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 JULY 1, 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:  
13,447,777  shares of Common Stock,  $.10 par value, as of August 17, 1998.
---------------------------------------------------------------------------
<PAGE>
                                DENAMERICA CORP.
                          QUARTERLY REPORT ON FORM 10-Q
                       FOR THE QUARTER ENDED JULY 1, 1998

                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----
PART I.  FINANCIAL INFORMATION

Item 1.  Unaudited Financial Statements

         Condensed Consolidated Balance Sheets -
             December 31, 1997 and July 1, 1998..............................  3

         Condensed Consolidated  Statements of Operations - 
             13-Week Periods ended July 2, 1997 and July 1, 1998 and
             26-Week Periods ended July 2, 1997 and July 1, 1998.............  4

         Condensed Consolidated Statements of Cash Flows - 
             13-Week Periods ended July 2, 1997 and July 1, 1998 and
             26-Week Periods ended July 2, 1997 and July 1, 1998.............  5

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

Item 2.  Management's Discussion and Analysis of Financial
              Condition and Results of Operations............................  7

PART II. OTHER INFORMATION................................................... 12

         SIGNATURES.......................................................... 13
<PAGE>
                        DENAMERICA CORP. AND SUBSIDIARIES
                      Condensed Consolidated Balance Sheets
                             (Dollars In thousands)
                                   (unaudited)

                                                        December 31,    July 1,
                                  ASSETS                   1997          1998
                                                           ----          ----
CURRENT ASSETS:
   Cash and cash equivalents                            $  1,267      $  2,021
   Receivables                                             3,192         2,222
   Inventories                                             3,244         2,992
   Other current assets                                    5,564         4,975
   Assets held for sale                                   28,700            --
                                                        --------      --------
      Total current assets                                41,967        12,210
PROPERTY AND EQUIPMENT, net                               61,328        58,785
INTANGIBLE ASSETS, net                                    51,545        50,525
DEFERRED INCOME TAXES                                      5,312         5,312
OTHER ASSETS                                              10,112         9,505
                                                        --------      --------

TOTAL                                                   $170,264      $136,337
                                                        ========      ========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                     $ 16,511      $ 15,425
   Accrued compensation                                    6,354         5,488
   Accrued taxes                                           4,522         4,827
   Other current liabilities                               8,363         6,308
   Current portion of long term debt                      42,634        20,550
                                                        --------      --------
        Total current liabilities                         78,384        52,598
LONG-TERM DEBT, LESS CURRENT PORTION                      78,418        72,017
OTHER LONG TERM LIABILITIES                               12,214        10,196
                                                        --------      --------

        Total liabilities                                169,016       134,811
                                                        --------      --------
SHAREHOLDERS' EQUITY:
   Preferred stock, $.01, par value; authorized 
     5,000,000 shares; issued and outstanding none             0             0
   Common stock $.10 par value; authorized, 40,000,000
     shares; 13,447,777 shares issued and outstanding      1,344         1,344
   Additional paid-in capital                             35,799        35,799
   Accumulated deficit                                   (35,895)      (35,617)
                                                        --------      --------

        TOTAL SHAREHOLDERS' EQUITY                         1,248         1,526
                                                        --------      --------

TOTAL                                                   $170,264      $136,337
                                                        ========      ========

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 Period Ended       26 Week Period Ended
                                               --------------------       --------------------
                                               July 2,       July 1,       July 2,      July 1,
                                                1997          1998          1997         1998
                                                ----          ----          ----         ----
<S>                                          <C>           <C>           <C>          <C>      
RESTAURANT SALES                             $  76,185     $  62,066     $ 152,299    $ 134,946
                                             ---------     ---------     ---------    ---------

RESTAURANT OPERATING EXPENSES:
  Food and beverage cost                        20,840        17,100        41,453       37,107
  Payroll and payroll related costs             26,260        20,950        52,361       46,052
  Depreciation and amortization                  2,324         1,943         4,590        3,730
  Other operating expenses                      20,350        17,469        41,518       37,058
                                             ---------     ---------     ---------    ---------
       Total operating expenses                 69,774        57,462       139,922      123,947
                                             ---------     ---------     ---------    ---------

RESTAURANT OPERATING INCOME                      6,411         4,604        12,377       10,999

ADMINISTRATIVE EXPENSES                          3,831         3,030         7,575        6,048
                                             ---------     ---------     ---------    ---------

