<PAGE>
                UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)
[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002.

                                       OR

[X]   TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT.

                        COMMISSION FILE NUMBER: 000-27800

                              FREDERICK BREWING CO.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

             MARYLAND                                     52-1769647
  (State or Other Jurisdiction              (I.R.S. Employer Identification No.)
of Incorporation or Organization)


               4607 WEDGEWOOD BOULEVARD, FREDERICK, MARYLAND 21703
                    (Address of Principal Executive Offices)

                                 (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)

      Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]


      State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:

                                              NUMBER OF SHARES
                                              OUTSTANDING AS OF
     TITLE OF EACH CLASS                      DECEMBER 18, 2002
     -------------------                      -----------------
Common Stock, $0.0004 Par Value                   8,596,211

      Transitional Small Business Disclosure Format: (check one): Yes [X] No [ ]
<PAGE>
                              FREDERICK BREWING CO.

                              INDEX TO FORM 10-QSB
                               SEPTEMBER 30, 2002

<TABLE>
<CAPTION>
                                                                                                PAGE NO.
                                                                                                --------
<S>                                                                                             <C>
PART I.    FINANCIAL INFORMATION..........................................................         3

Item 1.    Financial Statements...........................................................         3

           Balance Sheet (unaudited) September 30, 2002...................................         3

           Statements of Operations (unaudited) for the three and  nine months ended
           September 30, 2002 and 2001....................................................         4

           Statements of Cash Flows (unaudited) for the three and nine months ended
           September 30, 2002 and 2001....................................................         5

           Notes to Financial Statements (unaudited)......................................         6

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of
           Operations.....................................................................         7

PART II.   OTHER INFORMATION..............................................................        17

Item 3.    Default Upon Senior Securities.................................................        17

Item 4.    Exhibits and Reports on Form 8-K...............................................        17

SIGNATURE  ...............................................................................        18
</TABLE>


                                       2
<PAGE>
                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                              FREDERICK BREWING CO.
                                  BALANCE SHEET
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

                                     ASSETS

<TABLE>
<S>                                                                                    <C>
Current assets:
   Cash  .......................................................................       $       8,234
   Restricted cash..............................................................              12,476
   Trade receivables, net of allowance for doubtful accounts of $31,716.........              43,621
   Inventories, net.............................................................             305,444
   Prepaid expenses and other current assets....................................             110,718
                                                                                       -------------
     Total current assets.......................................................             480,493
Property, plant and equipment, net of accumulated depreciation of $3,470,011....           4,256,129
Intangibles, net of accumulated amortization of $602,800........................              23,848
Goodwill, net of accumulated amortization of $260,999...........................             680,462
                                                                                       -------------
     Total assets...............................................................       $   5,440,932
                                                                                       =============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
   Current maturities of long-term debt.........................................       $   7,371,908
   Current portion of capital lease obligation..................................              68,468
   Accounts payable.............................................................             961,685
   Accrued liabilities..........................................................           1,474,074
                                                                                       -------------
     Total current liabilities..................................................           9,876,135
Capital lease obligation, net of current portion................................           2,430,586
                                                                                       -------------
     Total liabilities..........................................................          12,306,721
                                                                                       =============

Stockholders' deficit:
    Preferred Stock - $0.01 par value, 1,000,000 shares authorized;
      cumulative, convertible Series A, 1,455 shares issued and outstanding.....             548,512
    Common Stock - $.0004 par value, 19,000,000 shares authorized; 8,596,211
      shares issued and outstanding.............................................               3,439
    Additional paid-in capital..................................................          23,861,881
    Accumulated deficit.........................................................         (31,279,621)
                                                                                       -------------
     Total stockholders' deficit................................................          (6,865,789)
                                                                                       -------------
     Total liabilities and stockholders' deficit................................       $   5,440,932
                                                                                       =============
</TABLE>

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


                                       3
<PAGE>
                              FREDERICK BREWING CO.
                            STATEMENTS OF OPERATIONS
                          FOR THE THREE AND NINE MONTHS
                        ENDED SEPTEMBER 30, 2002 AND 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                  THREE MONTHS          THREE MONTHS          NINE MONTHS           NINE MONTHS
                                                      ENDED                 ENDED                ENDED                 ENDED
                                               SEPTEMBER 30, 2002    SEPTEMBER 30, 2001    SEPTEMBER 30, 2002    SEPTEMBER 30, 2001
                                               ------------------    ------------------    ------------------    ------------------
<S>                                            <C>                  <C>                   <C>                    <C>
Proprietary Brands Sales....................     $    389,817       $     467,281         $    1,139,243          $   1,674,829
Co-Pack Fees................................          425,651             410,062                980,062                653,780
                                                 ------------       -------------         --------------          -------------
Gross sales.................................          815,468             877,343              2,119,305              2,328,609
Less: returns, allowances, and excise taxes.           44,695              85,044                168,590                252,735
                                                 ------------       -------------         --------------          -------------
Net sales...................................          770,773             792,299              1,950,715              2,075,874
Cost of sales...............................          751,017             824,004              2,690,011              2,335,478
                                                 ------------       -------------         --------------          -------------
Gross profit(loss)..........................           19,756             (31,705)              (739,296)              (259,604)
Selling, general and administrative expense.          180,919             399,244                649,367              1,239,027
                                                 ------------       -------------         --------------          -------------
Operating loss..............................         (161,163)           (430,949)            (1,388,663)            (1,498,631)
Interest expense............................          179,425             182,258                544,725                544,387
                                                 ------------       -------------         --------------          -------------
Net loss ...................................     $   (340,588)      $    (613,207)        $   (1,933,388)         $  (2,043,018)
                                                 ============       =============         ==============          =============

