UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q




(Mark
      One)





þ





For
      the
      quarterly period ended March 31, 2008




o




For the transition period from   to


Commission
      file number


Commission
      file number: 000-32501










REED'S
      INC.


(Exact
      name of registrant as specified in its charter)




Delaware
            35-2177773


(State
                of incorporation)
            (I.R.S.
                Employer Identification No.)





13000
      South Spring St.  Los
      Angeles, Ca. 90061


(Address
      of principal executive offices) (Zip Code)





(310)
      217-9400


(Registrant's
      telephone number, including area code)




N/A


(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
      by check mark whether the registrant (1) has filed all reports
      required to be filed by Section 13 or 15(d) Exchange Act of 1934 during
      the preceding 12 months (or for such shorter period that the registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90 days.


Yes
þ    No
o


Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
        See
        the definitions of “large accelerated filer,” “accelerated filer” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act (Check one):
  Large
                  Accelerated Filero
              
              Accelerated
                  FileroNon-accelerated
                  filero
              
              Smaller
                  reporting companyþ




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes o  No
þ




APPLICABLE
      ONLY TO CORPORATE ISSUERS




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date:




There
      were 8,909,693 shares of the registrant's common stock, $0.0001 par
      value, outstanding as of  May 15, 2008.





Transitional
      Small Business Disclosure Format (Check one)      Yes
o    No þ





**SPECIAL
          NOTE REGARDING FORWARD-LOOKING STATEMENTS**
 
 This
          report contains forward-looking statements. All forward-looking statements
          are
          inherently uncertain as they are based on current expectations and assumptions
          concerning future events or future performance of the Company. Readers
          are
          cautioned not to place undue reliance on these forward-looking statements,
          which
          are only predictions and speak only as of the date hereof. Forward-looking
          statements usually contain the words “estimate,” “anticipate,” “believe,”
“expect,” or similar expressions, and are subject to numerous known and unknown
          risks and uncertainties. In evaluating such statements, prospective investors
          should carefully review various risks and uncertainties identified in this
          Report, including the matters set forth under the captions “Trends, Risks,
          Challenges, Opportunities That May or Are Currently Affecting Our Business” and
          in the Company’s other SEC filings. These risks and uncertainties could cause
          the Company’s actual results to differ materially from those indicated in the
          forward-looking statements. The Company undertakes no obligation to update
          or
          publicly announce revisions to any forward-looking statements to reflect
          future
          events or developments.
  Although
          forward-looking statements in this Quarterly Report on Form 10-Q reflect
          the
          good faith judgment of our management, such statements can only be based
          on
          facts and factors currently known by us. Consequently, forward-looking
          statements are inherently subject to risks and uncertainties, and actual
          results
          and outcomes may differ materially from the results and outcomes discussed
          in or
          anticipated by the forward-looking statements. Factors that could cause
          or
          contribute to such differences in results and outcomes include, without
          limitation, those specifically addressed under the heading “Trends, Risks,
          Challenges, Opportunities That May or Are Currently Affecting Our Business”
below, as well as those discussed elsewhere in this Quarterly Report. Readers
          are urged not to place undue reliance on these forward-looking statements,
          which
          speak only as of the date of this Quarterly Report. We file reports with
          the
          SEC. You can read and copy any materials we file with the SEC at the SEC’s
          Public Reference Room, 100 F. Street, NE, Washington, D.C. 20549 on official
          business days during the hours of 10 a.m. to 3 p.m. You can obtain additional
          information about the operation of the Public Reference Room by calling
          the SEC
          at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov)
          that contains reports, proxy and information statements, and other information
          regarding issuers that file electronically with the SEC, including the
          Company.
  *We
          undertake no obligation to revise or update any forward-looking statements
          in
          order to reflect any event or circumstance that may arise after the date
          of this
          Quarterly Report. Readers are urged to carefully review and consider the
          various
          disclosures made throughout the entirety of this annual report, which attempt
          to
          advise interested parties of the risks and factors that may affect our
          business,
          financial condition, results of operations and
          prospects.*




**Part
      I - Financial Information**





**Item
      1. Financial Statements**




**REED’S,
      INC**




**CONDENSED
      BALANCE SHEETS**




**ASSETS**




March
                31, 2008 (Unaudited)
            
            
            December
                31,2007**CURRENT
                ASSETS**Cash
            $
            111,022
            
            $
            742,719Inventory
            
            2,729,584
            
            
            3,028,450Trade
                accounts receivable, net of allowance for
              doubtful
                accounts and returns and discounts of
              $237,769
                as of March 31, 2008 and $407,480 as of
              December
                31, 2007
            
            1,456,711
            
            
            1,160,940Other
                receivables, net of allowance of $0 as of
              March
                31, 2008 and $300,000 as of December 31, 2007
            
            1,200
            
            
            16,288Prepaid
                expenses
            
            57,030
            
            
            76,604Total
                Current Assets
            
            4,355,547
            
            
            5,025,001Property
                and equipment, net of accumulated
              depreciation
                of $942,288 as of March 31, 2008
              and
                $867,769 as of December 31, 2007
            
            4,255,742
            
            
            4,248,702**OTHER
                ASSETS**Brand
                names
            
            800,201
            
            
            800,201Other
                intangibles, net of accumulated amortization
              of
                $-0- as of March 31, 2008 and $5,212 as of
              December
                31, 2007
            
            35,400
            
            
            13,402Total
                Other Assets
            
            835,601
            
            
            813,603**TOTAL
                ASSETS**
            **$**
            9,446,890
            
            $
            10,087,306**LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable
            $
            2,049,600
            
            $
            1,996,849Current
                portion of long term debt
            
            12,697
            
            
            27,331Accrued
                interest
            
            -
            
            
            3,548Accrued
                expenses
            
            81,378
            
            
            54,364Total
                Current Liabilities
            
            2,143,675
            
            
            2,082,092Long
                term debt, less current portion
            
            1,761,044
            
            
            765,753Total
                Liabilities
            
            3,904,719
            
            
            2,847,845**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS’
                EQUITY**Preferred
                stock, $10.00 par value, 500,000 shares
              authorized,
                48,121 issued and outstanding at
              March
                31, 2008 and December 31, 2007,
              liquidation
                preference of $10.00 per share
            
            481,212
            
            
            481,212Common
                stock, $.0001 par value, 19,500,000 shares
              authorized,
                8,907,700 shares issued and
              outstanding
                at March 31, 2008 and 8,751,721 at
              December
                31, 2007
            
            890
            
            
            874Additional
                paid in capital
            
            18,131,279
            
            
            17,838,516Accumulated
                deficit
            
            (13,071,210
            )
            
            (11,081,141
            )Total
                stockholders’ equity
            
            5,542,171
            
            
            7,239,461**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            $
            9,446,890
            
