SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
           For the transition period from ___________ to ____________

                            Commission File No. 0-795

                            BADGER PAPER MILLS, INC.
             (Exact name of registrant as specified in its charter)


         200 West Front Street                          WISCONSIN
              P.O. Box 149                      (State of incorporation)
     Peshtigo, Wisconsin 54157-0149                    39-0143840
(Address of principal executive office)  (I.R.S. Employer Identification Number)

       Registrant's telephone number, including area code: (715) 582-4551

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                   Common Stock, Without Nominal or Par Value


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

As of March 13, 2000, 1,974,168 shares of common stock were outstanding, and the
aggregate market value of the common stock (based upon the closing sale price of
the  shares  on  the  Nasdaq  National  Market)  held  by   non-affiliates   was
approximately  $11,598,237.  Determination  of stock ownership by affiliates was
made solely for the purpose of responding to this requirement, and registrant is
not bound by this determination for any other purpose.

                       DOCUMENTS INCORPORATED BY REFERENCE

The Company's  Proxy Statement for its 2000 Annual Meeting of Shareholders to be
filed  with the  Commission  under  Regulation  14A is  herein  incorporated  by
reference  into Part III of this Form 10-K to the extent  indicated  in Part III
hereof.

                                       1
<PAGE>

Statement Regarding Forward-Looking Information

This Form 10-K, each of the Company's annual report to  shareholders,  Forms 8-K
and 10-Q, proxy  statements,  and any other written or oral statement made by or
on behalf of the Company  subsequent to the filing of this Form 10-K may include
one or more  "forward-looking  statements" within the meaning of Sections 27A of
the  Securities  Act of 1933 and 21E of the  Securities  Exchange Act of 1934 as
enacted in the Private  Securities  Litigation  Reform Act of 1995 (the  "Reform
Act").  In making  forward-looking  statements  within the meaning of the Reform
Act, the Company  undertakes no obligation to publicly update or revise any such
statement.

Forward-looking  statements of the Company are based on information available to
the  Company  as of the  date of  such  statements  and  reflect  the  Company's
expectations  as of such date, but are subject to risks and  uncertainties  that
may cause actual  results to vary  materially.  In addition to specific  factors
which may be described in connection  with any of the Company's  forward-looking
statements,  factors  which  could  cause  actual  results to differ  materially
include, but are not limited to the following:

o     Increased  competition  from either domestic or foreign paper producers or
      providers of alternatives to the Company's  products,  including increases
      in  competitive  production  capacity,  resulting in sales  declines  from
      reduced  shipment  volume  and/or  lower  net  selling  prices in order to
      maintain shipment volume.

o     Changes  in demand for the  Company's  products  due to  overall  economic
      activity  affecting  the  rate  of  consumption  of  the  Company's  paper
      products,  growth  rates of the end  markets for the  Company's  products,
      technological  or  consumer  preference  changes  and  acceptance  of  the
      Company's products by the markets served by the Company.

o     Changes in the price of pulp, the Company's main raw material.  All of the
      Company's  pulp needs are  purchased on the open market and price  changes
      for pulp have a  significant  impact on the  Company's  costs.  Pulp price
      changes can occur due to changes in worldwide  consumption levels of pulp,
      pulp capacity additions,  expansions or curtailments  affecting the supply
      of pulp,  inventory  building or depletion at pulp  consumer  levels which
      affect short-term  demand,  and pulp producer cost changes related to wood
      availability, environmental issues and other variables.

o     Unforeseen operational problems at any of the Company's facilities causing
      significant lost production and/or cost issues.

o     Changes in laws or regulations which affect the Company.


                                       2
<PAGE>

  Five-Year Comparison of Selected Financial Data
<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                    1999           1998            1997           1996           1995
                                                    ----           ----            ----           ----           ----
 Earnings (in thousands):
<S>                                                 <C>            <C>             <C>            <C>            <C>
   Net sales                                        $67,024        $65,727         $70,427        $76,276        $92,648
   Cost of sales                                     60,336         58,505          67,600         72,411         83,890
   Gross profit                                       6,688          7,222           2,827          3,865          8,758
   Selling and administrative expenses                4,825          4,331           4,085          4,136          3,852
   Restructuring provision                                -              -             850          7,430            504
   Pulp mill impairment charge                            -              -             783              -              -
   Profit (loss) from operations                      1,863          2,891          (2,891)        (7,701)         4,402
   Other income                                         617            946             650          4,842            414
   Interest expense                                   1,064          1,196           1,354            894          1,305
   Unrealized holding gain or (loss)
      on trading securities                               -              -               -            307            549
   Earnings (loss) before income taxes                1,416          2,641          (3,595)        (3,446)         4,060
   Income tax expense (benefit)                         279            897          (1,153)        (1,234)         1,312
   Net earnings (loss)                                1,137          1,744          (2,442)        (2,212)         2,748

Common stock:
   Number of shareholders of record                     434            470             515            518            568
   Weighted average shares outstanding            1,966,111      1,955,772       1,947,128      1,944,699      1,953,868
    Earnings (loss) per share                          $.58          $0.89          $(1.25)        $(1.14)         $1.41
    Cash dividends declared per share                     -              -            $  -         $ 0.22          $0.10
    Book value per share                              $9.91          $9.33           $8.42          $9.68         $11.04

Financial position (in thousands)
  Working capital                                    $8,259         $7,346          $7,196         $9,923        $10,459
   Capital expenditures                               2,815          3,004           4,686          6,856          2,705
   Total assets                                      46,894         47,999          48,356         51,952         52,578
   Long-term debt                                    15,705         16,126          20,394         18,617         17,236
   Shareholders' equity                              19,484         18,257          16,444         18,832         21,443
</TABLE>


                                       3
<PAGE>

PART I

Item 1. Business

Badger Paper Mills, Inc.  ("Badger" or the "Company") was incorporated under the
laws of the State of Wisconsin in 1929. It has been producing  paper for over 70
years.  Badger  operates  in two  industry  segments:  the  production  of paper
products segment, and the printing and converting segment.

Products and Distribution

Badger's ISO 9001 certified  paper mill,  consisting of two paper  machines,  is
located  in  Peshtigo,  Wisconsin.   Converting  facilities  contiguous  to  the
papermaking facilities include punching equipment,  sheeters, trimmers, sealers,
perforators,  rewinders,  waxers,  paper  drilling  and  die-cutting  equipment.
Badger's  flexographic  printing and  converting  operation is located in Oconto
Falls, Wisconsin.

Products produced on Badger's  Fourdrinier machine represented 78 percent of the
paper products  manufactured  by the Company in 1999, and sale of paper products
produced on this machine contributed more than 69 percent of 1999 revenue.  Fine
paper  grades  are  produced  utilizing  fiber  purchased  on the  open  market,
including pre- and  post-consumer  recycled  fibers.  These paper grades include
multi-purpose  business papers,  offset,  opaque,  endleaf,  ledger, reply card,
watermarked,  water-oil-grease  resistant papers (WOGR),  electrostatic  copier,
text and cover, and technical and specialty  papers.  Badger offers a wide range
of colored papers and specializes in color  matching.  Badger sells a portion of
these products under certain trademarks and trade names, including Ta-Non-Ka(R),
Copyrite(R),  ENVIROGRAPHIC(R),  Northern  Brights(R),  Artopaque(R),  Marks  of
Distinction(R) and DuraEdge(R). These products are sold through paper merchants,
brokers  and  value-added  converters  who in turn  sell to  other  value-adding
entities or direct to the consumer.

The  Company's  Yankee  machine  produced  22  percent  of  the  paper  products
manufactured by Badger in 1999, representing 31 percent of the 1999 revenue from
the sale of paper products. These products consist of converted plain or printed
waxed papers, laminating grades, machine-glazed,  colors,  specialty-coated base
papers,  twisting papers and various other specialty papers.  These products are
sold nationally and  internationally to manufacturers,  consumers and converters
by Badger's own sales personnel and commissioned brokers.

Consumers  of  Badger's  paper  products  can be  found  in  population  centers
throughout North America.

The Company's  Oconto Falls,  Wisconsin  facility has a printing and  converting
operation that  compliments  Badger's  packaging paper  products.  This facility
processes various  substrates of film and paper and enhances the capabilities of
the Peshtigo  packaging paper  operations,  resulting in opportunities to expand
business growth for both. The facility also has rewinding and  polyethylene  bag
making  equipment.   Oconto  Falls  contributed  13  percent  of  the  Company's
consolidated revenues in 1999.


                                       4
<PAGE>

Competition

Badger's  manufactured  paper products are highly  sensitive to competition from
numerous  sources,   including  other  paper  products  and  products  of  other
composition.  Product  quality,  price,  volume and service are all  competitive
factors.  Badger's  production of fine papers from the Fourdrinier paper machine
represents less than one percent of the production capacity in the United States
for these  products.  Competition  for these papers comes  primarily  from large
mills in North  America  and  imports  from  other  countries.  Competition  for
flexible  packaging and specialty  papers produced from the Yankee paper machine
comes from other specialty mills; some of the mills are similarly constituted as
Badger,  others  have  greater  capacity.  Many of our larger  competitors  have
greater financial,  technical,  marketing and public relation resources,  larger
client bases and greater  brand or name  recognition  than Badger.  Backlogs are
maintained  by  offering   quality   products,   prompt  service  and  technical
assistance, including a research and development program to develop new products
to meet customer product design specifications.

Raw Materials; Inventories

Badger's  principal  raw material used for  papermaking  operations is purchased
pulp.  Badger utilizes a variety of fibers to meet the formulation  requirements
of the  papers  it  produces.  Pre-consumer  and  post-consumer  recycled  pulp,
northern and southern  softwood and hardwood pulps, and hard white rolls make up
the total fiber requirements. Badger purchases all its fiber requirements on the
open market.

