Chris Reed - CEO and Founder Larry Tomsic - Interim CFO Neal Cohane - SVP, Sales and Marketing.

Kevin Dede - H.C. Wainwright Walter Ramsley - Walrus Partners.

Good afternoon, and welcome to the Reed’s Year-End 2014 Earnings Conference Call. My name is George, and I’ll be your conference call operator today. Participating in today’s call we have Chris Reed, the CEO and Founder of Reed’s; Larry Tomsic, the Interim Chief Financial Officer; and Neal Cohane, Senior Vice President of Sales and Marketing.

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.

Therefore, the Company claims the protection of the Safe Harbor for 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 such as the Company’s future performance represent management’s estimates as of today, March 26, 2015. Reed’s, Inc. assumes no obligation to update these projections in the future as market conditions change. I will now turn the call over to Mr. Tomsic, who will begin with prepared remarks. Please go ahead sir..

Thank you, George. Hello, everyone. Thank you for your interest in Reed’s, Inc. And thank you for joining us today for the Reed’s, Inc. 2014 year-end earnings call. This is Larry Tomsic, CFO of Reed’s, Inc. In addition to the press release issued today, we have also filed our 10-K for the 2014 fiscal year.

I will start with the recap of our results, then turn the call over to Chris Reed, who is the CEO and Founder of Reed’s, Inc. 2014 results. Driven by our core brands, we achieved record gross sales for 2014 of $48.1 million which was a 14% increase over 2013.

Gross sales growth was driven by increased sales of 20% in Reed’s Ginger Brews that represented 35% of gross sales; increased sales of 16.5% in Virgil’s Craft Sodas that represented 35% of gross sales; and increased sales of 38% in Kombucha that represented 12% of gross sales.

Sales of our other product category that includes candy and non-core beverage sales increased 5.5% and represented 8% of gross sales. 2014 Private Label sales decreased 25% and represented 10% of gross sales.

Full year 2014 Private Label softness was due primarily to three factors, cycling the 2013 national introduction, displays, ads and aggressive pricing of the brand we launched with one of the largest supermarket chains in the U.S; another top-three ranked retailer requested a package change at the beginning of the year, resulting in lag time for new orders while they depleted old package inventories out of their system; finally, a third – a large supermarket retailer in the western United States was spun off from their parent company resulting in immediate reduction in inventories across the entire chain while they reorganized and restructured their new business model.

We have not lost any of our major Private Label customers. Our topline promotional activity decreased significantly to 9.6% of gross sales versus 12% in the prior year. This resulted in a net sales growth of 16% for the year or $43.4 million versus $37.3 million for 2013.

Our Gross margin increased slightly for the year to approximately 30% and our gross profit dollars for 2014 increased by 20% or $2.2 million to $13 million. Our idle plant cost declined $521,000 or 19% to $2.3 million or 5% of 2014 net sales versus 7% of 2013 net sales due to cost reductions and production efficiencies throughout most of the year.

We leveraged our operating expenses in 2014. Net sales increased 16% from 2013 to 2014; our operating expenses only increased 11%. Operating expenses as a percentage of net sales decreased from 31% in 2013 to 30% in 2014. Delivery costs and general and administrative costs as a percentage of net sales also declined.

Selling and marketing expenses were 11% of net sales in both 2014 and 2013 and included $431,000 for national cable television advertising campaign which aired in third quarter of 2014.

Interest expense for 2014 was $793,000 versus $651,000 for 2013 due to increased borrowings to meet increased sales demand and due to capital expansion loan which closed in December 2014.

We purchased $672,000 of new machinery and equipment with our capital expansion loan in 2014 and will purchase additional assets in 2015 that will be used to expand and improve our bottling capacity in the Los Angeles plant. Operating income for 2014 was $41,000 which was a substantial improvement over the 2013 operating loss of $869,000.

The change was due to the increased sales, better gross margin and a decline in operating expenses as a percentage of sales. Through the third quarter of 2014, the Company reported $461,000 in income attributable to stockholders and EBITDA was $1.9 million.

Unfortunately, the Company’s fourth quarter loss of $1.22 million reduced our year-to-date gains. Our fourth quarter gross margin was primarily impacted by increased commodity prices, increased co-packing fees, increased labor cost, write-offs of obsolete inventory, and a lower than originally anticipated gross margin on a large Private Label order.

