---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

(Mark One)

|[X] |  | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
|--- |  | -----------------------------------------------------------------------------------

For the fiscal year ended December 31, 1999.

|[ ] |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
     SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________
     to __________________.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

Commission File Number: 000-27800

FREDERICK BREWING CO.

---

(Exact name of small business issuer as
   specified in its charter)


|Maryland
   (State or other jurisdiction of
     incorporation or organization.) | 52-176947
   (I.R.S. Employer ID No.)
|-------------------------------------------------------------------------------- | -------------------------------------

4607 Wedgewood BoulevardFrederick, 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)

Securities registered under Section 12(b) of
   the Exchange Act: None

Securities registered under Section 12(g) of
   the Exchange Act:

|Title of Each Class
   Common Stock, $0.0004 Par Value | Number of Shares Outstanding as of March 23,
     2000
   8,596,211
|------------------------------------------------------ | -------------------------------------------------------------------

Check whether the issuer (1) filed all reports required
   to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
   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. [X] Yes [   ] No

Check if there is no disclosure of delinquent filers in
   response to Item 405 of Regulation S-B contained in this Form, and no
   disclosure will be contained, to the best of Registrant's knowledge, in
   definitive proxy or information statements incorporated by reference in Part
   III of this Form 10-KSB or any amendment to this
 
 Form [   ].

Issuer's revenues for its most recent fiscal year:
   $3,768,629

The aggregate market value of shares held by
   non-affiliates as of March 5, 2000: $1,037,277

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

---





FREDERICK BREWING CO.

INDEX TO FORM 10-KSB

|Page      
|----------
|          
|PART I.   
|          
|Item 1.   
|Item 2.   
|Item 3.   
|Item 4.   
|          
|PART II.  
|          
|Item 5.   
|Item 6.   
|Item 7.   
|Item 8.   
|          
|          
|PART III. 
|          
|Item 9.   
|Item 10.  
|Item 11.  
|Item 12.  
|Item 13.  
|          
|          
|SIGNATURES







PART I.

Item 1. Description of Business.

Overview

Frederick Brewing Co., which commenced operations in
   1993, is a specialty brewer located in Frederick, Maryland. Frederick
   Brewing brews, kegs and bottles at its brewery in Frederick, Maryland, for
   wholesale to its 131 independent distributors, 26 styles of fresh, full
   flavored beers under the brand names of "Blue Ridge," "Hempen,
   " "Wild Goose" and "Brimstone." Frederick Brewing
   directs its sales and marketing efforts to the segment of the beer drinking
   market that is seeking full-bodied, full-flavored beers, which are sold at
   prices considerably higher than those charged for mass-produced American
   lagers and light lagers. Frederick Brewing's beers are critically acclaimed
   and continue to be popular with specialty beer drinkers predominantly
   located in the Mid-Atlantic region of the United States. Frederick Brewing's
   sales have grown from 660 barrels in 1993 to 21,577 barrels in
   1999.

In 1997, Frederick Brewing substantially completed
   construction of its new brewery and increased its production capacity from
   12,600 barrels to approximately 100,000 barrels per year. As demand
   warrants, additional fermentation tanks may be added in existing building
   space to increase Frederick Brewing's brewing capacity to more than 160,000
   barrels per year. The brewery is modularly designed to permit an additional
   expansion of brewing capacity up to 300,000 barrels per year.

In January 1998, Frederick Brewing successfully
   acquired the brands, brew formulas and trademarks of the Wild Goose Brewery,
   Inc. of Cambridge, Maryland and the Brimstone Brewing Company of Baltimore,
   Maryland. On August 24, 1999, Snyder International Brewing Group, LLC (
   "SIBG") completed a series of transactions that resulted in SIBG
   acquiring approximately 51% of the outstanding common stock of Frederick
   Brewing. In connection with the SIBG transaction, Frederick Brewing entered
   into a one-year management agreement whereby SIBG provides to Frederick
   Brewing administrative, financial, operational and strategic planning
   services. In addition, effective on August 24, 1999, Frederick Brewing
   entered into a production agreement with Crooked River Brewing Company, LLC
   pursuant to which Frederick Brewing has agreed to produce and package draft
   beer for Crooked River for up to four years. Crooked River is controlled and
   predominantly owned by C. David Snyder, Frederick Brewing's Chairman and
   Chief Executive Officer.

In late September 1999, Frederick Brewing, with the
   assistance of SIBG, acquired its distribution rights for Frederick Brewing's
   brands for the Frederick, Maryland regional area from its major distributor.
   Thereafter, the Frederick Brewing immediately assigned these rights to nine
   distributors who will service the Frederick, Maryland regional area for
   Frederick Brewing. 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 assist in stabilizing Frederick Brewing's brands in this
   area.

Sales and Marketing

Frederick Brewing's beverages are sold on an "on
   sale" basis in restaurant, bars and sports arenas and on an "off
   sale" basis primarily through liquor stores, convenience stores and
   supermarkets. The product is marketed and delivered to these retailers by
   independent beverage distributors. Although Frederick Brewing generally
   grants its distributors exclusive rights to sell its proprietary products
   within a defined territory, most of Frederick Brewing's distributors carry
   products of other beer producers. Written agreements with Frederick
   Brewing's distributors vary, but are generally perpetual or multi-year
   agreements and terminable by either party for breach of the contract or upon
   specified notice periods. If Frederick Brewing terminates an agreement
   without cause, however, it may be required to pay the distributor an amount
   equal to the distributor's net earnings from sales of Frederick Brewing's
   products during the most recently completed fiscal year. Frederick Brewing
   has written agreements with all of its largest distributors and with all but
   a few of its smaller distributors.

During 1999, Frederick Brewing's three largest
   distributors each accounted for greater than 10% of Frederick Brewing's
   total net sales. Frederick Brewing believes that as its sales increase,
   sales by any one distributor will account for a decreasing percentage of
   total revenues.



Distributors place product orders directly with
   Frederick Brewing. The process of brewing generally takes three to five
   weeks, after which the products are packaged for sale in returnable bottles,
   non-returnable bottles or kegs. Finished products are stored in Frederick
   Brewing's warehouse until distributors pick them up.

Packaging and Raw Materials

The malted barley, hops and yeast used to produce
   Frederick Brewing's beer are readily available from several alternative
   sources in North America. Because Frederick Brewing is not dependent on any
   one supplier for these ingredients, Frederick Brewing believes a continuous
   supply of raw materials will be readily available for its brewing
   operations.

Frederick Brewing's products are packaged in bottles or
   kegs. In 1999, 73% of Frederick Brewing's total production was packaged in
   returnable and non-returnable glass bottles. The remainder of the beer sold
   was packaged in one-sixth barrel, quarter-barrel and half-barrel stainless
   steel kegs.

Frederick Brewing uses corrugated cardboard boxes and
   fiberboard boxes for the shipping of its bottles and cans. Although
   Frederick Brewing buys all of its non-returnable glass bottles and cartons
   from a single source, Frederick Brewing has not experienced any difficulties
   in obtaining supply in the past and does not anticipate any shortages in the
   future. Although Frederick Brewing is required to provide its bottle
   producer with advance orders regarding the number and types of containers,
   Frederick Brewing believes that it would be able to obtain comparable
   products elsewhere at competitive prices if it were unable to continue to
   obtain bottles or cardboard containers from any of its current
   suppliers.

Governmental Regulation, Licensing and Environmental
   Regulation

The business of Frederick Brewing is highly regulated
   by federal, state and local laws. Frederick Brewing was required to obtain a
   federal permit from the Bureau of Alcohol, Tobacco and Firearms and a state
   permit from the State of Maryland Comptroller of the Treasury, Alcohol and
   Tobacco Tax Unit prior to commencement of production and sale of beer.
   Frederick Brewing has obtained all regulatory permits and licenses necessary
   to operate its brewery and to sell its products in the states where they are
   currently being distributed. Failure on the part of Frederick Brewing to
   comply with federal, state or local regulations could cause Frederick
   Brewing's licenses to be revoked and force it to cease operations.

Frederick Brewing's brewery is subject to federal,
   state and local environmental protection laws and regulations and Frederick
   Brewing is operating within existing laws and regulations or is taking
   action aimed at assuring compliance with these laws. Various strategies are
   utilized to help assure this compliance. Frederick Brewing does not expect
   compliance with such laws and regulations to materially affect Frederick
   Brewing's capital expenditures, earnings or competitive
   expenditures.

Trademarks

Frederick Brewing and its subsidiaries, Wild Goose
   Brewery, Inc. and Brimstone Brewing Company, have obtained federal or state
   registration for a number of trademarks including "Blue Ridge,"
   "Wild Goose," "Hempen Ale" and "Brimstone Brewing
   Company."

Marketing

Frederick Brewing's primary marketing strategy focuses
   on sales in the Mid-Atlantic Region, particularly the states of Maryland and
   Virginia. Frederick Brewing has utilized the media in the Mid-Atlantic
   Region market by issuing press releases on a timely basis regarding
   Frederick Brewing and its products. General marketing plans call for use of
   radio, outdoor billboards and print advertising in Maryland. Frederick
   Brewing also intends to use one or more of these methods in additional
   markets as it expands.



Research and Development

Frederick Brewing conducts a limited amount of research
   activities relating to the development of new products and the improvement
   of existing products. The dollar amounts expended by Frederick Brewing since
   inception on such research activities and the number of employees engaged in
   these activities during such time period, however, are not considered to be
   material in relation to the total business of Frederick Brewing.

Employees

As of March 26, 2000, Frederick Brewing had 26
   full-time employees and one part-time employee.

The Market Environment

Frederick Brewing competes in the domestic specialty
   category of the U.S. brewing industry. Management believes that this
   category currently comprises approximately 3% of the $50 billion U.S. retail
   beer market. Domestic specialty beers are distinguished from mass-market
   domestic beers in that they typically: (1) are heavier-bodied and more
   flavorful; (2) use traditional brewing techniques and ingredients, rather
   than the corn, rice and other unmalted grains and added enzymes used to
   create the light color and body of mass-market domestic lagers; and (3) are
   sold to consumers at higher prices than most mass-market domestic
   beers.

The domestic specialty beer category has expanded since
   its creation in the early 1980's due to the efforts of innovative,
   entrepreneurial companies. During 1997 and 1998, however, growth in the
   domestic specialty beer category declined. Management believes that this
   decrease was caused by a traditional industry "shakeout" of below
   average brands that had not been supported with adequate marketing.
   According to industry sources, the domestic specialty beer category began to
   experience growth again in 1999, as the number of barrels shipped
   industry-wide increased by approximately 7%. Management believes, based on
   industry and demographic trends, that 2000 will be another year of growth
   for the domestic specialty beer category. Management further believes that
   companies that have domestic specialty beers which have consistent product
   quality and which are supported by coherent marketing programs and strong
   distribution networks will be the ones that benefit from this growth.
   Management also believes that the focus of the domestic specialty beer
   category is shifting and that, in this decade, regional specialty breweries
   whose brands already enjoy some popularity and that have both experienced
   management and a well-defined marketing approach will be
   successful.

Even though the domestic specialty beer category
   enjoyed growth in 1999 and continued growth is expected in 2000, management
   believes that a number of market forces could adversely impact the domestic
   specialty beer category's ability to achieve and continue such growth.
   Primary among these forces is the aggressive marketing of import beers.
   These beers share flavor profiles and competitive price points with domestic
   specialty beers, and through these marketing efforts, many of these beers
   have achieved substantial sales increases, perhaps at the expense of
   domestic specialty beers. In addition, some wholesale distributors who had
   aggressively added many new domestic specialty brands to their portfolios
   and devoted high levels of effort to promoting those brands, saw declining
   returns to their investments in marketing and inventory due to increasing
   competition. Accordingly, these wholesalers began re-allocating their
   resources to higher volume products (sometimes under pressure from the
   suppliers of those products). Additionally, some retailers who had devoted a
   relatively large share of shelf space and sales efforts to promote a wide
   variety of domestic specialty beers in an attempt to gain competitive
   advantage for a small but attractive base of consumers re-allocated their
   resources as more of their competitors began to offer the widely known
   domestic specialty products.

Management's long-term goal is to continue to build
   upon Frederick Brewing's reputation for brewing excellence and to develop
   Frederick Brewing into one of the leading brewers of domestic specialty
   beers for the Mid-Atlantic region. Frederick Brewing's core geographical
   markets are the Mid-Atlantic states, specifically Maryland and Virginia.
   Management is currently in the process of developing its marketing
   strategies for these areas. In addition, in order to more fully utilize
   Frederick Brewing's production, sales and marketing resources, management
   plans to continue to explore opportunities such as strategic alliances,
   acquisitions, long-term licensing agreements and contract brewing
   arrangements in the Mid-Atlantic region and possibly outside such region.



Item 2. Description of Property.

All of Frederick Brewing's brewing, packaging and
   office functions have, since March 1997, been carried out at its 55,000
   square foot facility located on approximately 5.5 acres in a light
   industrial park at 4607 Wedgewood Boulevard, Frederick, Maryland. The
   facility was designed and built according to Frederick Brewing's
   specifications. Frederick Brewing leases the land and building from Blue II,
   LLC, a Maryland limited liability company, under a capital lease that
   expires on March 1, 2017. Frederick Brewing has the option to purchase the
   land and building for a one-year period beginning March 1, 2008 and ending
   March 1, 2009 at a price of approximately $3.6 million. Frederick Brewing
   believes that this property has been adequately maintained, is in good
   condition generally and is suitable and adequate for its business as
   presently conducted. On August 24, 1999, SIBG purchased all of the
   outstanding equity interests of Blue II.

Item 3. Legal Proceedings.

