SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                   FORM 10-K

              [X]* ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

*THIS SPECIAL REPORT CONTAINS ONLY FINANCIAL STATEMENTS FOR THE FISCAL YEAR
 ENDED DECEMBER 31, 1997 IN ACCORDANCE WITH THE PROVISIONS OF RULE 15-D(2)

                                       OR

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

                       Commission file number: 333-42201

                       BEAR ISLAND PAPER COMPANY, L.L.C.
             (Exact name of registrant as specified in its charter)

            Virginia                                  06-0980835
(State or other jurisdiction of               (I.R.S. Employer Identification
  Incorporation or organization)                         Number)

                              10026 Old Ridge Road
                               Ashland, VA 23005
                    (Address of principal executive offices)

       Registrant's telephone number, including area code (804) 227-3394

        Securities Registered Pursuant to Section 12(b) of the Act: None

        Securities Registered Pursuant to Section 12(g) of the Act: None

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K.  [X] NOT APPLICABLE

         Indicate by check mark whether the registrant (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



<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

Bear Island Paper Company L.L.C.

Report of Independent Accountants
Balance Sheet as of December 31, 1997
Statements of Operations for the one month ended December 31, 1997 and the
  eleven months ended November 30, 1997
Statement of Changes in Member's Interest for the one month ended December 31,
  1997 and Statement of Changes in Partner's Equity for the eleven months ended
  November 30, 1997
Statements of Cash Flows for the one month ended December 31, 1997 and the
  eleven months ended November 30, 1997
Notes to Financial Statements

Bear Island Timberlands Company L.L.C.

Report of Independent Accountants
Balance Sheet as of December 31, 1997
Statements of Operations for the one month ended December 31, 1997 and the
  eleven months ended November 30, 1997
Statement of Changes in Member's Interest for the one month ended December 31,
  1997 and Statement of Changes in Partner's Equity for the eleven months ended
  November 30, 1997
Statements of Cash Flows for the one month ended December 31, 1997 and the
  eleven months ended November 30, 1997
Notes to Financial Statements

F.F. Soucy's Inc.

Auditor's Report
Consolidated Balance Sheet as of December 31, 1997
Consolidated Statement of Retained Earnings for the year ended December 31, 1997
Consolidated Statement of Earnings for the year ended December 31, 1997
Consolidated Statement of Changes in Financial Position for the year ended
  December 31, 1997
Notes to Consolidated Financial Statements


<PAGE>


Report of Independent Accountants


To the Board of Directors of
Bear Island Paper Company, L.L.C. and to the
      Partners of Bear Island Paper Company, L.P.:

We have audited the  accompanying  balance  sheet of Bear Island Paper  Company,
L.L.C. (a Virginia limited liability corporation) (the "Company") as of December
31, 1997, and the related statements of operations, changes in member's interest
and cash  flows  for the one  month  ended  December  31,  1997 and the  related
statements  of  operations,  changes in partners'  equity and cash flows for the
eleven  months ended  November 30, 1997 of Bear Island  Paper  Company,  L.P. (a
Virginia   limited   partnership)   (the   "Predecessor")    (collectively   the
"Companies").   These  financial   statements  are  the  responsibility  of  the
Companies'  management.  Our  responsibility  is to  express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  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 financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 3 to the financial  statements,  the Companies had numerous
significant   related-party   transactions   with  an  affiliate,   Bear  Island
Timberlands Company, L.L.C. for the one month period ended December 31, 1997 and
with Bear Island Timberlands Company,  L.P. for the eleven months ended November
30, 1997, which  significantly  impacted the financial  position at December 31,
1997 and the results of  operations  and cash flows of the Companies for the one
month ended December 31, 1997 and the eleven months ended November 30, 1997.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Bear Island Paper  Company,
L.L.C. as of December 31, 1997, and the results of the Company's  operations and
cash flows for the one month ended  December  31,  1997,  and the results of the
Predecessor's operations and cash flows for the eleven months ended November 30,
1997, in conformity with generally accepted accounting principles.



COOPERS & LYBRAND L.L.P.



Richmond, Virginia
March 19, 1998



<PAGE>
<TABLE>


BEAR ISLAND PAPER COMPANY, L.L.C.
(A Virginia Limited Liability Corporation)
BALANCE SHEET
<CAPTION>

                                                                                                         December 31,
                                   ASSETS                                                                     1997
                                                                                                       ----------------
<S> <C>

 Cash and short-term investments                                                                       $     1,353,049
 Accounts receivable:
     Trade, less allowance for doubtful accounts of $73,100                                                 10,189,307
     Affiliates                                                                                              3,123,853
     Other                                                                                                     820,175
 Inventories                                                                                                14,213,313
 Other current assets                                                                                          147,911
                                                                                                       ----------------

             Total current assets                                                                           29,847,608
                                                                                                       ----------------

 Property, plant and equipment, at cost                                                                    195,084,008
 Less accumulated depreciation                                                                                 822,264
                                                                                                       ----------------

             Net property, plant and equipment                                                             194,261,744
                                                                                                       ----------------

 Deferred financing costs, net of accumulated amortization of $79,386                                        8,375,199
                                                                                                       ----------------
                                                                                                       $   232,484,551
                                                                                                       ================
                                   LIABILITIES

 Current portion of long-term debt                                                                             700,000
 Current portion of long-term purchase obligations                                                             180,304
 Accounts payable and accrued expenses                                                                       9,294,855
 Due to affiliates                                                                                             151,930
 Interest payable                                                                                            1,344,915
                                                                                                       ----------------
             Total current liabilities                                                                      11,672,004
                                                                                                       ----------------
 Long-term debt                                                                                            195,300,000
 Long-term purchase obligations                                                                                255,000
                                                                                                       ----------------
                                                                                                           195,555,000
                                                                                                       ----------------

                                MEMBER'S  EQUITY

 Member's:
     Interest                                                                                               25,469,737
     Accumulated deficit                                                                                     (212,190)
                                                                                                       ----------------
                                                                                                      $   232,484,551
                                                                                                       ================
</TABLE>

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




<PAGE>






BEAR ISLAND PAPER COMPANY, L.L.C.
(A Virginia Limited Liability Corporation)
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                                                      Company            Predecessor
                                                                                  ----------------    ------------------
                                                                                     One month          Eleven months
                                                                                       ended                ended
                                                                                   December 31,         November 30,
                                                                                  ----------------    ------------------
                                                                                       1997                 1997
<S> <C>

 Net sales - unaffiliated                                                         $     8,881,972     $      59,547,722
 Net sales - affiliated                                                                1,924,961            46,039,980
                                                                                  ----------------    ------------------
             Total net sales                                                           10,806,933           105,587,702
 Cost of sales                                                                          9,068,701            95,404,127
                                                                                  ----------------    ------------------
             Gross profit                                                               1,738,232            10,183,575

 Selling, general and administrative expenses:
     Management fees to affiliate                                                         324,835             3,174,722
     Other direct                                                                          45,658               572,644
                                                                                  ----------------    ------------------

             Income from operations                                                     1,367,739             6,436,209
                                                                                  ----------------    ------------------

 Other income (deductions):
     Interest income                                                                                            590,971
     Interest expense                                                                 (1,633,043)           (4,331,563)
     Other income (expense)                                                                53,114              (41,231)
                                                                                  ----------------    ------------------

                                                                                      (1,579,929)           (3,781,823)
                                                                                  ----------------    ------------------

             Income (loss) before extraordinary item                                    (212,190)             2,654,386

 Extraordinary item:
     Early extinguishment of debt                                                                           (4,367,418)
                                                                                  ----------------    ------------------

               Net loss                                                           $     (212,190)     $     (1,713,032)
                                                                                  ================    ==================
</TABLE>

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


<PAGE>








BEAR ISLAND PAPER COMPANY, L.L.C.
(A Virginia Limited Liability Corporation)
STATEMENTS OF CHANGES IN MEMBER'S INTEREST AND PARTNERS' EQUITY


<TABLE>
<CAPTION>

                                                                       Dow Jones
                                                   Brant-Allen         Virginia
                                                   Industries,         Company,          Newsprint,
                                                       Inc.              Inc.               Inc.              Total
                  Predecessor
<S> <C>

 Partners' equity:
     Contributed capital:
       Balances, December 31, 1996 and
             November 30, 1997                    $   24,656,681    $    31,882,500    $    31,882,500   $     88,421,681
                                                  ===============   ================   ================  =================

     Retained earnings (accumulated deficit):

       Balances, December 31, 1996                     1,326,966          3,020,084          3,020,084          7,367,134

       Net loss - eleven months ended
             November 30, 1997                         (513,910)          (599,561)          (599,561)        (1,713,032)
                                                  ---------------   ----------------   ----------------  -----------------

       Balances, November 30, 1997                $      813,056    $     2,420,523    $     2,420,523   $      5,654,102
                                                  ===============   ================   ================  =================

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

                    Company

 Member's interest:
     Aggregate equity balances of Bear Island
        Paper Company L.P. at December 1, 1997 and
            conversion to Bear Island
                Mergco, L.L.C.                        25,469,737         34,303,023         34,303,023   $     94,075,783

     Acquisition  of 70%  limited  partnership
       interest  by Bear  Island  Paper Company,
           L.L.C. and merger with Bear Island
               Mergco L.L.C.                                           (34,303,023)       (34,303,023)       (68,606,046)

 Contribution from parent                              3,564,585                                               3,564,585
 Distribution to parent                               (3,564,585)                                             (3,564,585)
                                                  ---------------   ----------------   ----------------  -----------------

       Balance, December 31, 1997                 $   25,469,737            -                 -          $     25,469,737
                                                  ===============   ================   ================  =================

 Accumulated deficit:
 Net loss - one month ended December 31, 1997                                                            $      (212,190)
                                                                                                        ------------------

       Balance, December 31, 1997                                                                        $      (212,190)
                                                                                                         =================
</TABLE>

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


<PAGE>








BEAR ISLAND PAPER COMPANY, L.L.C.
(A Virginia Limited Liability Corporation)
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                                     Company             Predecessor
                                                                                ------------------    ------------------
                                                                                    One month           Eleven months
                                                                                      ended                 ended
                                                                                  December 31,          November 30,
                                                                                ------------------    ------------------
                                                                                      1997                  1997

<S> <C>
 Operating activities:
     Net loss                                                                   $       (212,190)     $     (1,713,032)
     Adjustments to reconcile net loss to net cash provided by (used in)
           operating activities:

       Depreciation                                                                       822,264             9,735,450
       Depletion                                                                                                 12,501
       Amortization of deferred financing costs                                            79,386                54,307
       Noncash portion of extraordinary item                                                                    419,930
       Net loss on disposal of property, plant and equipment                                                 588,873
       (Increase) decrease in:
          Accounts receivable                                                             207,797               868,132
          Inventories                                                                   (454,791)               378,964
          Other current assets                                                              7,008               106,781
       Increase (decrease) in:
          Accounts payable and accrued expenses for operating activities              (3,856,796)             2,516,245
          Due to affiliate                                                            (1,416,656)                70,600
          Interest payable                                                                800,228             (492,813)
                                                                                ------------------    ------------------

             Net cash provided by (used in) operating activities                      (4,023,750)            12,545,938
                                                                                ------------------    ------------------

 Investing activities:
     Purchases of property, plant and equipment                                         (238,518)           (4,835,971)
     Proceeds from disposition of property, plant and equipment                                                 134,300
     Payment for purchase of partnership interest, net of cash acquired             (139,930,098)
                                                                                ------------------    ------------------

             Net cash used in investing activities                                  (140,168,616)           (4,701,671)
                                                                                ------------------    ------------------

 Financing activities:
     Contributions from parent                                                          3,564,585
     Distributions to parent                                                          (3,564,585)
     Principal payments on long-term debt                                            (47,000,000)           (6,000,000)
     Principal payments on promissory notes                                                                 (3,917,764)
     Principal payments on long-term purchase obligations                                                   (2,549,049)
     Proceeds from issuance of long-term debt                                         201,000,000
     Payment of deferred financing costs                                              (8,454,585)
                                                                                ------------------    ------------------

             Net cash provided by (used in) financing activities                      145,545,415          (12,466,813)
                                                                                ------------------    ------------------

             Net increase (decrease) in cash and short-term investments                 1,353,049           (4,622,546)

 Cash and short-term investments, beginning of period                                                        13,625,322
                                                                                ------------------    ------------------

               Cash and short-term investments, end of period                   $       1,353,049     $       9,002,776
                                                                                ==================    ==================

 Supplemental disclosures of cash flow information:
     Cash paid for interest                                                     $         288,128     $       4,824,376
                                                                                ==================    ==================

 Noncash investing and financing activities:
     Increase in long-term purchase obligations                                                       $         305,000
                                                                                                      ==================

     Increase in promissory notes for equipment acquisition                                           $       2,425,856
                                                                                                      ==================


<PAGE>


</TABLE>

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


<PAGE>






NOTES TO FINANCIAL STATEMENTS


 1.    Organization and Acquisition:

       Effective  December 1, 1997, Bear Island Paper Company,  L.L.C.,  a newly
       formed Virginia limited liability  corporation (the "Company")  completed
       the purchase of the 70% partnership  interest (the "Acquisition") in Bear
       Island  Paper  Company,   L.P.  (the  "Predecessor")   (collectively  the
       "Companies")  previously  owned by  subsidiaries  of Dow Jones & Company,
       Inc.  ("Dow  Jones") and The  Washington  Post Company  ("The  Washington
       Post"). Immediately before the Acquisition and certain related financings
       which were used to facilitate  the funding of the  Acquisition  (see Note
       6), the  Predecessor  was  converted  into Bear Island  Mergerco,  L.L.C.
       ("Mergerco")  and  Mergerco  was then merged  into the  Company  with the
       Company  being  the  surviving  entity.  The  Company  is a wholly  owned
       subsidiary of Brant-Allen Industries,  Inc.  ("Brant-Allen"),  a Delaware
       corporation.

