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, 2001

                                       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 February 14, 2002, 2,023,585 shares of common stock were outstanding, and
the aggregate market value of the Common Stock (based upon the closing sale
price of the shares in the Nasdaq SmallCap Market) held by non-affiliates was
approximately $8,963,232. 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 2002 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 reports to shareholders,
Forms 8-K and 10-Q, definitive 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:

o    Increased competition from domestic or foreign paper producers, or
     providers of alternatives to the Company's products, including increases in
     competitive production capacity and/or weakness in demand for paper
     products. As a paper manufacturer, the Company, if it wants to achieve
     acceptable production costs, must operate its paper mill at a relatively
     high percentage of its available production capacity. The Company's
     competitors face the same or similar situations. Therefore, when the
     overall market for paper products softens, the Company (and other paper
     manufacturers) will generally accept lower selling prices for its products
     in order to maintain acceptable production efficiencies and costs.

o    Changes in the price of pulp, the Company's main raw material. The Company
     purchases all of its pulp 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 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    Interruptions in the supply of, or increases and/or changes in the price of
     energy (principally electricity, natural gas, and fuel oil) that the
     Company needs in its manufacturing operations.

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 it serves.

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

o    Changes in laws or regulations affecting the Company, particularly
     environmental laws and regulations affecting air quality and wastewater
     discharges.

o    The Company's profitability may be adversely affected by increases in
     interest rates because a significant portion of the Company's debt bears
     interest at variable interest rates.

                                       2
<PAGE>
Five-Year Comparison of Selected Financial Data
<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                                  2001          2000          1999          1998          1997
                                                  ----          ----          ----          ----          ----
Operations (in thousands):
<S>                                            <C>           <C>           <C>           <C>           <C>
  Net sales                                    $   76,305    $   76,137    $   69,231    $   67,496    $   72,360
  Cost of sales                                    66,463        73,451        62,478        60,172        69,470
  Gross profit                                      9,842         2,686         6,753         7,324         2,890
  Selling and administrative expenses               5,551         5,106         4,890         4,433         4,148
  Restructuring provision                              --            --            --            --           850
  Pulp mill impairment                                 --            --            --            --           783
  Loss on write-off of trade credits                   --           440            --            --            --
  Loss on disposal of property, plant
    and equipment                                       8            22            --            --            --
  Operating income  (loss)                          4,283        (2,882)        1,863         2,891        (2,891)
  Other income (expense)                              237           175           617           946           650
  Gain on sale of timberland                        1,627            --            --            --            --
  Interest expense                                    927         1,250         1,064         1,196         1,354
  Income (loss) before income taxes                 5,220        (3,957)        1,416         2,641        (3,595)
  Provision (benefit) for income taxes              1,374          (891)          279           897        (1,153)
  Net income (loss)                                 3,846        (3,066)        1,137         1,744        (2,442)

Common Stock:

  Number of shareholders                              380           392           434           470           515
  Weighted average of shares
    outstanding                                 2,004,664     1,981,716     1,966,111     1,955,772     1,947,128
  Net earnings (loss) per share basic          $     1.92    $    (1.55)   $     0.58    $     0.89    $    (1.25)
  Net earnings (loss) per share diluted        $     1.89    $    (1.55)   $     0.58    $     0.89    $    (1.25)
  Book value per share                         $    10.10    $     8.32    $     9.91    $     9.33    $     8.42

Financial position (in thousands):

  Working capital                              $    6,717    $   (9,950)   $    8,259    $    7,346    $    7,196
  Capital expenditures                              1,439         2,265         2,815         3,004         4,686
  Total assets                                     40,280        43,357        46,894        47,999        48,356
  Long term debt                                    9,794         1,310        15,705        16,126        20,394
  Shareholders' equity                             20,445        16,482        19,484        18,257        16,444
</TABLE>

                                       3
<PAGE>
PART I

Item 1.  Business

          Badger Paper Mills, Inc. ("Badger" or the "Company") has been
producing paper and paper products in Wisconsin since it was incorporated under
the laws of the State of Wisconsin in 1929. The Company operates in two
principal segments: (1) the manufacture of paper and paper products (the "Paper
Products Business"), and (2) the production of flexible packaging materials (the
"Flexible Packaging Business").

          The Paper Products Business, located in Peshtigo, Wisconsin and
adjacent to the Company's principal executive offices, manufactures paper on two
paper machines (a "Yankee" paper machine and a "Fourdrinier" paper machine). The
Company also performs certain converting operations as part of its Paper
Products Business. The Flexible Packaging Business produces flexible packaging
materials principally for consumer applications.

          The Company's Facilities in Peshtigo, Wisconsin house its principal
executive offices, as well as its Paper Product's Business. All of the Company's
physical facilities in Peshtigo, Wisconsin are sometimes referred to herein as
the Company's "Peshtigo Facilities."

          The Company's Flexible Packaging Business is headquartered in Oconto
Falls, Wisconsin (approximately 30 miles from Peshtigo, Wisconsin), and consists
of a Company-owned manufacturing facility and certain leased warehouse space.
All of the Company's owned and leased facilities in Oconto Falls, Wisconsin are
sometimes referred to herein as the Company's "Oconto Falls Facilities".

Products and Distribution

Paper Products Business

          The Company's Paper Products Business, conducted at its Peshtigo
Facilities, includes the manufacture of paper, and certain converting
operations. Converting operations conducted in the Paper Products Business
include punching, sheeting, trimming, sealing, perforating, rewinding, waxing,
drilling and die-cutting.

          As noted above, the Company manufactures paper on its two paper
machines. The Yankee paper machine allows the Company to manufacture 27% of its
paper products, as measured by weight, representing 30% of 2001 net sales.
Products produced on the Yankee paper machine include converted printed and
unprinted waxed papers, grades used in laminating applications, colored papers,
specialty-coated papers and papers used in applications where twisting is
required to seal product. These products are sold to manufacturers and
converters by Company sales personnel and commissioned brokers.

          The Fourdrinier paper machine allows the Company to manufacture 73% of
its paper products, as measured by weight, representing 55% of 2001 net sales.
The Fourdrinier paper machine produces fine paper grades utilizing fiber
purchased on the open market, including pre- and post-consumer recycled fibers.
Papers produced on the Fourdrinier paper machine are used in several
applications including business papers, printing, high quality writing papers,
book publishing stock, reply card, watermarked, industrial and consumer papers
that require water-oil-grease resistant ("WOGR") attributes, copier papers and
specialty papers. The Company offers a wide range of colored papers and
specializes in color matching. A portion of the products produced by the Company
are sold under certain trademarks and trade names, including Ta-Non-Ka(R),
Copyrite(R), ENVIROGRAPHIC(R),

                                       4
<PAGE>
Northern Brights(R), Artopaque(R), Marks of Distinction(R) and DuraEdge(R).
Other 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 two paper machines produce papers that have different
features. Paper produced on the Yankee paper machine has very a smooth surface
on one side of the paper, which is referred to as Machine Glazed ("MG"). The
smooth finish on MG paper allows the paper to work well in certain coating and
printing applications.

          Paper produced on the Fourdrinier paper machine does not have a glazed
finish. Paper produced on the Fourdrinier paper machine is Machine Finished
("MF"). MF paper works well in a broad range of applications including
publishing, writing paper and certain printing applications.

          The Paper Products Business sells its products to a wide range of
paper converting companies throughout the United States, including the Company's
Flexible Packaging Business. These sales are conducted through the Company's
sales personnel. The largest concentration of the Company's customers can be
found in the Midwestern states of Wisconsin, Illinois, Missouri and Ohio. The
Paper Products Business contributed 85% of the Company's net sales in 2001.

Flexible Packaging Business

          The Company's Flexible Packaging Business complements the Company's
Paper Products Business by adding value to certain paper grades by printing and
converting paper and paper products manufactured. The Flexible Packaging
Business purchased during 2001 $2,946,000 of paper and paper products from the
Paper Products Business. The Company's Flexible Packaging Business is able to
print on a variety of surfaces, including paper and plastic, and to manufacture
polyethylene bags.

          The Flexible Packaging Business sells its products to a wide range of
consumer products companies throughout the United States. The largest
concentration of the Company's customers can be found in the Midwestern states
of Wisconsin, Illinois, Missouri and Ohio. During 2001, paper purchased from the
Paper Products Business accounted for 73% of the Flexible Packaging Business'
net sales. The Flexible Packaging Business contributed 15% of the Company's net
sales in 2001.

          The Company's foreign net sales are immaterial to its operations.