In November 1999, the Department of Public Works
   Frederick County Maryland Bureau of Water and Sewer Operations 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 in
   compliance 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 its industrial wastewater
   discharge requirements. In connection with this citation, Frederick Brewing
   was fined $31,000. Frederick Brewing has appealed this decision and the
   fine.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders
   during the three months ending December 31, 1999. Frederick Brewing plans to
   have an annual meeting of its shareholders during 2000; however, no date has
   been set for this meeting. Frederick Brewing will notify its shareholders
   when a date for the 2000 annual meeting of shareholders has been
   set.



PART II.

Item 5. Market for Common Equity and Related Shareholders
   Matters.

| | (a) |  | Frederick Brewing's common stock, par value $0.0004
     per share, has traded on the National Association of Securities Dealers
     OTC Bulletin Board under the symbol "BLUE" since August 5, 1999.
     On April 3, 2000, Frederick Brewing announced that effective April 5, 2000
     its ticker symbol would change from "BLUE" to "FRBW."
     Frederick Brewing's common stock was previously traded on the Nasdaq
     SmallCap Market, but was delisted on April 21, 1999 for failure to
     maintain a minimum closing bid price of $1.00 per share. In March 1999, in
     an effort to boost the stock price to maintain its Nasdaq SmallCap Market
     listing, Frederick Brewing's shareholders approved a 1-for-10 reverse
     stock split of Frederick Brewing's common stock. From April 22, 1999
     through August 4, 1999, Frederick Brewing's common stock was traded in the
     Over-The-Counter Market's "Pink Sheets," which is operated by
     the National Quotation Bureau, LLC. The following table shows the price
     range of high ask and low bid prices per share for Frederick Brewing's
     common stock for the fiscal years ending December 31, 1999 and 1998, on a
     quarterly basis as reported on the Nasdaq SmallCap Market, the Pink Sheets
     and the OTC Bulletin Board, as the case may be. The prices below also
     reflect inter-dealer quotations, without retail mark-up, mark-down or
     commissions and may not represent actual transactions.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|1999           | 1998   
|-------------- | -------
|              
|              
|First Quarter  | $ 1.500
|Second Quarter | 2.500  
|Third Quarter  | 2.500  
|Fourth Quarter | 1.250  
|               |        

| | (b) |  | The number of record shareholders of Frederick
     Brewing's common stock at March 23, 2000 was approximately 845. Frederick
     Brewing believes that it has significantly more than 845 beneficial
     holders of its common stock.
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | Frederick Brewing paid no dividends on its common
     stock during the fiscal years ending December 31, 1999 and 1998. The terms
     of Frederick Brewing's 8% Cumulative Preferred Stock, Series A (the
     "Series A Preferred") prohibit Frederick Brewing from paying
     dividends on its common stock until all dividends due on the Series A
     Preferred have been declared and paid. The Series A Preferred shareholders
     are entitled to receive $40 per share per year in dividends, when and if
     declared by Frederick Brewing's board of directors. Frederick Brewing has
     never declared and paid dividends on the Series A Preferred, and as of
     December 31, 1999, dividends in arrears on the Series A Preferred totaled
     $174,600. In light of these restrictions, Frederick Brewing does not
     anticipate paying dividends on its common stock in the foreseeable
     future.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 6. Management's Discussion and Analysis of Financial Condition and
   Results of Operations.

The following selected financial data and Management's
   Discussion and Analysis of Financial Conditions and Results of Operations
   should be read in conjunction with Frederick Brewing's 1999 financial
   statements and the notes thereto, included elsewhere in this Form
   10-KSB.





|                                                                             | Selected Financial Data
   
   (in thousands, except share and per share data)For the Year Ended December 31,
|---------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------
|                                                                             |                                                                                                              
|                                                                             | 1999                                                                                                         
|                                                                             |                                                                                                              
|Sales                                                                        | $ 3,769                                                                                                      
|Less excise taxes, allowances                                                | 1,016                                                                                                        
|                                                                             |                                                                                                              
|Net sales                                                                    | 2,753                                                                                                        
|Cost sales                                                                   | 3,796                                                                                                        
|                                                                             |                                                                                                              
|Gross (loss) profit                                                          | (1,043)                                                                                                      
|Selling, general, and admin.                                                 | 2,480                                                                                                        
|Management fees                                                              | 120                                                                                                          
|Deferred public relation write-off                                           | 0                                                                                                            
|Goodwill impairment                                                          | 1,360                                                                                                        
|                                                                             |                                                                                                              
|Loss from operation                                                          | (5,003)                                                                                                      
|Gain (loss) on assets to be disposed                                         | 24                                                                                                           
|Interest expense (income) net                                                | 631                                                                                                          
|Other income expense                                                         | 0                                                                                                            
|                                                                             |                                                                                                              
|Loss before income taxes and extraordinary
     gain                         | (5,610)                                                                                                      
|Debt forgiveness income                                                      | 731                                                                                                          
|                                                                             |                                                                                                              
|Loss before income taxes                                                     | (4,879)                                                                                                      
|Benefit from income taxes                                                    | 0                                                                                                            
|                                                                             |                                                                                                              
|Net loss                                                                     | (4,879)                                                                                                      
|Preferred stock deemed dividend                                              | 0                                                                                                            
|                                                                             |                                                                                                              
|Net loss attributable to commonshareholders                                  | $(4,879)                                                                                                     
|                                                                             |                                                                                                              
|Net loss per common share                                                    | $  (1.17)                                                                                                    
|                                                                             |                                                                                                              
|Weighted average common sharesand common share
   
   equivalentsoutstanding | 4,164,040                                                                                                    
|                                                                             |                                                                                                              







The following selected quarterly financial data table reflects the
   originally filed and as restated first and third quarter consolidated
   balance sheets and statements of operations (for the three months ended
   March 31, 1999 and September 30, 1999) for Frederick Brewing as well as the
   restated explanations related to the amended as restated line items.

|                                                   |  | March 31, 1999         |   | September 30, 1999     |   |    
|-------------------------------------------------- |  | ---------------------- | - | ---------------------- | - | ---
|                                                   |  | As Filed               |   | Restated               |   |    
|                                                   |  |                        |   |                        |   |    
|Balance Sheet                                      |  |                        |   |                        |   |    
|                                                   |  |                        |   |                        |   |    
|ASSETS                                             |  |                        |   |                        |   |    
|Total current assets                               |  | $  1,341,061           |   | $  1,341,061           |   |    
|Noncurrent assets                                  |  | 10,714,413             |   | 10,714,413             |   |    
|                                                   |  |                        |   |                        |   |    
|Total assets                                       |  | $12,055,474            |   | $12,055,474            |   |    
|                                                   |  |                        |   |                        |   |    
|                                                   |  |                        |   |                        |   |    
|LIABILITIES AND EQUITY                             |  |                        |   |                        |   |    
|Current liabilities                                |  | $  2,850,604           |   | $  3,150,604           |   | 1  
|Noncurrent liabilities                             |  | 3,569,138              |   | 3,569,138              |   |    
|                                                   |  |                        |   |                        |   |    
|Total liabilities                                  |  | 6,419,742              |   | 6,719,742              |   |    
|Stockholders' equity                               |  | 5,635,732              |   | 5,335,732              |   | 1,2
|                                                   |  |                        |   |                        |   |    
|Total liabilities and stockholders' equity         |  | $12,055,474            |   | $12,055,474            |   |    
|                                                   |  |                        |   |                        |   |    
|                                                   |  |                        |   |                        |   |    
|Statements of Operations                           |  |                        |   |                        |   |    
|                                                   |  |                        |   |                        |   |    
|Net sales                                          |  | $     924,102          |   | $     924,102          |   |    
|Operating loss                                     |  | $    (691,070          | ) | $    (691,070          | ) |    
|Net loss attributable to common shareholders       |  | $    (845,094          | ) | $    (845,094          | ) |    
|                                                   |  |                        |   |                        |   |    
|Basic and diluted loss per common share:           |  |                        |   |                        |   |    
|Net loss before extraordinary gain                 |  | $         
      (0.51 | ) | $         
      (0.51 | ) |    
|Extraordinary gain                                 |  | $           
         |   | $           
         |   |    
|                                                   |  |                        |   |                        |   |    
|Net loss per common share                          |  | $         
      (0.51 | ) | $         
      (0.51 | ) |    
|                                                   |  |                        |   |                        |   |    
|                                                   |  |                        |   |                        |   |    
|Weighted average common shares (basic and diluted) |  | 1,673,009              |   | 1,673,009              |   |    





|1) |  | Restated to reflect the receipt of a $300,000 demand loan
     payable from a group of investors originally recorded as additional
     paid-in-capital, but appropriately recorded in the second quarter of 1999.
     As a result, short term debt increased $300,000 and additional paid-in
     capital decreased by $300,000.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2) |  | Restated to reflect the redemption of 88 shares of Series A
     Preferred and reclassified to paid-in capital. As a result, Series A
     Preferred decreased by $33,175 and additional paid-in capital increased by
     $33,175.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3) |  | Restated to reflect a compensation charge of $200,000
     resulting from the issuance of 126,478 shares of common stock to former
     officers as severance compensation. As a result, selling, general and
     administrative expenses increased by $200,000 and additional paid-in
     capital increased by $200,000.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4) |  | Restated to reflect the reclassification of withheld payroll
     related to shares of common stock issued in the third quarter. As a
     result, accrued liabilities decreased by $23,044 and additional paid-in
     capital increased by $23,044.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5) |  | The company issued 500,000 warrants to a group of investors
     during the third quarter. The resulting value of these warrants is
     recorded with a corresponding charge to deferred compensation through
     paid-in capital.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6) |  | Restated to reflect $77,569 of accounts payable. As a result,
     gain on forgiveness of debt was decreased and accounts payable was
     increased by $77,569.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------





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. In August 1999, each
   member of Frederick Brewing's board of directors resigned except for Jerome
   Pool, and C. David Snyder, Christopher J. Livingston, Dale W. Bainbridge and
   David L. Stith were appointed to the board to fill their vacancies. On
   October 1, 1999, Glenn E. Corlett was also appointed to Frederick Brewing's
   board, and on December 9, 1999, Mr. Pool resigned from Frederick Brewing's
   board. In addition, the following changes in Frederick Brewing's senior
   management have been made.

- C. David Snyder, founder and chairman of SIBG,
   replaced Frederick Brewing's co-founder, Kevin Brannon, as Chairman and
   Chief Executive Officer.
- Christopher J. Livingston, President of SIBG and its
   craftbrewing affiliate, Crooked River, replaced Frederick Brewing's
   co-founder, Marjorie McGinnis, as President.
- James Gehrig, the Chief Financial Officer of SIBG,
   replaced Leslie Harper as Chief Financial Officer.

Mr. Brannon and Ms. McGinnis served as Vice Presidents
   of Frederick Brewing until September 30, 1999 and, as of October 1, 1999,
   were no longer employees of Frederick Brewing. Under their transition
   agreements, Mr. Brannon and Ms. McGinnis are bound by non-compete provisions
   through 2001. Mr. Harper's position with Frederick Brewing terminated on
   October 31, 1999.

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.
- 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.



- 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
   December 31, 1999, Frederick Brewing had outstanding borrowings of
   approximately $2.5 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
- Initiate New Sales and Marketing
   Plans
- Reduce Selling, General and Administrative
   Expenses
- Improve Efficiency of Sales Force

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 may 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.





Gross Sales

Gross sales in 1999 and 1998 were $3,768,629 and
   $5,521,558, respectively, a decrease of $1,752,929 or 31.7%. Shipped barrels
   decreased to 21,577 barrels in 1999 from 31,464 barrels in 1998, a decrease
   of 9,887 barrels or 31.4%. The sales and shipped barrels volume decreases
   were related to a significant reduction in the Hempen product lines as well
   as an overall decrease in Frederick Brewing's flagship brands (Wild Goose
   and Blue Ridge product lines). The overall decline was primarily due to
   Frederick Brewing's lack of resource capital to support the required
   marketing and sales efforts as provided for in 1998. The sales and marketing
   staff consisted of 20 positions in 1998, compared to five in 1999.

Selling Price Per Barrel

The selling price per barrel decreased by $0.34, or
   less than 1%, to $174.66 per barrel for 1999 from $175.48 for 1998. The
   decrease in the selling price per barrel was primarily due to Frederick
   Brewing's continued use of price reductions to maintain its brand presence
   in the consumer market in lieu of significant marketing and selling support
   and, to a lesser extent, the production of contract barrels.

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. Keg sales as a percentage of total equivalent barrels of
   core brands were 17.8% for 1999 and 17.2% for 1998.

Volume

Barrelage volume decreased by 9,887 barrels, or
   approximately 31.4% to 21,577 barrels for 1999 compared to 31,464 barrels
   for 1998. The decrease was primarily caused by a significant decline in
   volume for all of Frederick Brewing's product lines. The predominant factor
   in the broad based product volume decline was Frederick Brewing's continued
   reliance on one major wholesaler for the Frederick, Maryland regional area,
   as well as a lack of resource capital to continue the comparable sales and
   marketing effort and support in 1999 as in 1998. In 1999, this wholesaler
   elected to change its product portfolio from a major beer emphasis to other
   alcoholic beverage products. On September 24, 1999, Frederick Brewing
   acquired its distribution rights for its brands for the Frederick, Maryland
   regional market area from this distributor. Frederick Brewing immediately
   assigned these rights to nine distributors that will service the Frederick,
   Maryland regional area.

Returns and Allowances

Product returns and allowances were $812,861 (21.6% of
   gross sales) in 1999 versus $479,108 (8.7% of gross sales) in 1998. The
   higher rate of returns and allowances in 1999 includes a charge of $350,000
   for a potential loss related to allegedly out-of-code product that had been
   exported to, and is currently warehoused in, a non-U.S. market. Frederick
   Brewing's management is currently reviewing the situation and is in
   discussions with the relevant authorities in this non-U.S. market.

Excise Taxes

State and federal excise taxes were $202,885 in 1999
   and $266,239 in 1998, representing 5.4% and 4.8% 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 in
   1999.