Other raw materials are purchased  directly from manufacturers and distributors.
Badger  has at least  two  sources  of  supply  for major  items.  Shortages  of
purchased pulp or certain  chemicals  (including  petrochemicals)  could have an
adverse  effect on  Badger's  ability to  manufacture  its  products,  and could
adversely affect product mix.

The  printing  and  converting  operations'  primary  raw  materials  are paper,
polyethylene and printing inks. They are purchased directly from  manufacturers,
including paper purchases from the Peshtigo mill.

In-process  and finished  goods  inventory at the end of 1999 was  equivalent to
approximately 44 days of production, compared to 38 days in 1998.

Energy

Badger  is  a  large  consumer  of  electricity  and  natural  gas.   Electrical
requirements  are  purchased  from local  public  utilities,  and natural gas is
purchased  from various  sources in the United  States and Canada.  The Peshtigo
facility's heat requirements are supplied by two dual-fueled  boilers capable of
burning natural gas or fuel oil, and one natural gas boiler. Management believes
current  sources of natural gas, fuel oil and  electricity  are adequate to meet
Badger's needs,  although  temporary  interruptions  of electrical  service were
experienced  in the  summer of 1999 due to  regional  shortages  of  electricity
during peak demand periods. Badger could experience similar interruptions in the
future.

Patents

Badger owns certain  patents and licenses used in connection  with its business,
none of which are individually considered material to its business.


                                       5
<PAGE>

Research and Development

Badger  maintains  a  dedicated  technical  staff to  research  and  develop new
products,  although  outside  consultants  are utilized  from time to time.  The
technical  staff also  refines  and  improves  existing  products in response to
customer  requirements and market demands. The amounts spent on product research
and  development  activities  were  $2,089,000 in 1999,  $2,971,000 in 1998, and
$5,287,000  in 1997.  The  significant  increase  in  research  and  development
expenditures in 1997 was related to new product introductions and development of
specialty  products  associated  with the 1997  strategic  initiative to refocus
Badger as a producer of specialty  paper products  rather than  commodity  paper
products.

Backlog

As  of  December  31,  1999,   Badger's  backlog  of  orders  was  approximately
$2,566,000,  as compared to $2,106,000  and  $3,550,000 at December 31, 1998 and
1997, respectively. The backlogs for 1999 and 1998 were reduced from prior years
because  soft market  conditions  that existed at the end of each of these years
allowed customers to reduce inventories and order closer to their actual needs.

Customers

In 1999, 1998 and 1997, no customers represented over 10 percent of Badger's net
sales.

Environmental Matters

In 1999, the Wisconsin  Department of Natural Resources ("WDNR") met with Badger
several times to determine the  finalization of the Title V Air Operating Permit
at  Badger's  Peshtigo,  Wisconsin  facility.  The final  draft of the permit is
complete and is submitted to the WDNR for final  approval.  Badger expects to be
able to fully comply with the requirements of the permit as currently drafted.

Effluent  flow  from  Badger's  Peshtigo  operations  is  directed  into a joint
municipal waste water treatment plant, which Badger operates under contract with
the City of Peshtigo, Wisconsin.  Management believes this water treatment plant
continues to meet or exceed all currently applicable environmental requirements.

Construction  requirements  necessary  for the closure of the  Company's  former
landfill,  known as the Harbor Road Landfill, were completed in December,  1999.
The final closure report was submitted to the WDNR in January,  2000. As part of
the  closure   agreement,   the   Company  is  required  to  provide   proof  of
responsibility for any future remediation efforts if environmental  problems are
detected  at this site.  This  amount  increases  over a  five-year  period from
$53,000 as of July 31,  1999 to $297,000  as of July 31,  2003.  The Company met
this  requirement as of December 31, 1999 with an  irrevocable  letter of credit
granted to the benefit of WDNR in the amount of $53,000.

Management believes the Oconto Falls, Wisconsin facility currently complies with
its air operating permit.

Badger believes it has in force all of the necessary  environmental permits from
federal,  state and local authorities,  and does not anticipate any problem with
reissuance of any permits.


                                       6
<PAGE>

Employees

As of December 31, 1999, the Company had 325 employees.  Of the 268 employees at
the  Peshtigo  facility,  171 were  covered by  six-year  collective  bargaining
contracts  running  through  May 2001.  The  Oconto  Falls  facility  employs 57
personnel, none of whom are covered by a collective bargaining contract.

Item 2. Properties

The Company's  approximately  3,750 square foot  headquarters and  approximately
88,500  square  foot paper  manufacturing  facility  are  located  in  Peshtigo,
Wisconsin.   The  Company's   approximately  40,000  square  foot  printing  and
converting facility is located in Oconto Falls, Wisconsin. The Company considers
its facilities to be adequate and in good repair.


Item 3. Legal Proceedings

The Company has no pending material legal proceedings.

Item 4. Submission of matters to a vote of security holders

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


PART II

Item 5. Market for the  registrant's  common stock and related  security  holder
matters.

Badger Paper Mills,  Inc. common shares are traded on the Nasdaq National Market
under the symbol BPMI.  There were 431 registered  shareholders  of record as of
March 13, 2000. Stock price and dividend information is found on page 35 of this
report.

Item 6. Selected financial data

Information  regarding  selected  financial  data of the Company is presented on
page 3 of this report.


Item 7. Management's discussion and analysis of financial condition and results
         of operations

Results of Operations

Overview

The printing and converting  segment  achieved record sales and earnings,  while
the paper products segment had flat sales and a 70 percent reduction in earnings
in 1999 when compared to 1998.


                                       7
<PAGE>

Printing and  converting  segment sales  improved  primarily  from the increased
volume of our tissue  wrap  business.  Improved  operating  efficiencies  on the
printing presses also contributed significantly to gross profit in this segment.

Weak  market  conditions  throughout  1999  resulted  in a slight  reduction  in
shipping  volume  and  relatively  flat  selling  prices in the  paper  products
segment. Market pressures prevented the Company from increasing its sales prices
sufficiently  to fully recover the costs  associated with increased pulp prices.
Therefore,  margins were  negatively  impacted by a 37 percent  increase in pulp
prices during 1999.  Additionally,  the operating  efficiency of our Fourdrinier
paper machine was adversely  affected  during the second half of the year by the
start-up and fine tuning of a new process  control  system.  The start-up issues
associated  with the new process  control system were resolved in December,  and
the Fourdrinier paper machine is now operating at anticipated efficiency.

On August 31, 1999, Badger Paper Mills Flexible  Packaging  Division,  Inc., our
former  wholly-owned  subsidiary that operated our Oconto Falls operations,  was
merged with and into the Company.


1999 vs. 1998

Net Sales
---------
Net sales for 1999  increased  $1,297,000,  or 2 percent,  to  $67,024,000  from
$65,727,000 in 1998.

Paper products' net sales were flat as weak market  conditions  continued during
1999. Paper products'  volume was down 3 percent,  while selling prices remained
relatively  flat.  Printing and converting  net sales  increased 70 percent over
1998 due to growth in the printing business in 1999.

Specialty  products were approximately 53 percent of gross sales dollars in both
1999 and 1998.


Cost of Sales
-------------
Cost of sales for 1999 of $60,336,000 increased $1,831,000 or 3 percent over the
$58,505,000 reported in 1998.

During the second  quarter of 1999,  market  prices for pulp,  the  primary  raw
material in the Company's  paper  manufacturing,  began to escalate.  This trend
continued  throughout  the  remainder of the year,  with average  year-end  1999
prices  increasing 37 percent over the average price of pulp at the end of 1998.
This pulp increase  contributed  over  $2,800,000 to the cost of sales for paper
manufacturing in 1999.

Production  rates on the  Fourdrinier  paper machine were down 9 percent in 1999
compared to 1998 because of first quarter  mechanical  problems and difficulties
associated with the installation of a new process control computer in July 1999.
The Yankee paper machine and all converting  operations had improved  production
rates over 1998.

The printing and converting  operations at Oconto Falls improved operating rates
through longer  production  runs,  reduced change time between  production runs,
improved  waste rates and the  elimination  of  mechanical  problems  previously
experienced on the Chadwick press.


                                       8
<PAGE>

Gross Profit
------------
Gross profit margins decreased to 10 percent of net sales for 1999,  compared to
11 percent in 1998.  The overall  decrease was due to a 22 percent  gross margin
drop in our paper  products  segment  caused by our  inability  to pass  rapidly
escalating  pulp  prices  through  to  our  customers  because  of  soft  market
conditions.

The printing and converting  segments' gross profit margin  increased 29 percent
due to improved operating efficiencies.


Selling and Administration
--------------------------
Selling and  administration  expenses of $4,825,000  increased $494,000 over the
$4,331,000 reported in 1998.

The increase resulted primarily from expenses associated with the reorganization
of sales  staffing  in the  paper  products  segment  to  provide  for a product
development  function within the sales department,  and an addition to the sales
staff.  Non-capitalizable  expenses  associated  with  upgrading  computers  and
software in  addressing  Year 2000  concerns  were  included  in  administration
expenses.


Other Income and Expense
------------------------
In the second quarter of 1999,  Badger Paper received $622,000 of life insurance
proceeds upon the death of a former  president of the Company in March 1999. The
proceeds  included  $231,000 of cash surrender  value carried as other assets on
our balance sheet, and $391,000 of non-recurring income.

In the second quarter of 1998, the Company recorded a non-recurring capital gain
of  $611,000  on  the  sale  of  the  Company's   offsite   training   facility.
Non-recurring  executive  termination  expenses  of $286,000  associated  with a
former  president and vice  president  were also booked in the second quarter of
1998.

Other income  (expense)  for 1998 included  $308,000 of realized  gains on trade
credit contracts. In 1999, the realized gain on trade credit contracts was $0.


Income Taxes
------------
Badger Paper Mills effective tax rate was 19.8 percent for 1999,  compared to 34
percent for the same period in 1998. The decreased effective rate was due to the
non-taxability  of the life  insurance  proceeds we  received  in 1999,  and the
utilization of net operating loss and tax credit  carryovers in connection  with
the merger of our former Badger Paper Mills Flexible  Packaging  Division,  Inc.
subsidiary into the Company.


