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 March 31, 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  Exhcange  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                    1,954,876
       --------------------------------                    ---------
            (Title of Each Class)                (Number of Shares Outstanding
                                                        as of May 13, 1997)


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

                                       0
<PAGE>




                              FREDERICK BREWING CO.

                            -------------------------
                              INDEX TO FORM 10-QSB
                            -------------------------


PART I.  FINANCIAL INFORMATION
- - ----------------------------------------------------------------------------

     ITEM 1.      FINANCIAL STATEMENTS

                  BALANCE SHEET (UNAUDITED)
                     March 31, 1997                                         1
                  STATEMENTS OF OPERATIONS (UNAUDITED)
                     Three Months Ended March 31, 1997 and 1996             2
                  STATEMENTS OF CASH FLOWS (UNAUDITED)
                     Three Months Ended March 31, 1997 and 1996             3
                  NOTES TO UNAUDITED FINANCIAL STATEMENTS                   6

     ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS                      8


PART II.  OTHER INFORMATION
- - ----------------------------------------------------------------------------

     ITEM 1.   LEGAL PROCEEDINGS                                           13

     ITEM 2.   CHANGES IN SECURITIES                                       13

     ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                             14

     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS         16

     ITEM 5.   OTHER INFORMATION                                           16

     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                            16


SIGNATURES
- - ----------------------------------------------------------------------------

     SIGNATURE PAGE                                                        17

                                       1

<PAGE>

Item 1.  Financial Statements.

                             Frederick Brewing Co.
                                 Balance Sheet

                                                                  March 31, 1997
                                                                  --------------
                                                                    (Unaudited)

                    ASSETS

Current assets:
   Cash and cash equivalents                                       $ 3,098,669
   Cash - restricted                                                    36,270
   Trade receivables                                                   119,759
   Inventories, net                                                    172,394
   Prepaids and other current assets                                   883,372
                                                                   -----------
      Total current assets                                           4,310,464

Property and equipment, net                                          7,750,853
Intangibles, net of accumulated amoritization of $25,914               232,098
Other assets                                                            28,774
                                                                   -----------
      Total assets                                                 $12,322,189
                                                                   ===========

      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current maturities of long-term debt and lease obligations      $   674,861
   Accounts payable                                                    741,323
   Accrued liabilities                                                  44,433
                                                                   -----------
      Total current liabilities                                      1,460,617

Long-term debt and lease obligations                                 5,593,594
                                                                   -----------
      Total liabilities                                              7,054,211
                                                                   -----------

Commitments and contingencies

Stockholders' equity:
   Preferred stock - Series A, 1,848 shares issued
     and outstanding                                                   729,335
   Preferred stock - Series B, 3,750 shares and
     outstanding                                                     1,920,422
   Common stock - $0.00004 par value, 9,000,000 shares
     authorized, 1,954,876 shares issued and outstanding                    72
   Additional paid-in capital                                        6,351,757
   Accumulated deficit                                              (3,733,608)
                                                                    -----------
       Total stockholders' equity                                    5,267,978
                                                                    ----------
       Total liabilities and stockholders' equity                  $12,322,189
                                                                   ===========

   The accompanying notes are an integral part of these financial statements.







<PAGE>


                              Frederick Brewing Co.
                            Statements of Operations

<TABLE>
<CAPTION>
                                                                Three Months Ended March 31,
                                                             ----------------------------------
                                                                   1997                  1996
                                                             ------------------  --------------
                                                                           (Unaudited)

<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 expenses                     506,268               325,562
                                                             -----------           -----------
      Loss from operations                                      (679,263)             (318,357)

Interest expense, net                                             27,575                 3,402
Other income                                                     (61,336)                  -
                                                             -----------           -----------
      Loss before income taxes                                  (645,502)             (321,759)

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

      Net loss                                               $  (645,502)          $  (321,759)
                                                             ===========           ===========
   

Preferred Stock Dividend Requirements                         (1,325,828)                  -
                                                             ------------          ------------
     Net loss attributable to common shareholders            $(1,971,330)          $  (321,759)
                                                             ===========           ============
Per common share
     Net loss                                                $     (0.33)                (0.24)
                                                             ===========           ===========
     Preferred stock dividend requirements                   $     (0.68)          $        -
                                                             -----------           -----------
     Net loss attributable to common shareholders            $     (1.01)          $     (0.24)
                                                             ===========           ===========

Weighted average common shares and common
      share equivalents outstanding                            1,954,876             1,350,079
                                                             ===========           ===========
    
