<PAGE>   1
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q



(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                 For the Quarterly Period Ended MARCH 27, 1999

                                       OR

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

Commission File Number   000-23353
                      ---------------------------------------------------------

                              Denali Incorporated
-------------------------------------------------------------------------------
                   (Exact Name of Registrant in its Charter)

           Delaware                                             76-0454641
-------------------------------------------------------------------------------
(State or Other Jurisdiction of                             (I.R.S. Employer
 Incorporation or Organization)                            Identification No.)

1360 Post Oak Blvd., Suite 2250, Houston, Texas                    77056
-------------------------------------------------------------------------------
  (Address of Principal Executive Officers)                      (Zip Code)

                                  713-627-0933
-------------------------------------------------------------------------------
              (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  
                                     -----    -----

As of April 30, 1999, the number of shares of common stock outstanding was
4,934,026.


<PAGE>   2

                              DENALI INCORPORATED
                 FORM 10-Q FOR THE QUARTER ENDED MARCH 27, 1999

                                     INDEX


<TABLE>
<CAPTION>
                                                                                                          Page No.
                                                                                                          --------

<S>               <C>                                                                                     <C>
Part I.           Financial Information

Item 1.           Financial Statements (Unaudited)

                  Consolidated Balance Sheets  ....................................................            1

                  Consolidated Statements of Operations............................................            2

                  Consolidated Statement of Stockholders' Equity  .................................            3

                  Consolidated Statements of Cash Flows ...........................................            4

                  Notes to Consolidated Financial Statements ......................................            5

Item 2.           Management's Discussion and Analysis of Financial Condition and
                  Results of Operations ...........................................................            9

Part II.          Other Information

Item 1.           Legal Proceedings................................................................           14

Item 2.           Changes in Securities & Use of Proceeds..........................................           14

Item 3.           Defaults Upon Senior Securities .................................................           14

Item 4.           Submission of Matters to a Vote of Security Holders..............................           14

Item 5.           Other Information ...............................................................           14

Item 6.           Exhibits and Reports on Form 8-K.................................................           14

Signatures        .................................................................................           17

Index to Exhibits .................................................................................           18
</TABLE>


<PAGE>   3

                         PART I. FINANCIAL INFORMATION

ITEM 1.       FINANCIAL STATEMENTS

                              DENALI INCORPORATED
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   March 27,        June 27,
                                                                                      1999            1998   
                                                                                  ------------    ------------
                                                                                  (Unaudited)        (Note)
                                           ASSETS                                        (In thousands)
<S>                                                                               <C>             <C>         
Current assets:
       Cash                                                                       $        107    $        175
       Accounts receivable, net of allowances of
              $877,000 at March 27, 1999 and $907,000
              at June 27, 1998                                                          24,219          23,465
       Inventories                                                                      15,665          10,489
       Prepaid expenses                                                                  2,085           1,152
       Deferred tax assets                                                               1,293           1,242
                                                                                  ------------    ------------
Total current assets                                                                    43,369          36,523
Property, plant and equipment, net                                                      21,917          20,270
Assets held for sale                                                                       449             449
Notes receivable                                                                           178             178
Goodwill, net                                                                           25,835          19,435
Deferred tax assets                                                                      1,947           1,947
Other assets                                                                             2,768           1,580
                                                                                  ------------    ------------
Total assets                                                                      $     96,463    $     80,382
                                                                                  ============    ============

                   LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:
       Accounts payable                                                           $     13,323    $     13,140
       Accrued liabilities                                                              10,025           7,180
       Income taxes payable                                                                 48             620
       Current maturities of long-term debt                                              2,000           1,442
                                                                                  ------------    ------------
Total current liabilities                                                               25,396          22,382
Long-term debt, less current maturities                                                 38,160          28,454
Other long-term liabilities                                                                728             872
Commitments and contingencies
Stockholders' equity:
       Common stock, $.01 par value
              Authorized shares - 30,000,000
              Issued and outstanding shares - 4,934,026 at
              March 27, 1999 and 4,828,743 at  June 27, 1998                                49              48
       Additional paid-in capital                                                       30,295          29,187
       Retained earnings (deficit)                                                       1,835            (561)
                                                                                  ------------    ------------
Total stockholders' equity                                                              32,179          28,674
                                                                                  ------------    ------------
Total liabilities and stockholders' equity                                        $     96,463    $     80,382
                                                                                  ============    ============
</TABLE>

                            See accompanying notes.

