===============================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB/A
                                   (Amendment No. 1)


[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
         For the quarterly period ended June 30, 1997.

                                       or

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________



                         Commission File Number: 0-27800

                              Frederick Brewing Co.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


                  Maryland                                     52-1769647
                  --------                                     ----------
(State or other jurisdiction of incorporation               (I.R.S. Employer
              or organization)                             Identification No.)

4607 Wedgewood Boulevard, Frederick, Maryland                     21703
- ---------------------------------------------                     -----
  (Address of principal executive offices)                     (Zip Code)


                                 (301) 694-7899
                -----------------------------------------------
                (Issuer's telephone number, including area code)

                                 Not Applicable
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


Indicate by check mark whether the issuer (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. [ X ] Yes [ ] No


<PAGE>





Common Stock, $0.00004 Par Value                            2,768,735
- --------------------------------                            ---------
      (Title of Each Class)                       (Number of Shares Outstanding
                                                      as of July 31, 1997)


Transitional Small Business Disclosure Format (Check one):
Yes [   ]      No [ X ]


================================================================================


<PAGE>

                              Frederick Brewing Co.

                             ----------------------
                              Index to Form 10-QSB
                             ----------------------



Part I.  Financial Information
- ---------------------------------------------------------------------------

      Item 1.       Financial Statements

                    Balance Sheet (Unaudited)
                      June 30, 1997                                          1
                    Statements of Operations (Unaudited)
                      Three and Six Months Ended June 30, 1997 and 1996      2
                    Statements of Cash Flows (Unaudited)
                      Three and Six Months Ended June 30, 1997 and 1996      3
                    Notes to Unaudited Financial Statements                  4

      Item 2.       Management's Discussion and Analysis                     6


Part II.  Other Information
- -----------------------------------------------------------------------------

      Item 1.       Legal Proceedings                                       13

      Item 2.       Changes in Securities                                   13

      Item 3.       Defaults Upon Senior Securities                         13

      Item 4.       Submission of Matters to a Vote of Security Holders     13

      Item 5.       Other Information                                       14

      Item 6.       Exhibits and Reports on Form 8-K                        14


<PAGE>





Signatures
- -----------------------------------------------------------------------------

      Signature Page                                                        15


<PAGE>




                        PART I. -- FINANCIAL INFORMATION

 Item 1.  Financial Statements.


                              Frederick Brewing Co.
                                  Balance Sheet

<TABLE>
<CAPTION>


                                                                            June 30, 1997
                                                                           -----------------
                                                                             (Unaudited)
                                     ASSETS
- -------------------------------------------------------------------------

<S>                                                                          <C>
Current assets:
      Cash and cash equivalents                                              $       435,790
      Restricted cash                                                                 22,673
      Trade receivables                                                              430,456
      Inventories, net                                                               306,967
      Prepaid expenses                                                               439,059
                                                                             ---------------
           Total current assets                                                    1,634,945

Property and equipment, net                                                        8,489,234
Intangibles, net of accumulated amortization of $39,195                              235,447
Other assets                                                                         705,514
                                                                             ---------------

           Total assets                                                      $    11,065,140
                                                                             ===============


                      LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------

Current liabilities:
      Current maturities of long-term debt                                   $       401,861


<PAGE>



      Current maturities of capital lease obligations                                273,000
      Accounts payable                                                               571,766
      Accrued liabilities                                                             61,070
                                                                             ---------------
           Total current liabilities                                               1,307,697

Long-term debt                                                                     2,294,751
Long-term capital lease obligations                                                3,096,230
                                                                             ---------------
           Total liabilities                                                       6,698,678
                                                                             ---------------


Stockholders' equity:
      Preferred stock - Series A, 1,848 shares issued and outstanding                743,648
      Preferred stock - Series B, 3,450 shares issued and outstanding              1,757,339
      Common stock - $0.00004 par value, 9,000,000 shares authorized,
           2,139,507 shares issued and outstanding                                        79
      Additional paid-in capital                                                   6,523,747
      Unearned compensation                                                          (17,500)
      Accumulated deficit                                                         (4,640,851)
                                                                             ---------------
           Total stockholders' equity                                              4,366,462
                                                                             ---------------

           Total liabilities and stockholders' equity                        $    11,065,140
                                                                             ===============

</TABLE>




    The accompanying notes are an integral part of these financial statements

                                       1

<PAGE>



                              Frederick Brewing Co.
                            Statements of Operations


<TABLE>
<CAPTION>

                                                             Three Months Ended June 30,             Six Months Ended June 30,
                                                          -----------------------------------  ------------------------------------
                                                                1997               1996              1997                1996
                                                          ----------------   ----------------  -----------------   ----------------
                                                                     (Unaudited)                            (Unaudited)



<PAGE>



<S>                                                       <C>                 <C>               <C>               <C>
Gross sales                                               $        875,416    $      4$0,066    $     1,141,230    $      874,741
Less returns and allowances                                         10,752            33,440             35,188           35,885
Less excise taxes                                                   43,323            23,125             60,228            41,486
                                                          ----------------    --------------    ---------------    --------------
    Net sales                                                      821,341           383,501          1,045,814           797,370

Cost of sales                                                      730,353           357,181          1,127,819           763,845
                                                          ----------------    --------------    ---------------    --------------
    Gross profit (loss)                                             90,988            26,320            (82,005)           33,525

Selling, general and administrative expenses                       991,626           362,413          1,497,895     687,975
                                                          ----------------    --------------    ---------------    --------------
    Loss from operations                                          (900,638)         (336,093)        (1,579,900)      (654,450)

Interest (income) expense, net                                      80,792           (15,555)           108,367           (12,153)
Other expenses                                                     (74,187)                -           (135,523)                -
                                                          ----------------    --------------    ---------------    --------------
    Loss before income taxes                                      (907,243)         (320,538)        (1,552,744)         (642,297)

Provision for income taxes                                               -                 -                  -                 -
                                                          ----------------    --------------    ---------------    --------------

    Net loss                                              $       (907,243)   $     (320,538)   $    (1,552,744)   $     (642,297)
                                                          ================    ==============    ===============     ==============
   

Preferred Stock Dividend Requirements                              (28,626)                -         (1,354,454)                - 
                                                          ----------------    --------------     --------------     --------------
 
     Net loss attributable to common shareholders         $     (  935,869)   $     (320,538)    $   (2,907,198)    $     (642,297)
                                                          ================    ==============     ==============     ==============
Per common share

     Net loss                                             $         (0.45)    $        (0.16)     $       (0.78)    $        (0.39)
                                                          ================    ===============     ==============     =============
     Preferred stock dividend requirements                $         (0.01)    $             -     $        (0.68)   $            -
                                                          ----------------    ---------------     --------------     -------------
     Net loss attributable to common shareholders         $         (0.46)    $        (0.16)     $        (1.46)   $        (0.39)
                                                          ================    ===============     ==============     =============

    

Weighted average common shares and common
    share equivalents outstanding                                2,026,309         1,954,876          1,990,593         1,652,477
                                                          ================    ==============    ===============      ==============
</TABLE>




    The accompanying notes are an integral part of these financial statements



                                       2


<PAGE>


                              Frederick Brewing Co.