Cost of Sales

For 1999 and 1998, the cost of sales was $3,796,111, or
   $175.93 per barrel, and $4,344,090, or $138.07 per barrel, respectively. The
   cost of sales for 1999 increased to 137.9% of net sales from 78.7% for 1998.
   Variable costs were $2,436,720, or $112.93 per barrel, for 1999 compared to
   $2,892,890, or $91.94 per barrel, for 1998. Fixed overhead costs for 1999
   decreased by $91,809, or approximately 6.3%, to $1,359,391 from $1,451,200
   for 1998.

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 1999 was
   primarily caused by Frederick Brewing's fixed overhead costs being absorbed
   over a reduced barrel shipment, 21,577 barrels in 1999 compared to 31,464
   barrels in 1998. For 1999, Frederick Brewing's brewing facility operated at
   a level of 21.5% of plant capacity compared to 31.5% for the comparable
   period in 1998. 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

SG&A expenses for 1999 decreased $918,919, or
   approximately 26.1%, to $2,600,369 from $3,519,288 for 1998. This decrease
   was due, in part, to: (i) a reduction of $808,900 in sales and marketing
   costs; (ii) a decrease of $317,800 in legal and financial fees; (iii)a decrease of $77,952 in depletion expense; and (iv)
   miscellaneous expense reductions of $85,167. The overall decrease was offset
   by certain increases such as: (i) a $200,000 compensation charge for
   issuance of common stock to former senior executive officers of Frederick
   Brewing; (ii) an increase of $120,000 for the monthly management fee paid by
   Frederick Brewing to SIBG; and (iii) a net increase of $50,900 for
   consulting fees paid to former senior executive officers of Frederick
   Brewing.

Impairment of Goodwill

Impairment of goodwill associated with the Wild Goose
   acquisition resulted in a charge of $1,359,751 for 1999 as compared to no
   charge in 1998. Frederick Brewing's management determined that the goodwill
   of $2,734,113 that was recognized when Frederick Brewing acquired Wild Goose
   in 1998 would not be fully recovered due to lower than expected sales
   volumes of certain Wild Goose brands. Based on future cash flows analysis,
   Frederick Brewing's management has estimated that it can recover $941,461 of
   the remaining goodwill.

Deferred Public Relations Costs

Deferred public relations costs consisted of $650,000
   cash in advance and $670,000 representing the estimated fair value of
   500,000 warrants issued in 1997 to a third party for public and investor
   relations services to be rendered over a five-year service period. These
   amounts were being amortized on a straight-line basis over the five-year
   term of the service contract. Amortization expense was $188,500 for the year
   ended December 31, 1997. In the second quarter of 1998, Frederick Brewing
   terminated this contract due to lack of performance and wrote off the
   remaining deferred costs of $1,131,500.

Interest Expense (Net)

Net interest expense increased $73,133, or
   approximately 13.1%, to $630,779 for 1999 from $557,646 for 1998. A
   substantial portion of the interest expense incurred during 1999 related to
   indebtedness incurred by Frederick Brewing in connection with equipment
   financing, lease of building and interest due SIBG for working capital
   advances.



Extraordinary Gain on Forgiveness of Debt
   (Net)

The net amount of extraordinary gain on forgiveness of
   debt for 1999 was $731,360 as compared to $191,146 for 1998. In order to
   facilitate SIBG's investment in Frederick Brewing, a number of Frederick
   Brewing's creditors forgave amounts owed to Frederick Brewing totaling
   $824,662. One of the creditors was a financial institution for which
   Frederick Brewing had unamortized debt costs of $93,302 that were expensed.
   For 1998, the extraordinary gain of $191,146 reflected the savings derived
   from the rollover of Frederick Brewing's long term lease on its brewery
   facility from First Union National Bank to FCNB Bank in December
   1998.

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 December 31, 1999,
   Frederick Brewing had a working capital deficit of $2,965,374. Net cash used
   for operating activities was $1,891,927 in 1999 as compared to $3,036,122 in
   1998.

Net cash used for investing activities was $755,665 in
   1999. Restricted cash increased $300,000. New brewery equipment cost
   $485,391, and trademarks and other intangible assets cost $2,355. Frederick
   Brewing generated proceeds of $32,081 from the sale of equipment. Net cash
   used for investing was $415,825 in 1998.

Net cash provided by financing activities was
   $2,604,904 in 1999. Proceeds from debt borrowings generated $3,098,565,
   proceeds from the issuance of common stock to SIBG generated $2,000,000 and
   proceeds from employees exercising stock options generated $1,937. Offering
   costs associated with the issuance of common and preferred stock were
   $158,145. Repayment of short- and long-term debt totaled $2,338,263. Net
   cash provided by financing was $932,066 in 1998.

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 $2.0 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 $2.5 million in availability under
   the SIBG note, may, in fact, not be available if either Crooked River or
   Royal Brewing utilize that availability. As of December 31, 1999, borrowings
   under the SIBG Line of Credit totaled approximately $4.8 million, of which
   approximately $2.5 million consisted of borrowings by Frederick Brewing. In
   February 2000, SIBG converted $3.0 million of its borrowings under the SIBG
   Line of Credit into a term loan, thereby increasing the availability under
   the SIBG Line of credit by $3.0 million. Frederick Brewing is exploring
   obtaining more 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.

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 net operating losses
   during both 1999 and 1998 and no provisions for income taxes have been
   provided for on the Consolidated Statements of Operations. Frederick Brewing
   has recorded a full valuation allowance against the net deferred tax
   assets.

Impact of Year 2000 Issue

Frederick Brewing experienced no malfunctions in its
   computer hardware or software systems in connection with the change in the
   date to the year 2000. Frederick Brewing is not aware of any malfunctions or
   other related issues involving any of its third party vendors or suppliers
   associated with the change in the date to the year 2000.

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 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 December 31, 1999, 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 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 has made a $350,000 allowance reserve 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 discussions with the relevant
   authorities in the non-U.S. markets. However, since 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 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 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.

Item 7.      Financial Statements.

See Page F-1 for Index to Financial
   Statements.

Item 8.      Changes in and Disagreements with
   Accountants on Accounting and Financial Disclosure.

Reference is made to Frederick Brewing's Current
   Reports on Form 8-K, reporting under Item 4, filed December 15, 1998 and
   October 22, 1999, which described changes in Frederick Brewing's accountants
   and the basis for such changes.



PART III.

Item 9.      Directors, Executive Officers, Promoters
   and Control Persons; Compliance with Section 16(a) of the Exchange Act
   .

As of December 31, 1999, the following individuals were
   directors or officers of Frederick Brewing:

|Name                      |  | Age |  | Position                                          |  | Since          
|------------------------- |  | --- |  | ------------------------------------------------- |  | ---------------
|C. David Snyder           |  | 47  |  | Chairman, Chief Executive Officer,
     Treasurer |  | August 24, 1999
|                          |  |     |  |                                                   |  |                
|Christopher J. Livingston |  | 37  |  | President, Secretary, Director                    |  | August 24, 1999
|                          |  |     |  |                                                   |  |                
|James M. Gehrig           |  | 49  |  | Chief Financial Officer                           |  | August 24, 1999
|                          |  |     |  |                                                   |  |                
|Dale W. Bainbridge        |  | 44  |  | Director                                          |  | August 24, 1999
|                          |  |     |  |                                                   |  |                
|David L. Stith            |  | 58  |  | Director                                          |  | August 24, 1999
|                          |  |     |  |                                                   |  |                
|Glenn E. Corlett          |  | 56  |  | Director                                          |  | October 1, 1999

Mr. Snyder, prior to joining Frederick Brewing in 1999,
   was the Chairman and Chief Executive Officer of Realogic, Inc., a technology
   consulting business that Mr. Snyder started in 1993. Mr. Snyder currently
   also serves as Chief Executive Officer and Chairman of SIBG and Crooked
   River Brewing Company, LLC.

Mr. Livingston, prior to joining Frederick Brewing in
   1999, served as the Senior Vice President of LaSalle Partners, a commercial
   real estate business, from July 1993 until September 1998. As Senior Vice
   President, Mr. Livingston was responsible for the mid-west territory of the
   commercial leasing division. Mr. Livingston currently also serves as the
   President and is a member of the Board of Managers of SIBG and Crooked River
   Brewing Company, LLC.

Mr. Gehrig, prior to joining Frederick Brewing in 1999,
   was employed by Pittsburgh Brewing Company. Mr. Gehrig served as the Chief
   Financial Officer and as a director of Pittsburgh Brewing from October 1995
   to December 1997, and then also served as Chief Executive Officer from
   January 1998 to December 1998. Mr. Gehrig also currently serves as the Chief
   Financial Officer of SIBG and Crooked River Brewing Company, LLC.

Mr. Bainbridge is currently self-employed as a
   management consultant. He served as the Chief Financial Officer of Realogic,
   Inc. from June 1994 to July 1999. Mr. Bainbridge also currently serves as a
   member of the Board of Managers of SIBG and Crooked River Brewing Company,
   LLC.

Mr. Stith is retired and formerly served as the
   President of Bank One, N.A. from October 1995 to March 1999. As President,
   Mr. Stith acted as the chief executive officer of the Cleveland area and the
   head of commercial lending for Northeast Ohio. Mr. Stith was employed as the
   Chairman of Bank One Texas, N.A. from August 1992 to October 1995. In this
   position, Mr. Stith acted as the chief executive officer of the Houston
   region.

Mr. Corlett is currently employed as the Dean of the
   College of Business at Ohio University. Before joining Ohio University in
   July 1997, Mr. Corlett was employed as the Chief Operating Officer of N.W.
   Ayer, an advertising agency, from June 1993 to June 1996. Mr. Corlett also
   serves as a director of PUBCO, Inc., a manufacturer of printers and business
   supplies.

On April 3, 2000, Frederick Brewing announced that
   Albert Spinelli was hired to serve as Vice President of Operations. Mr.
   Spinelli was formerly employed by Latrobe Brewing Company since
   1974.



Section 16(a) Beneficial Ownership Reporting
   Compliance

Section 16(a) of the Securities Exchange Act of 1934,
   as amended, requires Frederick Brewing's directors, officers and persons who
   own more than 10% of a registered class of Frederick Brewing's equity
   securities to file initial reports of ownership and reports of changes in
   ownership with the Securities and Exchange Commission. Such persons are
   required by SEC regulations promulgated pursuant to the Exchange Act to
   furnish the Company with copies of all Section 16(a) report forms they file
   with the SEC.

Based solely on Frederick Brewing's review of the
   copies of report forms received by Frederick Brewing reporting persons,
   Frederick Brewing believes that all filing requirements applicable to its
   current directors, officers and persons who own more than 10% of a
   registered class of Frederick Brewing's equity securities have been timely
   complied with in accordance with Section 16(a) of the Exchange Act during
   fiscal year 1999, except that: (a) a report on Form 3 reporting the hiring
   of James M. Gehrig as Chief Financial Officer on August 24, 1999 was filed
   on March 23, 2000; (b) a report on Form 3 reporting the election of Glenn E.
   Corlett to the Board of Directors on October 1, 1999 was filed on March 23,
   2000; (c) an amendment to Form 3 reporting the hiring of C. David Snyder as
   Chief Executive Officer and Treasurer on August 24, 1999 was filed on March
   29, 2000; (d) an amendment to Form 3 reporting the hiring of Christopher J.
   Livingston as President and Secretary on August 24, 1999 was filed on March
   29, 2000; (e) a report on Form 5 reporting various transactions during 1999
   by Kevin E. Brannon, the former Chairman and Chief Executive Officer of
   Frederick Brewing, was filed on approximately March 7, 2000; and (f) a
   report on Form 5 reporting various transactions during 1999 by Marjorie A.
   McGinnis, the former President and a former director of Frederick Brewing,
   was filed on approximately March 7, 2000.

Item 10.      Executive Compensation.

The following tables and discussion set forth
   information with respect to all plan and non-plan compensation awarded to,
   earned by or paid to all individuals serving as Frederick Brewing's Chief
   Executive Officer and to Frederick Brewing's four most highly compensated
   executive officers other than the Chief Financial Officer (these officers,
   together with the individuals serving as Chief Executive Officer, are the
   "named executive officers"), for all services rendered in all
   capacities to Frederick Brewing and its subsidiaries for each of Frederick
   Brewing's last three completed fiscal years; provided, however, that no
   disclosure has been made for any executive officer, other than the Chief
   Executive Officer, whose total annual salary and bonus does not exceed
   $100,000.

