<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 SEPTEMBER 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

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 November 15, 1999, 1,489,308 shares of common stock of the Registrant
were issued and outstanding. Of total outstanding shares of common stock on
November 15, 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>
                                                                                           September 30,    December 31,
                                                                                               1999             1998
                                                                                             ---------       ----------
<S>                                                                                        <C>              <C>
                                       ASSETS
CURRENT ASSETS:
    Accounts receivable, net of allowances of $985 and $1,035                                 $ 15,930         $ 12,379
    Inventories                                                                                 12,902           11,966
    Deferred income taxes                                                                       16,087            4,196
    Prepaid expenses                                                                               694              980
    Net assets from discontinued operations                                                        578           26,508
                                                                                             ---------       ----------
        Total current assets                                                                    46,191           56,029

PROPERTY, PLANT AND EQUIPMENT, net of
    accumulated depreciation of $19,347 and $17,715                                             15,815           14,498

GOODWILL                                                                                        24,561           25,100

DEFERRED FINANCING COSTS                                                                         8,321            8,777
                                                                                             ---------       ----------
                                                                                             $  94,888       $  104,404
                                                                                             =========       ==========
                        LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
    Current maturities of long-tem debt                                                        $ 4,250          $ 2,750
    Accounts payable                                                                             7,588            5,801
    Accrued expenses                                                                            12,920           10,032
                                                                                             ---------       ----------
        Total current liabilities                                                               24,758           18,583

POSTRETIREMENT BENEFIT OBLIGATIONS                                                               1,559            1,559

DEFERRED INCOME TAXES                                                                               20               20

LONG-TERM DEBT, net of current maturities                                                      229,056          226,373
                                                                                             ---------       ----------
        Total liabilities                                                                      255,393          246,535
                                                                                             ---------       ----------
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                    40,279           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                                                                       (212,901)        (190,316)
                                                                                             ---------       ----------
        Total stockholders' deficit                                                           (200,784)        (178,199)
                                                                                             ---------       ----------
                                                                                             $  94,888       $  104,404
                                                                                             =========       ==========
</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                 Nine Months Ended
                                                                       September 30,                      September 30,
                                                                    -------------------------------------------------------------
                                                                       1999              1998             1999             1998
                                                                    ---------          --------          -------          -------
<S>                                                                 <C>                <C>              <C>              <C>

NET SALES                                                            $ 24,234          $ 24,024         $ 76,120         $ 72,968

COST OF SALES                                                          14,682            15,154           47,050           47,682
                                                                     --------          --------         --------          -------
        Gross profit                                                    9,552             8,870           29,070           25,286

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                            2,812             2,704            9,221           13,784

GOODWILL AMORTIZATION                                                     180               180              540              540
                                                                     --------          --------         --------          -------
        Operating income                                                6,560             5,986           19,309           10,962

INTEREST EXPENSE                                                        6,366             5,951           18,765           13,588
                                                                     --------          --------         --------          -------
        Income (loss) from continuing operations before
           provision (benefit) for income taxes                           194                35              544           (2,626)

PROVISION (BENEFIT) FOR INCOME TAXES                                      151                86              434            (2,248)
                                                                     --------          --------         --------          -------
        Income (loss) from continuing operations                           43               (51)             110             (378)

DISCONTINUED OPERATIONS (Note 2):
  Loss from discontinued operations, net of income tax
     benefit of $1,672, $18, $2,628 and $515, respectively             (2,505)              (28)          (3,941)            (772)
  Loss on disposal, net of income tax benefit of $9,696 for 1999      (14,543)               -           (14,543)              -
                                                                     --------          --------         --------          -------
        Loss from discontinued operations                             (17,048)              (28)         (18,484)            (772)
                                                                     --------          --------         --------          -------
        Net loss                                                      (17,005)              (79)         (18,374)          (1,150)

