceeded our interest costs of $168,000 plus our capital improvements of $110,000 during the quarter, creating a positive contribution from operations to working capital. Our cash decrease to $101,000 at March 31, from $713,000 at year end, is primarily due to inventory increases that occurred in the fall of 2011 in both ingredients and in certain finished goods. During the first quarter, we reduced our ingredient overstocks as well as certain finished goods. However, we also increased our purchase of packaging inventory due to normal demand for the year coming up. Since quarter end, we have reduced our overall inventory by about 10% and we have a defined plan for reducing inventory further, thereby freeing up more cash for our operations. On May 11, we increased our revolving line of credit from $3 million to $4 million. Prior to the increase, our collateral assets were exceeding our overall line of credit, so we were limited on our overall line of credit borrowings. Our lender, PMC Financial, could see that our working capital borrowing requirements have increased due to our business expansion and not from our operating losses. As a result, they felt comfortable with the higher limit. As we look to the balance of 2012, we feel that we are adequately capitalized to achieve the growth targets that we have set. Reed’s has a solid base of recurring and expanding branded business and we have a number of new and exciting products, yet to be introduced this year. Now, I’d like to turn this call over to Chris Reed, our President and CEO. Thank you.

Hi, sorry, thank you, Jim, I had muted.

No problem.

How embarrassing, anyway, thank you for everybody who could join with us today, obviously as a CEO of a public company it is a pretty exciting day when you can sit back and reflect on a quarter and see a 40% growth in the gross profits of your company. It’s almost sales outperformed the operations for this score card, but just barely. Operations, we got into a program, an official margin improvement program in the fourth quarter of 2011 and kind of anticipating a moving up of the economy, not a cooling off and possible inflationary pressure, we’ve gone in and renegotiated some key contracts for some of the cost of good components. And basically the effect of it is that, we have a pretty excellent improvement in margin. A lot of the concessions and renegotiations came to fruition in January, so we ran with more expensive product inventory through most of the first quarter. So we’re anticipating products produced after January were probably cheaper and those will be more reflective in the margins for the second quarter. Still, concerned, it seems like the barrel oil prices will kind of jump anytime anyone sees any light at the end of the economic tunnel. And I’m worried that, there will be some inflationary pressure. So we are still very diligent and we have targeted and ferreted out some increased opportunities that are not been realized yet for margin improvement, and some of those are in just simple operational thing such as increasing the yields on our very unique process of brewing our ginger ale. And we possibly could see another percentage point of improvement this year in gross profit margins just on that alone. So anyway that part I was heavily involved with. I feel very proud of that component of it. Anyway to look at the branded product, obviously, the brand is still growing very strongly. We expanded distribution into Michigan and Tennessee and you will see in the announcements, we’re bringing on new areas of the country kind of on a regular basis. And I mean we don’t have a map of that for to direct you to, but at some point, it will probably be a good idea, but we still have a pretty good portion of the U.S. to build distribution into. And more importantly, the relationship themselves are at their infancy and there’s so much to do in terms of getting into the accounts and exposing the customers to the product and really building up these relationships. So we look forward to doing that. And as we generate more and more gross profits, we’ve been able to have a steady hiring of sales people to take over some of the regions in the country, where we have distribution, but not a person on the street kind of working that relationship. So that’s a very traditional beverage rollout and we are able to participate more in that, what is considered a little more expensive way to go-to-market than how we’ve been doing it in the past which is staying very focused on key large national chains. We still have a very deep focus in improving our relationships with the 100 plus supermarket chains around the country that we’re in. We continue to dominate the IRI scan data in terms of being the fastest growing premium, new age beverage, premium soda, I think is the correct category. So we’re very proud of that and those numbers of course are great to show to new retailers and existing retailers to engage them further so that they can see when we educate them that the brands are doing very well there. We have some very exciting news, part of seeing us go into the UNFI ClearVue program which we started in the first quarter. We -- so that we would have a very good relationship with our distribution as we launched the largest product brand launch of the history of the company probably since the launch of the Ginger Brews and the acquisition of Virgil’s. So it’s a live probiotic drink line that will be coming out hopefully in the next 30 days. Definitely in the second quarter, we have very big plans for it. It’s a very profitable branded product line under the Reed’s brand. And it’s going into a very fast growing and much larger beverage category than the current one we play in, in the natural food industry, and probably runs about 4x or 5x more sales in natural foods than the natural soda component. So that we look forward to we think we’ve done an extraordinary job with it, it is not by any means been easy and we’re very proud of that launch coming up and hope for it to be very material in the future. And only time will tell, but we feel like we’ve done our homework on that. I also just for kind of a not as material, but still a new product launch, we’re launching a chocolate-covered crystallized ginger product line to marry up to the crystallized ginger product line that we already have out there. And that will launch in the second quarter and currently just being introduced. So first sales will be probably in the next couple of weeks, actually we have a pretty good feel on that, and it’s a good margin product. And it’s -- the preliminaries on it are, that over time it will become significant here. Let’s see, what else if I talk, we did run through and pass the SQF audit again, which is good of our private label. Second quarter we’ll be launching into one of the largest retailers in U.S. for a new product line jointly developed by our company in this large supermarket chain and their creative partners, which is a new -- it’s a very large new private label customer. I don’t know if the project itself will -- how material it will be, but it won’t be insignificant. I’m thinking it’s somewhere between a $1 million and $2 million of new annual business. As you can see private label still continues to grow, it’s not necessarily steady growth, but I mean linear perfect graph kind of -- but it’s definitely going up each quarter and year-over-year it was very significant moving into much more significant. And the one way to characterize it is that, our existing private label customers want to do more and more business with us. So most of the growth of that program is existing large chain customers asking for more projects to be put in the pipeline. And we are negotiating more projects. We’re trying to -- first, it was just like, let’s just get projects done now. It’s like we’re focused more on building in volume and profitability into that equation as we become more of a proven private label partner for these large chains. And so we have a few game changing projects on the table. We can’t really say if we’re going to get them or not, but if we do they are somewhere up to $1 million of new gross profits that would probably could do directly to the bottom line. And we are hoping with our fingers crossed and all our shareholders out there you can cross your fingers, we hope to have a game changer partnership here. But we’ve actually recently been invited this month to go to one of the largest retailers in the country and they have 250 management people come through and review our capability. So those are very new experiences for the company and exciting, because we know that we have some very unique, our position in the private label is, we build products that they can’t get anywhere else and a lot of the focus of these changes, not just bringing out another cola in a can and put a private label on it, they actually want to be cutting edge with their private label, they want more new and interesting and better-for-you products, so we are pretty perfectly positioned. We’ll reiterate we are not using our own brands and our own core competency with Ginger Brews or the Virgil’s line to compete with ourselves with private label, we are actually for the most part either knocking off competitor’s products or coming up with unique new offerings for the supermarket chain. Looking forward, I continue to see us growing as a private label producer, I see us building out VSD [ph] for the U.S., expanding our relationships more and more with our supermarket partners. Launching the most exciting new product line launch with the most opportunity for top line and bottom line growth, I like to describe this new probiotic line is costing the same as ginger brew to make and being able to charge twice as much. So we’re very excited about this category, it is not for the meek or mild or undercapitalized, I mean I don’t think it necessarily takes a lot of capital, but it’s been very good to have 3 chemical engineers on staff to ferret out the intricacies of this new project. So I think that kind of covers everything I would want to talk about, hope I haven’t missed anything looking through my notes here. But right now, I would like to open up the floor to any questions from people on the conference call.