TABLE 1SUMMARY COMPENSATION TABLE



|Annual Compensation                           
|----------------------------------------------
|
|Kevin E. Brannon,former Chairman and CEO(1)   
|                                              
|                                              
|                                              
|                                              
|C. David Snyder,(6)Chairman, CEO and Treasurer



|(1) |  | Mr. Brannon resigned as Chairman and Chief Executive
     Officer on August 24, 1999. He entered into a Transition Agreement with
     Frederick Brewing on August 24, 1999 and terminated this agreement
     effective October 1, 1999. See Employment Contracts and Termination
     of Employment, and Change-in-Control Arrangements for a description of the
     terms and conditions of the Transition Agreement.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|(2) |  | Mr. Brannon received $78,978 in cash compensation for
     1999. Marjorie A. McGinnis, the former President of Frederick Brewing,
     also received $78,978 in cash compensation in 1999.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Mr. Brannon also received 9,954 shares of Frederick
     Brewing common stock in lieu of unpaid salary in 1999. The aggregate fair
     market value of these shares was $10,267. On August 23, 1999, the former
     Board of Directors of Frederick Brewing approved the grant of 63,239
     shares of common stock to Mr. Brannon in settlement of $100,000 in
     severance payments owed to Mr. Brannon under his Employment Agreement,
     dated December 9, 1995. Ms. McGinnis also received the foregoing
     compensation in 1999.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | Mr. Brannon received 1,447 shares of Frederick
     Brewing common stock in lieu of unpaid salary in 1998. The aggregate fair
     market value of these shares was $9,501. Ms. McGinnis also received 1,447
     shares of Frederick Brewing common stock in lieu of unpaid salary in
     1998.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | Mr. Brannon received 267 shares of Frederick Brewing
     common stock in lieu of unpaid salary in 1997. The aggregate fair market
     value of these shares was $10,000. Ms. McGinnis also received 267 shares
     of Frederick Brewing common stock in lieu of unpaid salary in
     1997.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | Mr. Snyder receives compensation directly from SIBG.
     Frederick Brewing has entered into a one-year management agreement with
     SIBG whereby SIBG provides Frederick Brewing administrative, financial,
     operational, marketing and strategic planning services. Under this
     agreement, Frederick Brewing pays SIBG $30,000 per month for these
     services. For the fiscal year ended December 31, 1999, Frederick Brewing
     paid SIBG an aggregate of $120,000 for these services.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Contracts and Termination of Employment, and
   Change-in-Control Agreements

Frederick Brewing entered into a Transition Agreement
   with Kevin E. Brannon effective August 24, 1999. Under this Agreement, Mr.
   Brannon agreed to provide consulting services to Frederick Brewing for a
   period of six months for an aggregate amount of $63,000, payable in regular
   installments in accordance with Frederick Brewing's payroll
   policies.

Mr. Brannon had the right to terminate this Agreement
   at any time for any reason upon 45 days' prior written notice to Frederick
   Brewing. Mr. Brannon terminated the Agreement effective October 1, 1999.
   Upon this termination, Frederick Brewing became obligated to pay Mr. Brannon
   $100,000 in cash on January 4, 2000 and $50,000 in cash on January 4,
   2001.

The Agreement includes a non-competition provision,
   effective during the term of the Agreement, and for a two-year period
   following termination of the Agreement. During the two-year period after Mr.
   Brannon's termination, Mr. Brannon cannot compete with Frederick Brewing in
   the geographic area within a 100-mile radius of Frederick Brewing's brewery
   in Frederick, Maryland; (2) Crooked River Brewing Company LLC's brewery in
   Cleveland, Ohio; and (3) Royal Brewing, LLC's operations in Cincinnati,
   Ohio. Mr. Brannon's non-compete obligations are effective until October 1,
   2001.

Marjorie A. McGinnis, the former President of Frederick
   Brewing, also entered into a similar Transition Agreement with Frederick
   Brewing effective August 24, 1999.

Compensation of Directors

Frederick Brewing reimburses its directors for
   out-of-pocket expenses incurred in traveling to board meetings. In addition,
   under the Non-Employee Directors' Stock Option Plan, non-employee directors
   are entitled to receive, on the date of each annual meeting of Frederick
   Brewing's shareholders, an automatic grant of non-qualified stock options to
   purchase 2,000 shares of Frederick Brewing's common stock. The exercise
   price of each option is the fair market value of a share of Frederick
   Brewing's common stock on the date of the grant. In 1999, no options were
   granted to the non-employee directors under this Plan.



Item 11. Security Ownership of Certain Beneficial Owners and Management.

The following table gives the number of shares of
   Frederick Brewing beneficially owned as of March 6, 2000 by: (1) each person
   who is known by Frederick Brewing to be the beneficial owner of more than 5%
   of the shares of its common stock; (2) the directors and named executive
   officers individually; and (3) the directors and named executive officers as
   a group. The following information reflects the 1-for-10 reverse stock split
   that Frederick Brewing completed in March 1999. The address for all
   directors and executive officers of Frederick Brewing is 4607 Wedgewood
   Blvd., Frederick, Maryland 21703.



|Name and Address of Beneficial Owner                                                                                                              |  | Shares Beneficially Owned |        | Percent of Class
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | ----------------
|Snyder International Brewing Group, LLCc/o Quest Investment,
     LLCBaker Building, Suite
     2001940 East 6th StreetCleveland, Ohio
     44114 |  | 4,447,104                 | (1)(2) |                 
|Balmore Funds S.A.Trident ChambersRoad TownTortola, British Virgin
     Islands                                                                   |  | 709,283                   | (3)    |                 
|C. David Snyder                                                                                                                                   |  | 4,447,104                 | (4)    |                 
|Kevin E. Brannon                                                                                                                                  |  | 178,214                   | (5)    |                 
|Christopher J. Livingston                                                                                                                         |  | 4,447,104                 | (6)    |                 
|James M. Gehrig                                                                                                                                   |  | 0                         |        |                 
|Dale W. Bainbridge                                                                                                                                |  | 0                         |        |                 
|Glenn E. Corlett                                                                                                                                  |  | 0                         |        |                 
|David L. Stith                                                                                                                                    |  | 0                         |        |                 
|All directors and named executive officers as a group
     (7) persons                                                                            |  |                           |        |                 



|(1) |  | On August 24, 1999, SIBG entered into a Restructuring
     Agreement with Austost Anstalt Schaan, Balmore Funds S.A., Ron S.
     Williams, Sr., Ron Williams, Jr., Dean Dowda, Fred Lenz, World Capital
     Funding, LLC, The Augustine Fund, L.P., Jimmy Dean, Congregation Beth
     Moredechai, Bertek, Inc. and Frederick Brewing. Pursuant to the
     Restructuring Agreement, the holders (the "Preferred Shareholders
     ") of Frederick Brewing's Series F Convertible Preferred Stock, par
     value $.01 per share, and Series G Convertible Preferred Stock, par value
     $.01 per share, converted their Series F and G Preferred Stock into common
     stock and the holders of the 10% Convertible Notes, dated June 7, 1999,
     issued by Frederick Brewing, in the original principal amount of $500,000,
     were paid in full. Pursuant to Section 9.5 of the Restructuring Agreement,
     from and after August 24, 1999 until August 24, 2001, the Preferred
     Shareholders have granted to SIBG an irrevocable proxy to vote all of the
     shares of common stock then owned or controlled by the Preferred
     Shareholders, at any meeting of the shareholders of Frederick Brewing,
     however called, in favor of any proposal to (i) approve a merger or other
     business combination between or involving SIBG and Frederick Brewing which
     (A) is on reasonable terms and (B) will result in Frederick Brewing
     remaining a reporting company under the Securities Exchange Act of 1934,
     as amended, or (ii) increase the number of authorized shares of Frederick
     Brewing. After giving effect to the SIBG transaction and the restructuring
     transaction, the Preferred Shareholders owned in the aggregate
     approximately 2,155,140 shares of Frederick Brewing common
     stock.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | SIBG holds warrants to purchase shares of common
     stock at an exercise price of $0.01 per share. These warrants become
     exercisable solely in the event that warrants, options or convertible
     securities of Frederick Brewing outstanding on August 24, 1999 are
     exercised or converted after August 24, 1999.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Based on a review of Frederick Brewing's stock
     transfer agent's records as of March 6, 2000.
|--- |  | -------------------------------------------------------------------------------------------------





|(4) |  | Mr. Snyder owns approximately 94% of SIBG, which is
     the beneficial owner of 4,447,104 shares of common stock of Frederick
     Brewing. Mr. Snyder disclaims beneficial ownership of SIBG's shares of
     Frederick Brewing, except to the extent of his pecuniary interest therein.
     In addition, SIBG holds warrants to purchase shares of common stock at an
     exercise price of $0.01 per share. These warrants become exercisable
     solely in the event that options or convertible securities of Frederick
     Brewing outstanding on August 24, 1999 are exercised or converted after
     August 24, 1999.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | The number of shares shown for Mr. Brannon includes
     89,107 shares directly owned by Mr. Brannon and 89,107 shares owned by Mr.
     Brannon's wife, Marjorie A. McGinnis, the former President and a former
     director of Frederick Brewing.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) |  | Mr. Livingston owns approximately 4.42% of SIBG,
     which is the beneficial owner of 4,447,104 shares of common stock of
     Frederick Brewing. Mr. Livingston disclaims beneficial ownership of SIBG's
     shares of Frederick Brewing, except to the extent of his pecuniary
     interest therein. In addition, SIBG holds warrants to purchase shares of
     common stock at an exercise price of $0.01 per share. These warrants
     become exercisable solely in the event that options or convertible
     securities of Frederick Brewing outstanding on August 24, 1999 are
     exercised or converted after August 24, 1999.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) |  | This percentage was calculated including the
     4,447,104 shares of Frederick Brewing common stock that are beneficially
     owned by Mr. Snyder and Mr. Livingston indirectly by virtue of their
     ownership interest in SIBG.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Change in Control

In connection with the SIBG Line of Credit, SIBG has
   pledged all of its shares of Frederick Brewing as security for such line of
   credit. If there is a default under the SIBG Line of Credit, the lender will
   have the right to obtain ownership of SIBG's shares of Frederick Brewing.
   Pursuant to the demand promissory note with SIBG, Frederick Brewing has
   borrowed $2.5 million from SIBG for the fiscal year ended December 31,
   1999.

Item 12. Certain Relationships and Related Transactions.

Frederick Brewing currently leases its operating
   facilities from Blue II, which is wholly-owned by SIBG. SIBG owns 51.7% of
   the common stock of Frederick Brewing and is controlled and predominantly
   owned by C. David Snyder, Frederick Brewing's Chairman and CEO. The lease is
   recorded and accounted for as a capital lease in accordance with Statement
   of Financial Accounting Standards No. 13 "Accounting for Leases."
   Total payments made to Blue II pursuant to this lease were $350,209 for the
   fiscal year ended December 31, 1999.

Effective August 24, 1999, Frederick Brewing executed a
   demand promissory note in favor of SIBG that enables Frederick Brewing to
   borrow from SIBG on a revolving basis up to $5.0 million in aggregate
   principal amount subject to terms mutually agreeable to SIBG and Frederick
   Brewing and subject to availability under the SIBG Line of Credit.
   Currently, 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 of December 31, 1999, borrowings
   under the SIBG Line of Credit totaled $4.8 million, of which approximately
   $2.5 million consisted of borrowings by Frederick Brewing. In February 2000,
   SIBG converted $3.0 million of its borrowings under the SIBG Line of Credit
   into a term loan, thereby increasing the availability under the SIBG Line of
   Credit by $3.0 million. Total interest accrued to SIBG under the SIBG note
   as of December 31, 1999 was $70,033. The SIBG note was unanimously approved
   by the members of the Frederick Brewing board who are not members, officers
   or directors of, or otherwise affiliated with, SIBG or Crooked River Brewing
   Company, LLC. Crooked River is also controlled and predominantly owned by C.
   David Snyder.

Effective August 24, 1999, Frederick Brewing entered
   into a one-year management agreement with SIBG whereby SIBG provides to
   Frederick Brewing administrative, financial, operational, marketing and
   strategic planning services. Under this agreement, Frederick Brewing pays
   SIBG $30,000 per month for these services. For the fiscal year ended
   December 31, 1999 Frederick Brewing paid SIBG $120,000 in the aggregate for
   these services. 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, effective August 24, 1999, Frederick
   Brewing entered into a production agreement with Crooked River pursuant to
   which Frederick Brewing agreed to produce and package draft beer for Crooked
   River for up to four years, which includes automatic renewals. Crooked River
   is controlled and predominantly owned by C. David Snyder, Frederick
   Brewing's Chairman and CEO. For the fiscal year ended December 31, 1999,
   payments by Crooked River to Frederick Brewing under this agreement totaled
   $14,823, exclusive of raw materials provided by Crooked River. 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.

Effective January 1, 2000, all of 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. In connection with this transition,
   the monthly management fee paid by Frederick Brewing to SIBG was increased
   by approximately $30,000 per month which was offset by a comparable
   reduction in Frederick Brewing's salary and fringe benefit costs for such
   sales personnel.