Net loss per common share -
  basic and diluted.........................     $     (0.04)       $       (0.07)        $        (0.22)         $       (0.24)
                                                 ===========        =============         ==============          =============
Weighted average common shares -
  basic and diluted.........................        8,596,211           8,596,211              8,596,211              8,596,211
                                                 ============       =============         ==============          =============
</TABLE>

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


                                       4
<PAGE>
                              FREDERICK BREWING CO.
                            STATEMENTS OF CASH FLOWS
                          FOR THE THREE AND NINE MONTHS
                        ENDED SEPTEMBER 30, 2002 AND 2001
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   THREE MONTHS        THREE MONTHS        NINE MONTHS         NINE MONTHS
                                                       ENDED              ENDED               ENDED               ENDED
                                                SEPTEMBER 30, 2002  SEPTEMBER 30, 2001  SEPTEMBER 30, 2002  SEPTEMBER 30, 2001
                                                ------------------  ------------------  ------------------  ------------------
<S>                                             <C>                 <C>                 <C>                 <C>
Cash flows from operating activities:
   Net loss.................................       $   (340,588)    $    (613,207)      $   (1,933,388)       $  (2,043,018)
Adjustments to reconcile net loss to net
      cash used in operating activities:
        Depreciation........................            114,875           112,210              349,906              336,632
        Amortization........................             15,829            79,342               47,486              238,030
   Change in operating assets and liabilities:

      Trade receivables.....................              6,978            83,511              102,491               35,788
      Inventories...........................             52,429            87,233               60,658              (45,865)
      Prepaid assets........................            (68,325)          (39,892)             (38,211)             (27,248)
      Accounts payable......................              8,545           207,468             (337,411)            (133,603)
      Accrued liabilities...................            (29,557)           90,519              693,213              363,726
                                                   -------------    -------------       --------------        -------------
   Net cash (used in)  provided by operating
      activities............................           (239,814)            7,184           (1,055,256)          (1,275,558)

Cash flows from investing activities:

   Purchase of property and equipment.......             (5,000)          (20,275)             (25,769)             (44,233)
   Purchase of intangibles..................                  0                 0               (6,099)                   0
   Restricted cash..........................                  0                 0                    0               51,071
                                                   ------------     -------------       --------------        -------------
Net cash (used in) provided by investing
      activities............................             (5,000)          (20,275)             (31,868)               6,838

Cash flows from financing activities:

   Proceeds from debt borrowings............            263,776            46,668            1,125,227            1,321,425
   Payments on capital lease................            (15,936)          (14,224)             (46,438)             (50,489)
                                                   ------------     -------------       --------------        -------------
   Net cash provided by financing activities            247,840            32,444            1,078,789            1,270,936
                                                   ------------     -------------       --------------        -------------
Net increase (decrease) in cash.............              3,026            19,353               (8,335)               2,216
Cash, beginning

   of period................................              5,208                 0               16,569               17,137
                                                   ------------     -------------       --------------        -------------
Cash, end of period.........................       $      8,234     $      19,353       $        8,234        $      19,353
                                                   ============     =============       ==============        =============
</TABLE>

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


                                       5
<PAGE>
                              FREDERICK BREWING CO.
                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2002
                                   (UNAUDITED)

1.    BASIS OF PRESENTATION

      The accompanying unaudited financial statements of Frederick Brewing Co.
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial reporting, according to
the instructions for Form 10-QSB and Regulation S-B. As such, they do not
include all information and footnotes required by accounting principles
generally accepted in the United States of America for complete year-end
financial reporting.

2.    MANAGEMENT'S OPINION

      In the opinion of Frederick Brewing's management, Frederick Brewing's
unaudited financial position as of September 30, 2002 and the results of its
operations and cash flows for the interim periods ended September 30, 2002 and
the results of its operations and cash flows for the interim periods ended
September 30, 2001, reflect all adjustments (consisting only of normal and
recurring accruals and other adjustments) necessary to present fairly the
results of the interim periods presented. The operating results for the interim
periods presented are not necessarily indicative of the results expected for
other interim periods within 2002 or for the year ending December 31, 2002.
Information relating to the financial position, results of operations and cash
flows of Frederick Brewing as of and for the year ended December 31, 2001 may be
found in the financial statements included in Frederick Brewing's Annual Report
filed on Form 10-KSB for the year ended December 31, 2001.

3.    INVENTORIES

      Inventories consist of raw ingredients, work in process, packaging
materials, finished goods and marketing supplies, and are valued at the lower of
cost or market. Cost is determined by the first-in, first-out (FIFO) method.
Frederick Brewing periodically reviews the age and marketability of its
inventory, and provides obsolescence reserves as necessary. Net inventories at
September 30, 2002 are as follows:

<TABLE>
<S>                                                    <C>
Raw ingredients...............................         $      27,551
Work in process...............................                58,283
Packaging materials...........................               156,734
Finished goods................................                15,777
Marketing supplies............................                97,402
                                                       -------------
                                                             355,747
Reserve for obsolescence......................               (50,303)
                                                       -------------
Inventory, net................................         $     305,444
                                                       =============
</TABLE>


                                       6
<PAGE>
                              FREDERICK BREWING CO.
                          NOTES TO FINANCIAL STATEMENTS
                         SEPTEMBER 30, 2002--(CONTINUED)
                                   (UNAUDITED)

4.    NEW ACCOUNTING STANDARDS

      On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business Combinations,
and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is effective for all
business combinations completed after June 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142. SFAS 142 requires that goodwill
and other purchased intangible assets no longer be amortized to earnings, but
instead be reviewed for impairment at least annually.

      In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. SFAS 143 establishes requirements for accounting for removal costs
associated with asset retirements. SFAS 143 is effective for fiscal years
beginning after June 15, 2002. The Company is currently assessing the impact of
this standard on its consolidated financial statements.

      In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Live Assets" was issued. SFAS 144 requires that one accounting model be
used for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired, and broadens the definition of what constitutes
discontinued operations to include more disposal transactions. The adoption of
SFAS 144 did not have a material effect on the Company's consolidated financial
position or results of operations.