</TABLE>


    The accompanying notes are an integral part of these financial statements


<PAGE>


                              Frederick Brewing Co.
                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                         Three Months Ended March 31,
                                                                     ----------------------------------
                                                                         1997                  1996
                                                                     ------------------  --------------
                                                                                   (Unaudited)
<S>                                                                  <C>                  <C>
Cash flows from operating activities:
      Net loss                                                       $  (645,502)         $  (321,759)
      Adjustments to reconcile net loss to net cash
      used for operating activities:
          Depreciation and amortization                                   44,638               48,368
          Changes in operating assets and liabilities:
              Receivables                                                119,654              (28,337)
              Inventories                                                 38,169              (74,902)
              Prepaid expenses                                          (800,960)             107,708
              Other assets                                                42,226                  -
              Accounts payable & accrued expenses                         (8,998)            (249,697)
                                                                     -----------          -----------
          Net cash used for operating activities                      (1,210,773)            (518,619)
                                                                     -----------          -----------
Cash flows from investing activities
      Deposits on equipment                                                  -               (566,146)
      Purchase of other assets                                               -                (36,015)
      Purchase of property and equipment                                (746,428)             (13,067)
      Increase in intangibles                                            (67,652)             (47,743)
                                                                     -----------          -----------
          Net cash used for investing activities                        (814,080)            (662,971)
                                                                     -----------          -----------
Cash flows from financing activities
      Payments on short-term debt                                            -               (100,000)
      Proceeds from long-term debt                                       531,343                  -
      Payments on long-term debt                                        (147,319)            (321,210)
      Payments on capital leases                                          (3,312)                 -
      Proceeds from preferred stock issuance, net                      4,090,090                  -
      Proceeds from common stock issuance, net                               -              3,857,679
      Restricted cash                                                    603,730                  -
                                                                     -----------          -----------
          Net cash provided by financing activities                    5,074,532            3,436,469
                                                                     -----------          -----------
Net increase in cash and cash equivalents                              3,049,679            2,254,879
Cash and cash equivalents, beginning of period                            48,990                  -
                                                                     -----------          -----------
Cash and cash equivalents, end of period                             $ 3,098,669          $ 2,254,879
                                                                     ===========          ===========
</TABLE>


    The accompanying notes are an integral part of these financial statements






<PAGE>
                              FREDERICK BREWING CO.


Notes to Financial Statements
March 31, 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  month  period  ended  March 31,  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 March 31,  1997,  the
following cash and cash equivalents are held by the Company:

          Cash in bank and petty cash                          $ 3,098,669
          Securities held under agreement to repurchase             36,270
                                                              ------------
                                                               $ 3,134,939

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  March  31,  1997,  approximately  $36,000  of  the
securities  was pledged as collateral  to guarantee the Company's  obligation to
Signet for the new facility and was recorded as restricted cash.

                                       5

<PAGE>



Notes to Financial Statements
March 31, 1997
(Unaudited)

Note 3 - Income Taxes
- - ----------------------------------------------------------------------------
The Company accounts for income taxes under the asset and liability method.  The
Company  has not  recorded  a  provision  for income  taxes for the three  month
periods  ended  March 31,  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 March 31,
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 months ended March 31, 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, issued in March
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 Series
A and Series B, respectively, is recognized as a return to the shareholders over
the minimum period in which the shareholders can realize that return. The Series
B shares are convertible immediately,  thus the dividends related to such shares
was recognized  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 the date of issuance.

Note 5 - Preferred Stock
- - ----------------------------------------------------------------------------
The  Company is  authorized  to issue up to  1,000,000  shares of $.01 par value
preferred stock. The Board of Directors has the authority to issue the preferred
stock  in  one  or  more  series  and to fix  the  price,  rights,  preferences,
privileges  and  restrictions  thereon.  In January 1996, the Board of Directors
authorized the issuance of 8% Series A Cumulative  Convertible  Preferred  Stock
("Series  A").  The Series A shares rank senior to the common stock with respect
to dividend and liquidation  rights.  Dividends are payable at an annual rate of
$40 per share per annum, when and if declared by the Board of Directors.  If not
declared,   dividends  will  accumulate  and  be  payable  in  the  future.  The
liquidation preference is $500 per share plus accrued but unpaid dividends. Each
Series A share is convertible, after one year from the closing date of such sale
of Series A shares or immediately preceding any public offering of the Company's
common  stock,  into shares of common stock based on conversion  parameters  set
forth in the agreement. The Series A shares do not have any voting rights.

