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

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

                                   FORM 10-QSB


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


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


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
      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) 

<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)
                                                          ================    ==============    ===============    ==============



Net loss per common share                                 $          (0.45)   $        (0.16)   $         (0.78)   $        (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.
                            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                  -
                                                          ----------------   ---------------    ---------------       ------------

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:

    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.

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
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).

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

                                       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
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>



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
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
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
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
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
--------------------------------------------------------------------------------
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:

                  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>



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."

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

</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
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
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