OPERATING INCOME                                 2,580         1,574         4,802        4,951

INTEREST EXPENSE, net                            3,164         3,122         6,367        6,548
                                             ---------     ---------     ---------    ---------
LOSS BEFORE INCOME TAXES
     AND EXTRAORDINARY ITEM                       (584)       (1,548)       (1,565)      (1,597)

INCOME TAX (BENEFIT)                              (234)         (487)         (626)        (504)
                                             ---------     ---------     ---------    ---------

LOSS BEFORE EXTRAORDINARY ITEM                    (350)       (1,061)         (939)      (1,093)
EXTRAORDINARY ITEM - GAIN ON
  EARLY EXTINGUISHMENT OF DEBT
  net of income taxes of $914                       --            --            --        1,371
                                             ---------     ---------     ---------    ---------
NET INCOME (LOSS)                            $    (350)    $  (1,061)    $    (939)   $     278
                                             =========     =========     =========    =========

Basic and diluted income (loss) per share
  Before extraordinary item                  $    (.03)    $    (.08)    $    (.07)   $    (.08)
                                             =========     =========     =========    =========
  Net income (loss)                          $    (.03)    $    (.08)    $    (.07)   $     .02
                                             =========     =========     =========    =========
Basic and diluted weighted average shares
 outstanding
  Basic                                         13,414        13,447        13,414       13,447
  Diluted                                       13,414        13,447        13,414       13,447
</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    26 Week Period Ended
                                                     --------------------    --------------------
                                                      July 2,     July 1,     July 2,     July 1,
                                                       1997        1998        1997        1998
                                                       ----        ----        ----        ----
<S>                                                  <C>         <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                  $  (350)    $(1,061)    $  (939)   $    278
  Adjustments to reconcile net income to net cash
   provided by (used in) operating activities:
    Depreciation and amortization                      2,324       1,943       4,590       3,730
    Amortization of deferred financing costs             162         245         287         492
    Extraordinary item                                    --          --          --      (1,371)
    Deferred income taxes                               (234)       (487)       (626)       (504)
    Deferred rent                                        341          69         417         146
    Note receivable collections                         --         1,621        --         1,715
    Other                                               (316)       (381)       (295)       (831)
    Changes in operating assets and liabilities
     net of dispositions:
    Receivables                                          721        (135)        756         527
    Inventories                                           65          71        (141)        192
    Other current assets                                (917)        263        (830)        669
    Accounts payable and accrued liabilities             465      (3,428)     (5,547)     (5,405)
                                                    --------    --------    --------    --------
         Net cash provided by (used in)
          operating activities                         2,261      (1,280)     (2,328)       (362)
                                                    --------    --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of property and equipment               (1,528)       (443)     (3,006)     (1,187)
     Purchase of intangibles                            (313)        (61)     (1,498)        (69)
     Proceeds from the sale of assets                    498        --         6,734      25,900
                                                    --------    --------    --------    --------
          Net cash provided by (used in)
             investing activities                     (1,343)       (504)      2,230      24,644
                                                    --------    --------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES
     Borrowings, net                                     759       4,738       2,230       3,671
     Principal reductions on long-term obligations    (1,861)     (2,532)     (3,684)    (27,199)
     Other                                                28          --          77          --
                                                    --------    --------    --------    --------
          Net cash (used in) provided by
           financing activities                       (1,074)      2,206      (1,377)    (23,528)
                                                    --------    --------    --------    --------
NET CHANGE IN CASH AND CASH
     EQUIVALENTS                                        (156)        422      (1,475)        754
CASH AND CASH EQUIVALENTS AT
     BEGINNING OF PERIOD                               1,290       1,599       2,609       1,267
                                                    --------    --------    --------    --------
CASH AND CASH EQUIVALENTS AT END OF
     PERIOD                                         $  1,134    $  2,021    $  1,134    $  2,021
                                                    ========    ========    ========    ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the period for:
           Interest                                 $  2,326    $  2,187    $  5,480    $  5,233
                                                    ========    ========    ========    ========
</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 206 family-oriented,  full-service restaurants in
19 states, primarily in the southwestern,  midwestern, western, and southeastern
United States.  The Company owns and operates 104  Black-eyed  Pea  restaurants,
primarily in Texas,  Georgia,  Arizona,  Oklahoma,  Florida, and the Washington,
D.C.  area, and franchises to third parties the rights to operate one Black-eyed
Pea  restaurant  in Texas.  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)  Other Matters

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 $2,400
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.

