<PAGE>

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

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999

                        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
   incorporation or organization)                    Identification Number)

                              10026 Old Ridge Road
                                   Ashland, VA
                    (Address of Principal Executive Offices)

                                      23005
                                   (Zip Code)

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

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 [ ]

Indicated by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statement incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]

                       Documents Incorporated by Reference

Certain exhibits required for Part IV of this report are incorporated herein by
reference from Bear Island Paper Company, L.L.C.'s registration statement on
Form S-4 Registration No. 333-42201, as amended.
<PAGE>

                               TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

                                     PART I

ITEM 1. BUSINESS...........................................................    3

ITEM 2. PROPERTIES.........................................................    7

ITEM 3. LEGAL PROCEEDINGS..................................................    7

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................    8

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
 STOCKHOLDERS MATTERS......................................................    8

ITEM 6. SELECTED FINANCIAL DATA............................................    8

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATIONS.....................................................    9

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.........   16

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................   16

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
 FINANCIAL DISCLOSURE......................................................   17

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................   17

ITEM 11. EXECUTIVE COMPENSATION............................................   18

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....   19

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................   19

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..   22

                                       2
<PAGE>

                                     PART I

ITEM 1. BUSINESS.

GENERAL

Bear Island Paper Company, L.L.C. (the "Company"), a wholly owned subsidiary of
Brant-Allen Industries, Inc. ("Brant-Allen") produces newsprint paper at its
mill, located near Richmond, Virginia (the "Mill"). The Mill has an annual
capacity of 229,700 metric tons ("tonnes") of high quality newsprint suitable
for four-color printing, which publishers are increasingly using for general
circulation. In 1999, the Mill produced approximately 226,249 tonnes of
newsprint, and had an estimated operating efficiency rate of 93.6%.

The Company's customers include leading newspaper publishers in the United
States, such as Dow Jones & Company, Inc. (publisher of The Wall Street Journal)
("Dow Jones"), The Washington Post Company ("The Washington Post"), Advance
Publications ("Newhouse Group"), Gannett Co., Inc. (publisher of USA Today)
("Gannett"), MediaNews Group Inc., Knight-Ridder Inc. ("Knight-Ridder"), Media
General, Inc., Times Mirror Co. and New York Times Co. Approximately 89% of the
Company's newsprint production in 1999 was purchased by its top ten customers.

A combination of pulp material is used to feed the Company's newsprint machine.
In its manufacturing process, the Mill currently uses thermomechanical pulp
("TMP"), de-inked pulp and kraft pulp. The use of TMP provides high wood fiber
yields and higher quality newsprint than that produced by the traditional
mechanical groundwood process. The de-inked pulp is produced at the Company's
recycling facility, which is located adjacent to the Mill. The recycling
facility commenced operations in 1994 and features technology for de-inking,
cleaning and screening of old newspapers ("ONP") and old magazines ("OMG").

Prior to December 1997, all the Company's wood requirements were supplied by its
affiliate, Bear Island Timberlands Company, L.P. ("BITCO"), with approximately
30% coming from BITCO's own land and the remainder being procured by BITCO from
local independent wood contractors and independent sawmills. In December 1997,
BITCO was converted to Bear Island Timberlands Company, L.L.C. ("Timberlands").
In November 1998, Timberlands ceased all timber harvesting operations in
preparation for monetizing its timberland holdings. Substantially all of
Timberlands holdings were sold during 1999. ONP and OMG used in the Company's
recycling facility are provided by a combination of individual processors,
municipal recovery facilities and brokers. All fiber is currently supplied from
sources within a 300-mile radius of the Mill.

THE MILL AND THE PRODUCTION PROCESS

The Mill, which began operations in 1979, is located in Hanover County, Virginia
on an approximately 700-acre site, which is approximately 80 miles south of
Washington, D.C., and 25 miles north of Richmond, Virginia. The Mill's
operations consist of a woodyard, a pulping system, a paper machine and related
utility, recycling, storage and transportation facilities.

Currently, approximately 56% of the Company's pulp requirements are derived from
the Company's TMP process using wood and woodchips, approximately 38% of the
Company's fiber requirements are de-inked pulp from the Mill's recycling
facility and approximately 6% is purchased kraft pulp.

The Mill has a wood requirement of approximately 133,000 cords per year. All
wood is currently supplied from sources within a 200-mile radius of the Mill.
See "Item 13. Certain Relationships and Related Transactions." In 1999, the
Company's wood needs were supplied 55% from wood harvested by local independent
wood contractors, and 45% in chip form, by independent sawmills.

                                       3
<PAGE>

The Mill's newsprint machine produces newsprint at an average speed of
approximately 3,980 feet per minute over a machine trim width of 302 inches. The
Mill produces approximately 627 tonnes per day of newsprint.

The Company's recycling plant features advanced technologies for the re-pulping,
de-inking, cleaning and screening of ONP and OMG. The recycling facility turns
ONP and OMG into de-inked pulp. ONP and OMG are procured from a combination of
individual processors, municipal recovery facilities and brokers. After delivery
to the plant, the ONP and OMG are mixed by operators into a blend with a ratio
of ONP to OMG of 83:17, which is then fed into a pulper which mixes in additives
and prepares the stock for ink separation. During 1999, the Company undertook a
capital expansion of the recycling facility resulting in a capacity increase of
20,200 tonnes per year. At full capacity, the recycling facility processes
approximately 107,000 tonnes per year of ONP and OMG. The recycling facility has
the capacity to produce 246 tonnes of recycled fiber per day. The recycling mill
enables the Company to produce approximately 627 tonnes per day of newsprint
containing a minimum of 35% and a maximum of 40% recycled fiber. The recycling
facility also includes a 50,000 square foot warehouse that can hold a 10-day
supply of ONP and OMG.

MARKETS AND CUSTOMERS

The Company's marketing objective is to become a preferred supplier to each of
its newsprint customers. To achieve this goal, the Company focuses on service,
product quality and long term relationships. Eight of the Company's top ten
customers have been customers for over 15 years. In 1999, approximately 40% of
the production of the Mill was sold to Dow Jones and The Washington Post under
purchase agreements (the "Purchase Agreements") that obligate each of those
customers to purchase a minimum of approximately 45,000 tonnes of newsprint per
year at prices based on prevailing market prices paid by those customers to
their non-affiliated East Coast suppliers. The Purchase Agreements have been
extended through December 31, 2004 and are subject to the parties agreeing to
pricing, which approximate market prices, on an annual basis. The Company has
sold newsprint to Dow Jones since 1980 and The Washington Post since 1979. In
1999 and 1998, the Company's ten largest customers represented an aggregate of
89% and 93%, respectively, of the Company's total sales. Other than the
agreements with Dow Jones and The Washington Post customers purchase a minimum
volume amount for short periods up to one year based on market prices at the
time of purchase.

Brant-Allen markets all of the Company's production and is able to offer its
customers newsprint from either the Mill or from F.F. Soucy Inc.'s ("Soucy
Inc.") mill or from F.F. Soucy, Inc. & Partners, Limited Partnership's ("Soucy
Partners" and, together with Soucy Inc., "Soucy") mill in order to satisfy
customer demand, which enables Brant-Allen to optimize shipping costs from each
of these mills. Brant-Allen employs three full-time salesmen and three customer
service representatives at the mills. Brant-Allen also performs all sales,
invoicing, accounts receivable maintenance, cash management and treasury
functions for the Company pursuant to the Management Services Agreement (as
defined below). Other than the management fee paid by the Company to Brant-Allen
under the Management Services Agreement, the Company does not pay Brant-Allen
any additional fees for its marketing services.

ENERGY AND WATER REQUIREMENTS

The Mill utilizes two forms of energy: steam, which is primarily used within the
paper machine's dryer section to dry the newsprint sheet as it is being
produced, and electricity, which is used to power the remaining processes,
particularly the refining of the woodchips.

All of the Mill's process steam (on average, 165,000 pounds per hour) is
generated by an on-site boiler rated at 243.0 million Btu per hour heat input.
The boiler is fired using pulverized coal, as a primary fuel, and bark

                                       4
<PAGE>

and wood wastes as secondary fuels. In addition, a natural gas fired package
boiler, with a capacity of 190,000 pounds per hour, is used as a backup if the
main boiler malfunctions or is down for maintenance.

Through Rappahannock Electrical Cooperative, which is the Company's local
utility, the Company purchases 100% of its electrical power indirectly from
Virginia Electric and Power Company ("VEPCO") and Old Dominion Electric
Cooperative. The Company believes it is, indirectly, VEPCO's third largest
customer.

Because the Company's electricity usage has an impact on both electricity
generation requirements and costs of VEPCO and Old Dominion Electric
Cooperative, especially in periods of high demand (i.e., periods of high air
conditioning or heating loads), the Company has been able to negotiate favorable
electricity rates by demonstrating an ability to reduce demand during peak times
by making adjustments to its production process.

The Mill was designed and is operated with one of the most stringent water use
and wastewater flow requirements of any paper mill in the U.S. At full
production of 627 tonnes of newsprint per day, water usage is approximately 3.8
million gallons per day. Mill effluent is approximately 3.6 million gallons per
day. The Mill's water is currently supplied by the Hanover County public utility
system and by the Mill's own river intake structure and pumping system on the
North Anna River. The Mill operates a wastewater treatment facility which
connects to the Hanover County wastewater treatment plant. The Mill has its own
on-site industrial landfill for solid waste. The Company is presently exploring
the feasibility of self supplying and treating all of its water requirements and
is in active discussions with Hanover Country over modifying its present water
contract.

ENVIRONMENTAL MATTERS

The Company's operations are subject to extensive and changing environmental
regulation by federal, state, and local authorities in the United States,
including those requirements that regulate discharges into the environment,
waste management, and remediation of environmental contamination. Environmental
permits are required for the operation of the Company's businesses, and are
subject to revocation, modification and renewal. Governmental authorities have
the power to enforce compliance with environmental requirements and violators
are subject to injunctions, civil penalties and criminal fines. Third parties
may also have the right to sue to enforce compliance with such regulations.

The Company has in the past made significant capital expenditures to comply with
current federal, state and local environmental laws and regulations. The Company
believes that it is in substantial compliance with such laws and regulations,
although no assurance can be given that it will not incur material liabilities
and costs with respect to such laws and regulations in the future. Although the
Company does not currently believe that it will be required to make significant
expenditures for pollution control in the near future, no assurances can be
given that future developments, such as the potential for more stringent
environmental standards or stricter enforcement of environmental laws, will not
cause the Company to incur such expenditures.

The wastewater treatment facility for the Mill discharges effluent through the
outfall line of the Hanover County wastewater treatment plant to the North Anna
River. The effluent limits that must be maintained in accordance with the
discharge permit require continuous monitoring and extensive reporting of
numerous tests. The treatment facility consists of primary and secondary
clarification, aerated equalization and activated sludge treatment.

The Company maintains valid and current air and water permits and believes it is
currently in substantial compliance with respect to all such permits. The
Company believes that it has good relations with the federal, state and local
regulatory authorities, and management is not aware of any material problems or
costs that might jeopardize the Company's scheduled permit renewals.

                                       5
<PAGE>

The U.S. Environmental Protection Agency (the "EPA") has required that certain
pulp and paper mills meet new air emissions and revised wastewater discharge
standards for toxic and hazardous pollutants. These proposed standards are
commonly known as the "Cluster Rules". Bear Island's operations are not subject
to further control as a result of the current "Cluster Rules" and therefore, no
related capital expenditures are anticipated.

On July 12, 1996, the Company entered into a Reasonably Available Control
Technology ("RACT") Agreement with the Virginia Department of Environmental
Quality. Under the RACT Agreement, the Company is not required to incur any
significant capital expenditures for the purchase and installation of pollution
control equipment.

COMPETITION

The newsprint industry is highly competitive and is comprised of many
participants. The Company competes directly with a number of newsprint
manufacturers, many of which have longer histories, larger customer bases,
closer geographical proximity to customers and significantly greater financial
and marketing resources than the Company. The Company faces significant
competition from both large, vertically integrated companies and numerous
smaller companies. The Company competes with several other newsprint
manufacturers in Canada, as well as regional manufacturers in the Southern
United States. Competition in the newsprint market is generally based on price,
quality and customer service. Newsprint price decreases announced by one or more
of the major newsprint producers in North America have effected and may continue
to effect material changes in the average price for newsprint and have the
potential to adversely effect the newsprint market in general.

EMPLOYEES

As of December 31, 1999, the Company had 246 employees, approximately 30% of
which have been employed by the Company since its inception in 1979. The
workforce is non-unionized and has been very receptive to flexible working
conditions and requirements.

SALE OF TIMBERLANDS

During 1999, Timberlands sold substantially all of its properties. The net
proceeds from these sales were utilized to reduce (i) Timberlands debt and (ii)
debt incurred by the Company and Brant-Allen in connection with Brant-Allen's
purchase of the equity interests in Timberlands and the Company. The Company has
retained fiber supply arrangements which management believes will allow the
Company to maintain fiber sourcing flexibility.

