<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, 2001.

                                       or

[ ]    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                     November 30,  2001
      -------------------                     ------------------
Common Stock, $0.0004 Par Value                    8,596,211


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

================================================================================
<PAGE>

                              FREDERICK BREWING CO.
                              INDEX TO FORM 10-QSB
                               September 30, 2001

                                                                       PAGE NO.
                                                                       --------

PART I.  FINANCIAL INFORMATION                                                 3

Item 1.  Financial Statements                                                  3

         Balance Sheet (unaudited) September 30, 2001                          3

         Statement of Operations (unaudited) for the three and
           nine months ended September 30, 2001 and 2000                       4

         Statement of Cash Flows (unaudited) for the three and nine months
           ended September 30, 2001 and 2000                                   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                                                    15

Item 3.  Default Upon Senior Securities                                       15

Item 6.  Exhibits and Reports on Form 8-K                                     15

SIGNATURES                                                                    16

                                       2
<PAGE>

PART I.  FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

                              FREDERICK BREWING CO.
                                  Balance Sheet
                               September 30, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                     ASSETS
<S> <C>
Current assets:
        Cash and cash equivalents                                                 $     19,353
        Restricted cash                                                                 12,476
        Trade receivables, net of allowance for doubtful accounts of $31,716            85,811
        Inventories, net                                                               456,907
        Prepaid expenses and other current assets                                       99,568
                                                                                  ------------
          Total current assets                                                         674,115
Property, plant and equipment, net of accumulated depreciation of $2,879,184         4,830,358
Intangibles, net of accumulated amortization of $549,174                                71,376
Goodwill, net of accumulated amortization of $233,035                                  708,426
                                                                                  ------------
          Total assets                                                            $  6,284,275
                                                                                  ============

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
        Current maturities of long-term debt                                      $  5,430,828
        Current portion of capital lease obligation                                     59,378
        Accounts payable                                                             1,373,510
        Accrued liabilities                                                          1,256,052
                                                                                  ------------
          Total current liabilities                                                  8,119,768
Long term debt, net of current portion                                                  69,371
Capital lease obligation, net of current portion                                     2,491,712
                                                                                  ------------
          Total liabilities                                                       $ 10,680,851
                                                                                  ------------
Commitments and Contingencies                                                               --
Stockholders' deficit:
        Preferred Stock - $0.01 par value, 1,000,000 shares authorized;           $    548,512
        cumulative, convertible Series A, 1,455 shares issued and outstanding
        Common Stock - $.0004 par value, 19,000,000 shares authorized; 8,596,211         3,439
        shares issued and outstanding
        Additional paid-in capital                                                  23,861,881
        Accumulated deficit                                                        (28,810,408)
                                                                                  ------------

          Total stockholders' deficit                                             $ (4,396,576)
                                                                                  ------------

          Total liabilities and stockholders' deficit                             $  6,284,275
                                                                                  ============
</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, 2001
                                    and 2000
                                  (Unaudited)


<TABLE>
<CAPTION>

                                                   Three Months Ended   Three Months Ended   Nine Months Ended  Nine  Months Ended
                                                   September 30, 2001   September 30, 2000  September 30, 2001  September 30, 2000
                                                   ------------------   ------------------  ------------------  ------------------
<S> <C>
Proprietary Brands Sales                           $         467,281    $          735,473  $        1,674,829  $        2,159,316
Co-Pack Fees                                                 410,062                10,760             653,780              56,243
                                                    ----------------    ------------------  ------------------  ------------------
   Gross sales                                               877,343               697,802             746,233           2,215,559
Less:  returns and allowances, and excise                     85,044                95,013             252,735             308,649
                                                    ----------------    ------------------  ------------------  ------------------
   Net sales                                                 792,299               651,220           2,075,874           1,906,910
Cost of sales                                                824,004               771,227           2,335,478           2,337,750
                                                    ----------------    ------------------  ------------------  ------------------
   Gross loss                                                (31,705)             (120,007)           (259,604)           (430,840)
Selling, general and administrative expense                  399,244               564,790           1,239,027           1,715,269
                                                    ----------------    ------------------  ------------------  ------------------
    Operating loss                                          (430,949)             (684,797)         (1,498,631)         (2,146,109)
Interest expense, net                                        182,258               175,118             544,387             474,272
                                                    ----------------    ------------------  ------------------  ------------------
  Net loss                                          $       (613,207)   $         (859,915) $       (2,043,018)         (2,620,381)
                                                    ================    ==================  ==================  ==================
Net loss per common share:  - basic and
 diluted

