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, 1996

                                       OR

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

             FOR THE TRANSITION PERIOD FROM _________ TO __________

                         COMMISSION FILE NUMBER 0-23422

                               DRYPERS CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

           DELAWARE                                       76-0344044
(STATE OR OTHER JURISDICTION OF                          (IRS EMPLOYER
INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NUMBER)

        1415 WEST LOOP NORTH                                 77055
           HOUSTON, TEXAS                                 (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

     REGISTRANT'S TELEPHONE NUMBER, INCLUDING THE AREA CODE: (713) 682-6848

     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.

                       [X] Yes                        [ ] No

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

    COMMON STOCK, $.001 PAR VALUE                      6,851,154 SHARES
    -----------------------------                      ----------------
             (Class)                           (Outstanding at October 16, 1996)

<PAGE>
PART I.        FINANCIAL INFORMATION

  ITEM 1.      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

               The following information required by Rule 10-01 of Regulation
               S-X is provided herein for Drypers Corporation:

               Consolidated Balance Sheets -- December 31, 1995 and September
               30, 1996.

               Consolidated Statements of Earnings for the Three Months and Nine
               Months Ended September 30, 1995 and 1996.

               Consolidated Statement of Stockholders' Equity for the Nine
               Months Ended September 30, 1996.

               Consolidated Statements of Cash Flows for the Nine Months Ended
               September 30, 1995 and 1996.

               Notes to Consolidated Financial Statements.

                                        2

                               DRYPERS CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                      ( IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                    DECEMBER 31 SEPTEMBER 30
                                                                       1995        1996
                                                                     ----------   --------
                                                                      (AUDITED)  (UNAUDITED)
<S>                                                                  <C>          <C>      
CURRENT ASSETS:
    Cash .........................................................   $   2,236    $   4,420
    Accounts receivable, net of allowance for doubtful accounts of
          $940 and $1,013, respectively ..........................      24,039       24,644
    Inventories ..................................................      10,913       12,663
    Prepaid expenses and other ...................................       3,437        3,861
                                                                     ---------    ---------
       Total current assets ......................................      40,625       45,588

 PROPERTY AND EQUIPMENT, net of depreciation and amortization ....      36,375       36,959

 INTANGIBLE AND OTHER ASSETS, net of amortization of $7,094
          and $9,346, respectively ...............................      60,420       59,113
                                                                     ---------    ---------
                                                                     $ 137,420    $ 141,660
                                                                     =========    =========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Short-term debt, revolver and current portion of term loan ...   $  12,064    $  15,904
    Accounts payable .............................................      19,319       14,382
    Accrued liabilities ..........................................      12,839       11,031
                                                                     ---------    ---------
        Total current liabilities ................................      44,222       41,317
TERM LOAN ........................................................       1,000          750
SENIOR TERM NOTES ................................................      43,950       44,079
LONG-TERM SUBORDINATED DEBT TO RELATED PARTIES ...................       2,400        2,400
OTHER LONG-TERM LIABILITIES ......................................       4,026        3,618
                                                                     ---------    ---------
                                                                        95,598       92,164
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
    Preferred Stock, $.01 par value, 5,000,000 shares authorized,
      -0- and 90,000 shares issued and outstanding, respectively .        --              1
    Common Stock, $.001 par value, 20,000,000 shares authorized,
      6,619,804 and 6,649,450 shares issued and
      outstanding, respectively ..................................           7            7
    Additional paid-in capital ...................................      58,482       67,034
    Warrants .....................................................         703          973
    Retained deficit .............................................     (17,370)     (18,519)
                                                                     ---------    ---------
       Total stockholders' equity ................................      41,822       49,496
                                                                     ---------    ---------
                                                                     $ 137,420    $ 141,660
                                                                     =========    =========
</TABLE>
        The accompanying notes are an integral part of these consolidated
                             financial statements.
 
