<PAGE>

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  Form 10-QSB

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934, For the quarterly period ended March 31, 2000.
                                       or
[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT.

                       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                    (I.R.S. Employer
     Incorporation or Organization)                   Identification No.)


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:

  Common Stock, $0.0004 par value       8,596,211
  (Title of Each Class)                 (Number of shares outstanding as
                                        of May 9, 2000)
Transitional Small Business Disclosure Format: (check one):
Yes [_]                         No [X]
<PAGE>

                             FREDERICK BREWING CO.
                             INDEX TO FORM 10-QSB
                                March 31, 2000

                                                                       PAGE NO.
PART I.   FINANCIAL INFORMATION                                        --------

Item 1.   Financial Statements

          Consolidated Balance Sheet (unaudited) - March 31, 2000             3

          Consolidated Statements of Operations (unaudited) -
           for the three months ended March 31, 2000 and 1999                 4

          Consolidated Statements of Cash Flows (unaudited) -
           for the three months ended March 31, 2000 and 1999                 5

          Notes to Consolidated Financial Statements (unaudited)              6

Item 2.   Management's Discussion and Analysis of Financial
           Condition and Results of Operations                             7-12

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                                  13

Item 6.   Exhibits and Reports on Form 8-K                                   13

SIGNATURES                                                                   14

                                       2
<PAGE>

PART I.        FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS


                             FREDERICK BREWING CO.
                          Consolidated Balance Sheet
                                March 31, 2000
                                  (Unaudited)

<TABLE>
<CAPTION>
                                         ASSETS
Current assets:
<S>                                                                                        <C>
          Cash and cash equivalents                                                        $    107,227
          Cash-restricted                                                                       113,883
          Trade receivables, net of allowance for doubtful accounts of $31,715                  219,162
          Inventories, net of obsolescence reserve of $50,173                                   475,821
          Prepaid expenses and other current assets                                              91,318
                                                                                           ------------
               Total current assets                                                           1,007,411
Property, plant and equipment, net of accumulated depreciation of $1,985,422                  7,574,552
Intangibles, net of accumulated amortization of $242,392                                        378,157
Goodwill, net of accumulated amortization of $65,250                                            876,211
                                                                                           ------------
               Total assets                                                                $  9,836,331
                                                                                           ============

                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
          Current maturities long-term debt                                                $  2,979,505
          Capital lease obligations, current portion                                             51,540
          Accounts payable                                                                    1,100,530
          Accrued liabilities                                                                   638,455
                                                                                           ------------
               Total current liabilities                                                      4,770,030
Long term debt                                                                                   84,151
Capital lease obligations                                                                     2,588,140
                                                                                           ------------
               Total liabilities                                                              7,442,321
                                                                                           ------------
Stockholders' equity:
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 and 8,596,211 shares
          issued and outstanding                                                                  3,439
Additional paid-in capital                                                                   23,861,881
Accumulated deficit                                                                         (22,019,822)
                                                                                           ------------

               Total stockholders' equity                                                     2,394,010
                                                                                           ------------

               Total liabilities and stockholders' equity                                  $  9,836,331
                                                                                           ============
</TABLE>

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

                                       3
<PAGE>

                             FREDERICK BREWING CO.
                     Consolidated Statements of Operations
              For the Three Months Ended March 31, 2000 and 1999
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                   Three Months Ended   Three Months Ended
                                                     March 31, 2000       March 31, 1999
                                                   -------------------  -------------------
<S>                                                <C>                  <C>
Gross sales                                                $  706,878           $  990,958
Less:  returns and allowances, and excise taxes               106,398              134,348
                                                           ----------           ----------
     Net sales                                                600,480              856,610
Cost of sales                                                 850,119              890,277
                                                           ----------           ----------
     Gross loss                                              (249,639)             (33,667)
Selling, general and administrative expense                   584,700              657,403
                                                           ----------           ----------
     Operating loss                                          (834,339)            (691,070)
Interest expense, net                                         138,874              154,024
                                                           ----------           ----------
     Net loss                                              $ (973,213)          $ (845,094)
                                                           ----------           ----------
Basic and diluted loss per common share:
     Net loss per common share                             $    (0.11)          $    (0.51)
                                                           ----------           ----------
     Weighted average common shares                         8,596,211            1,673,009
                                                           ----------           ----------
</TABLE>