1998 vs. 1997

Net Sales
---------
In  1998  sales  decreased  $4,700,000,   or  7  percent,  to  $65,727,000  from
$70,427,000  during 1997.  Weak market  conditions  continued in the industry in
1998,  especially  in the  commodity  market.  This  resulted in a decline of 11
percent  in the  volume  of  shipments.  The  Company's  average  selling  price
increased  slightly despite the volume  decrease,  primarily due to an increased
percentage of higher margin products sold in 1998.  Specialty products increased
to  approximately  53 percent of our gross sales dollars in 1998 from 37 percent
in 1997.


                                       9
<PAGE>

Cost of Sales
-------------
Cost of sales of $58,505,000 for 1998 decreased by $9,095,000 or 13 percent from
$67,600,000  in 1997.  This  reduction  was primarily the result of a 12 percent
decrease in production  due to the weak market  conditions in 1998. Our strategy
was to take downtime when market conditions warranted, versus running low margin
commodity  products.  Cost reductions were also achieved by the reduction of our
administrative and production  workforce by approximately 71 employees.  We also
experienced  declining  prices  for the cost of  purchased  fiber  during  1998.
Production  rates at the  Peshtigo  facility  were at record  levels,  while the
start-up  of  the  new  Chadwick  printing  press  at  the  Oconto  Falls  plant
experienced some difficulties.  These problems were resolved with the efforts of
engineering staffs at both facilities during the fourth quarter of 1998.

Gross Profit
------------
Gross profit in 1998 improved to $7,222,000  from  $2,827,000  reported in 1997.
The increased  percentage of higher margin specialty paper products in our sales
mix was the primary  reason for the increase in gross profit in 1998.  Workforce
reductions   and  cost  saving   initiatives   that  were   implemented  on  the
manufacturing floor also contributed to the higher gross profit.

Selling and Administration
--------------------------
Selling and  administration  expenses  increased $246,000 to $4,331,000 in 1998.
The increase resulted  primarily from sales and marketing  expenses and the cost
of  consultants  incurred  in 1998  associated  with  Badger's  ongoing  product
restructuring to specialty paper products from commodity paper products begun in
1997.

Other Income and Expense
------------------------
The Company recorded a second quarter  non-recurring capital gain of $611,000 on
the sale of its offsite training facility. Additionally, non-recurring executive
termination  expenses  of  $286,000  associated  with  the  resignations  of the
Company's  former  president and vice president were also recorded in the second
quarter of 1998.

Interest  expense  during 1998  decreased 12 percent to  $1,196,000  compared to
$1,354,000 in 1997. The decrease in interest expense was primarily  attributable
to lower average borrowings under the Company's revolving credit facility.

Income Taxes
------------
Badger's  effective tax rate was a 34 percent  provision in 1998,  compared to a
32.1 percent  benefit for the year 1997. The benefit in 1997 was associated with
the net loss for that year.



LIQUIDITY AND CAPITAL RESOURCES

Capital Expenditures
--------------------
Capital  expenditures for 1999 totaled $2,815,000 compared to $3,004,000 in 1998
and  $4,686,000  in  1997.  Depreciation  was  $2,853,000  in 1999  compared  to
$2,752,000 and $2,790,000 in 1998 and 1997, respectively.

Major  projects in 1999 for the Peshtigo  facility  included the completion of a
ramp  and  enclosure  to our  wax  plant  warehouse,  a  rewinder  for  the  Wax
Department, a spare couch roll for the Yankee paper


                                       10
<PAGE>

machine,  a motor  control  center  for the paper  mill,  and a  landfill  water
collection system. The Oconto Falls facility's capital  expenditures  included a
rewinder and improvements to the Chadwick press.

In 2000,  we plan to continue  our  investments  in  upgrading  our  facilities,
including  improvements  and  upgrades  to the  paper  machines  and  converting
equipment.


Capital Resources
-----------------
In January  1999,  Badger  refinanced  its  revolving  credit  facility with its
existing  lender.   The  refinanced   facility  provides  for  borrowing  up  to
$12,000,000.  The revolving  credit  facility  contains  certain  covenants that
require the Company to maintain a specified  fixed charge  ratio,  debt leverage
ratio,  minimum  tangible net worth, and also provide for limitations on capital
expenditures  and  require  the  Company  to make  minimum  specified  principal
payments on the  Company's  outstanding  Industrial  Development  Revenue  Bonds
("IDRBs").  Pursuant to the terms of the  revolving  credit  facility,  the debt
leverage ratio covenant became more restrictive  effective December 31, 1999 and
the Company did not comply with the more restrictive ratio. The lender under the
revolving credit facility waived such  non-compliance,  and in March,  2000, the
Company and the lender amended the revolving credit facility to adjust the fixed
charge ratio and the debt  leverage  ratio.  The  amendment  also  tightened the
limitation on capital  expenditures and extended the facility through  November,
2003.  Further  detail  is  presented  in Note F to the  Company's  Consolidated
Financial Statements.

At December 31, 1999,  $10,700,000  was outstanding  under the revolving  credit
facility, a $500,000 increase from the balance outstanding at December 31, 1998.
The increase is primarily  the result of borrowings  under the revolving  credit
facility used to partially fund an aggregate of $2,800,000 of principal payments
made during 1999 on certain of the Company's IDRBs.

In February 2000, the City of Peshtigo agreed to refinance an Urban  Development
Action Grant ("UDAG") which was scheduled to mature in April, 2000. The terms of
the refinancing provide for a ten-year amortization with interest at 5 percent.


Cash Flows
----------
Cash provided from operations was $1,329,000 in 1999 and $2,079,000 in 1998. The
decrease  relates  primarily to reduced net income after  excluding the one-time
non-operating gain from life insurance proceeds in 1999.

Net cash used in investing  activities was $460,000 in 1999 compared to $171,000
of cash provided by investing activities in 1998. The change is primarily due to
the inclusion of non-recurring gains in 1998 involving the sale of the Company's
training facility and the maturity of certificates of deposit.  The Company also
received $622,000 of life insurance  proceeds in 1999 upon the death of a former
president of the Company.

Cash used in financing activities was $2,429,000 in 1999, compared to $1,323,000
in 1998.  The increase  was  primarily  the result of principal  payments on the
Company's  IDRBs  required to be made  pursuant  to the terms of our  refinanced
revolving credit facility.


                                       11
<PAGE>

Year 2000

Badger formed a Year 2000  Committee that was assigned the task of assuring Year
2000 ("Y2K") compliance for all information  technology and non-IT systems.  The
Committee was on site at the change of the  millennium  and  determined  all Y2K
compliance  issues  have been  resolved.  There  have been  virtually  no issues
related to the Y2K issue during 2000.

Other  potential Y2K issues may occur on February 29, 2000 (Leap Year),  October
10, 2000 (first  ten-digit  date) and December 31, 2000 (366th day). Our systems
have been  tested and we believe  they are in  compliance  with all of the above
future date issues.

We have  had no Y2K  issues  from  our key  vendors  in  2000.  While  we do not
anticipate any future Y2K related issues with our vendors,  we cannot  guarantee
their compliance.

The Company incurred  approximately  $50,000 of additional  expenses  associated
with contract  programming and system upgrades and/or replacement to address Y2K
issues.  This  figure  does  not  include  normal  wages  and  benefits  of  the
information  technology and engineering  staffs while working on Y2K issues.  We
also  replaced  process  computers  on the  two  paper  machines  at a  cost  of
$1,935,000 during 1998 and 1999. While the costs were significant, they have not
been  included in the above Y2K costs because the old process  controllers  were
obsolete,  and there was no  acceleration of the timing of these projects due to
Y2K-related issues.

Item 7a.  Quantitative and Qualitative Disclosure About Market Risk

The Company is exposed to market risk from changes in interest on its  long-term
debt. The Company's  revolving credit facility provides for borrowings up to $12
million and extends to November 2003. An annual commitment fee of 1/2 percent is
payable for unused amounts.  Interest on borrowings is at various rates equal to
the Prime rate  (totaling  8.5 percent at December  31, 1999) and the LIBOR rate
plus 2.0 percent (totaling 7.83 percent at December 31, 1999).

Certain of the Company's IDRBs require varying quarterly principal  installments
of $140,000 plus interest quarterly through October 1, 2006, with payment of the
remaining  balance due  December 1, 2006,  and the  Company's  revolving  credit
facility requires it to make additional  principal  payments on its IDRBs. These
required payments included  principal payments of $1,885,000 made in March 1999,
and $495,000 made in June,  1999.  The  remaining  required  payments  under the
revolving  credit  facility are principal  installments of $400,000 and $100,000
due July 1, 2000 and  February 1, 2001,  respectively.  Interest on the IDRBs is
payable at floating  rates  determined  by  remarketing  agents (5.65 percent at
December 31, 1999).

A  majority  of  the  Company's  debt  is  at  variable  interest  rates,  and a
hypothetical  1 percent  change  in  interest  rates  would  cause an  estimated
$168,000 increase in annual interest expense.

The Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.


                                       12
<PAGE>

Item 8. Financial statements and supplementary data


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




Board of Directors and Shareholders
Badger Paper Mills, Inc. and Subsidiary

We have audited the  accompanying  consolidated  balance  sheets of Badger Paper
Mills, Inc. (a Wisconsin corporation) and Subsidiary as of December 31, 1999 and
1998 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three  years in the  period  ended  December  31,
1999.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

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

In our opinion,  the financial  statements referred to above, present fairly, in
all  material  respects,  the  consolidated  financial  position of Badger Paper
Mills, Inc. and Subsidiary as of December 31, 1999 and 1998 and the consolidated
results of their  operations  and cash flows for each of the three  years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.



