Not pictured is a pair of scissors and a sharpie to draw the face on in the end. Optionally, you can also use cotton balls to fill in the gaps and make it a bit softer, but you can get by just fine without them.
Next, take a few long strips of duct tape and wrap them around the paper bag to stabilize the shape. Don't worry about how it looks right now, you just want to make sure it holds together for the time being.
Now, work on covering up all the bits of paper bag that are still showing. When you get to the bottom and top of the oblong shape, use shorter strips of duct tape since they will lie flat easier than the long ones.
Keep wrapping the shape in duct tape until you've flattened down all the bits that stick up. When you're done, you should have something that looks like this.
Now that the body is done, it's time for the head. Crumple up the other paper bag, but this time make it a shorter shape that will work better as a head. Then just repeat what you did for the body.
Once the head is done, you can then put it on the body. Use a lot of short strips here that will lie flat and make a nice smooth joining. You could also use a little bit of glue just to be absolutely sure the head won't fall off, but it's really not necessary.
To make the ears, just take a medium strip of duct tape and fold one corner over so that it makes a triangle. Do the same for the other side, so that you have two triangles together. Use a few more strips to strengthen the ears, but be sure not to put any tape over the crease in the middle, or else the ears won't fold properly.
Attach the ears much the same way you attached the head, except use smaller pieces of duct tape. Tape both the front and backs of the ears so that they'll stay attached. Repeat the process for the second ear.
Enjoy your extremely cheap and surprisingly cuddly new stuffed animal!