Competition

Paper Products Business

          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 paper production represents less than 1% of the
production capacity in the United States for these products. Competition for all
grades of paper manufactured by the Company include International Paper
Corporation, Georgia-Pacific Corporation, Wausau-Mosinee Paper Corporation and
smaller, non-integrated paper companies. Many of the Company's larger
competitors have greater financial, technical, marketing and public relation
resources, larger client bases and greater brand or name recognition than
Badger.

                                       5
<PAGE>
Flexible Packaging Business

          The Flexible Packaging Business has an immaterial share of the total
market. The Company's largest competitors in this business segment include Bemis
Company, Inc., Menasha Corporation and several small printing companies.

Raw Materials; Inventory

Paper Products Business

          The principal raw material used in Badger's Paper Products Business is
pulp. Badger utilizes a variety of fibers to meet the formulation requirements
of the papers it produces. Northern and southern softwood and hardwood pulps,
pre-consumer and post-consumer recycled 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 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. Although Badger does not anticipate any material
near-term increases in pulp prices, it believes that the long-term trend likely
will be higher pulp prices.

Flexible Packaging Business

          The primary raw materials used in the Company's Flexible Packaging
Business are paper, nonwovens (a replacement for textile), polyethylene and
printing inks. Raw materials are purchased directly from manufacturers. Paper
from the Peshtigo Facilities is a raw material for some of the products
manufactured in the Flexible Packaging Business.

          In-process and finished goods inventory at the end of 2001 was
equivalent to approximately 32 days of production, compared to 41 days in 2000.

Energy

          Badger is a large consumer of energy, including electricity, natural
gas and fuel oil. In 2001, 8.2% of Badger's cost of sales represented energy
costs compared to 7.1% of Badger's cost of sales in 2000. Badger purchases
electricity from local public utilities, and it purchases natural gas from
various sources in the United States and Canada. Two dual-fueled boilers capable
of burning natural gas or fuel oil and one natural gas boiler supply the
Peshtigo Facilities' heating and manufacturing requirements. Natural gas costs
increased 61.5% in the second half of 2000. As a result, Badger elected to use
fuel oil in its boilers during the first quarter of 2001. Using fuel oil instead
of natural gas resulted in cost savings to the Company. As natural gas prices
declined during 2001, it became cost effective for the Company to use natural
gas to fuel its boilers.

          Although Badger experienced temporary interruptions of electrical
service in the summer of 2001 and 2000 due to regional shortages of electricity
during peak demand periods, the Company believes that current sources of
electricity, natural gas and fuel oil are adequate to meet its needs. Such
interruptions caused the Company to temporarily stop the manufacture of paper.
There is no damage to equipment during these temporary power interruptions.
Badger could experience similar interruptions in the future.

                                       6
<PAGE>
Patents

          The Company possesses certain patents and licenses used in connection
with its business, none of which individually or in the aggregate are material.

Research and Development

          The Company maintains a dedicated technical staff of employees charged
with the responsibility of researching and developing new products. The Company
also relies on outside consultants from time to time for special research and
development projects. The Company's technical staff also refines and improves
existing products in response to customer requirements and market demands. The
Company spent $469,000 in 2001, $762,000 in 2000 and $532,000 in 1999 on product
research and development activities.

          A significant percentage of the Company's research and development
costs are spent working on concepts and designs for new and/or improved paper
products for customers. Since many of the Company's customers for paper products
are converters, these customers need trial production runs of paper products to
evaluate how the Company's new or modified paper products perform in actual use
on the customers' paper-converting machinery and equipment. If such trial
production runs are unsuccessful, the Company charges the associated costs to
research and development. If such trial production runs are successful, the
Company sells the product to customers. Revenues from successful trial
production runs are included in sales and the associated costs are accounted for
in cost of sales.

Backlog

          As of December 31, 2001, the dollar value of the Company's order
backlog was approximately $2,837,000 as compared to $1,678,000 and $2,106,000 at
December 31, 2000 and 1999, respectively.

Customers

          In 2001, 2000 and 1999, no customer represented over 10% of Badger's
net sales.

Environmental Matters

Paper Products Business

          In 2000, the Company received final regulatory approval from the
Wisconsin Department of Natural Resources ("WDNR") of its Title V air operating
permit for its Peshtigo, Facilities. The permit does not require the Company to
install new or additional pollution control equipment, and as such, the Company
is responsible for the costs associated with routine monitoring, record keeping
and reporting requirements. These costs are minimal.

          Prior to January 30, 2002, effluent flow from Badger's Peshtigo
Facilities was directed into a joint municipal wastewater treatment plant, which
Badger operated under contract with the City of Peshtigo, Wisconsin. Effective
January 30, 2002, Badger sold this wastewater treatment plant to the City of
Peshtigo for approximately $1,250,000; however, Badger continues to operate this
wastewater treatment plant.

                                       7
<PAGE>

          In January 2000, the WDNR approved a final closure report filed by the
Company with respect to its former Harbor Road Landfill. The WDNR will continue
to review the effectiveness of this closure. If the WDNR subsequently determines
that the closure was ineffective, then the WDNR may require the Company to
undertake further remedial actions. Based on the Company's consultant's report
(dated April 1999), the Company estimated that the potential future cost of such
future environmental remedial efforts (assuming that the WDNR determines that
the closure was ineffective) was approximately $300,000. The Company has not
subsequently updated this consultant's report. The Company has provided a letter
of credit to the WDNR, currently in the amount of $164,305 but subject to
incremental increases in the future up to $300,000, to ensure that funds are
available for future remedial actions should they become necessary.

          The Company also has a requirement to clean up fuel oil contamination
on Company property. The estimated cost associated with the clean up of the
contamination is $10,000.

          The Company's Peshtigo Facilities are located near the Lower Fox
River/Green Bay Area of Concern ("AOC"). Pursuant to the Great Lakes Water
Quality Agreement, forty-three AOC's have been identified and are located
throughout the Great Lakes Basin. The Company has not been identified by WDNR or
the United States Environmental Protection Agency ("EPA") as responsible for the
environmental problems within the Lower Fox/Green Bay AOC.

          The Company does not anticipate any capital expenditures for pollution
control equipment during the next two fiscal years.

Flexible Packaging Business

          The Company was issued an air operating permit by the WDNR for its
Oconto Falls Facilities. The permit expires on January 29, 2006. The permit
limits emissions so that the facility is considered a "synthetic minor" under
the EPA's Title V air permit program. The permit authorizes the operation of the
flexographic printing process at the facility.

          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.

Employees

          As of December 31, 2001, the Company had 288 employees.

Paper Products Business

          Of the 234 employees at the Peshtigo Facilities, 177 were covered by
six-year collective bargaining contracts running through May 2002.

Flexible Packaging Business

          The Oconto Falls Facilities employed 54 personnel, none of whom were
covered by a collective bargaining contract.

                                       8
<PAGE>
Item 2.  Properties
<TABLE>
                                   Properties
<CAPTION>
                                         Approximate Floor
Location             Owned or Leased     Area in Square Feet    Principal Uses
--------             ---------------     -------------------    --------------
<S>                  <C>                 <C>                    <C>
Peshtigo, WI         Owned(1)            3,750                  Principal executive offices

Peshtigo, WI         Owned(1)            88,500                 Paper Products Business

Oconto Falls, WI     Owned               40,000                 Flexible Packaging Business

Oconto Falls, WI     Leased(2)           20,300                 Warehouse space
</TABLE>
--------------
(1)  As a result of the November 2001 refinancing of its revolving and long-term
     debt, two of the Company's lenders hold mortgages on the Peshtigo
     Facilities.

(2)  The lease for these 20,300 square feet of warehouse space is a five-year
     lease (triple net lease basis) which commenced on October 1, 2000. The
     current base rent is approximately $51,000 per year, increasing
     incrementally to $56,000 per year in the final year of the lease.

*    The Company leases equipment. Information related to these leases can be
     found in Note M to the Company's 2001 audited financial statements.

Item 3.  Legal Proceedings

          The Company does not have any material legal proceedings pending, and
does not have any litigation or governmental proceedings with respect to
environmental matters pending (except to the extent identified under the
"Environmental Matters" caption in Item 1 of Part I of this Form 10-K).

Item 4.  Submission of Matters to a Vote of Shareholders

          No matters were submitted to a vote of Company shareholders in the
fourth quarter of 2001.

PART II

Item 5. Market For the Registrant's Common Stock and Related Shareholder
Matters.

          The Company's Common Stock trades in the Nasdaq SmallCap Market under
the symbol "BPMI." As of December 31, 2001, the Company had 380 shareholders of
record. Information about the trading prices for shares of the Company's Common
Stock and dividends on the Common Stock are included under the caption "Stock
price and dividend information" in Part III of this Form 10-K.