      In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" was
issued. SFAS 145, which is effective for financial statements issued on or
after May 15, 2002, rescinds the automatic treatment of gains and losses from
extinguishments of debt as extraordinary unless they meet the criteria for
extraordinary items as outlined in Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations, Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS 145 also requires sale-leaseback accounting for
certain lease modifications that have economic effects similar to a
sale-leaseback transaction and makes various corrections to existing
pronouncements. The adoption of SFAS 145 did not have a material effect on the
Company's consolidated financial position or results of operations.

      In July 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. SFAS 146 is effective for exit or disposal
activities initiated after December 31, 2002. The Company has not yet adopted
SFAS 146 nor determined the effect of the adoption of SFAS 146 on its
consolidated financial position or results of operations.


5.    NET LOSS PER COMMON SHARE

      Frederick Brewing calculates basic and diluted earnings or loss per share
in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," which requires the presentation of basic earnings or loss
per share and diluted earnings or loss per share for all periods presented.
Basic per share loss is based on weighted average number of outstanding common
shares for the period. Diluted per share loss adjusts the weighted average for
the potential dilution that could occur if stock options, warrants, or other
convertible securities were exercised or converted into common stock. Diluted
loss per share equals basic loss per share for 2002 and 2001 because the effects
of such items were anti-dilutive.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The following is a discussion of the financial condition, changes in
financial condition and results of operations of Frederick Brewing for the three
and nine month periods ended September 30, 2002 and 2001. This discussion should
be read in conjunction with the Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Financial Statements and
Notes thereto included in Frederick Brewing's Form 10-KSB for the fiscal year
ended December 31, 2001.

OVERVIEW

      For the nine month period ended September 30, 2002, Frederick Brewing's
operating losses decreased by $109,968 to $1,388,663 compared to $1,498,631 for
the comparable period in 2001. Management attributes the decrease in operating
losses to a decrease in operating costs, improved production efficiency and an
increase in capacity utilization at its Frederick, Maryland brewery. Management
believes that its operating losses will continue to decrease in 2002 due in
large part to expected further increases in the capacity utilization rate at
Frederick Brewing's brewery. Under the production agreement with Snyder
International Brewing Group, LLC ("SIBG"), Frederick Brewing currently brews
Crooked River, Christian Moerlein, and Little Kings brands. In May 2002,
Frederick Brewing began production of the Stoudt Brewery brands under the
production agreement dated March 25, 2002. For the nine month period ended
September 30, 2002, Frederick Brewing had sold 16,324 barrels of SIBG brands and
other co-packed brands as compared to 8,741 barrels for the same period in 2001.
By brewing the Crooked River and Christian Moerlein brands and by adding the
Little Kings and Stoudt brands, management expects that Frederick Brewing's
annual production will grow to over 40,000 barrels and its current capacity
utilization will significantly increase. Since September 30, 2002, Frederick
Brewing has begun production under four new contract brewing agreements
including Penn Brewery, Pittsburgh, Pennsylvania and Williamsburg Brewing Co.,
Williamsburg, Virginia, which will further increase capacity utilization at its
brewery. The demand for product has outweighed the company's ability to produce
product given significant working capital constraints. Management continues to
seek means by which to decrease operating costs and to increase capacity
utilization at the Frederick, Maryland facility,


                                       7
<PAGE>
including opportunities to enter into additional production agreements with
other brewers. No assurance can be given, however, that management's efforts
will result in decreased operating losses or increased plant utilization.

      While Frederick Brewing's total barrels sold in the nine months of 2002
increased by 5,104 barrels to 23,290 barrels from 18,186 barrels sold in the
first nine months of 2001, this increase was due to the increases in barrels
sold by Frederick Brewing under the production agreements with SIBG and Stoudt
Brewery. Sales of Frederick Brewing's proprietary brands (Blue Ridge, Wild
Goose, Brimstone and Hempen) decreased by 2,479 barrels from 9,445 barrels for
the nine months of 2001 to 6,966 barrels for the nine months of 2002. A small
percentage of this decrease can be attributed to the phasing out of the Hempen
brands.

      In February 2002, in an effort to reduce its distribution costs, Frederick
Brewing renegotiated its distributor agreements to eliminate the depletion
allowance program. The change in the depletion allowance program initially
resulted in smaller orders from distributors and lower consumer sales in some
retail channels that were not well suited to carry Frederick Brewing's higher
priced brands. Additionally, a few of Frederick Brewing's brands were identified
as under-performing. By identifying these under-performing brands, management
believes that it will be able to streamline the brand portfolio and concentrate
sales and marketing efforts on the brands that are more likely to succeed.
Currently, Wild Goose is Frederick Brewing's best-selling brand. Frederick
Brewing's management believes that Wild Goose has the greatest future sales
potential of Frederick Brewing's proprietary brands; accordingly, management
plans to concentrate its sales and marketing efforts on the Wild Goose brands
during the fourth quarter of 2002 and fiscal 2003.

      Due to, among other things, market forces, management's ability to predict
future sales is limited. Frederick Brewing's products compete in the domestic
specialty beer category of the U.S. brewing industry. This market is highly
competitive due to the large number of domestic specialty brewers and market
share gains achieved by import brewers. Sales in this market generally reflect a
degree of seasonality with the second and third quarters reflecting stronger
sales than the rest of the year. In addition, demand for Frederick Brewing's
products is subject to changes in consumers' tastes.

