UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-QSB





(Mark
      One)




x  QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For
      the
      quarterly period ended March 31, 2007




oTRANSITION
      REPORT UNDER SECTION 13
      OR 15(d) OF THE EXCHANGE ACT




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)





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





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) Exchange Act during the past 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





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




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 7,153,225 shares of the registrant's common stock outstanding as of 
May 11, 2007.





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








**Part
      I - Financial Information**





**Item
      1. Financial Statements**




**REED’S,
      INC**




**CONDENSED
      BALANCE SHEETS**


March
                  31, 2007
              
              December
                  31, 2006(Unaudited)**ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              469,643
              
              $
              1,638,917Restricted
                  cash
              
              
              1,726,120
              
              
              1,580,456Inventory
              
              
              1,990,554
              
              
              1,511,230Trade
                  accounts receivable, net of allowance for doubtful accounts and
                  returns
                  and discounts of $173,253 as of March 31, 2007 and December 31,
                  2006
              
              
              1,369,389
              
              
              1,183,763Other
                  receivables
              
              
              36,461
              
              
              24,811Prepaid
                  expenses
              
              
              246,318
              
              
              164,462Total
                  Current Assets
              
              
              5,838,485
              
              
              6,103,639Property
                  and equipment, net of accumulated depreciation of $701,901 as of
                  March 31,
                  2007 and $663,251 as of December 31, 2006
              
              
              1,928,137
              
              
              1,795,163**OTHER
                  ASSETS**Brand
                  names
              
              
              800,201
              
              
              800,201Other
                  intangibles, net of accumulated amortization of $4,653 as of March
                  31,
                  2007 and $4,467 as of December 31, 2006
              
              
              13,960
              
              
              14,146Deferred
                  costs
              
              
              82,585
              
              
              -Total
                  Other Assets
              
              
              896,746
              
              
              814,347**TOTAL
                  ASSETS**
              
              **$**
              8,663,368
              
              $
              8,713,149**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              $
              1,823,811
              
              $
              1,695,014Bank
                  overdraft
              
              
              224,872
              
              
              -Lines
                  of credit
              
              
              1,354,896
              
              
              1,355,526Current
                  portion of long term debt
              
              
              175,720
              
              
              71,860Accrued
                  interest
              
              
              7,818
              
              
              27,998Accrued
                  expenses
              
              
              125,741
              
              
              118,301Total
                  Current Liabilities
              
              
              3,712,858
              
              
              3,268,699Long
                  term debt, less current portion
              
              
              835,240
              
              
              821,362Total
                  Liabilities
              
              
              4,548,098
              
              
              4,090,061**COMMITMENTS
                  AND CONTINGENCIES****STOCKHOLDERS’
                  EQUITY**Preferred
                  stock, $10.00 par value, 500,000 shares authorized, 58,940 issued
                  and
                  outstanding at March 31, 2007 and December 31, 2006, liquidation
                  preference of $10.00 per share
              
              
              589,402
              
              
              589,402Common
                  stock, $.0001 par value, 11,500,000 shares authorized,
                  7,143,185 shares issued and outstanding at March 31, 2007 and
                  December 31, 2006
              
              
              714
              
              
              714Additional
                  paid in capital
              
              
              9,515,242
              
              
              9,535,114Accumulated
                  deficit
              
              
              (5,990,088
              )
              
              (5,502,142
              )Total
                  stockholders’ equity
              
              
              4,115,270
              
              
              4,623,088**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ EQUITY**
              
              $
              8,663,368
              
              $
              8,713,149




See
      accompanying Notes to Condensed Financial Statements




2




**REED’S,
      INC.**




**CONDENSED
      STATEMENTS OF OPERATIONS**


**For
      the Three Months Ended March 31, 2007 and 2006**


**(Unaudited)**





**Three
                  months ended (Unaudited)****March
                  31,**
              
              **March
                  31,****2007**
              
              **2006****SALES**
              
              $
              3,012,690
              
              $
              1,979,272**COST
                  OF SALES**
              
              
              2,473,068
              
              
              1,688,876**GROSS
                  PROFIT**
              
              
              539,622
              
              
              290,396**OPERATING
                  EXPENSES**Selling
              
              
              554,165
              
              
              287,158General &
                  Administrative
              
              
              449,343
              
              
              272,228Total
                  Operating Expenses
              
              
              1,003,508
              
              
              559,386**LOSS FROM
                  OPERATIONS**
              
              
              (463,886
              )
              