In March 1997,  the Board of  Directors  authorized  the  issuance of a Series B
Convertible Preferred Stock ("Series B"). The Series B shares rank senior to the
common  stock  and the  Series A shares  with  respect  to  liquidation  rights.
Dividends may be declared  consistent with amounts  declared with respect to the
common  stock.  The Company does not expect to declare or pay such  dividends on
the Series B in the  foreseeable  future.  The  Series B shares are  immediately
convertible  to shares of common stock based on conversion  parameters set forth
in the  agreement.  Both the  Series A and  Series B would be  convertible  into
1,323,036  shares of Common Stock as of the date of the  Company's  Registration
Statement on Form S-3 filed with the SEC.

                                       7


<PAGE>



Notes to Financial Statements
March 31, 1997
(Unaudited)

In connection with the sale of approximately $4.7 million of the Preferred Stock
in the first quarter of 1997, the Company paid cash commissions in the amount of
$553,080 to certain of the brokers who  assisted in the private  placements  and
issued to certain of such brokers and to the Company's two public relations firm
immediately  exercisable  warrants  to  purchase  up to  782,145  shares  of the
Company's  Common Stock at prices  ranging from $4.38 to $7.20 per share.  These
warrants  are  subject  to  adjustment  for  stock  splits,   stock   dividends,
combinations,  recapitalizations or reclassifications undertaken by the Company.
See the Company's Registration Statement on Form S-3 filed with the SEC on April
24, 1997.

Note 6  -  Prepaid Expenses
- - ----------------------------------------------------------------------------
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. according to the agreements
attached as exhibits hereto. The entire $800,000 is reflected in prepaid
expenses in the Company's Financial Statements. Of this amount $150,000
represents payments to Gulf Atlantic and Arrow Marketing to be amortized during
the second quarter of 1997, while the remaining balance represents payments to
CRG which will be amortized on a straight-line basis over 60 months beginning in
April 1997. See exhibits attached hereto.

Note 7  -  Property and Equipment
- - ----------------------------------------------------------------------------
Property and equipment at March 31, 1997 consists of the following:

        Brewing equipment                                      $  3,788,208
        Capital lease - building                                  3,739,568
        Leasehold improvements                                      274,170
        Automobiles and trucks                                      201,499
        Furniture and fixtures                                       72,808
                                                               ------------
                Total                                             8,076,253
        Less accumulated depreciation   and amortization           (325,400)
                                                               ------------
        Property and equipment, net                             $ 7,750,853
                                                               ============


The portion  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, which was equal
to the present value of the future  minimum  lease  payments at the inception of
the lease term.

                                       8


<PAGE>



                         PART I. - FINANCIAL INFORMATION

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations For the Three Months Ended March 31, 1997 and 1996


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

A net loss of ($645,502),  or ($0.33) per share,  was incurred  during the first
quarter of 1997 compared to net loss of  ($321,759),  or ($0.24) per share,  for
the corresponding quarter of 1996.

Weighted  average  common shares  outstanding  were  1,954,876  during the first
quarter of 1997, compared to 1,350,079 for the corresponding period in 1996.

Construction of the Company's new brewery was completed during the first quarter
of 1997. This facility increases the Company's ability to produce  approximately
400% more product per year than the Company's  former  brewery.  This production
capacity can grow even more with the  installation  of  additional  fermentation
vessels and  minimal  capital  construction.  The Company  began  producing  its
products in this  facility at limited  levels in the latter part of the quarter.
The Company's production levels were hindered by delays in the full operation of
the packaging  facilities of the new brewery.  These delays have been  addressed
and are being  corrected as of the date of this filing.  Full  production in the
new facility should begin in the second quarter of 1997.

Management  took several steps during the first quarter to prepare the Company's
distribution  network to generate  anticipated higher levels of sales during the
remainder of 1997. The Company  continues to expand its geographic  distribution
across the eastern half of the United States.

During the first quarter of 1997 the Company also announced the  introduction of
Hempen Ale(TM),  the first  commercially  produced and marketed malt beverage in
United States  history to be produced  with hemp seeds as a primary  ingredient.
Since  this   announcement,   the  Company  has  been   contacted  by  wholesale
distributors,  throughout  the U.S. and Canada,  about the sale of this product.
The Company  intends to use this product to assist in broadening  the geographic
expansion of its other ales and lagers.