       The Company  accounted for the Acquisition as a purchase.  The allocation
       of the purchase price resulted in purchase  adjustments  being applied to
       assets and liabilities  acquired.  In this connection,  since Brant-Allen
       was  the  owner  of  30%  interests  in  the  Predecessor  prior  to  the
       Acquisition,  purchase adjustments have been applied to adjust 70% of the
       basis of the assets and  liabilities  acquired to fair  value.  The total
       purchase  price of  approximately  $149.6  million was  allocated  to the
       acquired assets and liabilities  based on their respective fair values at
       December 1, 1997 as follows:

          Working capital                                     $     11,598,450
          Property, plant and equipment                            163,383,956
          Other liabilities                                       (25,378,500)
                                                              -----------------

                       Total purchase cost                    $    149,603,906


                       Less cash acquired                            9,002,776
                       Less amount payable at
                          December 31, 1997                            671,032
                                                              -----------------
                       Total cash paid                        $    139,930,098
                                                              =================


       As a result of the Acquisition and new basis of accounting, the Company's
       financial  statements for the period subsequent to the Acquisition are
       not comparable  to the  Predecessor's  financial  statements  for the
       period prior to the Acquisition.

       The Predecessor was constituted as a limited partnership on May 18, 1978,
       under the Virginia Uniform Limited Partnership Act, pursuant to a Limited
       Partnership Agreement, as amended (the "Partnership Agreement"), among:

       o   Brant-Allen;

       o   Dow Jones Virginia Company,  Inc. ("D J Virginia"),  a Delaware
           corporation and a wholly owned subsidiary of Dow Jones; and

       o   Newsprint, Inc. ("Newsprint"), a Virginia corporation and a wholly
           owned subsidiary of The Washington Post.



<PAGE>










NOTES TO FINANCIAL STATEMENTS, Continued


 1.    Organization and Acquisition, continued:

       Brant-Allen  was the general  partner and D J Virginia and Newsprint were
       limited  partners.  Under  the  terms of the  Partnership  Agreement,  as
       amended,  D J Virginia's and Newsprint's  equity  interests were 35% each
       and Brant-Allen's equity interest was 30%. The Partnership Agreement,  as
       amended, contained the following provisions:

       o  The  purpose  of the  Predecessor  was to  engage in the  business  of
          producing, selling and distributing newsprint by constructing,  owning
          and operating a paper mill (the "Mill") in Hanover County, Virginia.

       o  Brant-Allen, as general partner, had full and exclusive control of the
          business of the Predecessor,  had active control of its management and
          provided  marketing and certain  administrative  services for which it
          received a monthly  management  fee calculated at three percent of the
          newsprint   sales  after   deducting   related   distribution   costs.
          Brant-Allen  was  authorized  to incur on behalf  of the  Predecessor,
          without  the  approval  or  consent  of the  partners,  debt  of up to
          $97,900,000.

       o  The limited  partners were not liable for any net losses or other debt
          or  liability  of the  Predecessor  to any  extent,  except  for their
          respective contributions to capital.

       o  Subject to the aforementioned  provisions, the partners shared the net
          profits and losses,  computed in accordance  with  generally  accepted
          accounting principles  consistently applied, based on their interests,
          as defined by the Partnership Agreement.

       o  No partner was  allowed to sell,  assign or  otherwise  dispose of its
          interest,  or any part thereof,  in the  Predecessor,  unless it first
          offered  such  interest  to the other  partners as  prescribed  in the
          Partnership Agreement.




 2.    Summary of Significant Accounting Policies:

       Cash and Short-Term Investments:  Cash and short-term investments include
       all cash balances and highly liquid investments.  Short-term  investments
       are  stated at cost plus  accrued  interest,  which  approximates  market
       value.  For  purposes  of the  statements  of cash flows,  the  Companies
       consider  all highly  liquid  short-term  investments  purchased  with an
       original maturity of three months or less to be cash equivalents.

       Inventories:  Finished goods and raw materials  inventories are valued at
       the  lower of cost or  market,  with  cost  determined  on the  first-in,
       first-out  ("FIFO") basis.  Stores inventories are valued at the lower of
       average cost or market and are shown net of an allowance for obsolescence
       of approximately $421,300.





<PAGE>

NOTES TO FINANCIAL STATEMENTS, Continued


 2.    Summary of Significant Accounting Policies, continued:

       Property,   Plant  and  Equipment:   The  costs  of  major  renewals  and
       betterments  are  capitalized  while the costs of maintenance and repairs
       are charged to income as incurred.  When  properties are sold or retired,
       their cost and the related  accumulated  depreciation  or  depletion  are
       eliminated from the accounts and the gain or loss is reflected in income.
       The  Companies   capitalize  interest  costs  as  part  of  the  cost  of
       constructing significant assets. There were no capitalized interest costs
       during the month  ended  December  31,  1997 or the eleven  months  ended
       November 30, 1997.

       The carrying value of property, plant and equipment is evaluated whenever
       significant  events or changes  occur that might  indicate an  impairment
       through  comparison  of the  carrying  value to total  undiscounted  cash
       flows.

       Depreciation  and  Depletion:  Depreciation  of plant  and  equipment  is
       computed principally on the straight-line basis over the estimated useful
       lives of the assets.  Lives range from 10 to 50 years for  buildings  and
       improvements,  40 years for recycling facilities,  35 years for tanks, 30
       years for  specialized  building  improvements,  25 years  for  newsprint
       manufacturing  equipment,  and from three to 50 years for other machinery
       and  equipment.  The  portion of the cost of  timberlands  attributed  to
       standing  timber is charged  against income as timber is cut and utilized
       in the manufacturing  process at rates determined annually,  based on the
       relationship  of  unamortized  timber  costs to the  estimated  volume of
       recoverable timber.

       Deferred Financing Costs: Costs directly  associated with the issuance of
       debt have been deferred and are being amortized using the interest method
       over the life of the related debt.  The  Predecessor  amortized  deferred
       financing costs using the  straight-line  method which  approximated  the
       interest method.

       Income Taxes:  No provision for income taxes is required in the financial
       statements  since each member or partner is  individually  liable for any
       income  tax that may be payable  on its share of the  Companies'  taxable
       income.

       Revenue  Recognition:  Net sales to  affiliates  and  non-affiliates  are
       recognized by the Companies at the time title  transfers to the customer,
       which occurs at the point of shipment of the newsprint to the customer.

       Earnings Per Share:  No earnings per share  calculations  have been
       provided in the financial  statements  since such calculations are not
       required.

       Estimates:  The  preparation of financial  statements in conformity  with
       generally  accepted  accounting  principles  requires  management to make
       estimates and assumptions  that affect the reported amounts of assets and
       liabilities  and disclosure of contingent  assets and  liabilities at the
       dates of the financial  statements  and the reported  amounts of revenues
       and expenses  during the reporting  period.  Actual  results could differ
       from those estimates.



<PAGE>




 2.    Summary of Significant Accounting Policies, continued:

       Fair Value of  Financial  Instruments:  The fair value of the  Company's
       long-term debt is estimated using  discounted cash flow analyses based on
       the incremental borrowing rates currently available to the Company with
       loans of similar terms and maturity.  The fair value of trade receivables
       and  payables  approximates  the  carrying  amount  because  of the short
       maturity of these instruments.

       Risks and Uncertainties:  Financial instruments which potentially
       subjects the Company to  concentrations  of credit risk consist
       principally  of cash, cash  equivalents and  receivables.  The Company's
       cash balance is maintained at a major  financial  institution.  Cash
       equivalents,  which consist of U.S.  government  securities,  are with a
       high-credit-quality financial institution.  Receivables consist
       principally of trade accounts receivable resulting primarily from sales
       to newspaper publishers. Credit is  extended  to  customers  after  an
       evaluation  of  creditworthiness. Generally, the Companies do not require
       collateral or other security from customers  for  trade  accounts
       receivable.  Substantially  all  of  the Company's customers operate in
       the printing sectors,  consequently their ability to honor  their
       obligations  are  dependent  upon the  financial strength of the printing
       and publishing sectors.

       The Companies  had  four  customers  whose sales  represent a significant
       portion of sales.  Sales to one of these customers  approximated  18% and
       22% for the one month ended December 31, 1997 and the eleven months ended
       November 30, 1997.  Sales to a second customer  approximated  20% and 22%
       for the one month ended  December  31, 1997 and the eleven  months  ended
       November 30, 1997. Sales to a third customer approximated 23% and 10% for
       the one  month  ended  December  31,  1997 and the  eleven  months  ended
       November 30, 1997.  Sales to a fourth customer  approximated  13% and 14%
       for the one month ended  December  31, 1997 and the eleven  months  ended
       November 30, 1997.


 3.    Related-Party Transactions:

       The  Companies  have  contracted  to sell  newsprint to Dow Jones and The
       Washington  Post  (the  "Sales  Contracts").  The  Sales  Contracts  will
       terminate on December 31, 2000;  however,  they will be extended for four
       years  if,  prior to  January  1,  2000,  the  parties  agree to  pricing
       provisions  for the four-year  period.  Both Dow Jones and The Washington
       Post are subject to



<PAGE>




 3.    Related-Party Transactions, continued:

       minimum purchase quantities under the Sales Contracts. The prices payable
       under the Sales Contracts are defined in the Sales Contracts, as amended,
       and during the periods  presented  represented  the average price paid by
       Dow Jones and The Washington Post to third-party suppliers geographically
       located in the eastern  United States.  Additionally,  the parties to the
       Sales  Contracts  have the option to purchase  additional  quantities  of
       newsprint as available.

       All sales and related  collections  are made through  Newsprint  Sales, a
       division  of  Brant-Allen.   Brant-Allen   provides   similar  sales  and
       collection  activities  for F.F.  Soucy,  Inc.,  an  affiliated  Canadian
       newsprint company.  As part of the $70 million Term Loan Facility and the
       $50 million Revolving Credit Facility (see Note 6),  Brant-Allen  entered
       into a cash  collateral  agreement  on December 1, 1997 (the  "Collateral
       Agreement").   The  Collateral  Agreement  requires  collections  of  the
       Company's receivables, by Newsprint Sales, at the end of any business day
       are  not to  exceed  the  sum of (i)  the  collected  funds  received  by
       Newsprint Sales for the Company for such business day and the immediately
       preceding  business  day plus (ii) an  additional  amount  not  exceeding
       $100,000.

       The Company received payment of approximately $21,200 and the Predecessor
       received   payment  of   approximately   $230,000  from   Brant-Allen  as
       reimbursement for expenses  incurred on behalf of Brant-Allen  during the
       month ended  December 31, 1997 and the eleven  months ended  November 30,
       1997.

       A component of selling,  general and administrative  expenses as shown on
       the  statements  of  operations  includes  aggregate  management  fees to
       Brant-Allen.  The management fee includes  senior  management,  treasury,
       financial,  marketing  and  sales  services.  There are  restrictions  on
       payment of the  management fee as described in Note 6. The level of these
       fees,  as if  the  Companies  operated  on a  stand-alone, basis are  not
       practicably determinable.

       The  Predecessor  was a party to a wood supply  contract with Bear Island
       Timberlands   Company,    L.P.    ("Timberlands"),    which   was   owned
       proportionately  by  the  same  partners  of  the  Predecessor,   whereby
       Timberlands  had  guaranteed to supply all of the  Predecessor's  log and
       pulp chip requirements at prices negotiated annually. Purchases under the
       wood supply contract  approximated  $13,280,000  during the eleven months
       ended  November 30,  1997.  The actual price during the period was $95.50
       per cord with the market price ranging from $60.00 to $66.00 per cord.






