<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 333-58223

                         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 August 11, 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 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 OPERATING CORP.
                     Consolidated Balance Sheets (Unaudited)
               (In Thousands, Except Share and Per Share Amounts)

<TABLE>
<CAPTION>

                                                                                June 30,     December 31,
                                                                                 2000           1999
                                                                             ------------   ------------
                                     ASSETS
<S>                                                                      <C>              <C>
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                                                               5,395          5,395

DEFERRED FINANCING COSTS                                                            5,621          6,085
                                                                             ------------   ------------
                                                                             $     85,563   $     83,294
                                                                             ============   ============
                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
    Current maturities of long-term debt                                      $     5,000   $      4,625
    Accounts payable                                                                7,592          5,768
    Accrued expenses                                                               10,835          8,826
                                                                             ------------   ------------
        Total current liabilities                                                  23,427         19,219

POSTRETIREMENT BENEFIT OBLIGATIONS                                                  1,497          1,497

LONG-TERM DEBT, net of current maturities                                         170,750        173,000
                                                                             ------------   ------------
        Total liabilities                                                         195,674        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                                                          (110,112)      (110,423)
                                                                             ------------   ------------
        Total stockholders' deficit                                              (110,111)      (110,422)
                                                                             ------------   ------------
                                                                             $     85,563   $     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            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                                                                    4,624         4,799         8,915         9,146
                                                                             ------------  ------------  ------------  ------------
        Income from continuing operations before provision
           for income taxes                                                         1,122         2,781         1,675         3,605
PROVISION FOR INCOME TAXES                                                            520         1,184           813         1,584
                                                                             ------------  ------------  ------------  ------------
        Income from continuing operations                                             602         1,597           862         2,021
DISCONTINUED OPERATIONS (Note 2):
  Loss from discontinued operations, net of income tax
     benefit of $0, $593, $0 and $956, respectively                                  --             892          --           1,436
                                                                             ------------  ------------  ------------  ------------
        Net income                                                           $        602  $        705  $        862  $        585
                                                                             ============  ============  ============  ============

</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>

                                                                                 Six Months Ended
                                                                                      June 30,
                                                                             ----------------------------
                                                                                  2000           1999
                                                                             ------------   -------------
<S>                                                                       <C>            <C>
OPERATING ACTIVITIES:
    Net income                                                               $        862   $        585
    Net assets of discontinued operations                                           1,163         (1,043)
    Adjustments to reconcile net income to net cash provided by (used for)
      operating activities from continuing operations-
        Depreciation and amortization                                               2,028          1,913
        Deferred income taxes                                                         814            628
        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                                                        2,009            (35)
                                                                             ------------   ------------
            Net cash provided by (used for) operating activities of
              continuing operations                                                 4,830         (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)
    Distributions to Holdings                                                        (551)          --
    Debt issuance costs                                                              --             (250)
                                                                             ------------   ------------
            Net cash provided by (used for) financing activities of
               continuing operations                                               (2,426)         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
                                                                             ============   ============

</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
      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

      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):

                              AS OF JUNE 30, 2000

<TABLE>
<CAPTION>

                                             Operating     Subsidiary                   Consolidated
                                               Corp       Guarantor (1)  Eliminations       Total
                                          -------------------------------------------------------------
<S>                                    <C>            <C>               <C>           <C>
Balance sheet data:
Current assets                            $     15,639   $     17,499          --     $     33,138
Non current assets                              97,875         12,255       (57,705)        52,425
Current liabilities                             52,269          6,639       (35,481)        23,427
Non current liabilities                        171,356            891          --          172,247
Stockholders' equity (deficit)                (110,111)        22,224       (22,224)      (110,111)

</TABLE>

                         SIX MONTHS ENDED JUNE 30, 2000

<TABLE>

<S>                                   <C>              <C>               <C>      <C>
Statement of operations data:
Net sales                                 $     17,304  $     33,397          --     $     50,701
Gross profit                                     5,733        11,042          --           16,775
Operating income                                 3,385         7,205          --           10,590
Income from continuing operations                  176           686          --              862
Loss from discontinued operations                 --            --            --             --
Equity in earnings of  subsidiaries                686          --            (686)          --
Net Income                                         862           686          (686)           862

</TABLE>

                             AS OF DECEMBER 31, 1999

<TABLE>

<S>                                  <C>               <C>               <C>         <C>
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' equity (deficit)                (110,422)        24,306       (24,306)      (110,422)

</TABLE>

                         SIX MONTHS ENDED JUNE 30, 1999

<TABLE>

<S>                                   <C>             <C>                <C>         <C>
Statement of operations data:
Net sales                                 $     17,094   $     34,792          --     $     51,886
Gross profit                                     5,435         14,083          --           19,518
Operating income                                 2,965          9,786          --           12,751

</TABLE>

<PAGE>

<TABLE>

<S>                                   <C>             <C>                <C>         <C>
Income (loss) from continuing operations           (27)         2,048           --         2,021
Loss from discontinued operations                   --          1,436           --         1,436
Equity in earnings of subsidiaries                 612             --          (612)          --
Net Income                                         585            612          (612)         585

</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 $426 and $1,589 as of
      June 30, 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 June 30, 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 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>

<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 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.

<TABLE>
<CAPTION>

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

                                                          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                                        $    4.6   $    4.8
                                                        ========   ========
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 a 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.

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.

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                                     $    8.9   $    9.1
                                                     ========   ========
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 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)   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.

<PAGE>

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 $8.9 million
compared to $9.1 million for the comparable 1999 period. Lower debt balances
compared to 1999 account for the decreased interest.

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.

CASH FLOW - OPERATING ACTIVITIES. Cash provided by operating activities was $4.8
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 $9.5 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 annual 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 $2.4
million for the six months ended June 30, 2000, as compared to cash used for
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

<PAGE>

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 OPERATING CORP. (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