Fortunately commodities price increases are already reversing back to last year’s levels and we anticipate prices will return to prior levels in the second quarter of 2015. Company plans to add other co-packers in 2015. Additionally, we anticipate that the labor cost will decline as the plant improvements are implemented in the second half of 2015.

Fourth quarter inventory write-offs were primarily related to non-recurring Private Label orders. Although the Private Label order resulted in a lower than anticipated margin contribution, that strategic decision led to additional branded SKUs being distributed with this significant retailer.

Our fourth quarter operating expenses were in line with prior quarters with the exception of freight costs that increased to 13% of net sales in the fourth quarter due to expedited shipping for the large private label order and some temporary out of stock situations which required cross-country shipments from our East Coast co-packer.

Although the lower expectations EBITDA improved by approximately $1.2 million year-over-year. EBITDA was $13,000 in 2013 and $1.2 million in 2014. The $766,000 reduction in operating loss accounted for most of the $1.2 million improvement. Additional details are available in the EBITDA table in today’s earnings release.

Our balance sheet cash at December 31, 2014 was $959,000 versus $1.1 million at December 31, 2013. Net cash provided by operating activities for 2014 was $1 million versus $1.2 million last year.

The Company purchased new fixed assets of $330,000 through cash payments; $493,000 in new fixed assets via leases; and $672,000 in new fixed assets via the new capital expansion loan. Substantially all of the assets were purchased for the Los Angeles plant expansion and improvement project.

As of December 31, 2014, we had stockholders’ equity of $3.7 million versus $3.4 million at December 31, 2013. Working capital was $2.2 million at December 31, 2014 versus $1.3 million at December 31, 2013.

Prepaid inventory increased from $256,000 at December 31, 2013 to $1.3 million at December 31, 2014, primarily due to deposits on glass necessary to meet future production demands. Outlook. Reed’s expects continued strong demand for its core brands during the first quarter and gross margin improvement versus the fourth quarter of 2014.

For the full year, the Company’s net sales target is $50 million with moderate profitability. This forecast does not include anticipated improvement for net income from the plant modernization program that is anticipated to lower labor costs and result in lower cost of goods sold in the second half of 2015.

Now, it is my pleasure to turn the call over to Chris Reed, the Founder and CEO of Reed’s, Inc..

Thanks Larry, and thank you for joining us today. 2014 was another very strong year for Reed’s, it was particularly driven by our own -- our core brands. [This is exciting and] [ph] we’re also seeing that growth spilling over into 2015. Our number one item is actually -- our number one selling product is our number one growing product at this time.

The Reed’s Extra Ginger Brew, I think that part of the growth is rising awareness of the health properties of ginger and a rising awareness of its amazing ability to mix with liquor, particularly with the growth of the Mezcal Mule, probably the most successful or the most popular fastest growing cocktail in America.

So, there is exciting trends continuing into 2015 that include Reed’s partnering up with soon to be announced some of the larger liquor companies in America, to basically expand the awareness and distribution of Reed’s with vodkas in the marketplace for making Mezcal Mules. So, it’s a very exciting time.

Again with the third quarter, I talked about the shifting dynamic in America away from the big two soda companies. They continue to report a diminishing sales base while brands like Reed’s continue to rack up in the last syndicated data in the supermarket trade we had 30% growth of Reed’s in the last 52 weeks and in the last 12 weeks, 31% growth.

The number of new accounts we picked up in supermarket was about 8% more supermarkets over the year but the actual -- so, we’re looking at same-store sales growth adding another 20% to that figure. So that’s a nice trend for the Company.

So, during the year, I took over the COO position starting in February, spent some time analyzing what might make it or improve the area. And out of it came a number of projects for improving the cost of goods and improving the production of Reed’s.

So with it we are deep into new projects out in the West Coast where we’re tripling the speed of our current line with automation, so that the same amount of labor that we use and we have a very high labor cost. We’ll now produce three times more cases per hour per dollar. So, it’s going to have a dramatic impact.

And we still anticipate that towards the end of the second quarter, we’ll have that line coming up and starting to benefit us, hopefully shortly within the beginning of the third quarter to have it fully operational.