The Company also completed two separate  private  placements of preferred  stock
during  the first  quarter  of 1997.  The  first  placement,  the 8%  Cumulative
Preferred  Stock,  Series A, (the "Series A"), was  completed on March 31, 1997,
resulting  in net  proceeds  of  approximately  $848,000  into the  Company  for
completion of the new brewing  facility and working capital  purposes.  A second
placement,  the  Preferred  Stock,  Series B, (the "Series B"),  resulted in net
proceeds of $3.2 million into the Company for working capital purposes. For more
information about the terms of these  placements,  see the Company's Form 10-KSB
filed with the Securities and Exchange  Commission ("SEC") on March 31, 1997 and
the Company's Registration Statement on Form S-3 filed with the SEC on April 24,
1997 to permit  certain  shares  of  common  stock  into  which the  Series B is
convertible to be sold without restrictions by the private investors.

                                       8

<PAGE>



Management's Discussion and Analysis
For the Three Months Ended March 31, 1997 and 1996


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
month periods ended March 31, 1997 and 1996.

                                                 Percentage of Sales
                                                    Three Months
                                                   Ended March 31,
                                                   ---------------
                                                1997             1996
                                                ----             ----
                                                   (Unaudited)

Gross sales . . . . . . . . . . . . . . . .    106.8%            104.4%
Less excise taxes  . . . . . . . . . . . . .     6.8               4.4
                                                 ---               ---
Net sales  . . . . . . . . . . . . . . . . .   100.0             100.0
Cost of sales . . . . . . . . . . . . . . .    169.5              98.3
                                               -----              ----
Gross profit (loss). . . . . . . . . . . . .   (69.5)              1.7
Selling, general, and admin. expenses . . .    203.4              78.7
                                               -----              ----
Loss from operations . . . . . . . . . . . .  (272.9)            (77.0)
Interest expense, net. . . . .  . . . . . .     11.1               0.8
Other income . . . . . . . . . .  . . . . .    (24.7)              0.0
                                               -----               ---
Net loss . . . . . . . . . . . . . . . . . .  (259.3)%           (77.8)%
                                            ========           =======


Sales
- - ----------------------------------------------------------------------------
Gross sales for the 1997 and 1996 first  quarters were  $265,814,  and $432,230,
respectively, a decrease of $166,416, or 38.5%, from 1997 to 1996.

First  quarter  volumes  were  1,606  and  2,456  barrels  for  1997  and  1996,
respectively,  a decrease of 850 barrels, or 34.6%.  Revenues per barrel between
the first quarters of 1997 and 1996 were $166 and $168 per barrel, respectively,
a decrease of $2 per barrel.  The decline in the revenues per barrel  reflects a
change in the sales mix of the Company's  products  between  kegs,  which have a
lower revenue per barrel contribution, and cases.

Sales of the  Company's  products  were  hindered  in the first  quarter of 1997
because the Company ceased operations in the Company's old facility prior to the
full  scale  operation  of its new  brewery.  This  limited  the  amount  of the
Company's  products available for sale. The delay in bringing the new brewery up
to full operation was primarily due to delays on the part of the supplier of the
materials handling portion of the packaging equipment. The Company believes this
supplier has caused material financial burden on the Company through a breach of
the  contract  between the  companies.  The Company is in  discussions  with the
supplier to resolve the  situation.  However,  there can be no assurance that an
acceptable and timely settlement can or will be reached.



<PAGE>

Management's Discussion and Analysis
For the Three Months Ended March 31, 1997 and 1996


Excise Taxes
- - ----------------------------------------------------------------------------
Federal and state excise taxes were $16,906 and $18,361, or 6.8% and 4.4% of net
sales, during the first quarters of 1997 and 1996, respectively. The increase in
excise taxes in 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 an 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
- - ----------------------------------------------------------------------------
First  quarter  cost of sales for 1997 and 1996 was $421,903  and  $406,664,  or
169.5% and 98.3% of net sales, respectively, an increase of $15,239 over 1996.

During the first quarter of 1997, the cost of sales increases were primarily due
to the  Company's  increased  fixed  costs of  operating  two  facilities  for a
substantial  portion of the quarter.  The  Company's  original  facility  ceased
operation early in the second quarter of 1997.  Rent increased by  approximately
$15,000 over the same period in 1996 due to operating in multiple locations.  In
addition,  utilities  costs  increased  by  approximately  $17,000  due  to  the
increased  volumes  needed to run the much  larger  new  facility.  Labor  costs
variances also increased as a portion of the cost of sales because of the number
of hours worked per employee  increased,  while the number of barrels of product
sold decreased as production  employees  spent much of their time  commissioning
and  training  to use the new  brewing  and  packaging  equipment.  These  labor
variances  were also  caused by delays in the  packaging  facilities  in the new
brewery.