              (268,990
              )**OTHER
                  INCOME (EXPENSE)**Interest
                  Income
              
              
              23,491
              
              
              -Interest
                  Expense
              
              
              (47,551
              )
              
              (100,607
              )Total
                  Other Income (Expense)
              
              
              (24,060
              )
              
              (100,607
              )**NET
                  LOSS**
              
              $
              (487,946
              )
              $
              (369,597
              )**LOSS
                  PER SHARE**—
                  Basic and Diluted
              
              $
              (0.07
              )
              $
              (0.07
              )**WEIGHTED
                  AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED**
              
              
              7,143,185
              
              
              5,157,077




See
      accompanying Notes to Condensed Financial Statements


3




**REED’S
      INC.**




**STATEMENT
      OF CHANGES IN STOCKHOLDERS’ EQUITY**


For
      the
      three months ended March 31, 2007 (Unaudited)





CommonStock
            
            PreferredStock
            
            AdditionalPaid
                in
            
            AccumulatedShares
            
            Amount
            
            Shares
            
            Amount
            
            Capital
            
            Deficit
            
            TotalBalance,
                January 1, 2007
            
            
            7,143,185
            
            $
            714
            
            
            58,940
            
            $
            589,402
            
            $
            9,535,114
            
            $
            (5,502,142
            )
            $
            4,623,088Public
                offering expenses
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (45,000
            )
            
            -
            
            
            (45,000
            )Fair
                value of options issued to employees
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            25,128
            
            
            -
            
            
            25,128Net
                Loss for the three months ended March, 31, 2007
            
            
            **-**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (487,946
            )
            
            (487,946
            )Balance,
                March 31, 2007
            
            
            7,143,185
            
            $
            714
            
            
            58,940
            
            $
            589,402
            
            $
            9,515,242
            
            $
            (5,990,088
            )
            $
            4,115,270




See
      accompanying Notes to Condensed Financial Statements


4




**REED’S
      INC.**




**CONDENSED
      STATEMENTS OF CASH FLOWS**


**For
      the three months ended March 31, 2007 and 2006**


**(Unaudited)**





**Three
                Months Ended (Unaudited)****March
                31, 2007**
            
            **March
                31, 2006****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                Loss
            
            $
            (487,946
            )
            $
            (369,597
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Depreciation
                and amortization
            
            
            38,836
            
            
            34,918Fair
                value of options issued to employees
            
            
            25,128
            
            
            -Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            (185,626
            )
            
            (207,103
            )Inventory
            
            
            (479,324
            )
            
            (212,673
            )Prepaid
                Expenses
            
            
            (81,856
            )
            
            36,303Other
                receivables
            
            
            (11,650
            )
            
            1,200Accounts
                payable
            
            
            128,797
            
            
            199,140Accrued
                expenses
            
            
            7,440
            
            
            19,976Accrued
                interest
            
            
            (20,180
            )
            
            6,408Net
                cash used in operating activities
            
            
            (1,066,381
            )
            
            (491,428
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES:**Increase
                in restricted cash
            
            
            (145,664
            )
            
            -Purchase
                of property and equipment
            
            
            (171,624
            )
            
            (19,271
            )Net
                cash used in investing activities
            
            
            (317,288
            )
            
            (19,271
            )**CASH
                FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                received from long term debt borrowings
            
            
            163,276
            
            
            -Increase
                in bank overdraft
            
            
            224,872
            
            
            -Principal
                payments on debt
            
            
            (45,538
            )
            
