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**Part      I - Financial Information**

**Item      1. Financial Statements **

**REED’S,      INC**

**CONDENSED      BALANCE SHEETS**   

| **ASSETS**                                                                                                                                                                                                                       |   |                                               |      |                                   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|-----------|----------------------------------------|--------|
|                                                                                                                                                                                                                             |   |                                               |      |                                   |   |
|                                                                                                                                                                                                                             |   |  September                30, 2006(Unaudited) |      | December                31, 2005  |   |
|                                                                                                                                                                                                                             |   |                                          |      |                                   |   |
| **CURRENT                ASSETS**                                                                                                                                                                                                |   |                                          |      |                                   |   |
| Cash                                                                                                                                                                                                                             |   | $                                                  | 77,304    |                                   | $      | 27,744 |   |
| Inventory                                                                                                                                                                                                                        |   |                                               | 1,543,310 |                                   |   | 1,208,019 |   |
| Trade                accounts receivable, net of allowance for doubtful accounts and returns                and discounts of $137,000 as of September 30, 2006 and $70,000 as                of                December 31, 2005 |   |                                               | 1,135,061 |                                   |   | 534,906 |   |
| Other                receivables                                                                                                                                                                                                 |   |                                               | 5,232     |                                   |   | 10,563 |   |
| Prepaid                expenses                                                                                                                                                                                                  |   |                                               | 74,699    |                                   |   | 74,279 |   |

|                                                                                                                                                                                                                       |   |    |       |   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|--------|--------|
| Total                Current Assets                                                                                                                                                                                        |   |         | 2,835,606  |   |   | 1,855,511 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| Property                and equipment, net of accumulated depreciation of $610,015 as of                September                30, 2006 and $508,136 as of December 31, 2005                                             |   |         | 1,827,822  |   |   | 1,885,354 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| **OTHER                ASSETS**                                                                                                                                                                                            |   |         |       |   |   |   |   |
| Brand                names                                                                                                                                                                                                 |   |         | 800,201    |   |   | 800,201 |   |
| Other                intangibles, net of accumulated amortization of $4,095 as of September                30,                2006 and $3,723 as of December 31, 2005                                                      |   |         | 14,519     |   |   | 14,891 |   |
| Deferred                stock offering costs                                                                                                                                                                               |   |         | 20,000     |   |   | 356,238 |   |
| Total                Other Assets                                                                                                                                                                                          |   |         | 834,720    |   |   | 1,171,330 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| **TOTAL                ASSETS**                                                                                                                                                                                            |   | **$**        | 5,498,148  |   | $      | 4,912,195 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS’ EQUITY (DEFICIENCY)**                                                                                                                                                 |   |         |       |   |   |   |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| **CURRENT                LIABILITIES**                                                                                                                                                                                     |   |         |       |   |   |  |   |
| Accounts                payable                                                                                                                                                                                            |   | $            | 2,633,801  |   | $      | 1,644,491 |   |
| Lines                of credit                                                                                                                                                                                             |   |         | 2,017,838  |   |   | 1,445,953 |   |
| Current                portion of long term debt                                                                                                                                                                           |   |         | 190,036    |   |   | 169,381 |   |
| Accrued                interest                                                                                                                                                                                            |   |         | 160,061    |   |   | 136,240 |   |
| Accrued                expenses                                                                                                                                                                                            |   |         | 71,170     |   |   | 54,204 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| Total                Current Liabilities                                                                                                                                                                                   |   |         | 5,072,906  |   |   | 3,450,269 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| Loans                payable, related party                                                                                                                                                                                |   |         | 252,358    |   |   | 252,358 |   |
| Long                term debt, less current portion                                                                                                                                                                        |   |         | 952,432    |   |   | 1,060,573 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| Total                Liabilities                                                                                                                                                                                           |   |         | 6,277,696  |   |   | 4,763,200 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| **COMMITMENTS                AND CONTINGENCIES**                                                                                                                                                                           |   |         |       |   |   |   |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| **STOCKHOLDERS’                EQUITY (DEFICIENCY)**                                                                                                                                                                 |   |         |       |   |   |   |   |
| Preferred                stock, $10.00 par value, 500,000 shares authorized, 58,940 shares                outstanding                                                                                                      |   |         | 589,402    |   |   | 589,402 |   |
| Common                stock, $.0001 par value, 11,500,000 shares authorized,                5,335,482 shares issued and outstanding at September 30, 2006 and                5,042,197 at December 31, 2005 |   |         | 533        |   |   | 503 |   |
| Common                stock to be issued (7,367 shares)                                                                                                                                                                    |   |         | —    |   |   | 29,470 |   |
| Additional                paid in capital                                                                                                                                                                                  |   |         | 3,276,847  |   |   | 2,788,683 |   |
| Accumulated                deficit                                                                                                                                                                                         |   |         | (4,646,330 | )      |   | (3,259,063 | ) |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| Total                stockholders’ equity (deficiency)                                                                                                                                                               |   |         | (779,548   | )      |   | 148,995 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |
| **TOTAL                LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)**                                                                                                                                           |   | $            | 5,498,148  |   | $      | 4,912,195 |   |
|                                                                                                                                                                                                                       |   |         |       |   |   |   |   |