            $
            10,087,306




See
      accompanying Notes to Condensed Financial Statements




2




**REED’S,
      INC.**




**CONDENSED
      STATEMENTS OF OPERATIONS**


**For
      the Three Months Ended March 31, 2008 and 2007**


**(Unaudited)**




**Three
                months ended****March
                31,**
              **2008**
            
            
            **March
                31,**
              **2007****SALES**
            $
            3,564,100
            
            $
            3,012,690**COST
                OF SALES**
            
            3,044,287
            
            
            2,473,068**GROSS
                PROFIT**
            
            519,813
            
            
            539,622**OPERATING
                EXPENSES**Selling
            
            1,124,128
            
            
            554,165General and
                Administrative
            
            1,330,146
            
            
            449,343Total
                Operating Expenses
            
            2,454,274
            
            
            1,003,508**LOSS FROM
                OPERATIONS**
            
            (1,934,461
            )
            
            (463,886
            )**OTHER
                INCOME (EXPENSES)**Interest
                Income
            
            830
            
            
            23,491Interest
                Expense
            
            (56,438
            )
            
            (47,551
            )Total
                Other Income (Expenses)
            
            (55,608
            )
            
            (24,060
            )**NET
                LOSS**
            $
            (1,990,069
            )
            $
            (487,946
            )**LOSS
                PER SHARE**—
                Basic and Diluted
            $
            (0.23
            )
            $
            (0.07
            )**WEIGHTED
                AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED**
            
            8,764,683
            
            
            7,143,185






See
      accompanying Notes to Condensed Financial Statements




3




**REED’S
      INC.**




**STATEMENT
      OF CHANGES IN STOCKHOLDERS’ EQUITY**


For
      the
      three months ended March 31, 2008 (Unaudited)




Common
              Shares
            
            
            Stock
              Amount
            
            
            Preferred
              Shares
            
            
            Stock
              Amount
            
            
            Additional
              Paid
                in Capital
            
            
            Accumulated
                Deficit
            
            
            TotalBalance,
                January 1, 2008
            
            
            8,751,721
            
            $
            874
            
            
            48,121
            
            $
            481,212
            
            $
            17,838,516
            
            $
            (11,081,141
            )
            $
            7,239,461Common
                stock issued for services
            
            
            155,979
            
            
            16
            
            
            -
            
            
            -
            
            
            320,746
            
            
            
            
            
            320,762Fair
                value of options issued to employees
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (27,983
            )
            
            -
            
            
            (27,983
            )Net
                Loss for the three months ended
              March,
                31, 2008
            
            
            **-**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,990,069
            )
            
            (1,990,069
            )Balance,
                March 31, 2008
            
            
            8,907,700
            
            $
            890
            
            
            48,121
            
            $
            481,212
            
            $
            18,131,279
            
            $
            (13,071,210
            )
            $
            5,542,171




See
      accompanying Notes to Condensed Financial Statements




4




**REED’S
      INC.**




**CONDENSED
      STATEMENTS OF CASH FLOWS**


**For
      the three months ended March 31, 2008 and 2007**


**(Unaudited)**




**Three
                Months Ended****March
                31,**
              **2008**
            
            **March
                31,**
              **2007****CASH
                FLOWS FROM OPERATING ACTIVITIES**(Net
                Loss)
            
            $
            (1,990,069
            )
            $
            (487,946
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
                and amortization
            
            
            87,920
            
            
            38,836Fair
                value of options issued to employees
            
            
            (27,983
            )
            
            25,128Fair
                value of consulting
              services
                paid with the issuance of common stock
            
            
            320,762Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (295,771
            )
            
            (185,626
            )Inventory
            
            
            298,866
            
            
            (479,324
            )Prepaid
                Expenses
            
            
            19,574
            
            
            (81,856
            )Other
                receivables
            
            
            15,088
            
            
            (11,650
            )Other
                intangibles
            
            
            (35,400
            )Accounts
                payable
            
            
            52,751
            
            
            128,797Accrued
                expenses
            
            
            27,014
            
            
            7,440Accrued
                interest
            
            
            (3,548
            )
            
            (20,180
            )Net
                cash used in operating activities
            
            
            (1,530,796
            )
            
            (1,066,381
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Increase
                in restricted cash
            
            
            -
            
            
            (145,664
            )Purchase
                of property and equipment
            
            
            (81,558
            )
            
            (171,624
            )Net
                cash used in investing activities
            
            
            (81,558
            )
            
            (317,288
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                received from long term debt borrowings
            
            
            1,770,000
            
            
            163,276Increase
                in bank overdraft
            
            
            -
            
            
            224,872Principal
                payments on debt
            
            
            (789,343
            )
            
            (45,538
            )Net payment on
                lines of credit
            
            
            -
            
            
            (630
            )Payment
                for public offering expenses
            
            
            -
            
            
            (45,000
            )Deferred
              costs
            
            
            -
            
            
            (82,585
            )Net
                cash provided by financing activities
            
            
            980,657
            
            
            214,395**NET
                DECREASE****IN
                CASH**
            
            
            (631,697
            )
            
            (1,169,274
            )**CASH —
                Beginning of period**
            
            
            742,719
            
            
            1,638,917**CASH —
                End of period**
            
            $
            111,022
            
            $
            469,643**Supplemental
                Disclosures of Cash Flow Information**Cash
                paid during the period for:Interest
            
            $
            59,986
            
            $
            67,732Taxes
            
            $
            -
            
            $
            -




See
      accompanying Notes to Condensed Financial Statements




5




REED’S,
      INC.




NOTES
      TO
      CONDENSED FINANCIAL STATEMENTS


Three
      Months Ended March 31, 2008 and 2007 (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 March 31, 2008 and the results of operations and cash
        flows for the three months ended March 31, 2008 and 2007. The balance sheet
        as
        of December 31, 2007 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 on Form 10-KSB, as filed with the Securities
        and Exchange Commission on April 15, 2008.
  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 three months ended March 31, 2008 are not
        necessarily indicative of the results of operations to be expected for the
        full
        fiscal year ending December 31, 2008.
 
 Income
        (Loss) per Common Share
 
 Basic
        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 month-period ended March
        31,
        2008 and 2007, basic and diluted loss per share are the same because the
        inclusion of common share equivalents would be anti-dilutive.
 For
          the
          three months ended March 31, 2008 and 2007 the calculations of basic and
          diluted
          loss per share are the same because potential dilutive securities would
          have an
          anti-dilutive effect. The potentially dilutive securities consisted of
          the
          following as of March 31, 2008:
 
 Warrants
                
                
                1,668,236Preferred
                    Stock
                
                
                192,484Options
                
                
                563,333Total
                
                
                2,424,053
 
 Fair
          Value of Financial Instruments:
 
 The
          carrying amounts of financial instruments, including cash, accounts and
          other
          receivables, accounts payable and accrued liabilities, approximate fair
          value
          because of their short maturity. The carrying amounts of notes
          payable approximate fair value because the related effective interest rates
          on these instruments approximate the rates currently available to the
          Company.
 