<PAGE>




 3.    Related-Party Transactions, continued:

       Concurrent with the  Acquisition,  the Company  modified certain terms of
       the wood supply  contract  with Bear Island  Timberlands  Company  L.L.C.
       ("BITCO"),  the successor to  Timberlands  resulting from the purchase by
       Brant-Allen  of the 70% interest in Timberlands  not previously  owned by
       Brant-Allen. The modification occurred to be reflective of wood purchases
       at market prices.  Modified terms included changing the point of purchase
       of wood from the point of production  to delivery to the Company's  plant
       site and changing the  purchase  price from a negotiated  price to market
       price.  For the one month ended December 31, 1997, the Company  purchased
       approximately $1,637,000 from BITCO under the wood supply contract.

       Prior  to  December  1,  1997,  the  Predecessor  had  contracted  to pay
       Timberlands a fee on a per ton basis for  procuring  recycled  paper,  of
       $24.31 for the eleven  months ended  November 30, 1997.  The  Predecessor
       recognized  costs of  approximately  $2,028,500 for such procurement fees
       during the eleven months ended  November 30, 1997,  which are included in
       cost of sales in the accompanying financial statements.  The actual costs
       of the  procurement  services  provided to the Predecessor by Timberlands
       for the same period was approximately $213,000.

       The Companies  charged BITCO and Timberlands  for certain  administrative
       and other  expenses.  These charges  approximated  $60,000 and $1,319,000
       during the one month ended  December 31, 1997 and the eleven months ended
       November  30,  1997,  respectively.  The  Companies   also   paid   BITCO
       approximately  $5,300 and Timberlands  $55,000 during the one month ended
       December 31,  1997  and  the  eleven  months  ended  November  30,  1997,
       respectively, for managing their timberlands.

       The  Company's  receivables,  payables and the Companies  sales  to
       partners  and  their affiliates were as follows:

                                                           December 31,
                                                          ----------------
                                                                1997

          Due from Brant-Allen                           $      107,915
          Due from Newsprint Sales                            1,085,400
          Due from Dow Jones                                  1,930,538
          Due to BITCO                                           42,029
          Due to F. F. Soucy, Inc.                              109,901




<PAGE>




 3.    Related-Party Transactions, continued:

<TABLE>


                                                         One Month         Eleven Months
                                                           Ended               Ended
                                                        December 31,       November 30,
                                                      -----------------  ------------------
                                                            1997               1997
<S> <C>
          Net sales to Dow Jones                      $      1,924,961   $      23,012,477
          Net sales to The Washington Post                    *                 23,027,503

</TABLE>

       *Effective  December 1, 1997, not considered a related party.

       Sales to Dow Jones represented approximately 18% and 22% of total sales
       during the one month ended  December 31, 1997 and the eleven  months
       ended  November 30, 1997. Sales to The Washington Post represented
       approximately  22% of total  sales  during the eleven  months  ended
       November  30,  1997.  The remaining  sales  were to  other  unaffiliated
       printing  and  publishing enterprises located primarily in the eastern
       United States.


 4.    Inventories:

       Inventories consisted of:

                                                             December 31,
                                                           -----------------
                                                                 1997

          Raw materials                                    $      4,085,044
          Stores                                                  9,105,893
          Finished goods                                          1,022,376
                                                           -----------------

                                                           $     14,213,313
                                                           =================

 5.    Property, Plant and Equipment:

       Property,  plant and  equipment  is stated  at cost and  consists  of the
following:

                                                             December 31,
                                                           -----------------
                                                                 1997

          Land                                             $      1,492,007
          Timberlands                                             3,526,259
          Building                                               28,412,280
          Machinery and equipment                               160,887,599
          Construction in progress                                  765,863
                                                           -----------------

                                                                195,084,008
          Less accumulated depreciation and depletion             (822,264)
                                                           -----------------

                       Total                               $    194,261,744
                                                           =================

       During the eleven month period ended November 30, 1997,  the  Predecessor
       recorded  charges for a net loss of $723,173 to record a  write-down  and
       disposal of assets.



<PAGE>




 6.    Long-Term Debt:


<TABLE>
<CAPTION>
       Long-term debt consisted of:

                                                                                                         December 31,
                                                                                                        ---------------
                                                                                                             1997
<S> <C>
          Senior Secured  Notes  bearing   interest  at  10%  (interest   payable
                semiannually commencing June 1, 1998); due 2007                                         $   100,000,000


          Term  Loan  Facility  bearing  interest  at  8.91%  (interest  payable
                quarterly);  principal of $175,000 due in 31 quarterly  payments
                commencing March 31, 1998; balance due December 31, 2005                                     70,000,000



          $50   million Revolving Credit Facility bearing interest at LIBOR plus
                2.75% (8.72% at December 31, 1997) for  $20,000,000 and interest
                due monthly;  prime plus 1.75% (10.25% at December 31, 1997) for
                the  remainder  in  excess  of  $20,000,000   and  interest  due
                quarterly commencing on March 30, 1998; due December 31, 2003                                26,000,000
                                                                                                        ----------------


                                                                                                            196,000,000
          Less current portion                                                                                  700,000
                                                                                                        ----------------

                       Total long-term debt                                                             $   195,300,000
                                                                                                        ================
</TABLE>


       On  December  1,  1997,  the  Company  sold in a private  placement  debt
       securities  of $100  million  Senior  Secured  Notes  (the  "Notes").  On
       December 1, 1997 the Company also entered into Indenture Agreements for a
       $70 million Term Loan Facility ("Term Loan") and a $50 million  Revolving
       Credit Facility  ("Revolving  Loans").  The proceeds from the Notes, Term
       Loan and  Revolving  Loans were used by the Company to  purchase  the 70%
       interest  of the  Predecessor   previously  owned  by  certain
       subsidiaries of Dow Jones and The Washington Post. The extraordinary item
       in the eleven  month  period  ended  November  30,  1997  represents  the
       write-off of unamortized  financing  costs and prepayment  penalties paid
       related to Predecessor  Notes that were  extinguished  at the time of the
       Acquisition.

       The Notes are redeemable,  together with accrued interest,  at the option
       of the Company,  in whole or in part, at any time on or after December 1,
       2002,  with  sufficient  notice at the redemption  prices set forth below
       calculated beginning on December 1 of the years indicated:

                                                                 Redemption
                                Year                                Price

                                2002                               105.000%
                                2003                               103.333
                                2004                               101.667
                           2005 and thereafter                     100.000




<PAGE>




 6.    Long-Term Debt, continued:

       Notwithstanding the foregoing, at any time prior to December 1, 2000, the
       Company  may redeem up to 20% of the  aggregate  principal  amount of the
       Notes within 60 days of one or more public equity  offerings with the net
       proceeds  of such  offering  at a  redemption  price equal to 110% of the
       principal amount thereof,  together with accrued and unpaid interest,  if
       any, to the date of redemption;  provided that  immediately  after giving
       effect to any such redemption,  at least $80 million aggregate  principal
       amount of the Notes originally issued remains outstanding.

       The Term Loan and  Revolving  Loans are  redeemable  at the option of the
       Company, in whole or in part, at any time without premium or penalty upon
       irrevocable  notice  delivered  to  the  administrative   agent.  Partial
       prepayments on the Term Loan or Revolving  Loans shall be in an aggregate
       principal amount of $5,000,000 or a whole multiple thereof. Prepayment of
       the Term Loans and  Revolving  Loans is required for any excess cash flow
       ("ECF"),  as computed on the ECF date.

       The Notes are  collateralized  by (i) a second priority security interest
       in all real  property  of the Company  and all  personal  property of the
       Company, to the extent such personal property is assignable, (ii) a third
       priority security  interest in 100% of the membership  interests in BITCO
       and (iii) a second  priority  security  interest in 65% of the issued and
       outstanding  capital  stock of F.F.  Soucy Inc.  ("Soucy  Inc.")  ("Soucy
       Collateral)  behind a shared  first  lien.  Soucy  Inc.  is an  affiliate
       newsprint company in Canada 100% owned by Brant-Allen.  The remaining 35%
       of the issued and  outstanding  capital stock of Soucy Inc. is subject to
       certain restrictions that follow. At any time when either (a) the Company
       has  reduced  its total  committed  debt to an amount that is not greater
       than $145  million as of the date of  determination  or (b) the Notes are
       rated investment  grade, the Soucy Collateral will be released and all of
       the  covenants  and other  provisions  of the Notes with respect to Soucy
       Inc. will terminate.

       The Term Loan and  Revolving  Loans are  partly  collateralized  by (i) a
       first priority security  interest in a substantial  portion of the assets
       of the Company,  (ii) a shared first priority security interest (pro rata
       along with a $35 million senior secured two-year term loan to Brant-Allen
       from several banks and other financial institutions) in 65% of the common
       stock of Soucy Inc. and (iii) a second priority security interest in 100%
       of  Brant-Allen's  membership  interest  in  BITCO.  The  Term  Loan  and
       Revolving Loan are guaranteed by Brant-Allen.

       The most  restrictive  covenants  of the Notes,  Term Loan and  Revolving
       Loans state that the Company has a  limitation  on  incurring  additional
       indebtedness, making restricted payments, creating, incurring or assuming
       any liens,  making sales of capital stock of  subsidiaries,  conducting
       transactions with  affiliates,  and selling assets.  Furthermore  under
       the Notes, the Company is not  permitted  to be charged management  fees
       by Brant-Allen  that exceed  3% of the  Company's  annual  revenues. Only
       one-third  of these fees may be paid.



<PAGE>




 6.    Long-Term Debt, continued:

       On December 5, 1997,  the Company  entered into an interest rate exchange
       agreement ("Interest Exchange") effectively fixing the interest rate on a
       notational amount of $70 million of its outstanding Term Debt, decreasing
       by $10  million a year on each  December  5th,  until  expiration  of the
       Interest Exchange on December 5, 2002. Under this Interest Exchange,  the
       Company either  receives or pays the  difference  between the three month
       LIBOR  rate of  interest  and a fixed  rate of  interest  of 6.13% on the
       applicable  notational  amount of the debt  outstanding for each interest
       quarter  ending  on the  5th  day of  each  March,  June,  September  and
       December.

       The fair value of the Company's Notes,  Term Loan and Revolving Loan were
       estimated to approximate fair value at December 31, 1997.

       Maturities on long-term debt for the four years after 1998 are
       approximately as follows:  1999 - $700,000;  2000 - $700,000; 2001 -
       $700,000; and 2002 - $700,000.



 7.    Long-Term Purchase Obligations:

       Capitalized   purchase   obligations   for  purchases  of  machinery  and
       equipment, which approximate fair value, consisted of:

<TABLE>
<CAPTION>

                                                                                         December 31,
                                                                                        ----------------
                                                                                             1997
<S> <C>


          Long-term  purchase  obligations  bearing  interest  at various  rates
                ranging from  approximately  7% to 8%; with  principal  payments
                ending in 1999                                                          $       435,304

          Less current portion                                                                  180,304
                                                                                        ----------------

                                                                                        $       255,000
                                                                                        ================
</TABLE>

 8.    Employee Benefit Plans:

       The  Companies  provide  a  defined  contribution   retirement  plan  for
       substantially  all  employees.  The  annual  cost of the  plan,  which is
       currently  funded,  is based on the  compensation  of  participants.  The
       Predecessor  increased its contribution  from 5% to 6% of employees' base
       compensation effective July 1, 1996.

       The Companies provide a thrift plan for substantially all employees which
       incorporates the provisions of Internal  Revenue Code Subsection  401(k),
       whereby employees can make voluntary, tax-deductible contributions within
       specified  limits.  The Companies  matched employee  contributions at 60%
       during the one month ended  December 31, 1997 and the eleven months ended
       November 30, 1997, up to a maximum of 6% of an employee's base pay.



<PAGE>




 8.    Employee Benefit Plans, continued:

       The Companies' expense for both plans approximated  $95,000 and
       $1,138,000 for the month ended December 31, 1997 and the eleven months
       ended November 30, 1997, respectively.

       The  Companies  are  self-insured  for  employee   medical,   dental  and
       disability  claims  up to  $35,000  per claim  per  year.  The  Company
       provided an accrual of approximately $313,000 for claims incurred but not
       reported at December 31, 1997.



 9.    Subsequent Events:

       On January 30,  1998,  the  Company  completed  its initial  registration
       process which became effective pursuant to Section 8(A) of the Securities
       Act of 1933.  Concurrent with becoming effective,  the Company is subject
       to the information  requirements of the Securities  Exchange Act of 1934,
       as amended,  and required to file reports and other  information with the
       United States Securities and Exchange Commission.