                                       9
<PAGE>
Item 6.  Selected Financial Data

          Selected Company financial data is presented on Page 3 of this Form
10-K under the caption "Five-Year Comparison of Selected Financial Data."

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Results of Operations

Overview

          Improved profitability in 2001 as compared to 2000 resulted from the
Company's ability to maintain its selling prices in an environment where
declining pulp costs drove lower paper prices. The Company was able to maintain
its pricing partially due to the markets it serves. The Company's overall
average selling price increased slightly during 2001 when compared to 2000 while
the Company's cost for pulp decreased 29%. Management is focused on moving the
Company into specialty markets where pricing pressures are less significant when
compared to commodity grades.

          The gross profit resulting from the Paper Products Business and the
Flexible Packaging Business was 12.9% of net sales in 2001 compared to 3.5% of
net sales in 2000. The Flexible Packaging Business' net sales increased 8.5% in
2001 when compared to 2000. The Company maintains a strong base of business in
the tissue wrap market.

2001 Versus 2000

Net Sales

          Net sales in 2001 were $76,305,000 compared to $76,137,000 in 2000, an
increase of $168,000.

     Paper Products Business

          Paper Products Business net sales were $65,190,000 in 2001 compared to
$65,896,000 in 2000, a decrease of 1.1%. The reduction in net sales can be
attributed to reduced production in grades made on the Fourdrinier paper
machine. Net sales of Fourdrinier paper machine grades declined 3.7% in 2001
when compared to 2000. The reduction in net sales is attributed to shipment
volume. Shipment volume, as measured in weight, declined 5.2% in 2001 with a
1.5% increase in the average price. Net sales of MG grades increased 4.3% in
2001. Shipment volume, as measured in weight, increased 7.2% in 2001 compared to
2000. The average selling price of MG grades decreased 2.7% in 2001 compared to
2000.

     Flexible Packaging Business

          Flexible Packaging Business net sales increased 8.5% in 2001 as
compared to 2000. The Company continues to grow the tissue wrap business.

Cost of Sales

          The cost of sales for 2001 was $66,463,000 and 87.1% of net sales
compared to $73,451,000 and 96.5% of net sales in 2000. The cost of sales
decrease is a result of the reduction in

                                       10
<PAGE>
the cost of pulp. The reduction in the cost of sales as a percentage of net
sales is the combined effect of the Company's ability to hold its pricing while
the Company's cost of pulp decreased. The improvement in cost of sales and the
resulting improvement in gross profit can be attributed to the reductions in the
price of pulp.

     Paper Products Business

          The Paper Products Business produced 60,185 tons of paper in 2001
compared to 60,912 tons in 2000, a reduction of 727 tons and 1.2%. Total pulp
costs for 2001 decreased 28.7% when compared to 2000. During 2001, the Company
scheduled down time rather than run unprofitable business. Scheduled down time
in 2001 was 19.9% of available capacity compared to 23.7% in 2000.

          During 2000, the Company experienced a 61.5% increase in natural gas
costs over the costs in 1999. As a result of the significant increase in natural
gas, the Company elected to fuel its boilers with fuel oil during the first
quarter of 2001 in order to reduce cost. The Company's overall cost to fuel its
boilers in 2001 were 3.4% higher than the cost incurred in 2000.

     Flexible Packaging Business

          The Flexible Packaging Business' cost of sales increased 15.3% during
2001 while net sales increased 8.5%. The increase in net sales is a result of
higher production volume. Pricing pressure caused the cost of sales to increase
faster than the growth in net sales .

Gross Profit

          Gross profit in 2001 was $9,842,000 and 12.9% of net sales compared to
$2,686,000 and 3.5% of net sales in 2000. Improved margins are the combined
result of the Company's ability to hold pricing while, at the same time,
experiencing decreases in the cost of pulp.

     Paper Products Business

          The most significant factor in the Company's improvement in gross
profit is the reduction in pulp costs combined with the Company's ability to
hold its selling prices. In 2001, gross profit in the Paper Products Business
was 12.9% of net sales compared to 0.8% in 2000. The Company was able to hold
selling prices, in part, because of its strategy to transition from lower margin
commodity grades to specialty products.

     Flexible Packaging Business

          In 2001, the Flexible Packaging Business generated a gross profit of
16.2% of net sales compared to 21.2% of net sales in 2000. Although the Flexible
Packaging Business experienced some pricing pressure in 2001, the Company
continues to focus its attention on improving operational efficiencies in this
segment of the business.

Selling & Administrative Expense

          In 2001, selling and administrative expense increased $431,000 and
8.4% over 2000. During 2001, the Company incurred several costs associated with
management of the business that were not incurred in 2000. These costs include
costs associated with: (1) filling open management positions and (2) external
consulting resources to assist in managing the business.

                                       11
<PAGE>
Income Tax

Income taxes in 2001 were $1,374,000 or 26.3% of income before taxes. In 2000,
the Company realized a tax benefit of $891,000 or 22.5% of the loss before
interest. The difference between statutory tax rates and the Company's effective
tax rate is the realization of the benefits related to the Federal net operating
loss carryforward ultilized in 2001.

Other Income & Expense

          During 2001, the Company realized $1,627,000 in gains from the sale of
timberland that was not used in the day-to-day operations of the business since
the Company closed its pulp mill several years ago.

2000 Versus 1999

Net Sales

          Net sales in 2000 were $76,137,000 compared to $69,231,000 in 1999, an
increase of $6,906,000 or 10.0%.

     Paper Products Business

          The Paper Products Business' net sales were $65,896,000 in 2000
compared to $60,575,000 in 1999, an increase of $5,321,000 or 8.8%. Production
volume, as measured by weight, increased 2.6% in 2000 while the average price
increased 5.8%. Net sales of Fourdrinier paper grades increased 6.3% in 2000
relative to 1999 as a result of increased pricing. There was less than 1%
difference in the volume of fine paper produced in 2000 as compared to 1999. Net
sales of MG grades increased 14.5% in 2000. Volume for packaging grades
increased 14.1% in 2000 while pricing increased 1.3%.

     Flexible Packaging Business

          The Flexible Packaging Business' net sales increased 18.3% in 2000 as
compared to 1999. The Company saw an increase in its tissue wrap business.

Cost of Sales

          Cost of sales were $73,451,000 and 96.5% of net sales in 2000 compared
to $62,478,000 and 90.2% in 1999. The increase in cost of sales in dollars can
be attributed to increases in the cost of pulp and energy. The increase in cost
of sales relative to net sales is a result of the Company's inability to
increase prices sufficiently to cover the increases in its raw materials cost.

     Paper Products Business

          Cost of sales in the Paper Products Business were $65,380,000 and
99.2% of net sales in 2000 compared to $55,385,000 and 91.4% in 1999. The
Company was not successful in raising prices sufficiently to cover the increase
in costs to produce paper. In particular, the increase in pulp and energy costs.
Pulp cost in 2000 were $7,500,000 and 33.0% higher than costs incurred in 1999.
Energy costs increased over $1,200,000 and 61.5% in 2000. These cost increases
were driven entirely by an increase unit cost. Production volume in 2000 was
virtually constant at 60,912 tons, a decrease of 545 ton and 0.9% when compared
to 1999.

                                       12
<PAGE>
     Flexible Packaging Business

          Cost of sales in the Company's Flexible Packaging Business were
$8,071,000 and 78.8% of net sales in 2000 compared to $7,093,000 and 81.9% of
net sales in 1999.

Gross Profit

          Gross profit in 2000 was $2,686,000 and 3.5% of net sales compared to
$6,753,000 and 9.8% of net sales in 1999. The decline in gross profit is a
result of increased costs for raw material, in particular pulp and energy, and
the Company's inability to increase prices sufficiently to cover those cost
increases.

     Paper Products Business

          The Paper Products Business' gross profit fell to less than 1% of net
sales in 2000 compared to 8.6% in 1999. The reduction in gross profit is the
result of increases in pulp and energy costs and the Company's inability to pass
these higher costs on to its customers.

     Flexible Packaging Business

          The Flexible Packaging Business' gross profit increased to 21.2% of
net sales in 2000 compared to 18.1% in 1999. The improvement can be attributed
to higher margin product mix and improvements in production efficiency.

Selling, Administration and Other Expenses

          The Company realized an increase in selling and administrative
expenses of $238,000 or 4.9% in 2000 as compared to 1999. The increase in
selling and administrative expenses in 2000 over 1999 is related to accounts
receivable and uncollectible accounts. In 2000, the Company wrote-off $279,000
in uncollectible accounts compared to $54,000 in 1999, an increase of $225,000.

          During 2000, the Company determined that it would not realize the
benefit of $440,000 of trade credits and recognized a write off of these credits
against 2000 operations.