Note: The balance sheet at June 27, 1998 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.


                                       1

<PAGE>   4

                              DENALI INCORPORATED
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                Three months ended             Nine  months ended   
                                                             -------------------------     -------------------------
                                                             March 27,      March 28,      March 27,      March 28,
                                                                1999           1998           1999           1998   
                                                             ----------     ----------     ----------     ----------
                                                                    (In  thousands,  except  per share amounts)

<S>                                                          <C>            <C>            <C>            <C>       
Net sales                                                    $   36,328     $   21,587     $  110,216     $   68,480
Cost of sales                                                    27,667         17,302         82,649         53,634
                                                             ----------     ----------     ----------     ----------
Gross profit                                                      8,661          4,285         27,567         14,846
Selling, general and administrative expenses                      7,065          3,972         20,571         12,218
Non-recurring compensation expense                                   --             --            682          2,312
                                                             ----------     ----------     ----------     ----------
Operating income                                                  1,596            313          6,314            316
Interest expense                                                    925            209          2,210          1,302
Interest income                                                     (23)           (58)           (35)          (105)
Other income, net                                                   (66)           (52)          (173)          (278)
                                                             ----------     ----------     ----------     ----------
Income (loss) before income taxes                                   760            214          4,312           (603)
Income tax expense                                                  284             79          1,635            647
                                                             ----------     ----------     ----------     ----------
Net income (loss) before extraordinary item                         476            135          2,677         (1,250)
Extraordinary income (loss) on early extinguishment
  of  debt,  net of income tax                                     (281)           238           (281)           219
                                                             ----------     ----------     ----------     ----------
Net income (loss)                                                   195            373          2,396         (1,031)
Dividends on Series A Preferred Stock                                --             --             --            (30)
                                                             ----------     ----------     ----------     ----------
Net income (loss) attributable to common stock               $      195     $      373     $    2,396     $   (1,061)
                                                             ==========     ==========     ==========     ==========

Net income (loss) per common share - basic and diluted:
  Income (loss) before extraordinary item                    $     0.10     $     0.03     $     0.55     $    (0.38)
  Extraordinary item                                              (0.06)          0.05          (0.06)          0.07
                                                             ----------     ----------     ----------     ----------
  Net income (loss) per common share                         $     0.04     $     0.08     $     0.49     $    (0.31)
                                                             ==========     ==========     ==========     ==========
</TABLE>


                            See accompanying notes.


                                       2
<PAGE>   5

                              DENALI INCORPORATED
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                                 Common        Common                     Retained
                                                 Stock         Stock        Paid-In       Earnings       
                                                 Shares        Amount       Capital      (Deficit)        Total
                                               ----------    ----------    ----------    ----------     ----------
                                                                         (In thousands)

<S>                                            <C>           <C>           <C>           <C>            <C>       
Balance at June 27, 1998                            4,829    $       48    $   29,187    $     (561)    $   28,674

Issuance of common stock for acquisitions             105             1         1,108            --          1,109
Net income                                             --            --            --         2,396          2,396
                                               ----------    ----------    ----------    ----------     ----------

Balance at March 27, 1999                           4,934    $       49    $   30,295    $    1,835     $   32,179
                                               ==========    ==========    ==========    ==========     ==========
</TABLE>


                                       3

<PAGE>   6

                              DENALI INCORPORATED
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                     Nine months ended      
                                                                -------------------------
                                                                 March 27,      March 28,
                                                                   1999           1998    
                                                                ----------     ----------
                                                                       (In thousands)
<S>                                                             <C>            <C>        
OPERATING ACTIVITIES:
Net income (loss)                                               $    2,396     $   (1,031)
Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
       Non-recurring compensation expense                               --          2,312
       Depreciation                                                  1,813          1,027
       Amortization                                                    568            182
       Provision for losses on accounts receivable                     229             42
       Changes in operating assets and liabilities:
              Accounts receivable                                    1,273          5,327
              Inventories                                           (3,911)        (1,243)
              Prepaid expenses                                        (900)          (870)
              Other assets                                             279            (87)
              Accounts payable                                        (891)        (2,027)
              Accrued liabilities                                    1,652         (1,373)
              Income tax receivable/payable                           (572)           (20)
                                                                ----------     ----------
Net cash provided by operating activities                            1,936          2,239