 Effective
          January 1, 2008, the Company adopted Statement of Financial Accounting
          Standards
          (SFAS) No. 157, "Fair Value Measurements." This Statement defines fair
          value for
          certain financial and nonfinancial assets and liabilities that are recorded
          at
          fair value, establishes a framework for measuring fair value, and expands
          disclosures about fair value measurements. This guidance applies to other
          accounting pronouncements that require or permit fair value measurements.
          On
          February 12, 2008, the FASB finalized FASB Staff Position (FSP) No.157-2,
          Effective Date of FASB Statement No. 157. This Staff Position delays the
          effective date of SFAS No. 157 for nonfinancial assets and liabilities
          to fiscal
          years beginning after November 15, 2008 and interim periods within those
          fiscal
          years, except for those items that are recognized or disclosed at fair
          value in
          the financial statements on a recurring basis (at least annually). The
          adoption
          of SFAS No. 157 had no effect on the Company’s financial position or results of
          operations.
 
 Recent
          Accounting Pronouncements:
 
 References
          to the “FASB”, “SFAS” and “SAB” herein refer to the “Financial Accounting
          Standards Board”, “Statement of Financial Accounting Standards”, and the “SEC
          Staff Accounting Bulletin”, respectively.
 
 In
          December 2007, the FASB issued FASB Statement No. 141 (R), “Business
          Combinations” (FAS 141(R)), which establishes accounting principles and
          disclosure requirements for all transactions in which a company obtains
          control
          over another business. Statement 141(R) applies prospectively to business
          combinations for which the acquisition date is on or after the beginning
          of the
          first annual reporting period beginning on or after December 15, 2008.
          Earlier
          adoption is prohibited.
 
 In
          December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
          Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160
          establishes accounting and reporting standards that require that the ownership
          interests in subsidiaries held by parties other than the parent be clearly
          identified, labeled, and presented in the consolidated statement of financial
          position within equity, but separate from the parent’s equity; the amount of
          consolidated net income attributable to the parent and to the noncontrolling
          interest be clearly identified and presented on the face of the consolidated
          statement of income; and changes in a parent’s ownership interest while the
          parent retains its controlling financial interest in its subsidiary be
          accounted
          for consistently. SFAS No. 160 also requires that any retained noncontrolling
          equity investment in the former subsidiary be initially measured at fair
          value
          when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure
          requirements to identify and distinguish between the interests of the parent
          and
          the interests of the noncontrolling owners. SFAS No. 160 applies to all
          entities
          that prepare consolidated financial statements, except not-for-profit
          organizations, but will affect only those entities that have an outstanding
          noncontrolling interest in one or more subsidiaries or that deconsolidate
          a
          subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
          within those fiscal years, beginning on or after December 15, 2008. Earlier
          adoption is prohibited. SFAS No. 160 must be applied prospectively as of
          the
          beginning of the fiscal year in which it is initially applied, except for
          the
          presentation and disclosure requirements. The presentation and disclosure
          requirements are applied retrospectively for all periods presented.
 
 In
          March
          2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
          and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS No.
          161”).  SFAS No. 161 amends and expands the disclosure requirements of SFAS
          No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS
          No. 133”). The objective of SFAS No. 161 is to provide users of financial
          statements with an enhanced understanding of how and why an entity uses
          derivative instruments, how derivative instruments and related hedged items
          are
          accounted for under SFAS No. 133 and its related interpretations, and how
          derivative instruments and related hedged items affect an entity’s financial
          position, financial performance, and cash flows.  SFAS No. 161 requires
          qualitative disclosures about objectives and strategies for using derivatives,
          quantitative disclosures about fair value amounts of and gains and losses
          on
          derivative instruments, and disclosures about credit-risk-related contingent
          features in derivative agreements.  SFAS No. 161 applies to all derivative
          financial instruments, including bifurcated derivative instruments (and
          nonderivative instruments that are designed and qualify as hedging instruments
          pursuant to paragraphs 37 and 42 of SFAS No. 133) and related hedged items
          accounted for under SFAS No. 133 and its related interpretations.  SFAS No.
          161 also amends certain provisions of SFAS No. 131. SFAS No. 161 is effective
          for financial statements issued for fiscal years and interim periods beginning
          after November 15, 2008, with early application encouraged.  SFAS No. 161
          encourages, but does not require, comparative disclosures for earlier periods
          at
          initial adoption.  The Company has not yet determined the effect on its
          consolidated financial statements, if any, upon adoption of SFAS No.
          161.
 
 The
          Company does not believe the adoption of the above recent pronouncements,
          will
          have a material effect on the Company’s results of operations, financial
          position, or cash flows.
  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 three months ended March 31, 2008.
  During
          the three months ended March 31, 2008 and 2007, the Company had two customers,
          which accounted for approximately 30% and 13% and 39% and 16% of sales,
          respectively . No other customers accounted for more than 10% of sales
          in either
          period. As of March 31, 2008, the Company had approximately $754,000 and
          $71,000, respectively, of accounts receivable from these customers.
 6
 2.Inventory





Inventory
      consists of the following at:




March
                31, 2008
            
            December
                31, 2007Raw
                Materials
            
            $
            951,688
            
            $
            1,175,580Finished
                Goods
            
            
            1,777,896
            
            
            1,848,870$
            2,729,584
            
            $
            3,028,450





3. 
      Long Term Debt




In
        March
        2008, the Company originated a note payable with a bank in the amount of
        $1,770,000. The note matures in February 2038. The note carries a 8.41% interest
        rate, requires a monthly payment of $13,651 and is secured by all of the
        land and building owned by the Company. The previous debt secured by land
        and
        building were paid off as a condition of obtaining this loan .


4.
      Stock
      Based Compensation




The
        impact on our results of operations of recording stock-based compensation
        for
        the three-month period ended March 31, 2008 and 2007 was to (reduce) increase
        selling expenses by $(27,983) and $25,127, respectively, and increase general
        and administrative expenses by $0 and $0, respectively. The reduction in
        compensation expense resulted from a change in estimated forfeitures of our
        total expected stock option compensation expense. In accordance with FAS
        123R,
        the company recalculated its expected compensation for all options outstanding
        at March 31, 2008 and compared it to previously recorded compensation expense
        for options in that option pool. The change in forfeiture assumption resulted
        from a significant forfeiture of stock options due to many of the option
        holders
        leaving the employ of the company before they became vested in those
        options.
 
 The
          amount of the cumulative adjustment to reflect the effect of the forfeited
          options is approximately $153,000. The amount of compensation
          expense which would have been recognized if the cumulative adjustment was
          not made would have been approximately $126,000.
 
 No
        options were issued during the 3 months ended March 31, 2008.
  The
        following table summarizes stock option activity for the three months ended
        March 31, 2008 :
  Shares
              
              Weighted
                  Average Exercise Price
              
              Weighted-
                Average
                Remaining
                Contractual
                Term
                  (Years)
              
              Aggregate
                Intrinsic
                ValueOutstanding
                  at January 1, 2008
              
              
              749,000
              
              $
              6.02
              
              
              3.8
              
              $
              732,760-Granted
              
              
              -
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -Forfeited
              
              
              (185,667
              )
              $
              7.24
              
              
              -
              
              
              -Outstanding
                  at March 31, 2008
              
              
              563,333
              
              $
              5.61
              
              
              3.3
              
              $
              63,350Exercisable
                  at March 31, 2008
              
              
              298,333
              
              $
              3.81
              
              
              2.4
              
              $
              63,350
  Stock
        options granted under our equity incentive plans vest over two and three
        years
        from the date of grant, 1⁄2 and 1/3 per year, respectively, and generally expire
        five years from the date of grant. No options were granted during the three
        months ended March 31, 2008.
 