       On March 1, 1998,  Newsprint Sales, a division of Brant-Allen, which
       makes all sales and related collections for the Company, entered into
       certain supply  contracts (the  "Supply  Contracts")  with two customers.
       Under  the terms of the Supply  Contracts,  Newsprint  Sales  is required
       to  provide  to these customers  certain  fixed  volumes of newsprint  at
       fixed prices  through December 31, 2000.




<PAGE>




Report of Independent Accountants


To the Board of Directors of Bear Island Timberlands Company, L.L.C.
       and Partners of Bear Island Timberlands Company, L. P.:

We have  audited the  accompanying  balance  sheet  of Bear  Island  Timberlands
Company, L.L.C. (a Virginia limited liability corporation) (the "Company") as of
December 31, 1997, and the related statements of operations, changes in member's
interest  and cash flows for the one month  ended  December  31,  1997,  and the
related statements of operations, changes in partners' equity and cash flows for
the eleven months ended  November 30, 1997 of Bear Island  Timberlands  Company,
L.P. (a Virginia limited  partnership) (the "Predecessor") (collectively  the
"Companies").  These financial  statements are the responsibility of the
Companies'  management.  Our responsibility  is to express an opinion on these
financial  statements based on our audits.

We  conducted  our  audits  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 financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 7 to the financial  statements,  the Companies had numerous
significant  related-party  transactions  with an  affiliate,  Bear Island Paper
Company,  L.L.C.  for the one month period ended December 31, 1997 and with Bear
Island Paper Company,  L.P., for the eleven months ended November 30, 1997 which
significantly  impacted  the  financial  position at  December  31, 1997 and the
results of  operations  and cash flows of the  Companies for the one month ended
December 31, 1997 and the eleven months ended November 30, 1997.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position  of Bear  Island  Timberlands
Company,  L.L.C.  as of December  31,  1997,  and the  results of the  Company's
operations  and cash flows for the one month ended  December 31,  1997,  and the
results of the  Predecessor's  operations  and cash flows for the eleven  months
ended  November 30, 1997,  in  conformity  with  generally  accepted  accounting
principles.



COOPERS & LYBRAND L.L.P.



Richmond, Virginia
March 19, 1998



<PAGE>



BEAR ISLAND TIMBERLANDS COMPANY, L.L.C.
(A Virginia Limited Liability Corporation)
BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                                           Company
                                                                                                       ----------------
                                                                                                          December 31,
                                                                                                       ----------------
                                                                                                             1997
<S> <C>

 Cash and short-term investments                                                                       $     1,530,996
 Restricted cash and investments                                                                             2,899,076
 Accounts and notes receivable                                                                                 125,875
 Due from affiliate                                                                                             42,029
 Inventory                                                                                                     405,561
 Other current assets                                                                                           57,308
                                                                                                       ----------------

             Total current assets                                                                            5,060,845
                                                                                                       ----------------

 Property and equipment                                                                                        475,688
 Less accumulated depreciation                                                                                 (7,406)
                                                                                                       ----------------

             Net property and equipment                                                                        468,282

 Timberlands, net                                                                                           60,598,527
                                                                                                       ----------------

                                                                                                            61,066,809
                                                                                                       ----------------

 Notes receivable                                                                                              113,898
 Deferred financing costs, net of accumulated amortization of $30,217                                          813,813
                                                                                                       ----------------

                                                                                                               927,711
                                                                                                       ----------------

                                                                                                       $    67,055,365
                                                                                                       ================

                                   LIABILITIES

 Current portion of long-term debt                                                                             264,485
 Accounts payable and accrued expenses                                                                          64,866
 Due to affiliate                                                                                              298,956
 Interest payable                                                                                              365,938
                                                                                                       ----------------

             Total current liabilities                                                                         994,245
                                                                                                       ----------------

 Deferred profit on land sales

 Long-term debt                                                                                             58,009,415
                                                                                                       ----------------

                                MEMBER'S EQUITY

 Member's interest                                                                                           8,326,302
 Accumulated deficit                                                                                          (274,597)
                                                                                                       ----------------

                                                                                                             8,051,705
                                                                                                       ----------------

                                                                                                       $    67,055,365
                                                                                                       ================

</TABLE>

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


<PAGE>






BEAR ISLAND TIMBERLANDS COMPANY, L.L.C.
(A Virginia Limited Liability Corporation)
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                                                      Company            Predecessor
                                                                                  ----------------    ------------------
                                                                                     One month          Eleven months
                                                                                       ended                ended
                                                                                   December 31,         November 30,
                                                                                  ----------------    ------------------
                                                                                       1997                 1997
<S> <C>

 Sales:
     Timber - affiliated                                                          $     1,637,035     $      13,280,395
     Timber - unaffiliated                                                                470,744             4,300,796
     Land                                                                                  19,380               953,295
                                                                                  ----------------    ------------------

             Total sales                                                                2,127,159            18,534,486
                                                                                  ----------------    ------------------

 Cost of sales:
     Timber                                                                             1,839,241            10,746,095
     Land                                                                                   2,362               114,503
                                                                                  ----------------    ------------------

             Total cost of sales                                                        1,841,603            10,860,598
                                                                                  ----------------    ------------------

             Gross profit                                                                 285,556             7,673,888

 Fees for recycled fiber                                                                                      2,028,481
 Selling, general and administrative expenses                                           (133,977)           (2,556,594)
                                                                                  ----------------    ------------------

             Income from operations                                                       151,579             7,145,775
                                                                                  ----------------    ------------------

 Other income (deductions):
     Interest income                                                                       22,193               479,266
     Interest expense                                                                   (413,806)           (2,671,766)
     Other                                                                               (34,563)               137,746
                                                                                  ----------------    ------------------

                                                                                        (426,176)           (2,054,754)
                                                                                  ----------------    ------------------

             Income (loss) before extraordinary item                                    (274,597)             5,091,021

 Extraordinary item:
     Early extinguishment of debt                                                                           (2,313,385)
                                                                                  ----------------    ------------------

               Net income (loss)                                                  $     (274,597)     $       2,777,636
                                                                                  ================    ==================

</TABLE>

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


<PAGE>








BEAR ISLAND TIMBERLANDS COMPANY, L.L.C.
(A Virginia Limited Liability Corporation)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY AND MEMBER'S INTEREST

<TABLE>
<CAPTION>


                                                                        Dow Jones
                                                      Brant-Allen       Virginia
                                                      Industries,       Company,        Newsprint,
                                                         Inc.             Inc.             Inc.              Total
                   Predecessor

<S> <C>

 Partners' equity:
     Contributed capital:
       Balances, December 31, 1996 and November
             30, 1997                                $   6,332,292    $   6,264,102    $   6,264,102    $    18,860,496
                                                     ==============   ==============   ==============   ================

     Retained earnings:

       Balances, December 31, 1996                       2,006,231        2,340,604        2,340,604          6,687,439

       Net income - eleven months ended November
             30, 1997                                      833,290          972,173          972,173          2,777,636
                                                     --------------   --------------   --------------   ----------------

       Balances, November 30, 1997                   $   2,839,521    $   3,312,777    $   3,312,777    $     9,465,075
                                                     ==============   ==============   ==============   ================

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

                     Company

Aggregate equity balances of Bear Island
       Timberlands Company, L.P. upon conversion
       of Bear Island Timberlands, L.P.
       from a limited partnership to a limited
       liability corporation                        $    9,171,813   $    9,576,879   $    9,576,879   $     28,325,571


 Purchase by Brant-Allen of 70% selling members'
       interests                                                        (9,576,879)      (9,576,879)       (19,153,758)

 Distribution to parent                                (2,346,000)                                          (2,346,000)
 Contribution by parent                                  1,500,489                                            1,500,489
                                                     --------------   --------------   --------------   ----------------

     Member's interest, December 31, 1997            $   8,326,302          -                -          $     8,326,302
                                                     ==============   ==============   ==============   ================

 Accumulated deficit:
     Net loss - month ended December 31, 1997
                                                                                                        $     (274,597)
                                                                                                        ----------------

     Accumulated deficit, December 31, 1997                                                             $     (274,597)
                                                                                                        ================

</TABLE>


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


<PAGE>








BEAR ISLAND TIMBERLANDS COMPANY, L.L.C.
(A Virginia Limited Liability Corporation)
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                                        Company          Predecessor
                                                                                    ----------------   -----------------
                                                                                       One month            Eleven
                                                                                         ended           months ended
                                                                                     December 31,        November 30,
                                                                                    ----------------   -----------------
                                                                                         1997                1997
<S> <C>

 Operating activities:
     Net income (loss)                                                              $     (274,597)    $      2,777,636
     Adjustments to reconcile net income (loss) to net cash provided by
           operating activities:

       Depreciation                                                                           7,406             110,868
       Depletion                                                                            129,686           1,077,290
       Noncash portion of extraordinary item                                                                    189,295
       Amortization of deferred financing costs                                              30,217              31,078
       Net book value of land sold                                                            2,363             184,616
       Gain on disposal of machinery and equipment                                                             (31,297)
     (Increase) decrease in:
       Accounts and notes receivable                                                        715,992              19,083
       Due from affiliate                                                                 1,416,656            (70,600)
       Inventory                                                                          1,017,215           (131,243)
       Other current assets                                                                  43,262            (84,136)
     Increase (decrease) in:
       Accounts payable and accrued expenses                                            (2,132,381)           2,364,575
       Due to affiliate                                                                     298,956
       Interest payable                                                                   (802,358)           (464,064)
       Deferred profit on land sales                                                                           (49,960)
                                                                                    ----------------   -----------------

             Net cash provided by operating activities                                      452,417           5,923,141
                                                                                    ----------------   -----------------

 Investing activities:
     Purchases of machinery and equipment                                                                     (142,257)
     Purchases of timberlands                                                              (81,857)           (654,733)
     Proceeds from disposal of machinery and equipment                                                           45,288
     Decrease in restricted cash and investments                                        (2,617,826)           2,884,192
     Payment for purchase of partnership interest (net of cash acquired)               (25,232,197)
                                                                                    ----------------   -----------------

             Net cash provided by (used in) investing activities                       (27,931,880)           2,132,490
                                                                                    ----------------   -----------------

 Financing activities:
     Distribution to Brant-Allen                                                        (2,346,000)
     Contribution from Brant-Allen                                                        1,500,489
     Proceeds from issuance of long-term debt                                            38,000,000
     Payment of deferred financing costs                                                  (844,030)
     Principal payments on long-term debt                                               (7,300,000)         (4,844,866)
                                                                                    ----------------   -----------------

             Net cash provided by (used in) financing activities                         29,010,459         (4,844,866)
                                                                                    ----------------   -----------------

             Net increase in cash and short-term investments                              1,530,996           3,210,765

 Cash and short-term investments, beginning of period                                                         7,535,254
                                                                                    ----------------   -----------------

               Cash and short-term investments, end of period                       $     1,530,996    $     10,746,019
                                                                                    ================   =================

 Supplemental disclosures of cash flow information:
     Cash paid for interest                                                         $     1,216,164    $      3,135,830
                                                                                    ================   =================

 Noncash investing and financing activity:
     Increase in long-term debt for purchase of timberlands                                            $        384,650
                                                                                                       =================

     Increase in promissory notes for equipment acquisition                                            $        155,616
                                                                                                       =================

</TABLE>


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


<PAGE>






NOTES TO FINANCIAL STATEMENTS


 1.    Organization and Acquisition:

       Effective December 1, 1997, Brant-Allen Industries, Inc. ("Brant-Allen"),
       a Delaware corporation,  completed the acquisition of the 70% partnership
       interest (the  "Acquisition") in Bear Island  Timberlands  Company,  L.P.
       (the  "Predecessor")  previously  owned by  subsidiaries  of Dow  Jones &
       Company,  Inc.  ("Dow  Jones")  and The  Washington  Post  Company  ("The
       Washington  Post").   Funding  for  the  Acquisition  was  provided  from
       borrowings and cash from the Company.  Immediately before the Acquisition
       and certain related  financings,  the Predecessor was converted into Bear
       Island  Timberlands  Company,  L.L.C.  (the "Company")  (collectively the
       "Companies").  At December  31,  1997,  the  Company  was a wholly  owned
       subsidiary of Brant-Allen.