<PAGE>



                            Statements of Cash Flows


<TABLE>
<CAPTION>



                                                             Three Months Ended June 30,             Six Months Ended June 30,
                                                          -----------------------------------  ------------------------------------
                                                                1997               1996              1997               1996
                                                          ----------------   ----------------  -----------------   ----------------
                                                                     (Unaudited)                            (Unaudited)
<S>                                                       <C>                 <C>               <C>                   <C>
Cash flows from operating activities:
    Net loss                                              $       (907,243)   $     (320,538)   $    (1,552,744)      $  (642,297)
    Adjustments to reconcile net loss to net cash
    used for operating activities:
        Depreciation and amortization                              220,748            48,920            265,386             97,288
        Changes in operating assets and liabilities:
           Receivables                                            (310,697)           (9,105)          (191,043)           (37,442)
           Inventories                                            (134,573)          (77,633)           (96,404)          (152,536)
           Prepaid expenses                                        444,313             8,718           (356,647)           114,934
           Other assets                                           (676,740)            1,685           (634,514)           (34,330)
           Accounts payable                                       (169,557)         (108,639)           (57,450)          (304,506)
           Accrued expenses                                         16,637             7,280           (104,468)           (46,550)
                                                          ----------------    --------------    ---------------       ------------
        Net cash used for operating activities                  (1,517,112)         (449,312)        (2,727,884)        (1,005,439)
                                                          ----------------    --------------    ---------------       ------------

Cash flows from investing activities
    Deposits on equipment                                                -          (405,517)                 -           (971,663)
    Purchase of property and equipment                            (733,470)         (160,617)        (1,479,899)          (172,191)
    Proceeds from sale of equipment                                154,600                 -            154,600                  -
    Purchase of intangibles                                        (59,242)          (35,346)          (126,894)           (83,089)
                                                          ----------------   ---------------    ---------------       ------------
        Net cash used for investing activities                    (638,112)         (601,480)        (1,452,193)        (1,226,943)
                                                          ----------------   ---------------    ---------------       ------------

Cash flows from financing activities
    Payments on debt                                            (1,548,917)          (10,839)        (1,696,236)          (432,049)
    Proceeds from long-term debt                                 1,105,142            80,316          1,636,485             80,316
    Payments on capital leases                                     (12,388)           (6,244)           (15,700)            (6,244)
    Proceeds from preferred stock issuance, net                    (65,089)                -          4,025,001                  -
    Proceeds from common stock issuance, net                             -                 -                  -          3,857,679
    Restricted cash                                                 13,597                 -            617,327                  -
                                                          ----------------   ---------------    ---------------       ------------
        Net cash provided by financing activities                 (507,655)           63,233          4,566,877          3,499,702
                                                          ----------------   ---------------    ---------------       ------------

Net increase (decrease) in cash and cash equivalents            (2,662,879)         (987,559)           386,800          1,267,320

Cash and cash equivalents, beginning of period                   3,098,669         2,254,879             48,990                  -
                                                          ----------------   ---------------    ---------------       ------------


<PAGE>




Cash and cash equivalents, ending of period               $        435,790   $     1,267,320    $       435,790       $  1,267,320
                                                          ================   ===============    ===============
============

</TABLE>




    The accompanying notes are an integral part of these financial statements


                                       3



<PAGE>




                              FREDERICK BREWING CO.


Notes to Financial Statements
June 30, 1997
(Unaudited)

Note 1  -  Basis of Presentation
- -----------------------------------------------------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and with the instructions to Form 10-QSB and Regulation S-B.  Accordingly,  they
do not include  all of the  information  and  footnotes  required  by  generally
accepted accounting  principles for complete financial  statements.  However, in
the opinion of  management,  all  adjustments,  consisting  of normal  recurring
accruals,  considered necessary for a fair presentation of the interim financial
position  and the  interim  results  of  operations  of the  Company  have  been
included.

Operating results for the three and six month period ended June 30, 1997 are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 1997,  or for any other  period.  For  information  relating to the
financial  position and the results of  operations  of the Company as of and for
the year ended December 31, 1996, refer to the financial  statements included in
the Company's  Annual Report on Form 10-KSB for the year ended December 31, 1996
and in its 1996 Annual Report to shareholders.


Note 2  -  Cash and Cash Equivalents
- -----------------------------------------------------------------------------
The Company  considers  its  investments  with original  maturities,  at date of
purchase,  of 90 days or less to be cash  equivalents.  At June  30,  1997,  the
following cash and cash equivalents were held by the Company:


<PAGE>




    Cash in bank and petty cash                        $435,790
    Securities held under agreement to repurchase        22,673
                                                       --------
                                                       $458,463
                                                       ========

The Company occasionally  invests excess funds in reverse repurchase  agreements
for U.S. government  securities.  Under these agreements,  the Company purchases
securities with an agreement to resell them.  Generally,  such agreements mature
on the next business day following the date of investment. Due to the short-term
nature  of  the  agreements,  the  Company  does  not  take  possession  of  the
securities, which are instead held at the Company's bank from which it purchases
the  securities.  The carrying value of the agreements  approximates  fair value
because of the short maturity of the investments  and the Company  believes that
it is not  exposed  to  any  significant  risk  on its  investments  in  reverse
repurchase agreements. At June 30, 1997, approximately $23,000 of the securities
was pledged as collateral  to guarantee the Company's  obligation to Signet Bank
of  Maryland  ("Signet")  for the new  brewing  facility  and  was  recorded  as
restricted cash.

                                       4

<PAGE>



Notes to Financial Statements
June 30, 1997
(Unaudited)

Note 3  -  Income Taxes
- -----------------------------------------------------------------------------
The Company  accounts for income taxes under the liability  method.  The Company
has not  recorded  a  provision  for  income  taxes  for the three and six month
periods  ended  June 30,  1997 and 1996 based on the fact that the  Company  has
incurred net operating  losses during those periods.  The Company has provided a
full valuation allowance against its net deferred tax asset as of June 30, 1997.

Note 4  -  Net Loss per Common Share
- -----------------------------------------------------------------------------
Net loss per  common  share is based on the  weighted  average  number of common
shares and common share equivalents outstanding during the periods. Common share
equivalents  are  comprised of stock  options,  stock  warrants and  convertible
securities  for which the  effective  yield is less  than  two-thirds  of the Aa
corporate bond rate at date of issuance.  Common share equivalents have not been
included in the calculation for the three and six months ended June 30, 1997 and
1996 because the effects of such items were anti-dilutive.