[Operator Instructions] There are no questions in queue.

All right. Well, I thank you very much for you time today. The copy of the recording will be up on our...

Pardon me. A question just came into queue, would you like to take it, sir.

Oh, sure.

Okay. Our first question is from Joe Munda.

How you guys doing?

It’s pretty exciting stuff coming for our first quarter, so we’re very happy.

Yes. It sounds like it. Real quick Jim had mentioned the UNFI marketing and they are supporting you. What exactly is that, can you give us a little bit more color on that as far as what you guys are doing with UNFI?

Well, UNFI is the largest distributor to the natural food industry and the stock symbol is UNFI. They are the control what new products go into distribution for the most part for natural food and by having being a partner in this program it allows us to get involved with some of their exclusive marketing programs such as a consumer flyer program, it gives us full access to their sales force and getting in front of them to present and getting us top of mind kind of for the brands when they go out and pitch our brands to their customers, the retailers. I think the most important thing is everything that we produce, well [ph] they put us into their distribution and kind of a very unbilled [ph] questions asked and fast. There’s a tremendous proliferation of new products trying to make their way into one of the faster growing parts of our economy in the grocery trade through UNFI. So it’s nice to have that relationship particularly when you are about to make the largest product launch of the history of the company. And...

All right, by this largest product launch, you mean the probiotic that’s what you’re saying?

Yes.

And I mean what is the market opportunity on that? What do you think year 1 you guys can do as far as sales?

I don’t really no. I know that the leader of this category is doing somewhere north of a $150 million in sales at relatively high margin. And it’s gone pretty much unchallenged for a number of years.