INVESTING ACTIVITIES:
Acquisitions, net of cash acquired                                  (6,702)        (9,610)
Purchases of property, plant and equipment                          (1,718)        (1,748)
Proceeds from sale of property, plant and equipment and
   assets held for sale                                                 --            764
Payments on notes receivable                                            --            816
Purchases of equity securities                                          --           (310)
                                                                ----------     ----------
Net cash used in investing activities                               (8,420)       (10,088)

FINANCING ACTIVITIES:
Proceeds from common stock issuance                                     --         26,017
Proceeds from exercise of stock options                                 --            593
Redemption of preferred stock                                           --         (1,200)
Preferred stock dividends paid                                          --           (210)
Net payments under revolving lines of credit                        (1,403)       (10,465)
Net payments on term notes and other long-term debt                  9,559         (6,398)
Debt origination cost                                               (1,740)          (449)
                                                                ----------     ----------
Net cash provided by financing activities                            6,416          7,888

Increase (decrease) in cash                                            (68)            39
Cash at beginning of period                                            175            330
                                                                ----------     ----------
Cash at end of period                                           $      107     $      369
                                                                ==========     ==========
</TABLE>

                            See accompanying notes.


                                       4

<PAGE>   7

                              DENALI INCORPORATED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


1.     GENERAL

       The consolidated financial statements of Denali Incorporated and its
wholly-owned subsidiaries (the "Company") included herein have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. The Company
believes that the presentations and disclosures herein are adequate to make the
information not misleading. In the opinion of management, the consolidated
financial statements reflect all elimination entries and adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the interim periods.

       The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the full year. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes included in the
Company's Form 10-K filed with the Securities and Exchange Commission on
September 15, 1998.

2.     INVENTORIES

       Inventories are summarized below (in thousands):

<TABLE>
<CAPTION>
                                             March 27, 1999  June 27, 1998
                                             --------------  -------------

<S>                                            <C>              <C>      
       Finished goods                          $    8,159       $   4,748
       Raw materials                                5,042           4,289
       Work in process                              2,464           1,452
                                               ----------       ---------
                                               $   15,665       $  10,489
                                               ==========       =========
</TABLE>

3.     PER SHARE INFORMATION

       The following table sets forth the weighted average shares outstanding
for the computation of basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                                         Three months ended           Nine Months Ended    
                                                      ------------------------    ------------------------
                                                       March 27,     March 28,     March 27,     March 28,
                                                         1999          1998         1999           1998  
                                                      ----------    ----------    ----------    ----------
                                                                       (share data in thousands)

<S>                                                   <C>           <C>           <C>           <C>  
Weighted average common shares outstanding                 4,918         4,726         4,867         3,374
Dilutive securities - employee stock options                  --           113             2            --
                                                      ----------    ----------    ----------    ----------
Weighted average common shares outstanding
  assuming full dilution                                   4,918         4,839         4,869         3,374
                                                      ==========    ==========    ==========    ==========
</TABLE>




