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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004

OR

Commission file number: 333-42201

BEAR ISLAND PAPER COMPANY, L.L.C.

(Exact name of registrant as specified in its charter)

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  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Not Applicable.

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BEAR ISLAND PAPER COMPANY, L.L.C.

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PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

BEAR ISLAND PAPER COMPANY, L.L.C.

CONDENSED BALANCE SHEETS

See accompanying notes to the condensed financial statements.

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BEAR ISLAND PAPER COMPANY, L.L.C.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to the condensed financial statements.

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BEAR ISLAND PAPER COMPANY, L.L.C.

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to the condensed financial statements.

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BEAR ISLAND PAPER COMPANY, L.L.C.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

The results of operations for the six-month period ended June 30, 2004 should not be regarded as necessarily indicative of the results that may be expected for the entire year.

In the past Brant-Allen Industries, Inc. (“Brant-Allen”) made subordinated loans to the Company aggregating $15 million. In December 2003 recognizing the Company’s need for additional equity capital, Brant-Allen converted these loans to equity. Although not legally committed, Brant-Allen has indicated its willingness to continue to support the Company. On January 5, 2004, the Company fully drew down its available borrowings under the Company’s 6-year Senior Secured Reducing Revolving Credit Facility (the “Revolving Credit Facility”) in connection with the refinancing of the Facility. As of June 30, 2004, the Company had no additional borrowing capacity under the Revolving Credit Facility. However, the Company has the ability to access approximately $6.7 million of additional capital equipment financing through the use of certain leasing options. Based on current market conditions, management anticipates being able to meet liquidity requirements for 2004; however, there exists a range of reasonably possible outcomes which could significantly impact the ability to achieve the aforementioned.

A component of selling, general and administrative expenses as shown on the statements of operations includes aggregate management fees charged by Brant-Allen. The management fees payable to Brant-Allen are calculated pursuant to the Management Services Agreement and constitute 1% of the Company’s net sales, of which 100% is payable in cash.

There are also certain restrictions on distributions paid to Brant-Allen. Distributions are allowed for a portion of profits in excess of certain amounts.

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BEAR ISLAND PAPER COMPANY, L.L.C.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Inventories consisted of:

On January 5, 2004, the Bank Credit Facility was refinanced with a financial lending institution at a rate of Libor plus a margin of 5.0%, this margin is adjustable downward upon the achievement in the future of certain financial operating results. See Fourth Amendment to the Bank Credit Agreement dated January 5, 2004 (the “Amendment”), filed as Exhibit 10.1d to the Company’s Annual Report. The Revolving Credit Facility and Term Loan Facility mature on September 30, 2007.

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ITEM II.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of certain significant factors affecting the results of operations of the Company during the periods included in the accompanying condensed statements of operations and the changes in the Company’s financial condition since December 31, 2003.

General:

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 which 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 Company’s 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.

THREE MONTHS ENDED JUNE 30, 2004, COMPARED TO THREE MONTHS ENDED JUNE 30, 2003

Net sales increased by $5.3 million, or 20%, to $31.9 million in the second quarter of 2004, from $26.6 million in the second quarter of 2003. This increase was attributable to an 8% increase in sales volumes to approximately 61,100 metric tons (“tonnes”) in the second quarter 2004, from approximately 56,800 tonnes in the second quarter of 2003 and by a 12% increase in the average net selling price of the Company’s products. The Company’s net selling price for newsprint increased to an average of $521 per tonne in the second quarter of 2004 from an average of $467 per tonne in the second quarter of 2003.

Cost of sales decreased by $3.0 million, or 11%, to $29.6 million in the second quarter of 2004 from $26.6 million in the second quarter of 2003. This increase was attributable primarily to an 8% increase in sales volumes as stated above and a 3% increase in the unit manufacturing costs per tonne. The increase in unit manufacturing cost per tonne was primarily the result of a 12% increase in the cost per tonne of fiber. Cost of sales as a percentage of net sales decreased to 93% in the second quarter of 2004, from 100% in the second quarter of 2003, due to an increase in newsprint selling prices in the second quarter of 2004 offset in part by the increase in unit costs of manufacturing as noted above.

The Company’s selling, general and administrative expenses were unchanged at $0.3 million, in the second quarter of 2004 from the second quarter of 2003.

As a result of the above factors, income from operations increased by $2.3 million to income of $1.9 million in the second quarter of 2004 from a loss of $0.4 million in the second quarter of 2003.

The Company’s interest expense decreased $0.2 million, or 6%, to $3.4 million in the second quarter of 2004 compared to $3.6 million in the second quarter of 2003, primarily due to a one time retroactive interest charge of $0.4 million in the second quarter 2003 and by reductions in floating interest rates, offset in part by additional borrowings under the outstanding Revolving Credit Facility.