      Until Frederick Brewing can achieve operating profitability and positive
cash flow, it will need to continue to borrow additional amounts from SIBG or
other financing sources. Frederick Brewing has no availability remaining under
the SIBG note. To meet Frederick Brewing's short-term working capital needs,
SIBG may increase the amounts available to Frederick Brewing under the SIBG
note. To fund this increased availability, SIBG may conduct a private equity
offering to raise additional funds or may borrow additional amounts from C.
David Snyder, Frederick Brewing's Chairman and Chief Executive Officer, on a
case-by-case basis. No assurances can be given, however, that SIBG will be able
to raise or borrow additional funds and that SIBG will subsequently lend such
amounts to Frederick Brewing. To meet its long-term needs, Frederick Brewing
continues to explore obtaining financing from other sources, including possibly
a line of credit that is secured by Frederick Brewing's equipment. No
assurances, however, can be given that any such financing arrangements can be
obtained and, if obtained, upon what terms such financing would be provided to
Frederick Brewing.


                                       8
<PAGE>
RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THREE MONTHS ENDED SEPTEMBER 30, 2001.

GROSS SALES

      Gross sales for the three months ended September 30, 2002and 2001 were
$815,468 and $877,343, respectively, a decrease of $61,875 or 7.1%. Gross sales
of Frederick Brewing's proprietary brands (Blue Ridge, Wild Goose, Brimstone and
Hempen) for the three months ended September 30, 2002 and 2001 were $389,817 and
$467,281, respectively, a decrease of $77,464 or 16.6%. The decrease in gross
sales of proprietary brands was related to:

      -     a continuing decrease in the sales of the Blue Ridge brands;

      -     reduced orders from distributors due to changes made in 2002 to
            Frederick Brewing's depletion allowance program with its
            distributors: and

      -     a reduction in Hempen sales due to management's decision to no
            longer produce these brands.

      Gross sales attributable to co-pack fees charged under the production
agreements with SIBG and Stoudt for the three months ended September 30, 2002
and 2001 were $425,651 and $410,062, respectively, an increase of $15,589.

      Total shipped barrels increased to 8,758 barrels for the three months
ended September 30, 2002 from 7,458 barrels for the comparable period in 2001,
an increase of 1,300 barrels or 17.4%. Shipped barrels increased for the period
ended September 30, 2002 as a result of an increase in SIBG and Stoudt brands
produced under their respective production agreement.

SELLING PRICE PER BARREL

      The average selling price per barrel decreased by $24.53, or 20.9 %, to
$93.11 per barrel for the three months period ended September 30, 2002 from
$117.64 for the comparable period in 2001. The decrease in the selling price per
barrel was primarily due to the increase in barrels shipped under Frederick
Brewing's production agreements with SIBG and Stoudt for the three months ending
September 30, 2002. In the beer industry, the selling price per barrel for
barrels produced under production agreements is typically much lower than the
selling price per barrel for brewers' proprietary brands. Frederick Brewing
continues to position its proprietary brands (Wild Goose, Blue Ridge and
Brimstone) in the consumer market as high-quality specialty-crafted products.
The average selling price for Frederick Brewing's proprietary brands decreased
by $16.17 per barrel to $159.50 for the three months ended September 30, 2002
from $175.67 for the comparable period in 2001.

      The decrease in the average selling price for Frederick Brewing's
proprietary brands is due to the elimination of the depletion allowance program.
The elimination of the depletion allowance program reduced the selling price to
distributors in order to hit the proper price points on the retail shelf.

RETURNS AND ALLOWANCES

      Product returns and allowances were $12,927 for the three months ended
September 30, 2002 compared to $59,567 for the comparable period in 2001. The
reduction in returns and allowances for the period ended September 30, 2001 can
be attributed to the decrease in gross sales and the elimination of the
depletion allowance program in March of 2002.


                                       9
<PAGE>
EXCISE TAXES

      State and federal excise taxes were $31,768 for the three months ended
September 30, 2002 and $25,477 for the comparable period in 2001. State excise
tax rates and methods of computing taxes vary, depending on where the beer is
sold. In some states, such as Maryland and Pennsylvania, the brewer is required
to pay the tax; in others, such as Virginia, and also in the District of
Columbia, the tax is paid by the purchasing distributor. Frederick Brewing
currently pays $7 per barrel federal excise tax on all beer sold within the
United States. Excise taxes are charged only upon the sale of Frederick
Brewing's proprietary brands and the external co-pack brands. The increase in
excise taxes paid results from the mix of sales by state as well as the addition
of excise taxes paid for the Stoudt barrels produced.

COST OF SALES

      For the three months ended September 30, 2002 and 2001, the cost of sales
was $751,017, or $85.75 per barrel, and $824,004, or $110.49 per barrel,
respectively. Cost of sales was determined using the number of barrels of
proprietary brands and co-packed brands shipped by Frederick Brewing for the
three-month period ended September 30, 2002 and 2001. The cost of sales for the
period ended September 30, 2002 decreased to 97.4% of net sales from 104.0% for
the comparable period in 2001. Variable costs were $502,008 or $57.32 per
barrel, for the three months ended September 30, 2002 compared to $616,966, or
$82.73 per barrel, for the comparable period in 2001. Fixed overhead costs for
the period ended September 30, 2002 increased by $41,971 to $249,009 from
$207,038 for the comparable period in 2001.

      Variable costs include raw materials, packaging materials, liquid costs
and variable labor costs directly related to the production and packaging of
beer. Variable and fixed overhead costs include costs related to the following
operational departments: brewing, cellaring, packaging, quality assurance,
warehousing, maintenance and production management. Fixed costs include
depreciation expense, salary costs..

