<PAGE>

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

                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

         FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000

                  OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934



                        Commission file number 333-58233

                           DIAMOND BRANDS INCORPORATED
             (Exact name of registrant as specified in its charter)

   MINNESOTA                                411565294
(State or other jurisdiction of             (IRS Employer
  incorporation or organization)              Identification No.)

    1800 CLOQUET AVENUE                       55720
    CLOQUET, MINNESOTA
(Address of principal executive offices)    (Zip Code)

                                 (218) 879-6700
              (Registrant's telephone number, including area code)

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

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


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes {x} No { }

As of August 11, 2000, 1,481,258 shares of common stock of the Registrant were
issued and outstanding. Of total outstanding shares of common stock on August
11, 2000, 330,266 were held of record by affiliates. There is no established
public trading market for such stock.


                    Documents incorporated by reference: None

<PAGE>

                           DIAMOND BRANDS INCORPORATED

                                TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

         ITEM - 1.         Financial Statements (Unaudited)

                           Consolidated Balance Sheets

                           Consolidated Statements of Operations

                           Consolidated Statements of Cash Flow

                           Notes to Consolidated Financial Statements

         ITEM - 2.         Management's Discussion and Analysis of Financial
                           Condition and Results of Operations

         ITEM - 3.         Quantitative and Qualitative Disclosures about Market
                           Risk


PART II -       OTHER INFORMATION

         ITEM - 6.         Exhibits and Reports on Form 8-K

SIGNATURE

<PAGE>

                           DIAMOND BRANDS INCORPORATED
                     Consolidated Balance Sheets (Unaudited)
               (In Thousands, Except Share and Per Share Amounts)



<TABLE>
<CAPTION>
                                                                                                   June 30,        December 31,
                                                                                                     2000              1999
                                                                                                   ---------         ---------
<S>                                                                                                <C>               <C>
                                     ASSETS
CURRENT ASSETS:
    Accounts receivable, net of allowances of $1,330 and $1,354                                    $  13,272         $  14,311
    Inventories                                                                                       16,991            12,084
    Deferred income taxes                                                                              1,857             2,671
    Prepaid expenses                                                                                     592               590
    Net assets from discontinued operations                                                              426             1,589
                                                                                                   ---------         ---------
        Total current assets                                                                          33,138            31,245

PROPERTY, PLANT AND EQUIPMENT, net of
    accumulated depreciation of $21,415 and $20,210                                                   17,388            16,188

GOODWILL                                                                                              24,021            24,381

DEFERRED INCOME TAXES                                                                                  3,221            10,212

DEFERRED FINANCING COSTS                                                                               6,457             7,988
                                                                                                   ---------         ---------
                                                                                                   $  84,225         $  90,014
                                                                                                   =========         =========
                                    LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
    Current maturities of long-tem debt                                                            $   5,000         $   4,625
    Accounts payable                                                                                   7,592             5,768
    Accrued expenses                                                                                   9,809             7,702
                                                                                                   ---------         ---------
        Total current liabilities                                                                     22,401            18,095

POSTRETIREMENT BENEFIT OBLIGATIONS                                                                     1,497             1,497

LONG-TERM DEBT, net of current maturities                                                            207,845           228,736
                                                                                                   ---------         ---------
        Total liabilities                                                                            231,743           248,328
                                                                                                   ---------         ---------
COMMITMENTS AND CONTINGENCIES

Redeemable preferred stock, $0.01 par value; 1,000,000 shares authorized; 46,300 and 46,400
    issued and outstanding, net of subscriptions receivable of $867 and $917                          44,843            41,684

STOCKHOLDERS' DEFICIT:
    Common stock, $.01 par value; 50,000,000 shares authorized;
      1,481,258 and 1,482,600 shares issued and outstanding                                               15                15
    Warrants                                                                                          10,458            10,484
    Additional paid in capital                                                                         1,488             1,488
    Accumulated deficit                                                                             (204,322)         (211,985)
                                                                                                   ---------         ---------
        Total stockholders' deficit                                                                 (192,361)         (199,998)
                                                                                                   ---------         ---------
                                                                                                   $  84,225         $  90,014
                                                                                                   =========         =========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