 We
        calculated the fair value of each warrant award on the date of grant using
        the
        Black-Scholes option pricing model.
  The
        Company had 1,668,236 of warrants outstanding at March 31, 2008. There was
        no
        warrant activity in the three months ended March 31, 2008.
  5.
        Equity


During
        the three months ended March 31, 2008, 155,979 shares of common stock were
        issued to consultants. The stock was valued based on the closing price of
        the
        Company’s common stock on the date of issuance. The aggregate value of stock
        issued was $320,762.
  6.
        Related Party Activity
 As
              of
              December 31, 2007, the Company had a $300,000 note receivable from
              an entity
              that is partly owned by an advisor to the board of directors. The note
              is
              secured by all the entity’s assets and intellectual property. The note is
              payable on March 25, 2008 and bears interest at 7.50% per annum with
              quarterly
              interest payments. As of March 31, 2008, the Company has determined
              that the
              note is deemed uncollectible and the collateral worthless, and has
              written off
              the entire balance and associated accrued interest.
 
 For
          the
          three months ended March 31, 2008 the Company employed one family member
          of the
          majority shareholder, Chief Executive Officer and Chief Financial Officer
          of the
          Company in a sales role. He was paid approximately $56,250. No stock options
          were granted to him during the three months ended March 31,
          2008.
  
 7




Item
      2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations





FORWARD
      LOOKING STATEMENTS


*Certain
        statements in this Quarterly Report on Form 10-Q, or the Report, are
“forward-looking statements.” These forward-looking statements include, but are
        not limited to, statements about the plans, objectives, expectations and
        intentions of Reed’s, Inc., a Delaware corporation (referred to in this Report
        as “we,” “us,” or “our””) and other statements contained in this Report that are
        not historical facts. Forward-looking statements in this Report or hereafter
        included in other publicly available documents filed with the Securities
        and
        Exchange Commission, or the Commission, reports to our stockholders and other
        publicly available statements issued or released by us involve known and unknown
        risks, uncertainties and other factors which could cause our actual results,
        performance (financial or operating) or achievements to differ from the future
        results, performance (financial or operating) or achievements expressed or
        implied by such forward-looking statements. Such future results are based
        upon
        management's best estimates based upon current conditions and the most recent
        results of operations. When used in this Report, the words “expect,”
“anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate” and similar
        expressions are generally intended to identify forward-looking statements,
        because these forward-looking statements involve risks and uncertainties.
        There
        are important factors that could cause actual results to differ materially
        from
        those expressed or implied by these forward-looking statements, including
        our
        plans, objectives, expectations and intentions and other factors that are
        discussed under the section entitled “Risk Factors,” in our Annual Report on
        Form 10-KSB for the year ended December 31, 2007.*
 
 *The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with our unaudited condensed financial
      statements and the related notes appearing elsewhere in this Form 10-Q.*




**Overview**




We
      develop, manufacture, market, and sell natural non-alcoholic and “New Age”
beverages, candies and ice creams. “New Age Beverages” is a category that
      includes natural soda, fruit juices and fruit drinks, ready-to-drink teas,
      sports drinks, and water. We currently manufacture, market and sell six unique
      product lines:




·
            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




We
      sell
      most of our products in specialty gourmet and natural food stores, supermarket
      chains, retail stores and restaurants in the United States and, to a lesser
      degree, in Canada. We primarily sell our products through a network of natural,
      gourmet and independent distributors. We also maintain an organization of
      in-house sales managers who work mainly in the stores serviced by our natural,
      gourmet and mainstream distributors and with our distributors. We also work
      with
      regional, independent sales representatives who maintain store and distributor
      relationships in a specified territory. In Southern California, we have our
      own
      direct distribution system.




**Trends,
      Risks, Challenges, Opportunities That May or Are Currently Affecting Our
      Business**




Our
      main
      challenges, trends, risks, and opportunities that could affect or are affecting
      our financial results include but are not limited to:




Fuel
      Prices - As oil prices continue to increase, our packaging, production and
      ingredient costs will continue to rise. We have attempted to offset the rising
      freight costs from fuel price increases by creatively negotiating rates and
      managing freight. We will continue to pursue alternative production, packaging
      and ingredient suppliers and options to help offset the affect of rising fuel
      prices on these expenses.




Low
      Carbohydrate Diets and Obesity - Our products are not geared for the low
      carbohydrate market. Consumer trends have reflected higher demand for lower
      carbohydrate products. Despite this trend, we achieved an increase in our sales
      growth in 2006. We monitor these trends closely and have started developing
      low-carbohydrate versions of some of our beverages, although we do not have
      any
      currently marketable low-carbohydrate products.




Distribution
      Consolidation - There has been a recent trend towards continued consolidation
      of
      the beverage distribution industry through mergers and acquisitions. This
      consolidation results in a smaller number of distributors to market our products
      and potentially leaves us subject to the potential of our products either being
      dropped by these distributors or being marketed less aggressively by these
      distributors. As a result, we have initiated our own direct distribution to
      mainstream supermarkets and natural and gourmet foods stores in Southern
      California and to large national retailers. Consolidation among natural foods
      industry distributors has not had an adverse affect on our sales.




8




Consumers
      Demanding More Natural Foods - The rapid growth of the natural foods industry
      has been fueled by the growing consumer awareness of the potential health
      problems due to the consumption of chemicals in the diet. Consumers are reading
      ingredient labels and choosing products based on them. We design products with
      these consumer concerns in mind. We feel this trend toward more natural products
      is one of the main trends behind our growth. Recently, this trend in drinks
      has
      not only shifted to products using natural ingredients, but also to products
      with added ingredients possessing a perceived positive function like vitamins,
      herbs and other nutrients. Our ginger-based products are designed with this
      consumer demand in mind.




Supermarket
      and Natural Food Stores - More and more supermarkets, in order to compete with
      the growing natural food industry, have started including natural food sections.
      As a result of this trend, our products are now available in mainstream
      supermarkets throughout the United States in natural food sections. Supermarkets
      can require that we spend more advertising money and they sometimes require
      slotting fees. We continue to work to keep these fees reasonable. Slotting
      fees
      in the natural food section of the supermarket are generally not as expensive
      as
      in other areas of the store.




Beverage
      Packaging Changes - Beverage packaging has continued to innovate, particularly
      for premium products. There is an increase in the sophistication with respect
      to
      beverage packaging design. While we feel that our current core brands still
      compete on the level of packaging, we continue to experiment with new and novel
      packaging designs such as the 5-liter party keg and 750 ml. champagne style
      bottles. We have further plans for other innovative packaging
      designs.