          In the second quarter of 1999, Badger 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 its balance sheet and $391,000 of non-recurring income.

Liquidity and Capital Resources

Capital Expenditures

          Capital expenditures during 2001 were $1,439,000, compared to
$2,265,000 for the same period in 2000.

     Paper Products Business

          Major projects in 2001 in the Paper Products Business included the
rebuild of a waxing machine and equipment to improve the consistency of the
profile of the paper produced on the Yankee paper machine and rewinding
equipment.

                                       13
<PAGE>
     Flexible Packaging Business

          The Flexible Packaging Business did not have any major capital
projects during 2001.

          The Company expects that its capital expenditures in 2002 will not
exceed $4,000,000.

Capital Resources

          As of December 31, 2001 the Company's capital resources included
$664,000 in cash and borrowings under the Company's $15,000,000 revolving credit
facility. Borrowings under this facility totaled $4,946,000. Based on the
balances in inventory and accounts receivable, the Company had an available
balance under the line of $9,138,000. The Company also has $1,148,000 available
from its term debt facility for purchases of fixed assets.

          In November 2001, the Company obtained a revolving credit agreement
with a commercial bank providing for asset-based financing which expires in
November 2004. The line of credit provides for maximum borrowings of
$15,000,000, limited to certain percentages of receivables and inventory, and
reduced by outstanding letters of credit. The line of credit bears interest at a
variable rate based on alternative interest rate bases at the Company's option
(4.75% at December 31, 2001). A facility fee of 1/4% is payable for unused
amounts. The line of credit is collateralized by accounts receivable and
inventory.

          At December 31, 2001, the revolving line of credit required, among
other items, the Company to maintain a fixed charge coverage ratio of 1.00 and a
minimum tangible net worth. Capital expenditures are limited to $3,000,000 per
year in 2002 and periods thereafter.

          The Company obtained a variable rate term loan in November 2001. The
agreement provides for monthly payments of principal and interest, with interest
at prime plus 1/2%. Borrowings are collateralized by certain property, plant and
equipment.

          The UDAG debt, including additional funding obtained in November 2001,
is due in monthly installments of $17,931, including interest at 5.0%, through
maturity in November 2011. This loan is collateralized by certain property.

          The Company is currently in compliance with all material provisions of
its revolving credit and long-term credit agreements. The Company believes that
cash provided by operations and its revolving credit facility are sufficient to
meet its current and anticipated working capital needs, as well as fund its
planned capital expenditures.

Cash Flows

          Cash provided from operations in 2001 was $5,740,000 compared to
$2,233,000 in 2000. The increase in cash flow is the combined results of
increased profitability and reductions of inventory.

          Net cash provided from investing activities was $258,000 in 2001
compared to net cash used in investing activities of $1,679,000 in 2000. The
proceeds from the sale of timberland in 2001 generated cash from investing
activities. Such proceeds were not available in 2000.

          The Company used $6,314,000 in financing activity in 2001 as compared
to $243,000 in 2000. The increase in cash used in financing activities is a
result of cash flow from operations and the sale of assets being used to reduce
debt.
                                       14
<PAGE>
          The Company used the proceeds from the sale of the wastewater
treatment plant in January 2002 to reduce the outstanding advances under its
revolving credit facility. The Company believes that cash flow from operations
will be sufficient to allow the Company to meet its obligations in 2002.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

          The Company is exposed to market risk from changes in interest on its
debt. The revolving credit facility provides for borrowings up to $15,000,000
and extends to November 2004. An annual commitment fee of 1/4% is payable for
unused amounts. The Company's interest rate floats based on the lender's prime
rate. As of December 31, 2001, the Company was paying 4.75% annual rate on
amounts borrowed against this line.

          A majority of the Company's debt is at variable interest rates, and a
hypothetical 1% (100 basis point) change in interest rates would cause an
estimated increase in annual interest expense of $85,000.

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



                                       15
<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. and Subsidiary (a Wisconsin corporation) as of December 31,
2001 and 2000 and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. 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 audits.

          We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. 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, 2001 and 2000 and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.


/s/  Grant Thornton LLP

Appleton, Wisconsin
January 25, 2002 (except for Note A9, as to
which the date is January 30, 2002)


                                       16
<PAGE>
                              Badger Paper Mills, Inc. and Subsidiary
<TABLE>
                                    CONSOLIDATED BALANCE SHEETS
                                            December 31
                                      (dollars in thousands)
<CAPTION>
                                                                        2001             2000
                                                                        ----             ----
                                         ASSETS
CURRENT ASSETS
<S>                                                                 <C>              <C>
   Cash and cash equivalents                                        $        664     $        980
   Certificates of deposit                                                   164              100
   Accounts receivable, net                                                6,107            6,608
   Inventories                                                             4,983            6,519
   Refundable income taxes                                                   170              300
   Deferred income taxes                                                   1,150                -
   Property held for resale                                                  258                -
   Prepaid expenses and other                                                748              571
                                                                    ------------     ------------
     Total current assets                                                 14,244           15,078

PROPERTY, PLANT AND EQUIPMENT, NET                                        25,445           27,711

OTHER ASSETS                                                                 591              568
                                                                    ------------     ------------
     Total assets                                                   $     40,280     $     43,357
                                                                    ============     ============

                                       LIABILITIES

CURRENT LIABILITIES
   Current portion of long-term debt                                $        414     $     15,212
   Accounts payable                                                        2,921            6,859
   Accrued liabilities                                                     3,792            2,957
   Income taxes payable                                                      400                -
                                                                    ------------     ------------
     Total current liabilities                                             7,527           25,028

LONG-TERM DEBT                                                             9,794            1,310

DEFERRED INCOME TAXES                                                      1,839                -

OTHER LIABILITIES                                                            675              537

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                                                 54              170
   Retained earnings                                                      19,213           15,367
   Treasury stock, at cost, 136,415 and 171,583
   shares in 2001 and 2000, respectively                                  (1,522)          (1,755)
                                                                    ------------     ------------
     Total shareholders' equity                                           20,445           16,482
                                                                    ------------     ------------

     Total liabilities and shareholders' equity                     $     40,280     $     43,357
                                                                    ============     ============
</TABLE>
The accompanying notes are an integral part of these statements.

                                       17
<PAGE>
<TABLE>
                                      Badger Paper Mills, Inc. and Subsidiary

                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                              Years ended December 31,
                                               (dollars in thousands)
<CAPTION>
                                                                        2001             2000             1999
                                                                        ----             ----             ----
<S>                                                                 <C>              <C>              <C>
Net sales                                                           $     76,305     $     76,137     $     69,231

Cost of sales                                                             66,463           73,451           62,478
                                                                    ------------     ------------     ------------

       Gross profit                                                        9,842            2,686            6,753

Selling, general and administrative expenses                               5,559            5,128            4,890
Loss on write-off of trade credits                                             -              440                -
                                                                    ------------     ------------     ------------

       Operating income (loss)                                             4,283           (2,882)           1,863

Other income (expense)
  Interest and dividend income                                                77               44               85
  Interest expense                                                          (927)          (1,250)          (1,064)
  Gain on sale of timberlands                                              1,627                -                -
  Gain from life insurance proceeds                                            -                -              391
  Miscellaneous, net                                                         160              131              141
                                                                    ------------     ------------     ------------
                                                                             937           (1,075)            (447)
                                                                    ------------     ------------     ------------

Income (loss) before income tax                                            5,220           (3,957)           1,416

Provision (benefit) for income taxes                                       1,374             (891)             279
                                                                    ------------     ------------     ------------

       Net income (loss)                                            $      3,846     $     (3,066)    $      1,137
                                                                    ============     ============     ============

       Net earnings (loss) per share - basic                        $       1.92     $     (1.55)     $       0.58
                                                                    ============     ============     ============

       Net earnings (loss) per share - diluted                      $       1.89     $     (1.55)     $       0.58
                                                                    ============     ============     ============

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

                                       18
<PAGE>
<TABLE>
                                      Badger Paper Mills, Inc. and Subsidiary

                                   CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                              Years ended December 31,
                                               (dollars in thousands)
<CAPTION>

                                                                        2001             2000             1999
                                                                        ----             ----             ----

Common Stock
<S>                                                                 <C>              <C>              <C>
   Balance, December 31                                             $      2,700     $      2,700     $      2,700
                                                                    ------------     ------------     ------------

Additional paid-in capital
   Balance, January 1                                                        170              201              200
   Treasury stock issued                                                    (116)             (31)               1
                                                                    ------------     ------------     ------------

   Balance, December 31                                                       54              170              201
                                                                    ------------     ------------     ------------