Other income decreased by $0.7 million, to $ 0 in the second quarter of 2004 from $0.7 million in the second quarter of 2003 primarily due to insurance proceeds on an involuntary conversion in the second quarter 2003.

As a result of the above factors, the Company reported a net loss of $1.4 million in the second quarter of 2004 compared to net loss of $3.3 million in the second quarter of 2003.

SIX MONTHS ENDED JUNE 30, 2004, COMPARED TO SIX MONTHS ENDED JUNE 30, 2003

Net sales increased by $8.7 million, or 17%, to $60.3 million in the first six months of 2004, from $51.6 million in the first six months of 2003. This increase was primarily attributable to a 4% increase in sales volumes to approximately 117,300 tonnes in the first six months of 2004 from approximately 112,600 tonnes in the first six months of 2003 and a 12% increase in the average net selling price of the Company’s products. The Company’s net selling price for newsprint increased to an average of $514 per tonne in the first six months of 2004 from an average of $459 per tonne in the first six months of 2003.

Cost of sales increased by $3.6 million, or 7%, to $57.1 million in the first six months of 2004 from $53.5 million in the first six months of 2003. This increase was attributable primarily to the 4% increase in sales volumes mentioned above and by a 3% increase in unit manufacturing costs per tonne. The increase in unit manufacturing cost per tonne was primarily the result of an 11% increase in the cost per tonne of fiber. Cost of sales as a percentage of net sales decreased to 95% in the first six months of 2004, from 103% in the first six months of 2003, due to a net increase in newsprint selling prices in the first six months of 2004 this was offset, in part, by an increase in the per unit cost of manufacturing as noted above.

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The Company’s selling, general and administrative expenses increased by $0.1 million, or 17%, to $0.7 million in the first six months of 2004 compared to $0.6 million in the first six months of 2003, primarily due to the increased management fee paid to Brant-Allen which is calculated as a percent of net sales.

As a result of the above factors, income from operations increased by $4.9 million to income of $2.5 million in the first six months of 2004 from a loss of $2.4 million in the first six months of 2003.

The Company’s interest expense increased $0.1 million, or 1%, to $6.9 million in the first six months of 2004 compared to $6.8 million in the first six months of 2003, primarily due to additional borrowings under the Revolving Credit Facility offset in part by the one time retroactive interest charge of $0.4 million in 2003 and by market reductions in floating interest rates.

Other income decreased by $0.7 million to $ 0 in the first six months of 2004 from $0.7 million in the first six months of 2003 primarily due to insurance proceeds on an involuntary conversion in the second quarter 2003.

As a result of the above factors, the Company reported a net loss of $4.3 million in the first six months of 2004 compared to net loss of $8.4 million in the first six months of 2003.

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, loans under the Company’s Revolving Credit Facility and/or additional borrowings from Brant-Allen.

The Company’s cash and short-term investments at June 30, 2004 were $5.5 million, representing an increase of $3.0 million from $2.5 million at December 31, 2003. Net cash provided by operating activities was $4.1 million for the six months ended June 30, 2004. Net cash provided by financing activities was $0.2 million and cash used in investing activities was $1.3 million for the six months ended June 30, 2004. The Company anticipates that cash provided from operations in the future combined with borrowings allowed under the Bank Credit Facility will be sufficient to pay its operating expenses, satisfy debt-service obligations and fund capital expenditures.

In the first six months of 2004, the Company’s operating cash flow increased by $3.0 million to $4.0 million provided by operations from $1.0 million provided by operations in the first six months of 2003, primarily due to higher selling prices of the Company’s products resulting in a decreased net loss in first six months of 2004 of $4.3 million compared to net loss of $8.4 million in the first six months of 2003.

The Company made capital expenditures of $1.3 million and $2.0 million in the first six months of 2004 and 2003, respectively, in connection with upgrading and maintaining its manufacturing facility. Management anticipates that the Company’s total capital expenditures for the balance of 2004 and 2005 will primarily relate to existing capital projects in progress and maintenance of its newsprint facilities.

At June 30, 2004, the Company had approximately $142.6 million of indebtedness, consisting of borrowings of $25.0 million under the Revolving Credit Facility, $17.4 million under the Term Loan Facility, $100 million under the Notes and $0.2 million under capital lease obligations. At June 30, 2004, the Company had no available borrowing capacity under the Revolving Credit Facility.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the information relating to quantitative and qualitative disclosures about market risk that was provided in the Annual Report.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, such officers have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information relating to the Company required to be disclosed by the Company in reports that it files or submits under the Exchange Act.

(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Effective April 25, 2004, Michael Conroy resigned from the Board of Directors and was replaced by Thomas M. Geiger.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 31.2 – Certification of the Chief Financial Officer of the Company pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Exchange Act.

Exhibit 32.1 – Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 – Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

Dated August 5, 2004

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