            (28,703
            )Proceeds
                received on sale of common stock
            
            
            -
            
            
            811,955Net
                borrowing (payment) on lines of credit
            
            
            (630
            )
            
            93,993Payment
                for public offering expenses
            
            
            (45,000
            )
            
            -Payments
              for
              Deferred stock offering costs
            
            
            -
            
            
            (198,833
            )Deferred
                costs
            
            
            (82,585
            )
            
            -Net
                cash provided by financing activities
            
            
            214,395
            
            
            678,412**NET
                (DECREASE)INCREASE****IN
                CASH**
            
            
            (1,169,274
            )
            
            167,713**CASH —
                Beginning of period**
            
            
            1,638,917
            
            
            27,744**CASH —
                End of period**
            
            $
            469,643
            
            $
            195,457**Supplemental
                Disclosures of Cash Flow Information**Cash
                paid during the period for:Interest
            
            $
            67,732
            
            $
            94,199Taxes
            
            $
            -
            
            $
            -




See
      accompanying Notes to Condensed Financial Statements


5




REED’S,
      INC.




NOTES
      TO
      CONDENSED FINANCIAL STATEMENTS


Three
      Months Ended March 31, 2007 and 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, 2007 and the results of operations and cash
      flows for the three months ended March 31, 2007 and 2006. The balance sheet
      as
      of December 31, 2006 is derived from the Company’s audited financial
      statements.




Certain
      information and footnote disclosures normally included in financial statements
      that have been prepared in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to the rules and regulations
      of the Securities and Exchange Commission, although management of the Company
      believes that the disclosures contained in these financial statements are
      adequate to make the information presented herein not misleading. For further
      information, refer to the financial statements and the notes thereto included
      in
      the Company’s Annual Report, Form 10-KSB, as filed with the Securities and
      Exchange Commission on April 16, 2007.




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, 2007 are not
      necessarily indicative of the results of operations to be expected for the
      full
      fiscal year ending December 31, 2007.





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 period. Diluted income (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, 2007 and 2006, basic and diluted loss per share are the same because
      the inclusion of common share equivalents would be anti-dilutive. At March
      31,
      2007 and 2006, potentially dilutive securities consisted of convertible
      preferred stock, common stock options and warrants to acquire an aggregate
      of
      1,461,500 and 1,276,159 shares, respectively.





Adoption
      of New Accounting Policy





Effective
      January 1, 2007, the Company adopted Financial Accounting Standards Board
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes (“FIN
      48 ”) *—* an
      interpretation of FASB Statement No. 109, Accounting for Income
      Taxes *.”* The
      Interpretation addresses the determination of whether tax benefits claimed
      or
      expected to be claimed on a tax return should be recorded in the financial
      statements. Under FIN 48 ,
      we may
      recognize the tax benefit from an uncertain tax position only if it is more
      likely than not that the tax position will be sustained on examination by the
      taxing authorities, based on the technical merits of the position. The tax
      benefits recognized in the financial statements from such a position should
      be
      measured based on the largest benefit that has a greater than fifty percent
      likelihood of being realized upon ultimate settlement. FIN
      48 also
      provides guidance on derecognition, classification, interest and penalties
      on
      income taxes, accounting in interim periods and requires increased disclosures.
      At the date of adoption, and as of March 31, 2007, the Company does not have
      a
      liability for unrecognized tax benefits.




The
      Company files income tax returns in the U.S. federal jurisdiction and various
      states. The Company is subject to U.S. federal or state income tax examinations
      by tax authorities for five years after 2002. During the periods open to
      examination, the Company has net operating loss and tax credit carry
      forwards for U.S. federal and state tax purposes that have attributes from
      closed periods. Since these NOLs and tax credit carry forwards may
      be utilized in future periods, they remain subject to
      examination.




The
      Company’s policy is to record interest and penalties on uncertain tax provisions
      as income tax expense. As of March 31, 2007, the Company has no accrued
      interest or penalties related to uncertain tax positions.




