<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, 1999

               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


Indicateby 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 9, 1999, 1,489,308 shares of common stock of the Registrant were
issued and outstanding. Of total outstanding shares of common stock on August
9, 1999, 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 Results
                      Of Operations and Financial Condition


PART II -      OTHER INFORMATION

     Signature


<PAGE>


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


<TABLE>
<CAPTION>

                                                                                              June 30,        December 31,
                                                                                                1999              1998
                                                                                            -----------       ------------
<S>                                                                                         <C>               <C>
                               ASSETS
CURRENT ASSETS:
    Accounts receivable, net of allowances of $2,154 and $2,047                              $  18,709           $  16,094
    Inventories                                                                                 22,872              22,372
    Deferred income taxes                                                                        4,868               4,196
    Prepaid expenses                                                                             1,358                 999
                                                                                             ---------           ---------
        Total current assets                                                                    47,807              43,661

PROPERTY, PLANT AND EQUIPMENT, net of
    accumulated depreciation of $19,535 and $18,222                                             18,633              17,730

GOODWILL                                                                                        36,931              37,771

DEFERRED FINANCING COSTS                                                                         8,473               8,777
                                                                                             ---------           ---------
                                                                                             $ 111,844           $ 107,939
                                                                                             ---------           ---------
                                                                                             ---------           ---------

                LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
    Current maturities of long-tem debt                                                      $   3,875           $   2,750
    Accounts payable                                                                             6,081               9,410
    Accrued expenses                                                                             9,994               9,958
                                                                                             ---------           ---------
        Total current liabilities                                                               19,950              22,118

POSTRETIREMENT BENEFIT OBLIGATIONS                                                               1,559               1,559

DEFERRED INCOME TAXES                                                                               20                  20

LONG-TERM DEBT, net of current maturities                                                      233,815             226,373
                                                                                             ---------           ---------
        Total liabilities                                                                      255,344             250,070
                                                                                             ---------           ---------
COMMITMENTS AND CONTINGENCIES

Redeemable preferred stock, $0.01 par value; 1,000,000 shares authorized;
    46,900 issued and outstanding, net of subscriptions receivable of $1,167                    38,836              36,068

STOCKHOLDERS' DEFICIT:
    Common stock, $.01 par value; 50,000,000 shares authorized;
        1,489,308 shares issued and outstanding                                                     15                  15
    Warrants                                                                                    10,614              10,614
    Additional paid in capital                                                                   1,488               1,488
    Accumulated deficit                                                                       (194,453)           (190,316)
                                                                                             ---------           ---------
        Total stockholders' deficit                                                           (182,336)           (178,199)
                                                                                             ---------           ---------
                                                                                             $ 111,844           $ 107,939
                                                                                             ---------           ---------
                                                                                             ---------           ---------
</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,
                                                      ---------------------------          ----------------------------
                                                        1999               1998              1999                1998
                                                      --------           --------          ---------           --------
<S>                                                   <C>                <C>               <C>                 <C>
NET SALES                                             $ 33,289           $ 32,072           $ 59,672           $ 58,558

COST OF SALES                                           22,989             23,071             41,210             41,348
                                                      --------           --------           --------           --------
        Gross profit                                    10,300              9,001             18,462             17,210

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES             3,785              9,654              7,265             12,634

GOODWILL AMORTIZATION                                      420                421                840                841
                                                      --------           --------           --------           --------
        Operating income (loss)                          6,095             (1,074)            10,357              3,735

INTEREST EXPENSE                                         6,468              6,590             12,399              7,637
                                                      --------           --------           --------           --------
        Loss before benefit for income taxes              (373)            (7,664)            (2,042)            (3,902)

BENEFIT FOR INCOME TAXES (Note 4)                          (77)            (2,831)              (673)            (2,831)
                                                      --------           --------           --------           --------
        Net loss                                          (296)            (4,833)            (1,369)            (1,071)

PREFERRED STOCK DIVIDENDS AND ACCRETION                  1,422                976              2,768                976
                                                      --------           --------           --------           --------
        Net loss applicable to common stock           $ (1,718)          $ (5,809)          $ (4,137)          $ (2,047)
                                                      --------           --------           --------           --------
                                                      --------           --------           --------           --------