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

                                       4
<PAGE>

                             FREDERICK BREWING CO.
                     Consolidated Statements of Cash Flows
               For the Three Months Ended March 31, 2000 and 1999
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended   Three Months Ended
                                                           March 31, 2000       March 31, 1999
                                                         -------------------  -------------------
<S>                                                      <C>                  <C>
Cash flows from operating activities:
   Net loss                                                       $(973,213)           $(845,094)
   Adjustments to reconcile net loss to net cash used in
    operating activities:
          Depreciation                                              186,393              283,660
          Amortization                                               82,345                1,584
   Change in operating assets and liabilities:
          Trade receivables                                          23,302               60,425
          Inventories                                                68,748              (12,272)
          Prepaid assets                                             (2,382)              (1,202)
          Accounts payable                                          (59,338)             259,720
          Accrued liabilities                                        94,225              (48,008)
                                                                  ---------            ---------

          Net cash used in operating activities                    (579,920)            (301,187)

Cash flows from investing activities:
          Purchase of equipment and improvements                    (73,950)              (6,109)
          Purchase of intangibles                                        --               (1,708)
          Change in restricted cash                                 198,592                   --
                                                                  ---------            ---------
          Net cash provided by/(used in) investing activities       124,642               (7,817)

Cash flows from financing activities:
          Proceeds from debt obligation                             525,000              300,000
          Payments of debt obligations                                   --              (67,364)
          Payments of capital leases                                (11,996)             (10,708)
          Proceeds from common stock issuance                            --                1,939
                                                                  ---------            ---------

          Net cash provided by financing activities                 513,004              223,867
                                                                  ---------            ---------

Net increase/(decrease) cash and cash equivalents                    57,726              (85,137)
Cash and cash equivalents, beginning of period                       49,501               92,999
                                                                  ---------            ---------
Cash and cash equivalents, end of period                          $ 107,227            $   7,862
                                                                  =========            =========
</TABLE>

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

                                       5
<PAGE>

                             FREDERICK BREWING CO.
                  Notes to Consolidated Financial Statements
                                March 31, 2000
                                  (Unaudited)

1.   Basis of Presentation

     The accompanying unaudited consolidated financial statements of Frederick
Brewing Co. ("Frederick Brewing") have been prepared in accordance with
accounting principles generally accepted in the United States 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 for
complete year-end financial reporting. In the opinion of Frederick Brewing
management, all normal recurring accruals and other adjustments considered
necessary for a fair presentation of an interim consolidated financial position
and the interim consolidated results of operations have been included.

     Operating results for the period ended March 31, 2000 are not necessarily
indicative of the results that may be expected for other interim periods within
2000 or for the year ending December 31, 2000. Information relating to the
consolidated financial position, results of operations and cash flows of
Frederick Brewing as of and for the year ended December 31, 1999 may be found in
the consolidated financial statements included in Frederick Brewing's Annual
Report filed on Form 10-KSB for the year ended December 31, 1999.

2.   Management's Opinion

     In the opinion of Frederick Brewing's management, Frederick Brewing's
unaudited consolidated financial position as of March 31, 2000 and the results
of their consolidated operations and consolidated cash flows for the interim
periods ended March 31, 2000 and March 31, 1999, reflect all adjustments
(consisting only of normal and recurring 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 the full year.

