**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB**





x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
      the
      quarterly period ended March 31, 2006





Commission
      file number: 333-120451








**REED'S
      INC.**


(Exact
      name of registrant as specified in its charter)





Delaware


(State
      of
      incorporation)





95-4348325


(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)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities 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 
      x No o





There
      were 5,281,247 shares of the registrant's common stock outstanding as of 
March 31, 2006.












**Part
      I - Financial Information**





**Item
      1. Financial Statements**




**REED’S,
      INC.**


**CONDENSED
        BALANCE SHEETS**
 
 **ASSETS**
  **March
                  31,**
              
              **December
                  31,****2006
                  (Unaudited)**
              
              **2005****CURRENT
                  ASSETS**Cash
              
              $
              195,457
              
              $
              27,744Inventory
              
              
              1,420,692
              
              
              1,208,019Trade
                  accounts receivable, net of allowance for doubtful accounts and
                  returns
                  and discounts of $82,000 as of March 31, 2006 and $70,000 as of
                  December
                  31, 2005
              
              
              742,009
              
              
              534,906Receivable from
                sale of common stock
              
              
              48,629
              
              
              —Other
                  receivables
              
              
              9,363
              
              
              10,563Prepaid
                  expenses
              
              
              37,976
              
              
              74,279Total
                  Current Assets
              
              
              2,454,126
              
              
              1,855,511
 
 Property
                  and equipment, net of accumulated depreciation of $542,867 as of
                  March 31,
                  2006 and $508,136 as of December 31, 2005
              
              
              1,869,893
              
              
              1,885,354**OTHER
                  ASSETS**Brand
                  names
              
              
              800,201
              
              
              800,201Other
                  intangibles, net of accumulated amortization of $3,909 as of March
                  31, 2006 and $3,723as
                  of December 31, 2005
              
              
              14,705
              
              
              14,891Deferred
                  stock offering costs
              
              
              —
              
              
              356,238Total
                  Other Assets
              
              
              814,906
              
              
              1,171,330**TOTAL
                  ASSETS**
              
              **$**
              5,138,925
              
              $
              4,912,195**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              1,843,631
              
              $
              1,644,491Lines
                  of credit
              
              
              1,539,946
              
              
              1,445,953Current
                  portion of long term debt
              
              
              168,877
              
              
              169,381Accrued
                  interest
              
              
              142,648
              
              
              136,240Accrued
                  expenses
              
              
              74,180
              
              
              54,204Total
                  Current Liabilities
              
              
              3,769,282
              
              
              3,450,269Loans
                  payable, related party
              
              
              252,358
              
              
              252,358Long
                  term debt, less current portion
              
              
              1,032,374
              
              
              1,060,573Total
                  Liabilities
              
              
              5,054,014
              
              
              4,763,200**COMMITMENTS
                  AND CONTINGENCIES****STOCKHOLDERS’
                  EQUITY**Preferred
                  stock, $10.00 par value, 500,000 shares authorized, 58,940 shares
                  issued
                  and outstanding
              
              
              589,402
              
              
              589,402Common
                  stock, $.0001 par value, 11,500,000 shares authorized, 5,281,247
                  and 5,042,197 shares issued and outstanding, at March 31, 2006 and
                  December 31, 2005, respectively
              
              
              528
              
              
              503Common
                  stock to be issued (7,362 shares)
              
              
              29,470
              
              
              29,470Additional
                  paid in capital
              
              
              3,094,171
              
              
              2,788,683Accumulated
                  deficit
              
              
              (3,628,660
              )
              
              (3,259,063
              )Total
                  stockholders’ equity
              
              
              84,911
              
              
              148,995**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY**
              
              $
              5,138,925
              
              $
              4,912,195
   See
        accompanying Notes to Condensed Financial Statements






1




**REED’S,
      INC.**


**CONDENSED
        STATEMENTS OF OPERATIONS**
 **For
        the three months ended March 31, 2006 and 2005**
 **(Unaudited)**
 **Three
                    months ended (Unaudited)****March
                    31,**
                