PRO FORMA NET LOSS (Note 4):

    Loss before benefit for income taxes              $   (373)          $ (7,664)          $ (2,042)          $ (3,902)

    Pro forma income tax benefit                           (77)            (3,100)              (673)            (1,600)
                                                      --------           --------           --------           --------
    Pro forma net loss                                $   (296)          $ (4,564)          $ (1,369)          $ (2,302)
                                                      --------           --------           --------           --------
                                                      --------           --------           --------           --------
</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,
                                                                                               ---------------------------
                                                                                                 1999               1998
                                                                                               --------           --------
<S>                                                                                            <C>                <C>
OPERATING ACTIVITIES:
    Net loss                                                                                   $ (1,369)          $  (1,071)
    Adjustments to reconcile net loss to net cash provided by
        (used for) operating activities-
        Depreciation and amortization                                                             2,707               3,122
        Deferred income taxes                                                                      (672)             (2,010)
        Accretion of debentures                                                                   3,167               1,114
       Change in operating assets and liabilities-
            Accounts receivable                                                                  (2,615)             (2,299)
            Inventories                                                                            (500)               (603)
            Prepaid expenses                                                                       (359)             (1,551)
            Accounts payable                                                                     (3,329)                661
            Accrued expenses                                                                         36               2,931
                                                                                               --------            --------
            Net cash provided by (used for) operating activities                                 (2,934)                294
                                                                                               --------            --------
INVESTING ACTIVITIES:
    Purchases of property, plant and equipment                                                   (2,216)             (1,273)
                                                                                               --------            --------
FINANCING ACTIVITIES:
    Borrowings under bank revolving line of credit                                                9,400              23,700
    Repayments of bank revolving line of credit                                                  (3,000)            (22,450)
    Borrowings on long-term debt                                                                      -             225,105
    Repayments of long-term debt                                                                 (1,000)            (44,872)
    Net proceeds from preferred stock and warrants                                                    -              44,529
    Repurchase of common stock                                                                        -            (211,421)
    Exercise of warrants                                                                              -                   4
    Exercise of options                                                                               -               1,258
    Distributions to stockholders                                                                     -              (5,454)
    Debt issuance costs                                                                            (250)             (9,420)
                                                                                               --------            --------
            Net cash provided by financing activities                                             5,150                 979
                                                                                               --------            --------
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 period for-
        Interest                                                                               $  9,130            $  4,676
                                                                                               --------            --------
                                                                                               --------            --------
        Income taxes                                                                           $      7            $     32
                                                                                               --------            --------
                                                                                               --------            --------
</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. after
    elimination of all material intercompany balances and transactions. Holdings
    and Operating Corp. are collectively referred to as "the Company".

    The Company is a leading manufacturer and marketer under two business
    segments (i) consumer products, consisting primarily of wooden matches,
    toothpicks, clothespins and wooden crafts, and plastic cutlery and straws
    ("Consumer Products"); and (ii) poured scented, air freshener and citronella
    candles ("Candles"). The Company's products are marketed primarily in the
    United States and Canada under the nationally recognized Diamond, Forster
    and Empire 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 generally accepted accounting
    principles, 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.  RECAPITALIZATION
    On March 3, 1998, the stockholders of the Company entered into a
    recapitalization agreement (the "Recapitalization Agreement") with Seaver
    Kent - TPG Partners, L.P. and Seaver Kent I Parallel, L.P. (collectively
    "the Sponsors"), which provided for the recapitalization of the Company.

    Pursuant to the Recapitalization Agreement, in April 1998, the Company
    purchased from the existing stockholders 15,129,232 shares of the Company's
    common stock for $211.5 million by (i) issuing $100.0 million of senior
    subordinated notes and $45.1 million senior discount debentures, (ii)
    entering into a bank credit agreement which provided for $80.0 million in
    term loan facilities and a $25.0 million revolving credit facility, and
    (iii) selling redeemable preferred stock with warrants to the Sponsors and
    other investors for $47.0 million. The Sponsors and other investors
    exercised warrants for 417,382 shares of common stock at closing. The
    transaction was accounted for as a recapitalization for accounting purposes.