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**REED’S,      INC.**

**CONDENSED      STATEMENTS OF OPERATIONS**

**For      the Three and Nine Months Ended September 30, 2006 and 2005**

**(Unaudited)**

|                                                                            |   |                                                    |      |                                             |   |
|---------------------------------------------------------------------------------|--------|---------------------------------------------------------|-----------|--------------------------------------------------|--------|
|                                                                            |   |  **Three                months ended (Unaudited)** |      | **Nine                months ended (Unaudited)** |   |
|                                                                            |   | **September                30,**                        |      | **September                30,**                 |   | **September                30,** |   | **September                30,** |   |
|                                                                            |   | **2006**                                                |      | **2005**                                         |   | **2006** |   | **2005** |   |
|                                                                            |   |                                                    |      |                                             |   |   |   |   |   |
| **SALES**                                                                       |   | $                                                       | 2,775,955 |                                             | $      | 2,735,332 |   | $ | 7,913,045 |   | $ | 7,134,940 |   |
| **COST                OF SALES**                                                |   |                                                    | 2,138,602 |                                             |   | 2,266,327 |   |   | 6,417,343 |   |   | 5,821,887 |   |
|                                                                            |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| **GROSS                PROFIT**                                                 |   |                                                    | 637,353   |                                             |   | 469,005 |   |   | 1,495,702 |   |   | 1,313,053 |   |
|                                                                            |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| **OPERATING                EXPENSES**                                           |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| Selling                                                                         |   |                                                    | 407,074   |                                             |   | 318,862 |   |   | 1,007,693 |   |   | 839,978 |   |
| General &                Administrative                                |   |                                                    | 517,036   |                                             |   | 232,938 |   |   | 1,518,449 |   |   | 687,413 |   |
| Legal                fees                                                       |   |                                                    | 2,009     |                                             |   | 24,040 |   |   | 16,806 |   |   | 26,166 |   |
| Total                Operating Expenses                                         |   |                                                    | 926,119   |                                             |   | 575,840 |   |   | 2,542,948 |   |   | 1,553,557 |   |
|                                                                            |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| **LOSS FROM                OPERATIONS**                                    |   |                                                    | (288,766  | )                                                |   | (106,835 | ) |   | (1,047,246 | ) |   | (240,504 | ) |
| **OTHER                EXPENSES**                                               |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| Interest                Expense                                                 |   |                                                    | (112,197  | )                                                |   | (73,508 | ) |   | (310,551 | ) |   | (235,042 | ) |
|                                                                            |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| **NET                LOSS**                                                     |   |                                                    | (400,963  | )                                                |   | (180,343 | ) |   | (1,357,797 | ) |   | (475,546 | ) |
|                                                                            |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| Preferred                stock dividend                                         |   |                                                    | —   |                                             |   | — |   |   | (29,470 | ) |   | (29,470 | ) |
|                                                                            |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| Net                loss attributable to common shareholders                     |   | $                                                       | (400,963  | )                                                | $      | (180,343 |   | $ | (1,387,267 | ) | $ | (505,016 | ) |
|                                                                            |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| **LOSS                PER SHARE** —                Basic and Diluted |   | $                                                       | (.08      | )                                                | $      | (.04 | ) | $ | (.26 | ) | $ | (.10 | ) |
|                                                                            |   |                                                    |      |                                             |   |   |   |   |   |   |   |   |   |
| **WEIGHTED                AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED**       |   |                                                    | 5,335,482 |                                             |   | 4,995,959 |   |   | 5,269,878 |   |   | 4,845,909 |   |