Packaging
      or Raw Material Price Increases - An increase in packaging or raw materials
      has
      caused our margins to suffer and has negatively impacted our cash flow and
      profitability. We continue to search for packaging and production alternatives
      to reduce our cost of goods.




Cash
      Flow
      Requirements - Our growth will depend on the availability of additional capital
      infusions. We have a financial history of losses and are dependent on
      non-banking sources of capital, which tend to be more expensive and charge
      higher interest rates. Any increase in costs of goods will further increase
      losses and will further tighten cash reserves.




Interest
      Rates - We use lines of credit as a source of capital and are negatively
      impacted as interest rates rise.




**Critical
      Accounting Policies**




Our
      financial statements are prepared in accordance with accounting principles
      generally accepted in the United States of America, or GAAP. GAAP requires
      us to
      make estimates and assumptions that affect the reported amounts in our financial
      statements including various allowances and reserves for accounts receivable
      and
      inventories, the estimated lives of long-lived assets and trademarks and
      trademark licenses, as well as claims and contingencies arising out of
      litigation or other transactions that occur in the normal course of business.
      The following summarize our most significant accounting and reporting policies
      and practices:




Revenue
      Recognition. Revenue is recognized on the sale of a product when the product
      is
      shipped, which is when the risk of loss transfers to our customers, and
      collection of the receivable is reasonably assured. A product is not shipped
      without an order from the customer and credit acceptance procedures performed.
      The allowance for returns is regularly reviewed and adjusted by management
      based
      on historical trends of returned items. Amounts paid by customers for shipping
      and handling costs are included in sales.




Trademark
      License and Trademarks. Trademark license and trademarks primarily represent
      the
      costs we pay for exclusive ownership of the Reed’s® trademark in connection with
      the manufacture, sale and distribution of beverages and water and non-beverage
      products. We also own the Virgil’s® trademark and the China Cola® trademark. In
      addition, we own a number of other trademarks in the United States as well
      as in
      a number of countries around the world. We account for these items in accordance
      with SFAS No. 142, “Goodwill and Other Intangible Assets.” Under the
      provisions of SFAS No. 142, we do not amortize indefinite-lived trademark
      licenses and trademarks.




In
      accordance with SFAS No. 142, we evaluate our non-amortizing trademark
      license and trademarks quarterly for impairment. We measure impairment by the
      amount that the carrying value exceeds the estimated fair value of the trademark
      license and trademarks. The fair value is calculated by reviewing net sales
      of
      the various beverages and applying industry multiples. Based on our quarterly
      impairment analysis the estimated fair values of trademark license and
      trademarks exceeded the carrying value and no impairments were identified during
      the three months ended March 31, 2008 or March 31, 2007.




Long-Lived
      Assets. Our management regularly reviews property, equipment and other
      long-lived assets, including identifiable amortizing intangibles, for possible
      impairment. This review occurs quarterly or more frequently if events or changes
      in circumstances indicate the carrying amount of the asset may not be
      recoverable. If there is indication of impairment of property and equipment
      or
      amortizable intangible assets, then management prepares an estimate of future
      cash flows (undiscounted and without interest charges) expected to result from
      the use of the asset and its eventual disposition. If these cash flows are
      less
      than the carrying amount of the asset, an impairment loss is recognized to
      write
      down the asset to its estimated fair value. The fair value is estimated at
      the
      present value of the future cash flows discounted at a rate commensurate with
      management’s estimates of the business risks. Quarterly, or earlier, if there is
      indication of impairment of identified intangible assets not subject to
      amortization, management compares the estimated fair value with the carrying
      amount of the asset. An impairment loss is recognized to write down the
      intangible asset to its fair value if it is less than the carrying amount.
      Preparation of estimated expected future cash flows is inherently subjective
      and
      is based on management’s best estimate of assumptions concerning expected future
      conditions. No impairments were identified during the three months ended March
      31, 2008 or 2007.




9




Management
      believes that the accounting estimate related to impairment of our long lived
      assets, including our trademark license and trademarks, is a “critical
      accounting estimate” because: (1) it is highly susceptible to change from
      period to period because it requires management to estimate fair value, which
      is
      based on assumptions about cash flows and discount rates; and (2) the
      impact that recognizing an impairment would have on the assets reported on
      our
      balance sheet, as well as net income, could be material. Management’s
      assumptions about cash flows and discount rates require significant judgment
      because actual revenues and expenses have fluctuated in the past and we expect
      they will continue to do so.




In
      estimating future revenues, we use internal budgets. Internal budgets are
      developed based on recent revenue data for existing product lines and planned
      timing of future introductions of new products and their impact on our future
      cash flows.




Advertising.
      We account for advertising production costs by expensing such production costs
      the first time the related advertising is run.




Accounts
      Receivable. We evaluate the collectibility of our trade accounts receivable
      based on a number of factors. In circumstances where we become aware of a
      specific customer’s inability to meet its financial obligations to us, a
      specific reserve for bad debts is estimated and recorded which reduces the
      recognized receivable to the estimated amount our management believes will
      ultimately be collected. In addition to specific customer identification of
      potential bad debts, bad debt charges are recorded based on our historical
      losses and an overall assessment of past due trade accounts receivable
      outstanding.




Inventories.
      Inventories are stated at the lower of cost to purchase and/or manufacture
      the
      inventory or the current estimated market value of the inventory. We regularly
      review our inventory quantities on hand and record a provision for excess and
      obsolete inventory based primarily on our estimated forecast of product demand
      and/or our ability to sell the product(s) concerned and production requirements.
      Demand for our products can fluctuate significantly. Factors that could affect
      demand for our products include unanticipated changes in consumer preferences,
      general market conditions or other factors, which may result in cancellations
      of
      advance orders or a reduction in the rate of reorders placed by customers.
      Additionally, our management’s estimates of future product demand may be
      inaccurate, which could result in an understated or overstated provision
      required for excess and obsolete inventory.




Income
      Taxes. Current income tax expense is the amount of income taxes expected to
      be
      payable for the current year. A deferred income tax asset or liability is
      established for the expected future consequences of temporary differences in
      the
      financial reporting and tax bases of assets and liabilities. We consider future
      taxable income and ongoing, prudent, and feasible tax planning strategies,
      in
      assessing the value of our deferred tax assets. If our management determines
      that it is more likely than not that these assets will not be realized, we
      will
      reduce the value of these assets to their expected realizable value, thereby
      decreasing net income. Evaluating the value of these assets is necessarily
      based
      on our management’s judgment. If our management subsequently determined that the
      deferred tax assets, which had been written down, would be realized in the
      future, the value of the deferred tax assets would be increased, thereby
      increasing net income in the period when that determination was
      made.


**Results
        of Operations**
 
 *Three
        Months Ended March 31, 2007 Compared to Three Months Ended March 31,
        2008*
 
 Net
        sales
        increased by $551,410, or 18.3%, from $3,012,690 in the first three months
        ended
        2007 to $3,564,100 in the first three months ended 2008. The increase in
        net
        sales was primarily due to an increase in our Virgil’s product line and our
        Reed’s Ginger Brews line. The increase in sales was also primarily due to an
        increase in net sales due to newly introduced mainstream distributors and
        an
        increase in our existing distribution channels of natural food distributors
        and
        retailers.
 
