FREDERICK BREWING CO, 10QSB, 1998-11-05

FREDERICK BREWING CO
10QSB, 1998-11-05
MALT BEVERAGES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-QSB

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER: 0-27800

FREDERICK BREWING CO.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)

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

<TABLE>
<CAPTION>
MARYLAND 52-1769647
------------------------ ------------------------
<S> <C>
(STATE OR OTHER JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>

4607 WEDGEWOOD BOULEVARD,
FREDERICK, MARYLAND 21703
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

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(301) 694-7899
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)

Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

<TABLE>
<CAPTION>
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING AS OF SEPTEMBER 30, 1998
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Common Stock, $0.00004 Par Value 13,905,393
</TABLE>

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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<PAGE>
FREDERICK BREWING CO.
INDEX TO FORM 10-QSB

<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
<S> <C> <C>
Consolidated Balance Sheet (unaudited) September 30, 1998.......................................... 3
Consolidated Statements Of Cash Flows (Unaudited)
Three and Nine Months Ended September 30, 1998 and 1997.......................................... 4
Consolidated Statements Of Operations (Unaudited)
Three and Nine Months Ended September 30, 1998 and 1997.......................................... 5
Notes to Unaudited Consolidated Financial Statements............................................... 6
Item 2. Management's Discussion and Analysis................................................................. 10

PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................... 16
Item 2. Changes in Securities................................................................................ 16
Item 3. Defaults Upon Senior Securities...................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 16
Item 5. Exhibits and Reports on Form 8-K..................................................................... 16
SIGNATURES................................................................................................... 17
</TABLE>

2
<PAGE>
PART I.
FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FREDERICK BREWING COMPANY
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................................................... $ 190,077
Cash--restricted................................................................................... 12,475
Trade receivables, net of allowance for doubtful accounts of $35,076............................... 876,614
Inventories, net................................................................................... 916,310
Prepaid expenses and other current assets.......................................................... 325,800
-------------
Total Current Assets........................................................................... 2,321,276
-------------
Property and equipment, net........................................................................ 8,173,297
Intangibles, net................................................................................... 461,848
Goodwill, net...................................................................................... 2,551,839
Investment in joint venture........................................................................ 384
Other assets....................................................................................... 229,387
-------------
TOTAL ASSETS................................................................................... $13,738,031
-------------
-------------

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt............................................................... $ 1,325,314
Capital lease obligations, current portion......................................................... 2,902,092
Accounts payable................................................................................... 1,249,975
Accrued liabilities................................................................................ 315,867
-------------
Total Current Liabilities...................................................................... 5,793,248
-------------
Long-term debt..................................................................................... 940,434
-------------
Total Liabilities.............................................................................. 6,733,682
-------------
-------------

STOCKHOLDERS' EQUITY:
Preferred stock--$.01 par value, 1,000,000 shares authorized:
Cumulative, convertible Series A, 1,643 shares and outstanding,.................................. 614,633
Convertible Series B, 0 shares issued and outstanding............................................ --
Convertible Series C, 0 shares issued and outstanding............................................ --
Convertible Series D, 0 shares issued and outstanding............................................ --
Convertible Series E, 360 shares issued and outstanding.......................................... 434,000
Convertible Series F, 1,000 shares issued and outstanding........................................ 795,100
Common stock--$0.00004 par value, 19,000,000 shares authorized, 13,905,393 shares issued and
outstanding...................................................................................... 556
Additional paid-in capital......................................................................... 20,057,281
Accumulated deficit................................................................................ (14,897,221)
-------------
Total stockholders equity...................................................................... 7,004,349
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $13,738,031
-------------
-------------
</TABLE>

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

3
<PAGE>
FREDERICK BREWING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1998 1998
----------- 1997 ----------- 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(735,493) $(1,211,591) $(3,407,500) $(2,764,335)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization......................... 270,178 197,330 774,401 462,716
Write-off of net deferred public relations costs...... -- 1,089,000 --
Equity in loss of investee............................ (384) -- (384) --
Loss on sale of equipment............................. -- 99,545 --
Change in operating assets and liabilities:
Trade receivables.................................. (158,113) (105,985) (495,244) (297,028)
Inventories........................................ (75,474) (110,762) (438,301) (207,166)
Prepaid expenses and other current assets.......... (85,174) 82,332 (221,190) (274,315)
Other assets....................................... 13,266 (41,604) (9,830) (676,118)
Accounts payable................................... 359,647 (61,325) 931,979 (223,243)
Accrued liabilities................................ (190,990) -- (91,076) --
----------- ----------- ----------- -----------
Net cash used for operating activities.................. (602,537) (1,251,605) (1,768,600) (3,979,489)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...................... (87,123) (489,165) (320,356) (1,969,064)
Purchase of intangibles................................. (14,463) (16,002) (105,174) (142,896)
Purchase of business, net of cash acquired.............. -- -- (834,611) --
Proceeds from sale of equipment......................... -- -- 94,060 154,600
----------- ----------- ----------- -----------
Net cash used for investing activities.................. (101,586) (505,167) (1,166,081) (1,957,360)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt............................ -- -- -- 1,636,485
Payments on debt obligations & capital leases........... (96,717) (224,481) (283,222) (1,936,417)
Proceeds from issuance of preferred stock, net.......... 359,100 1,768,245 359,100 5,793,246
Proceeds from issuance of common stock, net............. 436,000 -- 436,000 --
Restricted cash......................................... -- (4,439) -- 612,888
----------- ----------- ----------- -----------
Net cash provided by financing activities............... 698,383 1,539,325 511,878 6,106,202
----------- ----------- ----------- -----------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS.... (5,740) (217,447) (2,422,803) 169,353
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................................ 195,817 435,790 2,612,880 48,990
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $ 190,077 $ 218,343 $ 190,077 $ 218,343
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

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

4
<PAGE>
FREDERICK BREWING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- --------------------------
1998 1998
----------- 1997 ----------- 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Gross Sales............................................ $ 1,603,212 $ 1,072,961 $ 4,213,059 $ 2,214,191
Less: Depletions, allowances, and excise taxes......... 189,595 147,363 490,340 305,127
----------- ----------- ----------- -----------
Net sales......................................... 1,413,617 925,598 3,722,719 1,909,064
Cost of sales..................................... 1,071,373 813,071 2,851,091 1,940,890
----------- ----------- ----------- -----------
Gross profit (loss)............................... 342,244 112,527 871,628 (31,826)
Selling, general and administrative expenses........... 863,277 1,228,191 2,665,688 2,663,738
Minority Interest...................................... 4,985 -- 4,985 --
Write-off of net deferred public relations costs....... -- -- 1,089,000 --
----------- ----------- ----------- -----------
Operating loss.................................... (526,018) (1,115,664) (2,888,045) (2,695,564)
(Gain)/loss on sale of equipment....................... -- -- 99,545 (135,523)
Interest expense, net.................................. 209,475 95,927 419,910 204,294
----------- ----------- ----------- -----------
Net loss before tax provision.......................... (735,493) (1,211,591) (3,407,500) (2,764,335)
Provision for income taxes............................. -- -- -- --
----------- ----------- ----------- -----------
Net loss............................................... (735,493) (1,211,591) (3,407,500) (2,764,335)
Preferred stock deemed dividend requirements........... (247,000) (928,626) (275,627) (2,283,080)
----------- ----------- ----------- -----------
Net loss attributable to common shareholders........... $ (982,493) $(2,140,217) $(3,683,127) $(5,047,415)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
BASIC AND DILUTED LOSS PER COMMON SHARE:
Net loss before preferred stock dividend
requirements.................................... $ (0.05) $ (0.44) $ (0.36) $ (1.23)
Preferred stock dividend requirements............. (0.02) (0.34) (0.03) (1.02)
----------- ----------- ----------- -----------
Net loss per common share......................... $ (0.07) $ (0.78) $ (0.39) $ (2.25)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average common shares outstanding............. 13,562,750 2,736,333 9,346,720 2,239,173
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>

5
<PAGE>
FREDERICK BREWING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)

NOTE 1--BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Regulation
S-B. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation of
the interim financial position and the interim results of operations of the
Company have been included.