                                      3
<PAGE>
                               DRYPERS CORPORATION
                       CONSOLIDATED STATEMENTS OF EARNINGS

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED           NINE MONTHS ENDED
                                                        SEPTEMBER 30                 SEPTEMBER 30

                                                    1995           1996           1995           1996
                                                -----------    ------------    -----------    -----------
<S>                                             <C>            <C>             <C>            <C>        
NET SALES ...................................   $    43,295    $     55,066    $   117,393    $   152,929

COST OF GOODS SOLD ..........................        30,478          33,192         82,914         93,306
                                                -----------    ------------    -----------    -----------
    Gross profit ............................        12,817          21,874         34,479         59,623

SELLING, GENERAL  AND ADMINISTRATIVE EXPENSES        13,334          17,535         39,158         53,249

UNUSUAL EXPENSES ............................          --              --            2,358           --

RESTRUCTURING CHARGE ........................          --              --            2,972           --
                                                -----------    ------------    -----------    -----------
     Operating income (loss) ................          (517)          4,339        (10,009)         6,374

RELATED PARTY INTEREST EXPENSE ..............            92              88            278            264

OTHER INTEREST EXPENSE, net .................         1,983           2,122          5,587          6,347
                                                -----------    ------------    -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES ...........        (2,592)          2,129        (15,874)          (237)

INCOME TAX PROVISION (BENEFIT) ..............            64             173         (3,803)           374
                                                -----------    ------------    -----------    -----------
NET INCOME  (LOSS) ..........................        (2,656)          1,956        (12,071)          (611)

PREFERRED STOCK DIVIDEND ....................          --              (172)          --             (392)
                                                -----------    ------------    -----------    -----------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS .........................   ($    2,656)   $      1,784    ($   12,071)   ($    1,003)
                                                ===========    ============    ===========    ===========
COMMON AND COMMON
  EQUIVALENT SHARES OUTSTANDING .............     6,600,866      16,118,794      6,574,218      6,640,084
                                                ===========    ============    ===========    ===========
  NET INCOME ( LOSS) PER COMMON SHARE .......   ($     0.40)   $       0.12    ($     1.84)   ($     0.15)
                                                ===========    ============    ===========    ===========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       4
<PAGE>
                               DRYPERS CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                    PREFERRED        COMMON
                                      SHARES         SHARES                                ADDITIONAL
                                    ISSUED AND     ISSUED AND     PREFERRED    COMMON       PAID-IN                         RETAINED
                                   OUTSTANDING    OUTSTANDING       STOCK      STOCK        CAPITAL        WARRANTS          DEFICIT
                                   ----------      ----------     ---------   -------      ---------        -------         --------
<S>                                  <C>            <C>               <C>        <C>        <C>               <C>          <C>      
Balance, January 1, 1996 ...           --           6,619,804         --         $7         $ 58,482          $703         ($17,370)

Net loss ...................           --                --           --         --             --             --              (611)

Issuance of preferred
stock, net .................         90,000              --           $1         --            8,822           --              --

Issuance of common stock
and warrants ...............           --              25,000         --         --             (270)          270             --

Preferred stock dividends
($4.36 per share) ..........           --                --           --         --             --             --              (392)

Exercise of stock options ..           --               4,646         --         --             --             --              --
                                     ------         ---------        ---        ---         --------          ----         --------

Balance, September 30, 1996          90,000         6,649,450         $1         $7         $ 67,034          $973         ($18,373)
                                     ======         =========        ===        ===         ========          ====         ========

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

                                       5
<PAGE>
                               DRYPERS CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

                                                                   Nine Months Ended
                                                                      September 30
                                                                 1995              1996
                                                               --------          ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss ............................................         ($12,071)         ($    611)
  Adjustments to reconcile net loss to net
    cash provided by (used in) operating activities --
     Restructuring charge ............................            2,972               --
     Depreciation and amortization ...................            5,333              5,646
     Provision for deferred income taxes .............           (4,594)              --
     Deferred rent expense and other .................              (52)              (273)
     Changes in operating assets and liabilities .....           12,028            (10,061)
                                                               --------          ---------
          Net cash provided by (used in)
            operating activities .....................            3,616             (5,299)
                                                               --------          ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment .................           (6,445)            (3,537)
  Investments in other non-current assets ............             (677)              (431)
  Payments under non-compete agreement ...............             (189)              (189)
                                                               --------          ---------
          Net cash used in investing activities ......           (7,311)            (4,157)
                                                               --------          ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under revolver ..........................           12,248            119,428
  Payments on revolver ...............................          (11,258)          (115,338)
  Borrowing (payments) on term loan ..................            1,875               (500)
  Financing related costs ............................             --                 (773)
  Net proceeds from issuance of preferred stock ......             --                8,823
  Proceeds from exercise of stock options ............               20               --
                                                               --------          ---------
          Net cash provided by financing activities ..            2,885             11,640
                                                               --------          ---------
NET INCREASE (DECREASE IN CASH) ......................             (810)             2,184