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 production  equipment is  "de-bugged"  and
personnel gain experience.  However, fixed depreciation expenses associated with
the brewery building and equipment and leased  equipment  expenses will increase
in the  near  term  because  future  quarters  will  have a  full  three  months
amortization   incorporated  in  the  expense.  Fixed  production  costs,  as  a
percentage  of  revenues,  will  decline  if and when  sales  volumes  increase,
allowing these expenses to be spread over a larger number of units sold.


<PAGE>

Management's Discussion and Analysis
For the Three Months Ended March 31, 1997 and 1996


Selling, General and Administrative Expenses
- - ----------------------------------------------------------------------------
Selling, general and administrative ("SG&A") expenses were $506,268 and $325,562
in the first quarters of 1997 and 1996,  respectively,  an increase of $180,706,
or 55.5%.

The Company's SG&A expenses  increased over the comparable period in 1996 due to
several factors. The most substantial increase was the addition of the Company's
sales  force.  During the first  quarter of 1997,  the  Company  had eight sales
people and a sales  manager  working to increase  distribution  of the Company's
products  compared to two sales people and no sales manager in the first quarter
of 1996.  Approximately  $143,000 of the increase can be attributed to increased
payroll  expense  and travel and  related  promotional  expenses.  The number of
Company employees has increased over the comparable period of 1996, resulting in
increased  health  insurance costs and payroll taxes of  approximately  $18,000.
Salary increases also were a factor in the increases over the comparable  period
of  1996.  These  increases   accounted  for   approximately   $5,000.   Outside
professionals expenses increased by approximately $10,000 over the first quarter
of 1996,  most of which  related  to the cost of being a publicly  held  company
during the entire first quarter of 1997.

Other Income
- - ----------------------------------------------------------------------------
Other  income of  $61,336  during  the first  quarter  of 1997  relates to gains
recognized  due to timing  differences  between the cash  received and full sale
values of  written-down  assets from year end 1996.  In future  periods of 1997,
this gain will be offset by losses incurred on the remaining assets.  Management
believes that the net gain on the sale of used brewing  equipment on the Company
for the year will be zero.  The Company had no other  income or expenses  during
the comparable period of 1996.

Interest Expense, Net
- - ----------------------------------------------------------------------------
Interest expense, net during the first quarter in 1997 was $27,575 in comparison
to $3,402 during the comparable  period in 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.

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.

Preferred Stock Dividend Requirement

The  deemed  dividend  relates  to the  discount  feature  associated  with  the
Company's  Series B Convertible  Preferred  Stock,  issued in March of 1997. 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 dividend 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.

Liquidity and Capital Resources
- - ----------------------------------------------------------------------------
Due to losses  experienced  during the  start-up  and  expansion of the Company,
operations to date have been funded from private and public placements of common
and  preferred  stock,  primarily,  and loans from  stockholders  and  financial
institutions.  As of  March  31,  1997,  the  Company  had  working  capital  of
approximately  $2.8 million.  This balance is principally the result of the sale
of preferred  stock which raised  approximately  $ 4.7 million in gross proceeds
for the  Company.  In the  comparable  period of 1996,  the  Company had working
capital of approximately  $2.6 million  primarily a result of the closing of the
Company's IPO.


<PAGE>


Management's Discussion and Analysis
For the Three Months Ended March 31, 1997 and 1996

Net cash used in  investing  activities  during the three months ended March 31,
1997 was,  $814,080,  which  amounts  primarily  represent  purchases of capital
assets  (approximately  $746,000).  In addition,  various  expenses  incurred in
arranging  for the Small  Business  Administration  ("SBA"),  MEDCO  and  Signet
financing,  brewery construction,  and trademarks were capitalized as intangible
assets. In the first quarter of 1996, net cash used in investing  activities was
$662,971, which primarily represented deposits made with vendors for new brewery
equipment.