Item 13. 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                                                                                                                                        
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                    
|3.1         |  | Amended and Restated Articles of Incorporation
     (1)                                                                                            
|            |  |                                                                                                                                                    
|(i)         |  |                                                                                                                                                    
|            |  |                                                                                                                                                    
|(ii)        |  |                                                                                                                                                    
|            |  |                                                                                                                                                    
|(iii)       |  |                                                                                                                                                    
|            |  |                                                                                                                                                    
|(iv)        |  |                                                                                                                                                    
|            |  |                                                                                                                                                    
|(v)         |  |                                                                                                                                                    
|            |  |                                                                                                                                                    
|(vi)        |  |                                                                                                                                                    
|            |  |                                                                                                                                                    
|(vii)       |  |                                                                                                                                                    
|            |  |                                                                                                                                                    
|3.2         |  | Amended and Restated Bylaws (8)                                                                                                                    
|            |  |                                                                                                                                                    
|4.1         |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Austost Anstalt Schaan, dated August 24,
     1999 (9)
|            |  |                                                                                                                                                    
|4.2         |  | Amended and Restated Common Stock
     Purchase Warrant by Frederick Brewing Co. in favor of Balmore Funds S.A.,
     dated August 24, 1999 (9)    
|            |  |                                                                                                                                                    
|4.3         |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Ron Williams, Sr., dated August 24, 1999
     (9)     
|            |  |                                                                                                                                                    
|4.4         |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Ron Williams, Jr., dated August 24, 1999
     (9)     



|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5   |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Dean Dowda, dated August 24, 1999
     (9)                                                                                                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.6   |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Fred Lenz, dated August 24, 1999
     (9)                                                                                                                                                                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.7   |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of World Capital Funding, LLC, dated August
     24, 1999 (9)                                                                                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.8   |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Edward D. Scott, dated August 24, 1999 (9)                                                                                                                                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.9   |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Catherine D. Scott, dated August 24, 1999 (9)                                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.10  |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Nicholas P. Foris, dated August 24, 1999 (9)                                                                                                                                                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.11  |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Robert Schuerholz, dated August 24, 1999 (9)                                                                                                                                                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.12  |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Vishnampet S. Jayanthimath, dated August 24, 1999
     (9)                                                                                                                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|4.13  |  | Stock Certificate (8)                                                                                                                                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.1  |  | Investment Agreement, dated August 24, 1999, by and
     between Snyder International Brewing Group, LLC and Frederick Brewing Co.
     (10)                                                                                                                                                                                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.2  |  | Restructuring Agreement, dated August 24, 1999, by
     and among Frederick Brewing Co., Snyder International Brewing Group, LLC,
     Austost Anstalt Schaan, Balmore Funds S.A., Ron S. Williams, Sr., Ron
     Williams, Jr., Dean Dowda, Fred Lenz, World Capital Funding, LLC, The
     Augustine Fund, L.P., Jimmy Dean, Congregation Beth Moredechai and Bertek,
     Inc. (10)
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.3  |  | Transition Agreement, dated August 24, 1999, by and
     between Kevin E. Brannon and Frederick Brewing Co. (10)*                                                                                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.4  |  | Transition Agreement, dated August 24, 1999, by and
     between Marjorie A. McGinnis and Frederick Brewing Co. (10)*                                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.5  |  | Escrow Agreement, dated August 24, 1999, by and among
     Frederick Brewing Co., Key Trust Company, N.A., Kevin E. Brannon and
     Marjorie A. McGinnis (10)                                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.6  |  | Common Stock Purchase Warrant, dated August 24, 1999,
     by Frederick Brewing Co. in favor of Snyder International Brewing Group,
     LLC (10)                                                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.7  |  | Settlement Agreement, dated August 24, 1999, by and
     between First Union National Bank and Signet Bank (10)                                                                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.8  |  | Settlement Agreement, dated August 19, 1999, by and
     among U.S. Small Business Administration, Snyder International Brewing
     Group, LLC and Frederick Brewing Co. (10)                                                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.9  |  | Production Agreement, dated as of August 24, 1999, by
     and between Crooked River Brewing Company, LLC and Frederick Brewing Co.
     (11)                                                                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|10.10 |  | Management Agreement, dated as of August 24, 1999, by
     and between Snyder International Brewing Group, LLC and Frederick Brewing
     Co. (11)*                                                                                                                                                                                                                                   



|10.11 |  | Demand Promissory Note, dated August 30, 1999, by
     Frederick Brewing Co. in favor of Snyder International Brewing Group, LLC
     (11)      
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                 
|10.12 |  | Lease Agreement and Option to Purchase, dated July
     17, 1996, by and between Blue II, LLC and Frederick Brewing Co.
     (12)               
|      |  |                                                                                                                                                 
|10.13 |  | Lease Modification Agreement, dated June 23, 1998, by
     and between Blue II, LLC and Frederick Brewing Co.                                   
|      |  |                                                                                                                                                 
|10.14 |  | Non-Employee Director Stock Option Plan
     (8)*                                                                                               
|      |  |                                                                                                                                                 
|10.15 |  | 1995 Stock Option Plan (8)*                                                                                                                     
|      |  |                                                                                                                                                 
|10.16 |  | Sales and Marketing Agreement, dated January 1, 2000,
     by and between Frederick Brewing Co. and Snyder International Brewing
     Group, LLC
|      |  |                                                                                                                                                 
|16.1  |  | Letter of BDO Siedman, LLP, dated October 21, 1999,
     to the U.S. Securities and Exchange Commission (13)                                    
|      |  |                                                                                                                                                 
|21    |  | List of Subsidiaries                                                                                                                            
|      |  |                                                                                                                                                 
|23.1  |  | Consent of BDO Siedman, LLP, dated April 7,
     2000                                                                                           
|      |  |                                                                                                                                                 
|23.2  |  | Consent of PricewaterhouseCoopers LLP, dated April
     11, 2000                                                                                
|      |  |                                                                                                                                                 
|27.1  |  | Financial Data Schedule                                                                                                                         

(b)   Reports on Form 8-K



---

|(1) | Incorporated by reference to Pre-effective Amendment
     No. 5 to the Form SB-2 filed with the SEC on March 5, 1996.                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                             
|(2) | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Registration Statement on Form S-3, file number
     333-25743, dated April 24, 1997.                      
|    |                                                                                                                                                                                             
|(3) | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Registration Statement on FormS-3, file number 333-35655, dated September 15,
     1997.                   
|    |                                                                                                                                                                                             
|(4) | Incorporated by reference to such exhibit as filed
     with Amendment No. 1 to Frederick Brewing's Registration Statement on Form
     S-3, file number 333-35655, filed December 4, 1997. 
|    |                                                                                                                                                                                             
|(5) | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Quarterly Report on Form 10-KSB, for the period
     ending March 31, 1998.                                
|    |                                                                                                                                                                                             
|(6) | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Registration Statement on Form S-3, file number
     333-65287, dated October 2, 1998.                     
|    |                                                                                                                                                                                             
|(7) | Incorporated by reference to such exhibit as filed
     with Amendment No. 1 to Frederick Brewing's Registration Statement on Form
     S-3, file number 333-65287, filed December 15, 1998.
|    |                                                                                                                                                                                             
|(8) | Incorporated by reference to Frederick Brewing's Form
     SB-2, filed on December 12, 1995.                                                                                                





|(9) |  | Incorporated by reference to such exhibits as filed
     with the Schedule 13D, dated August 24, 1999, with respect to Frederick
     Brewing.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------



|(10) |  | Incorporated by reference to such exhibits as filed
     with Frederick Brewing's Current Report on Form 8-K, dated August 24,
     1999.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------



|(11) |  | Incorporated by reference to such exhibits as filed
     with Frederick Brewing's Quarterly Report on Form 10-QSB for the period
     ending September 30, 1999.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(12) |  | Incorporated by reference to such exhibits as filed
     with Frederick Brewing's Quarterly Report on Form 10-QSB for the period
     ending June 30, 1996.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



|(13) |  | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Current Report on Form 8-K, dated October 22,
     1999.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------



* Management contract or compensatory plan or
   agreement.



SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange
   Act, the registrant caused this report to be signed on its behalf by the
   undersigned, thereunto duly authorized.

|Date: April 13, 2000 |  | Frederick Brewing Co.                                                                     
|-------------------- |  | ------------------------------------------------------------------------------------------
|                     |  |                                                                                           
|                     |  | /s/ C. David Snyder C. David Snyder Chairman, Chief Executive
   
   Officer and Treasurer
|                     |  |                                                                                           



In accordance with the Exchange Act, this report has
   been signed below by the following persons on behalf of the registrant and
   in the capacities and on the dates indicated.

|Date: April 13, 2000 |  | /s/ C. David Snyder C. David Snyder
   
   Chairman, Chief Executive
   
   Officer and Secretary
|-------------------- |  | -------------------------------------------------------------------------------------------------
|                     |  |                                                                                                  



|Date: April 13, 2000 |  | /s/ James M. Gehrig James M. Gehrig
   Chief Financial Officer
   (Principal Financial and Accounting
     Officer)
|-------------------- |  | -------------------------------------------------------------------------------------------------------------------
|                     |  |                                                                                                                    



|Date: April 13, 2000 |  | /s/ Christopher J. Livingston Christopher J. Livingston
   
   Director and President
|-------------------- |  | -------------------------------------------------------------------------------------
|                     |  |                                                                                      
|                     |  |                                                                                      

|Date: April 13, 2000 |  | /s/ Dale W. Bainbridge Dale W. Bainbridge
   
   Director
|-------------------- |  | ---------------------------------------------------------
|                     |  |                                                          



|Date: April 13, 2000 |  | /s/ Glenn E. Corlett Glenn E. Corlett
   
   Director
|-------------------- |  | -----------------------------------------------------
|                     |  |                                                      



|Date: April 13, 2000 |  | /s/ David L. Stith David L. StithDirector
|-------------------- |  | -----------------------------------------
|                     |  |                                          



EXHIBIT INDEX

|EXHIBIT |  | DESCRIPTION                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1     |  | Amended and Restated Articles of Incorporation
     (1)                                                                                                
|(i)     |  |                                                                                                                                                        
|(ii)    |  |                                                                                                                                                        
|(iii)   |  |                                                                                                                                                        
|(iv)    |  |                                                                                                                                                        
|(v)     |  |                                                                                                                                                        
|(vi)    |  |                                                                                                                                                        
|(vii)   |  |                                                                                                                                                        
|3.2     |  | Amended and Restated Bylaws (8)                                                                                                                        
|4.1     |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Austost Anstalt Schaan, dated August 24,
     1999 (9)    
|4.2     |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Balmore Funds S.A., dated August 24,
     1999 (9)        
|4.3     |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Ron Williams, Sr., dated August 24, 1999
     (9)         
|4.4     |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Ron Williams, Jr., dated August 24, 1999
     (9)         
|4.5     |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Dean Dowda, dated August 24, 1999
     (9)                
|4.6     |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of Fred Lenz, dated August 24, 1999
     (9)                 
|4.7     |  | Amended and Restated Common Stock Purchase Warrant by
     Frederick Brewing Co. in favor of World Capital Funding, LLC, dated August
     24, 1999 (9)
|4.8     |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Edward D. Scott, dated August 24, 1999 (9)                                     
|4.9     |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Catherine D. Scott, dated August 24, 1999 (9)                                  
|4.10    |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Nicholas P. Foris, dated August 24, 1999 (9)                                   
|4.11    |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Robert Schuerholz, dated August 24, 1999 (9)                                   
|4.12    |  | Common Stock Purchase Warrant by Frederick Brewing
     Co. in favor of Vishnampet S. Jayanthimath, dated August 24, 1999
     (9)                     



|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.13  |  | Stock Certificate (8)                                                                                                                                                                                                                                                                                                                                                                 
|10.1  |  | Investment Agreement, dated August 24, 1999, by and
     between Snyder International Brewing Group, LLC and Frederick Brewing Co.
     (10)                                                                                                                                                                                                                                          
|10.2  |  | Restructuring Agreement, dated August 24, 1999, by
     and among Frederick Brewing Co., Snyder International Brewing Group, LLC,
     Austost Anstalt Schaan, Balmore Funds S.A., Ron S. Williams, Sr., Ron
     Williams, Jr., Dean Dowda, Fred Lenz, World Capital Funding, LLC, The
     Augustine Fund, L.P., Jimmy Dean, Congregation Beth Moredechai and Bertek,
     Inc. (10)
|10.3  |  | Transition Agreement, dated August 24, 1999, by and
     between Kevin E. Brannon and Frederick Brewing Co. (10)*                                                                                                                                                                                                                                                                     
|10.4  |  | Transition Agreement, dated August 24, 1999, by and
     between Marjorie A. McGinnis and Frederick Brewing Co. (10)*                                                                                                                                                                                                                                                                 
|10.5  |  | Escrow Agreement, dated August 24, 1999, by and among
     Frederick Brewing Co., Key Trust Company, N.A., Kevin E. Brannon and
     Marjorie A. McGinnis (10)                                                                                                                                                                                                                        
|10.6  |  | Common Stock Purchase Warrant, dated August 24, 1999,
     by Frederick Brewing Co. in favor of Snyder International Brewing Group,
     LLC (10)                                                                                                                                                                                                                                     
|10.7  |  | Settlement Agreement, dated August 24, 1999, by and
     between First Union National Bank and Signet Bank (10)                                                                                                                                                                                                                                                                       
|10.8  |  | Settlement Agreement, dated August 19, 1999, by and
     among U.S. Small Business Administration, Snyder International Brewing
     Group, LLC and Frederick Brewing Co. (10)                                                                                                                                                                                                        
|10.9  |  | Production Agreement, dated as of August 24, 1999, by
     and between Crooked River Brewing Company, LLC and Frederick Brewing Co.
     (11)                                                                                                                                                                                                                                         
|10.10 |  | Management Agreement, dated as of August 24, 1999, by
     and between Snyder International Brewing Group, LLC and Frederick Brewing
     Co. (11)*                                                                                                                                                                                                                                   
|10.11 |  | Demand Promissory Note, dated August 30, 1999, by
     Frederick Brewing Co. in favor of Snyder International Brewing Group, LLC
     (11)                                                                                                                                                                                                                                            
|10.12 |  | Lease Agreement and Option to Purchase, dated July
     17, 1996, by and between Blue II, LLC and Frederick Brewing Co.
     (12)                                                                                                                                                                                                                                                     
|10.13 |  | Lease Modification Agreement, dated June 23,
     1998, by and between Blue II, LLC and Frederick Brewing Co.                                                                                                                                                                                                                                                                         
|10.14 |  | Non-Employee Directors Stock Option Plan
     (8)*                                                                                                                                                                                                                                                                                                                                    
|10.15 |  | 1995 Stock Option Plan (8)*                                                                                                                                                                                                                                                                                                                                                           
|10.16 |  | Sales and Marketing Agreement, dated January 1, 2000,
     by and between Frederick Brewing Co. and Snyder International Brewing
     Group, LLC                                                                                                                                                                                                                                      
|16.1  |  | Letter of BDO Siedman, LLP, dated October 21, 1999,
     to the U.S. Securities and Exchange Commission (13)                                                                                                                                                                                                                                                                          
|21    |  | List of Subsidiaries                                                                                                                                                                                                                                                                                                                                                                  
|23.1  |  | Consent of BDO Siedman, LLP, dated April 7,
     2000                                                                                                                                                                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                       



|     |  |                                                                 
|---- |  | ----------------------------------------------------------------
|23.2 |  | Consent of PricewaterhouseCoopers LLP, dated April
     11, 2000
|27.1 |  | Financial Data Schedule                                         
|     |  |                                                                 