Retained earnings
   Balance, January 1                                                     15,367           18,433           17,296
   Net income (loss)                                                       3,846           (3,066)           1,137
                                                                    ------------     ------------     ------------

   Balance, December 31                                                   19,213           15,367           18,433
                                                                    ------------     ------------     ------------

Treasury stock
   Balance, January 1                                                     (1,755)          (1,850)          (1,939)
   Shares issued (35,168, 14,249 and 13,446 shares
    in 2001, 2000 and 1999, respectively)                                    233               95               89
                                                                    ------------     ------------     ------------

   Balance, December 31                                                   (1,522)          (1,755)          (1,850)
                                                                    ------------     ------------     ------------

Shareholders' equity
   Balance, December 31                                             $     20,445     $     16,482     $     19,484
                                                                    ============     ============     ============

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


                                       19
<PAGE>
<TABLE>
                                         Badger Paper Mills, Inc. and Subsidiary

                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                Years ended December 31,
                                                 (dollars in thousands)
<CAPTION>
                                                                                   2001           2000           1999
                                                                                   ----           ----           ----
Cash flows from operating activities:
<S>                                                                             <C>            <C>            <C>
  Net income (loss)                                                             $    3,846     $   (3,066)    $    1,137
  Adjustments to reconcile to net cash provided by operating activities
     Depreciation                                                                    3,355          3,005          2,853
     Directors' fees paid in shares                                                    117             64             90
     Deferred income taxes                                                             689           (680)           200
     Realized loss on sale of marketable securities                                      -             12              -
     Gain from life insurance proceeds                                                   -              -           (391)
     Gain on sale of timberlands                                                    (1,627)             -              -
     Loss on write-off of trade credits                                                  -            440              -
     Other                                                                               8             22              -

Changes in assets and liabilities
     Accounts receivable, net                                                          501           (528)          (818)
     Inventories                                                                     1,536          1,300         (1,618)
     Accounts payable and accrued liabilities                                       (3,103)         1,944            602
     Income taxes refundable (payable)                                                 530            (80)          (363)
     Other                                                                            (112)          (200)          (363)
                                                                                ----------     ----------     ----------
         Net cash provided by operating activities                                   5,740          2,233          1,329

Cash flows from investing activities:
  Additions to property, plant and equipment                                        (1,439)        (2,265)        (2,815)
  Proceeds from sale of timberlands and other property and equipment                 1,761             61             13
  Net (purchases) maturities of certificates of deposit                                (64)           400            496
  Life insurance proceeds                                                                -              -            622
  Purchases of marketable securities                                                     -              -            (36)
  Proceeds from sale of marketable securities                                            -            125          1,260
                                                                                ----------     ----------     ----------
         Net cash provided by (used in) investing activities                           258         (1,679)          (460)

Cash flows from financing activities:
  Increase (decrease) in revolving notes payable                                    (6,554)           800          1,600
  Proceeds from long-term debt                                                       4,114              -              -
  Payments on long-term debt                                                        (3,874)        (1,043)        (4,029)
                                                                                ----------     ----------     ----------
         Net cash used in financing activities                                      (6,314)          (243)        (2,429)
                                                                                ----------     ----------     ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  (316)           311         (1,560)

Cash and cash equivalents:
  Beginning of year                                                                    980            669          2,229
                                                                                ----------     ----------     ----------
  End of year                                                                   $      664     $      980     $      669
                                                                                ==========     ==========     ==========
</TABLE>
The accompanying notes are an integral part of these statements.

                                       20
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000

NOTE A - SUMMARY OF ACCOUNTING POLICIES

Badger Paper Mills, Inc. manufactures paper and paper products and provides
printing and converting services to customers throughout the United States, with
concentrations in the Midwestern States of Wisconsin, Illinois, Missouri and
Ohio. 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.   Concentrations

          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.

          The Company's Paper Products Business employs approximately 177
employees represented by the United Paperworkers Union. The existing agreement
expires in May 2002.

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.

                                       21
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)

5.   Estimates

          Preparation of the consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
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

          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.

7.   Receivables

          Accounts receivable are stated net of an allowance for sales returns,
cash discounts and doubtful accounts. The Company estimates an allowance based
on actual payment history of each individual customer. Consequently, an adverse
change in the financial condition of a particular customer could affect the
Company's estimate of its allowance.

8.   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.

9.   Property Held for Resale

          Property held for resale consists of a sewage treatment plant. On
January 30, 2002, the Company sold this plant to the City of Peshtigo for cash
proceeds of $1,250,000.

10.  Property, Plant and Equipment

          These assets are stated at cost. Spare parts are stated at cost,
subject to net realizable value. If the parts are utilized in a project that
either extends the lives or increases the capacity of the equipment, they are
capitalized. If the parts are utilized in ordinary repairs or maintenance, they
are charged to operating expense. Depreciation of plant and equipment is
provided on the straight-line basis over the estimated useful lives of the
assets. Land improvements useful lives are 15 years. Buildings useful lives
range from 30 to 33 years and machinery and equipment from 3 to 17 years.
Accelerated depreciation is used for income tax purposes.

                                       22
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)

11.  Trade Credits

          Trade credits represented credits issued by an international barter
firm in exchange for surplus inventory. Trade credits were recorded at the lower
of cost or market of the inventory exchanged. The Company regularly reviewed
trade credits if events or circumstances indicated that the trade credits were
impaired. In the fourth quarter of 2000, the balance of trade credits of
$440,000 were written off through an impairment charge, as the trade credits no
longer had value in negotiations with key suppliers. The write-off of trade
credits represented a net loss per share of $0.22 both on a basic and diluted
basis for 2000. The write-off related to the Paper Products Business.

12.  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.

13.  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 and liabilities 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.

14.  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, if 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 SFAS No. 123, "Accounting for
Stock-Based Compensation." Compensation expense is recorded using the front
loaded method.

15.  Net Sales Recognition

          Net sales are recognized by the Company when goods are shipped and
accepted by the customer.

                                       23
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE A - SUMMARY OF ACCOUNTING POLICIES (Continued)

16.  Shipping and Handling Costs

          The Company records shipping and handling costs in cost of sales on
the statement of operations. Shipping and handling costs amounted to $4,562,000,
$4,464,000 and $4,150,000 for the years ended December 31, 2001, 2000 and 1999,
respectively.

17.  Research and Product Development Costs

          Research and product development costs related to potential new
products and applications are expensed when incurred. These costs amounted to
$469,000, $762,000 and $532,000 for 2001, 2000 and 1999, respectively.

18.  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:

                                  2001              2000             1999
                                  ----              ----             ----
          Basic                 2,004,664         1,981,716        1,966,111
          Diluted               2,037,429         1,981,716        1,966,111

Stock options to purchase 25,000 common shares in 2001 and 115,000 common shares
in 2000 and 1999 were not dilutive and therefore, have not been included in the
computations of diluted per common share amounts.

19.  Reclassifications

          Certain balances in prior fiscal years have been reclassified to
conform to the presentation adopted in the current fiscal year.

20.  Prospective Accounting Pronouncements

          The Company believes the adoption of new accounting pronouncements
will not have a significant impact on results of operations or financial
position.

                                       24
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE B - RECEIVABLE ALLOWANCES

          The receivable allowances at December 31, 2001 and 2000 are as follows
(in thousands):
                                                    2001        2000
                                                   ------      ------
          Sales returns and allowances             $  242      $  102
          Cash discounts                               59          34
          Doubtful accounts                           300          14
                                                   ------      ------
                                                   $  601      $  150
                                                   ======      ======
NOTE C - INVENTORIES

          The major classes of inventories, valued on the LIFO cost method, at
December 31, 2001 and 2000 are as follows (in thousands):

                                                    2001        2000
                                                   -------     -------
          Raw Materials                            $ 1,062     $ 1,291
          Work-in-process and finished stock         3,921       5,228
                                                   -------     -------
                                                   $ 4,983     $ 6,519
                                                   =======     =======

          The first-in, first-out ("FIFO") cost of raw materials,
work-in-process and finished stock inventories approximated $9,548,000 and
$11,208,000 at December 31, 2001 and 2000, respectively. It is not practical to
separate finished stock and work-in-process inventories. The LIFO cost method
had the effect of decreasing net earnings in 2001 by $91,000, or $.05 per share
- basic and .04 per share - diluted. For 2000, the LIFO cost method had the
effect of increasing the net loss by $618,000, or $.31 per share, basic and
diluted. For 1999, the impact of the LIFO cost method on net income was not
significant.

