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Reed’s
Inc

Beneficial
Conversion Feature

Response
to Comment 3

We
believe the measurement date, as defined in EITF 98-5, for most of the preferred
stock offering is May 2004. We base this determination on the fact that 1) our
subscription agreement has non-refundable language, which provides for a
sufficiently large disincentive for nonperformance, 2) one investor who signed
the subscription agreement in early May 2004, accounted for about 50% of the
proceeds received from the offering. (His subscription agreement will be
forthcoming by fax under separate cover. The subscriber is Robert Reed, Jr., the
brother of the Company’s President and he paid $150,000 for the
stock).

We plan
to become effective with the December 31, 2004 financial statements, putting us
at a May 2005 effective date. The offering would commence sometime after that. .
If for whatever reason we do not become effective with the December 31, 2004
financials, our offering would be further delayed by at least a
month.

If the
offering were to occur in May 2005, that puts us right at the cusp of one year
from the May 2004 measurement date, making the presumption to use the offering
price as the fair value of the stock in May 2004 less presumptive. Therefore, we
argue using the offering price as the fair value of the stock to be incorrect.

Our
argument is that the fair value of the stock in May 2004 is $2.50. We plan to
support this position using verifiable valuation criteria which we plan to
produce internally, using the assistance of outside consultants as needed.

If you
agree that the measurement date, for purposes of compliance with EITF 98-5 is
May 2004 and the presumption to use the offering price should be abandoned in
favor of a fair value calculation of the stock as of May 2004, then we will
proceed to produce the valuation described above.

If you do
not agree to our measurement date or the creation of an in-house, verifiable
fair value calculation of our common stock as of May 2004 please so inform us
and provide guidance as which measurement date to use and confirm you believe
the offering price of $4.00 is the fair value of the stock to use at the
measurement date.

Reeds,
Inc.

Packaging
and Design Costs

Response
to Comment 9

We
believe our treatment of Packaging and Design Costs meets the definition of
intangible assets under SFAS 142, paragraph 10, because they are specifically
identifiable, have determinable lives and are not inherent in our continuing
business.

Our
packaging and design costs are specifically identifiable because they are costs
we incur, from third party graphic designers, to specifically design labeling
for our products. The costs we capitalize are costs associated with the final
rendition of the label.

These
costs have determinable lives because we know that the labels will have to
change given the changes in the market place, formulation changes, changes in
habits and preferences of consumers, etc. Based on our product life cycle we
have estimated these lives to be 10 years. We will change our estimate of useful
life, based on actual changes in the market place.

These
costs are not inherent in our continuing business because we do not incur these
costs on a regular basis in order to manufacture or sell our product. These
costs are incurred at the beginning of the product life cycle and will not be
incurred again until the product needs to be changed.

We
believe that our treatment of Packaging and Design Costs meet the definition of
FASB Concepts Statement No. 5, paragraph 63, i.e., it meets the definition of an
asset, it is measurable, it has relevance and it has reliability.

One basic
definition of an asset is that of a right or resource that has future benefit in
use and can be expressed in monetary terms, resulting from an enterprise's
transactions. We believe our treatment of Packaging and Design Costs meets the
definition of an asset under this definition because the future benefit of these
costs extends to the product life-cycle of our products. Further, we believe the
matching principle supports our classification of these costs as an asset,
because the amortization of the asset is matched with the revenue generation of
our product life-cycle. Expensing these costs at the time incurred, we believe,
would be a violation of the matching principle and a violation of the definition
of an asset.

The
attributes of measurability, relevance and reliability are highly subjective
criteria to measure. However, we believe our treatment of Packaging and Design
Costs meets these criteria based on the facts presented, the inherent nature of
why the costs are being incurred and the products which these costs
benefit.

To
further support our position, we call your attention to the December 31, 2004
Form 10-K filed by Marvel Enterprises, Inc. Please see footnote 2, Summary of
Significant Accounting Policies -Product and Package Design Costs. This
disclosure states “The Company capitalizes costs related to product and package
design when such products are determined to be commercially acceptable. Package
design costs include costs relating to art work, modeling and printing
separations used in the production of packaging.”

We
believe we have provided the burden of proof required to substantiate our
accounting treatment of Packaging and Design Costs. We trust you concur.