In February, 1997 the Financial Accounting Standards Board issued Statement 128,
"Earnings Per Share" (SFAS 128), which specifies the computation,  presentation,
and disclosure  requirements  for earnings per share.  SFAS 128 is effective for
periods ending after December 15, 1997. The Company does not expect the adoption
of SFAS 128 to have a material impact on the computation of earnings per share.

   
The net loss  attributable to common  shareholders  has been adjusted for deemed
dividends.  The deemed dividend relates to the discount feature  associated with
the Company's Series A and Series B Convertible Preferred Stock, issue din March
of 1997. The discount has been computed in accordance with the SEC's position on
accounting for preferred  stock that is convertible at a discount to the market.
The discount  amount,  which was  approximately  $114,000 and $1,326,000 for the
Series  A  and  Series  B,  respectively,  is  recognized  as a  return  to  the
shareholders  over the minimum  period in which the  shareholders  can recognize
that return.  The Series B shares are  immediately,  and the Series A shares are
convertible one year from the date of issuance and the dividend related to these
shares is being recognized over the one year period from date of issuance.
    


<PAGE>



Note 5  -  Prepaid Expenses
- -----------------------------------------------------------------------------
During the first quarter of 1997, the Company paid $800,000 for investor
relations services to be rendered by three affiliated companies: Corporate
Relations Group, Inc. ("CRG"), Arrow Marketing Inc. and Gulf Atlantic Publishing
Inc. This balance is being amortized on a straight-line basis over 60 months
beginning in April 1997. The non-current portion of this balance representing
$568,000 is included in other assets.

Note 6  -  Property and Equipment
- -----------------------------------------------------------------------------
Property and equipment at June 30, 1997 consisted of the following:

         Brewing equipment                                     $4,365,749
         Capital lease - building                               3,000,000
         Leasehold improvements                                 1,303,146
         Automobiles and trucks                                   201,499
         Furniture and fixtures                                   180,513
                                                               ----------
                  Total                                         9,050,907
         Less accumulated depreciation and amortization          (561,673)
                                                               ----------
         Property and equipment, net                           $8,489,234
                                                               ==========

                                       5

<PAGE>



Notes to Financial Statements
June 30, 1997
(Unaudited)


The portion of property and equipment  classified as "capital  lease - building"
relates to the  Company's  agreement  with Blue II, LLC ("Blue II") to build the
new  brewery  for the  Company  to its  specifications  and lease it back to the
Company. The lease, which became effective during the first quarter of 1997, has
a twenty  year term  with  monthly  payments  due to Blue II as set forth in the
agreement.  The  building has been  reflected  in property and  equipment at its
estimated fair value at the inception of the lease term,  which was equal to the
present value of the future minimum lease payments,  and is being amortized on a
straight line basis over the lease term.

Note 7  -  Long-Term Debt
- -----------------------------------------------------------------------------
On April 24, 1997, the Company closed a $1.0 million loan with the United States
Small Business  Administration  ("SBA").  The proceeds of this loan were used to
pay the  principal  balance of Company's  bridge loan with Signet Bank which was
incurred for the purchase of brewing and  packaging  equipment for the Company's
new  facility.  The loan has a twenty  year  term and a fixed  interest  rate of
7.368%. See the Company's Pre-effective Amendment No. 5 to the Form SB-2 filed


<PAGE>



with the SEC on March 5, 1996, attached hereto by reference.

                         PART I. - FINANCIAL INFORMATION

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
                of Operations  For the Three and Six Months Ended June 30, 1997
                and 1996


Overview of Significant Activities and Expenses
- -----------------------------------------------------------------------------

A net loss of ($907,243),  or ($0.45) per share,  was incurred during the second
quarter of 1997 compared to net loss of  ($320,538),  or ($0.16) per share,  for
the  corresponding  quarter  of 1996.  Year-to-date  1997  losses  increased  to
($1,552,744)  or ($0.78) per share,  compared to losses of ($642,297) or ($0.39)
per share, for the similar period of 1996.

Weighted  average common shares  outstanding  were  2,026,309  during the second
quarter of 1997 and 1,954,876 for the three months ended June 30, 1996.  For the
year to date,  weighted  average  shares  outstanding  was  1,990,593  for 1997,
compared to 1,652,477 in the similar  period of 1996. The increase in the shares
outstanding  relates  primarily  to the  conversion  of  some  of the  Company's
Preferred  shares  into  Common  Stock  during the second  quarter of 1997.  The
increase  in the  shares  outstanding  for the  year  to  date,  relates  to the
Company's successful initial public offering ("IPO") in March 1996.

                                       6

<PAGE>



Management's Discussion and Analysis
For the Three and Six Months Ended June 30, 1997 and 1996
   

During the second quarter of 1997, record levels of revenues were achieved.  The
Company's  sales  increased  98.9% to $876,416 during the second quarter of 1997
over the  similar  period of 1996.  This was also an increase of 329.3% over the
first quarter of 1997.  These record levels were  associated  with  increases in
production  that were made  possible  through the operation of the Company's new
facility.  This, coupled with a concentrated  marketing and promotional  effort,
created  a strong  demand  for the  Company's  product  that  exceeded  even the
increased  production  levels.  April  sales  were  limited to 839  barrels  (on
packaged  production of 900 barrels) because,  until April 27th, the Company was
forced to bottle beer on its original bottling line, which ran at a top speed of
30 bottles per minute.  Thereafter,  the numerous  machines  comprising  the new
bottling equipment began to be brought into service and production  capacity and
speed  increased  incrementally  through  the  end of  the  quarter.  May  sales
increased to 1,321 barrels (on packaged  production  of 1,580  barrels) and June
sales increased to 2,704 barrels (on packaged production of 3,005 barrels)
Packaged  production  represents actual beer barrels packaged,  at the Company's
facility, into sellable product units, either bottled cases or draft kegs.

    
Sales  increases  during  the  second  quarter  were  generated  largely  within
territories where the Company had been distributing its products for at least


<PAGE>



one year.  Sales in these  territories  increased to 4,382 barrels in the second
quarter of 1997 from 2,521  barrels in the  comparable  period of 1996,  a 73.8%
increase.  Total sales of 482 barrels  were sold in new  territories,  primarily
Florida  and  Washington  state.  Management  intends to pursue new  territorial
markets as production capacity permits.