Part of the -- knowing the importance to the Company to get the different projects for production partners as we find ourselves, particularly our Ginger Brews growing very quickly, we have hired a new COO to help take those projects and accelerate them and even improve on them, Mark Beaton who prior was the VP of Operations at Dr.

Pepper/Snapple, and it’s been a real pleasant to have someone of such depth and experience as Mark’s not just been up in the stratosphere of major beverage company, he started out on the floor of beverage plants and worked himself up to that level. So, he understands a plant all the way down to the nuts and bolts, kind of like we do at this point.

And it’s just working out so far to be just a tremendous asset to our expansion here. So, that’s been exciting for us. And the launch of stronger Ginger Brew during actually 2015 recently is also going to have a nice impact.

It was somewhat inspired by the mixer capabilities of our drink and having some class of bartenders asking for a stronger version to mix with.

We took the product to our latest trade show, the Natural Products show in Anaheim last month where we -- actually this month, where we had 70,000 people coming through the show, probably demoed somewhere around 15,000 of them.

My own experience was that most people prefer the stronger ginger brew to the number one SKU in the industry and our number one SKU for sodas, the Reed’s Extra Ginger Brew.

So, it sounds like a problem, but we also -- we know that when we launched the Extra Ginger Brew on the heels of original Ginger Brew, not only did original continue to grow but Extra expanded the category.

So, having more depth to the line, we know is going to be huge improvement and for those bartenders who need it a little bit spicier, I mean the world’s changed since 25 years of making ginger brew, now things like ghost peppers are dwarfing jalapeno. So, people’s tolerance and need for spice has evolved over these years.

And we’re finding that we probably could have launched stronger maybe even considerably earlier than we have. But we’re very, very excited to launch a product that looks to have major legs and it’s dovetailing nicely into new relationships developing for Reed’s in the liquor industry.

Matter of fact, this next -- this weekend, we’re at the nightclub and bar show in Vegas, highlighting our product next to the Anheuser-Busch booth which will basically highlight us with liquor companies in front of all the bartenders and nightclubs that show up there which is a big show.

So, during the year, we also went to our first NACS show, which is the National Association of Convenience Stores. And we were pleasantly surprised that the products are not too advanced for the convenience store industry. And we picked up a lot of new customers for that.

I asked Neal before the call, he thinks somewhere between 500 to 1,000 convenience stores have come on board; I believe there is somewhere 50,000 to 100,000 of those. So, it’s a very large new channel of growth for Reed’s. The gross margins continue to improve.

We did have some issues that are isolated to the fourth quarter and have unwound in the first quarter. Although there were some commodity price increases during the third and fourth quarter that are unwinding through the -- for the first half of this year. So, we are as concerned about those as that might sound.

Plant efficiencies, we’re still expecting to see the efficiencies due to the new plant coming onboard in the new process and relationships on the East Coast that will allow us to save considerable amount of money in the production of our products. We renegotiated our credit facility based on the improving financials of the Company from 13.5% to 9%.

We envision that another year of improvements here projecting profits et cetera that we’ll be able to go out and get a bank facility that will be hopefully another significant improvement in interest rate. So, we’re looking forward to that improvement also here within the next year.

Some of the key dynamics of the Kombucha line is our Kombucha grew at 118% in mainstream supermarkets according to the IRI data. We are still at a very low ACV in the industry; we went from 5% of the stores carrying us in the supermarket trade which represents about 35,000 supermarkets to 8% but with that we saw a 118% growth.

So, most of our growth in Kombucha we’re finding is in conventional, it’s very crowded in the natural food category. In the SPINS data that we purchased, we’re holding our own there.

And we’re hoping with the launch of the Coffee Kombucha which came out in 2014, really got its full launch at the Natural Products show in Anaheim this month that that will see a change in us continuing to show ourselves as the innovator in the Kombucha category.

But definitely our relationship in the supermarket trade is allowing us to leverage that to get our Kombucha in there in many situations. Sometimes we’re then only Kombucha, but often times the top selling Kombucha, the number one in America, we’re going in as number two. And sometimes they only let one or two into the chain.

So that continues to be great growth for -- opportunities for the Kombucha and at the same time, the industry is knocking on our door as a fully certified private label producer of products with the third-party audit certifications that are required by large national retailers and the capability of producing Kombucha.