3.   Inventories

     Inventories consist of raw ingredients, work in process, packaging
materials, finished products 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
March 31, 2000 are as follows:

               Raw ingredients........................... $  73,193
               Work in process...........................    47,383
               Packaging materials.......................   114,903
               Finished goods............................   150,081
               Marketing supplies........................   140,434
                                                          ---------
               Inventory, gross..........................   525,994
               Reserve for obsolescence..................   (50,173)
                                                          ---------
               Inventory, net............................   475,821

4.   Net Loss Per Common Share

     Frederick Brewing calculates basic and diluted earnings per share in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," which requires the presentation of basic earnings per share and
diluted earnings per share for all periods presented. Basic per share earnings
is based on weighted average number of outstanding common shares for the period.
Diluted per share earnings adjust 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 earnings per
share equals basic earnings per share for 1999 and 1998 because the effects of
such items were anti-dilutive.

                                       6
<PAGE>

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-month periods ended March 31, 2000 and 1999.  This discussion should be
read in conjunction with the Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
and Notes thereto included in Frederick Brewing's Form 10-KSB for the fiscal
year ended December 31, 1999.

Overview

     Effective August 24, 1999, SIBG purchased 4,447,104 newly issued shares of
Frederick Brewing's common stock for $2.0 million in cash, representing
approximately 51% of the outstanding common stock of Frederick Brewing after
giving effect to the transaction.  At the time of SIBG's investment, Frederick
Brewing was suffering from serious financial and operational problems, which
were outlined in Frederick Brewing's Form 10-QSB for the fiscal quarter ended
June 30, 1999.  Since SIBG's investment in Frederick Brewing, a number of
changes have been made in Frederick Brewing's board of directors and senior
management.  The changes in Frederick Brewing's board of directors and senior
management are expected to result in changes in, among other things, Frederick
Brewing's strategic direction, its distribution efforts and its sales and
marketing strategies.  Since the completion of SIBG's investment in Frederick
Brewing, Frederick Brewing's management has engaged in a thorough evaluation of
Frederick Brewing's operations and financial condition.  This evaluation is
continuing.  Nevertheless, Frederick Brewing has taken a number of immediate
steps intended to stabilize Frederick Brewing's financial condition, which had
been deteriorating rapidly, and to establish a foundation upon which to improve
Frederick Brewing's operating and financial performance in the future.  These
include the following:

     Provide Enhanced Managerial Expertise
     -------------------------------------

          Effective August 24, 1999, Frederick Brewing entered into a management
          agreement with SIBG under which SIBG provides Frederick Brewing with
          administrative, financial, operational and marketing and strategic
          planning services.  The SIBG management team has collectively over 70
          years of experience in the alcoholic beverage industry.  Frederick
          Brewing entered into the SIBG management agreement, which has a term
          of one year, in order to obtain the benefits of the extensive
          experience of the SIBG management team.  The monthly management fee of
          $30,000 paid by Frederick Brewing to SIBG under the agreement is less
          than the aggregate monthly salaries and related fringe benefits paid
          to Frederick Brewing's former senior managers.  The members of SIBG's
          management team who also serve as officers of Frederick Brewing do not
          receive any compensation from Frederick Brewing.  This agreement was
          unanimously approved by those members of the Frederick Brewing board
          who are not members, officers or directors of, or otherwise affiliated
          with, SIBG or Crooked River.

          In addition, Albert Spinelli, who was formerly employed by Latrobe
          Brewing Company, in Latrobe, Pennsylvania, was hired effective April
          3, 2000 to serve as Vice President of Operations of Frederick Brewing
          and, on April 25, 2000, Frederick Brewing announced that Andrew W.
          Tveekrem, who was formerly employed by Great Lakes Brewing Company, in
          Cleveland, Ohio, was hired effective June 1, 2000, to serve as
          Brewmaster of Frederick Brewing.