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**REED’S      INC.**

**STATEMENT      OF CHANGES IN STOCKHOLDERS’ EQUITY**
**(DEFICICENCY)**

|                                                                                                                 |   | Common |      | Stock  |   |                                                    |   |                                                     |    | Preferred |   | Stock     |   |                               |    |   |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|---------------------------------------------------------|--------|----------------------------------------------------------|---------|-----------|--------|-----------|--------|------------------------------------|---------|--------|--------|
|                                                                                                                 |   | Shares |      | Amount |   | Common                Stock to                be Issued |   | Additional                Paid in                Capital |    | Shares    |   | Amount    |   | Accumulated                Deficit |    | Total  |   |
|                                                                                                                 |   |   |      |   |   |                                                    |   |                                                     |    |      |   |      |   |                               |    |   |   |
| Balance,                January 1, 2006                                                                              |   |   | 5,042,197 |   | $      | 503                                                     |   |                                                     | 29,470  |      | $      | 2,788,683 |   |                               | 58,940  |   | $      | 589,402 |   | $ | (3,259,063 | ) | $ | 148,995 |   |
| Preferred                Stock Dividend                                                                              |   |   | 7,373     |   |   | 1                                                       |   |                                                     | — |      |   | 29,469    |   |                               | — |   |   | — |   |   | (29,470 | ) |   | — |   |
| Common                stock issued in connection with the June 30, 2005 preferred stock                dividend |   |   | 7,362     |   |   | 1                                                       |   |                                                     | (29,470 | )         |   | 29,469    |   |                               | — |   |   | — |   |   | — |   |   | — |   |
| Common                stock issued for cash, net of offering costs                                                   |   |   | 278,550   |   |   | 28                                                      |   |                                                     | — |      |   | 429,226   |   |                               | — |   |   | — |   |   | — |   |   | 429,254 |   |
| Net                Loss for the nine months ended September 30, 2006                                                 |   |   | —   |   |   | —                                                 |   |                                                     | — |      |   | —   |   |                               | — |   |   | — |   |   | (1,357,797 | ) |   | (1,357,797 | ) |
|                                                                                                                 |   |   |      |   |   |                                                    |   |                                                     |    |      |   |      |   |                               |    |   |   |   |   |   |   |   |   |   |   |
| Balance,                September 30, 2006                                                                           |   |   | 5,335,482 |   | $      | 533                                                     |   | $                                                        | — |      | $      | 3,276,847 |   |                               | 58,940  |   | $      | 589,402 |   | $ | (4,646,330 | ) | $ | (779,548 | ) |