      The decrease in cost of sales per barrel for the three months ended
September 30, 2002 was primarily caused by Frederick Brewing's cost of goods
sold being absorbed over increased barrel shipments, 8,758 barrels for the three
months ended September 30, 2002 compared to 7,458 barrels for the comparable
period in 2001. For the three months ended September 30, 2002, Frederick
Brewing's brewing facility operated at a level of 53.9% of existing plant
capacity compared to 45.9% for the comparable period in 2001. Frederick
Brewing's capacity utilization has a significant impact on gross profit. The
existing plant capacity is 65,000 barrels of annual production based on the
existing infrastructure and equipment. The brewing facility is designed to
accommodate a maximum of 100,000 barrels of annual production. When facilities
are operating at their maximum designed production capacities, profitability is
favorably affected by spreading fixed operating costs over a larger sales base.
Because the actual production level is substantially below the facility's
maximum designed production capacity, gross margins are negatively impacted.
This impact is reduced when actual utilization levels increase.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES

      Selling, general and administrative expenses for the three months ended
September 30, 2002 decreased $218,325, or approximately 54.7%, to $180,919 from
$399,244 for the comparable period in 2001. This decrease was due, in part, to
reductions in selling and marketing expenses, accounting and legal costs and a
reduction in management fees due to SIBG. Effective May 1, 2002, SIBG reduced
the sales and marketing fee owed by Frederick Brewing under the sales and
marketing agreement from $29,908 to $10,000. The sales and marketing fee was
reduced to reflect a decrease in certain sales and marketing services provided
by SIBG.

INTEREST EXPENSE

      Interest expense decreased $2,833, or approximately 1.6%, to $179,425 for
the three months ended September 30, 2002 compared to $182,258 for the
comparable period in 2001. A substantial portion of the interest expense
incurred during the period ended September 30, 2002 related to indebtedness
incurred by Frederick Brewing in connection with the lease of its brewing
facility, which is accounted for as a capital lease, and interest due to SIBG
for working capital advances under the


                                       10
<PAGE>
SIBG note. Even though the principal balance of the note has increased, interest
expense decreased as a result of the variable interest rate charged on the note.

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2002 TO NINE MONTHS ENDED SEPTEMBER 30, 2001.

GROSS SALES

      Gross sales for the nine months ended September 30, 2002 and 2001 were
$2,119,305 and $2,328,609 respectively, a decrease of $209,304 or 9.0%. Gross
sales of Frederick Brewing's proprietary brands (Blue Ridge, Wild Goose,
Brimstone and Hempen) for the nine months ended September 30, 2002 and 2001 were
$1,139,243 and $1,674,829, respectively, a decrease of $535,586 or 32.0%. The
decrease in gross sales was related to:

      -     a reduction in Hempen sales due to management's decision to phase
            out these brands;

      -     a continuing decrease in the sales of the Blue Ridge brands;

      -     reduced orders from distributors due to changes made in 2002 to
            Frederick Brewing's depletion allowance program with its
            distributors.

      Gross sales attributable to co-pack fees charged under the production
agreement with SIBG and Stoudt Brewery for the nine months ended September 30,
2002 and 2001 were $980,062 and $653,780, respectively, an increase of $326,282.

      Total shipped barrels increased to 23,290 barrels for the nine months
ended September 30, 2002 from 18,186 barrels for the comparable period in 2001,
an increase of 5,104 barrels or 28.1%. Shipped barrels increased for the period
ended September 30, 2002 as a result of an increase in SIBG and Stoudt brands
produced under their respective production agreements.

SELLING PRICE PER BARREL

      The average selling price per barrel decreased by $37.04, or 28.9%, to
$91.00 per barrel for the nine months ended September 30, 2002 from $128.04 for
the comparable period in 2001. The decrease in the selling price per barrel was
primarily due to a significant increase in barrels shipped under Frederick
Brewing's production agreements with SIBG and Stoudt for the period ending
September 30, 2002. In the beer industry, the selling price per barrel for
barrels produced under production agreements is typically much lower than the
selling of proprietary brands. Frederick Brewing continues to position its
proprietary brands (Wild Goose, Blue Ridge and Brimstone) in the consumer market
as high-quality specialty-crafted products. The average selling price for
Frederick Brewing's proprietary brands decreased by $13.78 per barrel to $163.54
for the nine months ended September 30, 2002 from $177.32 for the comparable
period in 2001.

      The decrease in the average selling price for Frederick Brewing's
proprietary brands is due to the elimination of the depletion program. The
elimination of the depletion allowance program reduced the selling price to
distributors in order to obtain the appropriate price points on the retail
shelf.

RETURNS AND ALLOWANCES

      Product returns and allowances were $92,260 for the nine months ended
September 30, 2002 compared to $161,170 for the comparable period in 2001. The
reduction in returns and allowances for the period ended September 30, 2002 can
be attributed to the decrease in gross sales and the elimination of the
depletion allowance program in March of 2002.

EXCISE TAXES


                                       11
<PAGE>
      State and federal excise taxes were $76,330 for the nine months ended
September 30, 2002 and $91,565 for the comparable period in 2001. State excise
tax rates and methods of computing taxes vary, depending on where the beer is
sold. In some states, such as Maryland and Pennsylvania, the brewer is required
to pay the tax; in others, such as Virginia, and also in the District of
Columbia, the tax is paid by the purchasing distributor. Frederick Brewing
currently pays $7 per barrel federal excise tax on all beer sold within the
United States. Excise taxes are charged only upon the sale of Frederick
Brewing's proprietary brands. The decrease in excise taxes paid results from the
mix of sales by state and lower volumes of proprietary brands shipped for the
period.

COST OF SALES

      For the nine months ended September 30, 2002 and 2001, the cost of sales
was $2,690,011, or $115.50 per barrel, and $2,335,478, or $128.42 per barrel,
respectively. Cost of sales was determined using the number of barrels of
proprietary brands and co-packed brands shipped by Frederick Brewing for the
nine-month periods ended September 30, 2002 and 2001. The cost of sales for the
period ended September 30, 2002 increased to 137.9% of net sales from 112.5% for
the comparable period in 2001. Variable costs were $1,219,910 or $52.38 per
barrel, for the nine months ended September 30, 2002 compared to $1,628,802, or
$89.56 per barrel, for the comparable period in 2001. Fixed overhead costs for
the nine months ended September 30, 2002 increased by $763,425 to $1,470,101
from $706,676 for the comparable period in 2001. The increase in fixed overhead
costs is attributed to the one-time charge related to operating utilities
assessed to the company.