We continue to have large conversations of producing private label Kombucha for some of the largest retailers in U.S. So, that we have a strong feeling that one way or another, our Kombucha is going to generate significant growth for the Company for the near future and as far as we can see.

The Private Label, while it slipped 25% last year and Larry mentioned, one of our big clients was sold -- their European partner sold out the company and the new partners have shifted their private label needs which reduced -- gave a hit to our Private Label sales for the year.

And last year we had some very large launches for some of the big chains that we private label for and we were cycling against those big initial launch productions. So, we still see our Private Label as being healthy.

We have already -- most of the private label runs 18 months out, so we can clearly see the improvements that are happening in 2015 for private label. We’re not cycling against any big launches and we’re also not anticipating any of our largest customers in private label to be sold off. It can happen I guess.

Actually one of ours did get sold off and now they’re expanding us into the other partner. So actually, we are getting an expansion due to a sale right now. So, we anticipate 2015 to have increased Private Label sales.

And again, we keep Private Label not only to help utilize and cover expenses with our West Coast facility but it has built relationships with some of the largest retailers in the U.S.

We continue especially where we get shut out with our brands, we continue to knock on the door and sometimes it’s our Private Label that gets us in the door first as it has with some of the largest Chains in America and we will be reporting some of those situations again in 2015.

The things that are exciting to me beside the improvements from the plant and the impending improvements from that are the strength of our own brands out in the marketplace.

We see as we look at the new supermarket business, even though we’re in the supermarkets for five years, most of our businesses within the last -- new business in the supermarket trade has happened in the last two or three years.

And we know over time that as we have more time to partner with supermarkets and more time to do marketing to introduce their customers to our products that we continue to see growth. And the IRI data that I mentioned earlier showed 30% growth. And this is the same kind of growth we’ve been seeing for the last two or three years.

It’s same-store growth mostly and some new store growth. It’s a great trend. We know from the mature supermarket trade that we have on board that we know what kind of levels we’ll get to after we’ve had time to do the marketing that gets the brand moving in these supermarket stores.

We also know that the mature accounts like Trader Joe’s and Whole Foods what kind of volumes we get to eventually in those kind of accounts. So, we’re very excited on that trend. We continue to move our core initial competency of the grocery industry forward and see opportunities to double or triple as a company in supermarket alone.

Now, last year, we started looking for a more sophisticated way to approach the beer distribution market and out of that research came are stumbling across and discovering a data service that allows us to peer into our accounts in the DSD network system and see exactly how we are selling often times on a daily basis by item, by store.

And this is probably a 5-year delay of what kind of intel a company like MillerCoors or Anheuser-Busch or Coke or Pepsi. I am sure they’ve evolved to even deeper real-time data information. But this has had a dramatic effect on our go-to-market.

And the trends under the microscope here that are showing tremendous opportunity and causing a lot of excitement for us and management are that some of the DSD accounts where we’ve started utilizing the data service and tying our sales people into receiving that feedback on a daily basis on what their accounts are doing, we are finding that our growth has accelerated.

And our largest account in the country for DSD is Manhattan Beer which is also of course largest distributor in the country handling the New York City marketplace with 25,000 accounts and 250 sales people. We had 108% growth year-over-year with that account.

And that account represents our model of how we are partnering up with and staffing up the marketplace with our personnel to work hand in hand with the distributor. We’re also running that test in Los Angeles with Haralambos. And Haralambos came on in April, so we don’t have the year-over-year data.

But we can comfortably say in 2015 that we anticipate 50% growth. Looking at the DSD network that we have onboard and seeing the more mature DSD networks onboard mostly in the northwest, we can project that we have a significant upside in the DSD network.

And you can see another $50 million to $100 million that the Company could reach based on kind of performance we’re having right now.

And we see the methodology; we see the investment needed, it dovetails into getting our facilities lined up, our margins lined up and having the internally generated capital to hire the staff and partner up with the DSD network, the way we are in a number of key markets. So, this has been some of the work we’ve done for the year.

It’s very exciting in the managements, particularly in sales to see what kind of things are going on here. The partnership people -- so we always talk about ourselves as being the Coke of the natural food industry. And hopefully with the natural food industry growing that’s a more positive coke than what’s happening in mainstream with Coke.