       The Company  accounted for the Acquisition as a purchase.  The allocation
       of the purchase price resulted in purchase  adjustments  being applied to
       assets and liabilities  acquired.  In this connection,  since Brant-Allen
       was  the  owner  of  30%  interests  in  the  Predecessor  prior  to  the
       Acquisition,  purchase adjustments have been applied to adjust 70% of the
       basis of the assets and  liabilities  acquired to fair  value.  The total
       purchase price of approximately $36 million was allocated to the acquired
       assets and liabilities  based on their respective fair values at December
       1, 1997 as follows:

          Working capital                                      $     8,079,904
          Timberlands                                               46,803,415
          Other noncurrent assets                                      396,025
          Other liabilities                                       (19,301,730)
                                                               ----------------

                       Total purchase cost                     $    35,977,614
                                                               ================

       As a result of the Acquisition and new basis of accounting, the Company's
       financial statements for the period subsequent to the Acquisition are not
       comparable  to the  Predecessor's  financial  statements  for the  period
       prior to the Acquisition.

       The Predecessor  was  constituted as a limited  partnership on August 14,
       1985, under the Virginia Uniform Limited  Partnership Act,  pursuant to a
       Limited Partnership Agreement, as amended (the "Partnership  Agreement"),
       among:

       o  Brant-Allen   Timberlands   Company,   Inc.,  which  was  merged  into
          Brant-Allen on October 31, 1988;

       o  Dow Jones Virginia Company, Inc. ("D J Virginia"),  a Delaware
          corporation and a wholly owned subsidiary of Dow Jones; and

       o  Newsprint, Inc. ("Newsprint"), a Virginia corporation and a wholly
          owned subsidiary of The Washington Post.





<PAGE>







NOTES TO FINANCIAL STATEMENTS, Continued


 1.    Organization, continued:

       Brant-Allen  was the general  partner and D J Virginia and Newsprint were
       limited  partners.  Under the  terms of the  Partnership  Agreement,  D J
       Virginia's and Newsprint's  equity  interests in the Predecessor were 35%
       each and Brant-Allen's equity interest was 30%.

       The Partnership Agreement included the following provisions:

       o   The Predecessor  was established for an initial term of 43 years and
           was renewable for additional  terms of 20 years.

       o   The  purpose  of the  Predecessor  was to engage in the  business  of
           acquiring, or otherwise investing in, holding, managing, maintaining,
           operating,  harvesting and disposing of (i) real property  containing
           timberlands  or to be planted for  production of timber,  (ii) timber
           rights,  (iii)  logs,  and (iv)  pulp  chips,  and to engage in other
           activities  desirable or incidental to timber management,  production
           and sales.

       o   Brant-Allen,  as general partner,  had full and exclusive  control of
           the  business  of the  Predecessor  and  had  active  control  of its
           management.  Brant-Allen  received no fees or other  compensation for
           managing the Predecessor.

       o   The limited partners were not liable for any net losses or other debt
           or liability of the  Predecessor to any extent,  except for (i) their
           respective  contributions  to capital and (ii) their guarantee of the
           Predecessor's long-term debt up to $7,933,333 each.

       o   Subject to the aforementioned provisions, the partners shared the net
           profits  and  losses  based on their  interests,  as  defined  by the
           Partnership Agreement, computed in accordance with generally accepted
           accounting principles consistently applied.

       o   No partner could sell,  assign or otherwise  dispose of its interest,
           or any part thereof, in the Predecessor, unless it first offered such
           interest  to the other  partners  as  prescribed  in the  Partnership
           Agreement.

       o   No partner could mortgage,  pledge, hypothecate or otherwise encumber
           its interest in the Predecessor  without the prior written consent of
           the other partners.



 2.    Summary of Significant Accounting Policies:

       Cash and Cash Equivalents: Cash equivalents include repurchase agreements
       of $1,385,671  at December 31, 1997,  and are stated at cost plus accrued
       interest which approximates  market value. For purposes of the statements
       of cash  flows,  the  Companies  consider  all highly  liquid  short-term
       investments  purchased with an original  maturity of three months or less
       to be cash equivalents.





<PAGE>

NOTES TO FINANCIAL STATEMENTS,  Continued


 2.    Summary of Significant Accounting Policies, continued:

       Notes  Receivable:  As certain  timberlands  are sold,  the Companies may
       accept a note as part of the sales  transaction.  The current  portion of
       notes receivable approximated $82,421 at December 31, 1997.

       Inventory: Inventory for the Company consists primarily of wood stored at
       wood yards. Concurrent with the Acquisition, the Company modified certain
       terms of a wood supply  contract  with Bear Island Paper Company L.L.C.
       ("BIPCO") to be reflective of market prices. Prior to the Acquisition,
       the Predecessor was party to a wood supply contract with Bear Island
       Paper Company L.P. ("Paperco") which was owned proportionately by the
       same partners of the Predecessor, where by the Predecessor had guaranteed
       to suppply all of Paperco's log and pulp chip requirements at prices
       negotiated annually. Modified terms included changing the point of
       purchase for wood from the point of  production  to delivery on BIPCO's
       mill site and changing the  purchase  price from a  negotiated  price to
       market  price. Inventory  is valued at the lower of actual  costs or
       market,  with cost determined on the first-in, first-out ("FIFO") basis.

       Property,  Equipment and Timberlands:  Land,  machinery and equipment are
       stated  at  cost.  Timberlands  are  stated  at cost  net of  accumulated
       depletion.  The cost of reforestation  is capitalized.  The cost of major
       renewals and betterments to equipment are capitalized  while the costs of
       maintenance  and  repairs  are  charged  to  income  as  incurred.   When
       properties  are sold or retired,  their cost and the related  accumulated
       depreciation  or depletion are eliminated  from the accounts and the gain
       or loss is reflected in income.

       The  carrying  value  of  property,   plant  and   equipment,   including
       timberlands,  is evaluated  whenever  significant events or changes occur
       that might  indicate an  impairment  through  comparison  of the carrying
       value to  total  future  undiscounted  cash  flows.  To  derive  the data
       necessary to determine  expected future cash flows,  management  conducts
       annual cruises (a detailed  forestry  evaluation of the tracts) of 20% of
       the timberlands,  such that in five years the entire timber holdings have
       been completely cruised.  Using the results of the cruises,  the quantity
       of  standing  timber is  determined.  From this  information,  management
       determines the future undiscounted cash flows of the timber property.

       Depreciation:   Depreciation  of  machinery  and  equipment  is  computed
       principally on the straight-line basis over the estimated useful lives of
       the assets which range from three to five years.


       Depletion:  The portion of the cost of timberlands attributed to standing
       timber is charged  against  income as timber is cut, at rates  determined
       annually,  based on the  relationship of unamortized  timber costs to the
       estimated volume of recoverable timber.


<PAGE>






NOTES TO FINANCIAL STATEMENTS, Continued

 2.    Summary of Significant Accounting Policies, continued:

       Deferred Financing Costs: Costs directly  associated with the issuance of
       long-term  debt  have  been  deferred  and  are  being   amortized  on  a
       straight-line basis over the life of the related debt, which approximates
       the interest method.

       Deferred  Profit on Land Sales:  Profit on land sales for which the buyer
       has not fully paid is recognized on the  installment  method when cash is
       received from the buyer.

       Revenue  Recognition:  Revenue is  recognized at the point where title of
       the product  transfers.  Affiliated  sales are  recognized by the Company
       upon  delivery  of the wood to  BIPCO;  whereas  affiliated  sales of the
       Predecessor  were  recognized  when wood was placed  into  production  by
       PaperCo.

       Income  Taxes:   No  provision  for  income  taxes  is  required  in  the
       accompanying  financial  statements  since  each  member  or  partner  is
       individually  liable  for any income tax that may be payable on its share
       of the Company's or the Predecessor's taxable income.

       Earnings Per Share:  No earnings per share  calculations  have been
       provided in the financial  statements  since such calculations are not
       required.

       Estimates:  The  preparation of financial  statements in conformity  with
       generally  accepted  accounting  principles  requires  management to make
       estimates and assumptions  that affect the reported amounts of assets and
       liabilities  and disclosure of contingent  assets and  liabilities at the
       dates of the financial  statements  and the reported  amounts of revenues
       and expenses  during the reporting  period.  Actual  results could differ
       from those estimates.

       Fair Value of Financial Instruments: The fair value of the long-term debt
       is estimated  discounting the future cash flows using currently available
       borrowing  rates.  The  fair  value  of trade  receivables  and  payables
       approximates  the carrying amounts because of the short maturity of these
       instruments.

       Risk and Uncertainties:  Financial  instruments which potentially subject
       the Company   to  concentrations  of credit risk consist  principally  of
       cash, short term investments, U.S. Government securities and receivables.
       The cash and restricted cash balances are maintained at a major financial
       institution.   Cash   equivalents  at  December  31,  1997  consisted  of
       repurchase agreements with a high-credit-quality  financial  institution.
       The repurchase agreements were collateralized by United States Government
       agency obligations.  The credit rating of the issuing institution for the
       repurchase  agreements indicates the issuing entity has a strong capacity
       to repay short-term obligations.





<PAGE>




 2.    Summary of Significant Accounting Policies, continued:

       Receivables consist  principally of trade accounts  receivable  resulting
       primarily  from  sales  to Paperco and BIPCO (collectively the "Paper
       Companies") and  notes  receivable resulting from land sales.  Notes
       receivable  credit is extended after an evaluation of creditworthiness
       and are collateralized by a first deed of trust on the land sold.

       The  Companies' sales of timber are made  almost  entirely  to the Paper
       Companies. Sales to BIPCO represented  approximately 77% of total sales
       during  the one month ended December  31,  1997,  and sales to  PaperCo
       represented 72% for the eleven months ended November 30, 1997.

 3.    Restricted Cash and Investments:

       Restricted cash and  investments  consist of U.S.  Government  securities
       which are stated at amortized cost which approximates  market value. Cash
       and  investments  are restricted  for the payment of principal  under the
       terms of escrow agreements  entered into in connection with the Company's
       and Predecessor's long-term debt.



 4.    Timberlands:

       At December 31, 1997, the Companies' timberlands consisted of the cost of
       land and standing  timber owned by the  Companies  ("Fee  Lands") and the
       cost of the right to cut timber from land owned by third parties within a
       specified period of time ("Timber Deeds").

       Timberlands consisted of:

                                                              December 31,
                                                           ----------------
                                                                 1997

          Fee Lands                                        $    60,674,543
          Timber Deeds                                              53,670
                                                           ----------------

                                                                60,728,213
          Less accumulated depletion                             (129,686)
                                                           ----------------

                       Timberlands, net                    $    60,598,527
                                                           ================




<PAGE>




 5.    Property, Plant and Equipment:

       Property,  plant and  equipment  is stated  at cost and  consists  of the
following:

                                                                December 31,
                                                               ----------------
                                                                     1997


          Land                                                 $        25,421
          Machinery and equipment                                      450,267
                                                               ----------------

                                                                       475,688
          Less accumulated depreciation                                (7,406)
                                                               ----------------

                       Total                                   $       468,282
                                                               ================

 6.    Long-Term Debt:

       Long-term debt consisted of:

<TABLE>
<CAPTION>

                                                                                                         December 31,
                                                                                                        ----------------
                                                                                                             1997
<S> <C>
          Senior notes  bearing  annual  interest  at  8.91%  (interest   payable
                quarterly); principal of $30,000,000 due at maturity on December
                31, 1999                                                                                $    30,000,000

          Term  loan  and  revolving  credit  facility  of  Brant-Allen  bearing
                interest  on the term loan at 8.91% and prime  plus 1.75% on the
                revolving loan; outstanding principal due December 31, 1999                                  27,700,000



          Promissory note bearing  interest at 6%; principal and interest due in
                three  annual  installments  of  $189,250,  which  commenced  on
                January  1, 1996 and will  continue  through  January  1,  1998;
                collateralized  by a deed of trust on certain  timberland with a
                book value of approximately $259,000                                                            189,250




          Promissory note bearing  interest at 7%; principal and interest due in
                three  annual  installments;  first and second  installments  of
                $67,980 are due on January  31, 1998 and 1999,  with the balance
                due in the third installment on January 31, 2000; collateralized
                by a deed of trust on  certain  timberland  with a book value of
                approximately $229,500                                                                         178,400





          Promissory note bearing  interest at 7.5%;  principal and interest due
                in eight annual  installments of $17,994  commencing on November
                13,  1998;   collateralized  by  a  deed  of  trust  on  certain
                timberland with a book value of approximately $145,500                                          105,394




          Promissory note bearing  interest at 7.5%;  principal and interest due
                in eight annual  installments of $17,219  commencing on November
                13,  1998;   collateralized  by  a  deed  of  trust  on  certain
                timberland with a book value of approximately $139,000                                          100,856
                                                                                                        ----------------


                                                                                                             58,273,900
          Less current portion                                                                                  264,485
                                                                                                        ----------------

                       Total long-term debt                                                             $    58,009,415
                                                                                                        ================

</TABLE>





<PAGE>




 6.    Long-Term Debt, continued:

       On December 1, 1997 and concurrent with the Acquisition described in Note
       1, Brant-Allen  entered into Indenture  Agreements for a $32 million Term
       Loan Facility ("Timberlands Term Loan") and a $3 million Revolving Credit
       Facility  ("Timberlands  Revolving Loans") (collectively the "Timberlands
       Loans") that have been pushed down in the Company's financial  statements
       since the Timberlands  Loans are  collateralized  by  Brant-Allen's  100%
       membership  interest  in  the  Company.   Additionally  as  part  of  the
       aforementioned Acquisition, the Company renegotiated certain terms of the
       Predecessor's  senior  notes  through  an  amended  Timberlands  Loan and
       Maintenance   Agreement  (the  "Amended  Agreement")  and  increased  the
       existing  $27  million  principal  balance  to  $30  million  through  an
       additional  $3  million  issuance.  This  renegotiation   constituted  an
       extinguishment  of debt. The proceeds from the Timberlands  Loans and the
       Amended  Agreement were used by  Brant-Allen  and the Company to purchase
       the 70% interest of the Predecessor which was previously owned by certain
       subsidiaries of Dow Jones and The Washington Post. The extraordinary item
       in the eleven month period ended  November 30, 1997  represents the write
       off of unamortized  financing costs and prepayment penalties paid related
       to the  Predecessor's  senior notes that were renegotiated at the time of
       the Acquisition.

