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, 1998

                         Commission File Number 1-13226


                                DENAMERICA CORP.
             ------------------------------------------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


         GEORGIA                                                 58-1861457
-------------------------------                               ----------------
(State or Other Jurisdiction of                               (I.R.S. Employer
Incorporation or Organization)                               Identification No.)


       7373 N. SCOTTSDALE ROAD
    SUITE D-120, SCOTTSDALE AZ 85253                                85253
----------------------------------------                          ----------
(address of principal executive offices)                          (zip code)


                                 (602) 483-7055
              ----------------------------------------------------
              (registrant's telephone number, including area code)


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 [ ]

The  number of shares of the  issuer's  class of common  stock as of the  latest
practicable  date, is as follows:  13,485,277  shares of Common Stock,  $.10 par
value, as of November 10, 1998.
<PAGE>

                                DENAMERICA CORP.
                          QUARTERLY REPORT ON FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                                TABLE OF CONTENTS

                                                                           Page
                                                                           ----
PART I. FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

         Condensed Consolidated Balance Sheets -
           December 31, 1997 and September 30, 1998.......................  3

         Condensed Consolidated Statements of Operations -
           13-Week and 39-Week Periods ended September 30, 1998
           and October 1, 1997............................................  4

         Condensed Consolidated Statements of Cash Flows -
           13-Week and 39-Week Periods ended September 30, 1998
           and October 1, 1997............................................  5

         Notes to Condensed Consolidated Financial Statements.............  6

Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations.............................  8

PART II. OTHER INFORMATION ............................................... 14

         SIGNATURES  ..................................................... 15
<PAGE>
                        DENAMERICA CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                       (DOLLARS IN THOUSANDS) (UNAUDITED)


                                                     December 31,  September 30,
                                                         1997          1998
                                ASSETS               -----------    -----------
CURRENT ASSETS:
  Cash and cash equivalents                           $   1,267      $   1,031
  Receivables                                             3,192          2,001
  Inventories                                             3,244          2,987
  Other current assets                                    5,564          6,211
  Assets held for sale                                   28,700             --
                                                      ---------      ---------
      Total current assets                               41,967         12,230
PROPERTY AND EQUIPMENT, net                              61,328         58,276
INTANGIBLE ASSETS, net                                   51,545         50,186
DEFERRED INCOME TAXES                                     5,312          5,312
OTHER ASSETS                                             10,112          9,040
                                                      ---------      ---------

TOTAL                                                 $ 170,264      $ 135,044
                                                      =========      =========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                    $  16,511      $  15,853
  Accrued compensation                                    6,354          5,438
  Accrued taxes                                           4,522          5,822
  Other current liabilities                               8,363          5,405
  Current portion of long term debt                      42,634         20,875
                                                      ---------      ---------
      Total current liabilities                          78,384         53,393
LONG-TERM DEBT, LESS CURRENT PORTION                     78,418         71,203
OTHER LONG TERM LIABILITIES                              12,214         10,031
                                                      ---------      ---------

      Total liabilities                                 169,016        134,627
                                                      ---------      ---------
SHAREHOLDERS' EQUITY
  Preferred stock, $.01 par value; authorized,
     5,000,000 shares; issued and outstanding none
  Common stock $.10 par value; authorized,
     40,000,000 shares; 13,485,277 shares issued
     and outstanding                                      1,344          1,350
  Additional paid-in capital                             35,799         35,871
  Accumulated deficit                                   (35,895)       (36,804)
                                                      ---------      ---------

      TOTAL SHAREHOLDERS' EQUITY                          1,248            417
                                                      ---------      ---------

TOTAL                                                 $ 170,264      $ 135,044
                                                      =========      =========

      See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>
                        DENAMERICA CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
                                       13-Week Periods Ended       39-Week Periods Ended
                                       ---------------------       ---------------------
                                      October 1,  September 30, October 1, September 30,
                                        1997         1998         1997         1998
                                        ----         ----         ----         ----
<S>                                    <C>          <C>         <C>           <C>
RESTAURANT SALES                       $75,494      $62,231     $227,787      $197,177
                                       -------      -------     --------      --------
RESTAURANT OPERATING EXPENSES:
 Food and beverage costs                20,644       17,086       62,097        54,193
 Payroll and payroll related costs      25,637       21,294       77,998        67,418
 Depreciation and amortization           2,232        1,940        6,822         5,669
 Other operating expenses               19,892       17,865       61,567        54,848
                                       -------      -------     --------      --------
      Total operating expenses          68,405       58,185      208,484       182,128
                                       -------      -------     --------      --------