Recent
      Accounting Pronouncements




In
      September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," which
      provides enhanced guidance for using fair value to measure assets and
      liabilities. SFAS No. 157 provides a common definition of fair value and
      establishes a framework to make the measurement of fair value in generally
      accepted accounting principles more consistent and comparable. SFAS No. 157
      also
      requires expanded disclosures to provide information about the extent to which
      fair value is used to measure assets and liabilities, the methods and
      assumptions used to measure fair value, and the effect of fair value measures
      on
      earnings. SFAS No. 157 is effective for financial statements issued in fiscal
      years beginning after November 15, 2007 and
      to
      interim periods within those fiscal years .
      The
      adoption of this SFAS has not had a material change on the Company’s results of
      operations, financial position, or cash flows.





In
      February 2007, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standard No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities-Including an Amendment of FASB No. 115”. This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value. This statement is effective for years
      beginning after November 15, 2007. Management believes the adoption will not
      have a material impact on the Company’s results of operations, financial
      position or cash flow.


6




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, 2007.




During
      the three months ended March 31, 2007 and 2006 the Company had two customers,
      which accounted for approximately 39% and 16% and 45% and 18% of sales,
      respectively . No other customers accounted for more than 10% of sales in either
      year. As of March 31, 2007, the Company had $329,284and $168,720, respectively
      of accounts receivable from these customers.





2.
            Restricted
                Cash





Restricted
      cash consists of $1,596,120 relating to an arrangement in effect at December
      31,
      2006, as previously disclosed in our 10-KSB filing and $130,000 of the amount
      relates to a certificate of deposit which secures a note payable the Company
      originated in February 2007, in the amount of $130,000, see Note 4. This deposit
      cannot be withdrawn until the note is paid in full. The note is scheduled to
      mature in February 2008.


3.
              Inventory




Inventory
      consists of the following at March 31, 2007




Raw
                Materials
            
            $
            737,650Finished
                Goods
            
            
            1,252,904$
            1,990,554


4.
                Long
                        term debt


In
      February 2007, the Company originated a note payable with a bank in the amount
      of $130,000. The note matures in February 2008. The note requires 11 principal
      payments of $2,167 and one final payment in February 2008 of $106,674. The
      note
      carries a 5.50% interest rate and is secured by a certificate of deposit with
      the bank in the amount of $130,000 (see Note 2). The bank may offset the
      certificate of deposit against the loan balance and the monies cannot be
      withdrawn until the loan is repaid in full.





In
      January and February 2007, the Company originated two car loans for $33,276.
      The
      loans have interest rates ranging from 8.85% to 9.4%. The loans have monthly
      payments of approximately $298 and $352 and mature in 2012 and
      2013.




5.
            Stock
                Based Compensation




The
      impact on our results of operations of recording stock-based compensation for
      the three-month period ended March 31, 2007 and 2006 was to increase
      selling expenses by $25,127 and $0, respectively. As of March 31, 2007, the
      Company had  unvested options of 134,000, which will be reflected as
      compensation cost, estimated to be $284,994, over the remaining vesting
      period of five years.




We
      calculated the fair value of each option award on the date of grant using the
      Black-Scholes option pricing model. The following weighted average assumptions
      were used for the three months ended March 31, 2007:





Risk-free
                interest rate
            
            
            4.76
            %Expected
                lives (in years)
            
            
            5.00Dividend
                yield
            
            
            0
            %Expected
                volatilty
            
            
            70
            %




7





Expected
      volatility is based on the volatilities of public entities which are in the
      same
      industry as the Company. For purposes of determining the expected life of the
      option, the full contract life of the option is used. The risk-free rate for
      periods within the contractual life of the options is based on the U. S.
      Treasury yield in effect at the time of the grant.