NOTE D - PROPERTY, PLANT AND EQUIPMENT

          The major classes of property, plant and equipment at December 31 are
as follows (in thousands):
                                                     2001        2000
                                                   --------    --------
          Machinery and equipment                  $ 57,505    $ 60,605
          Buildings                                   9,183       9,104
          Spare parts                                 1,344       1,294
          Land                                           73         199
          Construction-in-progress - equipment          313          13
                                                   --------    --------
                                                     68,418      71,215
          Accumulated depreciation                   42,973      43,504
                                                   --------    --------
                                                   $ 25,445    $ 27,711
                                                   ========    ========

At December 31, 2001 and 2000, $18,967,000 and $18,289,000, respectively, of
fully depreciated assets were still in use.

                                       25
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE E - ACCRUED LIABILITIES

          Accrued liabilities at December 31, 2001 and 2000 are as follows (in
thousands):
                                                                2001     2000
                                                               -------  -------
       Compensation, including future absences, and related
        taxes                                                  $ 1,766  $ 1,646
       Defined contribution plan                                   717      505
       Incurred but not reported medical claims                    643      189
       Other                                                       666      617
                                                               -------  ------
                                                               $ 3,792  $ 2,957
                                                               =======  =======
NOTE F - LONG-TERM DEBT

          Long-term debt at December 31, 2001 and 2000 consists of the following
(in thousands):
                                                                2001     2000
                                                               -------  ------
       Revolving Credit Agreement                              $ 4,946  $11,500
       Term note payable to bank                                 3,582        -
       Industrial Development Revenue Bonds ("IDRBs")                -    3,590
       Urban Development Action Grant ("UDAG")                   1,680    1,432
                                                               -------  -------
                                                                10,208   16,522
       Less:  current maturities                                   414   15,212
                                                               -------  -------
                                                               $ 9,794  $ 1,310
                                                               =======  =======

          In November 2001, the Company obtained a revolving credit agreement
with a commercial bank expiring in November 2004. The revolving credit agreement
provides for maximum borrowings of $15 million, limited to certain percentages
of receivables and inventory, and reduced by outstanding letters of credit. The
revolving credit agreement bears interest at a variable rate based on
alternative interest rate bases, at the Company's option (4.75% at December 31,
2001). A facility fee of 1/4% is payable for unused amounts.

          At December 31, 2001, the revolving credit agreement required, among
other items, the Company to maintain a fixed charge coverage ratio of 1.00 and a
minimum tangible net worth, as outlined in the agreement. Capital expenditures
are limited to $3,000,000 per year in 2002 and periods thereafter.

          The Company obtained a variable rate term loan in November 2001. The
agreement provides for monthly payments of principal and interest, with interest
at prime plus 1/2%.

          The UDAG debt, including additional funding obtained in November 2001,
is due in monthly installments of $17,931, including interest at 5.0%, through
maturity in November 2011.

          Substantially all assets of the Company serve as collateral for the
above debt.

                                       26
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE G - INCOME TAXES

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

                                                2001       2000       1999
                                                ----       ----       ----
        Currently payable (refundable):
             Federal                          $    660   $   (211)  $     62
             State                                  25          -         17
                                              --------   --------   --------
                                                   685       (211)        79
        Deferred:
             Federal                               689       (680)       222
             State                                   -          -        (22)
                                              --------   --------   --------
                                                   689       (680)       200
                                              --------   --------   --------
                                              $  1,374   $   (891)  $    279
                                              ========   ========   ========

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

                                                    2001     2000     1999
                                                    ----     ----     ----
       Statutory Federal tax rate                   34.0%   (34.0)%   34.0%
       Increase (decrease) in valuation reserve     (7.7)    11.5      -
       Tax-exempt income - life insurance
        proceeds                                     -        -       (9.4)
       State tax                                     -        -       (5.7)
       Other                                         -        -        0.8
                                                    ----    =====    -----
            Effective tax rate                      26.3%   (22.5)%   19.7%
                                                    ====    =====    =====


                                       27
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

          The components of the deferred tax assets and liabilities as of
December 31 are as follows (in thousands):

NOTE G - INCOME TAXES - Continued
                                                          2000         1999

                                                       ----------    ---------
          Deferred tax assets:
            Accounts receivable                        $       96    $      60
            Inventories                                       240           64
            Accrued expenses                                  814          572
            Deferred compensation                              23           47
            Postretirement benefits                           260          174
            Alternative minimum tax carryforward            1,840        1,840
            Tax credit carryforwards                          926        1,315
            Federal net operating loss carryforward             -        1,394
            State net operating loss carryforwards            199          422
            State credit carryforwards                      1,600        1,580
            Valuation allowance                            (1,799)      (2,796)
                                                       ----------    ---------
                                                            4,199        4,672
          Deferred tax liabilities:
            Fixed assets                                   (4,888)      (4,672)
                                                       ----------    ---------
                   Net liability                       $     (689)   $       -
                                                       ==========    =========

          The total deferred tax liabilities (assets) as presented in the
accompanying balance sheet are as follows:
                                                           2001         2000
                                                           ----         ----

          Net long-term deferred tax liabilities        $   1,839     $      -
          Gross current deferred tax assets                (1,150)           -
                                                        ---------     --------
                                                        $     689     $      -
                                                        =========     ========

          For Federal income tax purposes, the Company has research and
development credit carryovers and alternative minimum tax credit carryovers of
$926,000 and $1,840,000, respectively. For state income tax purposes, the
Company has net operating loss and tax credit carryovers of $9,926,000 and
$15,704,000, respectively. Certain carryforwards expire at various times over
the next 20 years. For financial reporting purposes, a valuation allowance has
been established to the extent that federal and state carryforwards, absent
future taxable income, will expire unused. The valuation allowance decreased
$997,000 due primarily to the realization of the benefits related to the federal
net operating loss carryforward utilized in 2001.


                                       28
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE H - EMPLOYEE BENEFITS

          The Company has defined contribution plans covering substantially all
employees. Contribution expenses associated with these plans were $717,000,
$505,000 and $522,000 in 2001, 2000 and 1999 respectively.

          The Company is self-funded for health costs. The Company has stop-loss
coverage for costs in excess of $100,000 per individual per year.

NOTE I - SUPPLEMENTAL CASH FLOW INFORMATION

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

                                                     2001      2000       1999
                                                     ----      ----       ----
        Interest                                   $  952    $ 1,250    $ 1,080
        Income taxes, net of refund received       $  139    $     -    $   438


NOTE J - OPERATING SEGMENTS

          The Company has two business segments, the Paper Products Business and
the Flexible Packaging Business. The Paper Products Business produces a variety
of paper products including fine paper, business paper, colored paper, waxed
paper, specialty coated base papers and twisting papers. The Flexible Packaging
Business prints and converts flexible packaging materials for the Paper Products
Business, 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
net sales 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 income. There are no jointly used or
allocated assets between the segments.


                                       29
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE J - OPERATING SEGMENTS (Continued)

          The following provides information on the Company's segments (in
thousands):
<TABLE>
<CAPTION>
                                          Paper Products Buiness       Flexible Packaging Business               Total
                                          ----------------------       ---------------------------               -----
                                         2001      2000      1999      2001       2000       1999       2001      2000      1999
                                         ----      ----      ----      ----       ----       ----       ----      ----      ----
<S>                                    <C>       <C>       <C>       <C>         <C>         <C>      <C>       <C>       <C>
Net sales from external customers      $65,190   $65,896   $60,575   $11,115     $10,241     $8,656   $76,305   $76,137   $69,231
Intersegment net sales                   2,946     2,447     2,858     1,106       1,269      1,506     4,052     3,716     4,364
Depreciation                             3,120     2,773     2,634       235         232        219     3,355     3,005     2,853
Loss on write-off of trade credits           -       440         -         -           -          -         -       440         -
Interest and dividend income                63        28        69        14          16         16        77        44        85
Interest expense                           893     1,185       997        34          65         67       927     1,250     1,064
Gain on sale of timberlands              1,627         -         -         -           -          -     1,627         -         -
Gain from life insurance proceeds            -         -       391         -           -          -         -         -       391
Income tax (benefit) provision           1,051    (1,332)       49       323         441        230     1,374      (891)      279
Segment income (loss)                    3,015    (4,047)      523       831         981        614     3,846    (3,066)    1,137
Segment assets                          36,662    39,815    44,188     7,845       6,346      5,857    44,507    46,161    50,045
Expenditures for long-lived assets       1,238     2,146     2,490       201         119        325     1,439     2,265     2,815
</TABLE>
          The following is a reconciliation of segment information to
consolidated information (in thousands):
<TABLE>
<CAPTION>
                                                                 2001              2000             1999
                                                                 ----              ----             ----
        Net sales:
<S>                                                           <C>              <C>               <C>
          Total net sales for reportable segments             $    80,357      $    79,853       $    73,595
          Elimination of intersegment net sales                    (4,052)          (3,716)           (4,364)
                                                              -----------      -----------       -----------
               Total consolidated net sales                   $    76,305      $    76,137       $    69,231
                                                              ===========      ===========       ===========
        Assets:
          Total assets for reportable segments                $    44,507      $    46,161       $    50,045
          Elimination of intersegment receivables                  (3,477)          (2,054)           (2,401)
          Elimination of intersegment investment                     (750)            (750)             (750)
                                                              -----------      -----------       -----------
               Total consolidated assets                      $    40,280      $    43,357       $    46,894
                                                              ===========      ===========       ===========
</TABLE>
                                       30
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE J - OPERATING SEGMENTS (Continued)

          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 and are
immaterial to total revenues.