/s/ Grant Thornton LLP

Appleton, Wisconsin
February 1, 2000
(except for Note F, as
to which the date is
March 9, 2000)


                                       13
<PAGE>

                     Badger Paper Mills, Inc. And Subsidiary
<TABLE>
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1999 and 1998
                             (dollars in thousands)
<CAPTION>

                            ASSETS                              1999             1998
                                                                ----             ----
Current Assets
<S>                                                          <C>               <C>
  Cash and cash equivalents                                  $      669        $    2,229
  Certificates of deposit                                           500               996
  Marketable securities                                             137             1,361
  Accounts receivable, net                                        6,080             5,262
  Inventories                                                     7,819             6,201
  Refundable income taxes                                           220                27
  Deferred income taxes                                           1,160             1,220
  Prepaid expenses and other                                        606               558
                                                            ------------------------------
     Total current assets                                        17,191            17,854

PROPERTY, PLANT AND EQUIPMENT, NET                               27,240            27,291

OTHER ASSETS
  Trade credits                                                     609               696
  Other                                                           1,854             2,158
                                                            ------------------------------
                                                                  2,463             2,854
                                                            ------------------------------
     Total assets                                            $   46,894        $   47,999
                                                            ==============================

                            LIABILITIES

CURRENT LIABILITIES
  Current portion of long-term debt                          $    1,060        $    3,068
  Accounts payable                                                4,746             3,913
  Accrued liabilities                                             3,126             3,357
  Income taxes payable                                                -               170
                                                            ------------------------------
     Total current liabilities                                    8,932            10,508
                                                            ------------------------------
LONG-TERM DEBT                                                   15,705            16,126

DEFERRED INCOME TAXES                                             1,840             1,700

OTHER LIABILITIES                                                   933             1,408

COMMITMENTS AND CONTINGENCIES                                         -                 -

SHAREHOLDERS' EQUITY
  Common stock, no par value; 4,000,000 shares authorized,
  2,160,000 shares issued                                         2,700             2,700
  Additional paid in capital                                        201               200
  Retained earnings                                              18,433            17,296
  Treasury stock, at cost, 185,832 and 199,278 shares
   in 1999 and 1998, respectively                                (1,850)           (1,939)
                                                            ------------------------------
     Total shareholders' equity                                  19,484            18,257
                                                            ------------------------------
     Total liabilities and shareholders' equity              $   46,894        $   47,999
                                                            ==============================
</TABLE>

The accompanying notes are an integral part of these statements.

                                       14
<PAGE>

                     Badger Paper Mills, Inc. and Subsidiary
<TABLE>
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                For Years Ended December 31, 1999, 1998 and 1997
                  (dollars in thousands, except per share data)
<CAPTION>
                                                                 1999      1998      1997
                                                                 ----      ----      ----
<S>                                                           <C>       <C>       <C>
Net sales                                                     $67,024   $65,727   $70,427

Cost of sales                                                  60,336    58,505    67,600
                                                             -----------------------------
          Gross profit                                          6,688     7,222     2,827


Selling and administrative expenses                             4,825     4,331     4,085

Restructuring provision                                             -         -       850

Pulp mill asset impairment charge                                   -         -       783
                                                             -----------------------------
                                                                4,825     4,331     5,718
                                                             -----------------------------
          Operating income (loss)                               1,863     2,891   (2,891)


Other income (expense):

  Interest and dividend income                                     85       237       236

  Interest expense                                             (1,064)   (1,196)   (1,354)

  Executive termination costs                                       -      (286)        -

  Gain from life insurance proceeds                               391         -         -

  Gain (loss) on disposal of property, plant
     and equipment                                                  -       632       (14)

  Miscellaneous, net                                              141       363       428
                                                             -----------------------------
                                                                 (447)     (250)     (704)
                                                             -----------------------------

Income (loss) before income taxes                               1,416     2,641    (3,595)

Provision (benefit) for income taxes                              279       897    (1,153)
                                                             -----------------------------

          Net income (loss)                                    $1,137    $1,744   $(2,442)
                                                             =============================

          Net earnings (loss) per share (basic and diluted)     $0.58     $0.89    $(1.25)
                                                             =============================
</TABLE>

The accompanying notes are an integral part of these statements.


                                       15
<PAGE>

                     Badger Paper Mills, Inc. and Subsidiary
<TABLE>
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                For Years ended December 31, 1999, 1998 and 1997
                             (dollars in thousands)
<CAPTION>

                                                                1999         1998          1997
                                                                ----         ----          ----
Common stock
<S>                                                            <C>          <C>           <C>
  Balance, December 31                                           2,700       $2,700        $2,700
                                                             --------------------------------------

Additional paid-in capital
  Balance, January 1                                               200          190           178
  Treasury stock issued                                              1           10            12
                                                             --------------------------------------
  Balance, December 31                                             201          200           190
                                                             --------------------------------------

Retained earnings
  Balance, January 1                                            17,296       15,552        17,994
  Net income (loss)                                              1,137        1,744        (2,442)
                                                             --------------------------------------
  Balance, December 31                                          18,433       17,296        15,552
                                                             --------------------------------------

Treasury stock
  Balance, January 1                                            (1,939)      (1,998)       (2,040)
  Shares acquired (920 shares in 1997)                               -            -            (8)
  Shares issued (13,446, 8,867, and 7,645 shares
    in 1999, 1998 and 1997, respectively)                           89           59            50
                                                             --------------------------------------
  Balance, December 31                                          (1,850)      (1,939)       (1,998)
                                                             --------------------------------------

Shareholders' equity
  Balance, December 31                                         $19,484      $18,257       $16,444
                                                              ========     ========      ========

</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       16
<PAGE>

                                      Badger Paper Mills, Inc. and Subsidiary
<TABLE>
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 For Years ended December 31, 1999, 1998 and 1997
                                              (dollars in thousands)
<CAPTION>
                                                                             1999          1998          1997
                                                                            ------        ------        ------
Cash flows from operating activities:
<S>                                                                          <C>           <C>          <C>
  Net income (loss)                                                          $1,137        $1,744       $(2,442)
  Adjustments to reconcile to net cash provided
        by operating activities:
      Depreciation                                                            2,853         2,752         2,790
      Pulp mill impairment charge                                                 -             -           783
      Directors' fees paid in stock                                              90            69            60
      Deferred income taxes                                                     200           586          (746)
      Realized (gain) loss on sale of marketable securities                       -            48            (8)
      Gain from life insurance benefits                                        (391)            -             -
      (Gain) loss on disposal of property, plant and equipment                    -          (632)           14

  Changes in assets and liabilities
      Accounts receivable, net                                                 (818)         (142)         (564)
      Inventories                                                            (1,618)       (1,357)        1,993
      Accounts payable and accrued liabilities                                  602        (1,351)       (2,250)
      Income taxes refundable (payable)                                        (363)          528         1,081
      Other                                                                    (363)         (166)         (312)
                                                                        -----------------------------------------
          Net cash provided by operating activities                           1,329         2,079           399
                                                                        -----------------------------------------
Cash flows from investing activities:
  Additions to property, plant, and equipment                                (2,815)       (3,004)       (4,686)
  Proceeds from sale of property, plant and equipment                            13         2,880           627
  Net sales (acquisitions) of certificates of deposit                           496           386        (1,382)
  Life insurance proceeds                                                       622             -             -
  Purchases of marketable securities                                            (36)       (1,927)       (1,192)
  Proceeds from sale of marketable securities                                 1,260         1,836         1,682
                                                                        -----------------------------------------
          Net cash provided by (used in) investing activities                  (460)          171        (4,951)
                                                                        -----------------------------------------
Cash flows from financing activities:
  Payments on long-term debt                                                 (4,029)       (2,323)         (119)
  Increase in revolving notes payable                                         1,600         1,000         1,900
  Acquisition of treasury stock - net                                             -             -            (6)
                                                                        -----------------------------------------
          Net cash provided by (used in) financing activities                (2,429)       (1,323)        1,775
                                                                        -----------------------------------------

NET INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS                                                                (1,560)          927        (2,777)

Cash and cash equivalents:
  Beginning of year                                                           2,229         1,302         4,079
                                                                        -----------------------------------------
  End of year
                                                                              $ 669        $2,229        $1,302
                                                                        =========================================
</TABLE>
The accompanying notes are an integral part of these statements.


                                       17
<PAGE>

                     Badger Paper Mills, Inc. and Subsidiary
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

NOTE A - SUMMARY OF ACCOUNTING POLICIES

Badger Paper Mills, Inc. and Subsidiary ("Company") manufactures paper and paper
products and provides  converting and printing services to customers  throughout
North  America.  In August of 1999,  the wholly  owned  subsidiary  involved  in
printing and  converting  was merged into Badger  Paper Mills,  Inc. In February
1998,  Peshtigo Power,  LLC  ("Peshtigo")  was incorporated to produce steam for
Badger Paper Mills, Inc. Peshtigo is wholly owned by the Company.

A summary of the significant  accounting  policies applied in the preparation of
the accompanying consolidated financial statements follows.

1.  Consolidation Principles

The  consolidated  financial  statements  include the  accounts of Badger  Paper
Mills,  Inc.  and its  wholly-owned  Subsidiary.  All  significant  intercompany
accounts and transactions have been eliminated.

2.  Operating Segments

The Company has adopted the  provisions  of Statement  of  Financial  Accounting
Standards  (SFAS) No. 131,  "Disclosures  About  Segments of an  Enterprise  and
Related  Information".  SFAS 131 requires public  companies to use a "management
approach" to defining and reporting the  activities of operating  segments.  The
management   approach  defines  operating  segments  along  the  lines  used  by
management to assess performance and make operating and capital decisions.

3.  Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk consist  principally of cash and cash equivalents and trade accounts
receivable.  The Company places its cash and cash  equivalents with high quality
financial  institutions.  The Company  provides  credit in the normal  course of
business to its customers. These customers are located throughout North America.
The Company performs  ongoing credit  evaluations of its customers and maintains
allowances for potential credit losses and generally does not require collateral
to support the accounts receivable balances.