The
      following table summarizes stock option activity for the three months ended
      March 31, 2007 :





Shares
            
            Weighted-Average
                Exercise
                  Price
            
            Weighted-Average
              Remaining
                Contractual
              Term
                (Years)
            
            Aggregate
              Intrinsic
              ValueOutstanding
                at January 1, 2007
            
            
            363,500
            
            $
            3.84Granted
            
            
            49,000
            
            $
            3.54
            
            
            
            
            
            —Exercised
            
            
            —
            
            
            —
            
            
            
            
            
            —Outstanding
                at March 31, 2007
            
            
            412,500
            
            $
            3.81
            
            
            3.7
            
            $
            979,450Exercisable
            
            
            278,500
            
            $
            3.79
            
            
            3.2
            
            $
            664,630




Stock
      options granted under our equity incentive plans generally vest over three
      years
      from the date of grant, 1/3 per year and generally expire five years from the
      date of grant. The weighted average exercise price of stock options granted
      during the period was $3.54 per share and the related weighted average
      grant date fair value was $2.18 per share.




A
      summary
      of warrant activity as March 31, 2007 and changes during the three
      months then ended is presented below:


Shares
              
              Weighted-Average
                Exercise
                  Price
              
              Weighted-Average
                Remaining
                  Contractual
                Term
                  (Years)
              
              Aggregate
                Intrinsic
                ValueOutstanding
                  at January 1, 2007
              
              
              813,241
              
              $
              3.74Granted
              
              
              —
              
              
              —Exercised
              
              
              —Forfeited
                  or expired
              
              
              —Outstanding
                  at March 31, 2007
              
              
              813,241
              
              $
              3.74
              
              
              2.7
              
              $
              2,068,482Exercisable
                  at March 31, 2007
              
              
              613,241
              
              $
              2.80
              
              
              2.1
              
              $
              2,068,482


6.
            Subsequent
                Events




Subsequent
      to March 31, 2007, 10,040 shares of common stock were issued. 9,600 shares
      of
      common stock were issued in accordance with the conversion privileges of certain
      preferred stockholders. Accordingly, 2,400 shares of preferred stock were
      converted to common stock. In addition, 440 shares of common stock were issued
      to employees as a bonus.


8




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-QSB, 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, 2006.*





*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-QSB.*




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.




9





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 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, 2007 or March 31, 2006.




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, 2007 or 2006.




10




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,
      2006




Net
      sales
      increased by $1,033,418 or 52.2%, from $1,979,272 in the first three months
      ended March 31, 2006 to $3,012,690 in the first three months ended March 31,
      2007. The Reed’s Ginger Brew product line increased by 37.2% from $1,078,722 in
      the first three months ended March 31, 2006 to $1,480,499 in the first three
      months ended March 31, 2007. Sales of our Virgil’s Root Beer 12 ounce bottles
      and our new Virgil’s Cream soda increased by 38.0% from $678,165 to
      $935,675. Candy sales increased by $51,406 or 25.0% from $205,886 in the first
      three months ended March 31, 2006 to $257,292 in the first three months ended
      March 31, 2007. Ice cream sales decreased by 9.7% from $36,384 in the first
      three months ended March 31, 2006 to $32,868 in the first three months ended
      March 31, 2007. Cost of sales increased by $784,192 or 46.4%, from $1,688,876
      in
      the first three months ended March 31, 2006 to $2,473,068 in the first three
      months ended March 31, 2007. As a
      percentage of net sales, cost of sales decreased from 85.3% in the first three months ended March 31, 2006 to 82.1%
      in
      the first three months ended March 31, 2007. Increase
      in costs of sales dollars was primarily due to a larger production volume and increases
      in exchange rate conversion (1.9%), and costs of packaging (3.6%), p roduction co -pack
      (0.7%) and laboratory  t esting (0.1%) ,
      offset
      by decreases in costs of ingredients (-1.0%), production supplies by (-0.1%),
      production workers compensation insurance (-0.4%) due to improved pricing
      arrangements, and production lease expense (-0.2%) as a result of the expiration
      of a lease on certain equipment as to which we exercised an option to
      purchase the
      equipment for $ 8,080.