Who is the leader?

Honest Tea came in and left with the acquisition by Coke and Hain Celestial came in and left, and we have a better looking package, a world-class, award winning bottle that we’ve used for our design and a fancier package, a superior tasting product and probably similar pricing, but more aggressive marketing that’s currently going on. We love to just get a piece of the couple of hundred million pie there, at high margin. And I’m not sure how fast it will go, we’re about to launch and we’ll find out, we have one chain, small chain in North Carolina is already immediate delivery of the first product off the line. And we expect enthusiasm around this, because it is a very hot item in the natural food industry. So it is anybody’s guess, a minor success would be a very minor success will be $5 million in sales, and I wouldn’t say first year, but overall, but we’re hoping to become the leader of this category. We wouldn’t be right away, but we’re making the very best and we have a very entrenched top dog there. So I can’t really predict this, I just know that it has the potential for a very significant drought [ph].

Okay. And I mean that leads me to my next question, you guys finished the quarter with $100,000 in cash, you burned $600,000 in the quarter, by my calculation just looking at the balance sheet you’ve got $850,000 left on the credit revolver, I mean, you really think you guys have enough?

Okay, first I think you’re a little bit inaccurate Joe to say that we’ve burned it because I did explain that we got some cash tied up in inventory, we overshot a little bit at year end and we’re decreasing that inventory. And if you look at it from an EBITDA standpoint, our operations actually provided cash, so...

I got you, but I’m looking at it from a dollars and cents standpoint here and it’s showing $600,000 burned in the quarter.

And I’m explaining to you that it was due to some inventory build ups primarily and...

So how much are you guys are going to reduce inventory then this year.

We’ve already reduced by about $500,000, we’re targeting $1 million by at least the end of the third quarter, but hopefully by the end of second quarter. Right now we still have some glass on hand that we will use, but maybe not until later in the year and we’ve elected to not liquidate it which we could do. And so those are the main reasons why we ended up where we did. We don’t feel good about it, but it certainly doesn’t mean that we burned through cash.

All right. Yes, I’d like to address that, because I think it’s kind of a big issue.

Yes. It is.

The COO part our margin improvement program is that, we did renegotiate, and I’d say, we negotiated aggressively in some areas. And with one of our suppliers who had been giving us a bit of a line of a credit above the terms basically, said, look, if you’re going to hold me to this contract to the way you are, then I would like to see, you hold yourself to your terms so at least by cash flow improved, while you beat up my margins. So, there was a couple of hundred dollars that came out at that point. The second thing and probably more material is that, with the summer time coming, the seasonality of this, they started to buildup inventory, but COO started really in earnest getting the West Coast plant running all of the west of the Mississippi production, which is something we’ve done off and on, but has kind of held that going forward, so that we can improve margins, take advantage of the freight savings by not having to ship from Pennsylvania to Los Angeles for sales or San Francisco and Seattle. And so he was building up inventories of finished goods on both coasts for the seasonality. And I basically asked him to, I mean I’ve also run that area for 20 years here, and we’ve targeted an easy $1 million reduction in inventory by mid third quarter and I think you might hear a little trust me on it, but we feel very confident that you will see that reduction. Obviously, the line of credit increased the inventory management now that both plants are running at full and that’s getting coordinated better and our own generation of capital here cash through the operations. I think that we’re feeling that snapshot at the end of the month we had availability we probably should have borrowed it and threw it into the bank just so you could see it on the balance sheet. But I think it was just an unfortunate snapshot and our snapshot at the end of the second quarter will allay any fears that somehow we’re disappeared some cash here.

All right. So the inventory that you’re going to knock down by a $1 million, what is that, is that branded or is that private label, what’s the breakdown on the inventory?

It’s mostly finished goods and packaging of branded product.

That is just waiting to be shipped?

Yes. So it was pretty easy to do for the first $0.5 million, I think we’re probably getting closer to $700,000 to $800,000 of that. But basically it was, you know what, we’re running very well on the West Coast, you’re being conservative, this is me talking to the COO and having both inventories available in case the West Coast was not going to keep up. You now can feel comfortable that we’ve done that, so now you can skip a production on the East Coast for May and basically not run on 100,000 cases at about $800,000, because you have enough inventory on both coasts. The answer back to me was, yes, I can see you right Mr. Reed and like okay, now we don’t want to short any customers, but you now need to run at this adjusted 2 plants running full out mode. So he was just being very conservative, I can appreciate it, but it did suck some cash out and then you will see us comfortably working with more cash in the bank at the end of the second quarter.