     Improve Operational Utilization of Plant
     ----------------------------------------

          Effective August 24, 1999, Frederick Brewing entered into a production
          agreement with Crooked River under which Frederick Brewing agreed to
          produce and package draft and bottled beer for Crooked River for up to
          four years, which includes automatic renewal periods.  This agreement
          was unanimously approved by those members of the Frederick Brewing
          board who are not members, officers or directors of, or otherwise
          affiliated with, SIBG or Crooked River.

                                       7
<PAGE>

     Improve Financial Condition of Frederick Brewing
     ------------------------------------------------

          In order to repay certain outstanding indebtedness of Frederick
          Brewing and to fund working capital and other corporate needs,
          Frederick Brewing executed a promissory note in favor of SIBG.  The
          SIBG note is payable on demand and provides that Frederick Brewing may
          borrow on a revolving basis up to $5.0 million in aggregate principal
          amount, subject to certain limitations.  The note has an interest rate
          per annum equal to the prime rate of a regional financial institution
          plus one percent. As of March 31, 2000, Frederick Brewing had
          outstanding borrowings of approximately $2.965 million under the note.
          This note was unanimously approved by those members of the Frederick
          Brewing board who are not members, officers or directors of, or
          otherwise affiliated with, SIBG or Crooked River.

     Stabilize Regional Market Presence
     ----------------------------------

          Through September 30, 1999, Frederick Brewing's gross revenues had
          been negatively impacted by the decision of Frederick Brewing's major
          distributor in the Frederick, Maryland regional area to diversify its
          brand portfolio and concentrate its sales and marketing efforts in
          alcoholic beverage products other than beer.  Consequently, on
          September 24, 1999, Frederick Brewing reacquired its distribution
          rights for its brands for the Frederick, Maryland regional area from
          this distributor. Frederick Brewing immediately assigned these rights
          to nine distributors that will service the Frederick, Maryland
          regional area.  C. David Snyder, Frederick Brewing's Chairman and CEO,
          personally guaranteed up to $160,000 of the acquisition price for
          these distribution rights.  Frederick Brewing's management believes
          that these new distributors will help to stabilize Frederick Brewing's
          brands in this area.

     Initiate New Sales and Marketing Plans
     --------------------------------------

          During the third quarter of 1999, Frederick Brewing began to initiate
          and implement new sales strategies and marketing plans to increase
          interest in Frederick Brewing's brands.  Initially, Frederick Brewing
          expects to concentrate its sales efforts in the Maryland and Virginia
          area.  Frederick Brewing continued this implementation during the
          first quarter of 2000.

     Reduce Selling, General and Administrative Expenses
     ---------------------------------------------------

          During the first quarter of 2000, Frederick Brewing has implemented
          numerous cost cutting actions that resulted in a $72,703 or 11.1%
          reduction in selling, general and administrative costs compared to the
          prior year first quarter.  Frederick Brewing's management is
          monitoring these costs and, as appropriate, implementing actions to
          keep them consistent with the utilization levels of its brewing
          facility.

     Improve Efficiency of Sales Force
     ---------------------------------

          Effective January 1, 2000, Frederick Brewing's sales personnel became
          employees of SIBG as part of an effort to, among other things,
          increase sales of Frederick Brewing's brands and to take advantage of
          the distribution networks established by SIBG for its Crooked River
          and Hudepohl-Schoenling brands.

Frederick Brewing's management believes that the key to improving Frederick
Brewing's financial performance is to increase the utilization levels of its
brewing facility.  To that end, Frederick Brewing has entered into the
production agreement with Crooked River.  In addition, Frederick Brewing intends
to enter into a similar production agreement relating to certain brands C. David
Snyder had previously acquired from The Hudepohl-Schoenling Brewing Company,
although no assurance can be given as to when or if Frederick Brewing will enter
into such agreement.  Management is also exploring other ways to increase the
brewery's utilization level, including formation of strategic alliances,
contract brewing arrangements or acquisitions of brands or other breweries.  No
assurance, however, can be given that management's efforts will result in
increased utilization levels at Frederick Brewing's brewing facility.