       Under the terms of the Timberlands  Revolving  Loans,  until the maturity
       date,  Brant-Allen may elect to convert  amounts  outstanding  under the
       revolving  loans from prime plus 1.75% to the monthly LIBOR rate plus
       2.75%. The Timberlands Loans are redeemable at the option of the Company,
       in  whole or in  part,  at any  time  without  premium  or  penalty  upon
       irrevocable notice delivered to the administrative agent.

       The  Timberlands  Loans  are  partially  collateralized  by  (i) a  first
       priority security interest in 100% of Brant-Allen's  membership  interest
       in the  Company and (ii) a first  priority  security  interest  (pro rata
       along with BIPCO's $120  million  Bank Credit  Facilities)  in 65% of the
       common  stock  of F.  F.  Soucy,  Inc.,  a  wholly  owned  subsidiary  of
       Brant-Allen.  The  Timberlands  Loans are also guaranteed by the Company.
       The remaining 35% of F. F. Soucy,  Inc.'s common stock cannot be assumed,
       pledged,   hypothecated,   transferred   or  otherwise   disposed  of  by
       Brant-Allen without the consent of the required lenders.

       The most restrictive  covenants under the Timberlands  Loans are that the
       Company has a limitation on incurring  additional debt, making restricted
       payments,  creating,  incurring or assuming  any liens,  sales of capital
       stock of subsidiaries, and transactions with affiliates.

       Certain debt of BIPCO is  collateralized  by a second and third  priority
       security  interest in  Brant-Allen's  100%  membership  interests  in the
       Company.





<PAGE>




 6.    Long-Term Debt, continued:

       Under  the  more  financially   significant   covenants  of  the  Amended
       Agreement,  the Company agreed to (i) limit distributions,  (ii) restrict
       investments, (iii) limit the incurrence of additional indebtedness,  (iv)
       not pay renumeration of any nature to the parent,  (v) limit timberland
       sales, (vi) restrict the cutting of timber, and (vii) maintain a ratio of
       Administrative  Value of timberland to Net Principal  Balance (as defined
       in the Agreement) of at least 1.33 to 1. The $30,000,000  Senior  Notes
       are  collateralized  by a deed  of  trust  on approximately 130,000 acres
       of timberland.

       The  Amended  Agreement  also  requires  that the  Company  make  certain
       payments  to an escrow  account  (see Note 3) in the event (i) any of the
       timberland  property  acquired  with the  proceeds of the loan is sold or
       (ii) the volume of timber  cut from the  timberland  property  exceed the
       volume  permitted  by the lender.  The balance in the escrow  account was
       approximately   $11,500  at  December  31,  1997  and  is  classified  as
       restricted cash and investments in the accompanying balance sheet.

       The promissory note bearing interest at 6% was issued in December 1995 in
       connection  with the  purchase of  timberland  at an  aggregate  price of
       approximately  $757,000.  The Company is permitted to prepay  outstanding
       principal and interest balances with lender approval. The promissory note
       is  collateralized  by a deed of trust on timberland which is not part of
       the collateralized assets under the Amended Agreement.

       The  Company's  long-term  debt at December  31, 1997  approximated  fair
       value.

       Maturities on long-term  debt for the four years after 1998 are
       approximately  as follows:  1999 - $57,803,193; 2000 - $77,653; 2001 -
       $35,213; and 2002 - $35,213.



 7.    Related-Party Transactions:

       The  Predecessor  was a party  to a wood  supply  contract  with  PaperCo
       whereby the Predecessor had guaranteed to supply all of PaperCo's log and
       pulp chip requirements at a price determined annually.





<PAGE>




 7.    Related-Party Transactions, continued:

       Wood prices charged by the  Predecessor to PaperCo are compared to market
 prices below:

                                                            Eleven Months
                                                                Ended
                                                             November 30,
                                                         --------------------
                                                                1997

          Actual                                           $    95.50

          Market                                           $ 60.00 to $66.00


       At December 31, 1997,  BIPCO owed the Company $42,029.  All other  sales
       of wood were  made to  unaffiliated  companies primarily located in
       Virginia.

       The Predecessor had agreed to procure recycled paper for PaperCo on a fee
       per ton basis.  The  procurement  fee  charged on a per ton basis for the
       eleven months ended November 30, 1997 was $24.31.

       The  actual  costs of  procurement  services  provided  to PaperCo by the
       Predecessor  was  approximately  $213,000  for the  eleven  months  ended
       November 30, 1997, respectively.

       The Company and Predecessor share employees, facilities and recordkeeping
       systems with BIPCO and PaperCo,  respectively,  and reimbursed  BIPCO and
       PaperCo,   respectively,   monthly  for  their  share  of  these   costs.
       Accordingly,  these shared  employees  receive benefits under BIPCO's and
       formerly PaperCo's defined contribution  retirement plan and are eligible
       to participate in BIPCO's thrift plan.  Costs associated with these plans
       are  reimbursed  monthly by the Company  and  formerly  its  Predecessor.
       Amounts paid to BIPCO and PaperCo for shared costs, which are included in
       general and administrative expenses,  approximated $60,000 and $1,319,000
       for the  month  ended  December  31,  1997 and the  eleven  months  ended
       November 30, 1997, respectively. The Companies received approximately
       $5,300 and $55,000 from the Paper  Companies  for the month ended
       December 31, 1997 and the eleven months ended November 30, 1997 for
       managing certain of its timberlands.   Such   amounts  are   included  in
       other  income  in  the accompanying statements of operations.



 8.    Subsequent Events:

       On January 30, 1998,  BIPCO  completed its initial  registration  process
       which became effective  pursuant to Section 8(A) of the Securities Act of
       1933.  Concurrent  with  becoming  effective,  BIPCO  is  subject  to the
       information  requirements  of the  Securities  Exchange  Act of 1934,  as
       amended,  and  required to file  reports and other  information  with the
       United States Securities and Exchange Commission.





<PAGE>

Auditors' Report

To the Shareholders of
F.F. Soucy, Inc.


We have  audited  the  consolidated  balance  sheet of F.F.  Soucy,  Inc.  as at
December 31, 1997 and the consolidated statements of earnings, retained earnings
and  changes in  financial  position  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 Canadian  generally  accepted auditing
standards.  Those standards  require that we plan and perform an audit to obtain
reasonable  assurance  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 financial statement presentation.

In our opinion,  these consolidated  financial statements present fairly, in all
material  respects,  the  financial  position of the Company as at December  31,
1997,  and the  consolidated  results of its  operations  and the changes in its
financial  position  for the year  then  ended,  in  accordance  with  generally
accepted accounting principles in Canada.



COOPERS & LYBRAND


Chartered Accountants
General Partnership

Montreal, Canada
January 16, 1998

<PAGE>


F.F. Soucy, Inc.
Consolidated Balance Sheet as at December 31, 1997




(expressed in Canadian dollars)





                                     Assets


Current assets

Cash                                                                  6,494,426
Accounts receivable -
   Parent company                                                       812,579
Other                                                                24,861,178
Advances to parent company                                                    -
Inventories                                                          12,118,057
Prepaid expenses                                                        538,060
                                                             ------------------

                                                                     44,824,300

Property, plant and equipment                                        93,797,758

Deferred pension costs                                                1,139,719

Unamortized foreign exchange loss on
long-term debt
                                                                      1,674,864
                                                             ------------------
                                                             $      141,436,641
                                                             ==================

                                   Liabilities


Current liabilities

Bank indebtedness                                                             -
Accounts payable and accrued liabilities                             13,945,365
Income taxes                                                          4,190,606
Current portion of long-term debt                                     4,957,173
                                                             ------------------

                                                                     23,093,144

Long-term debt                                                       21,426,483

Deferred income taxes                                                12,665,826

Non-controlling interest in F.F. Soucy, Inc.
& Partners, Limited Partnership
                                                                     47,008,132
                                                             ------------------

                                                                    104,193,585
                                                             ------------------

                              Shareholders' Equity


Capital stock                                                         1,621,851

Contributed surplus                                                   1,133,850

Retained earnings                                                    34,487,355
                                                             ------------------

                                                                     37,243,056
                                                             ------------------

                                                             $      141,436,641
                                                             ==================

                              The accompanying notes are an integral part of the
                                               consolidated financial statements


<PAGE>


F.F. Soucy, Inc.
Consolidated Statement of Retained Earnings
For the year ended December 31, 1997



(expressed in Canadian dollars)





Retained earnings - Beginning of period                              43,138,862

Net earnings for the period                                           6,428,752
                                                             ------------------

                                                                     49,567,614
Dividends                                                             6,000,000
Premium on redemption of common shares                                9,080,259
                                                             ------------------

Retained earnings - End of period                            $       34,487,355
                                                             ==================


Dividends per share                                          $            14.37
                                                             ==================




                              The accompanying notes are an integral part of the
                                               consolidated financial statements





<PAGE>


F.F. Soucy, Inc.
Consolidated Statement of Earnings
For the year ended December 31, 1997



(expressed in Canadian dollars)





Sales                                                               151,250,406

Freight                                                              15,670,318
                                                             ------------------

Net sales                                                           135,580,088

Cost of sales                                                       104,480,103
                                                             ------------------

                                                                     31,099,985
                                                             ------------------

Expenses

Selling, general and administrative -
To parent company                                                    13,191,943

To other                                                                389,722
Interest on long-term debt                                            2,736,088
Other interest                                                           48,364
                                                             ------------------

                                                                     16,366,117
                                                             ------------------

                                                                     14,733,868
                                                             ------------------

Other income

Compensation for power interruption                                   2,436,040
Interest income                                                         224,135
Loss on foreign exchange and translation - net                         (490,666)
                                                             ------------------

                                                                      2,169,509
                                                             ------------------

Non-controlling interest in earnings of
F.F. Soucy, Inc. & Partners, Limited
Partnership
                                                                     (7,454,625)
                                                             ------------------

Earnings before income taxes                                          9,448,752

Provision for income taxes                                            3,020,000
                                                             ------------------

Net earnings for the period                                  $        6,428,752
                                                             ==================

Net earnings per share                                       $            15.32
                                                             ==================


                              The accompanying notes are an integral part of the
                                               consolidated financial statements


<PAGE>


F.F. Soucy, Inc.
Consolidated Statement of Changes in Financial Position
For the year ended December 31, 1997



(expressed in Canadian dollars)





Cash provided by (used for)

Operations

Net earnings for the period                                           6,428,752
Items not affecting cash -
Depreciation of property, plant and equipment                         8,974,173
Non-controlling interest of a limited partnership                     7,454,625
Deferred income taxes                                                 1,700,000
Foreign exchange loss on long-term debt                                 648,153
Loss on disposal of capital assets                                       71,254
                                                             ------------------

Provided by operations                                               25,276,957
Cash used for non-cash working capital                               (3,910,159)
                                                             ------------------

                                                                     21,366,798
                                                             ------------------

Financing

Decrease in long-term debt                                           (5,003,834)
Redemption of common shares                                          (9,400,000)
Dividends paid                                                       (6,000,000)
Distribution to minority interest in F.F. Soucy, Inc.
& Partners, Limited Partnership
                                                                     (4,224,301)
                                                             ------------------

                                                                    (24,628,135)
                                                             ------------------

Investment

Additions to property, plant and equipment                           (9,571,202)
Investment tax credits resulting from the purchase of
capital assets
                                                                      1,061,893
Proceeds from disposal of capital assets                                      -
Decrease in deferred pension costs                                      105,732
Advances to parent company                                            2,041,272
                                                             ------------------

                                                                     (6,362,305)
                                                             ------------------

Increase (decrease) in net cash
during the period
                                                                     (9,623,642)

Net cash - Beginning of period                                       16,118,068
                                                             ------------------

Net cash - End of period                                     $        6,494,426
                                                             ==================

Net cash includes cash less bank indebtedness.