But we’re also being touted as the Sam Adams of the craft soda revolution. The beverage industry has for the last couple of years called the craft soda trend the hot new trend of the year. I guess they don’t know we go with new trends every year or this one has staying power. But we are the king of the craft soda revolution.

And we are hoping that the marketplace as they get more familiar with the replacements to the Coke and Pepsi domination to more of the natural and craft oriented producers that they’ll see an expansion same way that happened with craft beer, more and more food service, more and more supermarkets will put, more and more of their exposure to this growing trend.

Anyway, it’s exciting to have so many trends going forward as mezcal mule, as the health properties of ginger and research on ginger and also now the craft soda category explosion. And so, there is a lot of excitement here with Reed’s. I think I have covered most of what I wanted to say.

I would like to say within 2014 we did run a TV campaign; we learned a bunch about running TV; we also hired SEO of social media/PR company who has really expanded our reach in the social media realm of the company. And we’ve been really pleased with that.

It’s really the first time we finally lined things up with very high level company in LA called Wpromote and they have done a phenomenal job for the Company in that respect. Looking at the year, what’s working best for us is kind of old fashioned.

And it’s mostly just we want to get in front of our customers and pour them a drink whether it’s mixed or just by itself and have them taste the product and talk about craft making a soda, the way sodas were made a couple of hundred years ago.

And with that, we are showing up more and more to public events, more and more demos are happening in accounts. And we’re partnering up with liquor companies to launch more heavily into mainstream from the mixologist point of view. So, I think that kind of wraps up my overview of 2014, a little peak into 2015.

And at this point, I’d like to open the floor to any questions..

[Operator Instructions]. Our first question comes from the line of Kevin Dede from H.C. Wainwright. Please go ahead..

Hey. Congrats on the nice job on the year-over-year increase. I missed the gross numbers, Larry. Obviously you’ve got the net stuff because that came in the press but I didn’t see the K.

So, could you talk about the gross numbers and how that might compare to case volume, just to give us a little indication on what’s going on in pricing and what happens as volume increases and sales increase and shipments increase? I’m not sure that you’re comfortable talking about case volume but as much as you can talk about the relative nature between gross sales and case volume I’d appreciate it..

I’ll leave the case volume answer to Chris; he knows that much better than I do. But the gross dollars were $42,000,242 last year and it was $48.1 million this year..

So, what was the percentage increase there, Larry?.

The percentage increase was 14% from $42,000,242 to $48,000,061. It was 14% increase..

The difference between the net sales, we weren’t eroding the gross sale number as much. So, we didn’t advertise discount, deal, promote as heavily in 2014 as we did in 2013. So, we went from I think it was 12.2% or 12% to 9.6% for the year. And that would have benefited the margins by about 2.4%.

But we had pressure coming from an increase from our toll fee from our co-pack facility on East Coast and also from some commodity increases that happened in the second half of the year. But in general, if you want to look at case cost or case sales for us, just divide by 20. So, we’re doing 40 million and you got about 2 million cases..

Okay. So, that comparison that 20 divisor is pretty consistent year-over-year that’s kind of the nature of my question..

Well, I mean when you discount less off the top line, then you are netting out more dollars per case. So, we pushed up our top line on a per case basis, but we had pressure underneath from increased cost for cost of goods. And that’s – you know what we’re unwinding right now with these new facilities coming onboard, more than unwinding.

I mean the West Coast; we’re making a significant decrease from any point in the past. And then, in the East Coast, we’re going to hopefully get back to the prices we had in prior years, competitive prices for the production of our products in the East Coast. So, with that, we’re working on and expect to have a solution here at some point..

You had pretty specific IRI data on the number of doors, your Kombucha was in, Chris.

Do you have respective data for the balance of your sodas?.

Yes. The ACV for our sodas in the last 12 weeks ending January, we were at 28% on Ginger Brew in 25% of the supermarkets. And I think it is every supermarket over $2 million in sales; it’s about 35,000 supermarkets; we’re in about 25% with Virgil’s..

Okay.

How does that compare to 2013?.

2013 started at 25% for Reed’s, so it went up 3% although -- yes, so it went up 3% and then the Virgil’s started at 21% and ended – well, anyway –.

25%..

Numbers depending if I look at the 12 weeks or look at the 52 weeks, I’m not really sure why..