                                       8
<PAGE>

Results of Operations

Three Months Ended March 31, 2000 to Three Months Ended March 31, 1999.

Gross Sales

     Gross sales for the periods ended March 31, 2000 and 1999 were $706,878 and
$990,958, respectively, a decrease of $284,080 or 28.7%.  Shipped barrels
decreased to 3,943 barrels for the period ended March 31, 2000 from 5,596
barrels for the comparable period in 1999, a decrease of 1,653 barrels or 29.5%.
The sales and shipped volume decreases were related to a significant reduction
in sales of the Hempen product lines as well as an overall decrease in sales of
Frederick Brewing's flagship brands (Wild Goose and Blue Ridge product lines).
The overall decline was primarily due to the effect of the significant reduction
in resources allocated to marketing and sales efforts prior to SIBG's investment
in Frederick Brewing.

Selling Price Per Barrel

     The selling price per barrel increased by $2.19, or more than 1.2%, to
$179.27 per barrel for the period ended March 31, 2000 from $177.08 for the
comparable period in 1999.  The increase in the selling price per barrel was
primarily due to Frederick Brewing's positioning its brand presence in the
consumer market as a high quality specialty crafted product.

     Significant changes in the packaging mix could have a material effect on
sales price per barrel.  Frederick Brewing packages its brands in bottles and
kegs.  Assuming the same level of production, a shift in the mix from bottles to
kegs would effectively decrease revenue per barrel because the selling price per
equivalent barrel is lower for kegs than for bottles.

Returns and Allowances

     Product returns and allowances were $73,415 for the period ended March 31,
2000 versus $83,381 for the comparable period in 1999.

Excise Taxes

     State and federal excise taxes were $32,983 for the period ended March 31,
2000 and $50,967 for the comparable period in 1999, representing 4.7% and 5.1%
of gross sales, respectively.  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 other
states, such as the District of Columbia and Virginia, 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.  The decrease in excise
taxes paid results from the mix of sales by state and lower volumes shipped for
the period.

Cost of Sales

     For the periods ended March 31, 2000 and 1999, the cost of sales was
$850,119, or $215.60 per barrel, and $890,277, or $159.09 per barrel,
respectively.  The cost of sales for the period ended March 31, 2000 increased
to 141.6% of net sales from 103.9% for the comparable period in 1999.  Variable
costs were $541,631, or $137.37 per barrel, for the period ended March 31, 2000
compared to $584,477, or $104.45 per barrel, for the comparable period in 1999.
Fixed overhead costs for the period ended March 31, 2000 increased by $2,688 to
$308,488 from $305,800 for the comparable period in 1999.

     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 personnel costs and rent.

     The increase in cost of sales per barrel for the period ended March 31,
2000 was primarily caused by Frederick Brewing's overhead costs being absorbed
over a reduced barrel shipment, 3,943 barrels for the period ended March 31,
2000 compared to 5,596 barrels for the comparable period in 1999.  For the
period ended March 31, 2000, Frederick

                                       9
<PAGE>

Brewing's brewing facility operated at a level of 15.8% of plant capacity
compared to 22.4% for the comparable period in 1999. Frederick Brewing's
capacity utilization has a significant impact on gross profit. When facilities
are operating at their maximum designed production capacities (100,000 barrels
designed capacity for Frederick Brewing), profitability is favorably affected by
spreading fixed and variable 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 period ended March 31,
2000 decreased $72,703, or approximately 11.1%, to $584,700 from $657,403 for
the comparable period in 1999.  This decrease was due, in part, to: (i) a
decrease of $62,398 in rent and equipment lease costs; (ii) a decrease of
$26,273 in fringe benefit expense resulting from the utilization of the SIBG
management agreement and from personnel reductions; and (iii) a decrease of
$8,001 in travel and entertainment costs resulting from the utilization of the
sales management agreement with SIBG as partially offset by an increase of
$23,969 in general and miscellaneous costs.