PREFERRED STOCK DIVIDENDS AND ACCRETION                                 1,443             1,255            4,211            3,756
                                                                     --------          --------         --------          -------
        Net loss applicable to common stock                          $(18,448)         $ (1,334)        $(22,585)         $(4,906)
                                                                     ========          ========         ========          =======

PRO FORMA INCOME (LOSS) FROM CONTINUING OPERATIONS:
    Income (loss) from continuing operations before
       provision (benefit) for income taxes                          $    194          $     35         $    544          $(2,626)
    Pro forma provision (benefit) for income taxes (Note 5)               151                86              434           (1,100)
                                                                     --------          --------         --------          --------
    Pro forma income (loss) from continuing operations               $     43          $    (51)        $    110          $(1,526)
                                                                     ========          ========         ========          =======
</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>
                                                                                        Nine Months Ended
                                                                                          September 30,
                                                                                  ----------------------------
                                                                                      1999              1998
                                                                                  ----------------------------
<S>                                                                                <C>                <C>
OPERATING ACTIVITIES:
    Net loss                                                                       $ (18,374)         $ (1,150)
    Net assets of discontinued operations                                             25,930             2,515
    Adjustments to reconcile net loss to net cash provided by operating
    activities from continuing operations-
        Depreciation and amortization                                                  3,010             3,414
        Deferred income taxes                                                        (11,891)           (1,942)
        Accretion of debentures                                                        4,808             2,566
        Change in operating assets and liabilities-
            Accounts receivable                                                       (3,551)           (3,564)
            Inventories                                                                 (936)             (706)
            Prepaid expenses                                                             286            (1,470)
            Accounts payable                                                           1,787               656
            Accrued expenses                                                           2,888             4,972
                                                                                   ---------          --------
            Net cash provided by operating activities of continuing operations         3,957             5,291
                                                                                   ---------          --------

INVESTING ACTIVITIES:
    Purchases of property, plant and equipment                                        (2,949)           (1,395)
                                                                                   ---------          --------
            Net cash used for investing activities of continuing operations           (2,949)           (1,395)
                                                                                   ---------          --------

FINANCING ACTIVITIES:
    Borrowings under bank revolving line of credit                                    17,400            27,200
    Repayments of bank revolving line of credit                                      (16,150)          (30,700)
    Borrowings on long-term debt                                                                       225,105
    Repayments of long-term debt                                                      (1,875)          (44,997)
    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                                                                 (383)           (9,420)
                                                                                   ---------          --------
            Net cash (used for) financing activities of continuing operations         (1,008)           (3,896)
                                                                                   ---------          --------
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                                                                   $  10,537          $  6,400
                                                                                   =========          ========
        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 Board of Directors of the
     Company approved the divestiture of its Candle Operations (see note 2), and
     is included as discontinued operations in the consolidated financial
     statements for all periods presented.

     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.
     Operations are expected to cease on or before June 30, 2000. Net sales were
     $4.5 million and $6.7 million for the three months ended September 30, 1999
     and 1998, respectively. Net sales were $12.3 million and $16.3 million for
     the nine months ended September 30, 1999 and 1998, respectively.

     The losses of the Candle operations for the three months ended September
     30, 1999 and 1998 were $2.5 million and $0.1 million, respectively. The
     losses for the nine months ended September 30, 1999 and 1998 were $3.9
     million and $0.8 million, respectively. The losses of the Candle
     operations for all periods presented are included in the consolidated
     statements of operations under "Loss from Discontinued Operations."

<PAGE>

     The provision for the "Loss on Disposal" reflected in the consolidated
     income statement totaled $14.6 million, including the write down of assets
     by $23.1 million to net realizable value, estimated costs of disposal and
     run off costs of $1.2 million, less the expected tax benefit of $9.7
     million.

3.   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.

4.   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 September 30, 1999.

5.   INCOME TAXES

     Effective with the Recapitalization (see Note 3) in April 1998, the Company
     converted from an S Corporation to a C Corporation and began accounting for
     income taxes using the liability method.

<PAGE>

     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.