RESTAURANT OPERATING INCOME              7,089        4,046       19,303        15,049

ADMINISTRATIVE EXPENSES                  3,006        3,142       10,579         9,193
                                       -------      -------     --------      --------

OPERATING INCOME                         4,083          904        8,724         5,856

INTEREST EXPENSE, net                    3,220        2,881        9,587         9,429
                                       -------      -------     --------      --------
INCOME (LOSS) BEFORE INCOME
 TAXES AND EXTRAORDINARY ITEM              863       (1,977)        (863)       (3,573)

MINORITY INTEREST IN JOINT VENTURE          23           --          184            --

INCOME TAX EXPENSE (BENEFIT)               355         (794)        (271)       (1,293)
                                       -------      -------     --------      --------
INCOME (LOSS) BEFORE
 EXTRAORDINARY ITEM                        531       (1,183)        (408)       (2,280)

EXTRAORDINARY ITEM - GAIN ON
 EARLY  EXTINGUISHMENT OF DEBT
 net of income taxes of $914                --           --           --         1,371
                                       -------      -------     --------      --------
NET INCOME (LOSS)                      $   531      $(1,183)    $   (408)     $   (909)
                                       =======      =======     ========      ========
Basic and diluted income (loss)
 per share Before extraordinary item   $   .04      $  (.09)    $   (.03)     $   (.07)
                                       =======      =======     ========      ========
 Net income (loss)                     $   .04      $  (.09)    $   (.03)     $   (.07)
                                       =======      =======     ========      ========
Basic and diluted weighted average
 shares outstanding
 Basic                                  13,437       13,485       13,437        13,453
 Diluted                                13,437       13,485       13,437        13,453
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>
                        DENAMERICA CORP. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                     13-Week Period Ended         39-Week Period Ended
                                                     --------------------         --------------------
                                                   October 1,  September 30,  October 1,  September 30,
                                                     1997         1998          1997        1998
                                                     ----         ----          ----        ----
<S>                                                <C>          <C>           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)                                 $    531     $(1,183)      $  (408)    $   (909)
 Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
   Depreciation and amortization                      2,232       1,940         6,822        5,669
   Amortization of deferred financing costs             154         246           441          738
   Extraordinary item                                    --          --            --       (1,371)
   Deferred income taxes                                313        (794)         (313)      (1,293)
   Deferred rent                                        188          63           605          209
   Note receivable collections                           --         269            --        1,983
   Other                                                151         263          (144)        (568)
   Changes in operating assets and liabilities
    net of dispositions:
     Receivables                                       (786)        221           (30)         748
     Inventories                                        104           5           (37)         198
     Other current assets                               397        (442)         (433)         227
     Accounts payable and accrued liabilities        (2,605)         52        (8,152)      (5,353)
                                                   --------     -------      --------     --------
      Net cash provided by (used in)
        operating activities                            679         640        (1,649)         278
                                                   --------     -------      --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase of property and equipment                  (2,261)       (875)       (5,267)      (2,062)
 Purchase of intangibles                               (198)       (220)       (1,696)        (289)
 Proceeds from the sale of assets                     1,774          --         8,508       25,900
                                                   --------     -------      --------     --------
      Net cash provided by (used in)
        investing activities                           (685)     (1,095)        1,545       23,549
                                                   --------     -------      --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES
 Borrowings, net                                     13,439         325        15,669        3,996
 Principal reductions on long-term obligations      (13,592)       (935)      (17,276)     (28,134)
 Other                                                   --          75            77           75
                                                   --------     -------      --------     --------
      Net cash used in financing activities            (153)       (535)       (1,530)     (24,063)
                                                   --------     -------      --------     --------
NET CHANGE IN CASH AND CASH
 EQUIVALENTS                                           (159)       (990)       (1,634)        (236)
CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                                  1,134       2,021         2,609        1,267
                                                   --------     -------      --------     --------
CASH AND CASH EQUIVALENTS AT
 END OF PERIOD                                     $    975     $ 1,031      $    975     $  1,031
                                                   ========     =======      ========     ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
 Cash paid during the period for:
  Interest                                         $  2,480     $ 2,205      $  7,960     $  7,438
                                                   ========     =======      ========     ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>
                        DENAMERICA CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                   (UNAUDITED)