MANAGEMENT SERVICES AGREEMENT

Executive management of the Company and Soucy is provided by Brant-Allen,
pursuant to a management contract (the "Management Services Agreement "). The
Company's and Soucy's newsprint is sold through Brant-Allen, which currently
markets approximately 452,800 tonnes of newsprint (222,500 tonnes for the
Company and 230,300 tonnes for Soucy). Brant-Allen manages the Company and Soucy
to maximize any available synergies. The Company benefits from the
centralization of marketing, financial, administrative and distribution
functions at Brant-Allen. These services are provided pursuant to the Management
Services Agreement for which a management fee of 3% of annual net sales of the
Company less transportation costs is payable by the Company, of which, since
December 1, 1997, as a result of the Company's debt agreements, one third is
payable in cash with the remainder contributed to the Company's capital. During
1999, the Company was charged $3,110,000 by Brant-Allen under the Management
Services Agreement of which $1,037,000 was paid in cash and $2,073,000 was
contributed to capital of the Company by Brant-Allen.

                                       6
<PAGE>

Brant-Allen is a subchapter S corporation jointly owned by Mr. Peter Brant and
Mr. Joseph Allen. Brant-Allen's predecessor was formed in the early 1940s when
the fathers of Messrs. Brant and Allen founded a paper conversion and newsprint
sales business. In the early 1970s, Brant-Allen entered into the newsprint
manufacturing business. Messrs. Brant and Allen have been involved in the
management of Brant-Allen for over 30 years: Mr. Brant serves as the Chairman of
the Board, and Chief Executive Officer of Brant-Allen and Mr. Allen serves as
President and Chief Operating Officer of Brant-Allen. Mr. Brant also serves as
the Chairman of the Board, and Chief Executive Officer of the Company and Mr.
Allen also serves as President and Chief Operating Officer of the Company.

THE ACQUISITION

In December 1997, the Company purchased the 70% Limited Partnership interests of
Bear Island Paper Company, L.P. (the "Predecessor") owned equally by
subsidiaries of The Washington Post and Dow Jones (the "Acquisition"). The
Predecessor, was formed in 1978 as a limited partnership, with Brant-Allen as
its general partner. Prior to the Acquisition, Brant-Allen owned a 30%
partnership interest in the Predecessor. Funding for the Acquisition was
provided through the issuance of $100 million principal amount of 10% Senior
Secured Notes due 2007 (the "Notes") and $120 million principal amount of bank
debt (the "Bank Credit Facilities") comprised of a $70 million 8-year senior
secured term loan facility (the "Term Loan Facility") and a $50 million 6-year
senior secured reducing revolving credit facility (the "Revolving Credit
Facility"). Following the Acquisition and related transactions (the
"Transactions") 100% of the Company was owned by Brant-Allen.

Brant-Allen was also the general partner of, and owned a 30% partnership
interest in BITCO. In conjunction with the Acquisition, Brant-Allen also
acquired 100% ownership of BITCO (the "Timberlands Acquisition") which was
converted to Timberlands immediately prior to the closing of the Timberlands
Acquisition. During 1999, Timberlands which owned and managed approximately
130,000 acres of timberland in Central Virginia, sold substantially all of its
acreage. Proceeds from the sale of these timberlands, net of expenses and taxes
were utilized to reduce (i) Timberlands Debt and (ii) debt incurred by the
Company and Brant-Allen in connection with Brant-Allen's purchase of the equity
interests in Timberlands and the Company.

In addition, Brant-Allen owns all the capital stock of Soucy Inc., a newsprint
manufacturer located in Riviere-du-Loup in the Province of Quebec, Canada, which
owns a newsprint machine that currently has an annual capacity of 67,300 tonnes.
Soucy Inc. is also the general partner and owns a 50.1% interest in Soucy
Partners, a limited partnership formed in 1974 with Dow Jones (39.9%) and Rexfor
(a Quebec government-owned company) (10.0%). Soucy Partners owns and operates a
mill, including a newsprint machine, with an annual production capacity of
158,300 tonnes. The two Soucy newsprint machines are located on Soucy Partners'
plant site.

ITEM 2.  PROPERTIES.

The Mill is located on approximately 700 acres of land that is owned by the
Company, which is approximately 80 miles south of Washington, D.C., and 25 miles
north of Richmond, Virginia. In addition, the Company owns approximately 1,600
acres of land and timberland in Virginia.

ITEM 3.  LEGAL PROCEEDINGS.

From time to time the Company is involved in legal proceedings relating to
claims arising out of its operations in the normal course of business. The
Company believes that there are no material legal proceedings pending or
threatened against the Company or any of its properties.

                                       7
<PAGE>

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

No matters were submitted to a vote of security holders during the fourth
quarter of 1999.

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.

Brant-Allen beneficially owns all the equity of each of the Company, Timberlands
and Soucy Inc. Brant-Allen, in turn, is owned by Mr. Peter Brant and Mr. Joseph
Allen.

ITEM 6.  SELECTED FINANCIAL DATA.

The following selected financial data are derived from the audited financial
statements of the Predecessor for each of the years in the two year period ended
December 31, 1996 and the eleven months ended November 30, 1997, as well as the
audited financial statements of the Company for the one month ended December 31,
1997 and the years ended December 31, 1998 and 1999, for which the statements of
operations are included elsewhere herein for the (i) Predecessor for the eleven
months ended November 30, 1997 and (ii) Company for the one month ended December
31, 1997 and the years ended December 31, 1998 and 1999.

<TABLE>
<CAPTION>
                                                                     Predecessor                           Company
                                                                     -----------                           -------

                                                                                  Eleven
                                                                                  Months    One Month
                                                                                   Ended      Ended
                                                                                 November    December
                                                     Years Ended December 31,       30,         31,     Years Ended December 31,
                                                     ------------------------------------     -----------------------------------
                                                            1995          1996       1997        1997          1998          1999
                                                                   (Dollars in Thousands, Except Tonnes Produced)
<S>                                                     <C>           <C>        <C>          <C>          <C>           <C>
Income Statement Data:
 Net sales non-affiliates                               $ 70,960      $ 75,460   $ 59,548     $ 8,882      $ 95,870      $ 82,568
 Affiliates (1)                                           61,243        53,360     46,040       1,925        26,328        21,105
                                                        --------      --------   --------     -------      --------      --------

  Total sales                                            132,203       128,820    105,588      10,807       122,198       103,673
 Cost of sales                                           100,399       100,591     95,404       9,069        94,656        95,063
                                                        --------      --------   --------     -------      --------      --------

 Gross profit                                             31,804        28,229     10,184       1,738        27,542         8,610

Selling, general & administrative:
 Management fee to Brant-Allen                             3,961         3,865      3,175         325         3,666         3,110
 Other direct                                                224           153        573          45           536           394
                                                        --------      --------   --------     -------      --------      --------

 Income (loss) from operations                            27,619        24,211      6,436       1,368        23,340         5,106
                                                        --------      --------   --------     -------      --------      --------
Other income (expense):
 Interest income                                             603           666        591          --           201           149
 Interest expense                                         (5,986)       (5,398)    (4,332)     (1,633)      (18,892)      (17,097)
 Other income (expense)                                       33           (56)       (41)         53            --           863
                                                        --------      --------   --------     -------      --------      --------

  Total other expense                                     (5,350)       (4,788)    (3,782)     (1,580)      (18,691)      (16,085)
                                                        --------      --------   --------     -------      --------      --------

 (Loss) income before                                   $ 22,269      $ 19,423   $  2,654     $  (212)     $  4,649      $(10,979)
 extraordinary item
 Extraordinary item                                           --            --     (4,367)         --            --        (1,006)
                                                        --------      --------   --------     -------      --------      --------

 Net income (loss)                                      $ 22,269      $ 19,423   $ (1,713)    $  (212)     $  4,649      $(11,985)
                                                        ========      ========   ========     =======      ========      ========
Other Data:
   Operational EBITDA (2)                                $37,357       $34,245    $16,184      $2,190       $33,407       $15,752
   Adjusted operational
   EBITDA (3)                                                                                   2,406        36,068        17,825
</TABLE>

                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                         Predecessor                     Company
                                              -------------------------------     ---------------------------------------
                                                                       Eleven
                                                                       Months      One Month
                                                                       Ended        Ended
                                                                      November     December
                                              Years Ended December 31,   30,           31,     Years Ended December 31,
                                              -------------------------------     ---------------------------------------
                                                1995       1996       1997            1997            1998       1999
                                                      (Dollars in Thousands, Except Ratios and Tonnes Produced)
<S>                                           <C>        <C>        <C>                 <C>         <C>        <C>
Summary cash flow information:
   Net cash provided by (used in)
    operating activities                      $ 27,215   $ 30,368   $ 12,546            $  (4,024)  $ 20,623   $  2,547
   Net cash used in investing
    activities                                  (6,502)    (7,413)    (4,702)            (140,169)    (7,394)      (265)
   Net cash provided by (used in)
    financing activities                       (15,695)   (21,801)   (12,467)             145,545    (12,451)    (3,431)
   Depreciation                                  9,648      9,976      9,735                  822     10,033     10,615
   Depletion                                        90         58         13                   --         34         31
   Capital expenditures                          6,645      7,483      4,836                  239      7,544      3,009
   Saleable tonnes produced                    208,870    218,642    206,058               18,802    222,668    226,249

                                                                               As of December 31,
                                                                               ------------------

                                                             1995       1996                 1997       1998       1999
Balance Sheet Data:
  Cash and short-term investments                        $ 12,472   $ 13,625            $   1,353   $  2,131   $    981
  Working capital                                          23,901     22,037               18,176     17,375     15,449
  Property, plant and equipment, net                      115,941    116,953              194,262    190,777    181,059
  Total indebtedness (4)                                   55,368     52,171              196,435    184,946    138,291
  Total assets                                            160,523    160,460              232,485    229,251    214,587
  Total partners' equity/member's interest                 91,366     95,789               25,258     32,567     65,879
 </TABLE>

   (1) The sales are to Dow Jones and The Washington Post through November 30,
   1997 and sales to Dow Jones after November 30, 1997.

   (2) EBITDA is defined as income (loss) from operations plus depreciation,
   depletion and amortization, if any. EBITDA is generally accepted as providing
   useful information regarding a company's ability to service and/or incur
   debt. EBITDA should not be considered in isolation or as a substitute for net
   income, cash flows from operations, or other income or cash flow data
   prepared in accordance with generally accepted accounting principles or as a
   measure of a company's profitability or liquidity.

   (3) Adjusted EBITDA is defined as EBITDA (as shown in note (2) above) plus
   the noncash portion, or two-thirds, of the management fee to Brant-Allen
   after November 30, 1997. Pursuant to the limitation on restricted payments
   covenant of the Notes, payments by the Company for management fees are
   limited to Brant-Allen (or any of its Subsidiaries or Affiliates) to an
   amount per annum not in excess of 3% of net sales of the Company, of which no
   more than one third may be in cash.

   (4) Total indebtedness is defined as long-term debt and long-term purchase
   obligations and current portions thereof.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion and analysis of financial condition and results of
operations should be read in conjunction with "Item 6. Selected Financial Data"
and the financial statements of the Company and related notes thereto included
elsewhere in this report. Historically, the Predecessor's cost of manufacturing
had also included an up charge (a margin in excess of the market price of the
fiber) paid to BITCO with respect to wood, and a procurement fee per tonne of
ONP and OMG, supplied or provided by BITCO to the Predecessor. This up charge
and procurement fee was eliminated on December 1, 1997. See "Item 13. Certain
Relationships and Related Transactions." Additionally, management has prepared
pro forma results of operations for 1997 to enable a meaningful comparison
between with 1998 results of operations. Accordingly, see "1998

                                       9
<PAGE>

Compared to Pro Forma 1997" discussion below, which compare the year ended
December 31, 1997 on a pro forma basis assuming the transaction had occurred on
January 1, 1997 with 1998 actual for a more meaningful comparison of operations.

The Company manufactures and is dependent on one product, newsprint, which is
used in general printing and the newspaper publishing industry and for
advertising circulars. Accordingly, demand for newsprint fluctuates with the
economy, newspaper circulation and purchases of advertising lineage and
significantly impacts the Company's selling price of newsprint and, therefore,
its revenues and profitability. In addition, variation in the balance between
supply and demand as a result of global capacity additions have an increasing
impact on both selling prices and inventory levels in the North American
markets. Capacity is typically added in large blocks because of the scale of new
newsprint machines.