Operating results for the three and nine months ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998, or for any other period. For information relating to
the financial position and the results of operations and cash flows of the
Company as of and for the year ended December 31, 1997, refer to the financial
statements included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997 and in its 1997 Annual Report to shareholders.

NOTE 2--PRINCIPLES OF CONSOLIDATION

The consolidated financial statements as of and for the three and nine
months ended September 30, 1998 include the accounts of the Company and its
wholly-owned subsidiaries, Wild Goose Brewery, Inc. (Wild Goose) and Brimstone
Brewing Company, Inc. (Brimstone), from their dates of acquisition during the
first quarter of 1998. (see Note 3) All significant intercompany accounts and
transactions have been eliminated in consolidation.

NOTE 3--ACQUISITIONS

In January 1998, the Company acquired 100% of the outstanding equity
securities (comprised of 50,000 shares of preferred stock and 10,000 shares of
common stock) of Wild Goose and all of the brands, formulas, copyrights,
trademarks and related intangible assets of Brimstone.

The consideration paid for Wild Goose consisted of the issuance of
1,192,086 shares of the Company's common stock with an aggregate value of
$2,419,935 plus the repayment of approximately $532,000 in notes payable and the
assumption of other liabilities. A total of 123,153 shares of the common stock
are being withheld by the Company to account for any undisclosed liabilities or
uncollectible accounts which may be discovered.

The consideration paid for Brimstone consisted of 80,000 shares of the
Company's common stock with a value of $162,000. Both the Wild Goose and
Brimstone acquisitions were accounted for under the purchase method of
accounting.

The purchase price for each acquisition has been allocated to the assets
acquired and liabilities assumed, based on their estimated fair values. The
$2,734,113 excess of the purchase price over the net assets acquired was
recorded as goodwill and is being amortized over 10 years.

Results of operation for Wild Goose and Brimstone are included with those
of the Company subsequent to the date of acquisition. Results for the three and
nine months ended September 30, 1998 reflect that all production of Brimstone
and Wild Goose products was transferred to the Company's facility in January and
February, respectively, that operations at the Wild Goose brewery ceased as of
the effective date of the acquisition (January 29, 1998) and that the Company's
gross sales from the dates of acquisition to September 30, 1998 included
$156,000 of Brimstone products and $1,414,000 of Wild Goose products.

The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisitions had been completed at the beginning of the
periods presented and does not purport to be indicative of

6
<PAGE>
FREDERICK BREWING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1998
(UNAUDITED)

NOTE 3--ACQUISITIONS--(CONTINUED)
what would have occurred had the acquisitions actually been made as of such date
or of results which may occur in the future.

<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Net sales............................................. $ 3,877,750 $ 3,616,000
Net loss.............................................. $ 3,421,244 $ 2,970,000
Basic & diluted loss per common share................. $ (0.39) $ (2.25)
</TABLE>

NOTE 4--INCOME TAXES

The Company accounts for income taxes under the asset and liability method.
The Company has not recorded a provision for income taxes for the nine month
periods ended September 30, 1998 and 1997 based on the fact that the Company has
incurred net operating losses during those periods. The Company has provided a
full valuation allowance against its net deferred tax asset as of September 30,
1998.

NOTE 5--LONG-TERM DEBT

During 1996, the Company entered into agreements to have a new brewery
built by Blue II, LLC, a limited liability company affiliated with certain
directors of the Company ('Blue II'). Blue II constructed the new brewery
building to the Company's specifications and is leasing the building to the
Company. On July 19, 1996, in connection with the purchase of the equipment to
be housed in the new brewery, the Company obtained a $1,500,000 revenue bond
from the Maryland Economic Development Corporation ('MEDCO') and a $969,000
bridge loan from a bank which has been repaid. The $1,500,000 revenue bond was
immediately assigned by MEDCO to a bank. In connection with the $1,500,000
revenue bond, the bank issued a note to the Company from the proceeds of the
revenue bond. There are certain restrictive covenants existing on the $1,500,000
note payable to the bank. Among those covenants is a cash flow to debt service
ratio. Violation of this or any other covenant would represent an event of
default on the note and also a cross default on a $3,000,000 loan obtained by
Blue II for the construction of the brewery for which the Company is a
guarantor. For both the $1,500,000 loan and $3,000,000 Blue II loan, the bank
has waived compliance with the cash flow to debt service covenant for the
calendar quarters ending March 31, 1998, June 30, 1998 and September 30, 1998.
The bank has also modified this covenant for the calendar quarter ending
December 31, 1998 and for each quarter thereafter whereby the Company must
maintain a cash flow to debt service ratio of 1.0 to 1. In addition, the bank
has modified the current ratio covenant whereby the Company must maintain a
ratio of current assets to current liabilities of 1.0 to 1 as of calendar
quarter ended March 31, 1998 and each calendar quarter thereafter. As of
September 30, 1998, the Company was in violation of the current ratio convenant
which represents an event of default on the Company's loan and the Blue II loan.
The Company is seeking a waiver from the bank relative to this violation.

In exchange for these covenant modifications, the maturity date on the
loans and the related capital lease obligation to Blue II was revised to May 1,
1999, the interest rate increased to the prime rate plus 1.25% for the Company's
loan and the prime rate plus 1.5% for the Blue II loan, the Company paid a loan
modification fee of $25,000 in two installments of $10,000 and $15,000 on June
30, 1998 and September 30, 1998, respectively, and is responsible for all fees
and expenses incurred by the bank in connection with preparation of the
modification and will use its best efforts to obtain replacement financing. The
Company and Blue II are currently negotiating with a local financial institution
to refinance the Company's long-term debt. If such a refinancing occurs, it is
likely that the interest rates will rise, the Company's rent payment to Blue II
will rise and the Company's Chief Executive Officer and President will be
required to provide personal guarantees of the $1,500,000 bond and the Blue II
building lease. While management believes this debt refinancing will be
completed during the fourth

7
<PAGE>
FREDERICK BREWING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1998
(UNAUDITED)

NOTE 5--LONG-TERM DEBT--(CONTINUED)
quarter of 1998, no assurance can be given that this will occur. As of September
30, 1998, the Company's current liabilities exceed its current assets.
Management must obtain an extension on the maturity date of these loans or an
alternative financing arrangement to continue funding its current operations and
meet its current obligations as they came due.

NOTE 6--BASIC AND DILUTED LOSS PER COMMON SHARE

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, 'Earnings Per Share,' which requires the
presentation of basic earnings per share and diluted earnings per share for all
periods presented. Basic earnings per share is based on the weighted average
number of outstanding common shares for the period. Diluted earnings per share
adjusts the weighted average for the potential dilution that could occur if
stock options, warrants, or other convertible securities were exercised or
converted into common stock. Diluted earnings per share equals basic earning per
share for all periods presented because the effect of such items was
anti-dilutive.

NOTE 7--NEW ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, 'Reporting Comprehensive Income,' and
No. 131, 'Disclosures about Segments of an Enterprise and Related Information,'
which are both effective for the year ending December 31, 1998. SFAS No. 130
establishes standards for reporting comprehensive income in a full set of
general purpose financial statements either in the income statement or in a
separate statement. SFAS No. 131 establishes standards for reporting information
about operating segments, including related disclosures about products and
services, geographic areas and major customers. The Company has adopted SFAS No.
130 during the first quarter of 1998 and has no items of comprehensive income to
report.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, 'Accounting for Derivative Instruments
and Hedging Activities.' This Statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company will be
required to adopt this new accounting standard by January 1, 2000. Management
does not anticipate early adoption. The Company believes that the effect of
adoption of SFAS No. 133 will not be material.