<PAGE>

                           DIAMOND BRANDS INCORPORATED
                Consolidated Statements of Operations (Unaudited)
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                               Three Months Ended         Six Months Ended
                                                                                     June 30,                 June 30,
                                                                              ---------------------     ---------------------
                                                                                2000         1999         2000         1999
                                                                              --------     --------     --------     --------
<S>                                                                           <C>          <C>          <C>          <C>
NET SALES                                                                     $ 27,419     $ 29,620     $ 50,701     $ 51,886

COST OF SALES                                                                   18,819       18,462       33,926       32,368
                                                                              --------     --------     --------     --------
        Gross profit                                                             8,600       11,158       16,775       19,518

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                     2,674        3,398        5,825        6,407

GOODWILL AMORTIZATION                                                              180          180          360          360
                                                                              --------     --------     --------     --------
        Operating income                                                         5,746        7,580       10,590       12,751

INTEREST EXPENSE                                                                 6,011        6,468       12,099       12,399
                                                                              --------     --------     --------     --------
        Income (loss) from continuing operations before
           provision (benefit) for income taxes and extraordinary item            (265)       1,112       (1,509)         352

PROVISION (BENEFIT) FOR INCOME TAXES                                               (35)         516         (461)         283
                                                                              --------     --------     --------     --------
        Income (loss) from continuing operations before extraordinary item        (230)         596       (1,048)          69

DISCONTINUED OPERATIONS (Note 2):
  Loss from discontinued operations, net of income tax benefit of
     $0, $593, $0 and $956, respectively                                            --          892           --        1,436
                                                                              --------     --------     --------     --------
Loss before extraordinary item                                                     230          296        1,048        1,367
Extraordinary gain from extinguishment of debt, net of
  income tax provision of $8,265 (note 5)                                       12,398           --       12,398           --
                                                                              --------     --------     --------     --------
       Net income (loss)                                                        12,168         (296)      11,350       (1,367)
Preferred stock dividends and accretion                                          1,635        1,422        3,183        2,768
                                                                              --------     --------     --------     --------
        Net income (loss) applicable to common stock                          $ 10,533     $ (1,718)    $  8,167     $ (4,135)
                                                                              ========     ========     ========     ========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                           DIAMOND BRANDS INCORPORATED
                Consolidated Statements of Cash Flows (Unaudited)
                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                                               Six Months Ended
                                                                                                    June 30,
                                                                                             ---------------------
                                                                                               2000         1999
                                                                                             --------     --------
<S>                                                                                          <C>          <C>
OPERATING ACTIVITIES:
    Net income (loss)                                                                        $ 11,350     $ (1,367)
    Net assets of discontinued operations                                                       1,163       (1,043)
    Extraordinary gain from extinguishment of debt                                            (20,663)          --
    Adjustments to reconcile net loss to net cash provided by (used for)
      operating activities from continuing operations-
        Depreciation and amortization                                                           2,111        1,999
        Deferred income taxes                                                                   7,805         (673)
        Accretion of debentures                                                                 2,878        3,167
        Change in operating assets and liabilities-
            Accounts receivable                                                                 1,039       (3,710)
            Inventories                                                                        (4,907)        (728)
            Prepaid expenses                                                                       (2)        (443)
            Accounts payable                                                                    1,824         (427)
            Accrued expenses                                                                    2,107          (35)
                                                                                             --------     --------
            Net cash provided by (used for) operating activities of continuing operations       4,705       (3,260)
                                                                                             --------     --------

INVESTING ACTIVITIES:
    Purchases of property, plant and equipment                                                 (2,404)      (1,890)
                                                                                             --------     --------
            Net cash used for investing activities of continuing operations                    (2,404)      (1,890)
                                                                                             --------     --------
FINANCING ACTIVITIES:
    Borrowings under bank revolving line of credit                                             11,750        9,400
    Repayments of bank revolving line of credit                                               (11,500)      (3,000)
    Repayments of long-term debt                                                               (2,125)      (1,000)
    Proceeds from issuance of debt                                                                124           --
    Repurchase of common stock                                                                   (500)          --
    Redemption of preferred stock                                                                 (50)          --
    Debt issuance costs                                                                            --         (250)
                                                                                             --------     --------
            Net cash provided by (used for) financing activities of continuing operations      (2,301)       5,150
                                                                                             --------     --------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                                          --           --

CASH AND CASH EQUIVALENTS, beginning of period                                                     --           --
                                                                                             --------     --------
CASH AND CASH EQUIVALENTS, end of period                                                     $     --     $     --
                                                                                             ========     ========
SUPPLEMENTAL CASH FLOW INFORMATION:
    Cash paid during the year for-
        Interest                                                                             $  8,567     $  9,130
                                                                                             ========     ========
        Income taxes                                                                         $     --     $      7
                                                                                             ========     ========
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
  Retirement of discount debentures in exchange for convertible debt by an affiliate         $  9,425     $     --
                                                                                             ========     ========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.