Gross
      profit increased by $249,226 or 85.8% from $290,396 in the first three months
      ended March 31, 2006 to $539,622 in the first three months ended March 31,
      2007.
      As a percentage of net sales, gross profit increased from 14.7% in the first
      three months ended March 31, 2006 to 17.9% in the first three months ended
      March
      31, 2007. Fuel price increases have driven costs of production and packaging.
      We
      intend to focus our attention on reducing these costs. In 2006, we were able
      to
      reduce freight expenses at a time of rapidly rising fuel costs. Currently,
      we
      are looking at alternative production plants to reduce production costs, our
      largest expense, and we are aggressively negotiating packaging and raw material
      prices.




11




Operating
      expenses increased by $444,122 or 79.4% from $559,386, in the first three months
      ended March 31, 2006 to $1,003,508in the first three months ended March 31, 2007.
      Operating expenses increased as a percentage of net sales from 28.3% in the first three months
      ended March 31, 2006 to 33.3% in the first three months ended March 31, 2007.
      The increase was primarily due
      to increases in repairs and maintenance (0.1%), sales salaries and commissions
      as a
      result of an increase in our sales force (3.1%), sales
      expenses (0.6%)
      and legal
      and
      accounting costs (2.2%) due to the costs associated with being a public
      reporting company .  These
      increases were offset by decreases in office
      expenses (-0.1%), office payroll, benefits and insurance (-3.4%), bank charges
      (-0.4%) and utilities (-0.3%).




Interest
      expense decreased by $53,056 or 52.7%, from $100,607 in the first three months
      ended March 31, 2006 to $47,551 in the first three months ended March 31, 2007.
      The decrease in interest expense was due to the payoff of BACC, Merrill Lynch,
      Sandler, Johnson and R. T. Reed Sr. loans. As a result of the foregoing, we
      experienced a net loss of $487,946 or 16.2% of net sales in the first three
      months ended March 31, 2007 compared to $369,597 or 18.7% in the first three
      months ended March 31, 2006. Accordingly,
      we experienced a net loss of $(0.07) per
      share
      in each
      of the
      first three months ended March 31, 2006 and 2007.
      Our
      loss per share remained the same in the
      two periods ,
      despite
      the rise in net loss , due to the
      increase in the number of our outstanding shares as a
      result of our
      initial public offering.




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. In 2006 we completed our
      initial public offering which sold 2,000,000 at $4.00 per share.




As
      of
      March 31, 2007, we had an accumulated deficit of $5,990,088 and we had working
      capital of $2,125,627, compared to working capital of $2,834,940 as of
      December 31, 2006. Cash and cash equivalents were $469,643 as of March 31,
      2007, as compared to $1,638,917 as of December 31, 2006. This decrease in our
      working capital and cash position was primarily attributable to our loss from
      operations.




Net
      cash
      used in operating activities during the three months ended March 31, 2007 was
      $1,066,381 which was due primarily to our net loss of $487,946 and net increases
      in our accounts receivable and inventory offset by increases in accounts
      payable.




We
      used
      $317,288 of cash in investing activities as we transferred $145,664 of cash
      to a
      restricted account, to secure the payment of a bank note payable, due in
      February 2008, and the purchase of vehicles, machinery and equipment and a
      computer system totaling $171,624.




Net
      cash
      provided by financing activities during the three months ended March 31, 2007
      was $214,395. The primary components of that were: the payment of $45,000 for
      underwriting costs associated with our 2006 initial public offering, the payment
      of $82,585 for deferred costs, and long term debt repayments of $45,538, offset
      by increased long term borrowings of $163,276 and a bank overdraft of
      $224,872.




As
      of
      March 31, 2007, we had outstanding borrowings of $1,354,896 under our lines
      of
      credit agreements. We have availability under our lines of credit of
      approximately $896,000.