Interest Expense (net)

     Net interest expense decreased $15,150, or approximately 9.8%, to $138,874
for the period ended March 31, 2000 compared to $154,024 for the comparable
period in 1999.  A substantial portion of the interest expense incurred during
the period ended March 31, 2000 related to indebtedness incurred by Frederick
Brewing in connection with equipment financing, lease of its brewing facility
and interest due SIBG for working capital advances.

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, as of August 24, 1999, from unsecured working capital
advances from SIBG.  As of March 31, 2000, Frederick Brewing had a working
capital deficit of $3,762,619. Net cash used for operating activities was
$579,920 for the period ended March 31, 2000 as compared to $301,187 for the
comparable period in 1999.

     Net cash provided by investing activities was $124,642 for the period ended
March 31, 2000, which represented equipment purchases of $73,950 reduced by the
utilization of restricted cash proceeds of $198,592 as compared to net cash used
for investing of $7,817 for the comparable period in 1999.

     Net cash provided by financing activities was $513,004 for the period ended
March 31, 2000 representing the utilization of working capital loans from SIBG
of $525,000 offset by payments on capital lease obligations of $11,996. Net cash
provided by financing was $223,867 for the comparable period in 1999.

     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 will need to eliminate or
substantially reduce excess brewing capacity.  In order to meet its short term
obligations, Frederick Brewing will need to borrow additional amounts from
either SIBG under the SIBG note or from another financing source.  As of March
31, 2000, Frederick Brewing had approximately $1.9 million in availability under
the SIBG note.  The SIBG note, however, is subject to repayment in full upon
demand by SIBG. SIBG receives funding for Frederick Brewing's borrowings under
the SIBG note from a line of credit obtained by SIBG from a financial
institution on substantially similar terms and which is also payable on demand
(the "SIBG Line of Credit").  As a result, although SIBG is owned and controlled
by C. David Snyder, Frederick Brewing's Chairman and CEO, 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.  Moreover, Crooked River Brewing Company, LLC and Royal Brewing, LLC,
both of which are controlled and/or predominantly owned by C. David Snyder, also
borrow under the SIBG Line of Credit.  As a result, some or all of the $1.9
million in availability under the SIBG note, may, in fact, not be available if
either Crooked River or Royal Brewing utilize that availability.  Frederick
Brewing is exploring obtaining permanent financing arrangements from other
financing 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.

                                       10
<PAGE>

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 period
ended March 31, 2000.  As a result, no provision for income taxes has been
provided for on the Consolidated Statements of Operations for the periods ended
March 31, 1999 and 2000. Frederick Brewing has recorded a full valuation
allowance against the net deferred tax assets.

Forward-Looking Information

     From time to time, information provided by Frederick Brewing, statements by
its employees or information included in its filings with the 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. Such forward-
looking statements, and Frederick Brewing's future performance, operating
results, financial position and liquidity, are subject to a variety of factors
that could materially affect results, including:

     .    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.

     .    Reliance on SIBG.  Frederick Brewing's success depends to a
          significant degree upon the continued support and contributions of its
          controlling shareholder, SIBG:

               .    Under the one-year management agreement with SIBG, SIBG
                    provides extensive management services for Frederick
                    Brewing.  If SIBG terminates this agreement, there can be no
                    assurance that Frederick Brewing will be able to attract and
                    hire qualified management personnel to develop its business;

               .    As of March 31, 2000, Frederick Brewing obtained funding for
                    operations from borrowings under the SIBG note. There can be
                    no assurance that SIBG will have continued availability
                    under the SIBG Line of Credit to fund borrowings under the
                    SIBG note, and there can be no assurance that SIBG will not
                    have to demand repayment of these amounts if the financial
                    institution that provides the funding for these loans to
                    SIBG demands repayment from SIBG. If SIBG demands repayment
                    of the 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
                    draft beer of Crooked River and may lead to other production
                    agreements to produce and package other SIBG-owned brands.
                    If SIBG terminates the Crooked River agreement 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-U.S. market. Frederick Brewing's management is currently reviewing
          the situation and is in discussion with the relevant authorities in
          the non-U.S. markets. However, since all arrangements regarding this