 The
        Virgil’s brand, which includes Root Beer, Cream Soda and Black Cherry Cream
        soda, Diet Root Beer, Diet Cream Soda and Diet Black Cherry Cream Soda, realized
        an increase in net sales of $641,000, or 43.0% to $1,492,000 in first three
        months ended 2008 from $851,000 in first three months ended 2007. The increase
        was the result of increased sales in 12 ounce Root Beer of $234,000 or 40.3%
        from $580,000 in first three months ended 2007 to $814,000 in first three
        months
        ended 2008, increased sales in Cream Soda of $116,000 or 184.1% from $63,000
        in
        the first three months of 2007 to $179,000 in the first three months of 2008,
        and increased sales in Black Cherry Cream Soda of $32,000 or 50.8% from $63,000
        in the first three months of 2007 to $95,000 in the first three months of
        2008.
        Also, the Virgil’s Root Beer five-liter party kegs increased $210,000 or 238.6%,
        from $88,000 in first three months ended 2007 to $298,000 in first three
        months
        ended 2008. In addition, the increase in sales in the Virgil’s Brand was the
        result of three diet products introduced in the second quarter 2007. The
        three
        new products include Diet Root Beer, Diet Cream Soda and Diet Black Cherry
        Cream
        Soda which realized net sales of $54,000 in first three months ended 2008.
  10
 
 The
        Reeds
        Ginger Brew Line increased $388,000 or 26.2% to $1,868,000 in first three
        months
        ended 2008 from $1,480,000 in first three months ended 2007.
 
 Net
        sales
        of candy decreased $3,000, or 1.2% to $253,000 in first three months ended
        2008
        from $256,000 in first three months ended 2007.
 
 The
        product mix for our two most significant product lines, Reed’s Ginger Brews and
        Virgil’s sodas was 51.2% and 40.9%, respectively of net sales in first three
        months ended 2008 and was 56.5% and 32.5%, respectively of net sales in first
        three months ended 2007.
 
 Cost
        of
        sales increased by $571,219, or 23.1%, to $3,044,287 in first three months
        ended
        2008 from $2,473,068 in first three months ended 2007. As a percentage of
        net
        sales, cost of sales increased to 85.4% in first three months ended 2008
        from
        82.1% in first three months ended 2007. Cost of sales as a percentage of
        net
        sales increased by 3.3%, primarily as a result of increased discounting and
        promotions, increased production expenses, increased packaging costs and
        increased ingredient costs.
  Gross
        profit decreased $19,809 or 3.7% to $519,813 in first three months ended
        2008
        from $539,622 in first three months ended 2007. As a percentage of net sales,
        gross profit decreased to 14.6% in the first three months of 2008 from 17.9%
        in
        the first three months of 2007. Fuel and commodity price increases have caused
        an increase in our costs of production from our co-packer. Fuel price increases
        have also increased our costs of delivery. In addition, we had increased
        costs
        of packaging costs. If fuel and commodity prices continue to increase, we
        will
        have more pressure on our margins.
 
 To
        improve gross margins in 2008, we have raised prices on the Reed’s Ginger Brew
        line by 20% bringing it more in line with our competitors in the natural
        soda
        category. In addition, we are implementing systems to track and manage the
        approval and use of promotions and discounting to maintain a higher net gross
        margin. Finally, we are performing a competitive bidding process for our
        third
        party co-packing production. We expect to select a co-packer by the third
        quarter 2008. We expect to lower our costs of production, thus further improving
        our gross margin while maintaining our product quality.
 
 Operating
        expenses increased by $1,450,766, or 144.6%, to $2,454,274 in first three
        months
        ended 2008 from $1,003,508 in first three months ended 2007 and increased
        as a
        percentage of net sales to 68.9% in first three months ended 2008 from 33.3%
        in
        first three months ended 2007. The increase was primary the result of increased
        selling and general and administrative expenses. In March of 2008, we reduced
        our staff by 17 employees, mostly from the sales staff.  During
        the first quarter of 2008, we implemented a cost reduction strategy to reduce
        unnecessary expenses and revised its budget for 2008. We reduced selling
        expenses by reducing our work force by 17 employees. We expect to save
        approximately $2,000,000 in annual expense with this reduction. We believe
        our
        operating expenses will decrease approximately $300,000  per
        month
        beginning in April,2008.
  11
 
 Selling
        expensed increased by $569,963 or 102.9%, to $1,124,128 in first three months
        ended 2008 from $554,165 in first three months ended 2007. The increase in
        selling expenses is due to increased salaries of sales personnel, general
        selling expenses, promotional costs, non-cash stock option amortization expense,
        recruiting costs of sales personnel and public relations. Salaries of sales
        personnel increased $411,495 or 135.2% to $715,889 in first three months
        ended
        2008 from $304,394 in first three months ended 2007. This increase was due
        to
        increased personnel to support the initiative to increase sales of our product
        to the mainstream consumer through mainstream stores and distributors that
        support mainstream retailers. General selling expenses increased $133,953
        or
        115.9% to $249,502 in first three months ended 2008 from $115,549 in first
        three
        months ended 2007. The increase in general selling expenses was due to the
        increased support for the increased sales personnel such as travel and trade
        shows. Promotional expenses decreased $6,957 or 6.9%, to $93,965 in first
        three
        months ended 2008 from $100,922 in first three months ended 2007. The decrease
        in promotional expenses was due to decreased demonstrations and sampling.
        Non-cash stock option compensation expense decreased $55,110 or 203.2% to
        $(27,983) in first three months ended 2008 from $27,127 in first three months
        ended 2007. This decrease is due to options which were forfeited. This resulted
        in a cumulative adjustment, as discussed in Note 4. In
        March
        2008, we announced our new strategic direction in sales, whereby our focus
        is to
        strengthen our product placements in our estimated 10,500 supermarkets
        nationwide. This strategy replaces our strategy in first three months ended
        2007
        that focused on both the supermarkets and a direct store delivery (DSD) effort.
        Since March 2008, our sales organization has been reduced by 16 compared
        to the
        level we had at December 31, 2007. We have found that the most effective
        sales
        efforts are to grocery stores. We have our products in more than 10,500
        supermarket stores across the country and our new direction for 2008 is to
        remain focused on these accounts while opening new business with other grocery
        stores leveraging our brand equity. We feel that the trend in grocery stores
        to
        offer their customers natural products can be served with our products. Our
        sales personnel are leveraging our success at natural food grocery stores
        to
        establish new relationships with mainstream grocery stores
 