NOTE K - DIRECTOR STOCK GRANT PLANS

          In 2000, 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 110,000 shares of Common Stock was reserved
for issuance. Each Director of the Company is to receive a grant of Common Stock
in payment of his or her directors fee. During 2001, 2000 and 1999, 35,168,
14,249 and 13,446 shares, respectively, were issued from treasury stock, at a
value of $117,000, $64,000 and $90,000, respectively.

NOTE L - STOCK OPTION PLAN

          In May 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.


                                       31
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE L - STOCK OPTION PLAN (Continued)

          The following table summarizes the transactions of the Company's stock
option plan for the three-year period ended December 31, 2001:
<TABLE>
<CAPTION>
                                                             Number       Weighted average
                                                           of shares      exercise price
      Unexercised options outstanding -
<S>                                                         <C>           <C>
       January 1, 1999                                            -         $  -
      Options granted                                       115,000            8.42
                                                            -------
      Unexercised options outstanding -
       December 31, 1999                                    115,000            8.42
      Options granted                                             -            -
                                                            -------
      Unexercised options outstanding -
       December 31, 2000                                    115,000            8.42
      Options granted                                       104,000            3.04
      Options forfeited                                     (90,000)           8.24
                                                            -------
      Unexercised options outstanding -
       December 31, 2001                                    129,000            4.01
                                                            =======

      Price of $8.09 (weighted-average contractual
       life of 2 years)                                     25,000             8.09
      Price range $3.00 - $4.44 (weighted-average
       contractual life of 4 years)                         104,000            3.04
                                                            -------
                                                            129,000            4.01
                                                            =======
      Exercisable options -
         December 31, 1999                                   64,000            8.21
         December 31, 2000                                   91,000            8.24
         December 31, 2001                                   29,000            7.54
</TABLE>
          As allowed by SFAS 123, "Accounting for stock-based compensation", the
Company has elected to continue to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25), in accounting for
its stock option plans. Under APB 25, the Company does not recognize
compensation expense upon the issuance of its stock options because the option
terms are fixed and the exercise price equals the market price of the underlying
stock on the grant date. The Company has determined the pro-forma information as
if the Company had accounted for stock options granted under the plan under the
fair value method of SFAS 123. The Black-Scholes option-pricing model was used
with the following weighted-average assumptions for options issued in each year:

                                       32
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE L - STOCK OPTION PLAN (Continued)

                                                          2001         1999
                                                          ----         ----
           Risk-free interest rate                        5.11          5.5
           Dividend yield                                 -             -
           Volatility factor                              126%          58%
           Weighted-average expected life                 5 years       6 years

          The weighted-average fair values of options granted in 2001 and 1999
were $2.89 and $4.20 per share, respectively. No options were granted in 2000.
If the Company had recognized compensation expense based on these values, the
Company's pro-forma net earnings and both basic and diluted earnings per share
would have been reduced by approximately $89,000 or $.04 per share in 2001,
$75,000 or $.04 per share in 2000, and $363,000 or $.39 per share in 1999.

NOTE M - COMMITMENTS AND CONTINGENCIES

Rental Agreements

          The Company leases warehouse space and certain equipment under various
agreements, classified as operating leases, expiring through April 2007. Total
rent expense amounted to approximately $817,000, $734,000 and $516,000 for the
years ended December 31, 2001, 2000 and 1999, respectively.

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

          Year ended December 31,
          -----------------------
                 2002                                      $    693
                 2003                                           666
                 2004                                           514
                 2005                                           280
                 2006                                           235
                 Thereafter                                      78
                                                           --------
                                                           $  2,466
                                                           ========

                                       33
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE M - COMMITMENTS AND CONTINGENCIES (Continued)

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, 2001 and 2000 by having an irrevocable
letter of credit granted to the benefit of WDNR in the amount of $164,000 and
$107,000, respectively. A certificate of deposit serves as collateral for the
letter of credit.


                                       34
<PAGE>
                     Badger Paper Mills, Inc. and Subsidiary

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                           December 31, 2001 and 2000

NOTE N -SUMMARIZED QUARTERLY DATA (UNAUDITED)

          The following is a summary of the quarterly results of operations
for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>
                                                             Fiscal Quarter
                                      -----------------------------------------------------------
                                         First      Second      Third       Fourth       Total
                                         -----      ------      -----       ------       -----
2001
----
<S>                                    <C>         <C>         <C>         <C>         <C>
Net Sales                              $ 21,404    $ 18,886    $ 18,374    $ 17,641    $ 76,305
Gross profit                              1,487       2,870       2,406       3,079       9,842
Net income                                  893         997         701       1,255       3,846
Basic earnings per share                   0.45        0.49        0.35        0.63        1.92
Diluted earnings per share                 0.45        0.49        0.35        0.60        1.89

2000*
----
Net sales                              $ 19,027    $ 20,517    $ 18,603    $ 17,990    $ 76,137
Gross profit (loss)                       1,665         634         395          (8)      2,686
Net income (loss)                            89        (658)       (673)     (1,824)     (3,066)
Basic earnings (loss) per share            0.04       (0.33)      (0.34)      (0.92)      (1.55)
Diluted earnings (loss) per share          0.04       (0.33)      (0.34)      (0.92)      (1.55)

* The fourth quarter includes a write-off of trade credits amounting to approximately $440,000, or
a $.22 net loss per share (note A11), and a LIFO adjustment amounting to approximately $555,000,
or a $.28 net loss per share.

** Net sales have been adjusted to reflect the presentation adopted in the year-end presentation.
</TABLE>
PART III

Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure

          None.

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
"Other Matters" set forth in the Company's definitive Proxy Statement for its
2002 Annual Meeting of Shareholders.

                                       35
<PAGE>
(b)  Executive Officers of the Registrant
<TABLE>
<CAPTION>
                                                                                    Period Served
    Name             Age                 Office                                     In This Office
    ----             ---                 ------                                     --------------
<S>                   <C>  <C>                                                       <C>
Robert A. Olah        52   Chairman of the Board;                                    2001-Present
                           President and Chief Executive Officer                     2001-Present
                             of the Company
                           President and Chief Executive Officer, Director,          1998-2001
                             Crown Vantage (specialty paper company)
                           President and Chief Operating Officer,                    1997-1998
                             Crown Vantage
                           Senior Vice President-Specialty                           1995-1997
                             Paper Group, Crown Vantage

Michael J. Bekes      44   Vice President/Chief Operating Officer                    1996-Present
                             of the Company

William H. Peters     43   Vice President/Chief Financial Officer                    2001-Present
                             of the Company
                           Executive Vice President and Treasurer,                   1996-2001
                             North Shore Capital (small market venture
                             capital firm)
</TABLE>
          Officers are elected to hold office until the next annual meeting of
the Board of Directors following the annual meeting of shareholders or until
their successors are elected and qualified. There is no arrangement or
understanding among 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.

Item 11.  Executive Compensation

          The information required by this item is incorporated by reference
from the information included under the caption "Executive Compensation" set
forth in the Company's definitive Proxy Statement for its 2002 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 2002 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

                                       36
<PAGE>
Management" and "Election of Directors", set forth in the Company's definitive
Proxy Statement for its 2002 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 Relationships and
Transactions," set forth in the Company's definitive Proxy Statement for its
2002 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 accountants, included in
this report:
                                                                           Pages

Reports of Independent Accountants.........................................  16
Consolidated balance sheets, December 31, 2001 and 2000....................  17
Consolidated statements of operations for the years ended December 31,
  2001, 2000 and 1999......................................................  18
Consolidated statements of changes in shareholders' equity for the
  years ended December 31, 2001, 2000 and 1999.............................  19
Consolidated statements of cash flows for the years ended
  December 31, 2001, 2000 and 1999.........................................  20
Notes to financial statements..............................................  21

(a)(2) List of Financial Schedules:

          The following is a listing of data submitted herewith:

Reports of independent accountants on financial statement schedule
  for the years ended December 31, 2001,2000 and 1999
  Schedule II Valuation and qualifying accounts and reserves...............  42

          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.