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**REED’S      INC.**

**CONDENSED      STATEMENTS OF CASH FLOWS**

**For      the nine months ended September 30, 2006 and 2005**

**(Unaudited)**

|                                                                                                                    |   |  **Nine                Months Ended (Unaudited)**   |       |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------|------------|
|                                                                                                                    |   |  **September                30,**                             |       |  **September                30,** |   |
|                                                                                                                    |   |  **2006**                                                     |       |  **2005** |   |
|                                                                                                                    |   |                                                          |       |    |   |
| **CASH                FLOWS FROM OPERATING ACTIVITIES**                                                                 |   |                                                          |       |    |   |
| Net                Loss                                                                                                 |   | $                                                                  | (1,357,797 | ) | $ | (475,546 | ) |
| Adjustments                to reconcile net loss to net cash (used in) provided by operating                activities: |   |                                                               |       |   |   |   |   |
| Depreciation                and amortization                                                                            |   |                                                               | 102,252    |   |   | 83,220 |   |
| Changes                in operating assets and liabilities:                                                             |   |                                                               |       |   |   |   |   |
| Accounts                receivable                                                                                      |   |                                                               | (600,154   | ) |   | 144,392 |   |
| Inventory                                                                                                               |   |                                                               | (335,291   | ) |   | (60,817 | ) |
| Prepaid                Expenses                                                                                         |   |                                                               | (420       | ) |   | (220,683 | ) |
| Other                receivables                                                                                        |   |                                                               | 5,331      |   |   | (4,520 | ) |
| Accounts                payable                                                                                         |   |                                                               | 989,310    |   |   | 556,748 |   |
| Accrued                expenses                                                                                         |   |                                                               | 16,966     |   |   | 14,351 |   |
| Accrued                interest                                                                                         |   |                                                               | 23,821     |   |   | 8,232 |   |
|                                                                                                                    |   |                                                               |       |   |   |   |   |
| Net                cash (used in) provided by operating activities                                                 |   |                                                               | (1,155,982 | ) |   | 45,377 |   |
|                                                                                                                    |   |                                                               |       |   |   |   |   |
| **CASH                FLOWS FROM INVESTING ACTIVITIES:**                                                                |   |                                                               |       |   |   |   |   |
| Purchase                of property and equipment                                                                       |   |                                                               | (44,347    | ) |   | (84,819 | ) |
| Due                from director                                                                                        |   |                                                               | —    |   |   | (29,013 | ) |
| Net                cash used in investing activities                                                                    |   |                                                               | (44,347    | ) |   | (113,832 | ) |
|                                                                                                                    |   |                                                               |       |   |   |   |   |
| **CASH                FLOWS FROM FINANCING ACTIVITIES:**                                                                |   |                                                               |       |   |   |   |   |
| Principal borrowings              on debt                                                                          |   |                                                               | —    |   |   | 340,000 |   |
| Principal                payments on debt                                                                               |   |                                                               | (87,486    | ) |   | (283,277 | ) |
| Proceeds                received on sale of common stock                                                                |   |                                                               | 1,002,779  |   |   | — |   |
| Payments                for stock offering costs                                                                        |   |                                                               | (237,287   | ) |   | (223,934 | ) |
| Net                borrowing  on lines of credit                                                                   |   |                                                               | 571,883    |   |   | 253,106 |   |
| Payments                of debt to related parties                                                                      |   |                                                               | —    |   |   | (21,000 | ) |
|                                                                                                                    |   |                                                               |       |   |   |   |   |
| Net                cash provided by financing activities                                                                |   |                                                               | 1,249,889  |   |   | 64,895 |   |
|                                                                                                                    |   |                                                               |       |   |   |   |   |
| **NET                INCREASE (DECREASE)****IN                CASH**                                               |   |                                                               | 49,560     |   |   | (3,560 | ) |
| **CASH —                Beginning of period**                                                                |   |                                                               | 27,744     |   |   | 42,488 |   |
|                                                                                                                    |   |                                                               |       |   |   |   |   |
| **CASH —                End of period**                                                                      |   | $                                                                  | 77,304     |   | $ | 38,928 |   |
|                                                                                                                    |   |                                                               |       |   |   |   |   |
| **Supplemental                Disclosures of Cash Flow Information**                                                    |   |                                                               |       |   |   |   |   |
| Cash                paid during the period for:                                                                         |   |                                                               |       |   |   |   |   |
| Interest                                                                                                                |   | $                                                                  | 286,731    |   | $ | 226,810 |   |
|                                                                                                                    |   |                                                               |       |   |   |   |   |
| Taxes                                                                                                                   |   | $                                                                  | —    |   | $ | — |   |
| **Non-cash                Investing and Financing Activities**                                                          |   |                                                               |       |   |   |   |   |
| Common                stock to be issued in settlement of accrued interest                                              |   | $                                                                  | —    |   |   | 5,250 |   |
| Common                stock to be issued in settlement of preferred stock                dividend                       |   | $                                                                  | 29,470     |   | $ | 29,470 |   |
| Deferred                stock offering costs charged to paid in capital                                                 |   | $                                                                  | 336,238    |   | $ | — |   |