                              The accompanying notes are an integral part of the
                                               consolidated financial statements



<PAGE>
F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



1.    Summary of significant accounting policies

      Basis of consolidation

      These consolidated  financial  statements have been prepared in conformity
      with accounting  principles  generally  accepted in Canada and include the
      accounts of the  wholly-owned  subsidiary,  Arrimage de Gros Cacouna Inc.,
      and F.F. Soucy, Inc. & Partners,  Limited Partnership (the "Partnership"),
      a Quebec limited  partnership in which the Company is general  partner and
      shares in 50.1% of the profits and losses.

      Use of estimates

      The  preparation of consolidated  financial  statements in conformity with
      generally  accepted  accounting  principles  requires  management  to make
      estimates and assumptions  that affect the reported  amounts of assets and
      liabilities  and  disclosure of contingent  assets and  liabilities at the
      dates of the financial  statements and the reported amounts of revenue and
      expenses  during the reporting  periods.  Actual results could differ from
      those estimates.

      Fair value of financial instruments

      The fair  market  values  of the  financial  instruments  included  in the
      consolidated financial statements approximate the carrying values of those
      instruments except for long-term debt as disclosed in note 7.

      Cash

      Cash  includes  all  cash  balances  and  all  highly  liquid   short-term
      investments,  exclusive  of bank  indebtedness,  where  applicable.  As at
      December  31,  1997,  the  Company  held no  short-term  investments.  For
      purposes of the  statement of changes in financial  position,  the Company
      considers  all  highly  liquid  short-term  investments  with an  original
      maturity of three months or less to be cash equivalents.

      Credit and market risk

      Financial   instruments   which   potentially   subject   the  Company  to
      concentrations  of credit risk  consist  principally  of cash and accounts
      receivable.  The Company's cash balance is maintained at a major financial
      institution.  Receivables consist principally of trade accounts receivable
      resulting primarily from sales to newspaper publishers. Credit is extended
      to customers  after an evaluation  of credit  worthiness.  Generally,  the
      Company does not require  collateral or other  security from customers for
      trade accounts  receivable.  Substantially  all of the Company's  debtors'
      ability to honor their  obligations  are  dependent  upon the printing and
      publishing sectors.

      The  Company  operates  solely to  produce  newsprint  which is subject to
      fluctuations in paper prices.  The paper industry has  experienced  highly
      volatile price changes over the past few years.

      Inventories

      Inventories  are  valued at the lower of cost  (first  in,  first  out) or
      market.  Cost as applied to finished  goods  includes  cost of  materials,
      direct labour and overhead.


<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)


1.   Summary of significant accounting policies (cont'd)

      Property, plant and equipment

      Cost of  property,  plant and  equipment  is  recorded  net of  applicable
      government   grants,   including   investment  tax  credits,   on  capital
      expenditures.  Depreciation  of property,  plant and equipment is computed
      using the declining  balance  method by the Company and the  straight-line
      method by the Partnership as follows:


          Buildings                                                     2% - 10%
          Machinery and equipment                                       4% - 20%
          Furniture and fixtures                                             20%


      The Company and the Partnership commence depreciating property,  plant and
      equipment  at the time the assets  are put into use.  As at  December  31,
      1997, there was capitalized  costs of $2,718,903 with respect to property,
      plant and equipment not yet in use.

      For  income tax  purposes,  depreciation  is  computed  principally  on an
      accelerated basis.

      The Partnership capitalizes interest costs, where material, as part of the
      cost of  constructing  major  facilities and  equipment.  No such interest
      costs have been capitalized in 1997.

      The carrying value of property,  plant and equipment is evaluated whenever
      significant  events or changes  occur that might  indicate  an  impairment
      through  comparison  of the  carrying  value to fair market value or total
      undiscounted cash flows.

      Revenue recognition

      Sales and related  costs of goods sold are included in earnings when goods
      are delivered to the customer in accordance with the delivery terms.

      Pension costs

      The  pension  costs  include  the  cost of  pension  benefits  related  to
      employees'  services  in the  current  year  and the  amortization  of the
      difference  between pension fund assets and the actuarial present value of
      accrued pension benefits for services rendered to date. This difference is
      being amortized over the expected  average  remaining  service life of the
      employee  groups which extends for periods of up to 15 years.  The Company
      makes appropriate  provision against deferred pension costs where there is
      uncertainty  regarding its ability to benefit from the underlying  pension
      surplus.

      Compensation for power interruption

      The compensation for power  interruption (note 10) is comprised of a fixed
      portion,  which is  recognized  as earned by the Company in equal  amounts
      over a period  of four  months  from  December  to March,  and a  variable
      portion which is recognized as earned when the power interruptions  occur.
      At  such  time  as the  maximum  amount  of  power  consumption  has  been
      interrupted,  any remaining  balance of the fixed portion is recognized as
      income.



<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



1.    Summary of significant accounting policies (cont'd)

      Income taxes

      The Company provides  deferred income taxes for timing  differences  which
      relate  principally to differences  between financial and tax reporting in
      the  recognition  of  depreciation   charges.  For  income  tax  reporting
      purposes,  the Company  includes its  proportionate  share of earnings and
      losses of the Partnership.  In accordance with the Partnership  Agreement,
      maximum  capital  cost  allowances  are being  claimed by the  Partnership
      including accelerated depreciation of production machinery and equipment.

      Foreign currency translation

      Transactions denominated in foreign currencies are recorded at the rate of
      exchange   prevailing  at  the  transaction  date.   Monetary  assets  and
      liabilities in foreign  currencies are translated at year-end  rates,  and
      non-monetary assets and liabilities at rates prevailing at the transaction
      dates. Gains or losses arising on translation are included in earnings for
      the current  year except those  relating to long-term  debt (note 7) which
      are deferred and amortized over the remaining life of the debt.

      Forward exchange contracts

      Forward exchange  contracts are entered into to hedge  contracted  revenue
      streams from foreign currency exchange rate  fluctuations.  As such, these
      non-speculative  forward  exchange  contracts  are  not  recorded  on  the
      Company's  balance  sheet.  Also,  unrealized  gains  and  losses on these
      forward exchange  contracts are deferred and recognized upon settlement of
      the related transactions.  Accordingly,  cash flows resulting from forward
      exchange   contract   settlements  are  classified  as  cash  provided  by
      operations as are the  corresponding  cash flows from the revenue  streams
      being hedged (note 13).

      Dividends

      Dividends on common shares,  when declared,  are paid to  shareholders  in
      United States dollars.


2.    F.F. Soucy, Inc. & Partners, Limited Partnership

      F.F. Soucy, Inc. & Partners,  Limited  Partnership (the "Partnership") was
      constituted as a limited  partnership on May 31, 1974 under the Civil Code
      of the  Province  of Quebec,  Canada,  pursuant  to a limited  partnership
      agreement (the  "Partnership  Agreement")  between the Company,  Dow Jones
      Newsprint  Company,  Inc. ("DJ Newsprint"),  a Delaware  corporation and a
      wholly-owned  subsidiary of Dow Jones and Company, Inc. ("Dow Jones"), and
      Rexfor,  a Crown  corporation  of the Quebec  Provincial  Government.  The
      Partnership Agreement, as amended, includes the following provisions:

      o    The Partnership is for an initial term expiring  December 31, 2004,
           renewable   for  further  terms  of  ten  years  and  is  subject  to
           dissolution  with the consent of two or more  partners and in certain
           other circumstances.

      o    The  purpose of the  Partnership  is to engage in the  business  of
           producing, selling and distributing newsprint by constructing, owning
           and  operating  a paper mill (the  "Partnership  Mill") at Riviere du
           Loup, Quebec.

<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



2.    F.F. Soucy, Inc. & Partners, Limited Partnership (cont'd)

      o    The Company, as general partner,  has full and exclusive control of
           the  business  of the  Partnership  and  has  active  control  of its
           management.  DJ Newsprint and Rexfor,  as limited  partners,  are not
           liable  for  any  net  losses  or  other  debt  or  liability  of the
           Partnership to any extent, except for their respective  contributions
           to capital.

      o    Subject to the above,  the  partners  shall  share the net profits or
           losses of the Partnership in the following proportions:


             F.F. Soucy, Inc.                                              50.1%
             DJ Newsprint                                                  39.9%
             Rexfor                                                        10.0%
                                                              ------------------

                                                                          100.0%
                                                              ==================


      o    No partner may sell,  assign or otherwise  dispose of its interest,
           or any part thereof, in the Partnership,  unless it first offers such
           interest  to the other  partners  as  prescribed  in the  Partnership
           Agreement.

      Brant-Allen  Industries,  Inc.  ("Brant-Allen"),  along  with  one  of its
      subsidiaries,  is party to a long-term  financing agreement whereby 65% of
      the  common  shares of the  Company  have been  pledged as  security.  The
      Company,  Brant-Allen  and the  subsidiary  are  all  subject  to  certain
      financial  and  non-financial  covenants.  Should any of these parties not
      comply with their respective covenants, a change in control of the Company
      may result, under certain circumstances, which could trigger a dissolution
      of the Partnership.


3.    Accounts receivable and related party transactions

     (a)  All sales are made through Newsprint Sales, a division of Brant-Allen,
          the parent company.  At December 31, 1997, accounts receivable include
          an amount of $812,579  receivable  from Newsprint  Sales  representing
          amounts  received  by  Newsprint  Sales on  collection  of  receivable
          balances yet to be transferred to the Company.

     (b)  During the year ended  December  31,  1997,  Brant-Allen  charged  the
          Company approximately $13,192,000 for management and selling services.
          At December 31, 1997,  the balance owing by the Company to Brant-Allen
          amounted to $120,323.


4.    Inventories comprise:


             Raw materials                                            6,072,243
             Finished goods                                           1,575,121
             Stores                                                   4,470,693
                                                             ------------------

                                                             $       12,118,057
                                                             ==================

<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



5.    Property, plant and equipment


             Land and buildings                                      30,954,331
             Machinery and equipment                                183,185,005
             Furniture and fixtures                                     343,351
                                                             ------------------

                                                                    214,482,687
                Less: Accumulated depreciation                      120,684,929
                                                             ------------------

                                                             $       93,797,758
                                                             ==================


      Machinery and equipment include assets under capital leases with a cost of
      $4,299,000 and  accumulated  depreciation of $2,198,000 as at December 31,
      1997.


6.    Bank indebtedness

      The Company and the Partnership have available lines of credit from a bank
      amounting to Cdn.  $3,000,000  and Cdn.  $5,000,000,  respectively.  As at
      December 31, 1997,  there were no advances  drawn down under the Company's
      line of credit and under the  Partnership's  line of  credit.  Outstanding
      balances  under the lines of credit are payable on demand and  interest is
      payable at 1/4% and 1/2% above the bank's  prime rate  respectively  which
      was at 6.00% as at December 31, 1997. The Company and the Partnership have
      assigned  their accounts  receivable and pledged their  inventories to the
      bank as  security  for any  advances  under  the  lines of  credit.  Also,
      Newsprint  Sales has  assigned  its  accounts  receivable  and provided an
      unlimited  guarantee and postponement of claim against the Company and the
      Partnership.


7.    Long-term debt

      Long-term debt comprises:

             Sinking  fund bonds  maturing  2004 (note 7(a))         21,175,018
             Sinking  fund bonds  maturing 1999 (note 7(a))           5,208,638
             Obligation under capital leases                                 -
                                                             ------------------

                                                                     26,383,656
                Less: Current portion                                 4,957,173
                                                             ------------------

                                                             $       21,426,483
                                                             ==================


     (a)  In 1979, the  Partnership,  through  Riviere du Loup Finance Ltd., its
          wholly-owned  subsidiary,  issued U.S.  $20,000,000,  10 3/4% and Cdn.
          $5,000,000,  10 7/8% bonds to several insurance  companies maturing on
          April 1,  1999.  In 1987,  the  Partnership,  through  Riviere du Loup
          Finance  Ltd.,  issued U.S.  $27,500,000,  9.65% bonds to an insurance
          company maturing on July 1, 2004.


<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



7.    Long-term debt (cont'd)

          The trust indenture contains certain  restrictive  covenants including
          equity and working capital requirements.  The Partnership has assigned
          the sale agreement (note 11(a)) and  collateralized  substantially all
          of its  property,  plant  and  equipment  having a net  book  value of
          $78,587,000 as at December 31, 1997 for the bonds.