·
            We
                have an unsecured $50,000 line of credit with US Bank which expires
                in
                December 2009. Interest is payable monthly at the prime rate, as
                published
                in the Wall Street Journal, plus 12% per annum. Our outstanding balance
                was $24,120 at March 31, 2007 and there was $25,880 available under
                the
                line of credit. The interest rate in effect at March 31, 2007 was
                9.75%.




·
            We
                have a line of credit with Merrill Lynch. Robert T. Reed, Jr., our
                Vice
                President and National Sales Manager - Mainstream and a brother of
                our
                Chief Executive Officer, Christopher J. Reed, has pledged certain
                securities (which do not include any of our securities which are
                owned by
                Mr. Reed) in his personal securities account on deposit with Merrill
                Lynch
                as collateral for repayment of the line of credit. The amount of
                the line
                of credit is based on a percentage value of such securities. At March
                31,
                2007, the outstanding balance on the line of credit was $-0-, and
                there
                was approximately $701,000 available under the line of credit. The
                line of
                credit bears interest at a rate of 3.785% per annum plus LIBOR (9.1%
                as of
                March 31, 2007). In consideration for Mr. Reed’s pledging his stock
                account at Merrill Lynch as collateral, we have agreed to pay Mr.
                Reed 5%
                per annum of the amount we borrow from Merrill Lynch, as a loan fee.
                In
                addition, Christopher J. Reed has pledged all of his shares of common
                stock to Robert T. Reed, Jr. as collateral for the shares pledged
                by
                Robert T. Reed, Jr.


12




·
            We
                have a line of credit with California United Bank. This line of credit
                allows us to borrow a maximum amount of $1,500,000. As of March 31,
                2007,
                the amount borrowed on this line of credit was $1,330,776. The interest
                rate on this line of credit is Prime, which was 8.25% at March 31,
                2007.
                The line of credit expires in June 2008. This revolving line of credit
                is
                secured by all Company assets, except real estate. In addition, we
                have
                assigned a security interest in a deposit account at the bank. The
                amount
                of the deposit and the security interest is $1,575,000 and may be
                offset
                by the bank against any balance on the line of credit. The deposit
                cannot
                be withdrawn during the term of the line of credit. We may terminate
                the
                line of credit arrangement at any time, without penalty. As of March
                31,
                2007, we had approximately $169,000 of availability on this line
                of
                credit. During the term of this line of credit, we are required to
                have a
                minimum stockholders’ equity balance of
                $1,500,000.




At
      March
      31, 2007, we did not have any material commitments for capital
      expenditures.




Management
      recognizes that operating losses negatively impact liquidity and is working
      on
      decreasing operating losses, while focusing on increasing net sales. Management
      believes our current cash position and lines of credit will be sufficient to
      enable us to meet our cash needs through at least the end of 2007. We
      have had a
      history of operating losses. 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.




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





In
      February 2007, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standard No.159, “The Fair Value Option for Financial
      Assets and Financial Liabilities-Including an Amendment of FASB No. 115”. This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value. This statement is effective for years
      beginning after November 15, 2007. Management believes the adoption will not
      have a material impact on the Company’s results of operations, financial
      position or cash flow.


In
        September 2006, the FASB issued SFAS No. 157, "Fair Value
        Measurements," which
        provides enhanced guidance for using fair value to measure assets and
        liabilities. SFAS No. 157 provides a common definition of fair value and
        establishes a framework to make the measurement of fair value in generally
        accepted accounting principles more consistent and comparable. SFAS No. 157
        also
        requires expanded disclosures to provide information about the extent to
        which
        fair value is used to measure assets and liabilities, the methods and
        assumptions used to measure fair value, and the effect of fair value measures
        on
        earnings. SFAS No. 157 is effective for financial statements issued in fiscal
        years beginning after November 15, 2007 and to interim periods within those
        fiscal years. The adoption of this SFAS has not had a material change on
        the
        Company's results of operations, financial position, or cash
        flows.





13




**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.
      CONTROLS AND PROCEDURES




(a)
      Evaluation of Disclosure Controls and Procedures.