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**REED’S,      INC.**

**NOTES      TO CONDENSED FINANCIAL STATEMENTS** 

**September      30, 2006 (UNAUDITED)**

| 1. | BASIS OF PRESENTATION The                  accompanying interim condensed financial statements are unaudited,                  but in                  the opinion of management of Reeds, Inc. (the Company), contain                  all                  adjustments, which include normal recurring adjustments necessary                  to                  present fairly the financial position at September 30, 2006 and                  the                  results of operations and cash flows for the nine months ended                  September                  30, 2006 and 2005. The balance sheet as of December 31, 2005 is                  derived                  from the Company’s audited financial statements. Certain                  information and footnote disclosures normally included in financial                  statements that have been prepared in accordance with generally                  accepted                  accounting principles have been condensed or omitted pursuant to                  the rules                  and regulations of the Securities and Exchange Commission, although                  management of the Company believes that the disclosures contained                  in these                  financial statements are adequate to make the information presented                  herein                  not misleading. For further information, refer to the financial                  statements                  and the notes thereto included in the Company’s Annual Report, Form                  10-KSB/A, as filed with the Securities and Exchange Commission                  on July 27,                  2006. The                  preparation of financial statements in conformity with generally                  accepted                  accounting principles requires management to make estimates and                  assumptions that affect the reported amounts of assets and liabilities,                  disclosures of contingent assets and liabilities at the date of                  the                  financial statements, and the reported amounts of revenues and                  expense                  during the reporting period. Actual results could differ from those                  estimates. The                  results of operations for the nine months ended September 30, 2006                  are not                  necessarily indicative of the results of operations to be expected                  for the                  full fiscal year ending December 31, 2006.Income                  (Loss) per Common ShareBasic                  income (loss) per share is calculated by dividing net income (loss)                  available to common stockholders by the weighted average number                  of common                  shares outstanding during the year. Diluted income per share is                  calculated                  assuming the issuance of common shares, if dilutive, resulting                  from the                  exercise of stock options and warrants. As the Company had a loss                  in the                  three and nine month periods ended September 30, 2006 and 2005,                  basic and                  diluted loss per share are the same because the inclusion of common                  share                  equivalents would be anti-dilutive. Going                  ConcernThe                  accompanying condensed financial statements have been prepared                  in                  conformity with accounting principles generally accepted in the                  United                  States of America, which contemplate continuation of the Company                  as a                  going concern. However, the Company had a net loss of $1,357,797                  and                  utilized cash of $1,155,982 in operating activities during the                  nine months                  ended September 30, 2006, and had a working capital deficiency                  of                  $2,237,300 and stockholders’ deficiency of $779,548 at September 30, 2006.                  These factors raise substantial doubt about the Company's ability                  to                  continue as a going concern. The financial statements do not include                  any                  adjustments relating to the recoverability and classification of                  recorded                  asset amounts, or amounts and classification of liabilities that                  might                  result from this uncertainty. The Company is conducting an initial                  public                  offering of its stock. The maximum amount of common stock to be                  sold is                  2,000,000 shares at $4.00, of which 1,763,881 shares have been sold                  by November 17, 2006 which will result in net proceeds to                  the Company of $6,349,971. Management has received enough interest in                  the offering which leads it to believe the maximum amount of the                  offering                  will be sold, however no assurance can be made that any additional                  shares                  will be sold as a result of the offering. See Note 9 for information                  related to the common stock                  offering. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | Recent                    Accounting PronouncementsIn                    June 2005, the FASB issued SFAS 154, “Accounting Changes and Error                    Corrections,” a replacement of existing accounting pronouncements. SFAS                    154 modifies accounting and reporting requirements when a company                    voluntarily chooses to change an accounting principle or correct                    an                    accounting error. SFAS 154 requires retroactive restatement of                    prior                    period financial statements unless it is impractical. Previous                    accounting                    guidelines allowed recognition by cumulative effect in the period                    of the                    accounting change. SFAS 154 is effective for accounting changes                    and                    corrections of errors made in fiscal years beginning after                    December 15, 2005. In                    February 2006, the FASB issued SFAS 155,“Accounting for Certain Hybrid                    Financial Instruments”, an amendment of SFAS 133 and 140. These SFAS’s                    deal with derivative and hedging activities, accounting for transfers                    and                    servicing of financial instruments and extinguishment of liabilities.                    SFAS                    155 is effective for all financial instruments acquired or issued                    in an                    entity’s first fiscal year beginning after September 15, 2006. The Company                    does not engage in the activities described in these SFAS’s and does not                    have any intention of engaging in those activities when SFAS                    155 becomes                    effective. The Company has evaluated the impact of the adoption                    of SFAS                    155, and does not believe the impact will be significant to the                    Company's                    overall results of operations or financial position.  FASB                  Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value                  Measurements,” establishes a formal framework for measuring fair value                  under GAAP. It defines and codifies the many definitions of fair                  value                  included among various other authoritative literature, clarifies                  and, in                  some instances, expands on the guidance for implementing fair value                  measurements, and increases the level of disclosure required for                  fair                  value measurements. Although SFAS no. 157 applies to and amends                  the                  provisions of existing FASB and AICPA pronouncements, it does not,                  of                  itself, require any new fair value measurements, nor does it establish                  valuation standards. SFAS No. 157 applies to all other accounting                  pronouncements requiring or permitting fair value measurements,                  except                  for; SFAS no. 123 (R), share-based payment and related pronouncements,                  the                  practicability exceptions to fair value determinations allowed                  by various                  other authoritative pronouncements, and AICPA Statements of Position                  97-2                  and 98-9 that deal with software revenue recognition. This statement                  is                  effective for financial statements issued for fiscal years beginning                  after                  November 15, 2007, and interim periods within those fiscal                  years. |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 2.     | Concentrations The                    Company’s cash balances on deposit with banks are guaranteed by the                    Federal Deposit Insurance Corporation up to $100,000. The Company                    may be                    exposed to risk for the amounts of funds held in one bank in                    excess of the                    insurance limit. In assessing the risk, the Company’s policy is to                    maintain cash balances with high quality financial institutions.                    The                    Company had cash balances in excess of the $100,000 guarantee                    during the                    nine months ended September 30, 2006. During                    the nine months ended September 30, 2006 and 2005 the Company                    had two                    customers, which accounted for approximately 45% and 19% of sales,                    respectively. No other customers accounted for more than 10%                    of sales in                    either year. As of September 30, 2006, the Company had approximately                    $354,000 and $149,000, respectively of accounts receivable from                    these                    customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 3.     | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