So then we should see -- what you are saying then is the inventory number that we see at the end of 2011 by the end of 2012 should be $1 million less.

That’s always it’s interesting what the fourth quarter will do, we have a lot of business, but if we do our job right, I’ll say that it will be down $1 million during the year and at the end of the fourth quarter if we predicted our fourth quarter well it will be down $1 million at that time too.

I agree.

But I would say it with the caveat, because the fourth quarter can get very robust here.

What happens when you get an order like on this probiotic thing and you don’t have the cash to finance it, because the order is too big?

Yes, I’ve never let getting cash, get in the way of us making money. So if we have a huge probiotic order and the gross profits are huge, we have a very entrepreneurial bank and as long as we’re doing what we are doing right now in the first quarter propagating through the year, I don’t think we’ll have any trouble financing highly profitable growth.

Okay. And what’s the plant –- what are both plants running at, at what capacity?

Well, they’re covering all the production needs for the sales on the West Coast and for the West Coast plant, and the East Coast for the East Coast plant. The West Coast plant is probably still at less than 50% of the total capacity of the plant. So there is a plenty of room to grow with private label.

And then where does probiotic fit in there? I mean, how much capacity is that going to take up?

Hopefully, a bunch of it.

If we’re lucky, the whole thing.

We are comfortable keeping up with sales here as it grows and we are able to probably grow production at somewhere around 20% to 30% a month, and start it out at approximately an annualized sales of around $1.5 million growing that 20% or 30% a month. So that it should, if we’re growing faster than that, knock on wood and we’re all engineers here and we know how to grow faster.

Okay. But you don’t know how, you don’t know what the orders look like, you only have one order right now, right?

Our distribution, UNFI is waiting for the call that says we’re ready to pick up. And we’re telling them somewhere around the 10th to the 15th of June, we should be good with our first product. It’s a pretty tricky launch, you don’t want to get out there in short, so we probably will start with a few regions and this one chain in North Carolina that’s asked for the product immediately. In theory that North Carolina chain could pick up the whole first productions or $60,000 or $80,000, but we’re trying not to do that, we’re trying to get it into distribution in June, so that we can capture and run a little bit during the summer time, which is a very good time to trial beverages, soda or drinks.

And I’m sorry, who is the leader in this space. Is that Honest Tea?

No, they came into the category and walked out. GT, Synergy, they have the GT brand.

I’m sorry, what was that?

GT’s -- GT.

GT?

Yes, they’re by far the dominant -- I mean the name of the company is Millennium Products. They’re here in L.A. It’s a private company. And they’ve really forged the market and they’ve done a great job.

Where did you get the 3 engineers from, GT?

No, [indiscernible] one of the chemical engineer, my plant manager is another and our product development specialist is another chemy.

Okay. All right. You guys happen to know what they do in revenue a year or no?

I think it’s somewhere between a $150 million and $200 million.

Yes.

Okay. I mean, Chris the whole new space, where did you, how did you decided to get into this. I mean, I’m guessing they’re close to you guys, did you just happen to take a look and said, we can do this?

We live and breathe the natural beverage space, and we’ve been running in parallel our 2 companies for a long time. And we are craft brewers of the finest non-alcoholic brews on planet earth, not non-alcoholic beer, but what we do the unique ginger brews. So it’s kind of up our alley to see another individual making same kind of brews in a lot of ways except just leaving it probiotic and live and selling it for twice as much, and feeling not envy, but knowing also that our relationship with UNFI in the marketplace is such that, we should have a good reception. I mean we already took it to the trade show Expo West and people were pretty -- it was very well received. It’s a superior product to the products out there under Millennium and the packaging, everything about this product is better. So yes, we believe in that and we believe that customers will get that and we also believe in our ability to market. So we’re trying to make very strategic high probability of success moves with the company that generate a tremendous amount of gross profit so that we can bulk up as a company and execute on a business model that does not include selling stock anymore.

Another component is that we are delivering ginger through our [indiscernible] and we just consider that’s a part of our mission is to expand ginger and this is a new form of delivering ginger in a very, very effective way that can be used by the body and we hope to come out with other ginger products as we go. So that there is a natural thing there, that we float into it.

[Operator Instructions] Our next question -- our next question is from Neal Cohen.

No, operator, I was just going to tell you that, please ask everybody to press one on their receiver to ask a question. So, thanks, Neil.

Okay. [Operator Instructions]

All right, Joe. If you have more questions, feel free to ask them at this point.

Go ahead, Joe.

Yes. I guess from everyone here.

The only one asking questions.

As far as CapEx concern, it looks like you guys are down a little bit year-over-year with new business coming up, could we expect that, I mean what do you guys forecast in CapEx 2012?