                                       11
<PAGE>

          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 and to assist Frederick Brewing in creating demand for
          its products and in providing adequate service to its retail
          customers.  Even though Frederick Brewing recently assigned its
          distribution rights for the Frederick, Maryland regional area to nine
          new distributors, 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 1996, the overall sales
          growth of domestic specialty brewers slowed substantially.
          Management believes that this decrease was primarily caused by factors
          such as:

          .    the maturation and saturation of certain large consumer markets;

          .    the increased marketing efforts of import brewers; and

          .    a shift in the promotional effort of many wholesale distributors
               from domestic specialty brands to higher volume products.

          Although certain industry sources indicate that this trend is
          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 financial condition and results of operations. Moreover,
          even if the domestic specialty beer category experiences growth in
          2000 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 and is exploring additional actions 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.

                                       12
<PAGE>

PART II.   OTHER INFORMATION


Item 1.   Legal Proceedings.
          -----------------

     In November 1999, the Department of Public Works Frederick County Maryland
Bureau of Water and Sewer issued a final Addendum to Consent Order with respect
to Frederick Brewing, which modified the Consent Order issued in June 1998 and
the Addendum to Consent order issued in June 1999.  The June 1999 Addendum had
directed Frederick Brewing to take appropriate actions to cause its wastewater
discharge to meet its permit limitations by November 30, 1999.  The Final
Addendum extended the November deadline to December 31, 1999 and provided that
failure to obtain compliance by such deadline would result in the imposition of
a penalty of $1,000 per day for each day that Frederick Brewing failed to be in
compliance after November 30, 1999.  Frederick Brewing believes that it took all
appropriate actions to obtain compliance and that it was compliant on or before
the December 31st deadline. Nevertheless, in January 2000, the Frederick County
Bureau of Water and Sewer Operations issued a citation to Frederick Brewing for
Frederick Brewing's alleged failure to submit test data documenting compliance
with industrial wastewater discharge requirements.  In connection with this
citation, Frederick Brewing was fined $31,000.  Frederick Brewing has appealed
this decision and the fine.  The hearing on the appeal was held on April 14,
2000; as of May 12, 2000, no decision on the appeal had been issued by the
Director of Public Works.

Item 6.   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
          -----------    -----------

          10.1           Management Agreement, dated as of August 24, 1999, by
                         and between Snyder International Brewing Group, LLC and
                         Frederick Brewing Co. (1)

          27.1           Financial Data Schedule.

     b.   Reports on Form 8-K

          None.
______________________

(1)  Filed as an Exhibit to the Registrant's Current Report on Form 10-KSB for
     the fiscal year ending December 31, 1999 and incorporated herein by this
     reference.

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<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:   May 15, 2000               /s/ C. David Snyder
                                   --------------------------------------------
                                   C. David Snyder
                                   Chairman of the Board,
                                   Chief Executive Officer and Treasurer



Date:   May 15, 2000               /s/ James M. Gehrig
                                   --------------------------------------------
                                   James M. Gehrig
                                   Chief Financial Officer

                                       14
<PAGE>

                             FREDERICK BREWING CO.

                                 EXHIBIT INDEX

Exhibit   Description
-------   -----------


10.1      Management Agreement, dated as of August 24, 1999, by and between
          Snyder International Brewing Group, LLC and Frederick Brewing Co. (1)

27.1      Financial Data Schedule.



__________________________
(1)  Filed as an Exhibit to the Registrant's Current Report on Form 10-KSB for
     the fiscal year ending December 31, 1999 and incorporated herein by this
     reference.