As a result, the newsprint market is highly cyclical, depending on changes in
global supply, demand and inventory levels. These factors significantly impact
the Company's sales volume and newsprint prices and, therefore, the Company's
revenues and profitability. Given the commodity nature of newsprint, the
Company, like other suppliers to this market, has little influence over the
timing and extent of price changes. Sales are recognized at the time of shipment
from the Mill. However, significant fluctuations in revenue can and do occur as
a result of the timing of shipments caused by increases and decreases in mill
inventory levels.

Newsprint prices have been extremely volatile over the past five years. After
hitting a high of $750 per tonne in the fourth quarter of 1995, newsprint prices
decreased to a low of $466 per tonne in the third quarter of 1999. Newsprint
prices in 1997 recovered from a level of $510 per tonne in the first quarter of
1997 to $560 per tonne in the fourth quarter. During 1998, Newsprint prices
decreased from $582 per tonne in the first quarter to $573 per tonne in the
fourth quarter. During 1999, newsprint prices averaged $495 per tonne. In
February 2000 newsprint prices averaged $494 per tonne.

The table below summarizes the annual volumes and net selling prices of the
Predecessor and the Company's newsprint during the periods indicated below:

<TABLE>
<CAPTION>
                                   Predecessor                                 Company
                                  -------------                              -----------
                                                 Eleven Months  One Month
                                                   Ended          Ended
                       Years Ended December 31,  November 30,   December 31  Years Ended December 31,
                       ---------------------------------------  -------------------------------------

                            1995           1996           1997         1997         1998         1999
                        --------       --------       --------      -------     --------  -----------
<S>                     <C>            <C>            <C>           <C>         <C>          <C>
TONNES SOLD              206,800        217,200        206,400       19,900      221,700      222,574
AVERAGE NET SELLING         $639           $593           $512         $544         $551         $466
PRICE
</TABLE>

The Company's primary cost components consist of raw materials (wood, ONP, OMG,
kraft pulp and chemicals), electrical energy, direct labor and certain fixed
costs. Fixed costs consist of indirect labor and other plant related costs
including maintenance expenses and mill overhead.

For the year ended December 31, 1999, raw materials, which are subject to
significant price fluctuations based on supply and demand, represented 33.9% of
the total cost of manufacturing. Electrical energy represented 15.4% and direct
and indirect labor represented 22.7%of total cost of manufacturing. The Company
currently uses a raw material mix of 50% TMP, 42% recycled fiber and 8% kraft
pulp in its production process.

                                       10
<PAGE>

RESULTS OF OPERATIONS

1999 COMPARED TO 1998

Net sales decreased by $18.5 million, or 15.1%, to $103.7 million in 1999 from
$122.2 million in 1998. The net sales decrease was principally due to a 15.4%
decrease in average net selling prices for the Company's product, from an
average net selling price of $551 per tonne in 1998 to an average net selling
price of $466 per tonne in 1999, offset in part as a result of a 0.4% increase
in sales volume to approximately 222,600 tonnes in 1999 from approximately
221,700 tonnes in 1998.

Cost of sales increased by $0.4 million, or 0.4%, to $95.1 million in 1999 from
$94.7 million in 1998. This small increase was primarily attributable to the
0.4% increase in sales volume. Costs of sales as a percentage of net sales
increased from 77.5% in 1998 to 91.7% in 1999 as a result of the decrease in
average selling prices and a slight increase in cost per ton.

The Company's selling, general and administrative expenses decreased by $0.7
million, or 16.7%, to $3.5 million in 1999 from $4.2 million in 1998 primarily
because of lower management fees paid by the Company to Brant-Allen in 1999,
which resulted directly from decreased net sales.

As a result of the above factors, income from operations decreased by $18.2
million or 78.1% to $5.1 million in 1999 from $23.3 million in 1998.

The Company's interest expense decreased by $1.8 million, or 9.5%, to $17.1
million in 1999 from $18.9 million in 1998, due to scheduled payments of the
Company's outstanding indebtedness and retirement of the Company's outstanding
Term Loan Facility of $50.2 million offset by an increase of $4.0 million in the
outstanding revolving line of credit during 1999.

The Company's other income including interest income increased by $0.8 million,
or 400.0%, to $1.0 million in 1999 from $0.2 million in 1998 as a result of the
sale of a portion of the Company's timberlands.

The extraordinary loss of $1.0 million incurred in the fourth quarter of 1999
was a result of a write off of a portion of the Company's deferred financing
costs due to the early extinguishment of $49.6 million of debt on the Term Loan
Facility.

As a result of the above factors, the Company incurred a net loss in 1999 of
$12.0 million compared to net income of $4.6 million in 1998.

PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997

The following unaudited pro forma condensed statement of operations has been
prepared by management from the historical financial statements of the
Predecessor for the eleven months ended November 30, 1997 and the historical
financial statements of the Company for the one-month ended December 31, 1997.
The Acquisition, and the incurrence of debt, are assumed to have occurred at
January 1, 1997. The pro forma condensed statement of operations for the year
ended December 31, 1997 is not necessarily indicative of the results of
operations that would have occurred for the year ended December 31, 1997, had
the Acquisition and debt incurrence occurred January 1, 1997. In preparation of
the pro forma condensed statement of operations, management has made certain
estimates and assumptions that affect the amounts reported in the unaudited pro
forma condensed statement of operations. The unaudited pro forma condensed
statement of operations should be read in conjunction with the historical
financial statements and related notes thereto of the Company which are included
in this Form 10-K.

                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                     Unaudited Pro Forma Condensed
                                                                         Statement of Operations
                                                                    for the Year Ended December 31, 1997
                                                                    ------------------------------------
                                         Predecessor
                                          Historical                       Pro Forma         Company                       Company
                                            Eleven                           Eleven         Historical                    Pro Forma
                                         Months Ended                      Months Ended      One Month                   Year Ended
                                         November 30,        Pro Forma      November 30,  Ended December     Pro Forma     December
                                             1997           Adjustments        1997          31, 1997       Adjustments    31, 1997
                                         ------------       -----------      -------        ---------       -----------   ---------

                                                                     (Dollars in Thousands, Except Notes)
<S>                                         <C>             <C>             <C>             <C>              <C>          <C>
Net sales                                   $105,588                        $105,588        $ 10,807                      $ 116,395
Cost of sales                                 95,404        $(3,666)(a)       89,387           9,069                         98,255
                                                               (753)(b)
                                                                201 (c)
                                                             (1,799)(d)                                       $  (201)(c)
                                            --------        -----------      -------        ---------         -------     ---------


Gross profit                                  10,184          6,017           16,201           1,738              201        18,140

Selling, general &
 administrative expenses:
 Management fee to
 Brant-Allen                                   3,175                           3,175             325                          3,500
 Other                                           573            275(e)           848              45                            893
                                            --------      ------------      --------         -------                       --------

 Income from operations                        6,436          5,742           12,178           1,368              201        13,747
Other income (deductions):
 Interest income                                 591                             591              --                            591
 Interest expense                             (4,332)       (13,282)(f)      (18,205)         (1,633)                       (19,838)

 Other                                           (41)          (591)(g)          (41)             53                             12
                                            --------   ----------------     --------         -------                       --------

 Income (loss) before
 Extraordinary item                         $  2,654       $ (8,131)        $ (5,477)        $  (212)            $201      $(5,488)
                                            ========       ========         ========         =======       ==========      ========

</TABLE>

  (a) Adjustment to reflect the effect on cost of goods sold from reducing to an
  open market price pulpwood sold by BITCO to the Predecessor during the eleven
  months ended November 30, 1997 resulting from the elimination of an
  arrangement for the up charge formerly paid by the Predecessor to BITCO
  resulting from the amendment to the Company's and Timberland's supply
  arrangement in connection with the Acquisition. The price per cord of timber
  was reduced from $95.50 to $69.71 per cord for the eleven months ended
  November 30, 1997 for 142,143 cords consumed during the eleven months ended
  November 30, 1997.
  (b) Adjustment to reflect pro forma depreciation expense resulting from the
  Acquisition computed based on remaining useful lives of plant and equipment
  ranging from 1 to 50 years.
  (c) To reflect the impact on cost of sales for the eleven months ended
  November 30, 1997 of a $201,043 write-up to inventory at January 1, 1997 in
  connection with the allocation of the purchase price.
  (d) Adjustment to reflect the effect on cost of sales resulting from the
  termination of the recycled fiber procurement activities of BITCO charged to
  the Predecessor. Amounts eliminated are an up charge for recycled fiber
  acquired from BITCO less employee costs previously billed to BITCO which are
  added for procuring recycled fiber. The procurement fees charged to the
  Predecessor for the eleven months ended November 30, 1997 were $2,028,481 and
  the actual costs of procurement provided were $229,465.
  (e) Adjustment to reflect the incremental general and administrative expenses
  of $300,000 annually associated with operating as a public company.
  (f) Adjustment to reflect the incremental interest expense for the eleven
  months ended November 30, 1997 related to the balances assumed outstanding on
  $100 million principal amount of the Notes, $70 million Term Loan Facility and
  $50 million Revolving Credit Facility for which $31 million was assumed
  outstanding at January 1, 1997, upon consummation of the Acquisition. The
  total amount assumed to be outstanding at January 1, 1997 also includes $6
  million of existing debt which is not assumed to be repaid at January 1, 1997.
  This amount represents the difference between the $42 million in debt repaid
  at November 30, 1997 and the amount of $48 million outstanding at January 1,
  1997. The remaining $6 million of existing debt is assumed to be repaid during
  the period from January 1, 1997 to November 30, 1997. Interest is calculated
  at the current rate as of December 1, 1997 for the eleven months ended
  November 30, 1997 for the borrowings under the Revolving Credit Facility and
  $70 million Term Loan Facility, and 10% for the $100 million principal amount
  of the Notes and 10.375% on the $6 million of existing debt. In addition, an
  annual commitment fee expense of 0.5% of the unused portion of the $50 million
  Revolving Credit Facility has been recorded for the eleven months ended
  November 30, 1997 of approximately $87,100.

                                       12
<PAGE>

  (g) Adjustment to reflect the net effect of increased amortization for the
  $8.5 million in deferred financing costs incurred to fund the Acquisition,
  amortized over the respective lives of the Term Loan Facility, the Revolving
  Credit Facility and the Notes.

1998 COMPARED TO PRO FORMA 1997

The following comparison of 1998 to pro forma 1997 is presented to assist the
reader in understanding the change in operations from 1997 to 1998 assuming that
the Transactions had occurred as of January 1, 1997, for purposes of the 1997
pro forma results of operations ("Pro Forma 1997").

Net sales increased by $5.8 million, or 5.0%, to $122.2 million in 1998 from
$116.4 million in Pro Forma 1997. The net sales increase was principally due to
a 7.2% increase in average net selling prices for the Company's product, from an
average net selling price of $514 per tonne in Pro Forma 1997 to an average net
selling price of $551 per tonne in 1998, offset in part as a result of a 2.1%
decrease in sales volume to approximately 221,700 tonnes in 1998 from
approximately 226,300 tonnes in Pro Forma 1997.

Cost of sales decreased by $3.6 million, or 3.7%, to $94.7 million in 1998 from
$98.3 million in Pro Forma 1997. This decrease was primarily attributable to the
2.1% decrease in sales volume and an overall decrease in departmental production
costs. Costs of sales as a percentage of net sales decreased from 84.4% in Pro
Forma 1997 to 77.5% in 1998 as a result of the increase in average selling
prices and the decrease in per tonne cost of manufacture.

The Company's selling, general and administrative expenses decreased by $0.2
million, or 4.5%, to $4.2 million in 1998 from $4.4 million in Pro Forma 1997
primarily because of higher estimated legal and accounting expenses in Pro Forma
1997 offset partially by higher management fees paid by the Company to Brant-
Allen in 1998, which resulted directly from increased net sales.

As a result of the above factors, income from operations increased by $9.6
million or 70.1% to $23.3 million in 1998 from $13.7 million in Pro Forma in
1997.

The Company's interest expense decreased by $0.9 million, or 4.5%, to $18.9
million in 1998 from $19.8 million in Pro Forma 1997, due to scheduled
amortization of the Company's outstanding indebtedness and reductions in the
Company's outstanding revolving line of credit, which reduced by $11.0 million
during 1998.

The Company's other income including interest income decreased by $0.4 million,
or 66.7%, to $0.2 million in 1998 from $0.6 million in Pro Forma 1997 as a
result of utilizing all available cash balances to reduce outstanding balances
on the Company's revolving credit line in 1998 as opposed to investing these
balances in interest bearing securities in Pro Forma 1997.

As a result of the above factors, the Company's net income increased by $10.1
million to $4.6 million in 1998 from a net loss of $5.5 million in Pro Forma
1997.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal liquidity requirements have been for working capital,
capital expenditures and debt service under the Company's loan agreements. These
requirements have been met through cash flows from operations and/or loans under
the Company's Revolving Credit Facility. In addition, the Company received four
capital contributions from Brant-Allen in the year ended December 31, 1999, in
May $7.5 million, in July $2.0 million, in September $1.7 million and in
November $36.2 million all representing the excess proceeds from the sale of
timberlands of the Bear Island Timberlands Company, L.L.C. In accordance with
security agreements the capital contribution proceeds were used to pay down bank
debt.