  Net loss per common share - basic and diluted     $          (0.07)   $            (0.10)              (0.24) $            (0.30)
                                                    ================    ==================  ==================  ==================
                                                           8,596,211             8,596,211           8,596,211           8,596,211
 Weighted average common shares - basic and diluted ================    ==================  ==================  ==================

</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, 2001
                                    and 2000
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                      Three Months       Three Months           Nine               Nine
                                                          Ended              Ended          Months Ended       Months Ended
                                                      September 30,     September  30,      September 30,      September 30,
                                                          2001               2000               2001               2000
                                                    -----------------  -----------------  -----------------  -----------------

<S> <C>
Cash flows from operating activities:
 Net loss                                              $ (613,207)        $ (859,915)      $ (2,043,018)      $ (2,620,381)
 Adjustments to reconcile net loss to net cash
  used in operating activities:
     Depreciation                                         112,210            188,664            336,632            562,893
     Amortization                                          79,342             79,543            238,030            239,523
 Change in operating assets and liabilities:
     Trade receivables                                     83,511             26,038             35,788            (27,866)
     Inventories                                           87,233            (31,193)           (45,865)            71,702
     Prepaid assets                                       (39,892)           (40,991)           (27,248)           (57,103)
     Accounts payable                                     207,468            122,154           (133,603)             4,428
     Accrued liabilities                                   90,519            203,532            363,726            231,423
                                                       ----------         ----------       ------------       ------------

  Net cash provided by (used in) operating                  7,184           (312,168)        (1,275,558)        (1,595,381)
   activities

Cash flows from investing activities:
     Purchase of property and equipment                   (20,275)            (8,024)           (44,233)          (178,005)
     Restricted cash                                            0               (742)            51,071            198,563
                                                       ----------         ----------       ------------       ------------
     Net cash (used in) provided by investing             (20,275)            (8,766)             6,838             20,558
       activities

Cash flows from financing activities:
 Proceeds from debt borrowings                             46,668            345,000          1,321,425          1,575,000
 Payments on capital lease                                (14,224)           (12,698)           (50,489)           (37,035)
                                                       ----------         ----------       ------------       ------------
 Net cash provided by financing activities                 32,444            332,302          1,270,936          1,537,965
                                                       ----------         ----------       ------------       ------------

Net increase (decrease) cash and cash equivalents          19,353             11,368              2,216            (36,858)
Cash and cash equivalents, beginning of period                  0              1,275             17,137             49,501
                                                       ----------         ----------       ------------       ------------
Cash and cash equivalents, end of period               $   19,353         $   12,643       $     19,353       $     12,643
                                                       ==========         ==========       ============       ============

</TABLE>

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


                                       5
<PAGE>

                              FREDERICK BREWING CO.
                          Notes to Financial Statements
                               September 30, 2001
                                   (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.

     The accompanying financial statements of Frederick Brewing for the interim
periods ended September 30, 2000 include its two former, wholly owned
subsidiaries, Wild Goose Brewery, Inc. and Brimstone Brewing Company.  Frederick
Brewing liquidated these subsidiaries effective as of February 1, 2001.  At the
time of the liquidation, Frederick Brewing conducted no operations through these
subsidiaries; however, Frederick Brewing continues to produce and sell the Wild
Goose and Brimstone brands.

2.   Management's Opinion

     In the opinion of Frederick Brewing's management, Frederick Brewing's
unaudited financial position as of September 30, 2001 and the results of its
operations and cash flows for the interim periods ended September 30, 2001 and
the results of its operations and cash flows for the interim periods ended
September 30, 2000, 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 2001 or for the year ending December 31, 2001.
Information relating to the financial position, results of operations and cash
flows of Frederick Brewing as of and for the year ended December 31, 2000 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, 2000.

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
September 30, 2001 are as follows:


Raw ingredients                       $  36,918
Work in process                          68,834
Packaging materials                     222,427
Finished goods                           35,786
Marketing supplies                      148,245
                                      ---------
Inventory, gross                        512,210
Reserve for obsolescence                (55,303)
                                      ---------
Inventory, net                        $ 456,907
                                      =========


                                       6
<PAGE>

4.   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 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
loss per share equals basic earnings per share for 2001 and 2000 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, 2001 and 2000.  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, 2000.