      Variable costs include raw materials, packaging materials, liquid costs
and variable labor costs directly related to the production and packaging of
beer. Variable and fixed overhead costs include costs related to the following
operational departments: brewing, cellaring, packaging, quality assurance,
warehousing, maintenance and production management. Fixed costs include
depreciation expense, salary costs.

      The net decrease in cost of sales per barrel for the nine months ended
September 30, 2002 was primarily caused by Frederick Brewing's cost of goods
sold being absorbed over an increased barrel shipment, 23,290 barrels for the
period ended September 30, 2002 compared to 18,186 barrels for the comparable
period in 2001. The decrease in cost of sales per barrel for the nine month
period ended September 30, 2002 was partially offset by the one-time operating
utility charge. For the nine months ended September 30, 2001, Frederick
Brewing's brewing facility operated at a level of 47.8% of existing plant
capacity compared to 37.3% for the comparable period in 2001. Frederick
Brewing's capacity utilization has a significant impact on gross profit. The
existing plant capacity is 65,000 barrels of annual production based on the
existing infrastructure and equipment. The brewing facility is designed to
accommodate a maximum of 100,000 barrels of annual production. When facilities
are operating at their maximum designed production capacities, profitability is
favorably affected by spreading fixed operating costs over a larger sales base.
Because the actual production level is substantially below the facility's
maximum designed production capacity, gross margins are negatively impacted.
This impact is reduced when actual utilization levels increase.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND MANAGEMENT FEES

      Selling, general and administrative expenses for the nine months ended
September 30, 2002 decreased $589,660 or approximately 47.6%, to $649,367 from
$1,239,027 for the comparable period in 2001. This decrease was due, in part, to
reductions in sales, administrative and executive personnel, accounting and
legal costs and a reduction in management fees due to SIBG. Effective May 1,
2002, SIBG reduced the monthly sales and marketing fee owed by Frederick Brewing
under the sales and marketing agreement from $29,908 to $10,000. Effective April
1 2001, SIBG reduced the monthly management fee owed by Frederick Brewing under
the management agreement from $30,000 to $15,000 per month. The sales, marketing
and management fees were reduced to reflect a decrease in applicable services
provided by SIBG.

INTEREST EXPENSE


                                       12
<PAGE>
      Interest expense increased $338, or approximately 0.1%, to $544,725 for
the nine months ended September 30, 2002 compared to $544,387 for the comparable
period in 2001. A substantial portion of the interest expense incurred during
the period ended September 30, 2002 related to indebtedness incurred by
Frederick Brewing in connection with the lease of its brewing facility, which is
accounted for as a capital lease, and interest due SIBG for working capital
advances under the SIBG note. Even though the principal balance of the note has
increased, interest expense remained constant as a result of the variable
interest rate charged on the note.

LIQUIDITY AND CAPITAL RESOURCES

      Frederick Brewing has recorded losses from operations since 1993 and has
funded its operations primarily from private and public placements of common and
preferred stock and, since August 24, 1999, from unsecured working capital
advances from SIBG. As of September 30, 2002, Frederick Brewing had a working
capital deficit of $9,395,642. Net cash used in operating activities was
$239,814 for the three month period ended September 30, 2002 as compared to net
cash provided of $7,184 for the comparable period in 2001. Net cash used in
operating activities was $1,055,256 for the nine month period ended September
30, 2002 as compared to $1,275,558 for the comparable period in 2001.

      Net cash used in investing activities was $5,000 for the three month
period ended September 30, 2002, which represented equipment purchases as
compared to net cash used in investing activities of $20,275 for the comparable
period in 2001. Net cash used in investing activities was $31,868 for the nine
month period ended September 30, 2002, which resulted from equipment and
intangible asset purchases as compared to net cash provided by investing
activities of $6,838 for the comparable period in 2001.

      Net cash provided by financing activities was $247,840 for the three month
period ended September 30, 2002 representing the utilization of working capital
loans from SIBG of $263,776, offset by payments on the capital lease obligation
of $15,936. Net cash provided by financing activities was $32,444 for the
comparable period in 2001. Net cash provided by financing activities was
$1,078,789 for the nine month period ended September 30, 2002 representing the
utilization of working capital loans from SIBG of $1,125,227, offset by payments
on the capital lease obligation of $46,438. Net cash provided by financing
activities was $1,270,936 for the comparable period in 2001.

      Frederick Brewing's ability to meet its obligations on a long-term basis
is dependent on achieving operating profitability and on generating positive
cash flows. To achieve these results, Frederick Brewing continues to work to
eliminate or substantially reduce excess brewing capacity. In order to meet its
short-term obligations, Frederick Brewing will need to continue to borrow
additional amounts from SIBG or from other financing sources. Frederick Brewing
currently receives funding for its working capital and other corporate needs
under the SIBG note, which is payable on demand and provides that Frederick
Brewing may borrow on a revolving basis up to $5,000,000 in principal, subject
to certain limitations. As of November 30, 2002, Frederick Brewing owed
$7,445,018 to SIBG. This amount includes principal and interest on the SIBG note
and amounts under the management, sales and marketing agreements due to SIBG. .
To meet Frederick Brewing's short-term working capital needs, SIBG may increase
the amounts available to Frederick Brewing under the SIBG note. SIBG currently
receives funding for Frederick Brewing's borrowings under the SIBG note from a
$5,000,000 line of credit obtained by SIBG from a financial institution (the
"SIBG Line of Credit") on substantially similar terms and from loans aggregating
$1,500,000 in principal amount from C. David Snyder (the "Snyder Notes"), which
are payable on demand and allow SIBG to borrow on a revolving basis, subject to
certain limitations. As of November 30, 2002, there was no availability under
the SIBG Line of Credit and no availability under the Snyder Notes. To fund the
increased availability to Frederick Brewing under the SIBG note, SIBG may
conduct a private equity offering to raise additional funds or may borrow
additional amounts from Mr. Snyder on a case-by-case basis; however, any
increased availability under the SIBG note will be limited to the amount of any
new funds raised by SIBG or borrowed from Mr. Snyder. Moreover, SIBG, which
merged with Crooked River Brewing Company, LLC and Royal Brewing, LLC in 2001
may also utilize some of the funds raised or borrowed by SIBG to fund SIBG's
operations. As a result, some or all of the funds may, in fact, not be available
to Frederick Brewing. Furthermore, even though SIBG is owned and controlled by
Mr. Snyder, Frederick Brewing's Chairman and Chief Executive Officer, SIBG may
nonetheless have to demand repayment from Frederick Brewing of amounts
outstanding under the SIBG note if the financial institution providing funding
to SIBG demands repayment under the SIBG