---

|(1)  | Incorporated by reference to Pre-effective Amendment
     No. 5 to the Form SB-2 filed with the SEC on March 5, 1996.                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                             
|(2)  | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Registration Statement on Form S-3, file number
     333-25743, dated April 24, 1997.                      
|     |                                                                                                                                                                                             
|(3)  | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Registration Statement on FormS-3, file number 333-35655, dated September 15,
     1997.                   
|     |                                                                                                                                                                                             
|(4)  | Incorporated by reference to such exhibit as filed
     with Amendment No. 1 to Frederick Brewing's Registration Statement on Form
     S-3, file number 333-35655, filed December 4, 1997. 
|     |                                                                                                                                                                                             
|(5)  | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Quarterly Report on Form 10-KSB, for the period
     ending March 31, 1998.                                
|     |                                                                                                                                                                                             
|(6)  | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Registration Statement on Form S-3, file number
     333-65287, dated October 2, 1998.                     
|     |                                                                                                                                                                                             
|(7)  | Incorporated by reference to such exhibit as filed
     with Amendment No. 1 to Frederick Brewing's Registration Statement on Form
     S-3, file number 333-65287, filed December 15, 1998.
|     |                                                                                                                                                                                             
|(8)  | Incorporated by reference to Frederick Brewing's Form
     SB-2, filed on December 12, 1995.                                                                                                
|     |                                                                                                                                                                                             
|(9)  | Incorporated by reference to such exhibits as filed
     with the Schedule 13D, dated August 24, 1999, with respect to Frederick
     Brewing.                                              
|     |                                                                                                                                                                                             
|(10) | Incorporated by reference to such exhibits as filed
     with Frederick Brewing's Current Report on Form 8-K, dated August 24,
     1999.                                                   
|     |                                                                                                                                                                                             
|(11) | Incorporated by reference to such exhibits as filed
     with Frederick Brewing's Quarterly Report on Form 10-QSB for the period
     ending September 30, 1999.                            
|     |                                                                                                                                                                                             
|(12) | Incorporated by reference to such exhibits as filed
     with Frederick Brewing's Quarterly Report on Form 10-QSB for the period
     ending June 30, 1996.                                 
|     |                                                                                                                                                                                             
|(13) | Incorporated by reference to such exhibit as filed
     with Frederick Brewing's Current Report on Form 8-K, dated October 22,
     1999.                                                   























* Management contract or compensatory plan or
   agreement.



Frederick Brewing Co.
 
 Contents

---



|                                                                |  | Page
|--------------------------------------------------------------- |  | ----
|                                                                |  |     
|Report of PricewaterhouseCoopers LLP                            |  | F-2 
|                                                                |  |     
|Report of BDO Seidman, LLP                                      |  | F-3 
|                                                                |  |     
|Financial Statements:                                           |  |     
|                                                                |  |     
|Consolidated Balance Sheets                                     |  | F-4 
|                                                                |  |     
|Consolidated Statements of Operations                           |  | F-5 
|                                                                |  |     
|Consolidated Statements of Changes in Stockholders'
     Equity |  | F-6 
|                                                                |  |     
|Consolidated Statements of Cash Flows                           |  | F-7 
|                                                                |  |     
|Consolidated Notes to Financial Statements                      |  | F-8 



Report of Independent Accountants

To the Board of Directors and Stockholders ofFrederick Brewing Co.

In our opinion, the accompanying consolidated balance
   sheet and the related consolidated statements of operations, changes in
   stockholders' equity and cash flows present fairly, in all material
   respects, the financial position of Frederick Brewing Co. and its
   subsidiaries at December 31, 1999, and the results of their operations and
   their cash flows for the year then ended in conformity with accounting
   principles generally accepted in the United States. These financial
   statements are the responsibility of the Company's management; our
   responsibility is to express an opinion on these financial statements based
   on our audit. We conducted our audit of these statements in accordance with
   auditing standards generally accepted in the United States, which require
   that we plan and perform the audit to obtain reasonable assurance about
   whether the financial statements are free of material misstatement. An audit
   includes examining, on a test basis, evidence supporting the amounts and
   disclosures in the financial statements, assessing the accounting principles
   used and significant estimates made by management, and evaluating the
   overall financial statement presentation. We believe that our audit provides
   a reasonable basis for the opinion expressed above.

The accompanying consolidated financial statements have
   been prepared assuming that the Company will continue as a going concern. As
   discussed in Note 1 to the consolidated financial statements, the Company
   has suffered significant net losses. These conditions raise substantial
   doubt about the Company's ability to continue as a going concern. The
   consolidated financial statements do not include any adjustments that might
   result from the outcome of this uncertainty.





PricewaterhouseCoopers LLP

/s/ PricewaterhouseCoopers LLP



Cleveland, OhioMarch 31, 2000

REPORT OFINDEPENDENT CERTIFIEDPUBLICACCOUNTANTS

Board of Directors and Stockholders
 
 Frederick Brewing Co.

We have audited the accompanying consolidated balance sheet of Frederick
   Brewing Co. as of December 31, 1998, and the related consolidated statements
   of operations, stockholders' equity and cash flows for the year then ended.
   These financial statements are the responsibility of the Company's
   management. Our responsibility is to express an opinion on these financial
   statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
   standards. Those standards require that we plan and perform the audit to
   obtain reasonable assurance about whether the financial statements are free
   of material misstatement. An audit includes examining, on a test basis
   evidence supporting the amounts and disclosures in the financial statements.
   An audit also includes assessing the accounting principles used and
   significant estimates made by management, as well as evaluating the overall
   presentation of the financial statements. We believe that our audit provides
   a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
   present fairly, in all material respects, the financial position of
   Frederick Brewing Co. at December 31, 1998, and the results of their
   operations and their cash flows for the year then ended in conformity with
   generally accepted accounting principles.

The accompanying financial statements have been prepared assuming the
   Company will continue as a going concern. The Company has sustained
   significant recurring operating losses and cash flow deficits. Also, the
   Company has significant cash commitments to creditors. These factors raise
   substantial doubt about the Company's ability to continue as a going
   concern. Management's plans in regard to these matters are described in Note
   1. The financial statements do not contain any adjustments that might result
   from the outcome of these uncertainties.

| | /s/ BDO Seidman, LLP
| | --------------------
| | BDO Seidman, LLP    



Washington, DC
 
 February 8, 1999, except
 
 for Notes 1 and 8 which are as
 
 of June 30, 1999



Frederick Brewing Co.Consolidated Balance Sheets December 31, 1999 and 1998

---

|Assets                                                            | 1999                                                                | 1998                                                         
|----------------------------------------------------------------- | ------------------------------------------------------------------- | -------------------------------------------------------------
|Current assets:                                                   |                                                                     |                                                              
|                                                                  | Cash and cash equivalents                                           | $    
        49,501                                         
|                                                                  | Cash restricted                                                     | 312,475                                                      
|                                                                  | Trade receivables, net of allowance for doubtful accounts of        |                                                              
|                                                                  |                                                                     | $31,716 and $27,618 in 1999 and 1998, respectively           
|                                                                  | Inventories, net                                                    | 544,569                                                      
|                                                                  | Prepaid expenses and other current assets                           | 88,936                                                       
|                                                                  |                                                                     |                                                              
|                                                                  |                                                                     | Total current assets                                         
|                                                                  |                                                                     |                                                              
|Property and equipment, net                                       | 7,686,995                                                           | 8,019,331                                                    
|Intangibles, net of accumulated amortization of
     $125,727 and |                                                                     |                                                              
|                                                                  | $124,017 in 1999 and 1998, respectively                             | 432,538                                                      
|Goodwill, net of accumulated amortization of
     $37,286 and     | 904,175                                                             | 2,483,486                                                    
|                                                                  | $250,627 in 1999 and 1998, respectively                             |                                                              
|Other assets                                                      |                                                                    | 199,326                                                      
|                                                                  |                                                                     |                                                              
|                                                                  |                                                                     | Total assets                                                 
|                                                                  |                                                                     |                                                              
|                                                                  |                                                                     |                                                              
|Liabilities and
     Stockholders' Equity                         |                                                                     |                                                              
|                                                                  |                                                                     |                                                              
|Current liabilities:                                              |                                                                     |                                                              
|                                                                  | Current maturities of long-term debt                                | $  2,454,505                                                 
|                                                                  | Capital lease obligations, current portion                          | 44,717                                                       
|                                                                  | Accounts payable                                                    | 1,159,868                                                    
|                                                                  | Accrued liabilities                                                 | 544,229                                                      
|                                                                  |                                                                     |                                                              
|                                                                  |                                                                     | Total current liabilities                                    
|                                                                  |                                                                     |                                                              
|Long-term debt, net of current portion                            | 84,151                                                              | 1,025,197                                                    
|Capital lease obligations, net of current
     portion            | 2,606,959                                                           | 2,651,712                                                    
|                                                                  |                                                                     |                                                              
|                                                                  |                                                                     | Total liabilities                                            
|                                                                  |                                                                     |                                                              
|Commitments and contingencies                                     |                                                                     |                                                              
|                                                                  |                                                                     |                                                              
|Stockholders' equity:                                             |                                                                     |                                                              
|                                                                  | Preferred stock, $0.01 par value, 1,000,000
     shares authorized: |                                                              
|                                                                  |                                                                     | Cumulative, convertible Series A, 1,455 and
     1,543 shares
|                                                                  |                                                                     |                                                              
|                                                                  |                                                                     | Convertible Series E, 210 shares outstanding in
     1998    
|                                                                  |                                                                     | Convertible Series F, 1,000 shares outstanding
     in 1998  
|                                                                  |                                                                     | Convertible Series G, 500 shares outstanding in
     1998    
|                                                                  | Common stock, $0.0004 par value, 19,000,000
     shares authorized, |                                                              
|                                                                  |                                                                     | 8,596,211 and 1,433,335 shares issued and
     outstanding   
|                                                                  |                                                                     | in 1999 and 1998, respectively                               
|                                                                  | Additional paid-in capital                                          | 23,861,881                                                   
|                                                                  | Accumulated deficit                                                 | (21,046,608)                                                 
|                                                                  |                                                                     |                                                              
|                                                                  |                                                                     | Total stockholders' equity                                   
|                                                                  |                                                                     |                                                              
|                                                                  |                                                                     | Total liabilities and stockholders' equity                   
|                                                                  |                                                                     |                                                              
|                                                                  |                                                                     |                                                              





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





Frederick Brewing Co.
 Consolidated Statements of Operations
 for the years ended December 31, 1999 and 1998

---





|                                                                   |                                |            | 1999       |   |            | 1998       |  
|------------------------------------------------------------------ | ------------------------------ | ---------- | ---------- | - | ---------- | ---------- | -
|                                                                   |                                |            |            |   |            |            |  
|Gross sales                                                        | $                              | 3,768,629  |            | $ | 5,521,558  |           
|Less: returns and allowances                                       |                                | 812,861    |            |   | 479,108    |           
|Less: excise taxes                                                 |                                | 202,885    |            |   | 266,239    |           
|                                                                   |                                |            |            |   |           
|                                                                   |                                |            |            |   |            |            |  
|                                                                   | Net sales                      |            | 2,752,883  |   |            | 4,776,211  |  
|                                                                   |                                |            |            |   |            |           
|Cost of sales                                                      |                                | 2,986,198  |            |   | 3,604,476  |           
|Depreciation                                                       |                                | 809,913    |            |   | 739,614    |           
|                                                                   |                                |            |            |   |           
|                                                                   |                                |            |            |   |            |            |  
|                                                                   | Gross (loss) profit            |            | (1,043,228 | ) |            | 432,121    |  
|                                                                   |                                |            |            |   |            |            |  
|Selling, general and administrative expenses                       |                                | 2,480,369  |            |   | 3,519,288  |           
|Management fees                                                    |                                | 120,000    |            |   |           |           
|Impairment of goodwill                                             |                                | 1,359,751  |            |   |           |           
|Amortization and write-off of deferred public relations
     costs |                                |           |            |   | 1,131,500  |           
|                                                                   |                                |            |            |   |           
|                                                                   |                                |            |            |   |            |            |  
|                                                                   | Operating loss                 |            | (5,003,348 | ) |            | (4,218,667 | )
|                                                                   |                                |            |            |   |            |            |  
|Gain (loss) on sale or disposal of equipment                       |                                | 24,268     |            |   | (99,544    | )         
|Interest expense, net                                              |                                | 630,779    |            |   | 557,646    |           
|                                                                   |                                |            |            |   |           
|                                                                   |                                |            |            |   |            |            |  
|                                                                   | Loss before extraordinary gain |            | (5,609,859 | ) |            | (4,875,857 | )
|                                                                   |                                |            |            |   |            |            |  
|Extraordinary gain on forgiveness of debt and capital
     leases  |                                | 731,360    |            |   | 191,146    |           
|                                                                   |                                |            |            |   |           
|                                                                   |                                |            |            |   |            |            |  
|                                                                   | Net loss                       |            | (4,878,499 | ) |            | (4,684,711 | )
|                                                                   |                                |            |            |   |            |            |  
|Preferred stock deemed dividend                                    |                                |           |            |   | (420,208   | )         
|                                                                   |                                |            |            |   |           
|                                                                   |                                |            |            |   |            |            |  
|Net loss attributable to common shareholders                       | $                              | (4,878,499 | )          | $ | (5,104,919 | )         
|                                                                   |                                |            |            |   |           
|                                                                   |                                |            |            |   |            |            |  
|Basic and diluted loss per common share:                           |                                |            |            |   |            |           
|Net loss before extraordinary gain and
     preferred              |                                |            |            |   |            |           
|stock deemed dividend                                              | $                              | (1.35      | )          | $ | (4.62      | )         
|Extraordinary gain                                                 |                                | 0.18       |            |   | 0.18       |           
|Preferred stock deemed dividend                                    |                                |           |            |   | (0.40      | )         
|                                                                   |                                |            |            |   |           
|                                                                   |                                |            |            |   |            |            |  
|                                                                   | Net loss per common share      | $          | (1.17      | ) | $          | (4.84      | )
|                                                                   |                                |            |            |   |            |            |  
|Weighted average common shares (basic and diluted)                 |                                | 4,164,040  |            |   | 1,054,424  |           
|                                                                   |                                |            |            |  