 General
        and administrative expenses increased by $880,803 or 196.0% to $1,330,146
        in
        first three months ended 2008 from $449,343 in the first three months of
        2007.
        The increase in general and administrative expenses is due to increased legal,
        accounting and investor relations expenses, salaries, general office expenses
        and non-cash stock option amortization expense. Legal, accounting and investor
        relations expenses increased $297,568 or 312.9% to $392,656 in first three
        months ended 2008 from $95,088 in first three months ended 2007. The increase
        in
        legal, accounting and investor relation expenses was due to a new initiative
        in
        first three months ended 2008 for investor relations that resulted in an
        increase of general and administrative expenses of $121,694. The remaining
        increase in legal and accounting costs mostly related to the increased costs
        of
        reporting and compliance with the Securities and Exchange Commission and
        NASDAQ.
        Salaries increased by $243,914 or 219.6% to $354,981 in first three months
        ended
        2008 from $111,067 in first three months ended 2007. The increase was due
        to
        additional personnel including the newly hired Chief Operating and Chief
        Financial Officers. General office expenses increased $116,761 or 68.6% to
        $286,626 in first three months ended 2008 from $169,865 in first three months
        ended 2007. This increase was mainly due to increased costs to support the
        additional personnel such as computers and telephones. In addition, we had
        a
        one-time non cash expense of $320,762 for consulting services, for which
        we
        issued stock.
 
 Interest
        expense was $56,438 in first three months ended 2008, compared to interest
        expense of $47,551 in first three months ended 2007.
  Interest
        income decreased because of our overall decrease in cash and corresponding
        decrease in interest bearing cash accounts.
  12
 
 **Liquidity
        and Capital Resources**
 
 Historically,
        we have financed our operations primarily through the sale of common stock,
        preferred stock, convertible debt, a line of credit from a financial
        institution, and cash generated from operations. On December 12, 2006, we
        completed the sale of 2,000,000 shares of our common stock at an offering
        price
        of $4.00 per share in our initial public offering. The public offering resulted
        in gross proceeds of $8,000,000 to us. In connection with the public offering,
        we paid aggregate commissions, concessions and non-accountable expenses to
        the
        underwriters of $800,000, resulting in net proceeds of $7,200,000, excluding
        other expenses of the public offering. In addition, we issued, to the
        underwriters, warrants to purchase up to approximately an additional 200,000
        shares of common stock at an exercise price of $6.60 per share (165% of the
        public offering price per share), at a purchase price of $0.001 per warrant.
        The
        underwriters’ warrants are exercisable for a period of five years commencing on
        the final closing date of the public offering. From August 3, 2005 through
        April
        7, 2006, we had issued 333,156 shares of our common stock in connection with
        the
        public offering. We sold the balance of the 2,000,000 shares in connection
        with
        the public offering (1,666,844 shares) following October 11, 2006.
  From
        May
        25, 2007 through June 15, 2007, we completed a private placement to accredited
        investors only, on subscriptions for the sale of 1,500,000 shares of common
        stock and warrants to purchase up to 749,995 shares of common stock, resulting
        in an aggregate of $9,000,000 of gross proceeds to us. We sold the shares
        at a
        purchase price of $6.00 per share. The warrants issued in the private placement
        have a five-year term and an exercise price of $7.50 per share. We paid cash
        commissions of $900,000 to the placement agent for the private placement
        and
        issued warrants to the placement agent to purchase up to 150,000 shares of
        common stock with an exercise price of $6.60 per share. We also issued
        additional warrants to purchase up to 15,000 shares of common stock with
        an
        exercise price of $6.60 per share and paid an additional $60,000 in cash
        to the
        placement agent as an investment banking fee. Total proceeds received, net
        of
        underwriting commissions and the investment banking fee and excluding other
        expenses of the private placement, was $8,040,000.
  As
        of
        March 31, 2008, we had an accumulated deficit of $13,071,210. As of March
        31, 2008, we had working capital of $2,211,872, compared to working capital
        of
        $2,942,909 as of December 31, 2007. Cash and cash equivalents were $111,022
        as
        of March 31, 2008, as compared to $742,719 as December 31,
        2007.
  Net
        cash
        used in operating activities was $1,530,796 in the three months ended March
        31, 2008 and resulted primarily from our net loss of $1,990,069 reduced by
        a
        non-cash expense of $320,762 pertaining to consulting services we issued
        stock
        for.
 
 We
        used
        $81,558 in investing activities in the three months ended March 31, 2008.
        This
        use resulted in the purchase of brewing equipment and office
        equipment.
  Cash
        flow
        provided from financing activities was $980,657 in the three months ended
        March
        31, 2008 . This resulted from the Company obtaining a mortgage on its real
        estate for $1,770,000 and paying existing real estate and other term debt
        of
        $789,343.
 
 We
        do not
        have a line of credit for our working capital, receivables or inventory.
        However, we are negotiating to obtain a line of credit facility secured by
        our
        receivables and inventory. There can be no assurance that we will be offered
        or
        accept the terms of a line of credit. However, we believe that we will be
        able
        to obtain a line of credit which would be based on the amount of our eligible
        receivables and inventory of up to $3 million. .
 
 We
        recognize that operating losses negatively impact liquidity and are working
        on
        decreasing operating losses. In the first quarter of 2008, we implemented
        a cost
        reduction program, including a reduction of our staff. Our current business
        plan
        assumes an increase in sales. Assuming an increase in sales and a reduction
        in
        our operating costs, we expect to reduce our operating losses in 2008 compared
        to 2007. If the increase in sales does not materialize, we will need to further
        reduce our operating costs.
  13
 
 If
        we
        have an increase in sales in 2008 and a reduction in operating expenses,
        we
        believe our current working capital and cash position and our ability to
        obtain
        a new line of credit will be sufficient to enable us to meet our cash needs
        through December 2008.
 
 We
        may
        not generate sufficient revenues from product sales in the future to achieve
        profitable operations. If we are not able to achieve profitable operations
        at
        some point in the future, we eventually may have insufficient working capital
        to
        maintain our operations as we presently intend to conduct them or to fund
        our
        expansion and marketing and product development plans. In addition, our losses
        may increase in the future as we expand our manufacturing capabilities and
        fund
        our marketing plans and product development. These losses, among other things,
        have had and will continue to have an adverse effect on our working capital,
        total assets and stockholders’ equity. If we are unable to achieve
        profitability, the market value of our common stock will decline and there
        would
        be a material adverse effect on our financial condition.
  If
        we
        continue to suffer losses from operations, the proceeds from our public
        offering, private placement and borrowings may be insufficient to support
        our
        ability to expand our business operations as rapidly as we would deem necessary
        at any time, unless we are able to obtain additional financing. There can
        be no
        assurance that we will be able to obtain such financing on acceptable terms,
        or
        at all. If adequate funds are not available or are not available on acceptable
        terms, we may not be able to pursue our business objectives and would be
        required to reduce our level of operations, including reducing infrastructure,
        promotions, personnel and other operating expenses. These events could adversely
        affect our business, results of operations and financial condition.
  In
        addition, some or all of the elements of our expansion plan may have to be
        curtailed or delayed unless we are able to find alternative external sources
        of
        working capital. We would need to raise additional funds to respond to business
        contingencies, which may include the need to:
  ·
              fund
                  more rapid expansion,
  ·
              fund
                  additional marketing expenditures,
  ·
              enhance
                  our operating infrastructure,
  ·
              respond
                  to competitive pressures, and
  ·
              acquire
                  other businesses.
  We
        cannot
        assure you that additional financing will be available on terms favorable
        to us,
        or at all. If adequate funds are not available or if they are not available
        on
        acceptable terms, our ability to fund the growth of our operations, take
        advantage of opportunities, develop products or services or otherwise respond
        to
        competitive pressures, could be significantly limited.