The Company was not in compliance with certain of its senior bank debt covenants
at July 1, 1998,  and has  reclassified  its senior  bank debt as  current.  The
Company  has not  received  waivers  but is  currently  working  with its senior
lenders to obtain such waivers.  Should the Company be unable to secure  waivers
the senior lenders could among other things accelerate its obligations, which as
of July,  1998 totaled  approximately  $14.4  million.  The Company has received
commitments from several financing  sources,  the proceeds of which will be used
to retire  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.

(3)  Subsequent Events

On July 10,  1998,  the Company  entered  into an  Agreement  and Plan of Merger
("Agreement")  with Tech Electro  Industries,  Inc. ("Tech Electro").  Under the
terms of the Agreement,  the Company's  shareholders  will receive $4.00 in cash
and $.90 in newly issued  preferred  stock in Tech Electro for each share of the
Company's  Common Stock that they own. The proposed merger is subject to various
contingencies including financing,  shareholder approval,  regulatory approvals,
and other matters.
                                       6
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS
General

The Company  currently  operates 104 Black-eyed Pea restaurants in 14 states and
franchises  one  Black-eyed  Pea  restaurant in Texas.  The Company  operates 66
Black-eyed Pea restaurants in Texas and Oklahoma, which the Company considers to
be its core market for  Black-eyed  Pea  restaurants.  For the  twenty-six  week
period ended July 1, 1998, comparable same-store sales decreased 1.4% for all of
the Company's  Black-eyed Pea  restaurants,  while  comparable  same-store sales
increased  0.1% for Black-eyed  Pea  restaurants  in the core market.  The guest
check average at the Company's Black-eyed Pea restaurants for the second quarter
of 1998 was $7.86,  versus  $7.93 for the second  quarter of 1997.  Alcohol  and
carry-out  sales  account  for  approximately  2.1% and  11.3% of sales  for the
twenty-six week period ended July 1, 1998, respectively.

As of July 1, 1998, the Company  operated 101 Denny's  restaurants in 19 states.
For the thirteen weeks ended July 1, 1998, comparable store sales increased 3.5%
as a result of an increase in guest counts and an increase in the average  guest
check to  approximately  $5.39  versus  $5.31 for the  second  quarter  of 1997.
Comparable  same  store  sales  for the  twenty  six  weeks  ended  July 1, 1998
increased 1.9%.

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         26 Week Period Ended
                                                   --------------------         --------------------
                                                July 2, 1997  July 1, 1998   July 1, 1997   July 1,1998
                                                ------------  ------------   ------------   -----------
<S>                                                <C>          <C>             <C>           <C>   
Restaurant sales                                   100.0%       100.0%          100.0%        100.0%
                                                
Restaurant operating expenses:                  
   Food and beverage cost                           27.4         27.6            27.2          27.5
   Payroll and payroll related costs                34.5         33.8            34.4          34.1
   Depreciation and amortization                     3.1          3.1             3.0           2.8
   Other operating cost                             26.6         28.1            27.3          27.5
                                                   -----        -----           -----         ----- 
       Total operating expenses                     91.6         92.6            91.9          91.9
                                                   -----        -----           -----         ----- 
Restaurant operating income                          8.4          7.4             8.1           8.1
Administrative expenses                              5.0          4.9             5.0           4.5
                                                   -----        -----           -----         ----- 
Operating income                                     3.4          2.5             3.1           3.6
Interest expense                                     4.2          5.0             4.1           4.8
                                                   -----        -----           -----         ----- 
Loss before income taxes and                    
  extraordinary item                                 (.8)        (2.5)           (1.0)         (1.2)
Income tax (benefit)                                 (.3)         (.8)            (.4)          (.4)
                                                   -----        -----           -----         ----- 
                                                
Loss before extraordinary item                       (.5)        (1.7)            (.6)          (.8)
Extraordinary item                                    --           --              --           1.0
                                                   -----        -----           -----         ----- 
Net income (loss)                                    (.5)%       (1.7)%           (.6)%          .2%
                                                   =====        =====           =====         ===== 
</TABLE>                                    
                                       7
<PAGE>

THIRTEEN-WEEK PERIOD ENDED JULY 1, 1998 COMPARED WITH THIRTEEN-WEEK PERIOD ENDED
JULY 2, 1997

         Restaurant sales.  Restaurant sales decreased $14.1 million,  or 18.5%,
to $62.1  million for the  thirteen-week  period  ended July 1, 1998 as compared
with restaurant sales of $76.2 million for the  thirteen-week  period ended July
2, 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 58%
of total sales in the 1998 period versus 42% of total sales in the 1997 period.