6.   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 candle segments
     consists primarily of poured scented, air freshener and citronella candles
     sold through club, mass and grocery channels. The candle operations were
     approved for divestiture in September, 1999 (see note2).

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

<TABLE>
<CAPTION>
                                                     1999                                      1998
                                     ----------------------------------      -----------------------------------
                                     Consumer                                Consumer
                                     Products      Candles (1)    Total      Products       Candles (1)    Total
                                     --------      -----------    -----      --------       -------        -----
<S>                                  <C>           <C>            <C>        <C>            <C>            <C>
Net sales                            $76.1         $ 12.3         $88.4      $73.0          $ 16.3         $89.3
Gross profit (loss)                   29.0           (3.6)         25.4       25.3             1.6          26.9
Operating income (loss)               19.3           (6.6)        $12.7       11.0            (1.3)          9.7
</TABLE>

     (1) Included in discontinued operations in the consolidated statements of
operations.

<PAGE>


                          DIAMOND BRANDS INCORPORATED

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

RESULTS OF CONTINUING OPERATIONS

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

The Company derives its revenue primarily from the sale of its products to
substantially all major grocery stores, drug stores, mass merchandisers and
warehouse clubs in the United States. During the nine months ended September
30, 1999, sales to the Company's top 10 customers accounted for approximately
46% 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 the continuing
operations of the Company, with 1998 comparable results of continuing
operations restated to exclude discontinued operations.

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

<TABLE>
<CAPTION>
                                           1999                1998
                                        ---------           ---------
                                            (dollars in millions)
<S>                                     <C>                 <C>
                                          Total               Total
Net Sales                                 $24.2               $24.0
Cost of Sales                              14.6                15.1
                                        -------             -------
  Gross Profit                              9.6                 8.9
Gross Margin %                             39.7%               37.1%
Selling, General
  and Administration Expense                2.8                 2.7
Goodwill Amortization                        .2                  .2
                                        -------             -------
Operating Income (1)                     $  6.6               $ 6.0
Interest Expense                         $  6.4               $ 6.0
EBITDA (2)                               $  7.3               $ 6.7
                                        =======              ======
EBITDA Margin (3)                          30.2%               27.9%
</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 $24.2 million for the three months ended
September 30, 1999, a 0.8% increase over net sales of $24.0 million for the
three months ended September 30, 1998. The increase was led by a strong sales
performance in plastic cutlery/straws and wooden matches. Cutlery/straws net
sales were up 10.6% over the comparable three months of 1998, while wooden
matches net sales increased 4.6% over the comparable period for the
previous year.

Gross profit was $9.6 million or 39.7% of net sales for the three months
ended September 30, 1999, compared to $8.9 million or 37.1% for the
comparable period in 1998. This increase was achieved

<PAGE>

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 $2.8 million for the three
months ended September 30, 1999, compared to $2.7 million for the comparable
period in 1998. The increased spending was due to year 2000 remediation,
marketing spending on consumer awareness, and infrastructure improvements.

Interest expense for three months ended September 30, 1999 was $6.4 million
compared to $6.0 million for the comparable period in 1998. The increase was
caused primarily by higher interest rates on the Company's senior debt
facility.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were
$7.3 million or 30.2% of net sales for the three months ended September 30,
1999, compared to EBITDA of $6.7 million or 27.9% for the same period in 1998.

RESULTS OF DISCONTINUED OPERATIONS

Effective September 30, 1999, the Board of Directors approved the divestiture
of the Candle operations of the Company. Operations are expected to cease on
or before June 30, 2000. Net sales from such operations were $4.5 million for
the three month period ended September 30, 1999 as compared to $6.7 million
for the comparable period in 1998.

The net losses of the Candle operations for the three month period ended
September 30, 1999 totaled $2.5 million, and are included in the consolidated
income statement under "Loss from Discontinued Operations."

The provision for the "Loss on Disposal of Discontinued Operations" reflected
in the consolidated income statement totaled $14.6 million, including the
write down of assets by $23.1 million to net realizable value, estimated
costs of disposal and run off costs $1.2 million, less the expected tax
benefit of $9.7 million.