Supported by substantial regional,  national and international media coverage, a
new  home  page on the  World  Wide  Web  (www.hempenale.com)  and  considerable
word-of-mouth communication, the Company launched a new product, Hempen Ale(TM),
in May of 1997. Hempen Ale(TM) if the first  commercially  produced and marketed
malt  beverage  in United  States  history to be  produced  with hemp seeds as a
primary ingredient. During the second quarter, the Company sold 1,781 barrels of
this new product,  which  represented  36.6% of the Company's total sales during
the period.  Sales of the Company's "Blue  Ridge(TM)" line also grew,  posting a
22.3%  increase  (from 2,521  barrels in 1996 to 3,083 barrels in 1997) over the
similar period of 1996.

Because the  Company's  package  handling  equipment was not running at designed
efficiency  during the second quarter of 1997,  (see June 26, 1997 press release
attached hereto), the Company hired temporary workers to assist in the packaging
of product for sale.  This  additional  labor  expense,  resulted in higher than
expected cost of sales.  See Item 1 - Legal  Proceedings  attached  hereto.  The
performance of the package handling  equipment  improved  throughout the quarter
and the need for these temporary workers declined. Management believes packaging
efficiency  will continue to improve  through the middle of the third quarter of
1997, as the equipment  becomes fully  functional  and the training of operating
employees progresses.  This should reduce production costs and improve operating
margins.

Also during the quarter, the Company continued to pursue geographical  expansion
of its  channels  of  distribution.  The Company  began  shipping to Florida and
Washington  state during the second  quarter of 1997.  In addition,  the Company
began its largest  advertising  campaign to date in six metropolitan  markets on
the east coast of the United States. This campaign consisted of a combination of
print,  radio,  and  billboard  advertising  most of which  were  outside of the
Company's main market areas of Maryland and  Washington  D.C.  Distributors  and
retailers in these  outside  markets have  indicated  to  management  that these
increased  advertising efforts were a major factor in the increase in demand for
the Company's products.

   
On April 24, 1997, the Company closed a $1.0 million loan with the United States
Small Business  Administration  ("SBA").  The proceeds of this loan were used to
pay the  principal  balance of Company's  bridge loan with Signet Bank which was
incurred for the purchase of brewing and  packaging  equipment for the Company's
new facility. The loan has a twenty year term and fixed interest rate of 7.368%.
See the Company's  Pre-effective Amendment No. 5 to the Form SB-2 filed with the
SEC on March 5, 1996, attached hereto by reference.

Preferred Stock Dividend Requirement


The  deemed  dividend  relates  to the  discount  feature  associated  with  the
Company's Series A and Series B Convertible  Preferred Stock, issue din March of
1997. The Series A shares are convertible one year from the date of issuance and
the  dividend  related  to these  shares is being  recognized  over the one year
period from the date of  issuance.  During the three month period ended June 30,
1997, the dividend related to these shares is approximately $29,000. The average
conversion  rate for the Series A shares is $3.71955 per share based on the five
day average closing Market Price of the Common Stock, for the days preceding the
purchase  date of the  Series A  shares.  The  Series B shares  are  convertible
immediately and the dividend related to these shares,  approximately $1,326,000,
is recorded by the Company on its financial  statements.  The conversion rate is
equal to $1,000 divided by Seventy  Percent (70%) of the average market Price of
the Common Stock for the five trading days  immediately  prior to the Conversion
date.  The Market  Price is defined as the closing bid price of the Common Stock
on such date,  as reported by the National  Association  of  Securities  Dealers
Automated  Quotation  System  ("NASDAQ"),  or  the  closing  bid  price  in  the
over-the-counter market if other than NASDAQ.
    

                                       7

<PAGE>



Management's Discussion and Analysis
For the Three and Six Months Ended June 30, 1997 and 1996

On April 24, 1997, the Company closed a $1.0 million loan with the United States
Small Business  Administration  ("SBA").  The proceeds of this loan were used to
pay the  principal  balance of Company's  bridge loan with Signet Bank which was
incurred for the purchase of brewing and  packaging  equipment for the Company's
new facility. The loan has a twenty year term and a fixed interest rate of


<PAGE>



7.368%. See the Company's Pre-effective Amendment No. 5 to the Form SB-2 filed
with the SEC on March 5, 1996, attached hereto by reference.

Review of Operations
- -----------------------------------------------------------------------------
The  following  table  sets  forth  certain  items  derived  from the  Company's
Statements of Operations,  expressed as a percentage of net sales, for the three
and six month periods ended June 30, 1997 and 1996.

                                          Percentage of Sales for the Periods
                                                     Ended June 30,
                                          -----------------------------------
                                            Three Months      Six Months
                                           1997      1996     1997     1996
                                           ----      ----     ----     ----
                                           (Unaudited)      (Unaudited)

Gross sales..............................  105.3%   106.0%    105.8%   105.2%
Less excise taxes........................    5.3      6.0       5.8      5.2
                                           -----    -----     -----    -----
Net sales................................  100.0    100.0     100.0    100.0
Cost of sales............................   88.9     93.1     107.8     95.8
                                           -----    -----     -----    -----
Gross profit (loss)......................   11.1      6.9      (7.8)     4.2
Selling, general, and admin. expenses....  120.7     94.5     143.2     86.3
                                           -----    -----     -----    -----
Loss from operations..................... (109.7)   (87.6)   (151.1)   (82.1)
Interest (income), net...................    9.8     (4.1)     10.4     (1.5)
Other (income)...........................   (9.0)     0.0     (13.0)     0.0
                                           -----    -----     -----    -----
Net loss................................. (110.5)   (83.6)   (148.5)   (80.6)
                                           =====    =====     =====    =====
Sales
- -----------------------------------------------------------------------------
Gross sales for the 1997 and 1996 second  quarters were $875,416,  and $440,066,
respectively,  an  increase of  $435,350,  or 98.9%,  in 1997  compared to 1996.
Year-to-date sales for 1997 and 1996 were $1,141,230 and $874,741, respectively,
an increase of $ 266,489 or 30.5%.

Second  quarter  volumes  were  4,864  and  2,521  barrels  for 1997  and  1996,
respectively,  an increase of 2,343 barrels, or 93.0%.  Year-to-date  volumes in
1997 and 1996 were 6,470 and 4,977, respectively, an increase of 1,493 or 30.0%.
Revenues per barrel  between the second  quarters of 1997 and 1996 were $180 and
$175 per barrel,  respectively,  an  increase of $5 per barrel,  while they were
$176 for the  year-to-date  periods in both 1997 and 1996.  The  increase in the
revenues  per barrel for the  quarter  reflects a change in the sales mix of the
Company's  products  between  cases,  which  have a higher  revenue  per  barrel
contribution, and kegs.