NOTE 8--ISSUANCES OF COMMON STOCK

The Company also issued 573,476 shares of Restricted common stock on August
3, 1998 for gross proceeds of $500,000. These shares were subsequently converted
into 500 shares of Series F Preferred Stock (see Note 9).

NOTE 9--ISSUANCE OF SERIES F PREFERRED STOCK

On September 2, 1998, the Company issued 1,000 shares of Series F Preferred
Stock for $500,000 in cash and the conversion of 573,476 shares of restricted
common stock. The Series F shares are immediately convertible into common stock
at the lesser of $0.70 per share or 80% of the average of the three lowest
closing bid prices of the common stock for the seven days preceding the
conversion. The Company has recorded a deemed dividend of $247,000 and $275,000
for the three and nine months ended September 30, 1998 to reflect

8
<PAGE>
FREDERICK BREWING CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SEPTEMBER 30, 1998
(UNAUDITED)

NOTE 9--ISSUANCE OF SERIES F PREFERRED STOCK--(CONTINUED)
the beneficial conversion feature related to this preferred stock issuance. The
deemed dividend was recognized immediately upon the issuance of the Series F
shares.

In connection with the issuance of the Series F Preferred Stock the Company
issued 200,000 warrants with exercise prices ranging from $0.75 per share to
$0.98 per share. The Company determined the aggregate value of these warrants on
the date of grant to be approximately $74,600, based on the Black Scholes
valuation model. This value was recorded as a cost of the Series F offering and
deducted from the proceeds.

9
<PAGE>
PART I.--FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
1997

OVERVIEW OF SIGNIFICANT ACTIVITIES AND EXPENSES

A net loss of ($735,493) or ($0.05) per common share was incurred during
the third quarter of 1998. This compares to a net loss of ($1,211,591) or
($0.44) per common share during the third quarter of 1997, before preferred
stock deemed dividends. The year-to-date 1998 net loss is ($3,407,500) or
($0.36) per common share, versus a 1997 year-to-date net loss of ($2,764,335) or
($1.23) per common share, again excluding the effects of the deemed dividends.

There were 13,562,750 weighted average common shares outstanding during the
three months ended September 30, 1998, and 9,346,720 weighted shares outstanding
during the nine months ended September 30, 1998. During 1997, there were
2,736,333 weighted common shares outstanding in the third quarter, and 2,239,173
weighted shares year-to-date. The increase in shares between the third quarters
of 1997 and 1998 relates primarily to the conversion of certain of the Company's
Preferred shares into common stock, and the issuance of common stock due to the
acquisition of Wild Goose Brewery, Inc. and Brimstone Brewing Company. Taking
into account the deemed dividends, which represent non-cash charges for the
discount feature associated with the Company's Series F Preferred Stock (see
Note 9 to Financial Statements, page 4, above), the net loss attributable to
common shareholders was ($982,493) or ($.07) per common share in the current
quarter versus ($2,140,217) or ($0.78) per common share in the third quarter of
1997 and ($3,683,127) or ($.39) per share for the first nine months of 1998
versus ($5,047,415) or ($2.25) per share in 1997.

The third quarter saw significant improvements in several key measures of
the Company's operations. The cost of sales, a measure of production costs, fell
to $116.04 per barrel from $142 per barrel in the same period in 1997. This
improvement was due largely to increased utilization of plant capacity which
reduced plant overhead expenses per barrel by $9.56 and a reduction of direct
labor and materials expenses by $16.12 per barrel. The Company's operating loss
was reduced by $590,076 to $526,018 in the third quarter of 1998, compared to
$1,115,664 during the same period of 1997. Despite a gross sales increase of
49%, SG&A expenses decreased by 32% over the same period of the previous year.

During the third quarter of 1998 record quarterly sales levels were
achieved. The Company's gross sales increased 49.4% to $1,603,212 from
$1,072,961 in the third quarter of 1997, on shipments of 9,233 barrels in the
current period and 5,737 barrels in 1997. Year-to-date 1998 gross sales of
$4,213,059 were 90% greater than the $2,214,191 recorded in the first nine
months of 1997. The quarterly and year-to-date sales growth is largely
attributable to: (1) sales of the Wild Goose and Brimstone brands which were
acquired in the first quarter of 1998; (2) sales of Hempen Ale and Hempen Gold
which were introduced during the second and third quarters of 1997 respectively
and the geographic distribution of which has increased steadily; and (3) the
Company's new and upgraded brewing and packaging facilities and equipment, which
reached full capacity in June of 1997.

Management believes that caution should be exercised when comparing 1997
and 1998 quarterly and year-to-date sales results. Because production at the new
brewery did not reach full capacity until June of 1997, the Company was unable
to produce sufficient quantities of all products, which artificially depressed
sales in the first and second quarters of last year. Direct production labor
costs were higher during these periods because the automated packaging equipment
did not become fully operational until the third quarter of 1997. These factors
are partially off-set by the fact that the Company had not drawn down all of the
loans or received all of the leased equipment used to construct and outfit the
new brewery until late in the second quarter and, consequently, interest,
depreciation and equipment lease expenses were lower during the first half of
1997 than in subsequent periods. Also, both Hempen Ale and Hempen Gold first
became available for full distribution during the third quarter of 1997, which
led to high levels of initial orders from numerous wholesale distributors,
temporarily boosting sales in that period. Therefore comparisons of revenues,
production costs, interest and other expenses between 1997 and 1998 may not be
fully indicative of the Company's business trend or prospects.

Management does believe, however, that the trends demonstrated by third
quarter results will continue to positively effect sales, production costs and
selling, general and administrative expenses. The sales increases

10
<PAGE>
expected from the integration of the Wild Goose and Brimstone brands appear to
have materialized, as have the production efficiencies expected as the result of
higher production and sales volumes. On-going selling, general and
administrative expenses have declined both as compared to the third quarter of
1997 and as compared to the second quarter of 1998, as the result of
cost-cutting measures taken earlier in the year and further reductions are
expected in the next two quarters.

REVIEW OF OPERATIONS

The following table sets forth certain items derived from the Company's
Statements of Operations, expressed as a percentage of net sales, for the three
month periods ended September 30, 1998 and 1997.

FREDERICK BREWING CO. SUMMARY FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES FOR THE
PERIODS
ENDED SEPTEMBER 30
------------------------------------
THREE MONTHS NINE MONTHS
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Gross Sales.................................................................. 113.4% 115.9% 113.2% 116.0%
Less Depletions, allowances and excise taxes................................. 13.4 15.9 13.2 16.0
------ ------ ------ ------
Net Sales.................................................................... 100.0 100.0 100.0 100.0
Cost of Sales................................................................ 78.7 89.5 79.3 101.4>
------ ------ ------ ------
Gross Profit/(Loss).......................................................... 21.3 10.5 20.7 (1.4)
Selling, General and Administrative Expenses................................. 53.8 114.5 63.4 120.3
Write-off of Net Deferred Public Relations Costs............................. 0.0 0.0 25.8 0.0
------ ------ ------ ------
Operating Loss............................................................... (32.5) (104.0) (68.5) (121.7)
(Gain)/Loss on Sale of Equipment............................................. 0.0 0.0 (2.4) 6.1
Interest Expense, net........................................................ (13.4) (8.9) (10.0) (9.2)
------ ------ ------ ------
Net Loss..................................................................... (45.9) (112.9) (80.9) (124.8)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>

PER BARREL OPERATING DATA

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30(1) SEPTEMBER 30(1)
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Barrels sold.......................................................... 9,233 5,737 23,800 12,277
Gross sales per barrel sold........................................... $173.64 $187.02 $177.02 $180.35
Net sales deductions per barrel....................................... 20.53 25.69 20.60 24.85
Cost of sales per barrel sold:
Direct Materials................................................. 58.13 67.02 58.83 76.04
Direct Labor..................................................... 10.71 17.94 11.50 15.96
Production overhead--Variable.................................... 12.75 20.85 13.83 21.03
Production overhead--Fixed....................................... 34.45 35.91 35.63 45.06
Total costs per barrel sold...................................... 116.04 141.72 119.79 158.09
Gross profit per barrel sold.......................................... $ 37.07 $ 19.61 $ 36.63 $ (2.59)
</TABLE>

- ------------------
(1) 1997 volumes do not include Wild Goose or Brimstone brand sales.