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





Frederick Brewing Co.Consolidated Statements of Changes in Stockholders' Equity
 or the years ended December 31, 1999 and 1998

---







|                                                                              | Convertible
   
   Series APreferred Stock | Convertible
   
   Series C
   
   Preferred Stock | Convertible Series D
   
   Preferred Stock | Convertible
   
   Series E
   
   Preferred Stock | Convertible
   
   Series F
   
   Preferred Stock | Convertible
   
   Series G
   
   Preferred Stock | Common Stock |           |         |            
|----------------------------------------------------------------------------- | ------------------------------------------ | -------------------------------------------------- | ------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- | -------------------------------------------------- | ------------ | --------- | ------- | -----------
|                                                                              | Shares                                     | Amount                                             | Shares                                      | Amount                                             | Shares                                             | Amount                                             | Shares       | Amount    | Shares  | Amount     
|Balance, December 31, 1997                                                    | 1,828                                      | $                                                  | 655,213                                     | 2,100                                              | $                                                  | 1,762,500                                          | 1,045        | $810,000  | 2,700   | $2,325,000 
|                                                                              |                                            |                                                    |                                             |                                                    |                                                    |                                                    |              |           |         |            
|Issuance of preferred stock, net of issuance costs                            |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Fair value of warrants issued in connection with preferred
     stock         |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Deemed dividend in connection with preferred stock                            |                                           |                                                    | 28,627                                      |                                                   |                                                    |                                                   |             |          |        |           
|Conversion of Series A preferred stock to common stock                        | (285)                                      |                                                    | (102,153)                                   |                                                   |                                                    |                                                   |             |          |        |           
|Conversion of Series C preferred stock to common stock                        |                                           |                                                    |                                            | (2,100)                                            |                                                    | (1,762,500)                                        |             |          |        |           
|Conversion of Series D preferred stock to common stock                        |                                           |                                                    |                                            |                                                   |                                                    |                                                   | (1,045)      | (810,000) |        |           
|Conversion of Series E preferred stock to common stock                        |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          | (2,490) | (2,162,250)
|Pledge of common stock to management in lieu of salary                        |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Issuance of common stock for acquisition of Wild Goose                        |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Issuance of common stock for acquisition of Brimstone                         |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Employee stock options exercised                                              |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Fair value of common stock issued in connection with preferred
     stock     |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Net loss                                                                      |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|                                                                              |                                            |                                                    |                                             |                                                    |                                                    |                                                    |              |           |         |            
|Balance, December 31, 1998                                                    | 1,543                                      |                                                    | 581,687                                     |                                                   |                                                    |                                                   |             |          | 210     | 162,750    
|Conversion of Series A preferred stock to common stock                        | (88)                                       |                                                    | (33,175)                                    |                                                   |                                                    |                                                   |             |          |        |           
|Conversion of Series E preferred stock to common stock                        |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          | (210)   | (162,750)  
|Conversion of Series F preferred stock to common stock                        |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Conversion of Series G preferred stock to common stock                        |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Issuance of common stock to SIBG, net of issuance costs                       |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Issuance of common stock in lieu of salary, expense reimbursements,
     etc. |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Issuance of stock to former officers                                          |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Employee stock options exercised                                              |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Fair value of warrants issued                                                 |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Deferred compensation charge associated with issuance of
     warrants        |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|Net loss                                                                      |                                           |                                                    |                                            |                                                   |                                                    |                                                   |             |          |        |           
|                                                                              |                                            |                                                    |                                             |                                                    |                                                    |                                                    |              |           |         |            
|Balance, December 31, 1999                                                    | 1,455                                      | $                                                  | 548,512                                     |                                                   | $                                                  |                                                   |             | $        |        | $         
|                                                                              |                                            |                                                    |                                             |                                                    |                                                    |                                                    |              |           |         |            

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

Frederick Brewing Co.Consolidated Statements of Cash Flowsfor the years ended December 31, 1999 and 1998

---

|                                             |                                                                                  |                                                                            |                                           |                                           | 1999        | 1998       
|-------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ----------- | -----------
|Cash flows from operating activities:        |                                                                                  |                                                                           
|                                             | Net loss                                                                         | $(4,878,499)                                                               | $(4,684,711)                             
|                                             | Adjustments to reconcile net loss to net cash used in
     operating activities: |                                                                            |                                          
|                                             |                                                                                  | Depreciation and amortization                                              | 1,200,948                                 | 1,078,480                                
|                                             |                                                                                  | Impairment of goodwill                                                     | 1,359,751                                 |                                          
|                                             |                                                                                  | Write-off of net deferred public relations costs                           | -                                         | 1,131,500                                
|                                             |                                                                                  | Forgiveness of debt and capital leases                                     | (731,360)                                 | (191,146)                                
|                                             |                                                                                  | (Gain) loss on sale or disposal of equipment                               | (24,268)                                  | 99,544                                   
|                                             |                                                                                  | Provision for doubtful accounts                                            | 16,624                                    | 45,592                                   
|                                             |                                                                                  | Write-off of accounts receivable                                           | (12,526)                                  | (53,518)                                 
|                                             |                                                                                  | Provision for obsolete inventory                                           | (28,144)                                  | 48,208                                   
|                                             |                                                                                  | Compensation charges for fair value of stock issued in lieu
     of salary | 23,044                                    | 28,142                                   
|                                             |                                                                                  | Compensation charges for issuance of stock to former
     officers         | 200,000                                   | -                                        
|                                             |                                                                                  | Change in operating assets and liabilities:                                |                                           |                                          
|                                             |                                                                                  |                                                                            | Trade receivables                         | 164,421                                   | 156,746    
|                                             |                                                                                  |                                                                            | Inventories                               | 155,431                                   | (206,806)  
|                                             |                                                                                  |                                                                            | Prepaid expenses and other current assets | 68,970                                    | (54,430)   
|                                             |                                                                                  |                                                                            | Other assets                              | 199,326                                   | 20,231     
|                                             |                                                                                  |                                                                            | Accounts payable                          | 27,777                                    | 392,488    
|                                             |                                                                                  |                                                                            | Accrued liabilities                       | 366,578                                   | (846,442)  
|                                             |                                                                                  |                                                                            |                                           |                                           |             |            
|                                             |                                                                                  |                                                                            |                                           | Net cash used in operating activities     | (1,891,927) | (3,036,122)
|                                             |                                                                                  |                                                                            |                                           |                                           |             |            
|Cash flows from investing activities:        |                                                                                  |                                                                           
|                                             | Restricted cash                                                                  | (300,000)                                                                  | -                                        
|                                             | Purchase of property and equipment                                               | (485,391)                                                                  | (432,215)                                
|                                             | Purchase of intangibles                                                          | (2,355)                                                                    | (84,161)                                 
|                                             | Proceeds from sale of equipment                                                  | 32,081                                                                     | 100,551                                  
|                                             |                                                                                  |                                                                            |                                           |                                           |             |            
|                                             |                                                                                  |                                                                            |                                           | Net cash used in investing activities     | (755,665)   | (415,825)  
|                                             |                                                                                  |                                                                            |                                           |                                           |             |            
|Cash flows from financing activities:        |                                                                                  |                                                                           
|                                             | Proceeds from debt borrowings                                                    | 3,098,565                                                                  | -                                        
|                                             | Payments on debt obligations                                                     | (2,293,510)                                                                | (288,501)                                
|                                             | Proceeds from issuance of common stock                                           | 2,000,000                                                                  | 71,980                                   
|                                             | Offering costs associated with issuance of common and
     preferred stock       | (158,145)                                                                  | (274,584)                                
|                                             | Payments on capital leases                                                       | (44,753)                                                                   | (78,192)                                 
|                                             | Proceeds from exercise of stock options                                          | 1,937                                                                      | 1,363                                    
|                                             | Proceeds from issuance of Series F preferred stock                               | -                                                                          | 1,000,000                                
|                                             | Proceeds from issuance of Series G preferred stock                               | -                                                                          | 500,000                                  
|                                             |                                                                                  |                                                                            |                                           |                                           |             |            
|                                             |                                                                                  |                                                                            |                                           | Net cash provided by financing activities | 2,604,094   | 932,066    
|                                             |                                                                                  |                                                                            |                                           |                                           |             |            
|Net decrease in cash and cash equivalents    | (43,498)                                                                         | (2,519,881)                                                               
|Cash and cash equivalents, beginning of year | 92,999                                                                           | 2,612,880                                                                 
|                                             |                                                                                  |                                                                            |                                           |                                           |             |            
|Cash and cash equivalents, end of year       | $      
      49,501                                                             | $     
      92,999                                                       
|                                             |                                                                                  |                                                                            |                                           |                                           |             |            





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



Frederick Brewing Co.
 
 Notes to Consolidated Financial Statements

---

1.    Recent Events and Future
   Prospects

> Basis of Presentation
>  The accompanying financial statements have been
>    prepared assuming that Frederick Brewing Co. (the "Company") will
>    continue as a going concern. As explained below, the Company has sustained
>    recurring operating losses and cash flow deficits. Also, the Company has
>    significant cash commitments to creditors. These factors raise substantial
>    doubt about the Company's ability to continue as a going concern.
>    Management's plans in regard to these matters are described below. The
>    consolidated financial statements do not contain any adjustments that might
>    result from the outcome of these uncertainties.
>  Recent Events
>  Effective August 24, 1999, Frederick Brewing Co. and
>    Snyder International Brewing Group, LLC ("SIBG"), an Ohio limited
>    liability company, completed a series of transactions that resulted in SIBG
>    acquiring approximately 51% of the outstanding common stock of the Company.
>    SIBG purchased 4,447,104 newly-issued shares of the Company's common stock
>    for $2,000,000 in cash (see Note 8). Concurrently, holders of the Company's
>    Series F and Series G Convertible Preferred Stock converted their shares
>    into common stock. Furthermore, a number of the Company's creditors agreed
>    to forgive certain indebtedness in order to facilitate SIBG's investment in
>    the Company (see Note 3). The Company also entered into transition
>    agreements with two former officers pursuant to which these individuals are
>    bound by non-compete provisions through 2001 for which they will receive an
>    aggregate of $300,000 in payments. The Company also issued common stock with
>    a fair value of $200,000 to these two officers (see Note 8). The Company
>    also executed a demand promissory note with SIBG which provides for
>    borrowings of up to $5,000,000 on a revolving basis (see Notes 7 and 16).
>  Future Prospects
>  The consolidated financial statements do not include
>    any adjustments relating to the recoverability and classification of
>    recorded asset amounts or the amounts and classification of liabilities that
>    might be necessary should the Company be unable to continue as a going
>    concern. The Company's ability to continue as a going concern is contingent
>    upon its ability to secure additional financing and attain profitable
>    operations. In addition, the Company's ability to continue as a going
>    concern must be considered in light of the difficulties, expenses and
>    complications frequently encountered while attempting to enter into
>    established markets as well as the competitive market environment in which
>    the Company operates.
>  Although the Company recently completed a series of
>    financial transactions with SIBG, whereby the Company raised $2,000,000 in
>    cash for the issuance of 4,447,104 newly issued common shares of the
>    Company, and has entered into a short-term demand promissory note with SIBG,
>    which enabled the Company to substantially repay the majority of the
>    Company's secured lenders, there can be no assurance that the Company will
>    be able to secure additional financing when needed or obtain such terms
>    satisfactory to the Company, if at all, or raise additional private
>    placement investments.
>  The changes to the Company's board of directors and
>    senior management are expected to result in changes in, among other things,
>    the Company's long-term strategic direction, its distribution efforts, sales
>    and marketing focus and brewing operational plans.



> The Company's current management strongly believe that
>    the key to improving the Company's financial performance is to immediately
>    increase the utilization levels of its brewing facility. Additionally, the
>    Company's current management is directly monitoring and, as appropriate,
>    reducing overhead spending.
>  In April 1999, Nasdaq informed the Company that it had
>    delisted the Company's common stock from the NASDAQ SmallCap Market for
>    failing to maintain a minimum closing bid price of $1.00 per share.

2.    Summary of Significant Accounting
   Policies

Business

> The Company engages in the production, bottling,
>    distribution, and sale of beer primarily in the Mid-Atlantic
>    region.
>  Principles of Consolidation
>  The consolidated financial statements for the years
>    ended December 31, 1999 and 1998 include the accounts of the Company for the
>    full year, and for its wholly owned subsidiaries from the dates of their
>    acquisition. Brimstone Brewing Company ("Brimstone") was acquired
>    on January 15, 1998, and Wild Goose Brewery, Inc. ("Wild Goose")
>    was acquired on January 28, 1998. All significant inter-company accounts and
>    transactions have been eliminated in consolidation.
>  Cash and Cash Equivalents
>  Cash and cash equivalents are stated at cost, which
>    approximates fair value, and consists of amounts on hand in an operating
>    bank account and in a highly liquid short-term investment account with a
>    major bank. All cash equivalents have original maturities of three months or
>    less.
>  Restricted Cash
>  Restricted cash as of December 31, 1999 represents a
>    short-term investment of $12,475 that was pledged as collateral to ensure
>    the Company's performance of site improvement work required by the local
>    Frederick County government, and cash held in an escrow account totaling
>    $300,000 in accordance with two non-compete agreements with members of
>    former management (see Note 1).
>  Concentration of Credit Risk
>  The Company's financial instruments that are exposed to
>    concentrations of credit risk consist primarily of cash and cash equivalents
>    and accounts receivable. The Company maintains cash and cash equivalents in
>    separate accounts at a major bank. The Company has not experienced any
>    losses on these investments.
>  The Company's accounts receivable result primarily from
>    beer sales to wholesale distributors. The Company periodically assesses the
>    financial strength of its customers and provides allowances for anticipated
>    losses as necessary.