<PAGE>

                           DIAMOND BRANDS INCORPORATED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.   BASIS OF PRESENTATION
     The accompanying consolidated financial statements include the accounts of
     Diamond Brands Incorporated ("Holdings") and its wholly owned subsidiary,
     Diamond Brands Operating Corp. ("Operating Corp") and Operating Corp.'s
     wholly owned subsidiaries, Forster Inc. and Empire Candle, Inc. (Empire)
     after elimination of all material intercompany balances and transactions.
     Holdings and Operating Corp. are collectively referred to as "the Company".

     The consolidated financial statements have been restated to reflect the
     candle operation as a discontinued operation as further discussed in
     Note 2.

     The Company is a leading manufacturer and marketer of a broad range of
     consumer products including wooden matches, toothpicks, clothespins and
     wooden crafts and plastic cutlery and straws. The Company's products are
     marketed primarily in the United States and Canada under the nationally
     recognized Diamond and Forster brand names.

     The interim consolidated financial statements of the Company are unaudited;
     however, in the opinion of management, all adjustments necessary for a fair
     presentation of such consolidated financial statements have been reflected
     in the interim periods presented. The significant accounting policies and
     certain financial information which are normally included in financial
     statements prepared in accordance with accounting principles generally
     accepted in the United States, but which are not required for interim
     reporting purposes, have been condensed or omitted. The accompanying
     consolidated financial statements of the Company should be read in
     conjunction with the consolidated financial statements and related notes
     included in the Company's Annual Report on Form 10-K.

2.   DISCONTINUED OPERATIONS
     Effective September 30, 1999, the board of directors of the Company
     approved the divestiture of the candle operations of the Company and
     recorded a total charge for the loss from discontinued operations of
     approximately $18,500,000, net of tax. For segment reporting purposes, the
     candle operations were previously reported as the candles reportable
     segment.

     On December 14, 1999, the Company entered into an agreement for purchase
     and sale of the assets of Empire. The agreement provided for the sale of
     certain assets and liabilities of Empire for a total consideration of
     approximately $2,900,000. The sale resulted in a decrease of the net loss
     on disposal of discontinued operations of $2,300,000, net of tax, during
     the fourth quarter of 1999.

     Net sales from discontinued operations were $0 and approximately $7,800,000
     for the six months ended June 30, 2000 and 1999, respectively

<PAGE>

3.   LONG TERM DEBT
     The bank credit agreement was amended on March 5, 1999, allowing for
     certain non-recurring expenses totaling $6.0 million to be excluded in the
     calculation of EBITDA on or before the third quarter of 1999. The amendment
     also adjusted the Minimum Fixed Charge Coverage Ratio, Maximum Leverage
     Ratio and Interest Coverage Ratio for the next eight quarters. The Company
     was in compliance with all covenants as of June 30, 2000.

     Certain shareholders made a $9.425 million 12 7/8% bridge loan to the
     Company. The proceeds were used to retire $45 million face value, $31.1
     million accreted value, senior discount debentures. Effective June 2, 2000,
     the bridge loan plus accrued interest was exchanged for 12 7/8% convertible
     debt.


4.   SEGMENT REPORTING

     In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
     an Enterprise and Related Information." The Company has one reportable
     segment, consumer products, after the sale of the Company's candle
     operations (see Note 2). The consumer product segment consists of plastic
     cutlery and straws, matches, toothpicks, clothespins, wooden crafts and
     various woodenware items sold primarily to grocery, mass and drug store
     channels.