RESULTS OF CONTINUING OPERATIONS

                       NINE MONTHS ENDED SEPTEMBER 30, 1999
                 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                        1999                1998
                                     ------------       ------------
                                          (dollars in millions)
<S>                                  <C>                <C>
                                        Total               Total
Net Sales                               $76.1               $73.0
Cost of Sales                            47.1                47.7
                                      -------             -------
  Gross Profit                           29.0                25.3
Gross Margin %                           38.1%               34.7%
Selling, General
  and Administration Expense              9.2                13.8
Goodwill Amortization                      .5                  .5
                                      -------             -------
Operating Income (1)                    $19.3               $11.0
Interest Expense                        $18.8               $13.6
EBITDA (2)                              $21.4               $13.1
Recapitalization Expense (3)                -               $ 5.8
Adjusted EBITDA (4)                     $21.4               $18.9
                                      =======             =======
Adjusted EBITDA
    Margin  (5)                          28.1%               25.9%
</TABLE>

<PAGE>

(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 ($1.9 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.

Net sales were $76.1 million for the nine months ended September 30, 1999, a
4.2% increase over net sales of $73.0 million for the nine months ended
September 30, 1998. The increase resulted from a strong sales performance in
plastic cutlery/straws and wooden matches. Cutlery/straws net sales were up
14.8% over the comparable nine months of 1998, while wooden matches net sales
were 9.7% ahead of the comparable period.

Gross profit was $29.0 million or 38.1% of net sales for the nine months
ended September 30, 1999, compared to $25.3 million or 34.7% 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 $9.2 million for the nine
months ended September 30, 1999, compared to $13.8 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
$21.4 million or 28.1% of net sales for the nine months ended September 30,
1999, compared to Adjusted EBITDA of $18.9 million or 25.9% for the same
period in 1998.

Interest expense for nine months ended September 30, 1999 was $18.8 million
compared to $13.6 million for the comparable period in 1998. This increase was
due primarily to the increase in debt as the result of the April 21, 1998
Recapitalization of the Company.

RESULTS OF DISCONTINUED OPERATIONS
Effective September 30, 1999, the Board of Directors approved the divestiture of
the Candle operations of the Company. Operations are expected to cease on or
before June 30, 2000. Net sales from such operations were $12.3 million for the
nine months ended September 30, 1999, and $16.3 million for the comparable
period in 1998.

The losses of the Candle operations for the nine months ended September 30,
1999 totaled $3.9 million, and are included in the consolidated income
statement under "Loss from Discontinued Operations".

The provision for the "Loss on Disposal of Discontinued Operations" reflected
in the consolidated income statement totaled $14.6 million, including the
write down of assets by $23.1 million to net realizable value, estimated
costs of disposal and run off costs $1.2 million, less the expected tax
benefit of $9.7 million.

<PAGE>

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 September
30, 1999.

CASH FLOW - OPERATING ACTIVITIES. Cash provided by (used for) operating
activities was $4.0 million for the nine months ended September 30, 1999 as
compared to $5.3 million cash provided for the comparable period in 1998.

CASH FLOW - INVESTMENT ACTIVITIES. Capital expenditures for the nine months
ended September 30, 1999, were $2.9 million, primarily used to expand
capacity at the cutlery plant. Capital expenditures for the comparable period
in 1998 were $1.4 million.

CASH FLOW - FINANCING ACTIVITIES. Cash used for financing activities was $1.0
million for the nine months ended September 30, 1999, as compared to $3.9
million for the comparable period in 1998. Borrowing and repayments under the
bank agreement for Working Capital requirements comprised the majority of the
financing activities for the nine months ended September 30, 1999. The
recapitalization of the Company on April 21, 1998 comprised the majority of
the financing activities for the nine months ended September 30, 1998.

OTHER MATTERS
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 $1.9 million, of which $1.3
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: November 15, 1999