SALES

Gross sales in the third quarters of 1998 and 1997 were $1,603,212 and
$1,072,961 respectively, an increase of $530,251 or 49.4%. Year-to-date sales
were $4,213,059 in 1998, and $2,214,191 in 1997, a year to year increase of
$1,998,868 or 90.3%. Sales of Wild Goose and Brimstone products began late in
the first quarter of

11
<PAGE>
1998, and contributed $610,592 and $93,662 respectively to third quarter gross
sales, and $1,137,592 and $177,662 respectively to year-to-date gross sales.

Third quarter volumes shipped were 9,233 barrels in 1998 and 5,737 barrels
in 1997, an increase of 3,496 barrels or 60.9%. Year-to-date volumes shipped
were 23,800 barrels in 1998, and 12,277 barrels in 1997, a year to year increase
of 11,523 barrels or 93.9%.

Gross revenues per barrel were $173.64 in the third quarter of 1998 and
$187.02 in the third quarter of 1997, a decrease of $13.38 per barrel.
Year-to-date per barrel gross revenues were $177 in 1998 and $180 in 1997, a
decrease of $3 per barrel. The decrease for the year-to-date was caused entirely
by the decrease in the current quarter. Revenues per barrel were somewhat
inflated in the third quarter of 1997 because an unusually high proportion of
sales in that period consisted of higher-priced Hempen Ale and Hempen Gold. In
addition, during the third quarter of 1998, the Company exported to Ontario,
Canada for the first time. The Company sells this beer at a reduced price partly
because it does not pay excise taxes and incurs lower selling costs on those
shipments. Those costs are added to the price paid by Canadian retailers by the
Liquor Control Board of Ontario. The Company also sold a significant quantity of
beer to a beer club during the third quarter of 1998 at a lower price,
reflecting lower packaging and selling costs incurred on those sales.

RETURNS, DEPLETIONS AND EXCISE TAXES

Returns, depletion and other allowances (the cost of the Company's
contribution to volume discounts and marketing materials offered and used by
wholesalers to retailers) and excise taxes were $6,200 (0.4% of net revenues);
$131,498 (9.3%) and $51,900 (3.7%); respectively during the third quarter of
1998, for a total of $189,600 (13.4% of net revenues) compared to $8080(.08%);
$87,500(8.1%); and $51,800(7.0%), respectively, for a total of $147,380 (15.9%
of net revenues) during the third quarter of 1997. For the nine months ending
September 30, 1998, returns, depletion and other allowances and excise taxes
were approximately $53,400 (1.4% of net revenues); $248,900 (6.7%); and $183,000
(4.9%), respectively; for a total of $490,300 (13.2% of net revenues) compared
to $37,500 (3.8%); $60,100 (6.1%); and $60,164 (6.1%), respectively; for a total
of $157,764 (16% of net revenues) for the first nine months of 1997. The higher
rate of returns and discounts in 1997 resulted from the Company's effort to
reduce wholesaler inventory levels in the first quarter, in anticipation of new
packaging and higher quality product from the new brewery. State excise taxes
vary, depending on where the beer is to be sold. In some jurisdictions,
including Maryland and Pennsylvania, the brewer is required to pay the tax while
in others, such as the District of Columbia and Virginia, the tax is paid by the
wholesale distributor to whom the beer is shipped. State excise tax rates vary
from state to state, as well. The Company currently also pays a $7 per barrel
federal excise tax on all beer sold in the United States. The increase in excise
taxes paid was caused by the higher volume shipped. The reduction in excise
taxes as a percentage of sales in the current quarter reflects the lack of
excise taxes paid on the Canadian shipments, changes in geographic distribution
and an adjustment of certain accruals for excise taxes on prior period shipment.

COST OF SALES

Third quarter cost of sales for 1998 and 1997 were $993,071 and $813,071
respectively, (or 70.3% and 87.8% of net sales), an increase of $180,000 or
22.1% over 1997 on a gross sales increase of 49.4%. Year-to-date costs of sales
were $2,772,789 in 1998 and $1,940,890 in 1997 (or 74.5% and 101.7% of net sales
respectively) an increase of $831,899 (42.9%) on a net sales increase of 95.0%.
Production costs as a percentage of revenues declined primarily because of the
large increase in plant capacity utilization brought about by the increase in
sales. Production overhead expenses (management and supervisory salaries,
quality assurance and brewery repairs and maintenance expenses, depreciation
charges, utilities, equipment rentals and lease payments) declined from $56.76
per barrel ($325,632 on 5,737 barrels) in the third quarter of 1997 to $47.20
per barrel ($435,797 on 9,233 barrels) in the third quarter of 1998. Production
overhead expenses for the first nine months of 1998 were $1,177,148 ($49 per
barrel), and $811,387 ($66 per barrel) in 1997. The increase in production
overhead was primarily the result of owning, maintaining and operating the new
brewery for all the 1998 period compared to only a portion of the same period in
1997.

Direct variable product costs (ingredients, packaging materials and direct
production labor) were $635,600 ($69 per barrel) during the third quarter of
1998 compared to $487,416 ($85 per barrel) in 1997. For the first half

12
<PAGE>
of 1998, direct variable costs were $1,673,854 ($70 per barrel), compared to
$1,129,484 ($92 per barrel) in 1997. Bulk purchasing of raw ingredients,
primarily malted barley, glass bottles, and paper packaging materials, which
began during the second quarter of 1997 accounted for some of the reduction in
year-to-year per unit direct costs. Improved labor productivity made possible by
larger batch sizes and a higher degree of automation accounted for the remainder
of the direct reduction.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses ('SG&A') were $863,277 and
$1,228,191, a decrease of $364,914 (32%), in the third quarters of 1998 and
1997, respectively, or 61% and 132.7% of net sales in the two periods. For the
nine months ended September 30, SG&A increased by .12% to $2,665,688 (72.6% of
net sales) in 1998 compared to $2,663,738 (139.5% of net sales) in 1997.

The Company instituted an SG&A expense reduction program during the second
quarter of 1998. The goal of the program was to reduce annual personnel-related
expenditures by approximately $375,000 below first quarter 1998 levels. Six
salaried staff positions were eliminated, and senior management accepted salary
reductions in exchange for restricted stock. Additional expense reductions were
also instituted during the third quarter. Compared to the second quarter of
1998, recurring SG&A expenses for the third quarter were reduced by $191,794
(18%) on nearly flat sales volumes indicating that the overhead expense
reduction program is generating positive results. Management expects to further
reduce overhead expenses in the fourth quarter. Additional expense reductions
have been budgeted for 1999 and are expected to lead to further savings in the
first half of next year.

INTEREST EXPENSE (NET)

Net interest expense was $209,475 in the third quarter of 1998 compared
with $95,927 in 1997. Year-to-date 1998 net interest expense was $419,910
reflecting interest income of $11,851 and interest expense of $431,761, versus a
1997 net interest expense of $204,294.