                                       13
<PAGE>

The Company's cash and short-term investments at December 31, 1999 were
approximately $1.0 million, representing a decrease of approximately $1.1
million from $2.1 million at December 31, 1998. Net cash provided by operating
activities was $2.5 million for the year ended December 31, 1999. Cash used in
financing activities was $3.4 million and cash used in investing activities was
$0.3 million for the year ended December 31, 1999. In total $77.8 million, was
used to cover: capital expenditures of $3.0 million; a tax distribution of $4.1
million; and a reduction in long-term debt including purchase obligations of
$70.7 million. The Company anticipates that cash provided from operations in the
future, combined with borrowings under the Revolving Credit Facility will be
sufficient to pay its operating expenses, satisfy debt-service obligations and
fund capital expenditures.

For the year ended December 31, 1999, the Company's cash provided by operating
activities decreased by 87.9% to $2.5 million from $20.6 million for the year
ended December 31, 1998, primarily due to lower selling prices resulting in a
net loss for the year ended December 31, 1999 compared to net income for the
year ended December 31, 1998.

The Company made capital expenditures of $3.0 million and  $7.5 million in the
year ended December 31, 1999 and 1998, respectively, in connection with
upgrading and maintaining its manufacturing facility. Management anticipates
that the Company's total capital expenditures will increase for the year 2000
and will primarily relate to maintenance of its newsprint facilities and cost
reduction projects, allowing the Company to improve quality and increase
capacity, and therefore, enhance its competitive position.

At December 31, 1999, the Company had approximately $138.0 million of
indebtedness, consisting of borrowings of $19.0 million under the Revolving
Credit Facility, $19.0 million under the Term Loan Facility and $100.0 million
under the Senior Secured Notes. In Addition, $6.0 million was available in
unused borrowing capacity under the Revolving Credit Facility.

RESTRICTIVE DEBT COVENANTS

The indenture dated December 1, 1997 between the Company, Bear Island Finance
Company II, Soucy Inc., Timberlands, Brant-Allen and Crestar Bank, as trustee
(the "Indenture"), restricts the ability of the Company and its subsidiaries to,
among other things, incur additional indebtedness, incur liens, pay dividends or
make certain other restricted payments or investments, consummate certain asset
sales, enter into certain transactions with affiliates, impose restrictions on
the ability of a subsidiary to pay dividends or make certain payments to the
Company, merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the assets of
the Company. In addition, the Bank Credit Facilities contain other and more
restrictive covenants and prohibit the Company from prepaying the Notes, except
in certain circumstances. The Bank Credit Facilities also require the Company to
maintain specified financial ratios and satisfy certain financial tests. The
Company's ability to comply with such covenants, including such financial ratios
and tests, may be affected by events beyond its control. There can be no
assurance that the Company will be able to comply with such requirements. A
breach of any of the covenants contained in the Indenture or the Bank Credit
Facilities could result in an event of default under such instruments which
could result in the acceleration of the related debt and the acceleration of
debt under other debt instruments that may contain cross-default or cross-
acceleration provisions. If such an event of default occurs, then the lenders
under the Bank Credit Facilities would also be able to terminate all commitments
under the Bank Credit Facilities. If the Company were unable to repay all
amounts declared due and payable, then the lenders under the Bank Credit
Facilities could proceed against the collateral granted to them to satisfy such
indebtedness and other obligations due and payable under the Bank Credit
Facilities. If Indebtedness under the Bank Credit Facilities were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full such indebtedness and the other Indebtedness of the
Company, including the Notes. In addition, the Indenture also contains covenants
that restrict certain activities of Timberlands, Soucy Inc. and their respective
subsidiaries, such as the incurrence of debt and asset sales.

                                       14
<PAGE>

FOLLOWING THE ACQUISITION AND RELATED FINANCINGS

At the Completion of the Acquisition and the related financings on December 1,
1997, the Company had approximately $201.1 million of indebtedness, consisting
of borrowings of $31 million under the Revolving Credit Facility, $70.0 million
under the Term Loan Facility, $100 million under the Notes and approximately
$130,000 in long-term purchase obligations. Immediately following the closing of
the Acquisition, the Company used $5 million of cash on hand to reduce the
outstanding balance of the Revolving Credit Facility. The Company's interest
expense and indebtedness following the consummation of the Acquisition and
related financings were significantly greater than they had been historically.
Interest expense for the years ended December 31, 1999 and 1998, for the one-
month ended December 31, 1997 and for the eleven months ended November 30, 1997
was approximately $17.1 million, $18.9 million, $1.6 million and $4.3 million,
respectively. As of December 31, 1999, the Company had $19.0 million outstanding
under its Revolving Credit Facility, leaving a balance of $6.0 million available
for future drawdowns.

Although there can be no assurances, the Company believes that cash generated
from operations together with cash on-hand and amounts available under the
Revolving Credit Facilities will be sufficient to meet its debt service
requirements, capital expenditures needs and working capital needs for the
foreseeable future. The Company's future operating performance and ability to
service the Bank Credit Facilities and the Notes and repay other indebtedness of
the Company will be subject to future economic conditions and the financial
success of the Company's business and other factors, many of which are not in
the Company's control, including changes in market prices for newsprint, fiber
costs, electrical rates and future government requirements as to environmental
discharges and recycling content in newsprint. The Company currently anticipates
that in order to pay the principal amount of the Notes at maturity, the Company
will be required to refinance such Notes or adopt one or more alternatives,
including reducing or delaying capital expenditures or seeking additional equity
capital or other additional financing. None of the affiliates of the Company
will be required to make any capital contributions or other payments to the
Company with respect to the Issuer's obligations on the Notes (except to the
extent that Timberlands or Soucy are required under the Indenture to make an
Excess Proceeds Offer to the Holders of the Notes and the consummation of any
such Excess Proceeds Offer is deemed to be a payment to the Company). Although
the Company currently has no reason to believe that it will not be able to
refinance the Notes at maturity, there can be no assurance that such refinancing
or any alternative strategy could be effected upon satisfactory terms, if at
all, or that any of the foregoing actions would enable the Company to make such
principal payments on the Notes or that any of such actions would be permitted
by the terms of any debt instruments of the Company or of any of the Company's
affiliates then in effect.

Historically, the Company has had relatively few foreign sales, all of which
have been denominated in U.S. dollars. On December 3, 1997, the Company entered
into an interest rate swap transaction in the amount of $70,000,000, decreasing
in increments of $10,000,000 annually, whereby the Company exchanged a floating
three month London Interbank Offered Rate ("LIBOR") interest rate for a fixed
rate of 6.13%. This swap arrangement was terminated in October 1999 and a gain
of $150,000 was recognized.


ENVIRONMENTAL EXPENDITURES

The operation of the Mill is subject to extensive and changing environmental
regulation by federal, state and local authorities, including those requirements
that regulate discharges into the environment, waste management, and remediation
of environmental contamination. Environmental permits are required for the
operation of the Company's businesses, and are subject to revocation,
modification and renewal. Governmental authorities have the power to enforce
compliance with environmental requirements and violators are subject to fines,
injunctions, civil penalties and criminal fines. Third parties may also have the
right to sue to enforce compliance with such regulations.

The Company has in the past made significant capital expenditures to comply with
current federal, state and local environmental laws and regulations. The Company
believes that it is in substantial compliance with such laws and regulations,
although no assurance can be given that it will not incur material liabilities
and costs with respect to such laws and regulations in the future. Although the
Company does not currently believe that it will be required to make significant
expenditures for pollution control in the near future, no assurances can be
given that future developments, such as the potential for more stringent
environmental standards or stricter enforcement of environmental laws, will not
cause the Company to incur such expenditures. The Company anticipates incurring
the following environmental expenditures (over and above routine operating
expenditures) over the next two years, including (i) $200,000 for the closure of
one landfill for 2000 and 2001.

                                       15
<PAGE>

YEAR 2000 COMPLIANCE

With the passage of the critical January 1, 2000, and February 29, 2000, dates,
the Company and, to management's knowledge, its suppliers and its customers,
have not experienced any significant business disruptions as a result of the
Year 2000 date change.  The Company will continue to monitor its systems and
communicate with its suppliers for ongoing Year 2000 compliance until it is
reasonably assured that no significant business interruptions are likely to
occur.  Based on the actions taken by the Company and its experience to date,
the Company does not believe that its operations will be materially impacted by
the Year 2000 issue.

The Company estimates its total Year 2000 costs to be approximately  $275,000.

NEW ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 establishes standards for
accounting and disclosure of derivative instruments. This new standard is
effective for fiscal quarters of fiscal years beginning after June 15, 1999. In
June 1999, the FASB issued FAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133," postponing FAS 133's effective date to fiscal quarters of fiscal years
beginning after June 15, 2000. The implementation of this new standard is not
expected to have a material effect on the Company's results of operations or
financial position.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

The Company is exposed to various market risk factors such as fluctuations in
interest rates, as well as changes in the cost of raw materials. These risk
factors can impact results of operations, cash flows and financial position. The
Company manages these risks through regular operating and financing activities,
and when necessary, the use of derivative financial instruments, such as
interest rate swap contracts. These derivative instruments, when used, are with
major financial institutions and are not for speculative or trading purposes.

The following analysis presents the effect on the Company's earnings, cash flows
and financial position as if the hypothetical changes in market risk factors
occurred on December 31, 1999. Only the potential impacts of these hypothetical
assumptions are analyzed. The analysis does not consider other possible effects
that could impact the Company's business.

At year-end 1999, the Company carried $138.3 million of outstanding debt on its
books, with $38.0 million of that total held at variable interest rates. Holding
all other variables constant, if interest rates hypothetically increased by 10%,
the impact on earnings and cash flow would be an increase to interest expense of
$232,000. Conversely, if interest rates hypothetically decreased by 10%, with
all other variables held constant, the change in interest expense would be a
decrease to interest expense of $238,000.

The Company is exposed to the risk of increasing raw material prices, which
could impact profit margins. When raw material cost increases, the Company
generally is unable to increase selling prices. Therefore, the Company expects
the impact of increasing raw material cost to result in reductions in the
results of its operations or cash flows. Major raw material components include
wood, kraft, ONP, ONG and chemicals.

ITEM 8.  FINANCIAL STATEMENTS.

Certain statements in the financial statements and elsewhere in this report may
constitute forward-looking statements. Because these forward-looking statements
include risks and uncertainties, actual results may differ materially from those
expressed in or implied by the statements. Factors that could cause actual
results to differ include, among other things: increased domestic or foreign
competition; increases in capacity through construction of new mills or
conversion of older facilities to produce competitive products; variations in
demand for our products; changes in our cost for or the availability of raw
materials, particularly market pulp and wood; the cost of compliance with new
environmental laws and regulations; the pace of acquisitions; cost structure
improvements; the success of new initiatives; integration of systems; the
success of computer-based system enhancements; and general economic conditions.

                                       16
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth certain information about the Company's directors
and executive officers:

<TABLE>
<CAPTION>

NAME                         AGE                     POSITION
<S>                          <C>                     <C>
Peter M. Brant               52                      Co-Chairman of the Board of Directors and
                                                     Chief Executive Officer of the Company and
                                                     Timberlands; Co-Chairman, and Chief Executive Officer
                                                     of Brant-Allen; and Chief Executive Officer of Soucy Inc.

Joseph Allen                 58                      President, Co-Chairman of the Board of Directors, Chief Operating
                                                     Officer and Secretary of the Company and Timberlands; Co-Chairman and
                                                     Chief Operating Officer of Brant-Allen; and Chief Operating Officer of
                                                     Soucy Inc.

Edward D. Sherrick           54                      Vice President of Finance and
                                                     Director of the Company; Vice President of Finance
                                                     of Timberlands; Senior Vice President and Chief
                                                     Financial Officer of Brant-Allen; and Vice President
                                                     of Soucy Inc.

Thomas E. Armstrong          62                      Vice President of Sales and
                                                     Manufacturing and Director of the Company; Vice
                                                     President of Sales and Manufacturing of Timberlands;
                                                     Executive Vice President of Brant-Allen; and Vice
                                                     President of Soucy Inc.

Michael Conroy                60                     Director

Robert Flug                   52                     Director

The following table sets forth certain information about the Company's key
employees:

NAME                         AGE                     POSITION

Emilio F. Rigato             52                      Mill Manager
Thomas Conte                 46                      Production Manager
Robert Jackson               60                      Human Resources Manager
Seth Hobart                  48                      Financial Manager
Robert Ellis                 49                      Manager of Engineering, Maintenance and Government Affairs of the Company
</TABLE>

                                       17
<PAGE>

PETER M. BRANT. Mr. Brant is the Co-Chairman of the Board of Directors and Chief
Executive Officer of the Company and Timberlands, the Co-Chairman and Chief
Executive Officer of Brant-Allen and Chief Executive Officer of Soucy Inc. Mr.
Brant jointly owns Brant-Allen with Mr. Joseph Allen. Mr. Brant has served as
executive officer of the Company since its inception and has served as executive
officer of Brant-Allen for over 30 years.