                                       5


<PAGE>   8

4.     LONG-TERM DEBT

       On October 24, 1997, the Company's subsidiaries entered into a senior
credit facility, as amended, with a bank to refinance its revolving and term
credit arrangements at its wholly-owned subsidiaries, Fluid Containment, Inc.,
Hoover Containment, Inc. and Ershigs, and to finance the acquisitions of
LaValley and SEFCO. This credit facility was amended and restated on March 23,
1998 and further amended on June 5, 1998 in connection with the Company's
acquisition of Fibercast. On October 29, 1998, this credit facility was amended
to increase the maximum revolving credit notes due in October 2002 from $23.0
million to $26.0 million. This facility also provided a maximum of $6.2 million
in term loans with equal monthly payments of $51,816 plus interest due in
October 2002 or upon the termination of the revolving credit notes. The
revolving credit notes provided for borrowings, at the Company's option, at
either the Bank's prime rate or varying rates of LIBOR plus a margin ranging
from 1.25% to 2.5%. Borrowings under the revolving credit notes were based on
accounts receivable and inventory as specified in the agreement's borrowing
base formula. The term loans provided for borrowings, at the Company's option,
at either the Bank's prime rate plus a margin ranging from 0% to .25% or
varying rates of LIBOR plus a margin ranging from 1.25% to 2.5%.

       On January 12, 1999, the Company entered into a new senior credit
facility with a group of lenders to refinance its revolving and term credit
arrangements mentioned above, to provide working capital, and to provide an
acquisition line of credit. This new senior credit facility provides for a
maximum of $20.0 million in revolving credit facility due in January 2004, and
a term loan up to $20.0 million with equal quarterly payments plus interest of
$500,000 the first year, $750,000 the second year, $1.0 million the third year,
$1.25 million the fourth year, and $1.5 million the fifth year. The credit
facility also provides for up to a $35.0 million acquisition term loan with the
first principal installment due 21 months following the closing of the credit
facility. As of March 27, 1999, the Company had outstanding indebtedness of
$20.0 million under the term loan, $12.0 million under the revolving lines of
credit and $6.1 million under the acquisition term loan. The new revolving
credit notes and term loans provide for borrowings, at the Company's option, at
either the lender's prime rate plus a margin of 1.75% or varying rates of LIBOR
plus 3.0%. The acquisition term loans provide for borrowing, at the Company's
option, at either the lender's prime rate plus a margin of 2.25% or at varying
rates of LIBOR plus 3.5%.

       This new senior credit facility provides availability for letters of
credit up to $10.0 million subject to availability of borrowing capacity under
the revolving credit notes. The new senior credit facility requires the Company
to maintain certain financial covenants and requires an annual fee of .50% on
the unused portion of the revolving credit notes and .75% on the unused portion
of the acquisition term loan. This new senior credit facility is secured by
substantially all of the assets of the Company's subsidiaries.

       Also, in connection with the extinguishment of its old revolving and
term credit arrangements upon funding of the new senior credit facility in
January 1999, the Company recorded an extraordinary charge of $454,000
($281,000 net of tax) related to unamortized debt origination costs.

5.     ACQUISITIONS

       In the current fiscal year, the Company finalized the working capital
adjustment related to the CC&E acquisition, which resulted in an additional
$202,000 payment to the seller. In addition, the Company acquired 100% of the
outstanding stock of a business for approximately $340,000, which extended the
geographical presence of SEFCO. On November 23, 1998, Denali Incorporated
completed the acquisition of 100% of the outstanding stock of Plasti-Fab Inc.
Located in Tualatin, Oregon, Plasti-Fab is a leader in providing
fiberglass-reinforced flumes and metering stations to the water and wastewater
industries. The pro forma effects of these acquisitions were immaterial for
disclosure.



                                       6


<PAGE>   9
       On February 3, 1999, Containment Solutions Inc. ("CSI"), a subsidiary of
Denali Incorporated, purchased 100% of the outstanding stock of Belco
Manufacturing Company, Inc. for approximately $4.7 million in cash (net of cash
and cash equivalents acquired), a $1.5 million seller note and $.5 million in
Denali Incorporated stock (44,417 shares) for a total of approximately $6.7
million. In addition, CSI acquired certain assets and assumed certain
liabilities of S. Jones Limited Partnership, an affiliate of Belco for
approximately $.4 million in cash (net of cash acquired). Belco is a
manufacturer of engineered fiberglass-reinforced plastic tanks, vessels, and
piping systems, and their products are primarily sold into the
water/wastewater, oil and gas, food processing and semi-conductor industries
where corrosion-resistant products are needed.

       The following unaudited results of operations have been prepared
assuming the acquisitions had occurred as of the beginning of the periods
presented. These results are not necessarily indicative of results of future
operations nor of results that would have occurred had the acquisitions been
consummated as of the beginning of the periods presented.