CASH AT BEGINNING OF PERIOD ..........................            1,499              2,236
                                                               --------          ---------
CASH AT END OF PERIOD ................................         $    689          $   4,420
                                                               ========          =========
SUPPLEMENTAL DISCLOSURE  CASH FLOW INFORMATION:

 Net cash paid during period for:
  Interest payments ..................................         $  3,802          $   7,275
  Income tax payments ................................         $    325               --
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                        6
<PAGE>
                               DRYPERS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

        The consolidated financial statements included herein have been prepared
by Drypers Corporation (the "Company"), without audit, in accordance with Rule
10-01 of Regulation S-X for interim financial statements required to be filed
with the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes the
disclosures are adequate to make the information presented not misleading. The
financial statements included herein should be reviewed in conjunction with the
December 31, 1995 financial statements and related notes thereto. Accounting
measurements at interim dates inherently involve greater reliance on estimates
than at year end. The results of operations for the three months and nine months
ended September 30, 1996, are not necessarily indicative of the results that
will be realized for the fiscal year ending December 31, 1996.

        The unaudited consolidated financial information as of and for the
periods ended September 30, 1995 and 1996, as appropriate, has not been audited
by independent accountants, but in the opinion of management of the Company, all
adjustments (consisting only of normal, recurring adjustments) necessary for a
fair presentation of the consolidated balance sheets, statements of earnings,
statement of stockholders' equity and statements of cash flows at the date and
for the periods indicated have been made.

        The disposable diaper industry is characterized by substantial price
competition, which is affected through price changes, product count changes and
promotions. Typically, because of their large market share, one of the Company's
larger branded competitors initiates such pricing changes. The Company typically
responds to such pricing changes with changes to its own prices, product counts
or promotional programs. The process of implementing such changes may require a
number of months, and the Company's operating results may be adversely affected.
The Company competes with a number of companies, some of which are larger than
the Company, have greater financial resources and offer broader product lines.

        The Company markets its products in various foreign countries and is,
therefore, subject to currency and other economic fluctuations in these
countries. Changes in the value of the U.S. dollar against these currencies and
the ability of consumers in some foreign countries to afford disposable diapers
will affect the Company's results of operations and financial position.

                                       7
<PAGE>
        In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which was effective for the Company on January 1,
1996. The statement sets forth guidelines regarding when to recognize an
impairment of long-lived assets, including goodwill, and how to measure such
impairment. The adoption of SFAS No. 121 did not have a significant effect on
the Company's consolidated financial statements.

2.  INVENTORIES

        Inventories at September 30, 1996, consisted of the following (in
thousands):

              Raw Materials ....................        $ 5,233
              Finished Goods ...................          7,430
                                                        -------
                                                        $12,663
                                                        =======
3. DEBT

        SHORT-TERM DEBT, REVOLVER AND TERM LOAN

        On February 29, 1996, the Company entered into a three-year revolving
credit facility with a borrowing base of up to $21,000,000. Borrowing
availability under this facility is a function of advance rates based on
eligible accounts receivable, finished goods inventory and raw materials
inventory. Borrowings are collateralized by accounts receivable, inventory,
trademarks and trade names, stock of certain subsidiaries and other intangibles.

        The Company had borrowings outstanding of $14,610,000 under a revolving
credit facility and $1,250,000 under a term loan with a bank as of September 30,
1996. Borrowings outstanding under the revolving credit facility bore interest
at prime plus 3% from January 1, 1996 through February 29, 1996 and prime plus 1
3/4% thereafter. Borrowings under the term loan bear interest at prime plus 3%.

