<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 MARCH 31, 2000

                                       OR

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


                        Commission file number 333-58223

                         DIAMOND BRANDS OPERATING CORP.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                            411905675
            --------                                            ---------
(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 May 3, 2000, 100% of the common stock of the Registrant was owned by
Diamond Brands Incorporated. There is no established public trading market for
such stock.


                    Documents incorporated by reference: None


<PAGE>

                         DIAMOND BRANDS OPERATING CORP.

                                TABLE OF CONTENTS





PART I - FINANCIAL INFORMATION

         ITEM - 1.         Financial Statements (Unaudited)

                           Consolidated Balance Sheet

                           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 OPERATING CORP.
                     Consolidated Balance Sheets (Unaudited)
               (In Thousands, Except Share and Per Share Amounts)

<TABLE>
<CAPTION>

                                                                                 March 31,         December 31,
                                                                                   2000                1999
                                                                               ------------        ------------
<S>                                                                            <C>                 <C>
                                       ASSETS
CURRENT ASSETS:
    Accounts receivable, net of allowances of $1,303 and $1,354                $     11,014        $     14,311
    Inventories                                                                      16,823              12,084
    Deferred income taxes                                                             2,377               2,671
    Prepaid expenses                                                                    570                 590
    Net assets from discontinued operations                                             474               1,589
                                                                               ------------        ------------
        Total current assets                                                         31,258              31,245

PROPERTY, PLANT AND EQUIPMENT, net of
    accumulated depreciation of $20,813 and $19,347                                  16,990              16,188

GOODWILL                                                                             24,201              24,381

DEFERRED INCOME TAXES                                                                 5,395               5,395

DEFERRED FINANCING COSTS                                                              5,853               6,085
                                                                               ------------        ------------
                                                                               $     83,697        $     83,294
                                                                               ============        ============
                        LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
    Current maturities of long-tem debt                                        $      5,000        $      4,625
    Accounts payable                                                                  5,609               5,768
    Accrued expenses                                                                 12,503               8,826
                                                                               ------------        ------------
        Total current liabilities                                                    23,112              19,219

POSTRETIREMENT BENEFIT OBLIGATIONS                                                    1,497               1,497

LONG-TERM DEBT, net of current maturities                                           169,750             173,000
                                                                               ------------        ------------
        Total liabilities                                                           194,359             193,716
                                                                               ------------        ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
    Common stock, $.01 par value; 1,000 shares authorized;
        1,000 shares issued and outstanding                                               1                   1
    Accumulated deficit                                                            (110,663)           (110,423)
                                                                               ------------        ------------
        Total stockholders' deficit                                                (110,662)           (110,422)
                                                                               ------------        ------------
                                                                               $     83,697        $     83,294
                                                                               ============        ============
</TABLE>

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


<PAGE>

                         DIAMOND BRANDS OPERATING CORP.
                Consolidated Statements of Operations (Unaudited)
                                 (In Thousands)

<TABLE>
<CAPTION>

                                                                                      Three Months Ended
                                                                                          March 31,
                                                                               --------------------------------
                                                                                    2000               1999
                                                                               ------------        ------------
<S>                                                                            <C>                 <C>
NET SALES                                                                      $     23,282        $     22,266

COST OF SALES                                                                        15,107              13,906
                                                                               ------------        ------------
        Gross profit                                                                  8,175               8,360

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                          3,151               3,009

GOODWILL AMORTIZATION                                                                   180                 180
                                                                               ------------        ------------
        Operating income                                                              4,844               5,171

INTEREST EXPENSE                                                                      4,291               4,347
                                                                               ------------        ------------
        Income from continuing operations before provision for income taxes             553                 824

PROVISION FOR INCOME TAXES                                                              293                 400
                                                                               ------------        ------------
        Income from continuing operations                                               260                 424

DISCONTINUED OPERATIONS:
  Loss from discontinued operations, net of income tax benefit of
     $0 and $363                                                                       --                  (544)
                                                                               ------------        ------------
        Net income (loss)                                                      $        260        $       (120)
                                                                               ============        ============
</TABLE>


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


<PAGE>

                         DIAMOND BRANDS OPERATING CORP.
                Consolidated Statements of Cash Flows (Unaudited)
                                 (In Thousands)

<TABLE>
<CAPTION>

                                                                                                Three Months Ended
                                                                                                    March 31,
                                                                                         --------------------------------
                                                                                             2000                1999