|                                |   |   | September                30, 2006 |   |   | December                31, 2005 |
|-------------------------------------|--------|--------|-----------------------------------|--------|--------|----------------------------------|
| Raw                Materials   |   | $      | 591,468                           |   | $      | 678,343                          |
| Finished                Goods       |   |   | 951,842                           |   |   | 529,676                          |
|                                |   | $      | 1,543,310                         |   | $      | 1,208,019                        |

| 4. | Lines                    of credit In June 2006, one of the Company’s lines of                    credit expired. The Company renewed this line of credit with                    its current                    lender through update. The renewed line of credit is secured                    by accounts                    receivable and inventory in the maximum amounts of $1,400,000.                    The                    borrowing base on the accounts receivable are 80% of all eligible                    receivables, which are primarily accounts receivables under 90                    days. The                    inventory borrowing base is 50% of eligible inventory. The interest                    rate                    to be charged on these borrowings is Prime plus 4.00%. As of                    September 30,                    2006, the amounts borrowed on this line of credit were $1,290,722.                    The                    amount available to borrow was $109,278. No changes were made                    to other                    lines of credit agreements appearing in the Company’s Annual Report, Form                    10-KSB/A filed with the Securities and Exchange Commission on                    July 27,                    2006. The amount borrowed on these lines of credit as of September                    30,                    2006 was $727,116. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | Long                    term debt In                      June 2006, the Company, in connection with its line of credit                      renewal                      described in Note 4, consolidated its equipment line of credit                      and its                      equipment installment loan with its lender. The interest rate                      on this                      consolidated loan is Prime plus 4.00% and is secured by certain                      equipment                      and property of the Company. The loan requires payments of                      principal of                      $7,500 per month, plus interest, until paid in full. No changes                      were made                      to other long term debt agreements appearing in the Company’s Annual                      Report, Form 10-KSB/A filed with the Securities and Exchange                      Commission on                      July 27, 2006. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 6. | Common                      Stock Offering  From                    August 3, 2005 through April 7, 2006, we issued 333,156 shares                    of our                    common stock in connection with our initial public offering pursuant                    to a                    Registration Statement on Form SB-2. Management has determined                    that the                    shares may have been issued in violation of securities laws                    and extended a rescission offer to purchase up to all of the shares                    sold to date in the offering. The rescission offer commenced                    in August                    2006 and ceased in September 2006. The amount of shares submitted                    for                    rescission were 31,020, which resulted in total proceeds being                    paid of                    $129,444. In accordance with the terms of our rescission, the                    proceeds                    where paid by others and they retained the shares submitted for                    rescission During                    the nine months ended September 30, 2006, the Company sold 278,550                    shares                    of common stock for proceeds of $1,002,779, net of commissions.                    During the                    nine months ended September 30, 2006, previously deferred stock                    offering                    costs of $356,238 and additional stock offering costs incurred                    during the                    period of $217,287 were charged to additional paid in                    capital.See                    Note 9 for the results of the Company’s initial public offering occurring                    subsequent to September 30,                    2006. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7. | Preferred                stock dividend  During the nine months ended September                30,                2006, the Company issued 14,735 shares of common stock in accordance                with                the terms of the preferred stock agreement. 7,373 shares were associated                with the $29,469 dividend payable as of June 30, 2006 and 7,362 shares                were associated with the $29,469 dividend payable as of June 30,                2005. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|