        The revolving credit facility and term loan, as amended, require the
Company, among other things, to maintain consolidated working capital, as
defined, which excludes borrowings under the revolving credit facility, of at
least $10,500,000 through December 31, 1996, of at least $18,000,000 during
fiscal 1997, of at least $23,000,000 during fiscal 1998, and of at least
$25,000,000 during fiscal 1999 and thereafter, and adjusted net worth, as
defined, of at least $48,000,000 through September 30, 1996, of at least
$49,000,000 from October 1, 1996, through December 30, 1996, of at least
$50,500,000 from December 31, 1996, through December 30, 1997, of at least
$52,500,000 from December 31, 1997, through December 30, 1998, and of at least
$54,500,000 from December 31, 1998, and thereafter. The Company was in
compliance with the terms of the revolving credit facility as of September 30,
1996.

                                       8

<PAGE>
   SENIOR TERM NOTES

        Long-term debt under senior term notes at September 30, 1996 consisted
of the following (in thousands):

         12-1/2% Senior Notes, interest due semiannually on
          May 1 and November 1, principal due November 1,
          2002, net of unamortized debt discount of $921 .........  $44,079
                                                                    =======

        These notes contain certain covenants that, among other things, limit
the Company's ability to incur additional indebtedness; pay dividends; purchase
capital stock; make certain other distributions, loans and investments; sell
assets; enter into transactions with related persons; and merge, consolidate or
transfer substantially all of its assets.

        In October 1996, the indenture governing the Company's 12-1/2% Senior
Notes was amended to allow, among other things, increased borrowing under the
revolving credit facility and additional flexibility for certain business
investments. The Company issued approximately 200,000 shares of $.001 par value
common stock to certain bondholders as consideration for their consent to these
indenture modifications.

   4. PREFERRED STOCK

        During the nine months ended September 30, 1996, the Company sold 90,000
shares of the Company's Series A Senior Convertible Cumulative 7.5% Preferred
Stock ("7.5% Preferred Stock") for $8.8 million, net of related issuance costs.
The 7.5% Preferred Stock is convertible at the discretion of the holders, at a
rate of 100 shares of common stock per share of 7.5% Preferred Stock, into 9.0
million shares of the Company's common stock. Dividends accrue at the rate of
$7.50 per share, per year, and are payable only upon the conversion or
redemption of the 7.5% Preferred Stock or on December 1, 2003. The preferred
shares have a liquidation preference of $100 per share. Holders of the 7.5%
Preferred Stock have 100 votes per share. Common and common equivalent shares
used in the computation of earnings per share for the three months ended
September 30, 1996 include the 9,000,000 common shares issuable upon conversion
of the 90,000 shares of convertible preferred stock discussed above. However,
such common stock equivalents were not included in the computation of earnings
per share for the nine months ended September 30, 1996, as the impact would be
antidilutive.

                                       9
<PAGE>
5.  COMMITMENTS AND CONTINGENCIES

        During 1995, the Company made deposits aggregating $2.3 million to a
diaper line manufacturer in connection with a purchase contract for two
production lines. The Company has additionally made a progress payment of
approximately $800,000 in August 1996. The Company has remaining purchase
commitments aggregating $4.0 million related to these two diaper lines. On
November 7, 1996, the Company entered into a letter of intent with a lease
financing company to provide financing on the first production line. Delivery of
this line is scheduled for the fourth quarter of 1996 and will be operating in
the first quarter of 1997. Negotiations are in process for a lease commitment on
the second production line, which would allow the Company to realize the
deposits and fulfill its obligations under the contract. Should the Company not
be able to fulfill its obligations for the second production line under the
contract, approximately $1.1 million of these deposits could be forfeited and,
if forfeited, the Company would be required to expense this amount in such
period.

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

OVERVIEW

        The following discussion and analysis, together with the accompanying
consolidated financial statements and related notes, will aid in understanding
the Company's results of operations as well as its financial position, cash
flows, indebtedness and other key financial information.

        This Quarterly Report on Form 10-Q contains, in addition to historical
information, forward-looking statements that involve assumptions and
uncertainties. The Company's actual results could differ materially. Factors
that could cause or contribute to such differences include, but are not limited
to, competitive and economic factors, price changes by competitors, increases in
costs of raw materials, timing of technological advances by the Company and its
competitors, lack of acceptance by consumers of new products, and other factors
discussed below and elsewhere herein. See Item 5. "Other Information on
Cautionary Statements" below.