INCOME TAX PROVISION

The Company has incurred net operating losses during both 1998 and 1997
and, accordingly, no provisions for income taxes have been provided on the
Statements of Operations. The Company has recorded a full valuation allowance
against the net deferred tax asset.

LIQUIDITY AND CAPITAL RESOURCES

Due to losses experienced during the start-up, rapid expansion of Company
operations and brand acquisitions, operations to date have been funded primarily
from private and public placements of common and preferred stock and by loans
from stockholders and financial institutions. As of September 30, 1997, the
Company had working capital of $311,450. The Company will require additional
working capital to fund its operations in the near term. Management is working
with several financial intermediaries in efforts to raise additional working
capital, through long-term debt or equity or both. While management is confident
that these efforts will succeed, no assurance can be given that the needed
working capital will be obtained or if so that it will be offered on terms
acceptable to the company or its secured lender. Failure to raise the required
working capital would result in the Company being unable to continue its
business.

On August 3, 1998, the Company closed a private placement of 573,476 shares
of restricted common stock for gross proceeds of $500,000 with two foreign
investors. On September 2, 1998, the Company closed an additional private
placement for an additional $500,000 with the same two investors. As a condition
of the second financing, the company agreed to redeem the previously issued
restricted common stock and issued a total of $1,000,000 in Series F Convertible
Preferred Stock to those investors. A registration statement on Form S-3 was
filed with respect to the underlying common stock on October 2, 1998. The
proceeds of these offerings were used for working capital, the purchase and
installation of brewery equipment to improve wastewater treatment systems to
governmentally required standards and reduce labor costs and for the design and
production of new packaging and marketing to be used in the production of new
brands acquired via strategic alliances.

13
<PAGE>
The commercial mortgage on the land and building comprising the Company's
brewery and the term loan secured by the Company's brewing equipment, current
assets, trademarks and goodwill are due to be paid in full to First Union
National Bank on April 1, 1999. Management has worked with the owner of the real
estate assets, Blue II LLC, to refinance the mortgage loan and expects that this
loan will be re-financed on a long-term basis during the fourth quarter of 1998
by a local commercial bank. Management has applied to similarly refinance the
equipment loan. Management is confident that both loans will be re-financed on a
long-term basis before the end of 1998. However, the Company does not have a
legally binding commitment for re-financing either loan. Consequently, both the
equipment loan and the Company's capital lease obligation have been
re-classified from long-term liabilities to current liabilities, reflecting the
fact that the obligations are due in full within one year of the date of this
report (See Note 5 to Financial Statements, page 3).

Net cash used for operations in the third quarter of 1998 was $602,537,
versus $1,251,605 in the third quarter of 1997. Year-to-date net cash used for
operations was $1,768,600 in 1998 and $3,979,489 in 1997.

Net cash used for investing was $101,970 in the third quarter of 1998
versus $505,167 in the third quarter of 1997. Investment funds used year-to-date
was $1,166,465 in 1998, and $1,957,360 in 1997.

Net cash provided from financing in the third quarter of 1998 was $698,383
versus $1,539,325 for the same period in 1997. Financing usage called for
$511,878 year-to-date 1998 versus an inflow of funds of $6,106,202 in 1997 due
to greater proceeds from issuance of preferred stock in 1997.

The Company, however, has received a letter dated September 15, 1998 (the
'Notice Letter') from the Nasdaq Stock Market, Inc. ('Nasdaq') stating that the
common Stock may be delisted from the Nasdaq SmallCap Market for failure to
maintain a minimum bid price of $1.00 per share. The Notice Letter further
stated that the Common Stock had failed to maintain a closing bid price greater
than or equal to $1.00 per share during the thirty consecutive trading days
prior to September 15, 1998. The Notice Letter further stated that if the
Company failed to demonstrate compliance through achieving a closing bid price
of $1.00 per share for ten consecutive trading days during the ninety calendar
day period ending December 14, 1998, the Common Stock would be subject to
delisting. Delisting of the Common Stock would adversely affect the price of the
Common Stock and the ability of holders to sell their shares. In addition, in
order to be relisted on Nasdaq, the Company would be required to comply with the
initial listing requirements, which are substantially more onerous than the
listing maintenance standards.

IMPACT OF INFLATION

Although the Company has not attempted to calculate the effect of
inflation, management does not believe inflation has had a material effect on
its results of operations. Material increases in costs and expenses,
particularly packaging, raw material and labor costs, in the future, could have
a significant impact on the Company's operating results to the extent that the
effect of such increases cannot be transferred to its customers.

IMPACT OF YEAR 2000 ISSUE

The Company is implementing a comprehensive project plan to identify
internal and external systems which may require modification or upgrade to be
made Year 2000 compliant. A complete inventory and assessment of these systems
is expected to be concluded by the end of 1998. Remediation and testing of
non-Year 2000 compliant systems is expected to be completed by the end of the
third quarter 1999. As part of this project the Company expects to develop
contingency plans by the third quarter of 1999 which identify workarounds in the
event of a malfunction of a system designated as a priority system. In addition,
the Company is in the process of identifying suppliers of key goods and services
to all business areas, and requesting information on a continuing basis into
2000, and, to develop contingency plans where the information provided raises
significant concerns about a vendors ability to supply the Company on an
uninterrupted basis during the 2000 transition. To date, costs directly related
to Year 2000 remediation efforts are immaterial. The Company believes that the
cost of modifications necessary to become Year 2000 compliant will not be
material. There can be no assurance, however, that the Company will be able to
identify all aspects of its business that are subject to Year 2000 problems, or
identify Year 2000 problems of customers or suppliers that affect the Company's
business. There also can be no assurance that the Company's software vendors are
correct in their assertions that the software is

14
<PAGE>
Year 2000 compliant or that the Company's estimate of the costs of systems
preparation for Year 2000 compliance will prove ultimately to be accurate.

FORWARD-LOOKING INFORMATION

The Private Securities Litigation Reform Act of 1995 provides a 'safe
harbor' for certain forward-looking statements made by the Company in its
disclosures to the public. There is certain information contained herein, in the
Company's press releases and in oral statements made by authorized officers of
the Company which are forward-looking statements, as defined by such Act. When
used herein, in the Company's press releases and in such oral statements, the
words 'estimate,' 'project,' 'anticipate,' 'expect,' 'intend,' 'believe,'
'plans,' and similar expressions are intended to identify forward-looking
statements. Because such forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by such forward-looking
statements.

15
<PAGE>
PART II.
OTHER INFORMATION
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997

FREDERICK BREWING CO.

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES

During the three months ended September 30, 1998, the Company issued
2,310,759 shares of common stock upon the conversion of 100 shares of Series C,
1405 shares of Series E Preferred Stock, and the exercise of 1558 employee stock
options. As a result, 13,905,393 of the Company's 19,000,000 authorized shares
of common stock had been issued, as of September 30, 1998. On September 2, 1998,
the Company issued 1,000 shares of Series F Preferred Stock in a private
placement with two investors. The Series F Preferred Stock is convertible into
common stock at the lesser of $0.70 or eighty percent (80%) of the average of
the three lowest closing bid prices of the common stock for the seven days
preceding the conversion. As of November 2, 1998, an additional 372,135 shares
had been issued upon the conversion of 150 shares of Series E Preferred Stock
for a total of 14,277,529 common shares, 1643 Series A Preferred Shares and 210
shares of Series E Preferred Stock and 1,000 Series F Preferred Shares
outstanding.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Due to the fact that certain long-term debt and capital lease obligations
have to be re-classified as current liabilities, the Company will be in
violation of modified covenants in both loans made by First Union National Bank
which require the Company to maintain a current ratio of not less than 1:1.
Management believes the Bank will waive this violation for the balance of 1998,
given current efforts to re-finance both loans.

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

Not applicable.

ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits Filed:

Index to Exhibits

<TABLE>
<C> <S>
10 Material Contracts
None.
27 Financial Data Schedule
99 Safe Harbor Under the Private Securities Litigation Reform Act of 1995
99.1 Press Release, July 20, 1998
99.2 Press Release, July 20, 1998
99.3 Press Release, August 10, 1998
99.4 Press Release, August 17, 1998
99.5 Press Release, August 28, 1998
99.6 Press Release, September 14, 1998
99.7 Press Release, September 14, 1998
99.8 NASDAQ Letter
</TABLE>

(b) Reports on Form 8-K

As filed on April 10, 1998.

16
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

FREDERICK BREWING CO.

<TABLE>
<S> <C>
Date November 5, 1998 /s/ KEVIN E. BRANNON
Kevin E. Brannon
Chairman of the Board and
Chief Executive Officer

Date November 5, 1998 /s/ LESLIE P. HARPER
Leslie P. Harper
Chief Financial Officer
</TABLE>

<ARTICLE> 5
<CIK> 0000926978
<NAME> Frederick Brewing
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars

<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> Dec-31-1998 Dec-31-1998
<PERIOD-START> Jul-01-1998 Jan-01-1998
<PERIOD-END> Sep-30-1998 Sep-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 190,077 190,077
<SECURITIES> 12,475 12,475
<RECEIVABLES> 876,614 876,614
<ALLOWANCES> 0 0
<INVENTORY> 916,310 916,310
<CURRENT-ASSETS> 2,321,276 2,321,276
<PP&E> 9,108,472 9,108,472
<DEPRECIATION> 935,175 935,175
<TOTAL-ASSETS> 13,738,031 13,738,031
<CURRENT-LIABILITIES> 5,793,248 5,793,248
<BONDS> 0 0
0 0
1,843,733 1,843,733
<COMMON> 556 556
<OTHER-SE> 5,160,060 5,160,060
<TOTAL-LIABILITY-AND-EQUITY> 13,738,031 13,738,031
<SALES> 1,413,617 3,722,719
<TOTAL-REVENUES> 1,413,617 3,722,719
<CGS> 1,071,373 2,851,091
<TOTAL-COSTS> 1,071,373 2,851,091
<OTHER-EXPENSES> 868,262 3,859,218
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 209,475 419,910
<INCOME-PRETAX> (735,493) (3,407,500)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 247,000 275,627
<CHANGES> 0 0
<NET-INCOME> (982,493) (3,683,127)
<EPS-PRIMARY> (.05) (.36)
<EPS-DILUTED> (.07) (.39)

</TABLE>

Exhibit 99.1

FOR IMMEDIATE RELEASE: CONTACT: Andrea J. Keller
July 20, 1998 Frederick Brewing Co.
301-694-7899, x120

Wild Goose Brewery Goes Nuts
Over New Seasonal Beer
Wild Goose(TM) Nut Brown Ale Available August 17, 1998

FREDERICK, MD--Wild Goose Brewery announced today the return of its famous fall
seasonal, Nut Brown Ale. First released in 1996, Wild Goose(TM) Nut Brown Ale is
brewed in the classic London style--nutty-tasting, well-rounded and rich, with
pale, amber and chocolate malts, and English Northdown hops and East Kent
Goldings for a smooth finish. A true British "session ale" to be shared with
friends.

Wild Goose(TM) Nut Brown Ale Specifications:
MALTS: Pale, Crystal, Amber, Chocolate, Carapils, Wheat
HOPS: Northdown, East Kent Goldings
BITTERNESS: Low to Medium
COLOR: Medium brown
GRAVITY: 12.5 Plato (1.050 O.G.)
ALCOHOL: 5.2%

One of the East Coast's first microbreweries, Wild Goose Brewery, Inc. was
founded in 1989. Since then, Wild Goose(TM) has been known for its traditional,
hand-crafted, English-style ales, which are made with only the finest imported
British malted barley and Ringwood yeast. Named one of the "Top 10 Breweries of
the Year" by the 1997 World Beer Championships, Wild Goose(TM)'s award-winning,
year-round styles include Wild

- more -

<PAGE>

Wild Goose Brewery Releases Nut Brown Ale
Page 2 of 2

Goose(TM) India Pale Ale, Wild Goose(TM) Amber, Wild Goose(TM) Porter and Wild
Goose(TM) Oatmeal Stout.

Founded in 1992 with the Blue Ridge brand of beers, Frederick Brewing Co.
completed an initial public offering (IPO) in 1996. In March 1997, the company
moved from a converted warehouse to a purpose-built, 57,000 square foot
facility. In December 1997, FBC acquired two other microbreweries, Wild Goose
Brewery and Brimstone Brewing Co., creating the largest craft brewery in the
Mid-Atlantic region. Today, Frederick Brewing Co.'s award-winning beers are sold
in 31 states and the District of Columbia. FBC shares are traded under the
NASDAQ symbol: BLUE.

Free public tours and tastings are held at Frederick Brewing Co.'s brewery every
Saturday and Sunday at 1:30 p.m. Reservations are not required. Directions are
available by calling the brewery at 888-258-7434, visiting the Frederick Brewing
Co. website at http://www.fredbrew.com, or referring to the map on the bottom of
a six-pack. Downloadable label artwork and brewery photographs are available at
http://www.fredbrew.com/prphotos.

# # #

Exhibit 99.2

FOR IMMEDIATE RELEASE: CONTACT: Kimberly Cheseldine
July 20, 1998 Frederick Brewing Co.
301-694-7899 x113

I.W. Miller Group
714-833-9001

FREDERICK BREWING CO. REPORTS GROWTH IN SALES, DISTRIBUTION
FBC Closes Second Quarter with Revenue and Barrellage Increases of 82%

FREDERICK, MD - Frederick Brewing Co. (NASDAQ: BLUE) announced today that the
Company's second quarter, ended June 30, 1998, saw rapid revenue gains and
increased distribution. The Company also announced cost-cutting measures and a
series of strategic alliances that are expected to boost revenue and improve
capacity utilization in future periods.

Frederick Brewing Co. (FBC) gross revenues for the second quarter were
approximately $1.6 million on shipments of 8,861 barrels. These sales represent
a revenue gain of 82% and a barrellage increase of 82% over the same period last
year ($875,000 in revenues on 4,864 barrels shipped).

Second quarter 1998 results are the first to reflect a full quarter's sales of
the Company's newly-acquired Wild Goose(R) and Brimstone(TM) brands, sales of
which were not included in figures for the second quarter of 1997.

For the first six months of 1998, gross revenues have increased 129% ($2.6
million for 1998 v. $1.14 million for 1997) and shipments have increased 120%
(14,657 barrels in 1998 v. 6611 in 1997).

"We attribute the sales increase to the Company's intensified local marketing
efforts, increased distribution of the Hempen(TM) brands, and stronger consumer
demand for the Wild Goose(R) and Brimstone(TM) brands," said FBC President and
COO Marjorie McGinnis. She also noted that the increases were achieved despite
the elimination of several beer styles from the Blue Ridge(R) and Wild Goose(R)
product lines. These discontinued products had accounted for approximately ten
percent of the combined companies' sales in 1997.

Distribution of the Company's Hempen(TM) brands increased to include the San
Francisco Bay Area and Southern California. Authorization for product
distribution has been obtained in

<PAGE>

several New York and New Jersey chain stores, including A&P, Food Emporium and
Shop Rite, and nearly 3,000 cases of FBC beer have arrived in China for
distribution in June 1998.