                                       8

<PAGE>




<PAGE>




Management's Discussion and Analysis
For the Three and Six Months Ended June 30, 1997 and 1996


Excise Taxes
- -----------------------------------------------------------------------------
Federal and state excise taxes were $43,323 and $23,125, or 5.3% and 6.0% of net
sales,  during  the  second  quarters  of 1997 and 1996,  respectively.  For the
year-to-date  periods of 1997 and 1996 such taxes were $60,228 and  $41,486,  or
5.8% and 5.2%, of net sales,  respectively.  The decrease as a percentage of net
sales,  during  the  second  quarter  of 1997,  reflects  the  reduction  of the
Company's  sales in states where the Company is levied  excise tax. The increase
in excise taxes in six month period of 1997,  as a percentage  of net sales,  is
due to changes  in the mix of beer  distribution  between  states.  The  Federal
government and all state governments impose excise taxes on all beer sold. These
taxes are levied on volume,  regardless of the price or revenue  generated  from
those  sales.  Each  state in which the  Company  distributes  its  product  has
different liquor excise tax rates and  regulations,  including some states which
require the distributor to pay such taxes instead of the producer.

Cost of Sales
- -----------------------------------------------------------------------------
Second  quarter cost of sales for 1997 and 1996 was $730,353  and  $357,181,  or
88.9% and 93.1% of net sales,  respectively,  an  increase of $373,172 or 104.4%
over  1996.  Year-to-date  cost of sales  for 1997 and 1996 was  $1,127,819  and
$763,845,  or 107.8%  and  95.8% of net  sales,  respectively,  an  increase  of
$363,974 or 47.7% over 1996.

Two main factors caused the increase in the cost of sales for the second quarter
of 1997 over the same period of 1996: (1) the substantial  increase in sales and
(2) the increased fixed costs associated with owning and operating the Company's
new brewing  facility.  Direct  variable  costs of production,  principally  raw
ingredients, packaging materials, and labor for the second quarters of 1997 were
$425,738,  compared to $278,283 in the similar period of 1996, a 53.0% increase,
compared with a 98.9% increase in sales. This volume related increase in cost of
sales was  partially  offset by a 14.6%  decrease  in those  costs per dollar of
sales and a $22.86  decrease per barrel sold.  Management  believes direct labor
costs of production per barrel and as a proportion of sales will decline further
in the third and fourth quarters of 1997 as packaging efficiencies gained during
the second quarter will be reflected for the entire third quarter and additional
efficiencies  are gained  during the third  quarter and reflected for the entire
fourth quarter.

During  the  second  quarter  of  1997,  the cost of  sales  were  substantially
increased by the increased  fixed cost of the  Company's  new brewing  facility.
Fixed production overhead expenses,  principally  depreciation,  utilities,  and
rent rose  $237,310,  to $316,208 in the second  quarter of 1997 from $78,898 in
1996,  an increase of 300.7%.  Depreciation  as a component of the cost of sales
increased  approximately  $89,000  over  the  comparable  period  of  1996.  The
depreciation  portion of the cost  accounted for  approximately  $104,000 of the
increase  over the six  months  ended  June 30,  1996.  In  addition,  utilities
increased by approximately  $74,000 due to the increased volumes of electricity,
natural  gas,  and water  needed to run the much  larger  facility.  For the six
months, utility expenses had increased by approximately $91,000 over 1996. Rent


<PAGE>



increased   approximately   $60,000  over  the  similar   period  of  1996,  and
approximately  $75,000 for the six months  ended June 30.  These fixed  overhead
expenses  represent  an  increase  of 18.2% per  dollar of sales and  $33.71 per
barrel sold for the second quarter.

                                       9

<PAGE>



Management's Discussion and Analysis
For the Three and Six Months Ended June 30, 1997 and 1996


Management  expects  that  production  costs will remain high for the balance of
1997.  Labor and other  variable  production  costs are  expected  to  gradually
decline  through the third quarter as the packaging  equipment is "debugged" and
personnel gain experience. The production overhead expenses will remain high and
may increase during the remainder of 1997, as additional production equipment is
purchased and installed.  If, however, as Management expects,  sales continue to
increase,  the negative impact of the increase in production  overhead  expenses
should decline, both as a percentage of sales and dollars per barrel sold.

Selling, General and Administrative Expenses
- -----------------------------------------------------------------------------
Selling, general and administrative ("SG&A") expenses were $991,626 and $362,413
in the second quarters of 1997 and 1996, respectively,  an increase of $629,213,
or 173.6%.  SG&A  expenses  were  $1,497,895  and  $687,975 in the  year-to-date
periods of 1997 and 1996, respectively, an increase of $809,920 or 117.7%.

The Company's SG&A expenses  increased over the comparable period in 1996 due to
several factors. The most substantial increase was the increase in the Company's
sales  force.  During the second  quarter of 1997,  the  Company had eight sales
people and a sales  manager  working to increase  distribution  of the Company's
products  compared  to  four  sales  people  in  the  second  quarter  of  1996.
Approximately  $147,000 of the increase can be attributed  to increased  payroll
expense and travel and related promotional  expenses.  For the six month period,
these  expenses  accounted for  approximately  $290,000 of the increase over the
comparable  period  of  1996.  The  Company  also  embarked  upon a  substantial
advertising  campaign  in outside  markets  for the first time during the second
quarter of 1997. These markets included New Jersey,  Pennsylvania,  and Georgia.
This advertising campaign caused approximately $188,000 of the increase.  During
the second quarter of 1997, the Company used several outside professionals which
included investor  relations  services,  outside legal and accounting  services.
These services cost the Company  approximately  $154,000 during the quarter, and
$164,000 for the year.

Other Income
- -----------------------------------------------------------------------------
Other  income of  $74,187  during the  second  quarter of 1997  relates to gains
recognized  due to timing  differences  between the cash  received and full sale
value of  written-down  assets from year end 1996.  For the year to date,  other
income of $135,523 has been recognized by the Company. The Company had no other


<PAGE>



income or expenses during the comparable period of 1996.

Interest (income) expense, net
- -----------------------------------------------------------------------------
Interest (income) expense,  net during the second quarter in 1997 was $80,792 in
comparison  to  ($15,555)  during the  comparable  period in 1996.  Year-to-date
interest (income) expense was $108,367 and ($12,153) during  comparable  periods
of 1997 and 1996.  Interest  expense was offset by  interest  income from excess
cash  invested  until  required  for  operating  and  investment   purposes.   A
substantial  portion  of the  interest  expense  incurred  relates  to the  debt
obligations  the Company has with Signet for the building,  equipment and bridge
financing for the new brewery.

                                       10

<PAGE>



Management's Discussion and Analysis
For the Three and Six Months Ended June 30, 1997 and 1996


Income Tax Provision
- -----------------------------------------------------------------------------
The Company has incurred  net  operating  losses  during both 1997 and 1996 and,
accordingly, no provisions for income taxes have been provided on the Statements
of Operations.  The Company has recorded a full valuation  allowance against the
net deferred tax asset.