                                       13
<PAGE>
Line of Credit or if Mr. Snyder demands repayment of the Snyder Notes. To meet
its long-term needs, Frederick Brewing continues to explore obtaining financing
arrangements from other sources, including possibly a line of credit secured by
Frederick Brewing's equipment, although no assurances can be given that any such
financing arrangements can be obtained and, if obtained, upon what terms such
financing would be provided to Frederick Brewing.

IMPACT OF INFLATION

      Frederick Brewing has not attempted to calculate the impact of inflation
on operations, but does not believe that inflation has had a material impact in
recent years. Management does believe any future cost increases in raw
ingredients, packaging materials, direct labor costs, overhead payroll costs,
and general operating expenses due to inflation could have a significant impact
on Frederick Brewing's result of operations to the extent that these additional
costs cannot be transferred to distributors.

PROVISION FOR INCOME TAXES

      Frederick Brewing has incurred significant net operating losses during the
last several calendar years and additional losses were incurred for the nine
month period ended September 30, 2002. As a result, no provision for income
taxes has been provided for on the Statements of Operations for the interim
periods ended September 30, 2002 and 2001. As of September 30, 2002, Frederick
Brewing has recorded a full valuation allowance against its deferred tax assets.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

      From time to time, information provided by Frederick Brewing, statements
by its employees or information included in its filings with the U.S. Securities
and Exchange Commission (including those portions of this Management's
Discussion and Analysis that refer to the future) may contain forward-looking
statements that are not historical facts. Those statements are "forward-
looking" within the meaning of the Private Securities Litigation Reform Act of
1995. When used in this Form 10-QSB, the words "believes," "anticipates,"
"expects," "intends" and other predictive, interpretive and similar expressions
are intended to identify such forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results of Frederick Brewing to be materially different
from expectations expressed or implied by such forward-looking statements. Such
factors include, but are not limited to:

      -     Going Concern. The financial statements included in this report have
            been prepared assuming Frederick Brewing will continue as a going
            concern. Frederick Brewing has sustained significant recurring
            operating losses and has significant cash commitments to creditors.
            These facts raise substantial doubt about Frederick Brewing's
            ability to continue as a going concern.

      -     Current Operating Facilities. Currently, Frederick Brewing leases
            its operating facilities from Blue II, LLC, a Maryland limited
            liability company, and the lease is accounted for as a capital lease
            in accordance with Financial Accounting Standard No. 13 "Accounting
            for Leases". Blue II, LLC is 100% owned by SIBG. As a result of
            various defaults under the loan secured by the land and building,
            Blue II, LLC has been notified by its lender of its intention to
            demand repayment of the note payable on March 31, 2003. Blue II is
            currently exploring obtaining alternative financing, although no
            assurance can be given that any such financing arrangements can be
            obtained and, if obtained, upon what terms such financing would be
            provided to Blue II, LLC.

            Reliance on SIBG and C. David Snyder. Frederick Brewing's success
            continues to significantly depend upon the financial support and
            contributions of Frederick Brewing's controlling shareholder, SIBG,
            and Frederick Brewing's Chairman and Chief Executive Officer, C.
            David Snyder:


                                       14
<PAGE>
            -     Under the management agreement and the sales and marketing
                  agreement with SIBG, SIBG provides extensive management and
                  sales and marketing services to Frederick Brewing. The
                  management agreement automatically renewed for another
                  one-year term on August 24, 2002 and the sales and marketing
                  agreement renewed for another one-year term on January 1,
                  2002; however, if SIBG terminates these agreements, there can
                  be no assurance that Frederick Brewing will be able to attract
                  and hire qualified management and sales and marketing
                  personnel to develop its business and to sell its products;

            -     Through November 30, 2002, Frederick Brewing obtained funding
                  for operations from borrowings under the SIBG note, which has
                  no remaining availability. There can be no assurance that SIBG
                  will be able to increase the amounts available to Frederick
                  Brewing under the SIBG note or that Frederick Brewing will be
                  able to borrow funds from other financing sources to meet its
                  long-term working capital needs. In addition, there can be no
                  assurance that SIBG will not have to demand repayment of the
                  amounts already borrowed under the SIBG note if the financial
                  institution that provides the funding for these loans to SIBG
                  demands repayment from SIBG, or if Mr. Snyder demands
                  repayment of the Snyder Notes from SIBG. If SIBG demands
                  repayment of the SIBG note, there can be no assurance that
                  Frederick Brewing will be able to obtain alternative
                  financing, or if such alternative financing is obtained, there
                  can be no assurance as to the terms of the financing; and

            -     SIBG's ownership of other brands has resulted in the four-year
                  agreement for Frederick Brewing to produce and package the
                  Crooked River, Little Kings and Christian Moerlein brands and
                  may lead to other production agreements to produce and package
                  other SIBG-owned brands. If SIBG terminates the current
                  production agreement with Frederick Brewing and/or determines
                  not to enter into additional production agreements, there can
                  be no assurance that Frederick Brewing will be able to obtain
                  other production contracts, which are needed to increase plant
                  utilization.