| 8. | Legal                Proceedings and Litigation Fees During                    2005 and 2006, the Company incurred litigation fees associated                    with a law                    suit which the Company has won. The Plaintiff has lost its appeal.                    The                    judgment in favor of the Company is to have the Plaintiff reimburse                    the                    Company for its legal defense costs. The Company is in the processing                    of                    perfecting its judgment and will record income from the judgment                    when the                    monies are collected. On                    January 20 ,                    2006, Consac Industries, Inc. (dba Long Life Teas and Long Life                    Beverages)                    filed a lawsuit in the United States District Court for the Central                    District of California against Reed’s Inc. and Christopher Reed, Case No.                    CV06-0376. The complaint asserts claims for negligence, breach                    of                    contract, breach of warranty, and breach of express indemnity                    relating to                    Reed’s, Inc.’s manufacture of approximately 13,000 cases of “Prism Green                    Tea Soda” for Consac. Consac contends that we negligently manufactured                    the                    soda resulting in at least one personal injury. Consac seeks                    $2.6 million                    in damages, plus interest and attorneys fees. We contend that                    Consac was                    responsible for the soda’s condition by providing a defective formula                    which had not been adequately tested. In May 2006 both parties                    agreed to a                    mediation proceeding which was expected to commence in the third                    quarter                    of 2006. The parties have decided to move to a trial. The trial                    is                    expected to begin in the first quarter of 2007. We believe that                    we will                    successfully defend Consac’s claims. While there is no assurance, we                    believe that the Consac litigation will have no material adverse                    effect                    upon our operations. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |
|--------|--------|
| 9. | Subsequent Events Results of Intial Public Offering From                  October 1, 2006 to November 16, 2006, the Company continued it                  initial                  public offering of common stock. During that period the Company                  sold 1,430,725 shares of common stock and will receive $5,150,610                  of proceeds net of commissions. Debt                    ConversionsSubsequent                    to September 30, 2006, one long term note payable and one related                    party                    loan, together with accrued interest, were converted to common                    stock. The                    conversions occurred according to the terms of the original loan                    agreements. The                    long term loan of $9,000 original principal and accrued interest                    of                    $13,355 was converted, in full, to 9,315 shares of common stock                    on                    November 1, 2006. The conversion ratio was one share of common                    stock for                    each $2.40 of principal and interest outstanding. The related                    party loan                    of $177,710 original principal was converted to 88,855 shares                    of common                    stock on November 16, 2006. The conversion ratio was 1share of                    common                    stock for each $2.00 of                    principal. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | · | Reed’s                  Ginger Brews, |
|--------|--------|---------------------------------------------|

|   | · | Virgil’s                  Root Beer and Cream Sodas, |
|--------|--------|------------------------------------------------------------|

|   | · | China                  Colas, |
|--------|--------|-------------------------------|

|   | · | Reed’s                  Ginger Juice Brews, |
|--------|--------|---------------------------------------------------|

|   | · | Reed’s                  Ginger Candies, and |
|--------|--------|---------------------------------------------------|

|   | · | Reed’s                  Ginger Ice Creams |
|--------|--------|-------------------------------------------------|

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*Three          Months Ended September 30, 2006 Compared to Three Months Ended September          30,          2005*

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** **

*Nine          Months Ended September 30, 2006 Compared to Nine Months Ended September          30,          2005*

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**Liquidity          and Capital Resources**