Well, 2011 was about getting SQF up and running in the plant. Also, we created and brought on a bit of new capability. I’d say as we get closer to hitting full plant capacity, you will probably see us out looking for equipment that will allow us to speed up the line. The plant can probably go to double the speed in this facility and grow into that new speed. So in terms of there definitely can be some CapEx with the Kombucha, the probiotic line, and we’re not necessarily sure that any of that’s going to hit this year. If it does it means that we’ve had a pretty explosive launch for the year and surely the sheer profitability of that line will probably cover any of the extra tanks that we might need to acquire. So it’s not super expensive equipment, but a lot of used stainless steel tanks could be acquired to support increased volumes there. So I think you’ve seen a lot of the spending I would expect the CapEx to go down this year. We acquired a number of pieces of equipment last year that now they are up and running, we’re just using and leveraging those acquisitions with our private label. They do give us pretty unique capabilities here.

Okay. And Chris, I mean you think you can get a full -- the gross margin, I mean you guys go into pretty extensive detail on it and we appreciate it, but do you think that with the summer season coming, we’re going to see the expansion that we usually see from first quarter into second quarter as far as gross margin is concerned?

That’s a good question, I mean I’d have to go look at the seasonality of our gross profit margin, because you’re right, if they’re doing a lot of advertising, they can push down the top line number. But again, as I mentioned in the first quarter, we had a number of renegotiations that are probably hitting more heavily improving the cost of goods in the second quarter. And we still have a large project for yields that is going to yield improved gross profits also. So that, I think that we should be able to hold the level of improvement of the first quarter and have possible improvements on that in the second and third. We will see, it’s a big equation, it’s hard to be exactly accurate on it. But I think that we’ve seen a permanent shift into better gross profit margins based on our first quarter results.

Okay. And do you guys expect to be profitable for the year?

No, no, I would be surprise if we don’t show a quarter here with profitability in the next 2, but for the whole year...

We certainly expect to be EBITDA positive covering interest and CapEx, which is kind of to us internally is profitable.

And I mean, $168,000, what’s the interest that you guys, what’s the rate of interest that you guys are paying?

We will go along at probably about the same rate that you saw in the first quarter. But here we are, we had a $124,000 loss in our lightest quarter of year. So it’s hard to see there is a lot of moving pieces, but we’re certainly headed in that direction.

Our next question is from Evan Stern [ph].

It’s Evan Stern. I’m really excited about the new products coming out, especially the chocolate-covered ginger.

Thanks, yes, it’s great.

Will that be on the East Coast too?

Yes, it will launch in UNFI, so it will be pretty much all across the country simultaneously.

Great. Well I have the question about the cash position, being so low, I was wondering if, what your position on that, how confident are you that you won’t have to raise equity through an offering of the equity?

Well I mean it’s a good question. We see 3 things happening: one is we’re reducing inventory as we speak and we’ve been, we’ve done that very significantly already to date, and that should improve our cash position. We had a $100,000 in the bank and another couple of hundred thousand dollars availability in our line of credit, and so we could have borrowed and showed $300,000 in the balance sheet. And you will see the line of credit went up from $3 million to $4 million. We have more availability of funds. We’re reducing inventory, and we’re generating cash through the operation. So we generated about a $130,000 during the first quarter, our absolute worst quarter of the year, my rule of thumb for years has been what we do in the first quarter, we do about 20% of our business in the first quarter and times it by 5 and that’s generally kind of like the run rate at least that rule of thumb has played out in most of the prior years. Last year, we did $5 million, $5.1 million, we ended the year at $25.3 million. And so it’s not unusual to see that pace, we of course would like to accelerate from that pace with the new Kombucha launch and some of the private label we’re dealing with. But we’re so confident in it that we will just -- we’re saying trust us, you’ll see the end of the second quarter we’ll show a significant amount more cash on hand. And now that we’ve said those kind of things, we won’t go out and go do a huge marketing thing or do something crazy to do that. Everything is moving the way it’s moving right now. We’ll show significantly more cash at the end of the second quarter. So, the only reason we would feel we need to raise money is if we just felt like there was too much pressure from the shareholders to believe what we’re saying and that would have to be extreme amount of pressure because quite frankly we’re a long-term players and we’re confident in our statements that we do not need to sell any stock to operate this business. So I mean if you can be with that, I think you’ll see us living by our words here.

[Operator Instructions] There are no further questions in queue.

All right. Well, I’d like to thank everybody who has been on the call today, and I look forward to having you in future calls and providing you with more wonderful results. Have a wonderful day.