(1) BASIS OF PRESENTATION

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
DenAmerica  Corp.  and  Subsidiaries  (the  "Company")  have  been  prepared  in
accordance  with the  rules  and  regulations  of the  Securities  and  Exchange
Commission  Form 10-Q and do not include all of the  information  and  footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements.  In  the  opinion  of  the  Company's  management,  all  adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation  have been  included.  However,  these  operating  results  are not
necessarily  indicative  of the  results  expected  for  the  full  year.  These
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and notes  thereto  and  Management's  Discussion  and  Analysis  of
Financial  Condition and Results of Operations  included in the Company's Annual
Report on Form  10-K for the  fiscal  year  ended  December  31,  1997.  Certain
reclassifications  have been made in the 1997 financial statements to conform to
the 1998 presentation.

The Company currently operates 203 family-oriented,  full-service restaurants in
26 states, primarily in the southwestern,  midwestern, western, and southeastern
United States.  The Company owns and operates 102  Black-eyed  Pea  restaurants,
primarily in Texas,  Georgia,  Arizona,  Oklahoma,  Florida, and the Washington,
D.C.  area.  The Company also owns and operates 101 Denny's  restaurants,  which
represents  approximately  6.4% of the Denny's  system and makes the Company the
largest  Denny's  franchisee  in terms of revenue and the number of  restaurants
operated.

(2) ASSET DIVESTITURES

In  March  1998,  the  Company  completed  the  sale  of 63  Denny's  and  eight
non-branded  restaurants,  of which six were closed, to a Denny's franchisee for
gross proceeds $28,700.  Net cash proceeds of $25,200 were used to (i) repay the
promissory note (the "BEP Note") payable to the seller of Black-eyed Pea U.S.A.,
Inc.  ("BEP") at a $2,400  discount  from its  outstanding  principal  amount of
approximately $15,285; (ii) cancel outstanding warrants to acquire approximately
1,000,000 shares of Common Stock at an exercise price of $1.90 per share,  which
were  issued in  connection  with the BEP Note;  (iii)  permanently  reduce  the
Company's  outstanding  borrowings under the term loan of the Credit Facility to
$1,500;  and (iv) repay certain  equipment  operating leases associated with the
restaurants sold in this transaction. The Company has included the $2,300 before
tax  discount  on the BEP  note  as an  extraordinary  item in the  accompanying
financial statements.

In a separate  transaction  completed in March 1998,  the Company also sold five
Denny's  restaurants  located in Wyoming to an unrelated  party for cash of $700
plus a note in the principal  amount of $400. The Company  utilized the proceeds
from this transaction to permanently reduce its outstanding borrowings under the
term loan  portion of its Credit  Facility.  The Company has  recorded a gain of
approximately $575 on this transaction,  which is included as an offset to other
operating expenses.

                                       6
<PAGE>
(3) OTHER MATTERS

In  July  1998,  the  Company  entered  into an  Agreement  and  Plan of  Merger
("Agreement") with Tech Electro Industries,  Inc. ("Tech Electro"). The proposed
merger was subject to various  contingencies  including  financing,  shareholder
approval,  regulatory  approvals,  and other  matters.  On October 26, 1998, the
Company  terminated  the  Agreement,  because the Company  determined  that Tech
Electro would not be able to obtain adequate  financing  necessary to consummate
the  transaction.  The Company has no ongoing  obligations  under the Agreement.
Prior to the Agreement's termination, the Company delayed its plans to refinance
its  senior   indebtedness   and  to  sell  or  close  certain   underperforming
restaurants.   In  October  1998,  the  Company  closed  three   underperforming
Black-eyed Pea restaurants located in its non-core markets.