     Detailed gross revenue by product sold was as follows for the six months
ended June 30 (in thousands):

<TABLE>
<CAPTION>
                                                  2000       1999
                                                --------   ---------
            <S>                                 <C>        <C>
            Cutlery/straws                      $ 25,015   $ 23,592
            Woodware                              14,391     15,434
            Wooden lights                          9,207     10,973
            Institutional/other                    7,304      7,608
                                                --------   ---------
                           Total                $ 55,917   $ 57,607
                                                ========   =========
</TABLE>


5.   EXTRAORDINARY ITEM

     As discussed in Note 3, certain shareholders made a $9.425 million 12 7/8%
     bridge loan to the Company with the proceeds used to retire $45 million
     face value, $31.1 million accreted value, senior discount debentures. The
     transaction was completed on April 27, 2000, and is presented as an
     extraordinary gain from extinguishment of debt, net of income taxes of $8.3
     million, of $12.4 million in the related consolidated statements of
     operations.

<PAGE>

                           DIAMOND BRANDS INCORPORATED

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

RESULTS OF CONTINUING OPERATIONS

The Company manufactures and markets consumer products, consisting primarily of
plastic cutlery/straws, wooden matches, toothpicks, clothespins and wooden
crafts. The Company's products are marketed primarily under the nationally
recognized Diamond and Forster brand names, which have been in existence since
1881 and 1887, respectively.

The Company derives its revenue primarily from the sale of its products to
substantially all major grocery stores, drug stores, mass merchandisers and
warehouse clubs in the United States. During the six months ended June 30, 2000,
sales to the Company's top 10 customers accounted for approximately 50.2% of the
Company's gross sales, with one customer accounting for approximately 21.3% of
the Company's gross sales. The following table sets forth, for the period
indicated, certain historical statements of operations data, as well as the
Company's EBITDA and EBITDA margin, for the continuing operations of the
Company, with 1999 comparable results of continuing operations restated to
exclude discontinued operations.

                        THREE MONTHS ENDED JUNE 30, 2000
                  COMPARED TO THREE MONTHS ENDED JUNE 30, 1999

<TABLE>
<CAPTION>
                                  2000        1999
                                  -----       -----
                                (dollars in millions)
                                  TOTAL       TOTAL
                                  -----       -----
<S>                               <C>         <C>
Net Sales                         $27.4       $29.6
Cost of Sales                      18.8        18.5
                                  -----       -----
  Gross Profit                      8.6        11.1
Gross Profit %                     31.4%       37.5%
Selling, General
  and Administration Expense        2.7         3.4
Goodwill Amortization                .2          .2
                                  -----       -----
Operating Income (1)              $ 5.7       $ 7.5
                                  =====       =====
Interest Expense                  $ 6.0       $ 6.5
                                  =====       =====
EBITDA (2)                        $ 6.5       $ 8.3
                                  =====       =====
EBITDA Margin (3)                  23.7%       28.0%
                                  =====       =====
</TABLE>

(1)  Excludes amortization of deferred financing costs.

(2)  EBITDA represents operating income plus depreciation and amortization
     (excluding amortization of deferred financing costs). The Company believes
     that EBITDA provides useful information regarding the Company's ability to
     service its debt; however, EBITDA does not represent cash flow from
     operations as defined by generally accepted accounting principles and
     should not be considered as a substitute for net income as an indicator of
     the Company's operating performance or cash flow as a measure of liquidity.

(3)  EBITDA margin represents EBITDA as a percentage of net sales.

Net sales for the Company were $27.4 million for the three months ended June 30,
2000, a $2.2 million or 7.4% decrease from net sales of $29.6 million for the
three months ended June 30, 1999. Net sales of plastic cutlery/straws increased
2.7%, but were offset by 16.2% decreased net sales in all other product lines,
including wooden matches and other woodenware products.

Gross profit was $8.6 million or 31.4% of net sales for the three months ended
June 30, 2000, compared to $11.1 million or 37.5% for the same period in 1999.
The decrease is primarily due to increased raw material costs, as continually
rising polystyrene costs and increased packaging costs adversely impacted gross
margins.

<PAGE>

Selling, general and administrative expenses were $2.7 million for the three
months ended June 30, 2000, compared to $3.4 million for the comparable 1999
period. Year 2000 remediation costs incurred in 1999 and reduced commissions
accounted for the majority of the $.7 million decrease.