Overview

     For the nine month period ended September 30, 2001, Frederick Brewing's
operating losses decreased by $647,478 to $1,498,631 compared to $2,146,109 for
the comparable period in 2000. 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 2001 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 and Christian Moerlein brands and have begun brewing the Little
Kings brand in July 2001. For the nine month period ended September 30, 2001,
Frederick Brewing had produced 8,741 barrels of SIBG brands and other co-packed
brands as compared to 379 barrels for the same period in 2000. Through brewing
the Crooked River and Christian Moerlein brands and by adding the Little Kings
brand, management expects that Frederick Brewing's annual production will grow
to 30,000 barrels and its current capacity utilization will significantly
increase. In an effort to further decrease operating losses, management
continues to seek other means by which to decrease operating costs and to
increase capacity utilization at the Frederick, Maryland facility, including
exploring 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.

     While Frederick Brewing's total barrels produced in the nine months of 2001
increased by 5,553 barrels to 18,186 barrels from 12,633 barrels produced in the
first nine months of 2000, this change is primarily caused by the significant
increases in barrels produced by Frederick Brewing under the production
agreement with SIBG. Sales of Frederick Brewing's proprietary brands (Blue
Ridge, Wild Goose, Brimstone and Hempen) decreased by 2,810 or 22.9% barrels
from 12,255 barrels for the nine months of 2000 to 9,445 barrels for the nine
months of 2001. A small percentage of this decrease can be attributed to the
phasing out of the Hempen brands.

     To continue to decrease operating losses, management believes that
Frederick Brewing must concentrate its sales, marketing and distribution efforts
on increasing sales of its proprietary brands. To this effect, during the fourth
quarter of 2000 and in the first half of 2001, Frederick Brewing, through SIBG,
hired several sales professionals with significant beer industry and distributor
experience. In addition, Frederick Brewing, through SIBG, continues to recruit
qualified beer industry sales professionals for markets not sufficiently
covered. In late 2000, Frederick Brewing shifted its marketing efforts to
provide enhanced support to the off-premise retail channels of distribution with
emphasis on the national and regional chain store supermarkets, mass merchants
and warehouse clubs in the Mid-Atlantic region. Frederick Brewing is also
continuing to provide marketing support to the more traditional on-premise
distribution channel in 2001.

     In 2000, in an effort to reduce its distribution costs, Frederick Brewing
renegotiated its distributor agreements to reduce depletion allowances, to
increase prices charged to distributors and to increase recommended consumer
prices and implemented a pre-sell ordering process for all of its products to
better forecast finished goods needs. The pricing changes to the distributor
agreements initially resulted in smaller orders from distributors and lower
consumer sales in some retail channels that were not well suited to carry

                                       7
<PAGE>

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. For the period ended September 30, 2001, Wild Goose sales
accounted for 72.4% of Frederick Brewing's volume of its proprietary brands, as
compared to 64.9% for the same period in 2000. 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 2001 and fiscal 2002.

     Management believes that these recently implemented changes in Frederick
Brewing's distribution and marketing strategy and improvements in its sales
force will have a positive impact on the sales of its products in the second
half of 2001; however, 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, 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.

     Frederick Brewing Company has been advised that Albert W. Spinelli,
Executive Vice President and General Manager, has tendered his resignation from
the Company, effective October 31,2001. His responsibilities will be assumed by
the staff of SIBG, including the staff of Frederick Brewing Company.
Additionally, James M. Gehrig, Chief Financial Officer, will be leaving both
Frederick Brewing Company and SIBG, by January of 2002. Mr. Gehrig may provide
financial consulting services to both companies in the future.

Results of Operations

Three Months Ended September 30, 2001 to Three Months Ended September 30, 2000.


Gross Sales

     Gross sales for the three months ended September 30, 2001and 2000 were
$877,343 and $746,233, respectively, a increase of $131,110 or 17.6%. Gross
sales of Frederick Brewing's proprietary brands (Blue Ridge, Wild Goose,
Brimstone and Hempen) for the three months ended September 30, 2001 and 2000
were $467,281 and $735,473, respectively, a decrease of  $268,192 or 36.4%.  The
decrease in gross sales of proprietary brands 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 2000 to Frederick
       Brewing's distribution agreements with its distributors; and
    .  the continuing effects of the sales restructuring efforts and shift in
       marketing efforts that took place in late 2000 and in the first quarter
       of 2001.