                                       37
<PAGE>
(a)(3)  Exhibits

Number         Description
------         -----------
(3.1)          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).

(3.2)          By-laws as amended through August 12, 1999 (Incorporated by
               reference to Exhibit 3(ii) to the Company's Annual Report on Form
               10-K for the year ended December 31, 1999).

(4.1)          Revolving Credit and Security Agreement dated November 30, 2001,
               by and among the Company, PNC Bank, National Association,
               individually and as agent, and other lenders from time to time
               party thereto.

(4.2)          Business Loan Agreement dated November 30, 2001, by and between
               the Company and Wisconsin Community Bank, Wisconsin Business Bank
               - Branch.

(4.3)          City of Peshtigo UDAG Revolving Loan Fund Loan Agreement dated
               November 30 2001, by and between the Company and the City of
               Peshtigo, Wisconsin

(10)           Material Contracts: **

(10.1)         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).

(10.2)         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).

(10.3)         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).

(10.4)         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).

(10.5)         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).

(10.6)         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).

(10.7)         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).

(10.8)         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).

                                       38
<PAGE>
Number         Description
------         -----------
(10.9)         Badger Paper Mills, Inc. 2001 Directors Stock Grant Plan
               (incorporated by reference to Appendix B to the Company's
               definitive Proxy Statement on Schedule 14A filed on April 6,
               2001).

(10.10)        Executive Employment Agreement effective July 9, 2001 between the
               Company and Robert A. Olah (incorporated by reference to the
               Company's Quarterly Report on Form 10-Q for the quarter ended
               September 30, 2001).

(23)           Consent of Independent Public Accountants.

(99)           Definitive Proxy Statement for 2002 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:

          No reports on Form 8-K were filed during the fourth quarter of 2001.


                                       39
<PAGE>
                                   SIGNATURES

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

DATE: February 25, 2002                   BADGER PAPER MILLS, INC.

                                          By: /s/ Robert A. Olah
                                             -----------------------------------
                                              Robert A. Olah
                                              President, Chief Executive Officer
                                              and Chairman of the Board

          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/ Robert A. Olah                                 Date: February 25, 2002
--------------------------------------------
Robert A. Olah, President,
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)

/s/ William H. Peters                              Date: February 25, 2002
--------------------------------------------
William H. Peters, Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

/s/ Harold J. Bergman                              Date: February 26, 2002
--------------------------------------------
Harold J. Bergman, Director

/s/ L. H. Buek                                     Date: February 25, 2002
--------------------------------------------
L. Harvey Buek, Director

/s/ Mark D. Burish                                 Date: February 25, 2002
--------------------------------------------
Mark D. Burish, Director

/s/ James L. Kemerling                             Date: February 26, 2002
--------------------------------------------
James L. Kemerling, Director

/s/ John T. Paprocki                               Date: February 25, 2002
--------------------------------------------
John T. Paprocki, Director

/s/ William A. Raaths                              Date: February 27, 2002
--------------------------------------------
William A. Raaths, Director

                                       40
<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 2001, 2000 and 1999 financial statements of Badger Paper
Mills, Inc. and Subsidiary is included on page 16 of this Form 10-K. In
connection with our audit of such financial statements, we have also audited the
related financial statement schedule on page 42 of this Form 10-K.

In our opinion, the 2001, 2000 and 1999 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
January 25, 2002
(Except for Note A9, as to
 which the date is January 30, 2002)


                                       41
<PAGE>
Schedule II - Valuation and Qualifying Accounts and Reserves
For the Years Ended December 31, 1999, 2000 and 2001 (in Thousands)
<TABLE>
<CAPTION>
          Column A                         Column B        Column C          Column D       Column E
          --------                         --------        --------          --------       --------
                                                           Additions
                                           Balance at      charged to
                                           beginning       costs and                        Balance at
          Description                      of year         expenses         Deductions      end of year
                                           ----------      --------         ----------      -----------
Deducted in the balance sheet from the
assets to which they apply:

Allowance for discounts, doubtful
accounts and claims/allowances:

Year ended December 31, 2001
    Doubtful accounts and
<S>                                        <C>             <C>              <C>             <C>
     claims/allowances                     $      117      $    1,349       $      924 (A)  $      542
    Discounts                                      33             830              804 (B)          59
                                           ----------      ----------       ----------      ----------
                                           $      150      $    2,179       $    1,728      $      601
                                           ==========      ==========       ==========      ==========
Year ended December 31, 2000
    Doubtful accounts and
     claims/allowances                     $      253      $    1,054       $    1,190 (A)  $      117
    Discounts                                      43             743              753 (B)          33
                                           ----------      ----------       ----------      ----------
                                           $      296      $    1,797       $    1,943      $      150
                                           ==========      ==========       ==========      ==========
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
                                           ==========      ==========       ==========      ==========
</TABLE>

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

(B) Discounts taken and allowed

                                       42
<PAGE>
Shareholders' Information

Market makers:                                  Stock transfer agent:
Herzog, Heine, Geduld, Inc. (HRZG)              Computershare Investor Services
Spear, Leeds & Kellogg (SLKC)                   2 North LaSalle Street
Hill, Thompson, Magid & Co. (HILL)              Chicago, Illinois 60602
Sherwood Securities Corp. (NDBC)
Island System Corp. (ISLD)


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 by Nasdaq
SmallCap Market.

Price Ranges of Stock:

                                        2001                   2000
                                        ----                   ----
              Quarter              High       Low         High        Low
              -------              ----       ---         ----        ---
              First              $5.938     $1.500       $5.938     $1.500
              Second             $4.000     $2.500       $4.000     $2.500
              Third              $4.000     $2.750       $4.000     $2.750
              Fourth             $4.900     $2.850       $4.900     $2.850


Quarterly Dividends Per Share:

          The Company's revolving credit and term debt maintain 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, 1812 Riverside Avenue, Marinette,
Wisconsin, on Tuesday, May 14, 2002, at 10:00 a.m.


                                       43
<PAGE>
                             DIRECTORS AND OFFICERS


Board of Directors:                              Corporate Officers:

Harold J. Bergman                                Robert A. Olah
     Retired President and                            President and
     Chief Executive Officer                          Chief Executive Officer
     Riverside Paper Corporation

L. Harvey Buek                                   Michael J. Bekes
     LHB - O & M Consulting                           Vice President and
                                                      Chief Operating Officer

Mark D. Burish                                   William H. Peters
     President                                        Vice President and
     Hurley, Burish & Milliken, SC                    Chief Financial Officer

James L. Kemerling                               Mark D. Burish
     President and                                    Secretary
     Chief Executive Officer
     Riiser Oil Company, Inc.

Robert A. Olah
     Chairman of the Board
     President and
     Chief Executive Officer
     Badger Paper Mills, Inc.

John T. Paprocki
     Principal Consultant
     Paprocki and Associates

William A. Raaths
     President and Chief Executive Officer
     Anchor Appetizer Group


                                       44
<PAGE>
                                  EXHIBIT INDEX

                            BADGER PAPER MILLS, INC.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

Number         Description
------         -----------
(3.1)          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).

(3.2)          By-laws as amended through August 12, 1999 (Incorporated by
               reference to Exhibit 3(ii) to the Company's Annual Report on Form
               10-K for the year ended December 31, 1999).

(4.1)          Revolving Credit and Security Agreement dated November 30, 2001,
               by and among the Company, PNC Bank, National Association,
               individually and as agent, and other lenders from time to time
               party thereto.

(4.2)          Business Loan Agreement dated November 30, 2001, by and between
               the Company and Wisconsin Community Bank, Wisconsin Business Bank
               - Branch.

(4.3)          City of Peshtigo UDAG Revolving Loan Fund Loan Agreement dated
               November 30 2001, by and between the Company and the City of
               Peshtigo, Wisconsin

(10)           Material Contracts: **

(10.1)         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).

(10.2)         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).

(10.3)         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).

(10.4)         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).

(10.5)         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).

(10.6)         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).

                                       45
<PAGE>
Number         Description
------         -----------
(10.7)         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).

(10.8)         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).

(10.9)         Badger Paper Mills, Inc. 2001 Directors Stock Grant Plan
               (incorporated by reference to Appendix B to the Company's
               definitive Proxy Statement on Schedule 14A filed on April 6,
               2001).

(10.10)        Executive Employment Agreement effective July 9, 2001 between the
               Company and Robert A. Olah (incorporated by reference to the
               Company's Quarterly Report on Form 10-Q for the quarter ended
               September 30, 2001).

(23)           Consent of Independent Public Accountants.

(99)           Definitive Proxy Statement for 2002 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.


                                       46