JOSEPH ALLEN. Mr. Allen is the President, and Chief Operating Officer and
Secretary of the Company and Timberlands, the President and Chief Operating
Officer of Brant-Allen and Chief Operating Officer of Soucy Inc. Mr. Allen
jointly owns Brant-Allen with Mr. Brant. Mr. Allen has served as an executive
officer of the Company since its inception and has served as executive officer
of Brant-Allen for over 30 years.

EDWARD D. SHERRICK. Mr. Sherrick is Vice President of Finance and Director of
the Company, Vice President of Finance of Timberlands, Senior Vice President and
Chief Financial Officer of Brant-Allen and Vice President of Soucy Inc. He has
been with the Company and Brant-Allen for over 20 years.

THOMAS E. ARMSTRONG. Mr. Armstrong is Vice President of Sales and Manufacturing
and Director of the Company, Vice President of Sales and Manufacturing of
Timberlands, Executive Vice President of Brant-Allen and Vice President of Soucy
Inc. He has been an executive officer of the Company and Brant-Allen for 27
years and has been involved in the sale and marketing of the Company's newsprint
as well as overseeing mill operations.

MICHAEL CONROY. Mr. Conroy was appointed a Director of the Company in November
1997. Mr. Conroy is an independent consultant. Mr. Conroy was the President of
the International Herald Tribune Company US, Inc. (the "Herald Tribune") up to
December 1998 . He had been with that company for 12 years. Before joining the
Herald Tribune, he was publisher at Newsweek Atlantic.

ROBERT FLUG. Mr. Flug was appointed a Director of the Company in November 1997.
Mr. Flug has been the President and Chief Executive Officer of S.I. Danielle,
Inc., a junior apparel manufacturer, since 1987.

EMILIO F. RIGATO. Mr. Rigato joined the Company in January 1999 as Mill Manager.
From 1992 to 1998 Mr. Rigato was with Avenor, Inc. as Manager Thunder Bay Mill
Operations.

THOMAS CONTE. Mr. Conte joined the Company in January 2000 as Production
Manager. From July 1989 to January 2000 Mr. Conte was with Alabama River
Newsprint, Inc. as Assistant Papermachine Superintendent.

ROBERT JACKSON. Mr. Jackson has been the Human Resources Manager of the Company
since 1979.

SETH HOBART. Mr. Hobart has been the Financial Manager of the Company since
January 2000. From November 1979 to January 2000 Mr. Hobart was Controller of
the Company. He has been with the Company since 1976.

ROBERT ELLIS. Mr. Ellis was named the Manager of Engineering, Maintenance and
Governmental Affairs of the Company in February 2000. Prior to his latest
promotion Mr. Ellis was Manager of Engineering Services and Governmental Affairs
of the Company and has been with the Company since 1980.

ITEM 11. EXECUTIVE COMPENSATION.

No executive officer of Brant-Allen was paid any compensation by the Company
between 1997 and 1999. All officers of the Company who also serve as officers of
Brant-Allen have received and will continue to receive compensation from and,
except as noted in the following paragraph, participate in employee benefit
plans and arrangements sponsored by Brant-Allen, including, but not limited to,
Brant-Allen's defined contribution retirement plan (known as the Brant-Allen
Industries, Inc. Incentive Profit-Sharing Plan), employee insurance, long term
disabilities, medical and other plans which are maintained by Brant-Allen or
which may be established by Brant-Allen in the future except as noted in the
following paragraph, these officers are not entitled to participate in the
Company's employee benefit plans and arrangements.

                                       18
<PAGE>

Effective as of March 15, 1999, the Brant-Allen Industries, Inc. Incentive
Profit-Sharing Plan was merged with and into the Bear Island Paper Company, L.P.
Thrift Plan. Brant-Allen also adopted both the Company's Thrift Plan effective
for employee 401(k) contributions and employer matching contributions as of
April 1, 1999 and for other contributions as of January 1, 1999 and the
Company's Retirement Plan effective as of January 1, 1999. It is anticipated
that Brant-Allen will contribute the amount of employer contributions due on
behalf of its employees under such plans.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Brant-Allen beneficially owns all the equity of each of the Company, Timberlands
and Soucy Inc. Brant-Allen, in turn, is jointly owned by Mr. Peter Brant and Mr.
Joseph Allen.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

RELATIONSHIP WITH BRANT-ALLEN, TIMBERLANDS AND SOUCY

Brant-Allen owns all of the equity in the Company, Timberlands and Soucy Inc.
Brant-Allen is a subchapter S corporation jointly owned by Mr. Peter Brant and
Mr. Joseph Allen. Mr. Brant serves as Brant-Allen's Chairman of the Board and
Chief Executive Officer and also as Chairman of the Board of Directors and Chief
Executive Officer of the Company and Timberlands and Chief Executive Officer of
Soucy Inc. Mr. Allen serves as Brant-Allen's President and Chief Operating
Officer and also as President and Chief Operating Officer of the Company and
Timberlands and Chief Operating Officer of Soucy Inc. The other officers of
Brant-Allen, Mr. Edward Sherrick and Mr. Thomas Armstrong, are also directors of
the Company.

Brant-Allen may engage in a variety of transactions with the Company,
Timberlands and/or Soucy. These transactions are expected to include the sale
and marketing of the newsprint produced by the Company and Soucy and the
provision of management and other services described below to the Company and
Soucy.

MANAGEMENT SERVICES AGREEMENT

Concurrently with the closing of the Acquisition, the Company entered into the
Management Services Agreement with Brant-Allen. Pursuant to the Management
Services Agreement, Brant-Allen will continue to provide the Company with senior
management treasury, financial and administrative (including marketing and
sales) services. For these services, Brant-Allen will continue to be entitled to
a monthly fee, payable in advance, calculated at the rate of 3% of the Company's
net sales less transportation costs, of which since December 1, 1997, as a
result of the Company's debt agreements, one third is payable in cash with the
remainder contributed to the Company's capital. This fee amounted to $3,110,000,
$3,666,000, $324,000 and $3,168,000 for the years ended December 31,1999 and
1998, the one-month ended December 31, 1997, and the eleven months ended
November 30, 1997, respectively. See the accompanying financial statements of
the Company. The Management Services Agreement has a term of five years and is
automatically renewable for successive five-year terms unless earlier terminated
by either party giving two years written notice. The Management Services
Agreement contains customary indemnification provisions.

BRANT-ALLEN FEES FROM SOUCY

Brant-Allen also markets all of Soucy's newsprint and is, and will continue to
be, compensated for these services in the form of monthly management service and
royalty fees, payable in advance, calculated at a combined rate of 9.73% of
Soucy Inc.'s consolidated net sales after transportation costs. Soucy Partners
pays Soucy Inc. approximately 3% of Soucy Partners' cumulative annual net sales.
For the years ended December 31, 1999, 1998, and 1997, Soucy Inc. paid Brant-
Allen approximately Cdn$16,056,000, Cdn$17,082,000, and Cdn$13,192,000,
respectively, for management and selling services.

                                       19
<PAGE>

WOOD SUPPLY FROM BITCO AND ONP AND OMG PROCUREMENT

Prior to the consummation of the Transactions, BITCO supplied all the
Predecessor's wood requirements at prices, including an up charge (a margin in
excess of the market price of wood) that were negotiated annually. Concurrently
with the consummation of the Transactions, the Company and Timberlands
terminated these arrangements and entered into the Wood Supply Agreement. Under
the Wood Supply Agreement there was no up charge and Timberlands supplied the
Company with 40,000 cords of wood fiber annually at market prices determined by
reference to the prices paid by the Company for wood fiber purchased from non-
affiliated wood suppliers. Timberlands' and BITCO's wood sales to the Company
and Predecessor were $2,930,000, $1,637,000, and $13,280,000 during the year
ended December 31, 1998, the one month ended December 31, 1997 and the eleven
months ended November 30, 1997, respectively. Effective December 1, 1998, the
Company is purchasing all of its logs and pulp chips from outside suppliers at
market prices. During 1999, Timberlands sold substantially all of its
properties. The net proceeds from these sales were utilized to reduce (i)
Timberlands debt and (ii) debt incurred by the Company and Brant-Allen in
connection with Brant-Allen's purchase of the equity interest in Timberlands and
the Company. See the accompanying financial statements of the Company.

Prior to the consummation of the Transactions, BITCO procured recycled paper for
the Predecessor in exchange for a procurement fee based on the ONP and OMG
tonnage procured. The Predecessor recognized costs of $2,029,000 for such fees
during the eleven months ended November 30, 1997. See the accompanying financial
statements of BITCO and Timberlands. The Company terminated this procurement
arrangement concurrently with consummation of the Transactions and now procures
ONP and OMG itself.

OTHER ARRANGEMENTS WITH TIMBERLANDS

The Company shares employees, facilities and recordkeeping systems with
Timberlands, and the Company charges Timberlands monthly for its share of these
costs. Accordingly, these shared employees receive benefits under the Company's
defined contribution retirement plan and are eligible to participate in the
Company's thrift plan. Costs associated with these plans are reimbursed monthly
by Timberlands. Amounts paid to the Predecessor and the Company for shared
costs, which are included in selling, general and administrative expenses,
approximated $1,024,000, $782,000, $60,000 and $1,319,000, during the years
ended December 31, 1999 and 1998, the one month ended December 31, 1997, the
eleven months ended November 30, 1997, respectively. Timberlands also managed
the Company's timberlands for which the Company and the Predecessor paid
Timberlands and BITCO fees of approximately $62,500, $5,300, and $55,000, during
the year ended December 31, 1998, the one month ended December 31, 1997 and the
eleven months ended November 30, 1997, respectively. See the accompanying
financial statements of the Company.

In 1988, the Predecessor and BITCO entered into an agreement for certain
marketing and consulting services with The Elebash Company ("Elebash"), a real
estate broker, whereby BITCO, in the case of sales of BITCO-owned land, or the
Predecessor, in the case of sales of Predecessor-owned land, has agreed to pay
Elebash two percent of the gross sales price of any land purchased or sold
pursuant to the terms of the agreement. In this connection, BITCO and
Timberlands paid Elebash approximately $3,000, $6,000 and $32,000, for the year
ended December 31, 1998, the one-month ended December 31, 1997, and the eleven
months ended November 30, 1997, respectively. Amounts paid to Elebash are
included in selling, general and administrative expenses in the accompanying
statements of income. This agreement was canceled effective January 6, 1998.

PURCHASE AGREEMENTS WITH DOW JONES AND THE WASHINGTON POST

The Company has contracted to sell newsprint to Dow Jones and The Washington
Post pursuant to the Purchase Agreements. The Purchase Agreements have been
extended through December 31, 2004 and are subject to the parties agreeing to
pricing, which approximates market prices, on an annual basis. Each of Dow Jones
and The Washington Post is obligated to purchase a minimum of approximately
45,000 tonnes of newsprint per year under the Purchase Agreements. In addition,
the parties to the Purchase Agreements have the option to purchase additional
quantities of newsprint as available.

                                       20
<PAGE>

The Company and the Predecessor have had five customers whose sales represent a
significant portion of sales. Sales to Dow Jones approximated 20%, 22%, 18%, and
22% for the years ended December 31, 1999 and 1998, the one-month ended December
31, 1997, and the eleven months ended November 30, 1997, respectively. Sales to
The Washington Post approximated 19%, 22%, 20%, and 22% for the years ended
December 31, 1999 and 1998, the one-month ended December 31, 1997, and the
eleven months ended November 30, 1997, respectively. Sales to Newhouse Group
approximated 15%, 11%, 23%, and 10% for the years ended December 31, 1999 and
1998, the one-month ended December 31, 1997, and the eleven months ended
November 30, 1997, respectively. Sales to Gannett approximated 12%, 11%, 13%,
and 14% for the years ended December 31, 1999 and 1998, the one-month ended
December 31, 1997, and the eleven months ended November 30, 1997, respectively.
Sales to Knight-Ridder approximated 10% during the year ended December 31, 1998.


                                       21
<PAGE>

                                    PART IV

ITEM  14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) Exhibits and Financial Statements

  (1) See Index to Financial Statements and Schedule of Bear Island Paper
  Company, L.L.C. and Bear Island Paper Company, L.P. at page 25.

  (2) Financial Statement Schedule of Bear Island Paper Company, L.L.C. and Bear
  Island Paper Company L.P.:

  All other schedules for which provision is made in the applicable accounting
  regulation of the Securities and Exchange Commission are not required under
  the related instructions or are inapplicable and therefore have been omitted.