Net cash  provided by financing  activities  during the three months ended March
31, 1997 was  approximately  $4.3  million,  consisting  primarily  of the first
quarter  1997  preferred  stock  proceeds of  approximately  $4.1 million net of
commissions  and fees.  First quarter 1996 activities  related  primarily to the
proceeds of the  Company's  IPO and  repayments  of some 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  facility but is negotiating to obtain a line of credit
from  Signet.  Management  does  not  anticipate  obtaining  this  or any  other
revolving credit facility until after the new brewery is fully operational. This
line of credit will be separate from the bridge financing provided by Signet for
new brewery equipment and furnishings.

The Company had cash balances of approximately $3.1 million at March 31, 1997.

Management  believes  that this level of  liquidity  is  sufficient  to fund its
operations until such time as the Company can generate  positive cash flows from
operations,  which is  expected  to occur  within  twelve  months  after the new
brewery begins full scale production.

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.


<PAGE>



                          PART II. - OTHER INFORMATION
                   For the Three Ended March 31, 1997 and 1996


                              FREDERICK BREWING CO.


Item 1. Legal Proceedings
- - ----------------------------------------------------------------------------
None.

Item 2. Changes in Securities
- - ----------------------------------------------------------------------------
In January 1996,  the  Company's  Board of Directors  authorized  the raising of
additional  equity capital of up to $2.0 million pursuant to a private placement
of its Series A Preferred Stock to primarily "accredited investors" as that term
is defined by  Regulation D  promulgated  under the  Securities  Act of 1933, as
amended.  The  following  is a brief  description  of the terms of the  Series A
Preferred  Stock:  (i) the number of shares of Series A Preferred  Stock offered
was a minimum of 600 shares  and a maximum  of 4,000  shares;  (ii) the Series A
Preferred  Stock will rank senior to the Common  Stock with  respect to dividend
and  liquidation  rights;  (iii)  dividends on the Series A Preferred  Stock are
payable  at the  annual  rate of $40.00  per share per  annum,  when,  as and if
declared by the Company's  Board of Directors.  If not declared,  dividends will
accumulate  and be payable in the  future.  Full  dividends  must be paid or set
aside on the Series A Preferred Stock before  dividends may be paid or set aside
on the Company's Common Stock. All dividend payments will be subordinated to the
Company's debt obligations,  and will be subject to the prior approval of Signet
and the  Company's  other  future  lenders.  Signet has stated  that it will not
permit dividends to be paid on the Series A Preferred Stock in 1997. As of March
31, 1997, the Company had sold 1,848 shares of the Series A Preferred  Stock for
$924,000, which sale terminated on March 31, 1997.

Effective  as of March 13, 1997,  the  Company's  Board of Directors  authorized
raising up to $3.75  million by the  issuance  and  private  sale of up to 3,750
shares of its Series B Convertible  Preferred Stock ("Series B Preferred Stock")
to  "non-United  States  persons"  as  that  term is  defined  by  Regulation  S
promulgated  under the  Securities  Act of 1933, as amended.  The following is a
brief  description of the terms of the Series B Preferred  Stock: (i) the number
of shares of Series B Preferred Stock offered was 3,750 shares;  (ii) the Series
B  Preferred  Stock  will rank  senior to the  Common  Stock and to the Series A
Preferred Stock with respect liquidation rights; (iii) dividends on the Series B
Preferred  Stock may be declared and paid if, when and to the extent  determined
from  time to time by the  Company's  Board of  Directors,  provided  that  such
dividends  shall be declared with respect to the Series B Preferred Stock on par
with dividends  declared with respect to the Company's Common Stock. The Company
does not expect to declare or pay such dividends in the foreseeable  future. The
Company closed on the sale of the Series B Preferred Stock on March 31, 1997 and
filed a report on Form 8-K with respect to that  transaction with the Securities
and Exchange Commission on April 10, 1997.

The  primary  purpose  of the  private  offering  of the  Series A and  Series B
Preferred Stock was to provide funds for the completion of the new brewery,  the
payment  of  offering  expenses,  the  payment of the  hiring  and  training  of
administrative  and sales  personnel,  and the  payment of certain  promotional,
marketing and advertising expenses.  The balance of the net proceeds will be for
working  capital  and  general  corporate  purposes.  The Company may also use a
portion  of the net  proceeds  for the  acquisition  of stock,  debt,  assets or
businesses or products from other brewers or independent  third parties that are
complementary to those of the Company,  although no such  acquisitions are being
negotiated as of the date hereof, and no portion of the net proceeds has


                                       13

<PAGE>


been allocated for such expansion or for any specific acquisition.  Pending such
uses, the net proceeds of the offering will be invested in short-term,  interest
or dividend-bearing accounts or securities.