Chris, we’re up probably about – we’re up 12% on Reed’s on our ACV presence and 19% in Virgil’s. So, we continue to grow and expand in supermarkets, and that trend is going to keep growing..

Okay. So, you’re – yes I can see what -- you’re only roughly 30% on the high side penetrated, so there is lots of room to grow..

That’s the biggest opportunity; I mean that’s what makes this exciting right now..

I disagree that’s the biggest opportunity, because we have a big opportunity to increase the number of accounts, but our biggest opportunity is the maturing in individual accounts, and we saw that year-over-year, most of our growth is in same-store accounts.

So yes, we might be able to double the number of accounts in supermarkets, but we can surely go up three times in each account because most of these are new, and the volumes they are doing versus other supermarket accounts that we’ve had on board for five or eight years are just doing sometimes up to 10 times more business than the bulk of what we have on board, which are newbies..

That’s a great point.

So, can you talk to the opportunity you have or you think you have and any indication of how you might see it come to pass on the SKU count?.

Well, I like to use the same analogy that I used in the third quarter conference call. We went into Safeway and bought the IRI data to analyze for $300 million worth of their soft drink sales. And we ranked all the soft drink SKUs, all the items on the soft drink aisle by their gross profits.

And we came out at -- shockingly we brought it to the meeting asking for our one item in Safeway’s 1,800 stores, we have an average of one item per store, and we were the number five SKU, the number five gross profit generating SKU on the shelves.

Now, the problem with our analysis is that Coke’s number one SKU, which is Coke, had six feet and we had a half a foot. So, we were heavily penalized to get to where we got, which was number five.

But if you identify linear inch or feet, we were the number one SKU on the soft drink aisle for 1,800 stores for $300 million in sales, which is statistically significant. So, when we go into Safeway and say, “look, not only do we beat everything Dr.

Pepper/Snapple does and all these much lesser brands that are on our aisle, 120 SKUs, but we’re number five, so do you think we deserve to be there little heavier?” And if we had talked to them in linear inches, we would have said we were number 1.

The conversation went well, as it has since that time, and we continue to bring on more SKUs into the industry. So, it’s hard for us to predict. I use rough numbers like, “Yes, I think we can triple in grocery.” I mean the fact is we are at our infancy in grocery, and the products are really strong..

Fair enough. Do you think you -- I mean I know that it’s difficult to predict Chris, and I appreciate it; I am just wondering just to give us some substance behind your $50 million number for the year, any kind of insight on -- I mean obviously you tried to talk to us in the March call and the June call.

I am just wondering do you think you’d be able to report on the -- your largest customer’s SKU increase..

Did you mean put a press release out on it or…?.

Well, I am not so much about that. I’m just concerned about how we might hear about this going forward..

Here is a great example of it. We have a club store, and I’ll just use a club store because we want to announce it separately. And they looked at our -- we just started dabbling with them last year. We did about 0.75 million with the new client. And they said we were 2% of their sales for the year, but we were 7% of the gross profit.

So, that’s why people are loving us. We don’t always move the volume of these big guys. We just have a much bigger margin for the retailers, so they have four times the margin, and you don’t have to move as much. So, they like that. For the first time in many years, they have margin on sodas. But anyway, this guy calls us up.

This isn’t a sales call, this is the call to headquarters.

“Hey, will you come down and hang out with us, because in 2015, we’d like to expand our relationship, because my job is looking better and I think that if we do this right, I’ll look great and get a raise.” So, we’re just going, “hey let’s help you out dude.” And they are talking about, “okay, let’s just move from 0.75 million, we’ll increase the SKUs the number of times a year we’re playing with you and let’s shoot for $3 million or $4 million in sales in 2015.” So, the conversation to an intelligent supermarket owner who is basing his decisions on making money, gross profits, PE ratios, and earnings, that guy is going to look at us and put more SKUs on the shelf..

Fair enough. Larry, I missed your numbers; my pencil wasn’t sharp enough when you started the call. Would you mind refreshing that data that you initially released? It was just on the Ginger Brew growth and mix at the end for the year..