4.  Financial Instruments

For cash and  certificates  of deposit,  the carrying amount  approximates  fair
value because of the short maturity of these  instruments.  For long-term  debt,
the carrying  amount  approximates  fair value based on comparison  with current
rates offered to the Company for debt with similar remaining maturities.

5.  Estimates

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

6.  Cash Equivalents and Certificates of Deposit

For financial reporting  purposes,  the Company considers all highly liquid debt
instruments  purchased  with a  maturity  of  three  months  or  less to be cash
equivalents.


                                       18
<PAGE>

7.  Marketable Securities

The  investment  portfolio  at  December  31, 1999 and 1998,  which  consists of
taxable United States Agency Bonds, corporate bonds, tax-exempt bonds and equity
securities,  are classified as available for sale.  The difference  between cost
and fair value is insignificant.  The specific  identification method is used to
compute realized gains and losses.  The entire balance of marketable  securities
at December 31, 1999 consists of bonds maturing at various dates after 10 years.
At December 31, 1998, marketable securities consisted of bonds of $1,201,374 and
equity securities of $160,000.

8.  Receivables

Accounts  receivable  are stated net of an  allowance  for sales  returns,  cash
discounts and doubtful accounts.

9.  Inventories

Substantially  all  inventories  are valued at the lower of cost or market  with
cost being determined on the last-in, first-out (LIFO) basis.

10. Property, Plant and Equipment

These assets are stated at cost,  less  depreciation.  Depreciation of plant and
equipment is provided on the straight-line basis over the estimated useful lives
of the assets.  Buildings  useful lives range from 30 to 33 years and  machinery
and  equipment  from  three to 17 years.  Accelerated  depreciation  is used for
income tax purposes.

11. Trade Credits

Trade  credits  represent  credits  issued by an  international  barter  firm in
exchange for surplus inventory.  Trade credits are recorded at the lower of cost
or market of the  inventory  exchanged.  Previously,  gain was  recognized  upon
utilization  of the trade credits with the Company's  suppliers and vendors.  In
1999 and  thereafter,  gain will be recognized  upon the recovery of the cost of
these trade credits.

12. Income Taxes

Deferred income taxes are recognized for the tax consequences in future years of
differences  between the tax bases of assets and liabilities and their financial
reporting  amounts at each year-end  based on enacted tax laws and statutory tax
rates  applicable to the periods in which the differences are expected to affect
taxable income.  Valuation  allowances are established  when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the period and the change  during the period in deferred tax
assets and liabilities.

13. Stock Options

The Company has elected to follow Accounting  Principles Board Opinion (APB) No.
25,  "Accounting for Stock Issued to Employees" and related  interpretations  in
accounting  for its stock  options.  Under APB 25, because the exercise price of
the stock options  exceeds the market price of the underlying  stock on the date
of grant,  no  compensation  expense is  recorded.  The  Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation."

14. Revenue Recognition

Revenue is recognized by the Company when goods are shipped.


                                       19
<PAGE>

15. Net Earnings (Loss) Per Share

Net earnings (loss) per share are computed based on the weighted  average number
of  shares  of common  stock  outstanding  during  the year  (1,966,111  shares,
1,955,772 shares and 1,947,128 shares in 1999, 1998 and 1997, respectively).  In
1999,  for  purposes of computing  diluted net  earnings per share,  the 115,000
stock  options  granted  in 1999  under the stock  option  plan were  considered
antidilutive  because their exercise prices were greater than the average market
price of the common shares.

16. Research and Product Development Costs

Research and product  development  costs  related to potential  new products and
applications  are  expensed  when  incurred.  These  costs  totaled  $2,089,000,
$2,971,000  and  $5,287,000  for  1999,  1998 and  1997,  respectively,  and are
included in cost of sales.

17. Environmental Expenditures

Accruals for remediation costs are recorded when it is probable that a liability
has been incurred and the amount of the costs can be reasonably estimated.


NOTE B - RECEIVABLE ALLOWANCES

The  receivable  allowances  at  December  31,  1999 and 1998 are as follows (in
thousands):

                                                           1999           1998
                                                        -------        -------

          Sales returns and allowances                     $205           $154
          Cash discounts                                     43             31
          Doubtful accounts                                  48             59
                                                           ----           ----
                                                           $296           $244
                                                            ===            ===


NOTE C - INVENTORIES

The major classes of  inventories,  valued on the LIFO cost method,  at December
31, 1999 and 1998 are as follows (in thousands):

                                                           1999           1998
                                                        -------        -------

          Raw Materials                                  $1,559         $1,858
          Work-in-process and finished stock              6,260          4,343
                                                          -----          -----
                                                         $7,819         $6,201
                                                          =====          =====

The FIFO cost of raw materials,  work-in-process  and finished stock inventories
approximated  $11,890,000  and  $10,150,000  at  December  31,  1999  and  1998,
respectively. It is not practical to separate finished stock and work-in-process
inventories.


                                       20
<PAGE>

NOTE D - PROPERTY, PLANT AND EQUIPMENT

The major classes of property, plant and equipment at December 31 are as follows
(in thousands):

                                                           1999           1998
                                                        -------        -------
          Land                                          $   199        $   199
          Buildings                                       8,698          8,297
          Machinery and equipment                        58,392         56,044
          Construction-in-progress - equipment              567            549
                                                        -------        -------
                                                         67,856         65,089
          Accumulated depreciation                       40,616         37,798
                                                        -------        -------
                                                        $27,240        $27,291
                                                        =======        =======


At December 31, 1999 and 1998,  $17,302,000 and  $15,911,000,  respectively,  of
fully  depreciated  assets  were still in use.  In  December  1997,  the Company
evaluated the remaining  fixed assets held for resale relating to the closure of
the pulp mill by comparing the asset's  carrying amount with its fair value less
cost to sell.  As a  result,  the  Company  recorded  an  impairment  charge  of
$783,000.

During 1998, the Company sold its training facility for $725,000  resulting in a
gain of $611,000.


NOTE E - ACCRUED LIABILITIES

Accrued liabilities at December 31, 1999 and 1998 are as follows (in thousands):

                                                           1999           1998
                                                        -------        -------

          Compensation and related taxes                 $1,530         $1,539
          Profit sharing                                    522            496
          Restructuring                                       -             15
          Environmental remediation                           -            121
          Other                                           1,074          1,186
                                                        -------        -------
                                                         $3,126         $3,357
                                                        =======        =======

NOTE F - LONG-TERM DEBT

Long-term  debt at December 31, 1999 and 1998
consists  of the following (in thousands):

                                                           1999           1998
                                                        -------        -------
          Revolving Credit Agreement                    $10,700        $10,200
          Industrial Development Revenue Bonds (IDRB's)   4,550          7,417
          Urban Development Action Grant                  1,515          1,577
                                                        -------        -------
                                                         16,765         19,194
          Current portion                                 1,060          3,068
                                                        -------        -------
                                                        $15,705        $16,126
                                                        =======         ======

The  Company's   revolving  credit  facility   provides  for  borrowings  up  to
$12,000,000  and,  as  amended  on March 9, 2000  extends to  November  2003.  A
commitment  fee of 1/2  percent  is  payable  for unused  amounts.  Interest  on
borrowings is at various rates equal to the Prime rate  (totaling 8.5 percent at
December 31, 1999) and the LIBOR rate plus 2.0 percent (totaling 7.83 percent at
December 31, 1999). Borrowings are collateralized by cash and cash


                                       21

<PAGE>

equivalents,   certificates   of  deposit,   marketable   securities,   accounts
receivable,  inventory and certain property,  plant and equipment.  In 1999, the
Company  issued a letter of credit under the  revolving  credit  facility to the
Wisconsin Department of Natural Resources (WDNR) for approximately $53,000 (note
N).

Certain of the IDRBs require  varying  quarterly  installments  of $140,000 plus
interest  quarterly  through  October 1,  2006,  with  payment of the  remaining
balance due December 1, 2006. Principal installments of $400,000 are due July 1,
2000, and $100,000 due February 1, 2001.  These  installments are in addition to
the quarterly  installments.  Interest on the IDRBs is payable at floating rates
determined by remarketing  agents (5.65 percent at December 31, 1999). The IDRBs
are  collateralized by bank letters of credit expiring in 2006. The Company pays
annual fees at one-half of one percent of the amount available under the letters
of credit.

At  December  31,  1999,  covenants  related to the  revolving  credit  facility
include,  among other  items,  the Company to maintain a fixed  charge  coverage
ratio,  a debt coverage  ratio,  and a limitation on capital  expenditures.  The
Company was not in compliance with the debt leverage ratio at December 31, 1999,
and  obtained a waiver  related to this  non-compliance.  As amended on March 9,
2000,  the  revolving  credit  facility and certain IDRBs  require,  among other
items,  the Company to maintain a fixed  charge  coverage  ratio of 2.15 for the
period ending  September 29, 2000, and 1.15 for periods  thereafter,  and a debt
leverage  ratio  of  3.75  through  September  29,  2000  and  3.5  for  periods
thereafter.   Capital  expenditures  are  limited  to  $3,700,000  in  2000  and
$4,800,000 in 2001 and periods thereafter.

In February,  2000, the Company  refinanced the Urban Development  Action Grant.
This grant is due in monthly  installments of $15,437,  including interest at an
effective rate of  approximately  5.0 percent,  through  maturity in April 2010.
This grant is collateralized by certain machinery and equipment.