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|                                                                                                                                                                                                                                                                                       |   | ActualSeptember                  30, 2006 |       | Pro                  forma as adjustedfor                  sale of remaining1,666,844                  shares and the effect of debt and accrued interest conversions                  occurring subsequent to September 30, 2006  |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                       |   |                                      |       |                                                                                                                                                                                                                                    |   |
| Current debt                                                                                                                                                                                                                                                                          |   |                                      |       |                                                                                                                                                                                                                                    |   |   |   |
| Current                  portion of long-term debt                                                                                                                                                                                                                                         |   | $                                         | 190,036    |                                                                                                                                                                                                                                    | $      | 190,036 |   |
| Lines                  of credit                                                                                                                                                                                                                                                           |   |                                      | 2,017,838  |                                                                                                                                                                                                                                    |   | 2,017,838 |   |
| Total                  current debt                                                                                                                                                                                                                                                        |   |                                      | 2,207,874  |                                                                                                                                                                                                                                    |   | 2,207,874 |   |
| Long-term                  liabilities                                                                                                                                                                                                                                                     |   |                                      |       |                                                                                                                                                                                                                                    |   |   |   |
| Long-term                  debt, less current portion                                                                                                                                                                                                                                      |   |                                      | 952,432    |                                                                                                                                                                                                                                    |   | 943,432 |   |
| Notes                  payable to related parties                                                                                                                                                                                                                                          |   |                                      | 252,358    |                                                                                                                                                                                                                                    |   | 74,648 |   |
| Total                  long-term liabilities                                                                                                                                                                                                                                               |   |                                      | 1,204,790  |                                                                                                                                                                                                                                    |   | 1,018,080 |   |
|                                                                                                                                                                                                                                                                                       |   |                                      |       |                                                                                                                                                                                                                                    |   |   |   |
| Stockholders’                  equity:                                                                                                                                                                                                                                               |   |                                      |       |                                                                                                                                                                                                                                    |   |   |   |
| Common                  Stock, par value $.0001 per share; 11,500,000 shares authorized;                  5,335,482                  shares issued and outstanding; 7,002,326 shares issued and outstanding                  as                  adjusted for the sale of 1,666,844 shares |   |                                      | 533        |                                                                                                                                                                                                                                    |   | 710 |   |
| Preferred                  Stock, par value $10.00 per share; 500,000 shares authorized; 58,940                  shares issued and outstanding                                                                                                                                             |   |                                      | 589,402    |                                                                                                                                                                                                                                    |   | 589,402 |   |
|                                                                                                                                                                                                                                                                                       |   |                                      |       |                                                                                                                                                                                                                                    |   |   |   |
| Additional                  paid-in capital                                                                                                                                                                                                                                                |   |                                      | 3,276,847  |                                                                                                                                                                                                                                    |   | 9,472,475 |   |
| Accumulated                  deficit                                                                                                                                                                                                                                                       |   |                                      | (4,646,330 | )                                                                                                                                                                                                                                       |   | (4,646,330 | ) |
|                                                                                                                                                                                                                                                                                       |   |                                      |       |                                                                                                                                                                                                                                    |   |   |   |
| Total                  stockholder’s equity (deficit)                                                                                                                                                                                                                                |   |                                      | (779,548   | )                                                                                                                                                                                                                                       |   | 5,416,257 |   |
|                                                                                                                                                                                                                                                                                       |   |                                      |       |                                                                                                                                                                                                                                    |   |   |   |
| Total                  capitalization                                                                                                                                                                                                                                                      |   | $                                         | 2,633,116  |                                                                                                                                                                                                                                    | $      | 8,642,211 |   |

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Recent        Accounting Pronouncements

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| ExhibitNumber  | Description                  of Document                                                                                             |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------|
|                |                                                                                                                                 |
| 31                  | Officer's                  Certification pursuant to Section 302 of the Sarbanes-Oxley Act                  of                  2002 |
|                |                                                                                                                                 |
| 32                  | Officer's                  Certification pursuant to Section 906 of the Sarbanes-Oxley Act                  of                  2002 |

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**SIGNATURE**

|         |                                                                                                |                                   |
|--------------|-----------------------------------------------------------------------------------------------------|----------------------------------------|
|         | Reeds,              Inc.                                                                            |
|    |                                                                                           |                              |
|         | By:                                                                                       | /s/ Christopher              Reed |
|         | Chief                Executive Officer, President and                Chief Financial Officer   |
|         | November              17, 2006                                                                      |

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