Item 3. Defaults Upon Senior Securities
- - ----------------------------------------------------------------------------
In connection with financing for the new brewery and related  equipment,  all of
the principal lenders of such financing (SBA, the Maryland Economic  Development
Corporation  ("MEDCO"),  and Signet) have placed restrictions upon the Company's
ability to pay dividends,  enter into new debt financing  agreements,  guarantee
debts of another  person or party,  make loans to other  persons or parties,  or
make substantial  investments in non-current  assets other than the new brewery.
In addition, debt covenants exist which stipulate various financial ratios which
must be  maintained by the Company to avoid  technical  default on the equipment
financing.

On February  27, 1997,  the Company  executed two  Forbearance  Agreements  with
Signet.  The first Forbearance  Agreement (the "Blue II Forbearance  Agreement")
related to the $3.0 million MEDCO bond (the "Blue II Facility")  relative to the
construction  of the new  brewery.  The other  Forbearance  Agreement  (the "FBC
Forbearance  Agreement")  related  to the $1.5  million  MEDCO  Bond  (the  "FBC
Facility") and to the $969,000 bridge loan from the Signet ("Bridge Loan"),  the
proceeds of which were to be loaned to the Company to purchase brewing equipment
for the new brewery. The Forbearance  Agreements were executed by the Company as
a result of an approximately  $340,000 difference between the amount of the Blue
II Facility  and the cost to  construct  the new brewery as well as a decline in
the Company's  cash position  which  resulted from  significant  weather-related
delays during construction, and an approximately $250,000 difference between the
FBC  Facility  and the  Bridge  Loan and the  cost to  acquire  certain  brewing
equipment.  These so-called  "funding  deficiencies"  caused Signet to claim the
Bridge Loan was in default and to temporarily cease funding the Blue II Facility
and the Bridge  Loan as of January 22,  1997,  subject to the  execution  of the
Forbearance  Agreements.  The  Forbearance  Agreements  will facilitate the full
funding of the Blue II Facility and the Bridge Loan, as set forth below.  During
the  negotiations  of  the  Forbearance  Agreements,  work  on the  new  brewery
continued unabated.

The Blue II Forbearance  Agreement  recites that Blue II has defaulted under the
Blue II Facility due to its failure to cure a funding deficiency  thereunder and
that an Event of Default has  occurred  under the Bridge Loan.  However,  Signet
agreed,  pursuant  to the  Blue II  Forbearance  Agreement,  to  forbear  in the
exercise of its rights and remedies  under the Blue II Facility  loan  documents
and to continue to make loan advances to Blue II to facilitate the completion of
the new brewery,  provided:  (i) no other event of default occurs under the Blue
II  Facility  loan  documents,  and (ii) Blue II and the Company  perform  their
obligations  under the Blue II  Forbearance  Agreement.  Signet's  agreement  to
forbear from  exercising its rights and remedies under the Blue II Facility loan
documents and to make advances  thereunder were  conditioned  upon,  among other
things:  (i) Blue II  providing  to the Bank the amount by which the proceeds of
the Blue II Facility  will be  insufficient  to satisfy  the unpaid  Acquisition
Costs (as  defined in the Blue II  Facility)  of the new brewery  through  final
completion  of the new brewery  (the "Final Net Funding  Deficiency");  (ii) the
sale by the Company of its Series A Preferred Stock to the general contractor of
the new brewery in an amount  equal to the Final Net Funding  Deficiency;  (iii)
the  revision  of the  Projected  Completion  Date  (as  defined  in the Blue II
Facility) of the new brewery to be March 14,  1997;  (iv) the use of the certain
funds escrowed Signet to pay current  requisitions for funding under the Blue II
Facility;  (v) the  payment  by the  Company  of all of the  Signet's  fees  and
expenses  relating to these Forbearance  Agreements;  and (vi) the waiver by the
Company  of all  causes  of  action  against  Signet,  MEDCO,  and the  Maryland
Industrial Development Finance Authority ("MIDFA").  Signet provided a letter to
the general  contractor  prior to its  purchase of the Series A Preferred  Stock
that it would  complete  the  funding of the Blue II  Facility  upon the general
contractor's  acquisition of such shares.  As of March 31, 1997, Blue II and the
Company had performed their obligations under the Blue II Forbearance  Agreement
and, the events of defaults  recited  therein  were, by operation of the Blue II
Forbearance Agreement, cured and/or waived.