Future maturities of all long-term debt are as follows (in thousands):

          Year ended December 31,

                     2000                        $ 1,060
                     2001                            777
                     2002                            683
                     2003                         11,389
                     2004                            696
                     2005 and thereafter           2,160
                                                 -------
                                                 $16,765
                                                 =======

NOTE G - INCOME TAXES

The  provision  (benefit)  for  income  taxes  consists  of  the  following  (in
thousands):

                                                    1999       1998      1997
                                                    ----       ----      ----
      Currently payable (refundable)
                               Federal               $62       $179      $(438)
                               State                  17        132         31
                                                      --        ---      -----
                                                      79        311       (407)

      Deferred:
                               Federal             $ 222       $336      $(746)
                               State                 (22)       250          -
                                                    ----        ---      -----
                                                     200        586       (746)
                                                     ---        ---      -----

                                                    $279       $897    $(1,153)
                                                     ===        ===     ======


                                       22
<PAGE>

The  significant  differences  between the  effective tax rate and the statutory
federal tax rates are as follows:

                                                    1999       1998     1997
                                                    ----       ----     ----
    Statutory Federal tax rate                      34.0%      34.0%    (34.0)%
    Tax-exempt income - life insurance proceeds     (9.4)         -         -
    State taxes                                     (5.7)         -         -
    Other                                            0.9          -       1.9
                                                    ----       ----     -----

              Effective tax rate                    19.8%      34.0%    (32.1)%
                                                    ====       ====      ====

The components of the deferred tax assets and  liabilities as of December 31 are
as follows (in thousands):
                                                    1999           1998
                                                 -------       --------
    Deferred tax assets:
      Accounts receivable                        $   101       $    143
      Inventories                                    217            311
      Accrued expenses                               570            766
      Deferred compensation                           69             95
      Postretirement benefits                        222            290
      Tax credit carryforwards                     3,019          2,938
      State net operating loss carryforwards         315            362
      State credit carryforwards                   1,460          2,099
      Valuation allowance                         (1,835)        (2,692)
                                                 -------       --------

                                                   4,138          4,312
    Deferred tax liabilities:
      Fixed assets                                (4,818)        (4,792)
                                                 -------       --------

         Net liability                           $  (680)      $   (480)
                                                 =======       ========

For Federal income tax purposes, the Company has research and development credit
carryovers  and  alternative  minimum tax credit  carryovers of  $1,179,000  and
$1,840,000,  respectively.  For state income tax  purposes,  the Company has net
operating  loss  and  tax  credit  carryovers  of  $11,735,000  and  $1,460,000,
respectively.  Certain  carryforwards  expire at various  times over the next 15
years.  For  financial  reporting  purposes,  a  valuation  allowance  has  been
established  to the  extent  that state  carryforwards,  absent  future  taxable
income,  will expire  unused.  The valuation  allowance  decreased  $857,000 due
primarily  to the  expiration  of  $790,000  of state tax  credits in 1999.  The
remaining  decrease  of $67,000  is based on  management's  reevaluation  of the
likelihood of realization.

NOTE H - EMPLOYEE BENEFITS

The Company has profit  sharing  plans  covering  substantially  all  employees.
Contribution  expenses  associated with these plans were $522,000,  $496,000 and
$587,000 in 1999, 1998 and 1997, respectively.


                                       23
<PAGE>

NOTE I - SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes was as follows (in thousands):

                                                    1999     1998     1997
                                                  ------   ------   ------
          Interest                                $1,080   $1,235   $1,345
          Income taxes                               438       57        5

Noncash investing and financing activity:

At December 31, 1999, 1998 and 1997, accounts payable included $97,000,  $22,000
and $134,000 respectively, for property and equipment additions.


NOTE J - OPERATING SEGMENTS

The Company  adopted SFAS 131 in 1998.  1997  information  has been  restated to
present  segment  information  for the  Company's two business  segments,  paper
products  and printing  and  converting  services.  The paper  products  segment
produces a variety of paper  products  including  fine  paper,  business  paper,
colored paper,  waxed paper,  specialty  coated base papers and twisting papers.
The printing and  converting  segment  prints and  converts  flexible  packaging
materials  for the  paper  products  segment,  as well as  films  and  non-woven
materials from other customers.

The accounting  policies of the segments are the same as those described in Note
A, Summary of Significant  Accounting Policies.  Intersegment revenue relates to
the transfer of material or provision of services between the two segments.  The
Company  evaluates the  performance  of its segments and allocates  resources to
them  based on net  earnings.  There are no  jointly  used or  allocated  assets
between the segments.


                                       24
<PAGE>

The following provides information on the Company's segments (in thousands):
<TABLE>
<CAPTION>
                                       Paper Products            Printing and Converting                Total
                                       --------------            -----------------------                -----
                                 1999       1998      1997      1999      1998       1997      1999      1998      1997
                                 ----       ----      ----      ----      ----       ----      ----      ----      ----
<S>                           <C>        <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Revenues from
external customers            $58,379    $60,648   $66,222   $ 8,645   $ 5,079   $ 4,205   $67,024   $65,727   $70,427

Intersegment revenues           2,858        588        38     1,506     1,630       972     4,364     2,218     1,010

Depreciation                    2,634      2,560     2,617       219       192       173     2,853     2,752     2,790

Restructuring provision             -          -       850         -         -         -         -         -       850

Pulp mill asset
impairment charge                   -          -       783         -         -         -         -         -       783

Interest and dividend income       69        214       218        16        23        18        85       237       236

Interest expense                  997      1,097     1,250        67        99       104     1,064     1,196     1,354

Executive termination  costs        -        286         -         -         -         -         -       286         -

Gain from life
insurance proceeds                391          -         -         -         -         -       391         -         -

Gain (loss) from disposal of
long-lived assets                   -        632       (14)        -         -         -         -       632       (14)

Income tax (benefit)
provision                         (69)       862    (1,325)      348        35       172       279       897    (1,153)

Segment income (loss)             448      1,490    (2,771)      689       254       329     1,137     1,744    (2,442)

Segment assets                 44,188     43,605    44,382     5,857     5,397     5,222    50,045    49,002    49,604

Expenditures for
long-lived assets               2,490      2,498     3,502       325       506     1,184     2,815     3,004     4,686
</TABLE>

The  following  is a  reconciliation  of  segment  information  to  consolidated
information (in thousands):

                                                   1999       1998      1997
                                                   ----       ----      ----
    Revenues:

       Total revenues for reportable segments    $71,388    $67,945   $71,437
       Elimination of intersegment revenues       (4,364)    (2,218)   (1,010)
                                                --------    -------   -------
          Total consolidated revenues            $67,024    $65,727   $70,427
                                                 =======    =======   =======
    Assets:

                                       25
<PAGE>

       Total assets for reportable segments      $50,045    $49,002   $49,604
       Elimination of intersegment receivables    (2,401)      (253)     (498)
       Elimination of intersegment investment       (750)      (750)     (750)
                                                --------   --------   -------

          Total consolidated assets              $46,894    $47,999   $48,356
                                                 =======    =======    ======

Total  segment  income  and  other   significant  items  are  the  same  as  the
consolidated information.

All  operations of the Company are located in the United  States.  Revenues from
foreign  countries are primarily  from Canada and Mexico are immaterial to total
revenues.


NOTE K - DIRECTOR STOCK GRANT PLANS

In 1999 and 1997, in order to attract and retain competent directors to serve as
Directors of the Company, the Company established Director Stock Grant Plans. An
aggregate of 50,000  shares of Common Stock was reserved for issuance  under the
1999 and 1997  Plans.  Each  Director  of the  Company  is to receive a grant of
Common Stock in partial  payment of his or her retainer fee.  During 1999,  1998
and 1997,  13,446,  8,867 and  7,345  shares,  respectively,  were  issued  from
treasury stock, at a value of $90,000, $69,000 and $60,000, respectively.

NOTE L - STOCK OPTION PLAN

On May 11, 1999, the Company  established an incentive  stock option plan (Plan)
as a mechanism to attract and retain its officers and key employees by providing
additional  performance incentives and the opportunity to share ownership in the
Company. The Plan allows the Company to grant options for 130,000 common shares.
Options  awarded under the Plan vest over a three or five year period and expire
in five to nine years.

In 1999, the Company  granted  115,000  options at an average  exercise price of
$8.42 per common share. At the date of grant,  the market value of the stock was
less than the exercise price of the options.  As the plan is accounted for under
APB Opinion 25, no  compensation  cost has been  recognized  for the plan. As of
December 31, 1999, 64,000 options are vested.

Had  compensation  cost for the plan been determined  based on the fair value of
the options at the grant dates  consistent  with the method  prescribed  by SFAS
123,  the  Company's  net income and net  earnings per share for 1999 would have
been  $774,000 and $0.39,  respectively.  The fair value of each option grant is
estimated  on the date of grant using the  Black-Scholes  options-pricing  model
with  the  following  weighted  average  assumptions  used for  grants  in 1999:
expected  volatility of 58 percent,  risk-free  interest  rates ranging from 5.5
percent to 5.8 percent, and expected lives of 4 to 8 years.


NOTE M - RESTRUCTURING PROVISIONS

In December 1997, the Company recorded a charge of $850,000 in connection with a
plan  to  discontinue  manufacturing  certain  products  and  eliminate  certain
converting  operations.   The  charge  includes  employee  termination  benefits
($297,000),  write  down  of  equipment  ($313,000),  write  down  of  inventory
($152,000), and a provision for other miscellaneous costs ($88,000).


                                       26
<PAGE>

NOTE N - COMMITMENTS AND CONTINGENCIES

Rental Agreements
-----------------

The Company leases certain  equipment  under various  agreements,  classified as
operating  leases,  expiring  through April 2007. Total rent expense amounted to
approximately  $516,000,  $222,200 and $123,000 for the years ended December 31,
1999, 1998 and 1997, respectively.

Future minimum rental payments are as follows (in thousands):

                    Year ended December 31,
                    ----------------------
                               2000                       $   552
                               2001                           513
                               2002                           475
                               2003                           471
                               2004                           381
                               2005 and thereafter            549
                                                           ------
                                                           $2,941
                                                           ======

Environmental Matters
---------------------

In May 1999, the Company  entered into an agreement with the WDNR related to the
closure of a solid waste landfill. All costs associated with the initial closure
of this  landfill  have been  completed as of December 31, 1999.  As part of the
closure  agreement,  the Company is required to provide proof of  responsibility
for any future  remediation  efforts if  environmental  problems are detected at
this site. This amount increases over a five-year period from $53,000 as of July
31, 1999 to $297,000 as of July 31, 2003.  The Company has met this  requirement
as of December 31, 1999 by having an irrevocable letter of credit granted to the
benefit of WDNR in the amount of $53,000.