<PAGE>

3.  LONG TERM DEBT
    In April 1998, the Company completed offerings of $100.0 million of 10 1/8%
    senior subordinated notes due to 2008 and $84 million of 12 7/8% senior
    discount debentures due 2009 with an original issue discount of $38.9
    million. The net proceeds to the Company for the offerings, after discounts,
    commissions and other offering costs were $138.4 and were used to repay
    existing indebtedness and purchase common stock of the Company.

    The Company also entered into a bank credit agreement which provides for
    $80.0 million in term loan facilities due in installments through March 2006
    and a $25.0 million revolving credit facility.

    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, 1999.

4.  INCOME TAXES
    Effective with the Recapitalization (see Note 2) in April 1998, the Company
    converted from an S Corporation to a C Corporation and began accounting for
    income taxes using the liability method.

    The taxable income or loss of the Company for the period ended April 20,
    1998, is included in the individual returns of the stockholders for federal
    tax purposes and, to the extent allowed and elected, for state tax purposes.
    Accordingly, there is no provision for current income taxes for that period.

    The unaudited pro forma income tax expense is presented assuming the Company
    had been a C corporation since January 1, 1998.

5.  SEGMENT REPORTING

    The Company's reportable segments include consumer products and candles. The
    consumer products segment consists of wooden matches, toothpicks,
    clothespins and wooden crafts, and plastic cutlery and straws sold primarily
    to grocery, mass and drug store channels. The candles segment consists
    primarily of poured scented, air freshener and citronella candles sold
    through club, mass and grocery channels.


<PAGE>

    Financial results of the Company's operating segments for the six months
    ended June 30, 1999 and 1998 are summarized below (dollars in millions):

<TABLE>
<CAPTION>

                                            1999                                         1998
                             -------------------------------------       -------------------------------------
                             Consumer                                    Consumer
                             Products      Candles          Total        Products       Candles          Total
                             --------      -------          -----        --------       -------          -----
<S>                          <C>           <C>            <C>            <C>            <C>              <C>
Net sales                    $  51.9        $  7.8         $  59.7        $  48.9        $  9.6          $ 58.5
Gross profit (loss)             19.5          (1.0)           18.5           16.4            .8            17.2
Operating income loss           12.7          (2.3)        $  10.4            5.0          (1.3)            3.7
</TABLE>
















<PAGE>


                           DIAMOND BRANDS INCORPORATED

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

RESULTS OF OPERATION

The Company focuses manufacturing and marketing under two business units: (i)
consumer products, consisting primarily of plastic cutlery/straws, wooden
matches, toothpicks, clothespins and wooden crafts ("Consumer Products"); and
(ii) poured scented, air freshener and citronella candles ("Candles"). The
Company's products are marketed primarily under the nationally recognized
Diamond, Forster and Empire brand names, which have been in existence since
1881, 1887 and 1950, 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,
1999, sales to the Company's top 10 customers accounted for approximately 42%
of the Company's gross sales, with one customer accounting for approximately
18% 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 Consumer Products, Candles, and
the total for the Company.

                        THREE MONTHS ENDED JUNE 30, 1999
                  COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

<TABLE>
<CAPTION>

                                           1999                             1998
                               -------------------------------   ------------------------------
                                                     (dollars in millions)