The Company is currently  negotiating  with a financing  source to provide $17.1
million of new  financing.  The proceeds of this financing will be used to repay
$7.5 million of  indebtedness  to its senior  lenders and to purchase  equipment
currently leased under off-balance sheet leasing arrangements. The new financing
will amortize at a fixed rate over 15 years and include prepayment penalties. In
addition,  the lender  will  advance  approximately  $4.2  million of  equipment
financing, which will be used to meet short-term working capital requirements to
the Company.

The Company was not in compliance with certain of its senior bank debt covenants
at September  30, 1998,  and has  reclassified  its senior bank debt as current,
even though its  maturity  date is December  2001.  The Company has not received
waivers  and does not expect to receive  such  waivers  until the $17.1  million
financing  described above is completed.  As a result, the senior lenders could,
among  other  actions,  accelerate  the  Company's  obligations,   which  as  of
September,  1998  totaled  approximately  $14.7  million.  Although  the Company
believes  that  the new  financing  commitment  will be  available,  there is no
assurance  that such  financing  will be  consummated  on terms  and  conditions
acceptable to the Company.

The Company was not in compliance with several other  agreements as of September
30, 1998, including the Series B Notes. The Company is currently working to cure
its non-compliance associated with the agreements.

                                       7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

GENERAL

The Company  currently  operates 102  Black-eyed  Pea  restaurants in 14 states.
Currently there are no remaining franchise restaurants.  The Company operates 73
Black-eyed  Pea  restaurants in Texas,  Oklahoma and Arizona,  which the Company
considers to be its core market for Black-eyed Pea restaurants. For the thirteen
and  thirty-nine  week periods ended September 30, 1998,  comparable  same-store
sales  decreased  1.6%  and  1.5%  for  all of  the  Company's  Black-eyed  Pea
restaurants.  Comparable  same-store  sales  decreased .3% in the  thirteen-week
period and did not change in the  thirty-nine  week  period for  Black-eyed  Pea
restaurants  in the core  market.  The  guest  check  average  at the  Company's
Black-eyed Pea restaurants for the third quarter of 1998 was $7.95, versus $7.84
for the  third  quarter  of  1997.  Alcohol  and  carry-out  sales  account  for
approximately  2.0% and 11.3% of sales for the  thirty-nine  week  period  ended
September 30, 1998, respectively.

As of September 30, 1998,  the Company  operated 101 Denny's  restaurants  in 19
states. For the thirteen weeks ended September 30, 1998,  comparable store sales
increased 5.1% as a result of an increase in guest counts and an increase in the
average guest check to approximately $5.41 versus $5.21 for the third quarter of
1997.  Comparable same store sales for the thirty-nine weeks ended September 30,
1998 increased 3.0%.

COMPARISON OF RESULTS OF OPERATIONS

         The following table presents, for the periods indicated,  certain items
in the condensed consolidated  statements of operations as a percentage of total
restaurant sales.
<TABLE>
<CAPTION>
                                     13-Week Period Ended         39-Week Period Ended
                                     --------------------         --------------------
                                   October 1,  September 30,    October 1,  September 30,
                                     1997         1998            1997          1998
                                     ----         ----            ----          ----
<S>                                 <C>          <C>             <C>           <C>
Restaurant sales                    100.0%       100.0%          100.0%        100.0%
                                    -----        -----           -----         -----
Restaurant operating expenses:                                  
 Food and beverage cost              27.4         27.5            27.3          27.5
 Payroll and payroll related costs   34.0         34.2            34.2          34.2
 Depreciation and amortization        3.0          3.1             3.0           2.9
 Other operating cost                26.2         28.7            27.0          27.8
                                    -----        -----           -----         -----
     Total operating expenses        90.6         93.5            91.5          92.4
                                    -----        -----           -----         -----
Restaurant operating income           9.4          6.5             8.5           7.6
Administrative expenses               4.0          5.1             4.6           4.7
                                    -----        -----           -----         -----
Operating income                      5.4          1.4             3.9           2.9
Interest expense                      4.2          4.6             4.2           4.8
                                    -----        -----           -----         -----
Income (Loss) before income taxes                               
  and extraordinary item              1.2         (3.2)            (.3)         (1.9)
Income tax (benefit)                   .5         (1.3)            (.1)          (.7)
                                    -----        -----           -----         -----
Income (Loss) before extraordinary                              
  item                                 .7         (1.9)            (.2)         (1.2)
Extraordinary item                     --           --              --            .7
                                    -----        -----           -----         -----
Net income (loss)                     0.7%        (1.9%)          (0.2%)        (0.5%)
                                    =====        =====           =====         =====  
</TABLE>                                                        
                                       8                     
<PAGE>
THIRTEEN-WEEK PERIOD ENDED SEPTEMBER 30, 1998 COMPARED WITH THIRTEEN-WEEK
PERIOD ENDED OCTOBER 1, 1997