Interest expense for the three months ended June 30, 2000 was $6.0 million
compared to $6.5 million for the comparable 1999 period. Interest expense
decreased primarily due to lower interest expense associated with the retirement
of $45 million face value discounted bonds with $9.5 million convertible debt.
See Notes 3 and 5 in Notes to Consolidated Financial Statements.

RESULTS OF DISCONTINUED OPERATIONS

Effective September 30, 1999, the Board of Directors approved the divestiture of
the Candle operations of the Company and recorded a total charge from the loss
of the discontinued operations of approximately $18.5 million, net of tax. For
segment reporting purposes, the candle operations were previously reported as
the "Candles" reportable segment.

Effective December 14, 1999, the Company entered into an asset purchase
agreement to sell certain assets and liabilities of Empire for total
consideration of approximately $2.9 million. The sale resulted in a decrease of
the net loss from discontinued operations of $2.3 million, net of tax, during
the fourth quarter of 1999. There should be no impact on this year's operating
income due to the candle discontinuation.

EXTRAORDINARY ITEM

Certain shareholders made a $9.425 million 12 7/8% bridge loan to the Company
with the proceeds used to retire $45 million face value, $31.1 million
accreted value, senior discount debentures. The transaction was completed on
April 27, 2000, and is presented as an extraordinary gain from extinguishment
of debt, net of income taxes of $8.3 million, of $12.4 million in the related
consolidated statements of operations. See Notes 3 and 5 in Notes to
Consolidated Financial Statements.

RESULTS OF CONTINUING OPERATIONS


<TABLE>
<CAPTION>
                           SIX MONTHS ENDED JUNE 30, 2000
                    COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
                                   2000       1999
                                  -----       -----
                                (dollars in millions)
                                  TOTAL       TOTAL
                                  -----       -----
<S>                               <C>         <C>
Net Sales                         $50.7       $51.9
Cost of Sales                      33.9        32.4
                                  -----       -----
  Gross Profit                     16.8        19.5
Gross Profit %                     33.1%       37.6%
Selling, General
  and Administration Expense        5.8         6.4
Goodwill Amortization                .4          .4
                                  -----       -----
Operating Income (1)              $10.6       $12.7
                                  =====       =====
Interest Expense                  $12.1       $12.4
                                  =====       =====
EBITDA (2)                        $12.2       $14.2
                                  =====       =====
EBITDA  Margin (3)                 24.1%       27.4%
                                  =====       =====
</TABLE>


(1)  Excludes amortization of deferred financing costs.

(2)  EBITDA represents operating income plus depreciation and amortization
     (excluding amortization of deferred financing costs). The Company believes
     that EBITDA provides useful information regarding the Company's ability to
     service its debt; however, EBITDA does not represent cash flow from
     operations as defined by

<PAGE>

     generally accepted accounting principles and should not be considered as a
     substitute for net income as an indicator of the Company's operating
     performance or cash flow as a measure of liquidity

(3)  EBITDA margin represents EBITDA as a percentage of net sales..


Net sales were $50.7 million for the six months ended June 30, 2000, a $1.2
million or 2.3% decrease from net sales of $51.9 million for the six months
ended June 30, 1999. Net sales of plastic cutlery/straws increased 8.1%, but
were offset by 9.0% decreased net sales in all other product lines, including
wooden lights and other woodenware products.

Gross profit was $16.8 million or 33.1% of net sales for the six months ended
June 30, 2000, compared to $19.5 million or 37.6% for the comparable 1999
period. The decrease is primarily due to increased raw material costs, as
continually rising polystyrene costs and increased packaging costs adversely
impacted gross margins.

Selling, general and administrative expenses were $5.8 million for the six
months ended June 30, 2000, compared to $6.4 million for the comparable 1999
period. Year 2000 remediation costs incurred in 1999 and reduced commissions
accounted for the majority of the decrease.

Interest expense for the six months ended June 30, 2000 was $12.1 million
compared to $12.4 million for the comparable 1999 period. Interest expense
decreased primarily due to lower interest expense associated with the retirement
of $45 million face value discounted bonds with $9.5 million convertible debt.
See Notes 3 and 5 in Notes to Consolidated Financial Statements.