                               Consumer                          Consumer
                               Products   Candles      Total     Products   Candles       Total
                               --------   -------      -----     --------   -------       -----
<S>                            <C>        <C>          <C>       <C>        <C>           <C>
Net Sales                        $29.6      $ 3.7       $33.3      $27.8      $ 4.3       $32.1
Cost of Sales                     18.4        4.6        23.0       18.3        4.8        23.1
                                  ---         ---        ----       ----       ----        ----
  Gross Profit (Loss)             11.2        (.9)       10.3        9.5        (.5)        9.0
Gross Margin %                    37.8%     (24.3%)      30.9%      34.2%     (11.6%)      28.0%
Selling, General
  and Administration Expense       3.4         .4         3.8        8.7        1.0         9.7
Goodwill Amortization               .2         .2          .4         .2         .2          .4
                                   ---        ---         ---        ---        ---         ---
Operating Income (Loss) (1)      $ 7.6      ($1.5)      $ 6.1      $  .6      ($1.7)      ($1.1)
EBITDA (2)                         8.3      ($1.1)      $ 7.2      $ 1.3      ($1.3)          0
Recapitalization Expense (3)         -          -           -        5.8         .3         6.1
Adjusted EBITDA (4)                8.3      ($1.1)        7.2        7.1       (1.0)        6.1
                                 -----      -----       -----      -----      -----       -----
                                 -----      -----       -----      -----      -----       -----
Adjusted EBITDA
    Margin (5)                    28.0%     (29.7%)      21.6%      25.6%     (23.3%)      19.0%
</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 a indicator of the
    Company's operating performance or cash flow as a measure of liquidity.

(3) Represents one time costs incurred in connection with the Recapitalization
    including brokerage fee ($2.7 million), change in control management bonuses
    and option payments ($2.2 million), and legal and professional fees ($1.2
    million).

(4) Represents EBITDA excluding Recapitalization Expenses.

(5) EBITDA margin represents EBITDA as a percentage of net sales.
<PAGE>

CONSUMER PRODUCTS
Net sales for the Consumer Products segment were $29.6 million for the three
months ended June 30, 1999, a 6.5% increase over net sales of $27.8 million for
the three months ended June 30, 1998. The increase was led by a strong sales
performance in plastic cutlery/straws and wooden matches. Cutlery/straws net
sales were $13.7 million, up 17.1% over the comparable three months of 1998,
while wooden matches net sales totaled $4.8 million, 14.0% ahead of the
comparable period.

Gross profit was $11.2 million or 37.8% of net sales for the three months ended
June 30, 1999, compared to $9.5 million or 34.2% for the comparable period in
1998. This increase was achieved through (i) the increased sales volume of
cutlery/straws and wooden matches; (ii) operating efficiencies at the related
plants; and (iii) favorable product sales mix.

Selling, general and administrative expenses were $3.4 million for the three
months ended June 30, 1999, compared to $8.7 million for the comparable period
in 1998 which included $5.8 million in one time Recapitalization expenses. After
adjusting 1998 for Recapitalization expenses, the increased spending was due to
year 2000 remediation, marketing spending on consumer awareness, and
infrastructure improvements.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were
$8.3 million or 28.0% of net sales for the three months ended June 30, 1999,
compared to Adjusted EBITDA of $7.1 million or 25.6% for the same period in
1998.

CANDLES
Net sales for the Candle segment were $3.7 million for the three months ended
June 30, 1999, a 14.0% decrease over net sales of $4.3 million for the three
months ended June 30, 1998. This decrease was caused by soft sales of scented
candles and a realization decline for citronella products due to competitive
pricing pressure (citronella realization dropped 9.3%).

Gross profit (loss) was ($0.9) million or (24.3%) for the three months ended
June 30, 1999, compared to ($0.5) million or (11.6%) for the comparable period
in 1998. This decline was caused primarily by the drop in citronella candle
realization ($0.2 million) and sales shortfall on higher margin scented candles
($0.2 million).

Selling, general and administrative expenses were $0.4 million for the three
month period ending June 30, 1999, compared to $1.0 million (includes $0.3
million of Recapitalization Expenses) for the three months ended June 30, 1998.

Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)
was $(1.1 million) or (29.7%) of net sales compared to Adjusted EBITDA of ($1.0
million) or (23.3%) of net sales for the comparable period in 1998.

INTEREST EXPENSE
Interest expense for three months ended June 30, 1999 was $6.5 million compared
to $6.6 million for the comparable period in 1998. Interest expense decreased
$0.1 million as the one-time expensing of bridge commitment fees ($1.0 million)
related to the recapitalization in April 1998, and the write off of deferred
finance costs ($0.7 million) related to pre-recapitalization debt in 1998 was
offset somewhat by higher average debt load for the three month period ended
June 30, 1999.