         RESTAURANT SALES.  Restaurant sales decreased $13.3 million,  or 17.6%,
to $62.2  million  for the  thirteen-week  period  ended  September  30, 1998 as
compared with  restaurant  sales of $75.5 million for the  thirteen-week  period
ended October 1, 1997.  This decrease was primarily  attributable to the sale of
63 Denny's and eight  non-branded  restaurants on March 25, 1998. As a result of
this sale,  restaurant  sales  attributable  to the Black-eyed  Pea  restaurants
increased  to 56% of  total  sales  in the 1998  period  versus  42% in the 1997
period.

         FOOD AND BEVERAGE  COST.  Food and beverage cost  increased to 27.5% of
restaurant  sales for the  thirteen-week  period  ended  September  30,  1998 as
compared  with 27.4% of  restaurant  sales for the  thirteen-week  period  ended
October 1, 1997,  primarily as a result of higher food costs associated with the
operation of the Black-eyed Pea restaurants.

         PAYROLL AND PAYROLL  RELATED COSTS.  Payroll and payroll  related costs
were 34.2% of restaurant sales for the thirteen-week  period ended September 30,
1998 as compared with 34.0% of  restaurant  sales for the  thirteen-week  period
ended October 1, 1997.  This increase was primarily the result of higher payroll
and payroll  related costs  associated  with the operation of the Black-eyed Pea
restaurants  offset  by  the  sale  and  closure  in 1997  and  1998 of  Denny's
restaurants, which operated with higher payroll costs.

         DEPRECIATION  AND   AMORTIZATION.   Depreciation  and  amortization  of
restaurant equipment,  leasehold  improvements,  intangible assets,  pre-opening
costs,  and other items was $1.9  million  for the  thirteen-week  period  ended
September 30, 1998, as compared with $2.2 million for the  thirteen-week  period
ended  October 1, 1997.  This  decrease  is  attributable  to a decrease  in the
amortization  of store  opening  costs and the  reduction  of  depreciation  and
amortization associated with the restaurants sold in March 1998.

         OTHER RESTAURANT OPERATING COSTS. Other restaurant operating costs were
28.7% of restaurant sales for the thirteen-week  period ended September 30, 1998
as compared with 26.2% of restaurant  sales for the  thirteen-week  period ended
October  1,  1997.  Excluding  a $650,000  gain  relating  to the sale of eleven
non-branded  restaurants in 1997, other operating costs would have been 27.2% of
revenue.  The remainder of the increase was  attributable  to higher  restaurant
operating costs associated with the Black-eyed Pea restaurants.

         RESTAURANT  OPERATING INCOME.  Restaurant operating income decreased to
$4.1 million for the thirteen-week  period ended September 30, 1998, as compared
with $7.1  million for the  thirteen-week  period  ended  October 1, 1997.  This
decrease was principally the result of the factors described above.

         ADMINISTRATIVE EXPENSES.  Administrative expenses were $3.1 million, or
5.1% of restaurant sales, for the thirteen-week period ended September 30, 1998,
which is an increase of $100,000 from $3.0 million, or 4.0% of restaurant sales,
for  the   thirteen-week   period  ended  October  1,  1997.  This  increase  is
attributable to costs associated with the terminated merger.

         INTEREST   EXPENSE.   Interest   expense  was  $2.9   million  for  the
thirteen-week  period ended September 30, 1998 as compared with $3.2 million for
the  thirteen-week  period ended October 1, 1997.  The decrease is the result of
the reduction in long-term obligations.