Recent
          Accounting Pronouncements:
 
 References
          to the “FASB”, “SFAS” and “SAB” herein refer to the “Financial Accounting
          Standards Board”, “Statement of Financial Accounting Standards”, and the “SEC
          Staff Accounting Bulletin”, respectively.
 
 In
          December 2007, the FASB issued FASB Statement No. 141 (R), “Business
          Combinations” (FAS 141(R)), which establishes accounting principles and
          disclosure requirements for all transactions in which a company obtains
          control
          over another business. Statement 141(R) applies prospectively to business
          combinations for which the acquisition date is on or after the beginning
          of the
          first annual reporting period beginning on or after December 15, 2008.
          Earlier
          adoption is prohibited.
 
 In
          December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
          Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160
          establishes accounting and reporting standards that require that the ownership
          interests in subsidiaries held by parties other than the parent be clearly
          identified, labeled, and presented in the consolidated statement of financial
          position within equity, but separate from the parent’s equity; the amount of
          consolidated net income attributable to the parent and to the noncontrolling
          interest be clearly identified and presented on the face of the consolidated
          statement of income; and changes in a parent’s ownership interest while the
          parent retains its controlling financial interest in its subsidiary be
          accounted
          for consistently. SFAS No. 160 also requires that any retained noncontrolling
          equity investment in the former subsidiary be initially measured at fair
          value
          when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure
          requirements to identify and distinguish between the interests of the parent
          and
          the interests of the noncontrolling owners. SFAS No. 160 applies to all
          entities
          that prepare consolidated financial statements, except not-for-profit
          organizations, but will affect only those entities that have an outstanding
          noncontrolling interest in one or more subsidiaries or that deconsolidate
          a
          subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
          within those fiscal years, beginning on or after December 15, 2008. Earlier
          adoption is prohibited. SFAS No. 160 must be applied prospectively as of
          the
          beginning of the fiscal year in which it is initially applied, except for
          the
          presentation and disclosure requirements. The presentation and disclosure
          requirements are applied retrospectively for all periods presented.
 
 In
          March
          2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
          and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS No.
          161”).  SFAS No. 161 amends and expands the disclosure requirements of SFAS
          No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS
          No. 133”). The objective of SFAS No. 161 is to provide users of financial
          statements with an enhanced understanding of how and why an entity uses
          derivative instruments, how derivative instruments and related hedged items
          are
          accounted for under SFAS No. 133 and its related interpretations, and how
          derivative instruments and related hedged items affect an entity’s financial
          position, financial performance, and cash flows.  SFAS No. 161 requires
          qualitative disclosures about objectives and strategies for using derivatives,
          quantitative disclosures about fair value amounts of and gains and losses
          on
          derivative instruments, and disclosures about credit-risk-related contingent
          features in derivative agreements.  SFAS No. 161 applies to all derivative
          financial instruments, including bifurcated derivative instruments (and
          nonderivative instruments that are designed and qualify as hedging instruments
          pursuant to paragraphs 37 and 42 of SFAS No. 133) and related hedged items
          accounted for under SFAS No. 133 and its related interpretations.  SFAS No.
          161 also amends certain provisions of SFAS No. 131. SFAS No. 161 is effective
          for financial statements issued for fiscal years and interim periods beginning
          after November 15, 2008, with early application encouraged.  SFAS No. 161
          encourages, but does not require, comparative disclosures for earlier periods
          at
          initial adoption.  The Company has not yet determined the effect on its
          consolidated financial statements, if any, upon adoption of SFAS No.
          161.
 
 The
          Company does not believe the adoption of the above recent pronouncements,
          will
          have a material effect on the Company’s results of operations, financial
          position, or cash flows.
  
 14




Inflation
  Although
        management expects that our operations will be influenced by general economic
        conditions, we do not believe that inflation has a material effect on our
        results of operations.




Item
        3.
        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Not
        applicable.




Item
      4.
      CONTROLS AND PROCEDURES




(a) Management's
        Evaluation of Disclosure Controls and Procedures.




As
      of
      March 31, 2008, we carried out an evaluation, under the supervision and with
      the
      participation of our management, including our Chief Executive Officer and
      Chief
      Financial Officer, of the effectiveness of the design and operation of our
      “disclosure controls and procedures,” as such term is defined under Exchange Act
      Rules 13a-15(e) and 15d-15(e).




Our
      Chief
      Executive Officer and Chief Financial Officer concluded that, as of March 31,
      2008, our disclosure controls and procedures were effective to ensure that
      information required to be disclosed by us in the reports we file or submit
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in the rules and forms of the SEC, and accumulated
      and communicated to our management, including our Chief Executive Officer and
      Chief Financial Officer, as appropriate to allow timely decisions regarding
      required disclosure.





(b)
      Changes in Internal Controls.


There
        were no changes in our internal controls over financial reporting during
        the
        quarter ended March 31, 2008 that materially affected, or are reasonably
        likely
        to materially affect, our internal controls over financial
        reporting.


15




**Part
      II**





Item
      1.
      Legal Proceedings




There
        has
        been no change to our disclosure regarding legal proceeding as set forth
        in our
        Annual Report on Form 10-KSB for the year ended December 31,
        2007.


Except
      as
      set forth in such disclosure, we believe that there are no material litigation
      matters at the current time. Although the results of such litigation matters
      and
      claims cannot be predicted with certainty, we believe that the final outcome
      of
      such claims and proceedings will not have a material adverse impact on our
      financial position, liquidity, or results of operations.






Item
        1A. RISK FACTORS
 
 Not
        applicable




Item
      2.
      Unregistered Sales of Equity Securities and Use of Proceeds





Not
      applicable




Item
      3.
      Defaults Upon Senior Securities





Not
      applicable





Item
      4.
      Submission of Matters to a Vote of Security Holders





Not
      applicable





Item
      5.
      Other Information





Not
      applicable





Item
      6.
      Exhibits




Exhibit
                Number
              Description
                  of Document31
              Officer's Certification pursuant to
                Section
                302 of the Sarbanes-OxleyAct
                of 200232
              Officer's
                Certification pursuant to Section 906 of the Sarbanes-OxleyAct
                of 2002







16





**SIGNATURE**




In
      accordance with requirements of the Exchange Act, the Registrant caused this
      report to be signed on its behalf by the undersigned thereunto duly
      authorized.




Reeds,
              Inc.By:
            /s/
              Christopher
              ReedChief
                Executive Officer, President
              and
                Chief Financial OfficerMay 20, 2008




17