                **March
                    31,****2006**
                
                **2005****SALES**
                
                $
                1,979,272
                
                $
                1,817,336**COST
                    OF SALES**
                
                
                1,688,876
                
                
                1,486,287**GROSS
                    PROFIT**
                
                
                290,396
                
                
                331,049**OPERATING
                    EXPENSES**Selling
                
                
                287,158
                
                
                287,145General &
                    Administrative
                
                
                262,660
                
                
                211,954Litigation
                    fees
                
                
                9,568
                
                
                2,126559,386
                
                
                501,225**LOSS
                    FROM OPERATIONS**
                
                
                (268,990
                )
                
                (170,176
                )**OTHER
                    EXPENSES**Interest
                    Expense
                
                
                (100,607
                )
                
                (71,210
                )**NET
                    LOSS**
                
                $
                (369,597
                )
                $
                (241,386
                )**LOSS
                    PER SHARE BASIC AND DILUTED**
                
                $
                (.07
                )
                $
                (.05
                )**WEIGHTED
                    AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED**
                
                
                5,157,077
                
                
                4,726,091
 See
        accompanying Notes to Condensed Financial Statements
  2
  **REED’S
        INC.**
 
 **STATEMENT
        OF CHANGES IN STOCKHOLDERS’ EQUITY**
 For
        the
        three months ended March 31, 2006 (Unaudited)
 **Common****Stock**
              
              **Additional****Common
                  Stock**
              
              **to
                  be**
              
              **Paid
                  in**
              
              **Preferred
                  Stock**
              
              **Accumulated****Shares**
              
              **Amount**
              
              **Issued**
              
              **Capital**
              
              **Shares**
              
              **Amount**
              
              **Deficit**
              
              **Total**Balance,
                  January 1, 2006
              
              
              5,042,197
              
              $
              503
              
              $
              29,470
              
              $
              2,788,683
              
              
              58,940
              
              $
              589,402
              
              $
              (3,259,063
              )
              $
              148,995Common
                  stock issued forcash
                  and receivable from sale of common stock
              
              
              239,050
              
              
              25
              
              
              —
              
              
              860,559
              
              
              —
              
              
              —
              
              
              —
              
              
              860,584Deferredstockofferingcosts
                chargedtoadditionalpaid
                in
                  capital
              
              
              —
              
              
              —
              
              
              —
              
              
              (555,071
              )
              
              —
              
              
              —
              
              
              —
              
              
              (555,071
              )Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (369,597
              )
              
              (369,597
              )Balance
                  March 31, 2006
              
              
              5,281,247
              
              $
              528
              
              $
              29,470
              
              $
              3,094,171
              
              
              58,940
              
              $
              589,402
              
              $
              (3,628,660
              )
              $
              84,911
   See
        accompanying Notes to Condensed Financial Statements
   3
 **REED’S
          INC.**
 
 **CONDENSED
          STATEMENTS OF CASH FLOWS**
 **For
          the three months ended March 31, 2006 and 2005**
 **(Unaudited)**
 **Three
                    Months Ended (Unaudited)****March
                    31,**
                
                **March
                    31,****2006**
                
                **2005****CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    Loss
                
                $
                (369,597
                )
                $
                (241,386
                )Adjustments
                    to reconcile net loss to net cash (used in) provided by operating
                    activities:Depreciation
                    and amortization
                
                
                34,918
                
                
                21,429Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                (207,103
                )
                
                141,480Inventory
                
                
                (212,673
                )
                
                6,584Prepaid
                    Expenses
                
                
                36,303
                
                
                (41,267
                )Other
                    receivables
                
                
                1,200
                
                
                (2,209
                )Accounts
                    payable
                
                
                199,140
                
                
                197,752Accrued
                    expenses
                
                
                19,976
                
                
                47,587Accrued
                    interest
                
                
                6,408
                
                
                5,495Net
                    cash (used in) provided by operating activities
                
                
                (491,428
                )
                
                135,465**CASH
                    FLOWS FROM INVESTING ACTIVITIES:**Purchase
                    of property and equipment
                