Liquidity and Capital Resources
- -----------------------------------------------------------------------------
Due to losses  experienced  during the  start-up  and  expansion of the Company,
operations to date have been funded primarily from private and public placements
of common and  preferred  stock and by loans  from  stockholders  and  financial
institutions.  As  of  June  30,  1997,  the  Company  had  working  capital  of
approximately  $327,000.  This balance is principally  the result of the sale of
Series A and Series B preferred  stock,  during the first quarter of 1997. As of
June 30, 1996,  the Company had working  capital of  approximately  $1.8 million
primarily a result of the closing of the Company's IPO in March, 1996.

Net cash used in investing activities during the three and six months ended June
30, 1997 were, $638,112, and $1,452,193,  respectively,  which amounts primarily
represent purchases of capital assets (approximately  $733,000 and $1.5 million,
respectively). In addition, various expenses incurred in arranging for the Small
Business  Administration  ("SBA"), the Maryland Economic Development Corporation
("MEDCO")  and Signet  financing,  brewery  construction,  and  trademarks  were
capitalized  as intangible  assets.  In the second  quarter and six months ended
June  30,  1996,  net  cash  used  in  investing  activities  was  $601,480  and
$1,226,943, respectively, which primarily represented deposits made with vendors
for new brewery equipment.

Net cash provided by financing  activities during the three and six months ended
June 30, 1997 were approximately ($508,000) and $4.6 million, consisting


<PAGE>



primarily of the first quarter 1997 preferred  stock  proceeds of  approximately
$4.1 million net of  commissions  and fees and the $3.0 million  building  lease
with Blue II, LLC.  Second  quarter  1996  activities  related  primarily to the
proceeds of the  Company's  IPO and  repayments  of most of the  Company's  debt
obligations immediately upon the close of the IPO.

The Company  does not  currently  have a working  capital  line of credit or any
other revolving  credit.  Management  does not anticipate  obtaining this or any
other revolving credit facility until it has achieved profitability over a three
to nine month period.

                                       11

<PAGE>



Management's Discussion and Analysis
For the Three and Six Months Ended June 30, 1997 and 1996


The Company intends to purchase and install additional  fermentation  vessels to
increase its production  capacity from the current level of approximately  3,300
barrels per month (39,600 barrels per year) to  approximately  5,500 barrels per
month  (66,000  barrels per year) and to  purchase  other  equipment  to improve
production  efficiency and reduce production costs,  during the last half of the
third quarter of 1997.  The Company's  current  liquid assets are  inadequate to
cover the cost of the new equipment to be purchased.  In addition, the Company's
current level of liquidity may be inadequate to fund the Company's operations or
to  provide  a  prudent  level of cash  reserves  in the  event  cash  flow from
operations  does not  improve  as the  result of  increasing  sales and  reduced
production  costs as  quickly  as  management  has  anticipated.  The  Company's
agreements with its senior lenders do not permit the Company to incur additional
debt obligations. Consequently, management expects to receive a capital infusion
of $1.5 to $2.0 million  during the third  quarter of 1997.  This capital may be
obtained in the form of equity or as a combination of equity and long-term lease
financing. Additional capital infusions may be necessary in the future until the
Company is able to operate profitably.

Impact of Inflation
- -----------------------------------------------------------------------------
Although the Company has not  attempted to  calculate  the effect of  inflation,
management  does not believe  inflation has had a material effect on its results
of operations. Material increases in costs and expenses, particularly packaging,
raw material and labor costs, in the future,  could have a significant impact on
the Company's  operating results to the extent that the effect of such increases
cannot be transferred to its customers.

Forward-Looking Information
- -----------------------------------------------------------------------------
The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements made by the Company in its disclosures to
the public.  There is certain  information  contained  herein,  in the Company's
press releases and in oral statements made by authorized officers of the Company


<PAGE>



which are forward-looking  statements, as defined by such Act. When used herein,
in the  Company's  press  releases  and  in  such  oral  statements,  the  words
"estimate," "project," "anticipate," "expect," "intend," "believe," "plans," and
similar expressions are intended to identify forward-looking statements. Because
such  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 such forward-looking  statements.  Factors, all of
which are  difficult  to predict and many of which are beyond the control of the
Company,  that could cause actual results to differ materially include,  but are
not limited to,  those  which are set forth in Exhibit 99,  attached  hereto and
made a part hereof.

                                       12

<PAGE>



                          PART II. - OTHER INFORMATION
            For the Three and Six Months Ended June 30, 1997 and 1996


                              FREDERICK BREWING CO.


Item 1.  Legal Proceedings
- -----------------------------------------------------------------------------
On June 17, 1997, the Company, as plaintiff, filed suit in the Circuit Court for
Frederick County,  Maryland,  Case No.  97-1300CV,  against  Intertrade  Package
Machinery  Corporation,  an Ohio corporation  ("IPMC"),  Salh F. Khan, the Chief
Executive  Officer of IPMC ("Khan") and John B.  Brannen,  the President of IPMC
("Brannen"),  (IPMC, Khan, and Brannen being collectively  referred to herein as
the  "Defendants")  for  breach of express  and  implied  warranties,  fraud and
negligent   misrepresentation.   The  Company's   complaint  arose  out  of  the
Defendants' failure to provide, as promised in the contract dated May 2, 1996, a
"turn-key"  state-of-the-art  bottling and packaging  line system  consisting of
manufactured  and  remanufactured  equipment,  conveyor  controls  necessary for
integration  of the  equipment,  and the  installation  and start-up  assistance
necessary to commence  operating  the system at the  Company's new brewery on or
before  March 3, 1997.  The  Company is seeking  compensatory  damages  from all
Defendants  of $1.0 million and $3.0  million in punitive  damages from Khan and
Brannen.  At the same  time,  the  Company  filed a motion for  partial  summary
judgment  against IPMC,  alleging  that there is no genuine  dispute of material
fact,  relating  to damages of  $206,181.00  for the  equipment  paid for by the
Company but never  delivered by IPMC. As of July 22, 1997,  all  Defendants  had
been served and counsel for Brannen had indicated  that they would be filing for
removal of the case to U.S. District Court in Baltimore,  Maryland.  The Company
intends to vigorously prosecute this action.

Item 2.  Changes in Securities
- -----------------------------------------------------------------------------
None.

Item 3.  Defaults Upon Senior Securities


<PAGE>



- -----------------------------------------------------------------------------
None.

Item 4.  Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------------------------
The annual meeting of  stockholders of the Company was held on June 5, 1997. Two
matters were put to a vote of the stockholders at this meeting:  the election of
two directors and the  ratification of Coopers & Lybrand L.L.P. as the Company's
independent   accountants   for  the  fiscal  year  ending  December  31,  1997.
Information  regarding the matters voted upon was disclosed and discussed in the
Company's Proxy Statement which,  along with forms of Proxy, were distributed to
all  shareholders  of record of the  Company  on or about May 5,  1997.  Readers
should refer to such Proxy  Statement for additional  information on the matters
voted upon.