RECENT DEVELOPMENTS

        During the first quarter of 1995, the Company repositioned its diaper
products in response to similar activity by its competitors. In response to
continued market pressures, the Company announced a plan in the second quarter
of 1995, to realign and consolidate its domestic operations. Concurrent with the
operational reorganization discussed above, the Company undertook a plan to
reorganize its financial structure. The Company's financial restructuring was
completed on February 29, 1996, with the establishment of a

                                       10
<PAGE>
new revolving credit facility with a borrowing base of up to $21,000,000 and the
private issuance of convertible preferred stock. Availability under the new
revolving credit facility and the proceeds from the preferred stock were used to
repay the existing revolving credit facility, the previously deferred interest
payment on the 12-1/2% Senior Notes and transaction-related costs. As of
November 11, 1996, unused borrowing availability under the new revolving credit
facility was approximately $2.8 million. The Company continues to investigate
various alternatives to further improve liquidity including, among other things,
lease financing of assets, establishing revolving credit lines at the subsidiary
level and deferral of planned capital expenditures.

        In the third quarter of 1995, management began implementing a plan to
reduce costs which was offset in part by an increase in promotional spending
incurred in an effort to increase market share. The major components of the cost
reduction program include, among others, the closure of the Houston, Texas
plant, reduction of manufacturing and general overhead costs and improved
product design.

        The Company has reached agreement, subject to certain conditions, to
acquire Pannolini de Mexico, S.A. de C.V., its contract manufacturer in Mexico.
This will allow the Company to expand its production in Mexico, as currently
only one-third of Pannolini's production is for the Company. The acquisition is
expected to be modestly accretive to earnings beginning in the first quarter of
1997 and should allow the Company to improve its profitability and expand its
market share in Mexico.

RESULTS OF OPERATIONS

        The following table sets forth the specified components of income and
expense for the Company expressed as a percentage of net sales for the three
months and the nine months ended September 30, 1995 and 1996.

                                      Three Months Ended      Nine Months Ended
                                         September 30           September 30
                                       1995        1996       1995        1996
                                      -----       -----      -----       -----
Net sales .......................     100.0%      100.0%     100.0%      100.0%
Cost of goods sold ..............      70.4        60.3       70.6        61.0
                                      -----       -----      -----       -----
Gross profit ....................      29.6        39.7       29.4        39.0
Selling, general and
administrative expenses .........      30.8        31.8       33.4        34.8
Unusual expenses ................      --          --          2.0        --
Restructuring charge ............      --          --          2.5        --
                                      -----       -----      -----       -----
Operating income (loss) .........      (1.2)        7.9       (8.5)        4.2
Interest expense, net ...........       4.8         4.0        5.0         4.3
                                      -----       -----      -----       -----
Income (loss) before taxes ......      (6.0)        3.9      (13.5)        (.1)
Income taxes ....................        .1          .3       (3.2)         .2
                                      -----       -----      -----       -----
                                                                         -----
Net income (loss) ...............      (6.1)%       3.6%     (10.3)%       (.3)%
                                      =====       =====      =====       =====

                                       11
<PAGE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THREE MONTHS ENDED
SEPTEMBER 30, 1995

        NET SALES. Net sales increased 27.2% to $55.1 million for the three
months ended September 30, 1996 from $43.3 million for the three months ended
September 30, 1995. The increase was primarily due to market share growth of the
Company's domestic premium brand diapers and training pants as well as growth in
international sales. The domestic premium diaper sales increase was driven by
strong acceptance of the Company's new baking soda product introduced in the
second quarter of 1996 and increased distribution within the grocery segment.
The Company's training pants volume increased due to product improvements, new
packaging and more favorable pricing. Growth in international sales was driven
by increased distribution.

        COST OF GOODS SOLD. Cost of goods sold decreased as a percentage of net
sales to 60.3% for the three months ended September 30, 1996 compared to 70.4%
for the three months ended September 30, 1995. The 10.1% decrease is primarily
due to reduced pulp prices and raw material usage, lower conversion costs and
modest increases in unit sales prices.

        SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased as a percentage of net sales to 31.8% for the
three months ended September 30, 1996 compared to 30.8% of net sales for the
three months ended September 30, 1995. The total increase reflects higher
couponing and promotional spending as well as an increase in the percentage of
premium domestic diaper and training pant sales relative to total sales, offset
by a decrease in general and administrative expenses as percentage of net sales.