EXTRAORDINARY ITEM

Certain shareholders made a $9.425 million 12 7/8% bridge loan to the Company
with the proceeds used to retire $45 million face value, $31.1 million
accreted value, senior discount debentures. The transaction was completed on
April 27, 2000, and is presented as an extraordinary gain from extinguishment
of debt, net of income taxes of $8.3 million, of $12.4 million in the related
consolidated statements of operations. See Notes 3 and 5 in Notes to
Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

The senior credit agreement was amended on March 5, 1999, allowing for certain
non-recurring expenses totaling $6.0 million to be excluded in the calculation
of EBITDA on or before the third quarter of 1999, for the purpose of calculating
covenant compliance. The amendment also adjusted the Minimum Fixed Charge
Coverage Ratio, Maximum Leverage Ratio and Interest Coverage Ratio for the next
eight quarters. The Company was in compliance with all covenants as of June 30,
2000.

The Company is highly leveraged. The Company's high degree of leverage may have
important consequences for the Company, including that (i) the ability of the
Company to obtain additional financing, if necessary, for working capital,
capital expenditures, acquisitions or other purposes may be impaired, or such
financing may not be available on terms favorable to the Company; (ii) a
substantial portion of the Company's cash flow will be used to pay the Company's
interest expense and, in the cases of indebtedness incurred in the future,
possible principal repayments, which will reduce the funds that would otherwise
be available to the Company for its operations and future business
opportunities; (iii) a substantial decrease in net operating cash flows or an
increase in expenses of the Company could make it difficult for the Company to
meet its debt service requirements and force it to modify its operations; (iv)
the Company may be more highly leveraged than its competitors, which may place
it at a competitive disadvantage; and (v) the Company's high degree of leverage
may make it more vulnerable to a downturn in its business, the general economy
or interest rate increases. Any inability of the Company to service its
indebtedness or to obtain additional financing, as needed, would have a material
adverse effect on the Company's business.

<PAGE>

CASH FLOW - OPERATING ACTIVITIES. Cash provided by operating activities was $4.7
million for the six months ended June 30, 2000. Cash used for operating
activities was $3.3 million for the comparable 1999 period. Cash used for
inventory was $4.2 million higher while cash provided by accounts receivable,
accounts payable and other accrued expenses was $9.6 million higher during the
six months ended June 30, 2000, than the comparable period in 1999.

CASH FLOW - INVESTMENT ACTIVITIES. Capital expenditures of $2.4 million for the
six months ended June 30, 2000, were primarily used to expand capacity at the
cutlery plant. Planned capital expenditures for 2000 are $3.2 million. Capital
expenditures for the comparable period in 1999 were $1.9 million.

CASH FLOW - FINANCING ACTIVITIES. Cash used for financing activities was $2.1
million for the six months ended June 30, 2000, as compared to cash provided by
financing activities of $5.2 million for the same period prior year. Line of
credit net borrowings were $.25 million for the six months ended June 30, 2000,
compared to $5.4 million for the same period in 1999.

CAUTIONARY  STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES  LITIGATION REFORM ACT OF 1995

This document contains statements that constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this document, the words "anticipates," "plans," "believes,"
"estimates," "expects," and similar expressions are intended to identify
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, but are not limited to:
the Company's highly leveraged capital structure, its substantial principal
repayment obligations, price and product changes and promotional activity by
competitors, the loss of a significant customer, the difficulties of integrating
acquisitions, adverse publicity and product liability claims and dependence on
key employees. The risk factors described herein could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements of the Company and investors, therefore, should not place undue
reliance on any such forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which such statement is made, and the
Company undertakes no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for management to
predict all such factors. Further, management cannot assess the impact of each
such factor on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There were no material changes in reported market risks since December 31, 1999.
See discussion at Item 7a in the Company's annual report on Form 10-K.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Reports on Form 8-K
     No reports on Form 8-K were filed by the Company during the quarter ended
     June 30, 2000.

(b)  Exhibits
     Exhibit 27 is filed as part of this quarterly report.

<PAGE>

     SIGNATURE


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


                                    DIAMOND BRANDS INCORPORATED (Registrant)
                                    By:/s/ FRANK CHALK
                                       --------------------------------
                                    Frank Chalk, Vice President of
                                    Finance and Chief Financial Officer
                                    (authorized officer, principal
                                    financial and accounting officer)


                                    Date: August 11, 2000