                
                (19,271
                )
                
                (24,188
                )Due
                    from director
                
                
                —
                
                
                (12,813
                )Net
                    cash used in investing activities
                
                
                (19,271
                )
                
                (37,001
                )**CASH
                    FLOWS FROM FINANCING ACTIVITIES:**Principal
                    payments on debt
                
                
                (28,703
                )
                
                (44,536
                )Proceeds
                    received from sale of common stock
                
                
                811,955
                
                
                —Net
                    borrowing (payments) on lines of credit
                
                
                93,993
                
                
                (194
                )Payments
                    for deferred stock offering costs
                
                
                (198,833
                )
                
                (63,062
                )Net
                    cash provided by (used in) financing activities
                
                
                678,412
                
                
                (107,792
                )**NET
                    INCREASE (DECREASE) IN CASH**
                
                
                167,713
                
                
                (9,328
                )**CASH —
                    Beginning of period**
                
                
                27,744
                
                
                42,488**CASH —
                    End of period**
                
                $
                195,457
                
                $
                33,160**Supplemental
                    Disclosures of Cash Flow Information**Cash
                    paid during the period for:Interest
                
                $
                94,199
                
                $
                66,314Taxes
                
                $
                —
                
                $
                —
 See
          accompanying Notes to Condensed Financial Statements
   4
 **REED’S,
            INC.**
 
 **NOTES
            TO CONDENSED FINANCIAL STATEMENTS**
 **March
            31, 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 March 31, 2006, and the results of operations and
            cash
            flows for the three months ended March 31, 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 filed on form 10KSB on April 17, 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 three months ended March 31, 2006 are not
            necessarily indicative of the results of operations to be expected for
            the full
            fiscal year ending December 31, 2006.
 
 Loss
            per
            Common Share
 
 Basic
            loss per share is calculated by dividing net loss available to common
            stockholders by the weighted average number of common shares outstanding
            during
            the year. Diluted loss 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, 2006
            and 2005, basic and diluted loss per share are the same.
 
 The
            weighted average shares outstanding at March 31, 2006 includes the
            preferred stock payable for 7,362 shares of commons stock. These shares
            were
            issued in May 2006
 
 Going
            Concern
 The
              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 $369,597 and utilized cash of $491,428 in
              operating
              activities during the three months ended March 31, 2006, and had a
              working
              capital deficiency of $1,315,156 at March 31, 2006. In addition, the
              Company may
              have committed a violation of securities law which may require the
              rescission of
              common stock issued in 2005 and 2006 in the aggregate of approximately
              $1,324,624. 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 333,156 has been sold. Management has received interest
              enough
              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 2. for information related
              to the
              common stock offering.
 5
 
 2. 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, the gross proceeds received from the sale of
            those
            shares were $1,332,624. The net proceeds received from those shares were
            $1,199,361. Management has determined that the shares may have been issued
            in
            violation of securities laws. Management intends to make a rescission
            offer to
            purchase up to all of the shares sold to date in the offering, however,
            it is
            our intention that if any of the shares are tendered for rescission,
            the shares
            will be purchased by related parties and not from our funds. The amount
            to be
            paid pursuant to the rescission offer, if accepted by any shareholders,
            would be
            $4.00 per share, plus accrued interest at the applicable statutory rate.
            The
            exact timing and terms of the rescission offer are not yet finalized.
  During
              the three months ended March 31, 2006, the Company sold 239,050 of
              their shares
              for net proceeds of $860,584.
  During
              the three months ended March 31, 2006, previously deferred stock offering
              expenses of $356,238 and additional stock offering costs incurred during
              the
              period of $198,833 were charged to additional paid in capital.
 3. Common
            Stock to be issued
 
 Common
            stock to be issued represents the preferred stock dividend payable to
            be paid
            with the issuance of common stock. The 7,362 shares of common stock had not
            been issued as of March 31, 2006, but will be issued in May 2006.
 