                                       27

<PAGE>

PART III

Item  9.  Changes  in and  disagreements  with  accountants  on  accounting  and
financial disclosure

No such disagreements have occurred.

Item 10.  Directors and executive officers of the registrant

(a)  Directors of the registrant

The  information  required by this item is  incorporated  by reference  from the
information included under the captions, "Election of Directors" and "Compliance
with  Section  16(a) of the  Securities  Exchange  Act of 1934" set forth in the
Company's   definitive   proxy   statement  for  its  2000  Annual   Meeting  of
Shareholders.

(b)  Executive officers of registrant

                                                                   Period Served
     Name           Age             Office                        In This Office
     ----           ---             ------                        --------------

Michael J. Bekes    42  Vice President/COO of the Company            4 years
                        Vice President/COO, Fletcher Paper Co.       1-1/2 years
                        Mill Manager, Fletcher Paper Co.               1/2 year
                        Manager of Operations, Fletcher Paper Co.    5-1/2 years

Thomas W. Cosgrove  59  President and CEO of the Company             1-3/4 year
                        General Manager, Kimberly Clark
                         Corporation (Scott Paper Co.),
                           Marinette Division                        8 years

Thomas J. Kuber     59  Chairman of the Board of the Company         2-1/2 years
                        President, K&K Warehousing                   27 years
                        Chief Executive Officer, Great Lakes Pulp
                          & Fibre, Inc.                              4 years

Clifton A. Martin   48  Vice President, Badger Paper Flexible Pkg.   3-3/4 years
                        General Manager, Badger Paper Flexible
                          Packaging                                  3-3/4 years
                        Sales Representative of the Company          6-1/2 years

Mark C. Neumann     40  Vice President/Sales of the Company          4-3/4 years
                        Director of Marketing of the Company         2-3/4 years
                        Sales Representative of the Company          7-1/2 years

George J. Zimmerman 53  Treasurer of the Company                     1-3/4 year
                        Controller of the Company                    3 years
                        Division Accounting Manager, Pope & Talbot   7 years


Officers  are  elected  to  hold  office  until  the  next  annual   meeting  of
shareholders  following  the  annual  meeting  of  shareholders  or until  their
successors are elected and qualified.  There is no arrangement or  understanding
between  any of the above  officers or any other  person  pursuant to which such
officer was  selected for the office held.  No family  relationship  of any kind
exists between the officers.


                                       28
<PAGE>

ITEM 11.  Executive compensation

The  information  required by this item is  incorporated  by reference  from the
information  included under the captions  "Executive  Compensation",  "Report of
Compensation   Committee  on  Annual  Executive  Management   Compensation"  and
"Compensation  Committee Interlocks and Insider  Participation" set forth in the
Company's   definitive   proxy   statement  for  its  2000  Annual   Meeting  of
Shareholders.

Item 12.  Security ownership of certain beneficial owners and management

(a)  Security ownership of certain beneficial owners

The  information  required by this item is  incorporated  by reference  from the
information  included under the caption "Stock  Ownership of Certain  Beneficial
Owners and  Management,"  set forth in the Company's  definitive proxy statement
for its 2000 Annual Meeting of Shareholders.

(b)  Security ownership of management

The  information  required by this item is  incorporated  by reference  from the
information included under the captions,  "Stock Ownership of Certain Beneficial
Owners and Management," and "Election of Directors",  set forth in the Company's
definitive proxy statement for its 2000 Annual Meeting of Shareholders.

Item 13.  Certain relationships and related transactions

The  information  required by this item is  incorporated  by reference  from the
information included under the caption, "Certain Transactions," set forth in the
Company's   definitive   proxy   statement  for  its  2000  Annual   Meeting  of
Shareholders.


PART IV

Item 14.  Exhibits, financial statement schedules and reports on Form 8-K

(a)  (1) List of financial statements:

The following is a list of the financial statements of Badger Paper Mills, Inc.,
together with the report of independent accountant, included in this report:

                                                                           Pages
                                                                           -----
 Reports of Independent Accountant
   Consolidated balance sheets, December 31, 1999 and 1998....................14
   Consolidated statements of operations for the years ended
          December 31, 1999, 1998 and 1997....................................15
   Consolidated statements of changes in shareholders' equity for
          the years ended December 31, 1999, 1998 and 1997....................16
   Consolidated statements of cash flows for the years ended
     December 31, 1999 1998 and 1997..........................................17
   Notes to financial statements..............................................18

(a)(2) List of financial schedules:

The following is a listing of data submitted herewith:

   Reports of independent accountant on financial statement schedule
   Schedule for the years ended December 31, 1999 1998 and 1997
     II Valuation and qualifying accounts and reserves........................33

Financial  statement  schedules other than that listed above are omitted for the
reason that they are either not  applicable,  not required,  or that  equivalent
information has been included in the financial statements,  the notes thereto or
elsewhere herein.

                                       29
<PAGE>

(a)(3)  Exhibits

Number   Registration
------   ------------

(3)      (i)Restated  Articles of  Incorporation,  as amended  (Incorporated  by
            reference to Exhibit  3(i) to the  Company's  Annual  Report on Form
            10-K for the year ended December 31, 1996).

         (ii) By-laws as amended through August 12, 1999.

(4)      (i) U.S.  $12,000,000  Credit  Agreement dated January 29, 1999, by and
            among the Company,  Badger Paper Mills Flexible Packaging  Division,
            Inc.  (formerly  known as  Plas-Techs,  Inc.) and  Harris  Trust and
            Savings Bank,  individually  and as agent, and the lenders from time
            to time party thereto  (Incorporated by reference to Exhibit 4(i) to
            the Company's Annual Report on Form 10-K for the year ended December
            31, 1998).

        (ii)Paper Mills, Inc., Badger Paper Mills Flexible  Packaging  Division,
            Inc.,  the  Lenders,  and Harris  Trust and Savings  Bank,  as Agent
            (Incorporated  by  reference  to  Exhibit  4(ii)  to  the  Company's
            Quarterly  Report on Form First  Agreement  to Amended and  Restated
            Credit  Agreement  dated as of August 31,  1999 by and among  Badger
            10-Q for the quarter ended September 30, 1999).

        (iii) Second Amendment to Amended and Restated Credit Agreement dated as
            of  March  9,  2000,  by  and  between  Badger  Paper  Mills,   Inc.
            (individually  and as  successor  by merger to  Badger  Paper  Mills
            Flexible Packaging  Division,  Inc.), the Lenders,  and Harris Trust
            and Savings Bank, as Agent.

(10) Material Contracts:**

        (i) Supplemental  Executive  Retirement  Plan dated  December  18,  1992
            (Incorporated  by  reference  to  Exhibit  10 (ii) to the  Company's
            Annual Report on Form 10-K for the year ended December 31, 1992).

        (ii)Executive  Employment  Agreement  dated  March 1, 1995,  between the
            Company  and  Claude  L. Van Hefty  (Incorporated  by  reference  to
            Exhibit 10(vii) to the Company's  Annual Report on Form 10-K for the
            year ended December 31, 1994).

        (iii) Health  Insurance  Retirement  Benefit  Agreement dated January 1,
            1996  between the Company and Claude L. Van Hefty  (Incorporated  by
            reference to Exhibit  10(v) to the  Company's  Annual Report on Form
            10-K for the year ended December 31, 1996).

        (iv)Director  Stock  Grant  Plan dated July 23,  1997  (Incorporated  by
            reference to Exhibit 10 to the  Company's  Quarterly  Report on Form
            10-Q for the quarter ended September 30, 1997).

        (v) Employee  Resignation  and Release  Agreement  dated as of March 12,
            1998  between  Badger  Paper  Mills,  Inc.  and  Claude L. Van Hefty
            (Incorporated by reference to the Company's Quarterly Report on Form
            10-Q for the quarter ended June 30, 1998).

        (vi)Employee  Resignation  and Release  Agreement  dated as of March 12,
            1998  between  Badger  Paper  Mills,  Inc.  and Miles L. Kresl,  Jr.
            (Incorporated by reference to the Company's Quarterly Report on Form
            10-Q for the quarter ended June 30, 1998).

        (vii)Badger Paper Mills,  Inc. 1998 Stock Option Plan  (Incorporated  by
            reference  to the  Company's  Quarterly  Report on Form 10-Q for the
            quarter ended June 30, 1999)

        (vii) Form of Badger  Paper  Mills,  Inc.  1998 Stock  Option  Agreement
            (Incorporated by reference to the Company's Quarterly Report on Form
            10-Q for the quarter ended June 30, 1999).


                                       30
<PAGE>

        (viii)  Badger  Paper  Mills,  Inc.  1999  Directors  Stock  Grant  Plan
            (Incorporated by reference to the Company's Quarterly Report on Form
            10-Q for the quarter ended September 30, 1999)

(23)   Consent of Independent Public Accountants

(27)   Financial Data Schedule (EDGAR version only)

(99)   Definitive  Proxy Statement for 2000 Annual Meeting of Shareholders  (to
       be filed with the Commission  under  Regulation 14A and  incorporated by
       reference herein to the extent indicated in this Form 10-K).


**Each  of  the  "material  contracts"  represents  a  management   compensatory
agreement or arrangement.

(b)  Reports on Form 8-K:

    (i) No reports on Form 8-K were filed during the fourth quarter of 1999.


                                       31
<PAGE>

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.

DATE:  March 21, 2000

                                        BADGER PAPER MILLS, INC.