                                                                                         ------------        ------------
<S>                                                                                      <C>                 <C>
OPERATING ACTIVITIES:
    Net income (loss)                                                                    $        260        $       (120)
    Net assets of discontinued operations                                                       1,115              (1,999)
    Adjustments to reconcile net income (loss) to net cash provided by
        (used for) operating activities of continuing operations-
        Depreciation and amortization                                                           1,014                 950
        Deferred income taxes                                                                     294                  38
        Change in operating assets and liabilities-
            Accounts receivable                                                                 3,297               1,210
            Inventories                                                                        (4,739)             (2,816)
            Prepaid expenses                                                                       20                  (5)
            Accounts payable                                                                     (159)               (896)
            Accrued expenses                                                                    3,677               2,894
                                                                                         ------------        ------------
            Net cash provided by (used for) operating activities of continuing operations       4,779                (744)
                                                                                         ------------        ------------

INVESTING ACTIVITIES:
    Purchases of property, plant and equipment                                                 (1,404)               (831)
                                                                                         ------------        ------------
            Net cash used for investing activities of continuing operations                    (1,404)               (831)
                                                                                         ------------        ------------

FINANCING ACTIVITIES:
    Borrowings under bank revolving line of credit                                               --                 4,050
    Repayments of bank revolving line of credit                                                  (750)             (2,100)
    Repayments of long-term debt                                                               (2,125)               (125)
    Distributions to Holdings                                                                    (500)               --
    Debt issuance costs                                                                          --                  (250)
                                                                                         ------------        ------------
            Net cash provided by (used for) financing activities of continuing operations      (3,375)              1,575
                                                                                         ------------        ------------
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                                                                         $      1,623        $      1,551
                                                                                         ============        ============
        Income taxes                                                                     $          7        $         32
                                                                                         ============        ============
</TABLE>


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


<PAGE>

                         DIAMOND BRANDS OPERATING CORP.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


1.   BASIS OF PRESENTATION
     The accompanying consolidated financial statements include the accounts of
     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.
     Operating Corp. and its subsidiaries are collectively referred to as "the
     Company". Diamond Brands Operating Corp. is a wholly owned subsidiary of
     Diamond Brands Incorporated ("Holdings")

     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 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.   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 $4.1 million for the
     three months ended March 31, 2000 and 1999, respectively


<PAGE>

3.   LONG TERM DEBT
     In April 1998, the Company completed an offering of $100.0 million of
     10 1/8% senior subordinated notes due 2008. The net proceeds to the
     Company for the offering, after discounts, commissions and other offering
     costs were $95.4 million and were used to repay existing indebtedness and
     purchase common stock of the Company. The senior subordinated notes are
     fully and unconditionally guaranteed on a senior subordinated basis,
     jointly and severally, by all of Operating Corp.'s direct and indirect
     subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantors are
     Forster, Inc. and Empire Candle, Inc. Separate financial statements of the
     Subsidiary Guarantors are not presented because management has determined
     that they are not material to investors. In lieu of the separate guarantor
     financial statements, summarized consolidating financial information of
     Holdings/Operating Corp. and the Subsidiary Guarantors are presented below
     (in thousands):

<TABLE>
<CAPTION>

                                                      AS OF MARCH 31, 2000

                                                 Operating           Subsidiary                              Consolidated
                                                 Corp                Guarantor (1)       Eliminations        Total
                                                 ------------        ------------        ------------        ------------
<S>                                              <C>                 <C>                 <C>                 <C>
Balance sheet data:
Current assets                                   $     16,750        $     14,508                --          $     31,258
Non current assets                                     97,338              12,278             (57,177)             52,439
Current liabilities                                    54,868               4,319             (36,075)             23,112
Non current liabilities                               170,356                 891                --               171,247
Stockholders' deficit                                (110,662)             21,102             (21,102)           (110,662)


                       THREE MONTHS ENDED MARCH 31, 2000
Statement of operations data:
Net sales                                        $      9,756        $     13,526                --          $     23,282
Gross profit                                            3,516               4,659                --                 8,175
Operating income                                        2,015               2,829                --                 4,844
Income from continuing operations                         102                 158                --                   260
Loss from discontinued operations                        --                  --                  --                  --
Equity in earnings of  subsidiaries                       158                --                  (158)               --
Net Income                                                260                 158                (158)                260



                             AS OF DECEMBER 31, 1999

Balance sheet data:
Current assets                                   $     17,572        $     13,673                --          $     31,245
Noncurrent assets                                      93,926              15,142             (57,019)             52,049
Current liabilities                                    48,314               3,618             (32,713)             19,219
Non current liabilities                               173,606                 891                --               174,497
Stockholders' (deficit)                              (110,422)             24,306             (24,306)           (110,422)

                        THREE MONTHS ENDED MARCH 31, 1999

Statement of operations data:
Net sales                                        $      8,487        $     13,779                --          $     22,266
Gross profit                                            2,645               5,715                --                 8,360
Operating income                                        1,318               3,853                --                 5,171


<PAGE>

Income (loss) from continuing operations                 (174)                598                --                   424
Loss from discontinued operations                        --                  (544)               --                  (544)
Equity in earnings of subsidiaries                         54                --                   (54)               --
Net loss                                                 (120)                 54                 (54)               (120)
</TABLE>

(1)  Summarized financial information of the Subsidiary Guarantors includes the
     results of operations for Empire Candle, Inc. as loss from discontinued
     operations (see Note 2). Current assets of the Subsidiary Guarantors
     included net assets of discontinued operations of $474 and $1,589 as of
     March 31, 2000, and December 31, 1999, respectively.