        INTEREST EXPENSE. Interest expense was $2.2 million for the three months
ended September 30, 1996 compared to $2.1 million for the three months ended
September 30, 1995. The increase reflects increased borrowings and interest
rates under the new revolving credit facility and amortization of deferred loan
costs related to the refinancing.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO NINE MONTHS ENDED
SEPTEMBER 30, 1995

        NET SALES. Net sales increased 30.3% to $152.9 million for the nine
months ended September 30, 1996 from $117.4 million for the nine months ended
September 30, 1995. The increase was primarily due to market share growth of the
Company's domestic premium brand diapers and training pants as well as growth in
international sales. The domestic premium diaper sales increase was driven by
continued strong acceptance of the Company's improved thin product, the new
baking soda product introduced in May 1996 and increased distribution. The
Company's training pants volume increased due to product improvements, new
packaging and more favorable pricing. Growth in international sales was driven
by increased distribution.

                                       12
<PAGE>
        COST OF GOODS SOLD. Cost of goods sold decreased as a percentage of net
sales to 61.0% for the nine months ended September 30, 1996 compared to 70.6%
for the nine months ended September 30, 1995. The 9.6% decrease from 1995 levels
reflects reduced pulp prices and raw material usage, lower per unit conversion
costs and slightly increased unit sales prices, offset by product purchases from
a third party to meet sales demand.

        SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased as a percentage of net sales to 34.8% for the
nine months ended September 30, 1996 compared to 33.4% of net sales for the nine
months ended September 30, 1995. The total increase reflects higher couponing
and promotional spending as well as an increase in the percentage of premium
domestic diaper and training pant sales relative to total sales, offset by a
decrease in general and administrative expenses as percentage of net sales.

        UNUSUAL EXPENSES. Procter & Gamble's Luvs brand was repositioned in the
first quarter of 1995 with a reduction in the number of diapers per package and
a reduction in price per diaper. Late in the first quarter of 1995, the Company
responded with another repositioning of its own, lowering package counts and
prices, to restore a favorable pricing spread between the Drypers brand and the
other national brands. As part of this repositioning, the Company recognized
$2.4 million of promotional expenses and inventory adjustments which were
recorded as an unusual expense in the first quarter of 1995.

        RESTRUCTURING CHARGE. Operating results for the second quarter of 1995
include a restructuring charge of approximately $3.0 million. As part of the
restructuring, the Company implemented a plan to realign and consolidate its
domestic operations from three production facilities to two. The Company also
reduced its work force.

        INTEREST EXPENSE. Interest expense was $6.6 million for the nine months
ended September 30, 1996 compared to $5.9 million for the nine months ended
September 30, 1995. The increase reflects increased borrowings and interest
rates under the new revolving credit facility and amortization of deferred loan
costs related to the refinancing.

                                       13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

        On February 29, 1996, the Company established a new three-year revolving
credit facility, with a borrowing base of up to $21 million, with a financial
institution. Borrowings under the facility accrue interest at a rate of prime
plus 1 3/4% per annum. Borrowing availability under this facility is a function
of advance rates based on eligible accounts receivable, finished goods inventory
and raw materials inventory. In October 1996, the indenture governing the
Company's 12-1/2% Senior Notes was amended to allow, among other things,
increased borrowing under the revolving credit facility and additional
flexibility for certain business investments. Borrowings under this facility are
secured by accounts receivable, inventory, trademarks and trade names, stock of
certain subsidiaries and other intangibles. In addition, the Company received
approximately $8.8 million from the private placement of convertible preferred
stock, net of related issuance costs. All balances outstanding under the
previous revolving credit facility with a bank were paid on March 1, 1996, with
borrowings under the new revolving credit facility and approximately $1.5
million of the proceeds from the sale of preferred stock.

        In connection with the refinancing discussed above, the term loan with a
bank was continued and the loan covenants were amended and are similar to those
of the new revolving credit facility. Principal payments of $125,000 are due
quarterly, and borrowings are secured by a diaper production line.