Sure. The Reed’s Ginger Beer increased 20% the total brand, and they’re 35% of our gross sales; Virgil’s increased 16.5% and they’re also 35% of our gross sales; Kombucha, 38% increase, 12% of gross sales; Other increased 5.5%, and 8% of gross sales; Private Label decreased 25%, and 10% of gross sales..

Perfect. Thanks very much..

[Operator Instructions]. Our next question comes from Kenny Shepherd. He’s a private investor. Please go ahead..

Hi, congratulations on the results. I just wanted to ask in terms of a strategy question; it seems like some of your focus may be in the -- I guess twofold, I guess number one natural market, but secondly, now you’re looking to expand in the liquor market.

It seems like that may pose a risk in strategy, and in marrying the two, can you talk about how you think you can be successful marrying the brand and kind of expanding it along the lines from that perspective please?.

Sure. And I remember when I was a kid, and I was dosing the world as an herbalist and studying Chinese medicine and Ayurveda and wanting to put ginger into the U.S.

diet and having a very idealistic attitude, and then Seagram’s came along and said, you know this stuff in Captain Morgan is amazing, and we were wondering if you have the capability of a 5,000 store test trial in Southern California, and I remember telling the guys at Seagram’s that that’s the wrong image for me and that’s not who I am.

But over the years, I’ve mellowed, and I can tell you, the natural food industry sales are up, and I can’t say this -- I can’t say I can’t tell you, I know though that the trend or the explosion of Moscow Mule is part of the reason Whole Foods is selling more extra ginger beer, and their customers still drink.

It seems like the wrong image, but mostly what you’re seeing -- our products have been out in the marketplace and they’ve been mixing with our products for years. You saw Oprah on her show mixing with Reed’s Ginger Brew and vodka and giving our copper mugs.

You had us in a rum drink in the summer probably 10 years ago with Gosling’s Dark Seal Rum having the Perfect Storm with Sailor Jerry. I mean it’s just -- this has been an ongoing thing for Reed’s, it is just a heavy acceleration in 2015 since – where our partnerships --.

Well, we had a Bacardi partnership on the Dewar’s White Label scotch and have and continue to do some promotions with them and Sailor Jerry. We have some very, I want to call it more official, more professionally set up deeper into the marketplace promotions going with some very large liquor companies this year.

And it’s partly because of just the explosion, but I feel that we have a deep pulse in the natural food industry and recognize that we can play both ways. I mean God, I want to say the words trust me on it, but we’re at the Natural Product show, and we have a line out the door of people picking up vodka and ginger beer in our booth.

And this is the natural food industry. So, while the natural food industry may seem very pure, they still party. And we haven’t had any backlash and we’ve been playing -- and our products have been mixed with liquor for years..

Got it. Thank you for sharing..

Do you have a second question there, Kenny?.

Our next question comes from Walter Ramsley. He’s with Walrus Partners. Please go ahead..

Hey, thanks. Congratulations, Chris. I’ve got a couple of questions to ask.

As far as the profit margin situation in the fourth quarter went, it looked like the – well, I don’t -- could you just kind of go through that a little bit, what the gross margin was in 2014 compared to 2013, and what the really big influence is there?.

I mean it definitely is and has been a deep concern for us. No we don’t -- We had 27% in the 2013 in the fourth quarter, and 23% in 2014. So, we’ve been through it and analyzed it.

Some of it was, probably 2.5 percentage points were a write-down of some private label inventory that just was discontinued line due to the sale of a major one of our customers. And we’re looking at that to try to protect ourselves for actually more in the future from that kind of behavior.

There were commodity price increases that escalated in the fourth quarter that were another big piece of the change year-over-year, also just the price increase in the co-pack fee from our East Coast facility impacted year-over-year the quarter.

But probably the biggest impact was we ran a very large private label exercise of one of our large private label customers, a big project and it ended up running over a bit and having -- being heavily impacted by the commodity price.

It used many of the commodities that had gone up significantly in that quarter, and that probably had the biggest effect. And then the other effect below the line there was the freight factor went up significantly in that quarter as we dealt with that project.

So, most -- everything that we’ve seen because our deepest concern is this is what’s happening now in the first quarter, this is an ongoing or a problem for the company. And just about everything that impacted our margin in the fourth quarter was fourth quarter only. And we’ve already seen a significant rebound in the margins in the first quarter.