  (3) Exhibits

    2.1 The Partnership Interest Sale Agreement, dated as of December 1, 1997,
    by and among Dow Jones Virginia Company Inc., Newsprint, Inc. and
    Brant-Allen.*

    3.1 Articles of Organization of the Company.*

    3.2 Operating Agreement of the Company.*

    4.1 Indenture, dated as of December 1, 1997, among the Registrants,
    Timberlands, Soucy Inc. and Crestar Bank, as Trustee, relating to the
    Notes.*

    4.2 Registration Rights Agreement, dated December 1, 1997, among the
    Registrants and TD Securities (USA), Inc. and Salomon Brothers Inc, as
    Initial Purchasers.*

    4.3 Intercreditor Agreement, dated as of December 1, 1997, among the
    Registrants, Brant-Allen, Toronto Dominion (Texas), Inc. and Crestar Bank.*

    4.4 Deed of Trust dated as of December 1, 1997, by and between the Company
    and Crestar Bank, as Trustee.*

    4.5 Company Pledge and Security Agreement, dated as of December 1, 1997, by
    and between the Company and Crestar Bank, as Trustee.*

    4.6 Hypotech Agreement, dated as of December 1, 1997, by and between
    Brant-Allen and Crestar Bank, as Trustee.*

                                       22
<PAGE>

    10.1 Bank Credit Agreement, dated as of December 1, 1997, by and among the
    Company, TD Securities (USA), Inc., Toronto Dominion (Texas), Inc.,
    Christiania Bank OG Kreditkass ASA, Keyport Life Insurance Company, Prime
    Income Trust, Deeprock & Company, Merrill Lynch Senior Floating Rate Fund,
    Inc. and Van Kampen American Capital Prime Rate Trust.*

    10.2 The Management Services Agreement, dated as of December 1, 1997, by and
    among the Company and Brant-Allen.*

    10.3 The Wood Supply Agreement, dated as of December 1, 1997, by and among
    the Company and Timberlands.*

    10.4 The Newsprint Purchase Agreement, dated as of May 19, 1978, by and
    between the Company and the Dow Jones & Co., Inc.*

    10.4a Amendments to Newsprint Purchase Agreement, dated as of April 1, 1987,
    December 10, 1991, August 10, 1993 and April 22, 1996.

    10.5 The Newsprint Purchase Agreement, dated as of May 19, 1978, by and
    between the Company and The Washington Post.*

    10.5a Amendments to Newsprint Purchase Agreement, dated as of December 10,
    1991, August 10, 1993 and April 22, 1996.

    21.1 Subsidiaries of the Company.*

    27.1 Financial Data Schedule

    * Previously filed as an exhibit to the Company's registration statement on
      Form S-4 Registration No. 333-42201, as amended, and incorporated herein
      by reference.

                                       23
<PAGE>

                                   SIGNATURES

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

                       BEAR ISLAND PAPER COMPANY, L.L.C.

                                By:  /s/ Peter M. Brant
                                     ------------------

                                Name: Peter M. Brant
                                Title: Chairman of the Board of Directors
                                and Chief Executive Officer of the Company

Date: March 30, 2000

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

<TABLE>
<CAPTION>

Signature                                     Title                                        Date
<S>                                           <C>                                          <C>
Principal Executive Officer

/s/ Peter M. Brant                            Chairman of the Board of Directors and       March 30, 2000
---------------------------                   Chief Executive Officer
Peter M. Brant

Principal Financial and Accounting Officer

/s/ Joseph Allen                              President, Co-Chairman of the Board of       March 30, 2000
---------------------------                   Directors, Chief Operating Officer and
Joseph Allen                                  Secretary


/s/ Edward D. Sherrick                        Vice President of Finance and Director of    March 30, 2000
---------------------------                   the Board of Directors
Edward D. Sherrick

/s/ Thomas E. Armstrong                       Vice President of Sales and Manufacturing    March 30, 2000
---------------------------                   and Director of the Board of Directors
Thomas E. Armstrong

/s/ Michael Conroy                            Director of the Board of Directors           March 30, 2000
---------------------------
Michael Conroy

/s/ Robert Flug                               Director of the Board of Directors           March 30, 2000
---------------------------
Robert Flug
</TABLE>

                                       24
<PAGE>

            INDEX TO FINANCIAL STATEMENTS AND SCHEDULE OF BEAR ISLAND
            PAPER COMPANY, L.L.C. AND BEAR ISLAND PAPER COMPANY, L.P.

    BEAR ISLAND PAPER COMPANY, L.L.C.

    Balance Sheets--December 31, 1999 and 1998

    Statements of Operations--Years ended December 31, 1999 and 1998 and one
    month ended December 31, 1997

    Statements of Changes in Member's Interest--Years ended December 31, 1999
    and 1998 and one month ended December 31, 1997

    Statements of Cash Flows--Years ended December 31, 1999 and 1998 and one
    month ended December 31, 1997

    BEAR ISLAND PAPER COMPANY, L.P.

    Statements of Operations--Eleven months ended November 30, 1997

    Statements of Changes in Partners' Equity--Eleven months ended November 30,
    1997

    Statements of Cash Flows--Eleven months ended November 30, 1997


    Schedule II Valuation and Qualifying Accounts

                                       25
<PAGE>

BEAR ISLAND PAPER COMPANY, L.L.C.
(A VIRGINIA LIMITED LIABILITY CORPORATION)

FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<PAGE>

PricewaterhouseCoopers [LOGO]

                                                      PricewaterhouseCoopers LLP
                                                      Riverfront Plaza West
                                                      901 East Byrd Street
                                                      Suite 1200
                                                      Richmond VA 23219-4071
                                                      Telephone (804) 697 1900
                                                      Facsimile (804) 697 1999

Report of Independent Accountants

To the Board of Directors and Member of
Bear Island Paper Company, L.L.C.:

In our opinion, the financial statements listed in the index appearing under
Item 14(a)(1) on page 25 present fairly, in all material respects, the
financial position of Bear Island Paper Company, L.L.C. (a Virginia limited
liability corporation) (the "Company") at December 31, 1999 and 1998, and the
results of its operations and its cash flows for the years ended December 31,
1999 and 1998 and the one month ended December 31, 1997 and Bear Island Paper
Company, L.P.'s (collectively with the Company, the "Companies") results of
operations and cash flows for the eleven months ended November 30, 1997, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 25 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related financial statements. These financial statements and financial statement
schedule are the responsibility of the Companies' management; our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As discussed in Note 4 to the financial statements, the Companies had numerous
significant related-party transactions with affiliates for the years ended
December 31, 1999 and 1998, the one month ended December 31, 1997 and the eleven
months ended November 30, 1997, which significantly impacted the financial
statements of the Companies.

PricewaterhouseCoopers LLP

January 28, 2000

                                       1
<PAGE>

BEAR ISLAND PAPER COMPANY, L.L.C.
(A Virginia Limited Liability Corporation)
BALANCE SHEETS
December 31, 1999 and 1998

<TABLE>
<CAPTION>
                                                                         December 31,
                                                                -----------------------------
                           ASSETS                                   1999             1998
<S>                                                             <C>              <C>
Cash and short-term investments                                 $    981,199     $  2,130,787
Accounts receivable:
   Trade, less allowance for doubtful accounts of $67,778 in
       1999 and $73,073 in 1998                                    9,269,554        9,711,800
   Affiliates                                                      2,617,284        3,760,594
   Other                                                             473,979          196,957
Inventories                                                       12,975,282       13,827,824
Other current assets                                                 379,435          570,234
                                                                ------------     ------------

         Total current assets                                     26,696,733       30,198,196
                                                                ------------     ------------

Property, plant and equipment, at cost                           202,487,949      201,618,960
Less accumulated depreciation                                    (21,428,569)     (10,841,783)
                                                                ------------     ------------

         Net property, plant and equipment                       181,059,380      190,777,177
                                                                ------------     ------------

Deferred financing costs, net of accumulated amortization of
     $1,187,612 and $748,725 in 1999 and 1998, respectively        6,830,894        8,275,781
                                                                ------------     ------------

                                                                $214,587,007     $229,251,154
                                                                ============     ============

                           LIABILITIES

Current portion of long-term debt                                    700,000          700,000
Current portion of long-term purchase obligations                    130,566          384,693
Accounts payable and accrued expenses                              9,360,774       10,319,912
Due to affiliates                                                     11,791          111,320
Interest payable                                                   1,044,362        1,307,030
                                                                ------------     ------------

         Total current liabilities                                11,247,493       12,822,955
                                                                ------------     ------------

Long-term debt                                                   137,333,276      183,600,000
Long-term purchase obligations                                       127,248          261,470
                                                                ------------     ------------

                                                                 137,460,524      183,861,470
                                                                ------------     ------------

                            EQUITY

   Member's interest                                              77,553,705       28,130,250
   Retained earnings (accumulated deficit)                       (11,674,715)       4,436,479
                                                                ------------     ------------

                                                                $214,587,007     $229,251,154
                                                                ------------     ------------
</TABLE>

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

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                             Company                         Predecessor
                                                           ---------------------------------------------    -------------
                                                           For the year    For the year      One month      Eleven months
                                                               ended           ended           ended            ended
                                                           December 31,    December 31,     December 31,     November 30,
                                                           ------------    ------------     ------------    -------------
                                                               1999            1998             1997             1997
<S>                                                        <C>             <C>              <C>             <C>
Net sales                                                  $ 82,567,715    $ 95,870,332     $  8,881,972    $  59,547,722
Net sales to affiliates                                      21,104,938      26,327,457        1,924,961       46,039,980
                                                           ------------    ------------     ------------    -------------

         Total net sales                                    103,672,653     122,197,789       10,806,933      105,587,702

Cost of sales                                                95,062,714      94,656,233        9,068,701       95,404,127
                                                           ------------    ------------     ------------    -------------

         Gross profit                                         8,609,939      27,541,556        1,738,232       10,183,575

Selling, general and administrative expenses:
   Management fees to affiliate                               3,110,180       3,665,934          324,835        3,174,722
   Other direct                                                 393,693         535,999           45,658          572,644
                                                           ------------    ------------     ------------    -------------

         Income from operations                               5,106,066      23,339,623        1,367,739        6,436,209
                                                           ------------    ------------     ------------    -------------

Other income (deductions):
   Interest income                                              148,995         201,491                           590,971
   Interest expense                                         (17,097,180)    (18,892,445)      (1,633,043)      (4,331,563)
   Other income (expense)                                       863,346                           53,114          (41,231)
                                                           ------------    ------------     ------------    -------------

                                                            (16,084,839)    (18,690,954)      (1,579,929)      (3,781,823)
                                                           ------------    ------------     ------------    -------------

         Income (loss) before
             extraordinary item                             (10,978,773)      4,648,669         (212,190)       2,654,386

Extraordinary item:
   Early extinguishment of debt                              (1,006,000)                                       (4,367,418)
                                                           ------------    ------------     ------------    -------------

           Net income (loss)                               $(11,984,773)   $  4,648,669     $   (212,190)   $  (1,713,032)
                                                           ------------    ------------     ------------    -------------
</TABLE>

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

                                       3
<PAGE>

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

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

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):
     Balance, November 30, 1997                    $    813,056    $  2,420,523   $  2,420,523   $   5,654,102
                                                   ============    ============   ============   =============

===============================================================================================================
                   Company

Equity:
   Member's interest:
     Aggregate equity balances at
         December 1, 1997 and conversion
         to Bear Island Mergerco, 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 Mergerco, L.L.C.                         -     (34,303,023)   (34,303,023)    (68,606,046)
                                                   ------------    ------------   ------------    ------------
     Balance, December 31, 1997                    $ 25,469,737               -              -      25,469,737
                                                   ============    ============   ============

     Management fee payable contributed
         to capital by parent - year ended
         December 31, 1998                                                                           2,660,513
                                                                                                 -------------
     Balance, December 31, 1998                                                                     28,130,250

     Management fee payable contributed
         to capital by parent - year ended
         December 31, 1999                                                                           2,073,455

     Capital contributions from parent                                                              47,350,000
                                                                                                 -------------
     Balance, December 31, 1999                                                                  $  77,553,705
                                                                                                 =============

   Retained earnings (accumulated deficit):
     Net loss - one month ended
         December 31, 1997                                                                       $    (212,190)
                                                                                                 -------------
     Balance, December 31, 1997                                                                       (212,190)

     Net income - year ended
         December 31, 1998                                                                           4,648,669
                                                                                                 -------------
     Balance, December 31, 1998                                                                      4,436,479

     Net loss - year ended December 31,
         1999                                                                                      (11,984,773)

     Tax distributions to parent - 1999                                                             (4,126,421)
                                                                                                 -------------
     Balance, December 31, 1999                                                                  $ (11,674,715)
                                                                                                 =============
</TABLE>