<PAGE>


                         SIX MONTHS ENDED JUNE 30, 1999
                   COMPARED TO SIX MONTHS ENDED JUNE 30, 1998


<TABLE>
<CAPTION>

                                             1999                             1998
                               -----------------------------    ------------------------------
                                                     (dollars in millions)

                               Consumer                          Consumer
                               Products   Candles       Total    Products    Candles     Total
                               --------   -------       -----    --------    -------     -----
<S>                            <C>        <C>           <C>      <C>         <C>         <C>
Net Sales                        $51.9      $ 7.8       $59.7      $48.9      $ 9.6      $58.5
Cost of Sales                     32.4        8.8        41.2       32.5        8.8       41.3
                                  ----       ----        ----       ----        ---       ----
  Gross Profit (Loss)             19.5       (1.0)       18.5       16.4         .8       17.2
Gross Margin %                    37.6%     (12.8%)      31.0%      33.5%       8.3%      29.4%
Selling, General
  and Administration Expense       6.4         .9         7.3       11.0        1.7       12.7
Goodwill Amortization               .4         .4          .8         .4         .4         .8
                                   ---        ---         ---        ---        ---        ---
Operating Income (Loss) (1)      $12.7      ($2.3)      $10.4      $ 5.0      ($1.3)     $ 3.7
EBITDA (2)                       $14.2      ($1.7)      $12.5      $ 6.4      ($ .5)     $ 5.9
Recapitalization Expense (3)         -          -           -        5.8         .3        6.1
Adjusted EBITDA (4)              $14.2      ($1.7)      $12.5      $12.2        (.2)      12.0
                                 -----      -----       -----      -----       ----      -----
                                 -----      -----       -----      -----       ----      -----
Adjusted EBITDA
    Margin (5)                    27.4%     (21.8%)      20.9%      24.9%      (2.1%)     20.5%
</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 a indicator of the
    Company's operating performance or cash flow as a measure of liquidity.

(3) Represents one time costs incurred in connection with the Recapitalization
    including brokerage fee ($2.7 million) change in control management bonuses
    and option payments ($2.2 million) legal and professional fees ($1.2
    million).

(4) Represents EBITDA excluding Recapitalization Expenses.

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

CONSUMER PRODUCTS
Net sales for the Consumer Products segment were $51.9 million for the six
months ended June 30, 1999, a 6.1% increase over net sales of $48.9 million for
the six months ended June 30, 1998. The increase resulted from a strong sales
performance in plastic cutlery/straws and wooden matches. Cutlery/straws net
sales were $20.4 million, up 16.6% over the comparable six months of 1998, while
wooden matches net sales totaled $10.1 million, 12.8% ahead of the comparable
period.

Gross profit was $19.5 million or 37.6% of net sales for the six months ended
June 30, 1999, compared to $16.4 million or 33.5% for the comparable period
in 1998. This increase was achieved through (i) the increased sales volume of
cutlery/straws and wooden matches; (ii) operating efficiencies at the related
plants; and (iii) favorable product sales mix.

Selling, general and administrative expenses were $6.4 million for the six
months ended June 30, 1999, compared to $11.0 million for the comparable
period in 1998 which included $5.8 million in one time Recapitalization
expenses. After adjusting 1998 for Recapitalization expenses, the increased
spending was due to year 2000 remediation, marketing spending on consumer
awareness, and infrastructure improvements.

<PAGE>

Earnings before interest, taxes, depreciation and amortization (EBITDA) were
$14.2 million or 27.4% of net sales for the six months ended June 30, 1999,
compared to Adjusted EBITDA of $12.2 million or 24.9% for the same period in
1998.

CANDLES
Net sales for the Candle segment were $7.8 million for the six months ended June
30, 1999, a 18.8% decrease over net sales of $9.6 million for the six months
ended June 30, 1998. This decrease was caused by soft sales of scented candles
and a realization decline for citronella products due to competitive pricing
pressure.