     (b)  The aggregate  fair market value of the Company's  long-term  debt was
          $29,037,000  as at December 31, 1997 based on  discounted  future cash
          flows using  interest  rates  available to the Company for issues with
          similar terms and average conditions.

     (c)  Interest incurred on long-term debt in 1997 amounted to $2,718,000.

     (d)  Long-term debt maturities are as follows as at December 31, 1997:


                                                       U.S. $            Cdn. $

             Year ending December 31, 1998            3,265,385          287,000
                                      1999            4,065,385          488,000
                                      2000            2,115,385                -
                                      2001            2,115,385                -
                                      2002            2,115,385                -


8.    Capital stock

      The authorized capital stock of the Company is comprised of 500,000 common
      shares  without par value.  As at December 31, 1997,  the number of issued
      and paid shares was  417,660.  On January 10, 1997,  the Company  redeemed
      82,340 of its common  shares,  with a book value of  $319,741,  for a cash
      consideration  of  $9,400,000.  The excess of $9,080,259 of the redemption
      price over book value has been charged to retained earnings.


9.    Wood chips and round wood supply agreements

      The Company has entered into a number of agreements  for the supply of its
      wood chips and round wood  requirements.  The duration of these agreements
      varies  between  one  and  five  years.   The  estimated  future  purchase
      commitments, based on current prices which are renewable annually, for the
      next five years are as follows:


             1998                                             $       14,930,000
             1999                                                     11,584,000
             2000                                                     11,408,000
             2001                                                      9,600,000
             2002                                                      4,345,000


<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



10.   Power interrruption agreement

      Under an agreement with Hydro-Quebec,  expiring on September 30, 2000, the
      Company  will be  compensated  by a fixed annual  amount,  plus a variable
      annual  amount  based on the actual  power  usage and power  interruptions
      requested by Hydro-Quebec.  The agreement  establishes a maximum amount of
      power  consumption which may be interrupted at the request of Hydro-Quebec
      during the months of December to March inclusively.


11.   Sales

     (a)  The  Partnership  has  contracted  to sell Dow Jones the basis  weight
          equivalent  of a minimum of 45,000  short tons of 32 lb.  basis weight
          newsprint  per annum,  through  December 31,  2004.  Dow Jones has the
          option to purchase additional  quantities of newsprint,  as available.
          The price  payable  has been  agreed to  annually  based  upon  market
          conditions.   This  sale   agreement  has  been  assigned  as  partial
          collateral for the sinking fund bonds (note 7(a)).

     (b)  The Company and the  Partnership  sold  newsprint to Dow Jones and its
          subsidiaries  during the year ended  December 31,  1997,  amounting to
          $29,580,000.  At December 31, 1997,  the balance  owing to the Company
          and the  Partnership  by Dow Jones and its  subsidiaries  amounted  to
          $2,895,947.

     (c)  With  the  exclusion  of Dow  Jones  and its  subsidiaries,  which  is
          disclosed above, in 1997 no corporation represented 10% or more of the
          Company's sales.

     (d)  The Company operates two newsprint paper mills in Quebec,  Canada, and
          sells most of its production to the following  regions as a percentage
          of sales:


             United States                                                  68%
             South America                                                  12
             Europe                                                         18
             Asia                                                            2


12.   Pension costs and obligations

      The Company has defined  benefit  plans for its  employees and charges the
      Partnership its share of the related pension costs. The Company  maintains
      separate  defined  benefit plans for its unionized  plant  employees,  its
      unionized office employees and its non-unionized  employees.  The benefits
      are  based on career  average  earnings  of the  employee.  The  Company's
      funding  policy is to contribute  amounts not exceeding  those that may be
      deducted for income tax  purposes.  Contributions  are intended to provide
      not only for  benefits  attributed  to  service to date but also for those
      expected to be earned in the future.


<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



12.   Pension costs and obligations (cont'd)

      The Company's net pension cost comprises:


             Current service costs                                      666,000
             Interest cost on projected benefit obligation            2,087,000
             Return on plans' assets                                 (2,314,000)
             Amortization of unrecorded pension asset                   (80,000)
             Amortization of experience gains                          (274,000)
             Amortization of cost of amendments                         185,000
             Amortization of change in assumptions                       81,000
             Provision against deferred pension costs                   468,000
                                                             ------------------

             Net pension cost                                $          819,000
                                                             ==================


      In order to measure the projected benefit obligation, the weighted-average
      discount rate used was 7.5%;  the rate of increase in future  compensation
      levels used for the non-unionized  plan was 5.5% and the rate used for the
      unionized  office plan and the unionized plant plan was 5.5%. The expected
      long-term rate of return on assets of the plans was 8%.

      The funded status of the plans as at December 31, 1997, was:


             Actuarial present value of accumulated
                benefit obligations including vested
                benefits of $24,601,000                      $       25,063,000
                                                             ==================

             Projected benefit obligation for services
                rendered to date                                     29,722,303
             Plans' assets at fair value, primarily
                listed Canadian stocks and Canadian bonds            39,721,796
                                                             ------------------

             Plans' assets in excess of projected benefit
                obligation                                            9,999,493
             Unrecognized gains                                       6,055,472
             Provision against pension assets                         2,804,302
                                                             ------------------

             Pension asset recognized as deferred pension
                costs                                        $        1,139,719
                                                             ==================


      The  excess of the  plans'  assets is being  amortized  over the  expected
      average  remaining service life of the employees which extends for periods
      of up  to 15  years.  The  Company  makes  appropriate  provision  against
      deferred pension costs where there is uncertainty regarding its ability to
      benefit from the underlying pension surplus.  The Company's  contributions
      for the year ended December 31, 1997 were $717,000.


13.   Forward exchange contracts

      The  Partnership  entered into contracts  which mature in less than twelve
      months to sell forward U.S. dollars in exchange for Canadian  dollars.  As
      at December 31, 1997, the Partnership held forward  exchange  contracts of
      U.S.  $10,000,000  with a contracted  value of $14,188,800  against a fair
      value of $14,291,000, representing a deferred loss of $102,200.


<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



14.   United States accounting principles

      The  consolidated  financial  statements  have been prepared in accordance
      with accounting principles generally accepted in Canada ("Canadian GAAP").
      In certain  respects,  Canadian  GAAP differs from  accounting  principles
      generally accepted in the United States ("U.S. GAAP").

      Net earnings and shareholders' equity

     (a)  The  following  summary  sets  out  the  material  adjustments  to the
          Company's  reported net earnings and shareholders'  equity which would
          be made in order to conform to U.S. GAAP:


             Net earnings for the year under Canadian GAAP            6,428,752
             U.S. GAAP adjustments -
                Translation gains and losses (note 14(b))              (399,861)
                Income taxes (note 14(c))                              (287,000)
                                                             ------------------

             Net earnings for the year under U.S. GAAP       $        5,741,891
                                                             ==================

             Shareholders' equity under Canadian GAAP                37,243,056
             U.S. GAAP adjustments -
                Translation gains and losses (note 14(b))            (1,674,864)
                Income taxes (note 14(c))                               734,000
                                                             ------------------

             Shareholders' equity under U.S. GAAP            $       36,302,192
                                                             ==================


     (b)  Under  Canadian  GAAP,  translation  gains and  losses  arising on the
          translation,  at exchange rates  prevailing at the balance sheet date,
          of long-term  debt  denominated  in foreign  currency are deferred and
          amortized  over the  remaining  life of the related  debt.  Under U.S.
          GAAP,  such gains and losses are included in the statement of earnings
          in the period in which the exchange rate changes.

     (c)  Under Canadian GAAP, the Company follows the tax allocation  method in
          providing for income taxes while under U.S. GAAP, the liability method
          would be used. Under this method, deferred income taxes are calculated
          on the difference  between accounting and tax values of the assets and
          liabilities. The current tax rate is used to calculate deferred income
          taxes at the balance  sheet date.  Deferred  tax assets  arising  from
          losses and temporary  differences are subject to a valuation allowance
          whenever it is more likely that the assets will not be realized.

     (d)  Under Canadian GAAP, costs of providing life insurance and health care
          benefits to employees  after  retirement  are  recognized  as incurred
          while under U.S.  GAAP,  these costs are accrued during the employees'
          years of active service. This difference in GAAP would not result in a
          material change to the Company's consolidated financial statements.

<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



14.       United States accounting principles (cont'd)

      Cash flows

     (e)  Under U.S. GAAP, the following amounts would be reported:


             Net cash provided by (used in):
                Operating activities                                 21,366,798
                Financing activities                                (26,828,135)
                Investment activities                                (6,362,305)
                                                             ------------------

             Net increase (decrease) in cash                 $      (11,823,642)
                                                             ==================

             Cash - End of period                            $        6,494,426
                                                             ==================


     (f)  Under U.S. GAAP, the definition of cash in the statement of cash flows
          would exclude bank  indebtedness  which amounted to nil as at December
          31,  1997.  Under U.S.  GAAP,  changes in bank  indebtedness  would be
          disclosed as a financing activity.

     (g)  Canadian  GAAP  allows the  disclosure  of a subtotal of the amount of
          cash provided by operating activities before cash provided by non-cash
          operating  working  capital  items.  U.S. GAAP requires a statement of
          cash flows without subtotal.

     (h)  Net change in non-cash  operating  working capital balances details as
          follows:


             Decrease (increase) in:
                Accounts receivable                                  (9,055,072)
                Inventories                                           5,185,054
                Prepaid expenses                                         14,216

             Increase (decrease) in:
                Accounts payable and accrued liabilities             (1,647,325)
                Income taxes                                          1,592,968
                                                             ------------------

                                                             $       (3,910,159)
                                                             ==================


      Other disclosure

     (i)  The disclosure of the following amounts is required under U.S. GAAP:


             Payments under capital leases                   $          260,000
             Interest paid                                            2,907,000
             Income taxes paid                                          645,000
             Foreign exchange loss (gain):
                Realized                                               (136,000)
                Unrealized                                              627,000


<PAGE>


F.F. Soucy, Inc.
Notes to Consolidated Financial Statements
For the year ended December 31, 1997


--------------------------------------------------------------------------------
(expressed in Canadian dollars)



14.       United States accounting principles (cont'd)


             Trade accounts receivable                        $       23,395,000
             Other accounts receivable                                 1,466,000
             Allowance for doubtful accounts                             216,000
             Trade accounts payable                                    9,635,000
             Accrued employees costs                                   2,939,000
             Interest payable                                          1,169,000


     (j)  The provision for income taxes and effective tax rates are detailed as
          follows:


             Provision for income taxes based on combined basic
                Canadian and Quebec income tax rate of 44.25%         4,181,000
             Increase (decrease) in income taxes arising
                from the following:
                Active business income deduction                       (694,000)
                Deduction for manufacturing and processing             (556,000)
                Surtax                                                   73,000
                Other                                                    16,000
                                                             ------------------

                                                             $        3,020,000
                                                             ==================


     (k)  Deferred tax assets and liabilities of the Company were as follows:

             Deferred tax assets:
                Net capital loss carryforwards                          131,000
                Valuation allowance                                    (131,000)
                                                             ------------------

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

             Deferred tax liabilities:
                Depreciation                                        (11,516,611)
                Pension costs                                          (229,029)
                Other                                                  (186,186)
                                                             ------------------

                                                                    (11,931,826)
                                                             ------------------

             Net deferred income taxes under
                U.S. GAAP                                    $      (11,931,826)
                                                             ==================



                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on
April, 30, 1998.

                                    BEAR ISLAND PAPER COMPANY, L.L.C.

                                    By:  /s/  Peter M. Brant
                                         ----------------------
                                           Peter M. Brant
                                           President, Chairman of the Board and
                                           Chief Executive Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.


<TABLE>
<CAPTION>

    SIGNATURE                              TITLE                                        DATE
    ---------                              -----                                        ----
<S> <C>
/s/  Peter M. Brant              President, Chairman of the Board                  April 30, 1998
------------------------         and Chief Executive Officer
  Peter M. Brant                 (Principal Executive Officer)

/s/  Joseph Allen                Executive Vice President,                         April 30, 1998
------------------------         Co-Chairman of the Board
 Joseph Allen                    and Chief Operating Officer


/s/  Edward D. Sherrick          Vice President of Finance and                     April 30, 1998
------------------------         Director (Principal Financial Officer)
 Edward D. Sherrick              (Principal Accounting Officer)


/s/  Thomas E. Armstrong
------------------------         Vice President of Sales                           April 30, 1998
Thomas E. Armstrong              and Marketing and Director

/s/  Michael Conroy              Director                                          April 30, 1998
------------------------
Michael Conroy

/s/  Robert Flug                 Director                                          April 30, 1998
------------------------
 Robert Flug

</TABLE>