       Gross sales attributable to co-pack fees charged under the production
agreement with SIBG for the three months ended September 30, 2001 and 2000 were
$410,062 and $10,760, respectively, an increase of $399,302.

                                       8
<PAGE>

     Total shipped barrels increased to 7,458 barrels for the three months ended
September 30, 2001 from 4,248 barrels for the comparable period in 2000, an
increase of 3,210 barrels or 75.6%. Shipped barrels increased for the period
ended September 30, 2001 as a result of an increase in SIBG brands produced
under the production agreement with SIBG.



Selling Price Per Barrel

     The average selling price per barrel decreased by $58.03, more than 33.0 %,
to $117.64 per barrel for the three months period ended September 30, 2001 from
$175.67 for the comparable period in 2000. The decrease in the selling price per
barrel was primarily due to a significant increase in barrels shipped under
Frederick Brewing's production agreement with SIBG for the three months ending
September 30, 2001. 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 $2.80 per barrel to $175.67 for the
three months ended September 30, 2001 from $178.47 for the comparable period in
2000.

     Frederick Brewing packages its brands in bottles and kegs. Assuming the
same level of production, a decrease in the number of bottles produced and an
increase in the number of kegs produced would contribute to a decrease in
revenue per barrel because the selling price per equivalent barrel is lower for
kegs than for bottles. Keg sales as a percentage of total equivalent barrels of
core brands were 19.5% for the three months ended September 30, 2001, as
compared to 33.5% for the comparable period in 2000.


Returns and Allowances

     Product returns and allowances were $59,567 for the three months ended
September 30, 2001 compared to $56,142 for the comparable period in 2000. The
reduction in returns and allowances for the period ended September 30, 2001 can
be attributed to the decrease in gross sales of proprietary brands and Frederick
Brewing's use of a consistent return and allowance policy for product returns.


Excise Taxes

     State and federal excise taxes were $25,477 for the three months ended
September 30, 2001 and $38,871 for the comparable period in 2000. 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 three months ended September 30, 2001 and 2000, the cost of sales
was $824,004, or $110.49 per barrel, and $771,227, or $181.55 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, 2001 and 2000. The cost of sales for the
period ended September 30, 2001 decreased to 104.0% of net sales from 118.4% for
the comparable period in 2000. Variable costs were $616,966 or $82.73 per
barrel, for the three months ended September 30, 2001 compared to $459,827, or
$108.24 per barrel, for the comparable period in 2000. Fixed overhead costs for
the period ended September 30, 2001 decreased by $104,362 to $207,038 from
$311,400 for the comparable period in 2000.

     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.

                                       9
<PAGE>

     The decrease in cost of sales per barrel for the three months ended
September 30, 2001 was primarily caused by Frederick Brewing's cost of goods
sold being absorbed over increased barrel shipments, 7,458 barrels for the three
months ended September 30, 2001 compared to 4,248 barrels for the comparable
period in 2000. For the three months ended September 30, 2001, Frederick
Brewing's brewing facility operated at a level of 29.8% of plant capacity
compared to 16.9% for the comparable period in 2000. 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 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, 2001 decreased $165,546, or approximately 29.3%, to $399,244 from
$564,790 for the comparable period in 2000.  This decrease was due, in part, to
reductions in accounting and legal costs and from the partial reduction of
management fees to SIBG of $15,000 per month, effective April 1, 2001.



Interest Expense (net)

     Net interest expense increased $7,140, or approximately 4.1%, to $182,258
for the three months ended September 30, 2001 compared to $175,118 for the
comparable period in 2000.  A substantial portion of the interest expense
incurred during the period ended September 30, 2001 related to indebtedness
incurred by Frederick Brewing in connection with the lease of its brewing
facility and interest due SIBG for working capital advances under the SIBG note.


Results of Operations

Nine Months Ended September 30, 2001 to Nine Months Ended September 30, 2000.