As
      of
      March 31, 2007, we carried out an evaluation, under the supervision and with
      the
      participation of our principal executive officer and principal financial
      officer, of 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)





Based
      on
      this evaluation, our chief executive officer and chief financial officer concluded that ,
      as of March
      31,
      2007, such 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.




In
      designing and evaluating the disclosure controls and procedures, our management
      recognized that any controls and procedures, no matter how well designed and
      operated, can provide only reasonable assurance of achieving the desired control
      objectives and in reaching a reasonable level of assurance our management
      necessarily was required to apply its judgment in evaluating the cost-benefit
      relationship of possible controls and procedures .




(b)
      Changes in Internal Controls.





There were no
      change s in our
      internal control s over
      financial reporting during
      the quarter ended
      March 31, 2007 that materially
      affected, or are reasonably likely to materially affect, our internal control s over
      financial reporting.




14





**Part
      II**





Item
      1.
      Legal Proceedings





Reference
      is made to Item 3, part I, ***Legal
      Proceedings*** ,
      in our
      Annual Report on Form 10-KSB for the year ended December 31, 2006 for
      descriptions of our legal proceedings.




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
      2.
      Unregistered Sales of Equity Securities and Use of Proceeds





Use
      of
      Proceeds from Initial Public Offering





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 (Registration Statement on Form SB-2, File No.
      333-120451, effective date October 11, 2006) , 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. 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.




None
      of
      the proceeds were paid to directors, officers, affiliates or stockholders owning
      10% or more of our common stock. We used approximately $340,000 of the proceeds
      to pay expenses associated with our rescission offer, as described below. This
      may be deemed to represent a material change from the estimated use of proceeds
      contained in the final prospectus relating to our initial public offering.
      The
      following table sets forth the uses of approximately $7,524,000 of
      the
      proceeds from our initial public offering, as of March 31, 2007:




Commissions
                related to the public offering(1)
            
            $
            800,000Other
                offering expenses(2)
            
            
            830,000Expenses
                related to the rescission offer(3)
            
            
            340,000Investment
                in a restricted money market account(4)
            
            
            1,705,000Payment
                to reduce line of credit(5)
            
            
            720,000Payment
                of accounts payable and current operating expenses(6)
            
            
            2,298,000Costs
                of hiring of additional sales personnel(7)
            
            
            617,000New
                product launch costs(8)
            
            
            4,000Sales
                delivery vehicles(9)
            
            
            20,000Brand
                advertising (10)
            
            
            101,000New
                computer system and brewery equipment (11)
            
            
            89,000**Total
                estimated proceeds used**
            
            $
            7,524,000





(1)  This
      amount represents 10% of the gross proceeds of the public offering which were
      paid as selling commissions to the underwriters in accordance with the
      underwriting agreement.




(2)  This
      amount represents costs, including legal, accounting, printing and reimbursable
      expenses of the underwriters associated with the public offering.




(3)  This
      amount represents legal and accounting expenses associated with the rescission
      offer.




(4)  These
      funds were deposited in restricted money market accounts in order to secure
      a
      line of credit with California United Bank and a note payable to City National
      Bank.




(5)  These
      funds were used to reduce our obligation on a line of credit with Merrill Lynch
      in order to reduce interest expense. The line of credit remains in effect and
      the amount remaining on the line of credit is available for our use, from time
      to time.




(6)  These
      funds were used to settle accounts payable and pay for current operating
      expenses.




(7)  These
      funds were used to pay the incremental increase of hiring new personnel and
      related expenses.




(8)  These
      funds were used to pay for the development and product design costs for new
      product launches.




(9)  These
      funds were used to purchase a new delivery vehicle related to the operations
      of
      the Brewery.




(10)
      These funds were used to advertise our products.




(11)
      These funds were used to purchase a new computer system and brewery equipment.


15




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




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./s/
                Christopher J. ReedChristopher
                J. Reed
              Chief
                Executive Officer, President
              and
                Chief Financial OfficerMay
                15, 2007


17