         Food and Beverage  Cost.  Food and beverage cost  increased to 27.6% of
restaurant  sales for the  thirteen-week  period  ended July 1, 1998 as compared
with 27.4% of restaurant sales for the thirteen-week  period ended July 2, 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 33.8% of restaurant sales for the  thirteen-week  period ended July 1, 1998
as compared with 34.5% of restaurant  sales for the  thirteen-week  period ended
July 2, 1997.  This decrease was primarily  attributable to the sale and closure
in 1997 and 1998 of restaurants operating 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,  or 3.1% of restaurant  sales, for the
thirteen-week  period ended July 1, 1998, as compared with $2.3 million, or 3.1%
of  restaurant  sales,  for the  thirteen-week  period ended July 2, 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
28.1% of  restaurant  sales for the  thirteen-week  period ended July 1, 1998 as
compared with 26.6% of restaurant sales for the thirteen-week  period ended July
2, 1997.  Excluding a $650,000 gain  relating to the sale of eleven  non-branded
restaurants in 1997, other operating costs expressed as a percentage of revenue,
would  have been 27.8%  This  increase  was  attributable  to higher  restaurant
operating costs associated with Black-eyed Pea restaurants.

         Restaurant  Operating Income.  Restaurant operating income decreased to
$4.6 million for the  thirteen-week  period ended July 1, 1998, as compared with
$6.4 million for the thirteen-week  period ended July 2, 1997. This decrease was
principally the result of the factors described above.

         Administrative Expenses.  Administrative expenses were $3.0 million, or
4.9% of restaurant sales, for the thirteen-week period ended July 1, 1998, which
is a decrease of $801,000 from $3.8 million,  or 5.0% of restaurant  sales,  for
the  thirteen-week  period ended July 2, 1997.  This decrease is attributable to
the sale of  certain  restaurants  during  1997 and  1998 and the  division  and
restructuring of administration  functions between the Company's  Black-eyed Pea
and Denny's restaurant concepts.

         Interest  Expense.  Interest  expense  was  $3.1  million,  or  5.0% of
restaurant  sales, for the  thirteen-week  period ended July 1, 1998 as compared
with $3.2 million,  or 4.2% of restaurant  sales, for the  thirteen-week  period
ended July 2, 1997.  The increase is the result of the  increase in  outstanding
capital lease obligations.

         Income Tax  Benefit.  The  Company  recorded  an income tax  benefit of
approximately  $487,000,  or an effective rate of 31.5%,  for the  thirteen-week
period ended July 1, 1998 as compared with an income tax

                                       8
<PAGE>
benefit of approximately $234,000, or an effective rate of 40%, for the thirteen
week period ended July 2, 1997.  In 1998,  the Company  established  a valuation
allowance of $135,000.

         Net  (loss).  The  Company  recorded a net loss of  approximately  $1.1
million for the thirteen  week period ended July 1, 1998 as compared  with a net
loss of $350,000 for the thirteen-week period ended July 2, 1997, as a result of
the factors described above.

TWENTY-SIX  WEEK PERIOD ENDED JULY 1, 1998 COMPARED WITH  TWENTY-SIX WEEK PERIOD
ENDED JULY 2, 1997

         Restaurant sales.  Restaurant sales decreased $17.4 million,  or 11.4%,
to $134.9 million for the twenty-six  week period ended July 1, 1998 as compared
with  restaurant  sales of $152.3 million for the  twenty-six  week period ended
July 2, 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  twenty-six  week  period  ended  July 1, 1998 as
compared with 27.2% of  restaurant  sales for the  twenty-six  week period ended
July 2, 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 34.1% of restaurant sales for the twenty-six week period ended July 1, 1998
as compared with 34.4% of restaurant  sales for the twenty-six week period ended
July 2, 1997.  This decrease was primarily  attributable to the sale and closure
in 1997 and 1998 of restaurants operating with higher payroll costs.