At the meeting  1,530,040 shares  (approximately  78.3%) of the Company's issued
and  outstanding  1,954,876  shares of common stock were  represented  either in
person or by proxy.

Results of the voting for directors was as follows:
Nominee for Three-Year Term Expiring in 2000:
    Carl R. Hildebrand   1,514,584 for,   0 against,     15,456 withheld.
    Jerome M. Pool       1,514,584 for,   0 against,     15,456 withheld.


                                       13


<PAGE>



Other Information
For the Three and Six Months Ended June 30, 1997 and 1996

Such nominees  were  declared  duly elected.  The directors of the Company whose
term of office continued after the meeting were Kevin E. Brannon and Marjorie A.
McGinnis whose terms expire in 1998 and Nicholas P. Foris, MD and Maribeth Visco
whose terms expire in 1999.

Results of the voting for the  ratification  of independent  accountants  was as
follows:
              1,525,330 for,    3,100 against,    1,610 withheld.

The independent accountants were declared duly elected.

Item 5.  Other Information
- -----------------------------------------------------------------------------
None.

- -----------------------------------------------------------------------------
Item 6.  Exhibits and Reports on Form 8-K
- -----------------------------------------------------------------------------
         (a)      Exhibits Filed:


<PAGE>




                  Index to Exhibits
- -----------------------------------------------------------------------------
                  (I.)     Press release,  May 19, 1997
                  (II.)    Press release,  June 9, 1997
                  (III.)   Press release,  June 26, 1997

         10                Material Contracts
                  (I.)          Loan agreement between U.S. Small Business
                                Administration and the Company

         27                Financial Data Schedule

         99                Safe Harbor Under the Private Securities Litigation
                           Reform Act of 1995 /1/

- ----------------
1 Incorporated by reference from the Form 8-K filed with the SEC on February 27,
1997.


                                       14


<PAGE>





                                   SIGNATURES

In accordance with the  requirements of the Securities and Exchange Act of 1934,
the  Registrant  has  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                             Frederick Brewing Co.


         Date      July, 1997        /s/  Kevin E. Brannon
                 ----------------    --------------------------------
                                            Kevin E. Brannon
                                            Chairman of the Board and
                                            Chief Executive Officer


         Date      July, 1997        /s/ Craig J. O'Connor
                 ----------------    --------------------------------
                                            Craig J. O'Connor
                                            Vice President - Finance &
                                            Administration


                                       15


<PAGE>







<PAGE>



FOR IMMEDIATE RELEASE:                                                      NEWS
May 19, 1997                                                         Nasdaq-BLUE

               FREDERICK BREWING CO. REPORTS FIRST QUARTER RESULTS

FREDERICK, Maryland -- Frederick Brewing Co. (FBC) (Nasdaq-BLUE),  brewer of the
Blue Ridge family of beers,  today reported  results for its first quarter ended
March 31, 1997.

Gross sales for the quarter were  $265,814  compared  with $432,230 in the first
quarter last year.  Management  said sales in the quarter  were  hindered as the
Company   transitioned  its  brewing  operations  and  headquarters  to  a  new,
57,000-square-foot  brewery. Full scale operation at the new facility, which was
completed  late in the first  quarter,  should  begin in the  second  quarter of
fiscal  1997.  The $8  million,  state-of-the-art  facility  has  increased  the
Company's brewing capacity from 12,600 barrels to 50,000 barrels per year.

FBC  reported  a net loss for the  quarter of  $645,502,  or 33 cents per share,
compared with a net loss of $321,759,  or 24 cents per share, in the same period
a year ago.  Management  said the loss was  attributable  to reduced sales and a
significant  rise  in  selling,   general  and  administrative  expenses,  which
increased to $506,268 from $325,562 last year.  Increased SG&A expenses resulted
primarily  from  expansion of the Company's  sales force as the Company works to
increase distribution of its products.

In  addition  to  completing  the  new  brewery,  FBC  announced  several  other
significant  accomplishments  during the quarter, which management believes will
strengthen the Company's long-term sales performance. On April 1, FBC introduced
Hempen Ale, the first commercially produced and marketed malt beverage that uses
hemp seeds as a primary ingredient. Wholesale distributors throughout the United
States  and  Canada  have  contacted  the  Company  about the new  product,  and
management  expects the widespread  media attention Hempen Ale is receiving will
increase the Company's sales and geographic distribution.

In March, FBC announced it had signed  distribution  agreements for the New York
City, New Jersey and Florida markets.  Also in March, three FBC brews won medals
at the Cheers' Magazine's "One World" Beer Festival held in Miami,  Florida. The
Company completed two private  placements of preferred stock during the quarter,
which netted proceeds of more than $4 million.

"While our first quarter financial results were not satisfactory, we are pleased
with the overall  level of activity  that took place  during the  period,"  said
Kevin  Brannon,  CEO. "As the new brewery  reaches full operating  capacity,  we
should  experience a  corresponding  increase in our gross sales  results and an
improvement in our overall financial performance.  We are eager to capitalize on
the widespread national attention the Company has received in recent months."



<PAGE>



Founded in 1992,  Frederick Brewing Co. participates in the growing "craft" beer
segment of the $50 billion domestic beer market.  The Frederick,  Maryland-based
Company produces 12 styles of distinctive, all-natural beers.

                                                             Continued on Page 2


<PAGE>


Statements  made in this  news  release  that are not  historical  facts  may be
forward  looking  statements.  Actual results may differ  materially  from those
projected  in any forward  looking  statement.  There are a number of  important
factors  that  could  cause  actual  results  to differ  materially  from  those
anticipated  by any forward  looking  information.  A  description  of risks and
uncertainties  attendant to Frederick Brewing Company and its industry and other
factors which could affect the Company's  financial  results are included in the
Company's 10-QSB filed with the Securities and Exchange Commission.