Gross Sales

     Gross sales for the nine months ended September 30, 2001 and 2000 were
$2,328,609 and $2,215,559 respectively, an increase of $113,050 or 5.1%. Gross
sales of Frederick Brewing's proprietary brands (Blue Ridge, Wild Goose,
Brimstone and Hempen) for the nine months ended September 30, 2001 and 2000 were
$1,674,829 and $2,159,316, respectively, a decrease of $484,487 or 22.4%.  The
decrease in gross sales of proprietary brands 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 2000 to Frederick
     Brewing's distribution agreements with its distributors; and
   . the continuing effects of the sales restructuring efforts and shift in
     marketing efforts that took place in late 2000 and in the first quarter of
     2001.

     Gross sales attributable to co-pack fees charged under the production
agreement with SIBG for the nine months ended September 30, 2001 and 2000 were
$653,780 and $56,243, respectively, an increase of $597,537.

     Total shipped barrels increased to 18,186 barrels for the nine months ended
September 30, 2001 from 12,633 barrels for the comparable period in 2000, an
increase of 5,553 barrels or 44.0%. Shipped barrels increased for the period
ended September 30, 2001 as a result of an increase in SIBG brands produced
under the production agreement with SIBG.

                                       10
<PAGE>

Selling Price Per Barrel

     The average selling price per barrel decreased by $47.34, more than 27.0%,
to $128.04 per barrel for the nine months ended September 30, 2001 from $175.38
for the comparable period in 2000.  The decrease in the selling price per barrel
was primarily due to a significant increase in barrels shipped under Frederick
Brewing's production agreement with SIBG for the period ending September 30,
2001.  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 increased by $1.12 per barrel to $177.32 for the nine months
ended September 30, 2001 from $176.20 for the comparable period in 2000.

     Frederick Brewing packages its brands in bottles and kegs.  Assuming the
same level of production, a decrease in the number of bottles produced and an
increase in the number of kegs produced would contribute to a decrease in
revenue per barrel because the selling price per equivalent barrel is lower for
kegs than for bottles.  Keg sales as a percentage of total equivalent barrels of
core brands were 27.8% for the period ended September 30, 2001, as compared to
28.3% for the comparable period in 2000.


Returns and Allowances

     Product returns and allowances were $161,170 for the nine months ended
September 30, 2001 compared to $192,026 for the comparable period in 2000.  The
reduction in returns and allowances for the period ended September 30, 2001 can
be attributed to the decrease in gross sales of proprietary brands and Frederick
Brewing's use of a consistent return and allowance policy for product returns.


Excise Taxes

     State and federal excise taxes were $91,565 for the nine months ended
September 30, 2001 and $116,623 for the comparable period in 2000.  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, 2001 and 2000, the cost of sales
was $2,335,478, or $128.42 per barrel, and $2,337,750, or $185.05 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, 2001 and 2000.  The cost of sales for the
period ended  September 30, 2001 decreased to 112.5% of net sales from 122.6%
for the comparable period in 2000.  Variable costs were $1,628,802 or $89.56 per
barrel, for the nine months ended September 30, 2001 compared to $1,427,150, or
$112.97 per barrel, for the comparable period in 2000.  Fixed overhead costs for
the nine months ended September 30, 2001 decreased by $203,924  to $706,676 from
$910,600 for the comparable period in 2000.

     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 decrease in cost of sales per barrel for the nine months ended
September 30, 2001 was primarily caused by Frederick Brewing's cost of goods
sold being absorbed over an increased barrel shipment, 18,186 barrels for the
period ended September 30, 2001 compared to 12,633 barrels for the comparable
period in 2000.  For the nine months ended September 30, 2001, Frederick
Brewing's brewing facility operated at a level of 24.2% of plant capacity
compared to 16.8% for the comparable period in 2000.  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 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.


                                       11
<PAGE>

Selling, General and Administrative Expenses and Management Fees

     Selling, general and administrative expenses for the nine months ended
September 30, 2001 decreased $476,242 or approximately 27.8%, to $1,239,027 from
$1,715,269 for the comparable period in 2000.  This decrease was due, in part,
to reductions in accounting and legal costs and from the partial reduction of
management fees to SIBG of $15,000 per month, effective April 1, 2001.


Interest Expense (net)

     Net interest expense increased $70,115, or approximately 14.8%, to $544,387
for the nine months ended September 30, 2001 compared to $474,272 for the
comparable period in 2000.  A substantial portion of the interest expense
incurred during the period ended September 30, 2001 related to indebtedness
incurred by Frederick Brewing in connection with the lease of its brewing
facility and interest due SIBG for working capital advances under the SIBG 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, 2001, Frederick Brewing had a working
capital deficit of $7,445,653.  Net cash provided in operating activities was
$7,184 for the three month period ended September 30, 2001 as compared to net
cash used of $312,168  for the comparable period in 2000. Net cash used in
operating activities was $1,275,558 for the nine month period ended September
30, 2001 as compared to $1,595,381 for the comparable period in 2000.