         Amortization  and   Depreciation.   Amortization  and  depreciation  of
restaurant equipment,  leasehold  improvements,  intangible assets,  pre-opening
costs and other items  decreased to 2.8% of restaurant  sales for the twenty-six
week period ended July 1, 1998 as compared with 3.0% of restaurant sales for the
twenty-six  week  period  ended July 2,  1997.  The  decrease  of  $860,000  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
27.5% of restaurant  sales for the twenty-six  week period ended July 1, 1998 as
compared with 27.3% of  restaurant  sales for the  twenty-six  week period ended
July 2, 1997.  Included in the 1998 and 1997  results are gains of $579,000  and
$650,000  respectively  relating  to the sale of  restaurants.  Excluding  these
gains,  other  restaurant  operating costs expressed as a percentage of revenue,
would  have been  27.9% and 27.7%  respectively.  This  increase  was  primarily
attributable  to  increased  restaurant  operating  costs  associated  with  BEP
restaurants.

         Restaurant Operating Income. Restaurant operating income decreased $1.4
million to $11.0  million for the  twenty-six  week period ended July 1, 1998 as
compared with $12.4 million for the  twenty-six  week period ended July 2, 1997.
This increase was principally the result of the factors described above.

         Administrative  Expenses.  Administrative expenses decreased to 4.5% of
restaurant  sales for the twenty-six  week period ended July 1, 1998 as compared
with 5.0% of restaurant sales for the twenty-six week period ended July 2, 1997.
This decrease is attributable to the sale of certain restaurants during 1997 and
1998 and the division and restructuring of administration  functions between the
Company's Black-eyed Pea and Denny's restaurant concepts.

                                       9
<PAGE>
         Interest  Expense.  Interest  expense  was  $6.5  million,  or  4.8% of
restaurant  sales, for the twenty-six week period ended July 1, 1998 as compared
with $6.4 million,  or 4.1% of restaurant  sales, for the twenty-six week period
ended  July 2,  1997.  The  increase  is the  result of the  increased  level of
long-term debt.

         Income Tax  Benefit.  The  Company  recorded  an income tax  benefit of
approximately  $504,000,  or an effective rate of 31.6%, for the twenty-six week
period ended July 1, 1998 as compared  with income tax benefit of  approximately
$626,000, or an effective rate of 40%, for the twenty-six week period ended July
2, 1997.  In 1998,  the Company  established  a valuation allowance of $135,000.

         Net Income  (Loss).  The Company  recorded net income of  approximately
$278,000,  after the extraordinary gain associated with the early extinguishment
of debt for the  twenty-six  week period ended July 1, 1998 as compared with net
loss of $939,000 for the twenty-six  week period ended July 2, 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 $40.4
million at July 1, 1998 and $36.4  million at  December  31,  1997.  The Company
believes that its current working capital deficit is consistent with the working
capital   position  of  restaurant   operators  of  similar  size.  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 during the remainder of 1998.

Net cash provided by (used in) operating  activities changed from ($2.3 million)
in the first  twenty-six  weeks of 1997 to  ($362,000)  in the first  twenty-six
weeks of 1998. This change is attributable to improved restaurant operations.

Net cash  provided by investing  activities  increased  from $2.2 million in the
first twenty-six weeks of 1997 to $24.6 million in the first twenty-six weeks of
1998. This change  primarily is attributable to the sale of certain  restaurants
in March 1998.

Net cash provided by (used in) financing  activities changed from ($1.4 million)
in the first  twenty-six  weeks of 1997 to ($23.5  million) in the first  twenty
six-weeks of 1998. Cash (used in) financing  activities arose primarily from 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  $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;

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<PAGE>
(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 $1.5 million;  and (iv)
repay certain equipment operating leases associated with the restaurants sold in
this transaction.  The Company has included the $2.4 million 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
designated cash flow  requirements.  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 July 1, 1998,  and has  reclassified  its senior  bank debt as  current.  The
Company  has not  received  waivers  but is  currently  working  with its senior
lenders to obtain such waivers.  Should the Company be unable to secure  waivers
the senior lenders could among other things accelerate its obligations, which as
of July 1, 1998 totaled approximately  $14.4  million.  The Company has received
commitments from several financing  sources,  the proceeds of which will be used
to retire  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.

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.

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<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

            On April 9, 1998,  the Company filed a Current Report on Form 8-K
            dated March 25,  1998,  as amended by Form 8-K/A filed on June 3,
            1998,  reporting  the sale of 63  Denny's  restaurants  and eight
            non-branded restaurants.

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<PAGE>
                                   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:  August 17, 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)


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