 4. Inventory
 
 Inventory
            consists of the following at March 31, 2006
 Raw
                      Materials
                  
                  $
                  575,366Finished
                      Goods
                  
                  
                  845,326$
                  1,420,692
 
 5. 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. 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. In May 2006 both parties agreed to a mediation proceeding
            which is
            expected to commence in the third quarter of 2006.
 6
 **Item
        2. Management’s Discussion and Analysis of Financial Condition and Results of
        Operations**





**FORWARD
      LOOKING STATEMENTS**





This
      report contains statements that involve expectations, plans or intentions (such
      as those relating to future business or financial results, new features or
      services, or management strategies). These statements are forward-looking and
      are subject to risks and uncertainties, so actual results may vary materially.
      You can identify these forward-looking statements by words such as “may,” 
“should,”  “expect,”  “anticipate,”  “believe,”  
“estimate,”  “intend,”  “plan” and other similar expressions. You
      should consider our forward-looking statements in light of the risks discussed
      under the heading “Risk Factors That May Affect Results of Operations and
      Financial Condition” below, as well as our financial statements, related notes,
      and the other financial information appearing elsewhere in this report and
      our
      other filings with the Securities and Exchange Commission. We assume no
      obligation to update any forward-looking statements.





*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 prospectus. This
      discussion and analysis contains forward-looking statements based on assumptions
      about our future business. Our actual results could differ materially from
      those
      anticipated in these forward-looking statements as a result of certain factors,
      including but not limited to those set forth under “Risk factors” and elsewhere
      in this prospectus.*




**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*** ** -Our
      freight rates were approximately 9.7% of net sales during 2005. We expect
      freight rates to increase by an additional 5% to 10% in 2006 as a result of
      the
      continuing increase in fuel prices. However, as we increase production at the
      Brewery for delivery of products in the western half of the United States,
      we
      expect to offset this trend, at least in part, by reducing our need for
      cross-country freight services from our eastern co-packing
      facility.




***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 the first quarter of 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.




7




***Consumer
      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 and 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. We intend to use the proceeds from our future stock offering
      to
      increase our liquidity to be able to make cash expenditures, as
      needed.




***Interest
      Rates -*** We
      use
      lines of credit as a source of capital and are negatively impacted as interest
      rates rise. Management believes our future offering will provide capital
      sufficient for us to reduce our debt level and allow us to lower our incremental
      borrowing costs.




**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, 2006 or March 31, 2005.




*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, 2006 or
      2005.




8




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, 2006 Compared to Three Months Ended March 31,
      2005*




Net
      sales
      increased by $161,936, or 8.9%, from $1,817,336 in the first three months ended
      March 31, 2005 to $ 1,979,272 in the first three months ended March 31, 2006.
      Sales of our core Reed’s Ginger Brew items ** increased
      from $916,000 in the first three months ended March 31, 2005 to $1,073,000
      in
      the first three months ended March 31, 2006. Sales of our Virgil’s Root Beer 12
      ounce bottles and our new Virgil’s Cream soda increased by $76,000 from $390,000
      and $101,000, respectively, in the first three months ended March 31, 2005
      to
      $467,000 and $100,000, respectively, in the first three months ended March
      31,
      2006. Candy sales increased by $76,000 from $129,000 in the first three months
      ended March 31, 2005 to $205,000 in the first three months ended March 31,
      2006.
      These increases were offset by decreases in sales in certain of our other
      products. Sales of our new Virgil’s 5 liter party keg labels decreased from
      $148,000 in the first three months ended March 31, 2005 to $50,000 in the first
      three months ended March 31, 2006 due to non-recurring sales to certain large
      retailers. Ice cream sales increased from $34,000 in the first three months
      ended March 31, 2005 to $36,000 in the first three months ended March 31, 2006.




Cost
      of
      sales increased by $202,589, or 13.6%, from $1,486,287 in the first three months
      ended March 31, 2005 to $1,688,876 in the first three months ended March 31,
      2006. As a percentage of net sales, cost of sales increased from 81.8% in the
      first three months ended March 31, 2005 to 85.3% in the first three months
      ended
      March 31, 2006. Costs of sales increased primarily as a result of increased
      depreciation (0.6%), increased production expenses due to fuel costs (2.5%)
      and
      increased packaging costs (0.4%).