                                       9
<PAGE>
         INCOME  TAX  EXPENSE  (BENEFIT).  The  Company  recorded  an income tax
benefit  of  approximately  $794,000,  or an  effective  rate of 40.0%,  for the
thirteen-week  period ended  September  30, 1998 as compared  with an income tax
expense of approximately $355,000, or an effective rate of 41%, for the thirteen
week period ended October 1, 1997.

         NET INCOME  (LOSS).  The Company  recorded a net loss of  approximately
$1.2 million for the thirteen  week period ended  September 30, 1998 as compared
with net income of $531,000 for the thirteen-week  period ended October 1, 1997,
as a result of the factors described above.

THIRTY-NINE  WEEK PERIOD ENDED SEPTEMBER 30, 1998 COMPARED WITH THIRTY-NINE
WEEK PERIOD ENDED OCTOBER 1, 1997

         RESTAURANT SALES.  Restaurant sales decreased $30.6 million,  or 13.4%,
to $197.2 million for the  thirty-nine  week period ended  September 30, 1998 as
compared with restaurant sales of $227.8 million for the thirty-nine week period
ended October 1, 1997. This decrease was primarily  attributable to the sale and
closure of certain restaurants during 1997 and 1998.

         COST OF FOOD AND BEVERAGE. Cost of food and beverage increased to 27.5%
of restaurant  sales for the thirty-nine week period ended September 30, 1998 as
compared with 27.3% of restaurant  sales for the  thirty-nine  week period ended
October 1, 1997,  primarily as the result of higher food costs  associated  with
the operation of the Black-eyed Pea restaurants.

         PAYROLL AND PAYROLL  RELATED COSTS.  Payroll and payroll  related costs
were 34.2% of restaurant  sales for the thirty-nine week periods ended September
30, 1998 and October 1, 1997.

         DEPRECIATION  AND   AMORTIZATION.   Depreciation  and  amortization  of
restaurant equipment,  leasehold  improvements,  intangible assets,  pre-opening
costs and other items decreased to 2.9% of restaurant  sales for the thirty-nine
week period ended  September 30, 1998 as compared with 3.0% of restaurant  sales
for the  thirty-nine  week period  ended  October 1, 1997.  The decrease of $1.2
million was primarily  attributable  to a decrease in the  amortization of store
opening costs and the reduction of depreciation and amortization associated with
the restaurants sold in March 1998.

         OTHER RESTAURANT OPERATING COSTS. Other restaurant operating costs were
27.8% of restaurant  sales for the  thirty-nine  week period ended September 30,
1998 as compared with 27.0% of restaurant  sales for the thirty-nine week period
ended  October  1,  1997.  Included  in the 1998 and 1997  results  are gains of
$579,000 and $1.7 million,  respectively,  relating to the sale of  restaurants.
Excluding these gains,  other  restaurant  operating costs would have been 28.1%
and 27.8% of revenue, respectively.  This increase was primarily attributable to
increased restaurant operating costs associated with Black-eyed Pea restaurants,
including advertising.

         RESTAURANT OPERATING INCOME. Restaurant operating income decreased $4.2
million to $15.1  million for the  thirty-nine  week period ended  September 30,
1998 as compared  with $19.3  million  for the  thirty-nine  week  period  ended
October  1, 1997.  This  decrease  was  principally  the  result of the  factors
described above.

         ADMINISTRATIVE  EXPENSES.  Administrative expenses increased to 4.7% of
restaurant  sales for the  thirty-nine  week period ended  September 30, 1998 as
compared with 4.6% of  restaurant  sales for the  thirty-nine  week period ended
October  1,  1997.  This  increase  is  attributable  to  the  sale  of  certain
restaurants during 1997 and 1998 and the reduction in related revenues.

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<PAGE>
         INTEREST  EXPENSE.  Interest  expense  was  $9.4  million,  or  4.8% of
restaurant  sales,  for the thirty-nine  week period ended September 30, 1998 as
compared with $9.6 million,  or 4.2% of restaurant  sales,  for the  thirty-nine
week period ended October 1, 1997. The percentage  increase is the result of the
reduction in revenues due to restaurant sales.