                                       14

<PAGE>

The FBC  Forbearance  Agreement  recites that Signet by letter dated February 3,
1997,  advised the Company that certain  events of default  have  occurred  with
respect to the FBC Facility,  including:  (i) the occurrence of adverse  changes
deemed  material by Signet with respect to the business,  assets,  operations of
financial condition of the Company,  and (ii) the failure of Blue II to cure the
funding deficiency under the Blue II Facility.  However, Signet agreed, pursuant
to the FBC Forbearance  Agreement,  to forbear in the exercise of its rights and
remedies  under the FBC  Facility  loan  documents  and to continue to make loan
advances (up to $250,000  immediately  and the  remaining  loan balance upon the
satisfaction  of the conditions set forth below) to the Company under the Bridge
Loan to facilitate the purchase of the brewing equipment provided:  (i) no other
event of default  occurs under the FBC  Facility  Loan  Documents,  and (ii) the
Company performs its obligations under the FBC Forbearance  Agreement.  Signet's
agreement  to forbear  from  exercising  its rights and  remedies  under the FBC
Facility loan  documents  and to fund the  remaining  balance of the Bridge Loan
were conditioned upon, among other things: (i) the maintenance by the Company of
Eligible  Accounts  Receivable (as defined in the FBC Forbearance  Agreement) of
not less  than  $100,000  until  March 31,  1997 and of not less  than  $200,000
thereafter,  tested  twice  monthly;  (i) the  payment  to the  Bank of a fee of
$25,000 in cash or Company Common Stock; (iii) the execution of an unconditional
personal  guarantee  of the Bridge Loan by the Chief  Executive  Officer and the
President  of the  Company;  (iv) the  payment  over to Signet  of any  proceeds
obtained from the sale of the equipment at the old brewery to be held to further
collateralize  the Bridge Loan;  (v) Signet not having been advised that the SBA
has terminated its commitment to extend a $1.0 million loan to the Company; (vi)
the payment by the Company of all of Signet's fees and expenses  relating to the
Forbearance  Agreements;  and (vii) the  waiver by the  Company of all causes of
action  against  Signet,   MEDCO  and  MIDFA.  The  Company  has  performed  its
obligations  under the FBC  Forbearance  Agreement,  and the  alleged  events of
default recited therein are deemed by Signet to have been cured and/or waived.

Each of these loans contain restrictive  covenants,  including certain financial
ratios  relating to the Company's  liquidity  and financial  position at certain
dates set  forth in the loans and  restrictions  on the  occurrence  of  adverse
changes  deemed  material  by  Signet  with  respect  to the  business,  assets,
operations or financial  condition of the Company.  The Company has not complied
with certain of the  financial  ratios set forth in the  agreements.  During the
first  quarter of 1997,  the Company  obtained a waiver  from Signet  related to
certain  violations of financial  covenants as of December 31, 1996 set forth in
the Company's loan  agreements with the Bank. As March 31, 1997, the Company was
in full compliance with all loan covenants.

                                       15

<PAGE>




Item 4. Submission of Matters to a Vote of Security Holders
- - ----------------------------------------------------------------------------
Not applicable.

Item 5. Other Information
- - ----------------------------------------------------------------------------
See Item 6. Exhibits and Reports on 8-K, attached hereto.

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

                Index to Exhibits
- - ----------------------------------------------------------------------------
           (I.)    Report filed on Form 8-K, March 31, 1997 /1/
           (II.)   Registration Statement filed on Form S-3, April 24, 1997 /2/
           (III.)  Press release, May 12, 1997 /4/

    10             Material Contracts
           (I.)            Corporate Relations Group, Inc. /4/
           (II.)           Arrow Marketing Inc. /4/
           (III.)          Gulf Atlantic Publishing Inc. /4/

    27             Financial Data Schedule

    99             Safe Harbor Under the Private Securities Litigation
                    Reform Act of 19953

1 Incorporated by reference from Form 8-K filed with the SEC on March 31, 1997.

2 Incorporated by reference from Form S-3 filed with the SEC on April 24, 1997.

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

4 To be filed by Amendment

                                       16

<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.


                                      -------------------------------------
                                      Kevin E. Brannon
                            Chairman of the Board and
                             Chief Executive Officer


                                      -------------------------------------
                                      Craig J. O'Connor
                                      Vice President - Finance & Administration

                                      Date:  May ___, 1997




                                       17

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


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





                                       18