Gross profit (loss) was ($1.0) million or (12.8%) for the six months ended June
30, 1999, compared to $0.8 million or 8.3% for the comparable period in 1998.
This decrease was primarily the result of (i) sales volume decline ($0.6
million); (ii) drop in citronella candle realization due to competitive pricing
pressures ($0.7 million); (iii) high freight and distribution costs ($0.2
million); (iv) and increase in promotion and allowance spending ($0.2 million).

Selling, general and administrative expenses were $0.9 million versus $1.7
million (includes $0.3 of Recapitalization Expenses) for the six months ended
June 30, 1998.

Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)
was $(1.7 million) or (21.8%) of net sales compared to Adjusted EBITDA of ($0.2
million) or (2.1%) for the comparable six months in 1998.

INTEREST EXPENSE
Interest expense for six months ended June 30, 1999 was $12.4 million compared
to $7.6 million for the comparable period in 1998. This increase was due to the
increase in debt as the result of the April 21, 1998 Recapitalization of the
Company.

LIQUIDITY AND CAPITAL RESOURCES
The senior credit agreement was amended on March 5, 1999, allowing for certain
non-re-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, 1999.

CASH FLOW - OPERATING ACTIVITIES. Cash provided by (used for) operating
activities was ($2.9) million for the six months ended June 30, 1999 as compared
to $0.3 million cash provided for the comparable period in 1998. Principle uses
of cash for the six months ended June 30, 1999 were for seasonal receivable
increases as the result of warm weather product sales for cutlery, clothespins,
and citronella candles, and the timing of accounts payable payments.

CASH FLOW - INVESTMENT ACTIVITIES. Capital expenditures for the six months ended
June 30, 1999, were $2.2 million, primarily used to expand capacity at the
cutlery plant. Capital expenditures for the comparable period in 1998 were $1.3
million. The Company currently expects its capital expenditures for 1999 to be
approximately $4.9 million.

CASH FLOW - FINANCING ACTIVITIES. Cash provided by financing activities was $5.2
million for the six months ended June 30, 1999, as compared to $1.0 million for
the comparable period in 1998. Borrowing under the bank agreement for Working
Capital requirements comprised the majority of the financing activities for the
six months ended June 30, 1999. The recapitalization of the Company on April 21,
1998 comprised the majority of the financing activities for the six months ended
June 30, 1998.


<PAGE>

OTHER MATTERS
PLANT CONSOLIDATION. On June 25, 1999, the Company announced plans to
consolidate the candle manufacturing operations into its existing Cloquet,
Minnesota plant by the end of the third quarter of 1999. The current candle
manufacturing facility in Kansas City, Kansas will continue to operate as a
distribution center, at least until the termination of the lease in July, 2000.
The costs associated with the plant consolidation will be recognized in the
third and fourth quarters of 1999 and relate primarily to severance costs of
terminated employees and moving expenses for manufacturing equipment. These
costs are not expected to exceed $0.5 million.

INFLATION AND ECONOMIC TRENDS. Although its operations are affected by general
economic trends, the Company does not believe that inflation has had a material
impact on its results of operations.

YEAR 2000. Many computer systems and software applications, including most of
those used by the Company, identify dates using only the last two digits of the
year. These systems are unable to distinguish between dates in the year 2000 and
dates in the year 1900. That inability (referred to as the "Year 2000" issue),
if not addressed, could cause certain systems or applications to fail or provide
incorrect information after December 31, 1999 or when using dates after December
31, 1999. This could have an adverse effect on Diamond Brands, due to Diamond
Brands' direct dependence on its own system and applications and indirect
dependence on those of other entities with whom Diamond Brands must interact.

The Company has replaced or modified all of the Company's current computer
systems and software applications to be Year 2000 compliant. The Company
currently estimates that its costs through the year 2000 to enhance its
information systems will cost approximately $1.4 million, of which $0.9 million
has been paid to date. These costs include estimates for employee compensation,
consultants, hardware and software.








<PAGE>

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, issues related to the year 2000, 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.



<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/ Thomas W. Knuesel
                                     -----------------

                              Thomas W. Knuesel , Vice President of
                              Finance and Chief Financial Officer
                              (authorized officer, principal financial and
                              accounting officer)


                              Date: August 9, 1999