         INCOME TAX  (BENEFIT).  The  Company  recorded an income tax benefit of
approximately  $1.3 million,  or an effective rate of 36.3%, for the thirty-nine
week period ended  September  30, 1998 as compared with an income tax benefit of
approximately  $271,000, or an effective rate of 40.0%, for the thirty-nine week
period  ended  October 1, 1997.  In 1998,  the Company  established  a valuation
allowance of $135,000.

         NET INCOME  (LOSS).  The  Company  recorded  net loss of  approximately
$909,000,  after the extraordinary gain associated with the early extinguishment
of debt for the  thirty-nine  week period ended  September  30, 1998 as compared
with net loss of $408,000 for the thirty-nine week period ended October 1, 1997,
as a result of the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

The Company, and the restaurant industry generally,  receives  substantially all
of its revenue in cash with a relatively small amount of receivables. Therefore,
like many other companies in the restaurant industry,  the Company operates with
a working  capital  deficit.  The Company's  working  capital  deficit was $41.2
million at  September  30, 1998 and $36.4  million at  December  31,  1997.  The
Company  anticipates  that it will  continue to operate  with a working  capital
deficit.

The Company  historically has satisfied its capital  requirements through credit
facilities  and   sale/leaseback   financing.   The  Company   requires  capital
principally  for the  development of new restaurants and to fund the acquisition
and  conversion of existing  restaurants.  Currently,  the Company is in various
stages of development of nine  Black-eyed Pea  restaurants,  which it expects to
open over the next six months.  The Company  estimates that its costs to develop
and open new  Black-eyed  Pea  restaurants,  excluding  real estate and building
costs,  will be approximately  $350,000 to $450,000 per restaurant.  The Company
believes that its financing  commitments  will be adequate to meet its financing
needs associated with its new store development.

Net cash provided by (used in) operating  activities  was ($1.6  million) in the
first  thirty-nine  weeks of 1997 and $278,000 in the first thirty-nine weeks of
1998.  This  change  is  primarily  attributable  to  the  collection  of  notes
receivable and increases in receivables.

Net cash  provided by investing  activities  increased  from $1.5 million in the
first  thirty-nine weeks of 1997 to $23.5 million in the first thirty-nine weeks
of  1998.  This  change  is  primarily  attributable  to  the  sale  of  certain
restaurants in March 1998.

Net cash used in financing  activities was $1.5 million in the first thirty-nine
weeks of 1997 and $24.1  million in the first  thirty-nine  weeks of 1998.  Cash
used  in  financing  activities  was  primarily  attributable  to the  principal
reductions in long-term debt.

In  March  1998,  the  Company  completed  the  sale  of 63  Denny's  and  eight
non-branded  restaurants,  of which six were closed, to a Denny's franchisee for
gross proceeds of $28.7 million. Net cash proceeds of $25.2 million were used to
(i)  repay  the  promissory  note  (the "BEP  Note")  payable  to the  seller of
Black-eyed  Pea  U.S.A.,  Inc.  ("BEP")  at a $2.4  million  discount  from  its
outstanding  principal  amount  of  approximately  $15.3  million;  (ii)  cancel
outstanding warrants to acquire  approximately  1,000,000 shares of Common Stock

                                       11
<PAGE>
at an exercise  price of $1.90 per share,  which were issued in connection  with
the BEP Note;  (iii)  permanently  reduce the Company's  outstanding  borrowings
under the term loan of the  Credit  Facility  to $1.5  million;  and (iv)  repay
certain equipment  operating leases associated with the restaurants sold in this
transaction.  The Company has included  the $2.3 million  before tax discount on
the BEP note as an extraordinary item in the accompanying financial statements.

In March 1998,  the Company  sold five  Denny's  restaurants  for cash and notes
totaling $1.1 million,  to an unrelated party. This  transactions  resulted in a
gain  of  $575,000,  which  has  been  included  in the  accompanying  financial
statements as a reduction of other restaurant  operating expenses.  In addition,
during  fiscal 1998,  the Company has closed six (five in the first  quarter and
one  in  the  second  quarter)  Denny's  restaurants  that  were  not  achieving
acceptable  cash flow  requirements.  In October 1998,  the Company closed three
Black-eyed  Pea  restaurants.  The Company  intends to continue to evaluate  its
existing restaurant portfolio and to close or sell restaurants as appropriate.