        For the nine months ended September 30, 1996, cash used in operating
activities totaled $5.3 million as a result of returning the Company's working
capital structure to normal operating levels. Cash used in investing activities
totaled $4.2 million. The majority of the cash outflows were funded by
additional borrowings under the revolving credit facility and the proceeds from
the issuance of preferred stock. At September 30, 1996, the Company had
borrowings outstanding of $14.6 million under a revolving credit facility and
$1.3 million under a term loan. Borrowings outstanding under the revolving
credit facility bore interest at prime plus 3% from January 1, 1996 through
February 29, 1996 and prime plus 1 3/4% thereafter. Borrowings under the term
loan bear interest at prime plus 3%. As of November 11, 1996, unused borrowing
availability under the new revolving credit facility was approximately $2.8
million.

        The Company's estimated cash requirements over the next twelve months
are primarily the funding of working capital needs, including payment of
principal and interest on indebtedness and planned capital expenditures. In
addition, the Company will be required to pay $800,000 pursuant to a license
agreement in December 1996.

        The Company made deposits in 1995 aggregating $2.3 million to a diaper
line manufacturer in connection with a purchase contract for two production
lines. The Company has additionally made a progress payment of approximately
$800,000 in August 1996. The Company has remaining purchase commitments
aggregating $4.0 million related to these two diaper lines. On November 7, 1996,
the Company entered into a letter of intent with a lease financing company to
provide financing on the first

                                       14
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production line. Delivery of this line is scheduled for the fourth quarter of
1996 and will be operating in the first quarter of 1997. Negotiations are in
process for a lease commitment on the second production line, which would allow
the Company to realize the deposits and fulfill its obligations under the
contract. Should the Company not be able to fulfill its obligations for the
second production line under the contract, approximately $1.1 million of these
deposits could be forfeited and, if forfeited, the Company would be required to
expense this amount in such period. While not committed, approximately $1
million in additional capital expenditures are expected through December 31,
1996.

        The Company believes that the combination of the borrowing availability
under the revolving credit facility, financing of its remaining commitments for
the diaper lines discussed above, cost reductions and the increased margins from
market share growth should allow the Company to meet its debt service and
capital expenditure requirements, remain in compliance with its amended
financial covenants and manage its business needs.

                                       15
<PAGE>
PART II.       OTHER INFORMATION

ITEM 5.        OTHER INFORMATION

               Cautionary Statements:

               The Company's expectations with respect to future results of
               operations embodied in oral and written forward looking
               statements are subject to the following risks and uncertainties
               that must be considered when evaluating the likelihood of the
               Company's realization of such expectations:

               The disposable diaper industry is characterized by substantial
               price competition, which is affected through price changes,
               product count changes and promotions. Typically, because of their
               large market share, one of the Company's larger branded
               competitors initiates such pricing changes. The Company typically
               responds to such pricing changes with changes to its own prices,
               product counts or promotional programs. The process of
               implementing such changes may require a number of months, and the
               Company's operating results may be adversely affected.

               Raw material prices, notably wood pulp, are a major component of
               the total cost to produce disposable baby diapers and training
               pants. While the cost of pulp has declined significantly from the
               record-high levels experienced in the fourth quarter of 1995,
               there can be no assurance that if pulp prices rise again in the
               future the Company will be able to pass those increases to its
               customers or redesign its products to reduce pulp usage;
               therefore, operating margins could be adversely affected.

               The Company markets its products in various foreign countries and
               is, therefore, subject to currency and other economic
               fluctuations in these countries. Changes in the value of the U.S.
               dollar against these currencies and the ability of consumers in
               some foreign countries to afford disposable diapers will affect
               the Company's results of operations and financial position.

 ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K

               (a)    EXHIBITS-- Reference is made to the Exhibit Index on page
                      18 for a list of exhibits filed as part of this report
                      pursuant to Item 601 of Regulation S-K.

               (b)    REPORTS ON FORM 8-K--No reports on Form 8-K were filed for
                      the three months ended September 30, 1996.

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SIGNATURES

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.

                                                   DRYPERS CORPORATION

Date:          NOVEMBER 13, 1996                   By: /S/ JONATHAN FOSTER
                                                   Chief Financial Officer
                                                   (Duly Authorized Officer)
                                                   (Principal Financial Officer)

                                       17

                                  EXHIBIT INDEX



EXHIBIT NUMBER AND DESCRIPTION                                
------------------------------                                
 4.1   First Supplemental Indenture dated October 2, 1996,
       between Drypers Corporation and Wells Fargo
       Bank Texas National Association, as Trustee.           

27.    Financial Data Schedule.