Frederick Brewing Co. Chairman and CEO Kevin Brannon stated that the quarter's
results were encouraging. "Compared to last year, we sold a lot more beer while
reducing our sales and marketing spending and holding our other overhead
spending at virtually the same levels." He also said the Company has implemented
a cost reduction program, reducing annual personnel expenditures by
approximately $200,000 below the levels of the first quarter of 1998. Brannon
said five salaried positions have been eliminated and senior managers have
accepted salary reductions totaling $37,000 in exchange for grants of restricted
stock. Brannon said the savings would be fully realized beginning in the current
(third) quarter. The write-off of the terminated investor relations contract
eliminates an ongoing charge of approximately $68,000 per quarter, further
improving future results.

FBC also announced three strategic alliances that the Company expects to
increase plant utilization, margins and revenues by as much as $2 million
annually, beginning the fourth quarter of 1998:

In a joint venture with C&L Brewing Co., a wholly-owned
African-American firm, FBC will produce a new brand of beer targeted
toward a fast-growing influential segment of the marketplace. Marketing
is scheduled to begin September 1998 in the Mid-Atlantic region.

FBC has contracted with Toronto-based, Imported Brands of Canada, an
experienced alcohol beverage importer, to represent the Hempen(TM)
brands in the highly regulated Canadian market. The first shipments to
Ontario should begin in August. Applications are pending in other
provinces.

FBC has executed a letter of intent with AAM Group, Inc., a Maryland
importer of Belgian beer, to produce a proprietary brand for export to
Northern China. The brand will be distributed in China by the Harbin
Brewery, the dominant regional brewer in the province that includes
Harbin city, with a population of approximately 5 million.

FBC President and COO Marjorie McGinnis said she could not accurately predict
the revenues that would result from these deals, but did say, based on
preliminary forecasts, FBC could achieve new revenues of $2 million per year,
beginning in the fourth quarter of 1998. "Assuming these relationships are as
successful as anticipated, the resulting revenues will go

<PAGE>

a long way toward utilizing our excess capacity, improving our production
efficiency and increasing our margins," McGinnis said.

Complete second quarter results will be reported on August 4, 1998. Third
quarter reports should be available November 3, 1998.

Except for historical information, this press release contains forward-looking
statements that involve risks and uncertainties including, but not limited to,
quarterly fluctuations in results, the actual management of growth, competition
and other risks detailed in the Company's SEC filings. Actual results may differ
materially from such information set forth herein.

# # #

Exhibit 99.3

FOR IMMEDIATE RELEASE: CONTACT: Andrea J. Keller
August 10, 1998 Frederick Brewing Co.
888-258-7434, x120

WILD GOOSE BREWERY SAVES THE BAY
Wild Goose and Chesapeake Bay Foundation Work
to Preserve Oyster Population in Bay

FREDERICK, MD--Wild Goose Brewery announced today its co-sponsorship of the
Chesapeake Bay Foundation (CBF) Adopt-an-Oyster program, committed to preserving
the oyster population in the Chesapeake Bay.

Together with Annapolis-based WRNR Radio, Wild Goose Brewery, Inc. and the
Chesapeake Bay Foundation (CBF) are encouraging consumers to "adopt" oysters and
help preserve the future of the Bay. Wild Goose summer beer displays feature
tear cards giving consumers the opportunity to donate $10 to support CBF's reef
restoration and oyster gardening projects, as well as CBF efforts to rebuild
oyster reefs by purchasing oysters from Tangier watermen and transplanting them
on protected reefs.

"We're very excited to participate in the CBF's Adopt-an-Oyster program," said
Jim Lutz, president of Wild Goose Brewery. "This is an excellent program and
although we have relocated to Frederick, we remain committed to the Chesapeake
Bay region and increasing awareness of the Chesapeake Bay Foundation's efforts
to preserve the future of the Bay."

The health of the Chesapeake Bay is in jeopardy. Less than one percent of
historic levels of oysters remain today. A hundred years ago, the Chesapeake Bay
oyster population could filter the entire Bay in three to six days. Today, it
would take the existing oyster stocks at least a year to do the same job. As
filter feeders, oysters remove sediment and algae that are harmful to the Bay's
plants and animals--a healthy adult oyster can filter about 50 gallons of water
a day.

The Chesapeake Bay Foundation is the largest nonprofit organization working to
restore and sustain the Bay's ecosystem. With more than 83,000 members
nationwide, CBF supports programs in environmental education and resource
protection.

<PAGE>

Wild Goose Brewery Saves the Bay
Page 2 of 2

Named one of the Top Ten Breweries in the World by the World Beer Championships
in 1997, Wild Goose Brewery, Inc. is committed to helping preserve the
Chesapeake Bay watershed. Partners since 1995, the brewery and CBF are working
together to ensure the future of the Bay through the Adopt-an-Oyster program.
Look for Wild Goose Adopt-an-Oyster donation tear cards on Wild Goose beer
displays at your local retailer, and visit Wild Goose and WRNR radio at your
favorite bars and restaurants this summer.

# # #

Exhibit 99.4

FOR IMMEDIATE RELEASE: CONTACT: Kym Cheseldine
August 17, 1998 Frederick Brewing Co.
301-694-7899 x113

I.W. Miller Group
714-833-9001

Frederick Brewing Co. Rapid Revenue, Distribution Gains
to be Reviewed in "Open Line" Teleconference

FREDERICK, MD - Frederick Brewing Co. (NASDAQ: BLUE) announced today that
members of the executive management team will be available to discuss the second
quarter's results as part of an "open line" teleconference scheduled for August
18, beginning shortly after the market close at 4:15 p.m. Eastern Time (3:15
p.m. Central/2:15 p.m. Mountain/1:15 p.m. Pacific).

All current and prospective shareholders, institutional portfolio managers,
investment brokers, securities analysts, members of the brokerage community,
representatives of the trade and general business media and other interested
parties are welcome to participate in this conference call.

To take part in the Frederick Brewing Co. teleconference, which can be accessed
toll-free from anywhere in the U.S., participants are simply required to dial
800-230-1951 and register their name and corporate affiliation. International
callers can dial 612-332-0228 to participate.

Second quarter gross revenues were approximately $1.6 million on shipments of
8,861 barrels. These sales represent a revenue gain of 82% and a revised
barrellage increase of 82% over the same period last year ($875,000 in revenues
on 4,864 barrels shipped).

For the first six months of 1998, Frederick Brewing Co. gross revenues increased
136% ($2.6 million for 1998 v. $1.1 million for 1997) and shipments increased
127% (14,657 barrels in 1998 v. 6,470 in 1997).

Founded in 1993, Frederick Brewing Co. completed a successful initial public
offering (IPO) in 1996. In March 1997, the company moved from a converted
warehouse to a purpose-built, 57,000 square foot facility. In December 1997,
Frederick Brewing Co. merged with two other Maryland microbreweries, Wild Goose
Brewery, Inc. of Cambridge, MD and Brimstone Brewing Company of Baltimore, MD,
creating the largest craft brewery in the Mid-Atlantic region. Today, Frederick
Brewing Co.'s award-winning beers are sold in 33 states and the District of
Columbia.

# # #

Exhibit 99.5

FOR IMMEDIATE RELEASE: CONTACT: Andrea J. Keller
August 28, 1998 Frederick Brewing Co.
888-258-7434, x120

HEMP BEER TAKES OFF!
Frederick Brewing Co.'s Hempen Ale(TM) Now Available
at Burbank-Glendale International Airport

FREDERICK, MD -- Frederick Brewing Co. (NASDAQ: BLUE) announced today that its
award-winning beer, Hempen Ale(TM) -- North America's first craft beer brewed
with hemp seeds -- is now available at all five bars in California's
Burbank-Glendale International Airport.

"This is further affirmation that Hempen Ale(TM) and Hempen Gold(TM) are
exciting new products that have just taken off!" said Frederick Brewing Co.
(FBC) President and COO Marjorie McGinnis. "We hope next to introduce both beers
to Los Angeles-area chain and independent retail stores."