FINANCIAL RECAP
<TABLE>
<CAPTION>

                                                            Three Months Ended
                                                                March 31,
                                                        --------------------------
                                                        1997                 1996
                                               ------------------    -----------------

<S>                                            <C>                   <C>
Gross sales                                    $         265,814    $          432,230
Less excise taxes                                         16,906                18,361
Net sales                                                248,908               413,869
Cost of sales                                            421,903               406,664
Gross profit (loss)                                     (172,995)                7,205
Selling, general and
   administrative expense                                506,268               325,562
Operating loss                                          (679,263)             (318,357)
Interest expense, net                                     27,575                 3,402
Other income (expense)                                   (61,336)                    -
Loss before income taxes                                (645,502)             (321,759)
Provision for income taxes                                     -                     -
Net loss                                       $        (645,502)    $        (321,759)
Net loss per share                             $            (.33)    $            (.24)
Weighted average common shares and
   common share equivalents outstanding                1,954,876             1,350,079

                                                            ###

                                    CONTACTS:
Frederick Brewing Co.                                             Pfeiffer Public Relations, Inc.
Kevin Brannon, CEO                                                                     Geoff High
301/694-7899x100                                                                     303/393-7044
www.fredbrew.com


<PAGE>




</TABLE>

                                                                     Page 2 of 2

<PAGE>

Press Release                                                      June 9, 1997

For Immediate Issue

Frederick Brewing Co. Management Sees Good Time Ahead

Frederick  Brewing Co.  (Nasdaq:  BLUE)  announced  today that it expects second
quarter sales to reach $850,000, a 93 percent increase over the same period last
year and management expects to reach break even on a monthly-basis by the end of
the  September,   CEO  Kevin  Brannon,   told   Thursday's   annual  meeting  of
shareholders.

Production at the new brewery has steadily increased since early April, said Mr.
Brannon. April sales were 85 percent of average monthly sales for 1996, although
the new bottling line, ten times faster than the old one, was initially  running
at one third of maximum speed.

May gross  revenues  of  $242,000  were the  second  highest of any month in the
company's  history,  and the 1,560 barrels  packaged was 60 percent  higher than
could have been achieved at the old brewery.  Revenues for April and May were up
42  percent  over the same  period  last year on an  increase  of 39  percent in
barrels sold.  By the end of May the  automatic  bottling line was running at 50
percent of its rated speed - five times faster than the old equipment.

Bottling line speeds are expected to reach capacity by mid-June with  production
due to reach 3,000  barrels of packaged  beer by the end of the month which will
help clear backorders from current customers of more than 1,200 barrels.

"Assuming normal June orders and with the company's plans to expand distribution
of its Blue Ridge and Hempen Ales as soon as sales permit,  the month's  revenue
is expected  to be about  $500,000  on sales of 3,000  barrels.  This would mean
second quarter revenues of over $850,000,  a 93 percent increase over the second
quarter of 1996," he said.

The cost of the company's move to its new multi-million  dollar brewery in March
and the initial  disruption  caused will mean  another loss being posted for the
second quarter.

First quarter sales were down by 38 percent compared with the first three months
of 1996 because production in the original brewery was reduced in early February
and halted at the end of the month.  Additionally,  beer brewed at the new plant
could not be  packaged  until late March and was  bottled on the  company's  old
bottling line until mid-April.

Labor costs are expected to remain higher than originally  anticipated until all
packing line automation is fully operational, expected in mid-June. These costs,
together  with the high  costs  already  incurred  in April and May and  planned
advertising expenditure in June, mean that the company expects to post another


<PAGE>



large loss during the current quarter - similar to the $650,000  incurred in the
first quarter.

"Based  on  current  trends,  planned  market  and  plant  expansions,  and  the
expectation  of lower  costs as  levels  of  automation  and  employee  training
increase,  management  believes  the company can reach  break-even  on a monthly
basis by the end of the third quarter of this year," said Mr. Brannon.

Statements  made in this  news  release  that are not  historical  facts  may be
forward  looking  statements.  Actual results may differ  materially  from those
projected  in any forward  looking  statements.  There are a number of important
factors  that  could  cause  actual  results  to differ  materially  from  those
anticipated  by any forward  looking  information.  A  description  of risks and
uncertainties  attendant to Frederick Brewing company and its industry and other
factors which could affect the company's  financial  results are included in the
Company's 10-QSB filed with the Securities and Exchange Commission.

                                       ###


For further information contact Kevin E. Brannon with Frederick Brewing Co.
at 301-694-7899.


<PAGE>

                              FOR IMMEDIATE RELEASE


                                  June 26, 1997

BREWER SAYS SOARING DEMAND STRAINS CAPACITY

Frederick,  MD --  Frederick  Brewing  Co.,  the brewer of the "Blue  Ridge" and
"Hempen Ale" lines of craft beers,  today said rapidly  rising demand in current
markets, not problems with its packaging  equipment,  were slowing the company's
expansion  into new markets.  The company took issue with a report  published in
the June 26 editions of the local Gazette weekly tabloids.

         According to Marjorie  McGinnis,  FBC's  president,  the  company's new
brewery on Wedgewood  Boulevard  has been  bottling and shipping  beer at levels
very near its current  3,300  barrel per month  brewing  capacity  for about six
weeks. "The Gazette story missed the main point:  sales of Blue Ridge and Hempen
Ale in our existing markets are so high that we cannot keep up with demand, even
with the new brewery running at full capacity.  That is why, as the Gazette also
reported,  we are ordering more tanks to increase our brewing  capacity by 75%."
The new capacity should become available in September and October.

         FBC previously  reported that May sales were the  second-highest in its
four year  history  and that it  expects  production  and sales for the  quarter
ending June 30 to be nearly  double the same period last year.  June  production
was projected to reach about 3,000 barrels of packaged beer.

         The brewer has filed a lawsuit, seeking $1 million in compensatory


<PAGE>



damages  and $3  million  in  punitive  damages,  against  Intertrade  Packaging
Machinery Corp. of  Cinncinatti,  and two company  officers,  alleging breach of
contract,  breach of warranty and fraud in the sale of packaging equipment.  FBC
says none of the equipment  was delivered on time,  much of it was not delivered
at all  and  most of what  was  delivered  required  costly  repairs  to make it
function.  The company was forced to use a much smaller and slower bottling line
for several weeks. McGinnis said, "In mid-May, we were able to get enough of the
equipment  running to allow us to package all the beer we can make.  The problem
since then has been that we have had to employ a number of temporary  workers to
build and pack the six-pack cartons and case boxes.  This has been expensive and
negatively  effects our  profitability  but has not caused us to lose sales over
the past six weeks." She acknowledged that the packaging  equipment problems did
cause the brewery to lose  substantial  sales from March  through  mid-May.  The
company  expects that all of the packaging  equipment  will be fully  functional
within a week.


<PAGE>


         Of the lawsuit,  Kevin Brannon, FBC's chief executive officer, said, "I
am very  confident  that we will win our case.  But having studied and practiced
law for ten years before starting this business,  I know that it is often a long
and winding road between filing a case and  collecting  money from a defendant."
Brannon scoffed at the Gazette's headline, "Brewery files lawsuit for $4 million
to stay afloat." He said the company's financial prospects were "in no way tied"
to the outcome of the lawsuit.

FOR FURTHER INFORMATION CONTACT:
KEVIN BRANNON OR MARJORIE MCGINNIS, FREDERICK BREWING CO.
(301) 694-7899.   E-Mail:  kevinb@fred.net; marjorie@fred.net