The Company was not in compliance with certain of its senior bank debt covenants
at September 30, 1998, and has reclassified its senior bank debt as current. The
Company  has not  received  waivers,  but is  currently  working  to repay  this
indebtedness. Should the Company be unable to repay this indebtedness the senior
lenders could, among other actions, accelerate the Company's obligations,  which
as of September 30, 1998 totaled  approximately  $14.7  million.  The Company is
currently  negotiating  with a financing  source,  the proceeds of which will be
used to retire  $7.5  million of its  senior  bank debt.  Although  the  Company
believes that such financing will be available,  there is no assurance that such
financing will be consummated on terms and conditions acceptable to the Company.

SEASONALITY

The Company's operating results fluctuate from quarter to quarter as a result of
the  seasonal  nature of the  restaurant  industry,  the  temporary  closing  of
existing restaurants for conversion, and other factors. The Company's restaurant
sales are  generally  greater  in the second and third  fiscal  quarters  (April
through September) than in the first and fourth fiscal quarters (October through
March).  Occupancy and other operating costs, which remain relatively  constant,
have a  disproportionately  negative effect on operating results during quarters
with lower restaurant  sales. The Company's  working capital  requirements  also
fluctuate  seasonally,  with its greatest needs  occurring  during its first and
fourth quarters.

INFLATION

The  Company  does not  believe  that  inflation  has had a  material  effect on
operating  results in past years.  Although  increases  in labor,  food or other
operating costs could  adversely  affect the Company's  operations,  the Company
generally has been able to modify its operating procedures or to increase prices
to offset increases in its operating costs.

                                       12
<PAGE>
YEAR 2000 COMPLIANCE

The Year 2000 problem has become an issue for all companies.  To the extent that
the Company does not identify and upgrade,  modify or replace computer  hardware
and software  systems that are not designed to distinguish  years beginning with
2000 from prior years,  those systems will interpret  January 1, 2000 as January
1, 1900. The untimely  identification  and resolution of this technology problem
by the Company could have a material  adverse effect on the Company's  operating
results and financial position. The Company has hired an outside consulting firm
to determine the risk that the Year 2000 problem poses to the  operations of the
Company, to lower that risk to an acceptable level, and to develop and implement
backup  plans so that the Company  will be prepared  to deal with  internal  and
external  technology failures that may arise as a result of Year 2000 issues. An
inventory and  assessment of  information  technology  hardware and software has
been  completed and the Company is  determining a course of action for each item
with date-related deficiencies. The Company will continue to identify technology
systems and monitor and test those systems  throughout  1998 and into 1999.  The
Company does not currently  anticipate any material  adverse  effects related to
Year 2000 issues.

NEW ACCOUNTING STANDARDS

At the  beginning  of fiscal 1998 the AICPA issued  Statement  of Position  98-5
"Reporting the Cost of Start-up  Activities".  This statement requires Companies
to expense the cost of start-up  activities  as incurred.  The Company  plans to
adopt this statement in fiscal 1999 and does not expect the cumulative effect of
this adoption to be material.

FORWARD LOOKING STATEMENTS

This  Report  on  Form  10-Q  contains  forward-looking  statements,   including
statements regarding the Company's business strategies,  the Company's business,
and the industry in which the Company operates. These forward-looking statements
are based primarily on the Company's expectations and are subject to a number of
risks and uncertainties,  some of which are beyond the Company's control. Actual
results could differ materially from the forward-looking  statements as a result
of  numerous   factors,   including  those  set  forth  in  Item  1  -  "Special
Considerations"  in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.

                                       13
<PAGE>

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
        Not Applicable

ITEM 2. CHANGES IN SECURITIES
        Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
        Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
        Not applicable

ITEM 5. OTHER INFORMATION
        Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

       (a)    EXHIBITS.

       27.1   Financial Data Schedule.

       (b)    Reports on Form 8-K

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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.


                                             DENAMERICA CORP.

Dated:  November 12, 1998            By: /s/ Todd S. Brown
                                        ----------------------------------------
                                        Todd S. Brown
                                        Vice President, Chief Financial Officer,
                                        and Treasurer

                                        (Duly authorized officer of the
                                        registrant, principal financial
                                        and accounting officer)