Gross
      profit decreased from $331,049 in the first three months ended March 31, 2005
      to
      $290,396 in the first three months ended March 31, 2006. As a percentage of
      net
      sales, gross profit decreased from 18.2% in the first three months ended March
      31, 2005 to 14.7% in the first three months ended March 31, 2006. Effective
      February 1, 2006 we approved a price increase in a number of our product lines
      at an average of approximately 7% in order to attempt to increase our gross
      profit. The full implementation of the price increase is expected to be
      completed by the middle of the third quarter of 2006. We expect margins to
      increase by the end of 2006 due to this price increase, provided that these
      price increases do not adversely affect our volume of sales.




9




Operating
      expenses increased by $58,161 or 11.6% from $501,225, in the first three months
      ended March 31, 2005 to $559,386 in the first three months ended March 31,
      2006
      and increased as a percentage of net sales from 27.6% in the first three months
      ended March 31, 2005 to 28.3% in the first three months ended March 31, 2006.
      The increase in expenses was due to increased salaries due to a larger sales
      force (0.8%), increased sales expenses from increased fuel costs and increased
      telephone charges (3.8%), increased utility expenses (1.1%) and increased legal
      and accounting costs due to the costs associated with being a public reporting
      company(0.8%). Also, health insurance costs increased due to more people being
      covered by our health plan (2.3%) and payroll went up due to temporary employee
      services incurred as a result of an employee departure during the quarter ended
      March 31, 2006 (2.0%) offset by a reduction in promotional expenses due to
      less
      club store demos (-1.9%).




Interest
      expense increased by $29,397, or 41.3%, from $71,210 in the first three months
      ended March 31, 2005 to $100,607, in the first three months ended March 31,
      2006. The increase in interest expense was due to increasing short term interest
      rates, increased borrowings on our available lines of credit and increasing
      our
      long term debt, which was used to purchase brewing equipment, vehicles and
      office equipment.




As
      a
      result of the foregoing, we experienced a net loss of $241,386 in the first
      three months ended March 31, 2005 and $369,597 in the first three months ended
      March 31, 2006. Accordingly, we experienced a net loss of $0 .05 per share
      in
      the first three months ended March 31, 2005 and $0.07 per share in the first
      three months ended March 31, 2006.




**Liquidity
      and Capital Resources**




Historically,
      we have financed our operations primarily through private sales of common stock,
      preferred stock, convertible debt, a line of credit from a financial
      institution, and cash generated from operations. We have a "best efforts"
      commitment from an underwriter to assist us in continuing the process of raising
      capital through a public offering of our common stock, which we had commenced
      in
      2005. Management believes it will be successful in raising additional funds
      from
      the public offering, however it can not predict the exact amount which will
      be
      raised. We intend to recommence the offering upon completion of a rescission
      offer to persons who have purchased shares in the offering to date. Management
      expects the offering to commence during the summer of 2006. Until the
      commencement of the offering, we will continue to experience challenges with
      managing cash flow, but management believes it has enough liquidity to operate
      the business in the short term. The addition of cash from the public offering
      ,
      if successful, would provide us the ability to improve our liquidity position
      and provide capital to continue to expand the business. The remaining amount
      of
      common stock that we can sell in connection with the offering is 1,666,844
      shares at an anticipated offering price of $4.00 per share. If the remainder
      of
      the shares were sold, we would receive approximately $6,000,000, after
      underwriter commissions.




As
      of
      March 31, 2006, we had a working capital deficit of $1,315,156, compared to
      a
      working capital deficit of $1,594,758 as of December 31, 2005. This
      decrease in our working capital deficit should not be viewed as a change in
      trend. The primary factor contributing to a reduction in our working capital
      deficit was the cash received from our initial public offering.




As
      of
      March 31, 2005, we had outstanding borrowings of $1,539,946 under our lines
      of
      credit agreements and we continue to approach maximum borrowing capacity based
      on the terms of the lines of credit.