     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. 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 March 31, 2000.

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 three months
     ended March 31 (in thousands):

<TABLE>
<CAPTION>

                                                       2000                1999
                                                 ----------          ----------
<S>                                              <C>                 <C>
        Cutlery/straws                           $    8,963          $    8,082
        Woodware                                      6,945               7,466
        Wooden lights                                 5,669               5,740
        Institutional/other                           3,822               3,662
                                                 ----------          ----------
                       Total                     $   25,399          $   24,950
                                                 ==========          ==========
</TABLE>


<PAGE>

                         DIAMOND BRANDS OPERATING CORP.

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 three months ended March 31,
2000, sales to the Company's top 10 customers accounted for approximately 47.7%
of the Company's gross sales, with one customer accounting for approximately 21%
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.

<TABLE>
<CAPTION>

                        THREE MONTHS ENDED MARCH 31, 2000
                  COMPARED TO THREE MONTHS ENDED MARCH 31, 1999

                                             2000                 1999
                                          ----------          ------------
                                               (dollars in millions)

                                            TOTAL                TOTAL
                                          ----------          ------------
<S>                                       <C>                 <C>

Net Sales                                     $23.3                 $22.3
Cost of Sales                                  15.1                  13.9
                                          ----------          ------------
  Gross Profit                                  8.2                   8.4
Gross Margin %                                 35.2%                37.7%
Selling, General
  And Administration Expense                    3.1                   3.0
Goodwill Amortization                            .2                    .2
                                          ----------          ------------
Operating Income (1)                           $4.9                  $5.2
Interest Expense                               $4.3                  $4.3
EBITDA (2)                                     $5.6                  $5.9
                                          ==========          ============
EBITDA Margin (3)                              24.0%                 26.5%
</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 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 $23.3 million for the three months ended March
31, 2000, a 4.5% increase over net sales of $22.3 million for the three months
ended March 31, 1999. The increase was led by a strong sales performance in
plastic cutlery/straws and institutional products, offset somewhat by a decrease
in woodenware. Cutlery/straws and institutional products were up 10.9% and 4.4%
respectively over the comparable three months of 1999, while woodenware
decreased 7%.

Gross profit was $8.2 million or 35.2% of net sales for the three months ended
March 31, 2000, compared to $8.4 million or 37.7% for the comparable period in
1999. This decrease was due primarily to an increase in resin cost, as well as
higher packaging costs.


<PAGE>

Selling, general and administrative expenses were $3.1 million for the three
months ended March 31, 2000, compared to $3.0 million for the comparable period
in 1999. The current year includes a severance charge of $0.2 million.

Interest expense was $4.3 million for the three months ended March 31, 2000 and
1999.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were
$5.6 million or 24.0% of net sales for the three months ended March 31, 2000,
compared to EBITDA of $5.9 million or 26.5% for the same period in 1999.

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. The Company anticipates the candle discontinuation
will have no impact on this year's operating income.

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 March 31,
2000.

CASH FLOW - OPERATING ACTIVITIES. Cash provided by (used for) operating
activities was $4.8 million for the three months ended March 31, 2000 as
compared to $0.7 million cash used for the comparable period in 1999. The
increase is due primarily to the change in the net assets of the discontinued
operations.

CASH FLOW - INVESTMENT ACTIVITIES. Capital expenditures for the three months
ended March 31, 2000, were $1.4 million, primarily used to expand capacity at
the cutlery plant. Capital expenditures for the comparable period in 1999 were
$0.8 million. Planned expenditures for the same period were $1.0 million.

CASH FLOW - FINANCING ACTIVITIES. Cash used for financing activities was ($3.4)
million for the three months ended March 31, 2000, as compared to cash provided
from financing activities of $1.6 million for the same period prior year. The
working capital adjustment relating to the April, 1998, recapitalization was
finalized during the period resulting in a payment to the former Holdings
shareholders of $.5 million. The Company also made a voluntary prepayment of
$1.25 million on its term loans.


<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, 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/ Frank Chalk
                                      ---------------

                                   Frank Chalk, Vice President of
                                   Finance and Chief Financial Officer
                                   (authorized officer, principal
                                   financial and accounting officer)


                                   Date: May 3, 2000