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

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     Company                         Predecessor
                                                                   --------------------------------------------     -------------
                                                                    For the year   For the year     One month       Eleven months
                                                                       ended         ended            ended             ended
                                                                    December 31,   December 31,    December 31,     November 30,
                                                                   -------------   ------------    ------------     -------------
                                                                        1999           1998            1997             1997
<S>                                                                <C>             <C>             <C>              <C>
Operating activities:
  Net income (loss)                                                $ (11,984,773)  $  4,648,669    $   (212,190)     $ (1,713,032)
    Adjustments to reconcile net income (loss) to net cash
        provided by (used in) operating activities:
      Depreciation                                                    10,615,303     10,033,191         822,264         9,735,450
      Depletion                                                           31,022         33,605                            12,501
      Amortization of deferred financing costs                           438,887        669,339          79,386            54,307
      Noncash portion of extraordinary item                            1,006,000                                          419,930
      Increase in allowance for obsolescence                              63,000        324,500         152,000
      (Gain) loss on disposal of property, plant and equipment          (663,186)     1,204,076                           588,873
      (Increase) decrease in:
        Accounts receivable                                            1,308,534        463,984         207,797           868,132
        Inventories, excluding effects of obsolescence allowance         789,542         60,989        (606,791)          378,964
        Other current assets                                             190,799       (422,323)          7,008           106,781
      Increase (decrease) in:
        Accounts payable and accrued expenses for operating
            activities                                                 1,081,189      3,718,698      (3,856,796)        2,516,245
        Due to affiliate                                                 (66,401)       (73,738)     (1,416,656)           70,600
        Interest payable                                                (262,668)       (37,885)        800,228          (492,813)
                                                                   -------------   ------------    ------------     -------------

        Net cash provided by (used in) operating activities            2,547,248     20,623,105      (4,023,750)       12,545,938
                                                                   -------------   ------------    ------------     -------------

Investing activities:
  Purchases of property, plant and equipment                          (3,009,194)    (7,544,100)       (238,518)       (4,835,971)
  Proceeds from disposition of property, plant and equipment           2,743,852        150,000                           134,300
  Payment for purchase of partnership interest, net of cash
   acquired                                                                    -                   (139,930,098)
                                                                   -------------   ------------    ------------     -------------

        Net cash used in investing activities                           (265,342)    (7,394,100)   (140,168,616)       (4,701,671)
                                                                   -------------   ------------    ------------     -------------
</TABLE>

                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                               Company                                Predecessor
                                                                    ----------------------------------------------   -------------
                                                                    For the year     For the year     One month      Eleven months
                                                                       ended            ended           ended            ended
                                                                    December 31,     December 31,     December 31,    November 30,
                                                                       1999             1998             1997            1997
                                                                    ------------    -------------     ------------   -------------
<S>                                                                 <C>              <C>              <C>            <C>
Financing activities:
   Contributions from parent                                        $ 47,350,000                      $  3,564,585
   Tax distributions to parent                                        (4,126,421)                       (3,564,585)
   Principal payments on long-term debt                              (70,266,724)   $ (11,700,000)     (47,000,000)  $  (6,000,000)
   Principal payments on promissory notes                                      -                                        (3,917,764)
   Principal payments on long-term purchase obligations                 (388,349)        (181,346)                      (2,549,049)
   Proceeds from issuance of long-term debt                           24,000,000                       201,000,000
   Payment of deferred financing costs                                         -         (569,921)      (8,454,585)
                                                                    ------------    -------------     ------------   -------------
         Net cash provided by (used in) financing activities          (3,431,494)     (12,451,267)     145,545,415     (12,466,813)
                                                                    ------------    -------------     ------------   -------------

         Net increase (decrease) in cash and short-term
             investments                                              (1,149,588)         777,738        1,353,049      (4,622,546)

Cash and short-term investments, beginning of period                   2,130,787        1,353,049                       13,625,322
                                                                    ------------    -------------     ------------   -------------

           Cash and short-term investments, end of period           $    981,199    $   2,130,787     $  1,353,049   $   9,002,776
                                                                    ============    =============     ============   =============

Supplemental disclosures of cash flow information:
   Cash paid for interest                                           $ 16,920,961    $  18,260,991     $    288,128   $   4,824,376
                                                                    ============    =============     ============   =============

Noncash investing and financing activities:
   Increase in property, plant and equipment and long-term
       purchase obligations for equipment acquisition               $          -    $     392,205                    $     305,000
                                                                    ============    =============                    =============
   Increase in promissory notes for equipment acquisition                                                                2,425,856
                                                                                                                     =============
   Management fee payable contributed to capital by parent          $  2,073,455        2,660,513
                                                                    ============    =============
</TABLE>

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

                                       6
<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 7), 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 certain
   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
                                                                 -------------

   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 periods prior to
   the Acquisition.

   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 became 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.

   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:

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

                                       7
<PAGE>

1. Organization and Acquisition, continued:

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

   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:

       . 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.

       . 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.

       . 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.

       . 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.

       . 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. Liquidity:

   As shown in the accompanying 1999 statement of operations and the December
   31, 1999 balance sheet, the Company incurred a net loss of $11,984,773 and
   had an accumulated deficit of $11,674,715. Management anticipates a smaller
   loss during 2000 and plans to improve cash flow through increases in the
   price of newsprint. The Company has approximately $6 million available under
   its Revolving Credit Facility (see Note 7) to fund cash requirements.
   Depending upon the realization of the increase in newsprint prices,
   management expects to be able to meet liquidity requirements for 2000;
   however, there exists a range of reasonably possible outcomes which could be
   significantly impacted by achieving the aforementioned.

                                       8
<PAGE>

3. 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 at December 31,
   1999 and 1998 of approximately $539,500 and $476,500, respectively.

   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 years ended
   December 31, 1999 or 1998, 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. Unamortized balances written off in connection with
   early retirements of long-term debt are recognized as extraordinary items at
   the time of early retirement. 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.

                                       9
<PAGE>

3. Summary of Significant Accounting Policies, continued:

   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.

   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.

   Derivatives: An interest rate swap agreement is used to help manage interest
   rate exposure. Amounts to be paid or received under the agreement are accrued
   as interest rates change and are recognized over the life of the agreement as
   an adjustment to interest expense. The Company is exposed to credit losses in
   the event of counterparty nonperformance, but does not anticipate such
   losses.

   Fair Value of Financial Instruments: The fair value of the Companies' long-
   term debt is estimated using discounted cash flow analyses based on the
   incremental borrowing rates currently available to the Companies 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. The fair value of the interest rate swap agreement is the
   estimated amount that the Company would receive or pay to terminate the
   agreement as of the balance sheet date, taking into account current interest
   rates and the current creditworthiness of the counterparty.

   Risks and Uncertainties: Financial instruments which potentially subject the
   Companies to concentrations of credit risk consist principally of cash, cash
   equivalents and receivables. The Companies' 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 Companies' 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.

                                       10
<PAGE>

3. Summary of Significant Accounting Policies, continued:

   The Companies have had five customers whose sales represent a significant
   portion of sales.  Sales to one of these customers approximated 20%, 22%, 18%
   and 22% for the years ended December 31, 1999 and 1998, the one month ended
   December 31, 1997 and the eleven months ended November 30, 1997,
   respectively.  Sales to a second customer approximated 19%, 22%, 20% and 22%
   for the years ended December 31, 1999 and 1998 , the one month ended December
   31, 1997 and the eleven months ended November 30, 1997, respectively.  Sales
   to a third customer approximated 15%, 11%, 23% and 10% for the years ended
   December 31, 1999 and 1998, the one month ended December 31, 1997 and the
   eleven months ended November 30, 1997, respectively.  Sales to a fourth
   customer approximated 12%, 11%, 13% and 14% for the years ended December 31,
   1999 and 1998, the one month ended December 31, 1997 and the eleven months
   ended November 30, 1997, respectively.  Sales to a fifth customer
   approximated 10% during the year ended December 31, 1998.

   Newsprint Sales, the sales division of Brant-Allen, has entered into certain
   supply contracts, as amended, (the "Supply Contracts") with two customers.
   Under the terms of the Supply Contracts, as amended, Newsprint Sales is
   required to provide to these customers certain fixed volumes of newsprint at
   prices determined annually, through December 31, 2004.

   New Accounting Standards:  During 1998 the Company implemented Statement of
   Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
   Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
   Related Information."  The implementation of these new standards had no
   effect on the Company's statements of operations or its financial position as
   of or for the year ended December 31, 1998 since the Company (i) has no other
   comprehensive income and (ii) operates only in one segment and all long-lived
   assets are located in the U.S., the Company's country of domicile.

   In June 1998, the Financial Accounting Standards Board issued Statement of
   Financial Accounting Standards No. 133, "Accounting for Derivative
   Instruments and Hedging Activities" ("FAS 133").  FAS 133 establishes
   standards for accounting and disclosure of derivative instruments.  This new
   standard was effective for fiscal quarters of fiscal years beginning after
   June 15, 1999.  In June 1999, the FASB issued FAS No. 137, "Accounting for
   Derivative Instruments and Hedging Activities - Deferral of the Effective
   Date of FASB Statement No. 133," postponing FAS 133's effective date to
   fiscal quarters of fiscal years beginning after June 15, 2000.  The
   implementation of this new standard is not expected to have a material effect
   on the Company's results of operations or financial position.

4. Related-Party Transactions:

   The Company has contracted to sell newsprint to Dow Jones and The Washington
   Post.  The agreements have been extended through December 31, 2004 and are
   subject to the parties agreeing to pricing, which approximate market prices,
   on an annual basis.  Each of Dow Jones and The Washington Post is obligated
   to purchase a minimum of approximately 45,000 tons of newsprint per year
   under these agreements.  In addition, they have the option to purchase
   additional quantities of newsprint as available.

                                       11
<PAGE>

4. Related-Party Transactions, continued:


   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. ("Soucy, Inc."), an affiliated Canadian
   newsprint company 100% owned by Brant-Allen. 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 that 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 Companies received payments of approximately $234,100, $286,400, $21,200
   and $230,000 from Brant-Allen as reimbursement for expenses incurred on
   behalf of Brant-Allen during the years ended December 31, 1999 and 1998, the
   month ended December 31, 1997 and the eleven months ended November 30, 1997,
   respectively. Additionally, the Company received payments of approximately
   $137,200 and $21,800 from F. F. Soucy, Inc. for expenses incurred on behalf
   of F. F. Soucy, Inc. during the years ended December 31, 1999 and 1998,
   respectively.

   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. ("BITCO"), which was owned proportionately by the
   same partners of the Predecessor, whereby BITCO 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.  Pricing during the periods
   was as follows:

                                                             Eleven Months
                                                                 Ended
                                                             November 30,
                                                                 1997

     Actual                                                     $95.50

     Market                                                 $60.00 to $66.00

                                       12
<PAGE>

4. 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.
   ("Timberlands"), the successor to BITCO resulting from the purchase by Brant-
   Allen of the 70% interest in BITCO 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 year ended
   December 31, 1998 and the one month ended December 31, 1997, the Company
   purchased approximately $2,929,500 and $1,637,000 from Timberlands under the
   wood supply contract, respectively. Effective December 1, 1998, the Company
   is purchasing all of its logs and pulp chips from outside suppliers at market
   prices.

   Prior to December 1, 1997, the Predecessor had contracted to pay BITCO a fee
   on a per ton basis for procuring recycled paper, of $24.31 for the eleven
   months ended November 30, 1997, respectively. 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 BITCO for the same period was
   $213,000.

   The Companies charged Timberlands and BITCO for certain administrative and
   other expenses. These charges approximated $1,024,000, $782,000, $60,000 and
   $1,319,000 during the years ended December 31, 1999 and 1998, the one month
   ended December 31, 1997 and the eleven months ended November 30, 1997,
   respectively. The Companies also paid Timberlands approximately $62,500 and
   $5,300 and BITCO $55,000 during the year ended December 31, 1998, the one
   month ended December 31, 1997 and the eleven months ended November 30, 1997,
   respectively, for managing their timberlands.

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

<TABLE>
<CAPTION>
                                                                 December 31,
                                                          -------------------------
                                                             1999            1998
    <S>                                                   <C>               <C>
    Due from Brant-Allen                                  $   91,309     $   20,010
    Due from Newsprint Sales                                 339,545      1,205,553
    Due from Dow Jones                                     2,172,968      2,369,136
    Due from Timberlands                                           -         80,586
    Due from F. F. Soucy, Inc. and Partners                   10,964         52,181
    Due from F. F. Soucy, Inc.                                 2,497              -
    Due to Timberlands                                        11,791              -
    Due to F. F. Soucy, Inc.                                       -         78,192
</TABLE>

                                       13
<PAGE>

4. Related-Party Transactions, continued:

<TABLE>
<CAPTION>
                                             Year                Year             One Month          Eleven Months
                                            Ended               Ended               Ended                Ended
                                         December 31,        December 31,        December 31,        November 30,
                                             1999                1998                1997                1997
                                         ------------        ------------        ------------        -------------
    <S>                                  <C>                 <C>                 <C>                 <C>
    Net sales to Dow Jones               $ 21,104,938        $ 26,327,457        $  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 20%, 22%, 18% and 22% of total
   sales during the years ended December 31, 1999 and 1998, the one month ended
   December 31, 1997 and the eleven months ended November 30, 1997,
   respectively. 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.