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, the gross proceeds received from the sale of those
        shares were $1,332,624. The net proceeds received from those shares were
        $1,199,361. Management has determined that the shares may have been issued
        in
        violation of securities laws. Management intends to make a rescission offer
        to
        purchase up to all of the shares sold to date in the offering, however, it
        is
        our intention that if any of the shares are tendered for rescission, the
        shares
        will be purchased by related parties and not from our funds. The amount to
        be
        paid pursuant to the rescission offer, if accepted by any shareholders, would
        be
        $4.00 per share, plus accrued interest at the applicable statutory rate.
        The
        exact timing and terms of the rescission offer are not yet finalized.
  During
          the three months ended March 31, 2006, the Company sold 239,050 of their
          shares
          for net proceeds of $860,584.
  During
          the three months ended March 31, 2006, previously deferred stock offering
          expenses of $356,238 and additional stock offering costs incurred during
          the
          period of $198,833 were charged to additional paid in
          capital.




The
      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 $369,597 and utilized cash of $491,428 in operating
      activities during the three months ended March 31, 2006, and had a working
      capital deficiency of $1,315,156 at March 31, 2006. In addition, the Company
      may
      have committed a violation of securities law which may require the rescission
      of
      common stock issued in 2005 and 2006 in the aggregate of approximately
      $1,324,624. 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 333,156 has been sold. Management has received interest enough
      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.




**Item
      3. CONTROLS AND PROCEDURES**




(a)
      Evaluation of Disclosure Controls and Procedures.





Our
      management, with the participation of our principal executive officer and
      principal financial officer, has evaluated the effectiveness of the design
      and
      effectiveness of our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
      as of the end of the period covered by this quarterly report. Based on this
      evaluation, our principal executive officer and principal financial officer
      concluded, as of the end of such period, that these disclosure controls and
      procedures are effective and designed to ensure that the information required
      to
      be disclosed in our reports filed or submitted under the Securities Exchange
      Act
      of 1934 is recorded, processed, summarized and reported within the requisite
      time periods.





(b)
      Changes in Internal Controls.





There
      was
      no change in our internal control over financial reporting (as defined in Rules
      13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended)
      identified in connection with the evaluation of our internal control performed
      during our last fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.




10


**Part
      II**





**Item
      1. Legal Proceedings**





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. 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. In May 2006 both parties agreed to a mediation
      proceeding which is expected to commence in the third quarter of
      2006.





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, the gross proceeds received from the sale of those
        shares were $1,332,624. The net proceeds received from those shares were
        $1,199,361. Management has determined that the shares may have been issued
        in
        violation of securities laws. Management intends to make a rescission offer
        to
        purchase up to all of the shares sold to date in the offering, however, it
        is
        our intention that if any of the shares are tendered for rescission, the
        shares
        will be purchased by related parties and not from our funds. The
        amount to be paid pursuant to the rescission offer, if accepted by any
        shareholders, would be $4.00 per share, plus accrued interest at the applicable
        statutory rate. The exact timing and terms of the rescission offer are not
        yet
        finalized.
  During
          the three months ended March 31, 2006, the Company sold 239,050 of their
          shares
          for net proceeds of $860,584.
  During
          the three months ended March 31, 2006, previously deferred stock offering
          expenses of $356,238 and additional stock offering costs incurred during
          the
          period of $198,833 were charged to additional paid in
          capital.




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




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. Management intends to make a rescission
      offer to purchase up to all of the shares sold to date in the offering. The
      amount to be paid pursuant to the rescission offer, if accepted by any
      shareholders, would be $4.00 per share, plus accrued interest at the applicable
      statutory rate.




We
      received net proceeds of approximately $1,200,000 from the sale of the 333,156
      shares, after underwriter commissions. The net proceeds were used to meet our
      liquidity needs primarily as working capital and costs relating to the offering.




**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**





ExhibitNumber
            
            Description
                of Document31
            
            Officer's
                Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
                200232
            
            Officer's
                Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002






11