     Net cash used in investing activities was $20,275 for the three month
period ended September 30, 2001,which represented equipment purchases of $26,308
as compared to net cash used in investing activities of $8,766 for the
comparable period in 2000. Net cash provided by investing activities was $6,838
for the nine month period ended September 30, 2001, which resulted from a change
in restricted cash of $51,071 reduced by equipment purchases of $44,233  as
compared to net cash provided by investing activities of $20,558 for the
comparable period in 2000.

     Net cash provided by financing activities was $32,444 for the three month
period ended September 30,2001 representing the utilization of working capital
loans from SIBG of $46,668, offset by payments on capital lease and debt
obligations of $14,224.  Net cash provided by financing activities was $332,302
for the comparable period in 2000. Net cash provided by financing activities was
$1,270,936 for the nine month period ended September 30,2001 representing the
utilization of working capital loans from SIBG of $1,321,425, offset by payments
on capital lease and debt obligations of $50,489.  Net cash provided by
financing activities was $1,537,965 for the comparable period in 2000.

     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, 2001, Frederick Brewing owed
$5,971,906 to SIBG.  This amount includes principal of $ 5,402,170 and interest
of $569,736 due 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.  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, 2001, 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 recently merged with Crooked

                                       12
<PAGE>

River Brewing Company, LLC and Royal Brewing, LLC may also utilize some of the
funds raised or borrowed by SIBG to fund the Crooked River and Royal Brewing
operations.  As a result, some or all of the funds may, in fact, not be
available to Frederick Brewing if SIBG utilizes those funds.  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 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 period
ended September 30, 2001.  As a result, no provision for income taxes has been
provided for on the Statements of Operations for the interim periods ended
September 30, 2001 and 2000.  As of  September 30, 2001, 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.

  .  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:

          .  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, 2000 and the sales and marketing agreement renewed for another
             one-year term on January 1, 2001; 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;

                                       13
<PAGE>

          .  As of  November 30, 2001, 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-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, 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.  Frederick Brewing renegotiated
     its distributor agreements in 2000, and management believes that these
     revised terms are more favorable to Frederick Brewing and are closer to
     industry standards.  There can be no assurance, however, that Frederick
     Brewing's distributors will respond positively to these changes and
     increase orders as a result.  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 financial condition
     and results of operations.  Moreover, even if the domestic specialty beer
     category experiences growth in 2001 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 agreement with SIBG, and is exploring
     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.

  .  Restructured Sales Force.  Frederick Brewing must substantially increase
     sales in order to improve its financial performance.  Even though Frederick
     Brewing's sales force was restructured in 2000, and Frederick Brewing
     believes its sales force consists of capable, experienced sales persons, no
     assurances can be given that this new sales force will be successful in

                                       14
<PAGE>

     selling Frederick Brewing's brands.  Additionally, given the competitive
     market for qualified sales persons, no assurances can be given that these
     employees will choose to remain with SIBG and Frederick Brewing, or that if
     they should choose to leave SIBG and Frederick Brewing, that they can be
     replaced with equally qualified personnel.  A significant turnover in the
     sales staff could have a material adverse effect on Frederick Brewing's
     business.

  .  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.


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, 2001, dividends in arrears totaled
$276,450.

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
          -----------     -----------

          None.

     b.   Reports on Form 8-K

          (i) Current Report on Form 8-K, dated February 26, 2001, filed March
              5, 2001 with the U.S. Securities and Exchange Commission reporting
              under Item 4 the change in Frederick Brewing's independent
              accountants.

                                       15
<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:  November 30, 2001         By:  /s/ C. David Snyder
                                      -------------------------------------
                                      C. David Snyder
                                      Chairman of the Board,
                                      Chief Executive Officer and Treasurer



Date:  November 30, 2001              /s/ Donald Snyder
                                      -------------------------------------
                                      Donald Snyder
                                      Principal Financial and Accounting Officer


                                       16
<PAGE>

                              FREDERICK BREWING CO.

                                  EXHIBIT INDEX

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

None.



                                       17