And we’re anticipating that the pressures from commodities that were part of the issue will be gone by sometime in the second quarter. But ultimately, for our margins to recover and improve significantly beyond where they are right now, we need our projects to finish from the production standpoint, plant projects..

Okay. That sounds good, that makes sense.

And as far as -- the next one, the sales and marketing side of things that I’m not a 100% sure how it all works, but the distribution analytics that the Company has been digging deeper into, I mean how much of the business are you using that for now, and what’s the game plan as far as expanding that?.

Manhattan Beer is a test kitchen for us in New York City, and it represents our typical DSD distributor, but not quite typical. It’s the largest Coors distributor in the country, and it effectively equals probably five distributors anywhere else, because it has five divisions and instead of 50 sales guys, it has 250. So, we use this as a test kitchen.

The data that we get is instantaneous from the cell phone window into sales by account. You can be walking around, your MapQuest kind of device is showing you where all your accounts are around you, you can see when they last ordered, the sales up down over quarter, any kind of metric you want to look at are now available to us.

This kind of data has not been available to this company ever. So, it’s allowing these sales people to look at their accounts in a different way, fine-tune their accounts, and I have three people on the street in New York City which is a modest amount.

I mean this isn’t the kind of company that raised $20 million as a big war chest and just putting hundreds of people on the street, and going berserk. We’re kind of testing out models for growth for the future and determining if we want to raise money to invest in them to accelerate growth here.

But right now the excitement is, this group with this data year-over-year, up 108%. So, if we were doing that through our whole DSD network right now, if we had that level of sophistication and investment in personnel on the street, we would -- probably DSD alone would start out next year generating another $6 million in sales.

But, it’s – I am just looking right now for models for the future. And this model looks extremely strong and it’s also happening and running in southern California. We have modest two people on the street working with Haralambos, bringing on x number of new business. It’s a nice return on investment which I look for and very significant growth.

So, we’re starting to see our window into the future and how to accelerate this thing, and that’s the way it feels to management right now..

That one sounds good too.

And on a more strategic level, higher level, do you think the television advertising is going to be the way to go or social media, which way do you think from a corporate marketing standpoint looks like the best strategy?.

Well, I alluded to it, but it’s the old fashioned because getting in front of people at events; getting in front of people at our accounts and just pouring samples and educating the consumer one at a time saying, hi, and doing that in a much larger scale than we’ve ever done before.

So, we did Taste of Sol a couple of years back, 300,000 people; this last year we did the band event, 750,000 people down in Hermosa Beach, and had a presence there. But it’s more of that.

I guess we have opportunity to go to these festivals, introduce people; sell them the product; get announced from the stage, and all that kind of stuff, and really drive this in a more I would say guerrilla grass root way.

What we’re finding is the $430,000 we spent on a TV ad doesn’t feel like it gave us anywhere near the pop that we can do by strategically investing in events and partnerships -- sponsorships..

That sounds logical.

Do you have any data at this point as to the demographics like which segments of the American population are most receptive to your products?.

Well, it used to be natural food people but our business has actually expanded to be more mainstream now than natural food. So, I think the demographics in America are shifting dramatically. And I give you anecdotal information like just Chopped and the Next Chef, Top Chef, Iron Chef, the proliferation of food shows.

Every time I see a new place open, it is as hip and trendy and trying to outdo the next one with their knowledge of food.

And so, I think the demographics, we started in natural foods which represents x in terms of the business; 10x around that is just everybody who’s wanted to be natural food person, they’re not that serious about it, they’re not hardcore about it, they’re not necessarily vegan.

They’ll eat meat but they like it to have hormone free; they don’t -- they are not teetotalers; they go out and have a drink; they have a good time; they’re more hipsters. That market represents 10 times the natural food core market. I know they have a great name for it, I think it’s called LOHAS and I can’t tell you what the acronym stands for it.

But we’re moving more and more into that. But I’d tell you that category is growing very fast..

I believe you; anyway, congratulations. Thanks for answering the questions..

That’s all the time we have for today. Mr. Reed, I’ll turn the call over to you.

Thanks. I appreciate your time today. We’re available, call us. If you don’t know how to get hold of us, go to our website reedsinc.com, more than happy to continue the conversation and answer any questions, email, phone calls, et cetera. And thank you very much for your time today and look forward to a really exciting 2015..

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