                                        /s/  Thomas W. Cosgrove
                                             By:  Thomas W. Cosgrove
                                             President & Chief Executive Officer
                                             (Principal Executive Officer)


                                        /s/  George J. Zimmerman
                                             By:  George J. Zimmerman
                                             Treasurer
                                             (Principal Executive Officer)

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 capacities and on the dates indicated:


/s/   L. Harvey Buek, Director               March 21, 2000
L. Harvey Buek


/s/   Mark D. Burish, Director               March 21, 2000
Mark D. Burish


/s/   Thomas W. Cosgrove, Director           March 21, 2000
Thomas W. Cosgrove


/s/   James L. Kemerling, Director           March 21, 2000
James L. Kemerling


/s/   Thomas J. Kuber, Director              March 21, 2000
Thomas J. Kuber


/s/   John R. Peterson, Director             March 21, 2000
John R. Peterson


                                       32
<PAGE>

                REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT




To the Shareholders and
  Board of Directors
Badger Paper Mills, Inc.
  and Subsidiary
Peshtigo, Wisconsin


Our  report on the 1999,  1998 and 1997  financial  statements  of Badger  Paper
Mills,  Inc.  and  Subsidiary  is  included  on page 14 of this  Form  10-K.  In
connection with our audit of such financial statements, we have also audited the
related financial statement schedule listed in the index on page 29 of this Form
10-K.

In our opinion, the 1999, 1998 and 1997 financial statement schedule referred to
above,  when  considered  in  relation  to  the  basic  consolidated   financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information required to be included therein.



/s/ Grant Thornton LLP

Appleton, Wisconsin
February 1, 2000
(Except for Note F, as to
which the date is March 9, 2000)


                                       33
<PAGE>

Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended
December 31, 1999, 1998 and 1997 (in thousands)
<TABLE>
<CAPTION>
               Column A                     Column B      Column C      Column D      Column E
               --------                     --------      --------      --------      --------
                                                         Additions
                                           Balance at    charged to                    Balance
                                           beginning     costs and       Deduc-       at end of
               Description                  of year      expenses        tions          year
               -----------                  -------      --------        -----          ----
<S>                                              <C>        <C>           <C>           <C>
Deducted in the balance sheet from
  the assets to which they apply:

Allowance for discounts,
  doubtful accounts and claims/allowances:
Year ended December 31, 1999:
  Doubtful accounts and
   claims/allowances                             $213        $ 574          $534 (A)      $253
  Discounts                                        31          679           667 (B)        43
                                                 ----         ----          ----          ----
                                                 $244       $1,253        $1,201          $296
                                                 ====       ======        ======          ====
Year ended December 31, 1998:
  Doubtful accounts and
     claims/allowances                           $283         $780          $850 (A)      $213
  Discounts                                        35          661           665 (B)        31
                                                 ----         ----         -----          ----
                                                 $318       $1,441        $1,515          $244
                                                 ====       ======        ======          ====
Year ended December 31, 1997:
  Doubtful accounts and
     claims/allowances                           $127         $791          $635 (A)      $283
  Discounts                                        38          814           817 (B)        35
                                                 ----          ---          ----          ----
                                                 $165       $1,605        $1,452          $318
                                                 ====       ======        ======          ====
</TABLE>


(A)  Write-off of uncollectable accounts and claims for products

(B)  Discounts taken and allowed

Column C(2) has been omitted as the answer would be "None."



                                       34
<PAGE>

Shareholders' information

Market makers:                                 Stock transfer agent:
Robert W. Baird & Co., Inc. (BARD)             Harris Trust & Savings Bank
Herzog, Heine, Geduld, Inc. (HRZG)             111 West Monroe Street
Spear, Leeds & Kellogg (SLKC)                  Chicago, Illinois 60690


Stock price and dividend information:

The following  table presents high and low sales prices of the Company's  Common
Stock in the indicated  calendar  quarters,  as reported on the Nasdaq  National
Market System.

Quarterly Price Ranges of Stock:

                                           1999                  1998
                                           ----                  ----
                Quarter               High       Low        High      Low
                -------               ----       ---        ----      ---
                First                $9.000    $6.500     $8.875     $6.750
                Second               $7.500    $6.375    $10.750     $6.875
                Third                $8.625    $6.750     $9.750     $7.250
                Fourth               $6.938    $4.000     $8.500     $6.500

Quarterly Dividends Per Share:

Dividend  rates are  established  by the Board of  Directors.  During  the first
quarter 1997, the Board suspended payment of quarterly dividends.  The Company's
line of credit maintains  certain covenants which limit the Company's ability to
pay  dividends.  See  "Management's  Discussion  and Analysis --  Liquidity  and
Capital Resources -- Capital Resources."


Annual meeting of shareholders:

The Annual Meeting of Shareholders  of Badger Paper Mills,  Inc. will be held at
The Best Western Riverfront Inn, 1821 Riverside Avenue, Marinette, Wisconsin, on
Tuesday, May 9, 2000, at 10:00 a.m.



                                       35
<PAGE>

                             DIRECTORS AND OFFICERS

Board of Directors:                   Corporate Officers:

Thomas J. Kuber - Chairman            Thomas J. Kuber
     President                             Chairman of the Board
     K&K Warehousing
                                      Thomas W. Cosgrove
L. Harvey Buek                             President and CEO
     LHB - O & M Consulting
                                      Michael J. Bekes
Mark D. Burish                             Vice President and COO
     President
     Hurley, Burish & Milliken, SC    Clifton A. Martin
                                           Vice President
Thomas W. Cosgrove                         Badger Paper Flexible Packaging Div.
     President and CEO
     Badger Paper Mills, Inc.         Mark C. Neumann
                                           Vice President/Sales
James L. Kemerling
     Consultant                       George J. Zimmerman
                                           Treasurer
John R. Peterson
     Managing Director                Mark D. Burish
     Tucker Anthony Inc.                   Secretary

                                      Susan A. Rudolph
                                           Assistant Secretary


                                       36
<PAGE>

                                  EXHIBIT INDEX

                            BADGER PAPER MILLS, INC.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

Numbers    Description
-------    -----------
(3)       (i)  Restated Articles of Incorporation,  as amended  (Incorporated by
               reference to Exhibit 3(i) to the Company's  Annual Report on Form
               10-K for the year ended December 31, 1996).

          (ii) By-laws as amended through August 12, 1999.

(4)       (i)  U. S. $12,000,000 Credit Agreement dated January 29, 1999, by and
               among  the  Company,   Badger  Paper  Mills  Flexible   Packaging
               Division,  Inc.  (formerly known as Plas-Techs,  Inc.) and Harris
               Trust  and  Savings  Bank,  individually  and as  agent,  and the
               lenders  from  time  to  time  party  thereto   (Incorporated  by
               reference to Exhibit 4(i) to the Company's  Annual Report on Form
               10-K for the year ended December 31, 1998).

         (ii) First Agreement to Amended and Restated Credit  Agreement dated as
              of August 31, 1999 by and among Badger Paper Mills,  Inc., Badger
              Paper Mills Flexible Packaging Division,  Inc., the Lenders,  and
              Harris  Trust  and  Savings  Bank,  as  Agent   (Incorporated  by
              reference to Exhibit 4(ii) to the Company's  Quarterly  Report on
              Form 10-Q for the quarter ended September 30, 1999).

         (iii) Second  Amendment to Amended and Restated Credit  Agreement dated
               as of March 9, 2000,  by and between  Badger  Paper  Mills,  Inc.
               (individually  and as  successor  by merger to Badger Paper Mills
               Flexible Packaging Division, Inc.), the Lenders, and Harris Trust
               and Savings Bank, as Agent.

(10)     Material Contracts:**

          (i)  Supplemental  Executive  Retirement  Plan dated December 18, 1992
               (Incorporated  by reference  to Exhibit 10 (ii) to the  Company's
               Annual Report on Form 10-K for the year ended December 31, 1992).

          (ii) Executive  Employment  Agreement dated March 1, 1995, between the
               Company and Claude L. Van Hefty  (Incorporated  by  reference  to
               Exhibit  10(vii) to the Company's  Annual Report on Form 10-K for
               the year ended December 31, 1994).

          (iii)Health Insurance  Retirement  Benefit  Agreement dated January 1,
               1996 between the Company and Claude L. Van Hefty (Incorporated by
               reference to Exhibit 10(v) to the Company's Annual Report on Form
               10-K for the year ended December 31, 1996).

         (iv)  Director  Stock Grant Plan dated July 23, 1997  (Incorporated  by
               reference to the Company's  Quarterly Report on Form 10-Q for the
               quarter ended September 30, 1997).

          (v)  Employee  Resignation and Release Agreement dated as of March 12,
               1998 between  Badger  Paper  Mills,  Inc. and Claude L. Van Hefty
               (Incorporated  by reference to the Company's  Quarterly Report on
               Form 10-Q for the quarter ended June 30, 1998).

          (vi) Employee  Resignation and Release Agreement dated as of March 12,
               1998 between  Badger Paper  Mills,  Inc. and Miles L. Kresl,  Jr.
               (Incorporated  by reference to the Company's  Quarterly Report on
               Form 10-Q for the quarter ended June 30, 1998).

          (vii)Badger Paper Mills, Inc. 1998 Stock Option Plan  (Incorporated by
               reference to the Company's  Quarterly Report on Form 10-Q for the
               quarter ended June 30, 1999)


                                       37
<PAGE>

          (viii)Form of Badger Paper  Mills,  Inc.  1998 Stock Option  Agreement
               (Incorporated  by reference to the Company's  Quarterly Report on
               Form 10-Q for the quarter ended June 30, 1999).

          (ix) Badger  Paper  Mills,   Inc.  1999  Directors  Stock  Grant  Plan
               (Incorporated  by reference to the Company's  Quarterly Report on
               Form 10-Q for the quarter ended September 30, 1999)


(23)  Consent of Independent Public Accountants

(27)  Financial Data Schedule (EDGAR version only)

(99) Definitive  Proxy Statement for 2000 Annual Meeting of Shareholders  (to be
     filed  with  the  Commission  under  Regulation  14A  and  incorporated  by
     reference herein to the extent indicated in this Form 10-K).

**Each  of  the  "material  contracts"  represents  a  management   compensatory
agreement or arrangement.



                                       38