      -     Potential Out-Of-Code Production Loss. Frederick Brewing accrued
            $350,000 during 1999 for a potential loss related to allegedly
            out-of-code product that was exported to, and is currently
            warehoused in, a non-US. market. Frederick Brewing's management is
            currently reviewing the situation and is in discussion with the
            relevant authorities in the non-US. markets. However, because all
            arrangements regarding this product were made by former management
            and, at this point, much information regarding this situation is
            still unknown, the potential amount of this loss is difficult to
            predict.

      -     Heavy Dependence on Wholesale Distributors. Frederick Brewing
            distributes its products only through independent wholesale
            distributors for resale to retailers. Accordingly, Frederick Brewing
            is dependent upon these wholesale distributors to sell Frederick
            Brewing's beers, to assist Frederick Brewing in creating demand for
            its products and to provide adequate service to its retail
            customers. In addition, there can be no assurance that any of
            Frederick Brewing's wholesale distributors will devote the resources
            necessary to provide effective sales and promotional support to
            Frederick Brewing.

      -     Competition. Frederick Brewing competes in the specialty beer
            segment of the domestic beer market against a variety of domestic
            and international brewers, many of whom have substantially greater
            financial, production, distribution and marketing resources and have
            achieved a higher level of brand recognition than Frederick Brewing.
            Increased competition could result in price reductions, reduced
            profit margins and loss of market share, all of which would have a
            material adverse effect on Frederick Brewing's financial condition
            and results of operations.

      -     Decrease in Industry Growth. Beginning in 1997, the overall sales
            growth of domestic specialty brewers slowed substantially. Even
            though certain industry sources indicate that, since 1999, this
            trend has been reversing, there can be no assurance that the
            decrease in sales growth of domestic specialty brewers that
            previously occurred will not reoccur, which would have a material
            adverse effect on Frederick Brewing's


                                       15
<PAGE>
            financial condition and results of operations. Moreover, even if the
            domestic specialty beer category experiences growth in 2002 and
            beyond, no assurance can be given that Frederick Brewing will be in
            a position to take advantage of such growth.

      -     Excess Brewing Capacity. Frederick Brewing must substantially reduce
            its excess brewing capacity in order to improve its financial
            performance. Although Frederick Brewing has taken actions to address
            this issue, such as entering into the production agreements with
            SIBG, Stoudt, and four additional breweries since September 30,
            2002, management continues to explore additional actions that can be
            taken to address this issue, no assurance can be given that such
            actions will be successful or, if successful, that any increase in
            utilization will increase the profitability of Frederick Brewing.

      -     Marketing Strategies. Frederick Brewing believes that its new
            off-premise strategy to pursue display activity in chain
            supermarkets and large, regional beverage stores will increase
            sales. However, no assurances can be given that this marketing
            strategy will increase sales if retailers do not utilize the display
            programs and do not agree to carry more of Frederick Brewing's
            products in support of these programs. Moreover, even if retailers
            support these programs, no assurances can be given that consumers
            will purchase more of Frederick Brewing's products as a result.

      These statements are based on certain assumptions and analyses made by
Frederick Brewing in light of its experience and its perception of historical
trends, current conditions, expected future developments and other factors it
believes are appropriate in the circumstances. These statements are subject to a
number of other assumptions, risks, uncertainties, general economic and business
conditions, and the business opportunities (or lack thereof) that may be
presented to and pursued by Frederick Brewing. Prospective investors are
cautioned that these statements are not guarantees of future performance and
that actual results or developments may differ materially from those projected
in the forward-looking statements. The accompanying information contained in
this Quarterly Report on Form 10-QSB, including, without limitation, the
information set forth in this section identifies important factors that could
cause such differences.


                                       16
<PAGE>
                           PART II. OTHER INFORMATION

ITEM 3. DEFAULT UPON SENIOR SECURITIES

      The holders of Frederick Brewing's 8% Cumulative Convertible Preferred
Stock, Series A, par value $.01 per share, are entitled to receive $40 per share
annum in dividends, when and if declared by Frederick Brewing's Board of
Directors. These dividends are due and payable quarterly in arrears at a rate of
$10 per share. Frederick Brewing has never declared and paid dividends on the
Series A stock, and as of September 30, 2002, dividends in arrears totaled
$334,650.

ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K

      a.    Exhibits

            Except as otherwise indicated, the following Exhibits are filed
            herewith and made a part hereof:

      EXHIBIT NO.                            DESCRIPTION
      -----------                            -----------

      99.3        Certification pursuant to 18 U.S.C. Section 1350.
                  As adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                  of 2002 - Chief Executive Officer, Chief Financial Officer

      99.4        Certification pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002 (18 U.S.C. Section 1350)

      b.    Reports on Form 8-K

            None.


                                       17
<PAGE>
                              FREDERICK BREWING CO.

                                   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: December 23, 2002                 By: /s/       C. DAVID SNYDER
                                           -------------------------------------
                                                      C. David Snyder
                                                   Chairman of the Board,
                                           Chief Executive Officer and Treasurer
                                                  Chief Financial Officer



                                       18


<PAGE>
                              FREDERICK BREWING CO.

                                  EXHIBIT INDEX

     EXHIBIT              DESCRIPTION
     -------              -----------
      99.3                Certification pursuant to 18 U.S.C. Section 1350. As
                          adopted pursuant to Section 906 of the Sarbanes-Oxley
                          Act of 2002 - Chief Executive Officer, Chief Financial
                          Officer

      99.4                Certification pursuant to Section 302 of the Sarbanes-
                          Oxley Act of 2002 (18 U.S.C. Section 1350)


                                       19