> Inventories consist of raw ingredients, work in
>    process, finished goods, and packaging materials, and are valued at the
>    lower of cost or market. Cost is determined by the first-in, first-out
>    (FIFO) method.
>  Property and Equipment







> Revenue Recognition



> Advertising costs are expensed as incurred. The Company
>    incurred advertising costs of $128,749 and $141,046 in 1999 and 1998,
>    respectively.
>  Income Taxes



> Net Loss Per Common Share
>  The Company 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 years
>    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.
>  Recent Accounting Pronouncements
>  Statement of Financial Accounting Standards No. 131,
>    "Disclosure About Segments of a Business Enterprise" ("SFAS
>    131"), establishes standards for reporting information about operating
>    segments in annual financial statements, and requires reporting of selected
>    information about operating segments in interim financial statements issued
>    after December 15, 1997. It also establishes standards for disclosure
>    regarding products and services, geographic areas and major customers. SFAS
>    131 defines operating segments as components of an enterprise about which
>    separate financial information is available that is evaluated regularly by
>    the chief operating decision maker in deciding how to allocate resources and
>    in assessing performance. Presently, the Company operates in one business
>    segment.
>  Statement of Financial Accounting Standards No. 133,
>    "Accounting For Derivative Instruments" ("SFAS 133")
>    establishes accounting and reporting standards for derivative instruments
>    and hedging activities. SFAS 133 requires an entity to recognize all
>    derivatives as either assets or liabilities and to measure those instruments
>    at fair market value. Under certain
>  circumstances a portion of the derivative's gain or loss is initially reported
>    as a component of other comprehensive income and subsequently reclassified
>    into income when the transaction affects earnings. For a derivative not
>    designated as a hedging instrument, the gain or loss is recognized in income
>    in the period of change. In June 1999, the Financial Accounting Standards
>    Board issued SFAS No.137, which deferred the effective date of adoption of
>    SFAS 133 for one year. The Company will be required to adopt SFAS 133 during
>    the first quarter of 2001. Presently the Company does not use derivative
>    instruments either in hedging activities or as investments. Accordingly, the
>    Company believes that adoption of SFAS 133 will have no impact on its
>    financial position or results of operations or cash flows.
>  In December 1999, the Securities and Exchange
>    Commission issued Staff Accounting Bulletin No. 101, "Revenue
>    Recognition" ("SAB 101") which provides guidance on the
>    recognition, presentation and disclosure of revenue in financial statements
>    filed with the Securities and Exchange Commission. The Company believes it
>    is in full compliance with guidance contained in SAB 101.
>  Use of Accounting Estimates



3.    Extraordinary Gain on Forgiveness
   of Debt

> On August 24, 1999, in order to facilitate SIBG's
>    investment in the Company, a number of the Company's creditors forgave
>    amounts owed to the Company totaling $824,662. One of the creditors was a
>    financial institution for which the Company had unamortized debt costs of
>    $93,302 that were expensed. The net amount of $731,360 of debt forgiveness
>    has been recorded in the 1999 consolidated statement of operations as an
>    extraordinary gain on forgiveness of debt.



4.    Acquisitions

> In January 1998, the Company acquired 100% of the
>    outstanding common stock and preferred stock of Wild Goose, and all the
>    brands, formulas, copy-rights, trademarks, and related intangible assets of
>    Brimstone. The consideration for Wild Goose consisted of the issuance of
>    106,893 shares of common stock with an aggregate value of $2,105,798 and the
>    assumption of $524,029 in Wild Goose liabilities. Additional consideration
>    in the form of 9,606 shares of the Company's common stock was issued to Wild
>    Goose in 1999. Consideration for Brimstone consisted of the issuance of
>    8,000 shares of the Company's common stock with an aggregate value of
>    $162,451. These acquisitions are being accounted for under the purchase
>    method of accounting.
>  The consolidated results of operations as if the
>    acquisitions had been completed at the beginning of 1998 would not be
>    materially different from those reported within the accompanying financial
>    statements.

5.    Inventories

> Inventories at December 31, consist of the
>    following:





6.    Property and
   Equipment

> Property and equipment at December 31, consist of the
>    following:







|7. |  | Debt Obligations
|-- |  | ----------------



| |  | Long-Term Debt
| |  | --------------

Long-term debt
   at December 31, consists of the following:



|                                                                                                                                                                                                  | 1999                |  | 1998                    
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------- |  | ------------------------
|Note payable to SIBG, a related party, interest at prime
     plus 1%
   
       (9.50% at December 31, 1999), due on demand (see
     Note 16)                                                   | $ 2,440,627         |  | $    
                 -
|                                                                                                                                                                                                  |                     |  |                         
|Note payable to Frederick County, interest at 6.50%, annual
     payments
   
       of $20,250, due August 2005                                                                                  | 98,029              |  | 111,060                 
|                                                                                                                                                                                                  |                     |  |                         
|Note payable to bank, interest at LIBOR plus 150 basis
     points,
   
       payments at $13,889. A portion of this debt was
     forgiven as part of
   
       SIBG's investment (see Note 3) | -                   |  | 1,197,089               
|                                                                                                                                                                                                  |                     |  |                         
|Note payable to United States Small Business
     Administration, interest at
   
       7.68%, monthly payments at $7,967                                                                        | -                   |  | 960,105                 
|                                                                                                                                                                                                  |                     |  |                         
|Notes payable to bank, monthly payments ranging from $268
     to $808,
   
       including interest ranging from 7.9% to 9.1%                                                                   | -                   |  | 30,649                  
|                                                                                                                                                                                                  |                     |  |                         
|Stockholder loans, monthly payments ranging from $425 to
     $655,
   
       including interest ranging from 10% to 11%                                                                         | -                   |  | 8,951                   
|                                                                                                                                                                                                  |                     |  |                         
|                                                                                                                                                                                                  |                     |  |                         
|Total                                                                                                                                                                                             | 2,538,656           |  | 2,307,854               
|Less current maturities                                                                                                                                                                           | 2,454,505           |  | 1,282,657               
|                                                                                                                                                                                                  |                     |  |                         
|                                                                                                                                                                                                  |                     |  |                         
|Long-term debt                                                                                                                                                                                    | $    
       84,151 |  | $ 1,025,197             
|                                                                                                                                                                                                  |                     |  |                         

Maturities of debt outstanding for the years ended December 31, are as
   follows:



|2000       | $2,454,505
|---------- | ----------
|2001       | 14,780    
|2002       | 15,741    
|2003       | 16,764    
|2004       | 17,853    
|Thereafter | 19,013    
|           |           
|           | $2,538,656
|           |           









Capital Leases

> The Company leases the land and building housing the
>    brewery. This lease is accounted for as a capital lease in accordance with
>    Statement of Financial Accounting Standards No. 13, "Accounting for
>    Leases." The Company has the option to purchase the land and building
>    during a one-year period beginning March 1, 2008 and ending March 1, 2009 at
>    a price of approximately $3,600,000. Future minimum payments under this
>    capital lease which expires on March 1, 2017 are as follows at December 31,
>    1999:





> Interest expense on debt obligations for 1999 and 1998
>    was $632,063 and $569,498, respectively. Borrowings on long-term debt are
>    collateralized by property of the Company.

8.    Stockholders'
   Equity







> During 1999 and 1998, the Company issued an aggregate
>    of 27,057 and 4,205 shares of common stock to certain members of management
>    in lieu of salary. The value of the common stock on the date pledged was
>    $23,044 and $28,142 and was recorded as compensation expense during 1999 and
>    1998, respectively.
>  On March 23, 1999, the Company's board of directors
>    approved a 1-for-10 reverse stock split of common stock. The accompanying
>    consolidated financial statements have been adjusted retroactively to
>    reflect the reverse split of all outstanding common stock.
>  During 1999, the Company issued 4,447,104 shares of the
>    Company's common stock, $0.0004 par value, to SIBG for gross proceeds of
>    $2,000,000 before considering expenses of $158,145 related to the issuance
>    (see Note 1).
>  During 1999, the former board of directors authorized
>    the Company to issue 126,478 shares of common stock to two of the former
>    officers of the Company as compensation for their efforts in facilitating
>    the SIBG investment. The value of the common stock issued was $200,000 and
>    was charged to operations as compensation expense in 1999.

9.    Stock Options







> A summary of the status of the Company's stock options
>    follows:





> At December 31, 1999 and 1998, the pro forma tax
>    effects under SFAS 109 would not have a material impact on either the
>    deferred tax asset or the valuation allowance. Had compensation expense been
>    determined based on fair value at the grant dates for option awards,
>    consistent with the method of SFAS 123, the Company's net loss attributable
>    to common shareholders and net loss per common share at December 31 would
>    have been as follows:













10.   Warrants

> During 1997, the Company entered into an agreement with
>    a third party for public and investor relations services to be rendered over
>    a five-year period. In consideration for these services the Company paid
>    $650,000 in cash and issued 500,000 warrants to purchase common stock of the
>    Company to the public relations firm. These warrants had various exercise
>    prices and terms, and expired at varying dates through March 2002. The
>    Company determined the estimated aggregate fair value of the warrants on the
>    date of the grant to be approximately $670,000. The Company recorded the
>    total consideration of $1,320,000 as deferred public relations costs and the
>    component of the total consideration related to warrants was recorded as an
>    increase to additional paid in capital. During the second quarter of 1998
>    the agreement terminated; however, the warrants still remain outstanding at
>    December 31, 1999. The remaining $1,131,500 balance of the deferred public
>    relation costs were charged to the statement of operations upon termination
>    of the agreement.
>  The Company issued 500,000 warrants to purchase common
>    stock in June 1999 to a group of investors who had loaned the Company
>    $500,000. The loan was repaid in August 1999. These warrants were
>    immediately exercisable at $0.375 per share. The Company determined the
>    aggregate fair value of the warrants at the time of the grant was not
>    material. These warrants were cancelled in August 1999 concurrent with the
>    SIBG transaction (see Note 1). Additionally, 500,000 new warrants to
>    purchase common stock were issued to this same group of investors in
>    conjunction with the SIBG transaction whereas each warrant is exercisable at
>    $0.50. These warrants are exercisable immediately and expire in August 2002.
>    The Company determined the aggregate fair value of these warrants at the
>    time of grant to be approximately $502,300 which is recorded in the
>    statement of changes in stockholders' equity as deferred compensation and
>    additional paid-in capital until such time the warrants are exercised.
>  In August 1999, the Company issued 132,000 warrants to
>    purchase common stock to the former owners of Blue II as settlement of back
>    rent and late charges. These warrants are exercisable upon grant at $1.00
>    each and expire in August 2002. These warrants remain outstanding at
>    December 31, 1999.
>  The Company also issued warrants to purchase shares of
>    common stock to SIBG at an exercise price of $0.01 per share. These warrants
>    become exercisable solely in the event that warrants, options, or
>    convertible securities of the Company outstanding at, August 24, 1999, are
>    exercised or converted after August 24, 1999. At December 31, 1999, these
>    warrants are not exercisable, but remain outstanding.

11.   Lease Commitments









12.   Contingencies



13.   Wholesale
   Distributors







14.   Employee Benefit Plan:





15.   Income Taxes

> The tax effects of the primary temporary differences
>    giving rise to the Company's deferred tax asset (liability) at December 31,
>    1999 and 1998 are summarized below:





> At December 31, 1999, the Company had net operating
>    loss carry forwards of approximately $5,539,000 expiring between 2009 and
>    2019 available to offset future taxable income for federal income tax
>    purposes. On August 24, 1999, there was a change in controlling interest of
>    the Company (see Note 1). Pursuant to the Internal Revenue Code, this
>    transaction significantly limits the ability of the Company to utilize the
>    remaining cumulative tax operating loss carryforward which existed at the
>    time of the ownership change. At this time, this limitation is estimated to
>    be $203,000 annually which if fully utilized over the 20 year carryover
>    period would result in utilization of the $4,060,000. In addition, the
>    Company has post-change loss carryforwards of $1,479,000 which are not
>    subject to the ownership change limitation.

16.   Related Parties

> The Company currently leases its operating facilities
>    from Blue II, which is wholly-owned by SIBG. The lease is recorded and
>    accounted for as a capital lease (see Note 7). Total payments made to Blue
>    II pursuant to this lease were $116,736 for the four-month period ended
>    December 31, 1999.
>  Effective August 24, 1999, the Company executed a
>    demand promissory note with SIBG that enables the Company to borrow up to
>    $5,000,000 from SIBG on a revolving basis (see Note 7). The availability of
>    this credit line is subject to SIBG's ability to maintain its credit
>    facility with a certain Cleveland, Ohio bank and may be limited to the
>    extent other entities affiliated with SIBG have outstanding borrowings from
>    SIBG. At December 31, 1999, additional amounts available to the Company from
>    SIBG under this demand note was approximately $172,000. At March 31, 2000,
>    additional amounts available to the Company from SIBG under this demand note
>    was approximately $1,982,000. Total interest accrued to SIBG as of December
>    31, 1999 was $70,033.



> Effective August 24, 1999, the Company entered into a
>    one-year management agreement with SIBG whereby SIBG provides to the Company
>    administrative, financial, operational and strategic planning services.
>    Under this agreement, the Company pays SIBG $30,000 per month for these
>    services. For the year ended December 31, 1999, the Company paid SIBG
>    $120,000 in the aggregate for these services.
>  In addition, effective August 24, 1999, the Company
>    entered into a production agreement with Crooked River Brewing Company, LLC (
>    "Crooked River") pursuant to which the Company has agreed to
>    produce and package draft beer for Crooked River for up to four years
>    including automatic renewals. Crooked River is controlled and predominantly
>    owned by SIBG.

17.   Supplemental Disclosure of Cash Flow
   Information