The hemp seeds used in Hempen Ale(TM) and Hempen Gold(TM) do not contain
tetrahydrocannabinol (THC), the psychoactive ingredient in marijuana, although
hemp and marijuana are botanically related. The U.S. Bureau of Alcohol, Tobacco
and Firearms has approved both Hempen Ale(TM) and Hempen Gold(TM) for
distribution.

In 1997, Hempen Ale(TM) was awarded a bronze medal for brewing excellence in the
herb/spice category at the 16th Great American Beer Festival(TM), the nation's
largest and most prestigious beer event. Hempen Ale(TM) was also an award-winner
at the 1997 Hemp Industries Association conference, where it was recognized by
HempWorld magazine for product innovation. Most recently, as mentioned in the
June 1998 issue of Progressive Grocer magazine, Hempen Ale(TM) has been selected
as one of eight American products -- representing the most distinguished
products from the United States -- in the competition for the international Sial
D'or food industry awards.

Founded in 1993 with the Blue Ridge brand of beers, Frederick Brewing Co.
completed an initial public offering (IPO) in 1996. In March 1997, the company
moved from a

<PAGE>

converted warehouse to a purpose-built, 57,000 square foot facility. In December
1997, FBC acquired two other microbreweries, Wild Goose Brewery, Inc. and
Brimstone Brewing Co., creating the largest craft brewery in the Mid-Atlantic
region. Today, Frederick Brewing Co.'s award-winning beers are sold in 33 states
and the District of Columbia. FBC shares are traded under the NASDAQ symbol:
BLUE.

# # #

Exhibit 99.6

FOR IMMEDIATE RELEASE: CONTACT: Andrea J. Keller
September 14, 1998 Frederick Brewing Co.
301-694-7899,x120

Wild (Winter) Goose is Back
SnowGoose(TM) Winter Ale Available October 19, 1998

FREDERICK, MD--Wild Goose Brewery announced today the return of SnowGoose(TM)
Winter Ale, first brewed the winter of 1992. A rich ale, SnowGoose(TM) has a
round, toasty body and a vibrant finish of Cascade, Willamette, Fuggles and East
Kent Goldings hops. And this award-winning seasonal ages well--enjoy its
complexity and earthy oakness long after the snow has melted away. Gold and
silver medal winner at the World Beer Championships.

This year's SnowGoose(TM) Winter Ale features new packaging and label artwork
created by Studio 105 of Shepardstown, West Virginia.

Wild Goose(R) SnowGoose(TM) Winter Ale Specifications:

MALTS: Pale, Crystal, Chocolate, Roasted Barley, Carapils, Wheat
HOPS: Cascade, Willamette, Fuggles, East Kent Goldings
BITTERNESS: 50 IBUs
COLOR: Garnet, Dark Ruby Red
GRAVITY: 16.0 Plato
ALCOHOL: 6.5%
CO2: 2.4 Vol.

One of the East Coast's first microbreweries, Wild Goose Brewery, Inc. was
founded in 1989. Since then, Wild Goose(R) has been known for its traditional,
hand-crafted, English-

<PAGE>

style ales, which are made with only the finest imported British malted barley
and Ringwood yeast. Named one of the "Top 10 Breweries of the Year" by the 1997
World Beer Championships, Wild Goose(R)'s award-winning, year-round styles
include India Pale Ale, Amber, Porter and Oatmeal Stout.

Founded in 1993 with the Blue Ridge(R) brand of beers, Frederick Brewing Co.
completed an initial public offering (IPO) in 1996. In March 1997, the company
moved from a converted warehouse to a purpose-built, 57,000 square foot
facility. In December 1997, FBC acquired two other microbreweries, Wild Goose
Brewery, Inc. and Brimstone Brewing Co., creating the largest craft brewery in
the Mid-Atlantic region. Today, Frederick Brewing Co.'s award-winning beers are
sold in 33 states and the District of Columbia. FBC shares are traded under the
NASDAQ symbol: BLUE.

# # #

Exhibit 99.7

FOR IMMEDIATE RELEASE: CONTACT: Andrea J. Keller
September 14, 1998 Frederick Brewing Co.
301-694-7899, x120

Screaming Snowball Spotted
on Blue Ridge(R) Beer Bottles
Brewery Alerts Excited Public: Snowball's Chance(TM) Available October 26, 1998

FREDERICK, MD--Frederick Brewing Co. (FBC) announced today the October 26th
release of Snowball's Chance(TM), the popular Blue Ridge(R) winter seasonal with
a nutty malt character (we're describing the beer here, not the screaming
snowball icon) and a smooth, dry finish.

It all started on a Wednesday evening a long, long time ago (actually, late
September 1996). Several members of the FBC crew were sitting around the tap
room after work discussing the potential introduction of a new Blue Ridge winter
seasonal. The FBC crew had only three weeks to develop packaging and a recipe,
so they had to make a decision - fast! "We don't have a snowball's chance in
hell of coming out with a beer in time," said one member of the group, "we don't
even have a name for it!" With that, our head brewer hurried off to his kettles
and Snowball's Chance(TM), our most popular seasonal beer, was born. Look for
the screaming snowball on Snowball's Chance(TM) packaging and point of sale
materials.

Blue Ridge(R) Snowball's Chance(TM) Specifications:

Malts: 2-row, Munich 20 and 10, Special Roast, Caramel 40, Victory,
Chocolate
Hops: Columbia, Mt. Hood
Bitterness: 30 IBUs
Color: Ruby Red
Gravity: 16 Plato
Alcohol: 6.0% by volume
Co2: 2.6 Vol.

<PAGE>

# # #

Exhibit 99.8

NASDAQ LOGO

The Nasdaq Stock Market, Inc.
1735 K Street, NW
Washington, DC 20006-1500
202 496 2500
Fax 202 496 2699

VIA FACSIMILE & REGULAR MAIL

September 15, 1998

Mr. Kevin Brannon
Chairman and CEO
Frederick Brewing Company
4607 Wedgewood Boulevard
Frederick, MD 21703

Dear Mr. Brannon:

The purpose of my letter is to bring to your attention a concern regarding the
continued listing of Frederick Brewing Company's shares of common stock (BLUE)
on The Nasdaq SmallCap Market. Based upon the staff's review of the price data
covering the last thirty consecutive trade dates, your Company's shares of
common stock have failed to maintain a closing bid price greater than or equal
to $1.00. To be eligible for continued listing, all securities, the Company's
shares of common stock, must maintain a minimum bid price of $1.00.(1)

We recognize this deficiency may be a temporary situation, and no delisting
action with respect to the bid price deficiency will be initiated at this time.
Instead, the Company will be provided ninety (90) calendar days in which to
regain compliance with the minimum bid price requirement.(2) If at anytime
within the next ninety calendar days from the date of this letter, the shares of
common stock reports a closing bid price of $1.00 or greater for ten consecutive
trading days, it will have complied with the minimum bid price requirement.

However, if the Company is unable to demonstrate compliance with the minimum
$1.00 bid price on or before the end of the ninety day period December 14, 1998,
the Company's securities will be subject to delisting, effective with the close
of business on December 14, 1998. To stay the delisting, the Company may request
a hearing by the

- -------------------
(1) Marketplace Rule 4310(c)(04).
(2) The ninety day period relates exclusively to the bid price deficiency. The
Company may be delisted during the ninety day period for failure to maintain
compliance with any other listing requirement for which it is currently on
notice or which occurs during the period.

<PAGE>

close of business on December 14, 1998. For more information on the hearing
process, please contact the Listing Qualifications Hearing Department at
(202) 496-2635.

If you have any questions concerning the compliance issues discussed above,
please call me at (202) 496-2669.

Very truly yours,

/s/ Robert J. McCormick
- -----------------------
Robert J. McCormick
Analyst
Nasdaq Listing Qualifications

cc: Cam Funkhouser
Market Surveillance