5. Inventories:

   Inventories consisted of:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                 ---------------------------------
                                                                                      1999                 1998
    <S>                                                                          <C>                  <C>
    Raw materials                                                                $  2,375,910         $  3,908,772
    Stores                                                                          8,083,267            8,759,809
    Finished goods                                                                  2,516,105            1,159,243
                                                                                 ------------         ------------

                                                                                 $ 12,975,282         $ 13,827,824
                                                                                 ------------         ------------
</TABLE>

                                       14
<PAGE>

6. Property, Plant and Equipment:

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

<TABLE>
<CAPTION>
                                                                    December 31,
                                                         --------------------------------
                                                               1999               1998
    <S>                                                  <C>                <C>
    Land                                                 $   1,548,847      $   1,548,847
    Timberlands                                              1,568,972          3,569,236
    Building                                                28,412,280         28,412,280
    Machinery and equipment                                169,217,500        162,176,778
    Construction in progress                                 1,740,350          5,911,819
                                                         -------------      -------------

                                                           202,487,949        201,618,960
    Less accumulated depreciation and depletion            (21,428,569)       (10,841,783)
                                                         -------------      -------------

                Total                                    $ 181,059,380      $ 190,777,177
                                                         -------------      -------------
</TABLE>

   During the year ended December 31, 1998, the Company recorded charges for a
   net loss of $1,204,076 and 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 certain operating assets in connection with
   increasing the capacity of the recycling equipment. The charges are included
   in cost of sales in the accompanying statements of operations.

   During 1999, the Company sold a portion of its timberlands for approximately
   $2.7 million and recognized a gain on the sale of $698,000 which is included
   in other income in the 1999 statement of operations.

                                       15
<PAGE>

7. Long-Term Debt:

   Long-term debt consisted of:

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                    -------------------------------
                                                                                       1999                1998
    <S>                                                                             <C>                <C>
    Senior Secured Notes bearing interest at 10% (interest payable
        semi-annually commenced June 1, 1998); due 2007                             $100,000,000       $100,000,000

    Term Loan Facility bearing interest at 9.09% and 8.25% at December 31, 1999
        and 1998, respectively (interest payable quarterly); principal of
        $175,000 due in 31 quarterly payments commenced March 31, 1998;
        remaining balance due December 31, 2005                                       19,033,276         69,300,000

    $25 million Revolving Credit Facility bearing interest at LIBOR plus 2.75%
        (8.84% and 8.31% at December 31, 1999 and 1998, respectively) for
        $20,000,000 and interest due monthly; prime plus 1.75% (10.25% and 9.5%
        at December 31, 1999 and 1998, respectively) for the remainder in excess
        of $20,000,000 and interest due quarterly; due December 31, 2003              19,000,000         15,000,000
                                                                                    ------------       ------------

                                                                                     138,033,276        184,300,000
    Less current portion                                                                 700,000            700,000
                                                                                    ------------       ------------

               Total long-term debt                                                 $137,333,276       $183,600,000
                                                                                    ------------       ------------
</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 which was previously owned by certain subsidiaries of Dow Jones
   and The Washington Post.

   During 1999, Timberlands sold the majority of its timberlands and distributed
   a portion of the proceeds of Brant-Allen. In turn, Brant-Allen made capital
   contributions to the Company of $47,350,000 which were used towards the
   retirement of approximately $49,600,000 on the Term Loan. In connection with
   this process, unamortized financing costs of $1,006,000 were written off and
   recorded as an extraordinary item in the 1999 statement of operations. In
   addition, the amounts available under the Revolving Loans were reduced from
   $50 million to $25 million effective November 23, 1999.

   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.

                                       16
<PAGE>

7. Long-Term Debt, continued:

   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                      103.333%
                2003                      101.667
          2004 and thereafter             100.000

   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 Revolving Loans bear interest at prime plus 1.75% or LIBOR
   plus 2.75%, at the option of the Company and mature on December 31, 2003.

   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 Timberlands and
   (iii) a second priority security interest in 65% of the issued and
   outstanding capital stock of Soucy Inc. ("Soucy Collateral") behind a shared
   first lien. The remaining 35% of the issued and outstanding capital stock of
   Soucy Inc. cannot be assumed, pledged, hypothecated, transferred or otherwise
   disposed by Brant-Allen without the consent of the required lenders. 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. Effective December 1, 1999, the
   Company's total committed debt fell below the $145 million threshold and the
   Soucy Collateral was released and all of the covenants and other provisions
   of the Notes with respect to Soucy, Inc. were terminated.

                                       17
<PAGE>

7. Long-Term Debt, continued:

   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 Timberlands. The Term Loan and Revolving Loan are
   guaranteed by Brant-Allen. Effective December 1, 1999, the shared first
   priority security interest in 65% of the common stock of Soucy Inc. was
   released as collateral on the Term Loan and Revolving Loans.

   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, transactions with affiliates, and
   sale of assets. Furthermore under the Notes, the Company is not permitted to
   pay management fees to Brant-Allen that exceed 3% of the Company's annual
   revenues. Only one-third of this payment may be in cash.

   The fair values of the Term Loan and Revolving Loan approximate carrying
   values at December 31, 1999 and 1998. The fair value of the Notes was
   $97,750,000 at December 31, 1999 and approximated carrying value at December
   31, 1998.

   Maturities on long-term debt for the four years after 2000 are approximately
   as follows: 2001 - $700,000; 2002 - $700,000; 2003 -$19,700,000; 2004 -
   $700,000; and thereafter - $115,500,000.

8. Long-Term Purchase Obligations:

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

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                     ---------------------------
                                                                       1999              1998
     <S>                                                             <C>               <C>
     Long-term purchase obligations bearing interest at various
        rates ranging from approximately 7% to 8%; with
        principal payments ending in 2001                            $ 257,814         $ 646,163
     Less current portion                                              130,566           384,693
                                                                     ---------         ---------

                                                                     $ 127,248         $ 261,470
                                                                     ---------         ---------
</TABLE>

   Payments on long-term purchase obligations for 2001 is approximately
$128,000.

                                       18
<PAGE>

9.  Environmental Letters of Credit:

    In accordance with requirements of the Virginia Department of Environmental
    Quality, the Company has outstanding irrevocable standby letters of credit
    of $430,000, $70,000 and $103,000 to cover potential closure and post-
    closure costs associated with the Company's landfills.

10. Derivative Financial Instruments:

    At December 31, 1998, the Company had outstanding a variable to fixed
    interest rate swap with a notional value of $60 million, with a term of five
    years maturing December 5, 2002. Under the terms of this agreement, the
    Company paid a fixed interest rate of 6.13% and received a variable rate
    based on 3-month London Interbank Offered Rates ("LIBOR") (5.25% at December
    31, 1998). In October 1999, the interest rate swap was terminated and a gain
    of $150,000 was recognized as a result of the termination.

11. 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 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 years ended December 31, 1999 and 1998, 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.

    The Companies' expense for both plans approximated $1,242,000, $1,238,000,
    $95,000 and $1,138,000 for the years ended December 31, 1999 and 1998, the
    one 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,
    1999 and 1998.

                                       19
<PAGE>

                        VALUATION AND QUALIFYING ACCOUNTS
                       BEAR ISLAND PAPER COMPANY, L.L.C.&
                         BEAR ISLAND PAPER COMPANY, L.P.
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                          ADDITIONS
                                                   BALANCE AT      CHARGED TO    CHARGED TO
                                                  BEGINNING OF     COSTS AND       OTHER                         BALANCE AT
DESCRIPTION                                          PERIOD         EXPENSES      ACCOUNTS       DEDUCTIONS     END OF PERIOD
-----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>           <C>             <C>           <C>
BEAR ISLAND PAPER COMPANY, L.L.C.:

YEAR ENDED DECEMBER 31, 1999

ALLOWANCE FOR DOUBTFUL ACCOUNTS
(DEDUCTED FROM ACCOUNTS RECEIVABLE)                        $73           -                -            ($5)a              $68

ALLOWANCE FOR STORES OBSOLESCENCE
(DEDUCTED FROM STORES INVENTORY)                          $477            $63             -               -              $540
                                                          ----           ----          ----            ----              ----
                                                          $550            $63             -               -              $608
                                                          ====           ====          ====            ====              ====

RESERVE FOR CAPPING OF LANDFILL                           $574           ($10)            -            ($9)b             $555

RESERVE FOR WORKMAN'S COMPENSATION CLAIMS                  $20              -             -               -               $20
                                                          ----           ----          ----            ----              ----
                                                          $594           ($10)            -            ($9)              $575
                                                          ====           ====          ====            ====              ====


YEAR ENDED DECEMBER 31, 1998

ALLOWANCE FOR DOUBTFUL ACCOUNTS
(DEDUCTED FROM ACCOUNTS RECEIVABLE)                        $73           -                -              -                $73

ALLOWANCE FOR STORES OBSOLESCENCE

(DEDUCTED FROM STORES INVENTORY)                          $152        $325                -              -               $477
                                                          ----        ----             ----           ----               ----
                                                          $225        $325                -              -               $550
                                                          ====        ====             ====           ====               ====
RESERVE FOR CAPPING OF LANDFILL                           $536         $70                -           ($32)b             $574

RESERVE FOR WORKMAN'S COMPENSATION CLAIMS                 $160           -                -          ($140)c              $20
                                                          ----        ----             ----           ----               ----
                                                          $696         $70                -          ($172)              $594
                                                          ====        ====             ====           ====               ====
ONE MONTH ENDED DECEMBER 31, 1997

ALLOWANCE FOR DOUBTFUL ACCOUNTS
(DEDUCTED FROM ACCOUNTS RECEIVABLE)                        $73           -                -              -                $73

ALLOWANCE FOR STORES OBSOLESCENCE
(DEDUCTED FROM STORES INVENTORY)                          $269        $152                -          ($269)d             $152

ALLOWANCE FOR COAL INVENTORY
(DEDUCTED FROM RAW MATERIAL INVENTORY)                    $150       ($150)               -              -                 $0
                                                          ----        ----             ----           ----               ----
                                                          $419          $2                -          ($269)              $225
                                                          ====        ====             ====           ====               ====

RESERVE FOR CAPPING OF LANDFILL                           $532          $6                -            ($2)b             $536

RESERVE FOR WORKMAN'S COMPENSATION CLAIMS                 $160           -                -              -               $160
                                                          ----        ----             ----           ----               ----
                                                          $692          $6                -            ($2)              $696
                                                          ====        ====             ====           ====               ====
BEAR ISLAND PAPER COMPANY, L.P.:

ELEVEN MONTHS ENDED NOVEMBER 30, 1997

ALLOWANCE FOR DOUBTFUL ACCOUNTS
(DEDUCTED FROM ACCOUNTS RECEIVABLE)                        $73           -                -              -                $73

ALLOWANCE FOR STORES OBSOLESCENCE
(DEDUCTED FROM STORES INVENTORY)                          $228         $41                -              -               $269

ALLOWANCE FOR COAL INVENTORY
(DEDUCTED FROM RAW MATERIAL INVENTORY)                    $150           -                -              -               $150
                                                          ----        ----             ----           ----               ----
                                                          $451         $41                -              -               $492
                                                          ====        ====             ====           ====               ====

RESERVE FOR CAPPING OF LANDFILL                           $237        $312                -           ($17)b             $532

RESERVE FOR SLUDGE LAND APPLICATION                        $10           -                -           ($10)e               $0

RESERVE FOR OSHA CITATION                                  $33           -                -           ($33)f               $0

RESERVE FOR WORKMAN'S COMPENSATION CLAIMS                 $160           -                -              -               $160
                                                          ----        ----             ----           ----               ----
                                                          $440        $312                -           ($60)              $692
                                                          ====        ====             ====           ====               ====

</TABLE>

a) WRITE OFF OF ACCOUNTS RECEIVABLE
b) PAYMENTS FOR CAPPING AND MAINTENANCE OF LANDFILL CELLS
c) WRITE DOWN OF RESERVE FOR LACK OF POTENTIAL CLAIMS FROM PAST YEARS
d) ELIMINATION OF STORES INVENTORY RESERVE UPON ALLOCATION OF PURCHASE PRICE
   ADJUSTMENT TO PURCHASED ASSETS
e) PAYMENTS FOR THE APPLICATION OF SLUDGE FROM HOLDING TANKS
f) PERIODIC WRITE DOWN OF OHSA CITATION RESERVE PER AGREEMENT