<TABLE>
<CAPTION>
                                                                             Nine months ended        
                                                                      -----------------------------
                                                                        March 27,        March 28,
                                                                          1999              1998     
                                                                      -----------       -----------
                                                                        (In thousands, except per
                                                                              share amounts)

<S>                                                                   <C>               <C>       
       Net sales                                                      $   118,419       $   99,436
       Net income (loss) before extraordinary item                    $     3,369       $   (2,576)
       Net income (loss)                                              $     3,088       $   (2,357)
       Net income (loss) per common share assuming dilution           $      0.63       $    (0.69)
</TABLE>

       On March 18, 1999, Denali  Incorporated  announced the signing of a
letter of intent under which Denali will acquire Welna N.V. for 37.00 Euros per
share, as well as assume approximately 11.5 million Euros in debt. The total
transaction is valued at approximately 53.5 million Euros, or U.S. $57.5
million including fees. The transaction is subject to approval by Welna N.V.
shareholders and other customary closing conditions. It is expected that the
transaction will be completed in early July 1999.

6.     COMMITMENTS AND CONTINGENCIES

       The Company utilizes fiberglass, resin and steel as the primary raw
materials in its production processes. Fiberglass is occasionally in short
supply and subject to price fluctuations in response to market demands. The
Company entered into a supply agreement with a major supplier, which requires
that the supplier provide and the Company purchase certain minimum volumes of
the Company's fiberglass requirements from the supplier. The contract expires
on December 31, 2000. In addition, the Company continues to negotiate with
other vendors to ensure a continued supply of fiberglass to meet the Company's
production needs. The Company is also a significant purchaser of resin and
steel. The Company does not depend upon any single supplier or source for steel
or resin requirements.

       The Company has not encountered any significant difficulty to date in
obtaining raw materials in sufficient quantities to support its operations at
current or expected near-term future levels. However, any disruption in raw
material supply or abrupt increases in raw material prices could have an
adverse effect on the Company's operations.

       The Company and its subsidiaries are, from time to time, subject to
various lawsuits and claims and other actions arising out of the normal course
of business. The Company is also subject to contingencies pursuant to
environmental laws and regulations that in the future may require the Company
to take action to correct the effects on the environment of prior manufacturing
and waste disposal practices. In management's opinion, recorded accruals for
environmental liabilities are appropriate based on existing facts and
circumstances. Under more adverse circumstances, however, this potential
liability could be higher. Current year expenditures were not material.


                                       7

<PAGE>   10

       While the effect on future results of these items is not subject to
reasonable estimation because considerable uncertainty exists, in the opinion
of management, the ultimate liabilities resulting from such claims will not
materially affect the consolidated financial position, results of operations or
cash flows of the Company.

       Upon the disability and subsequent resignation of Stephen T. Harcrow,
the Company's former president, during the second quarter of fiscal year 1999,
the Company has begun to make payments pursuant to the Salary Continuation
Agreement between the Company and Mr. Harcrow. The Company recognized a charge
of $682,000 in the second quarter of fiscal year 1999 as a result of Mr.
Harcrow's disability triggering the payments under the Salary Continuation
Agreement.

7.     SEASONALITY

       The Company's operating results are affected by the annual construction
season slowdown resulting from winter weather especially in the period December
through March. The underground fiberglass tank products are especially impacted
during the winter months. The Company believes that the effects of seasonality
will be less severe in the future, as the Company continues to expand and
diversify its product offerings.



                                       8

<PAGE>   11

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

OVERVIEW

       Denali Incorporated is a provider of products and services for handling
critical fluids, which are liquids, liquid mixtures, and slurries that are
economically valuable or potentially hazardous to the environment. The Company
is a manufacturer of fiberglass-composite, underground storage tanks ("USTs");
steel, aboveground storage tanks ("ASTs"); and engineered,
fiberglass-reinforced plastic-composite ("FRP") products for
corrosion-resistant applications.

       Since inception in 1994, the Company has acquired nine businesses. Due
to the magnitude of these acquisitions and the integration of the acquired
operations with the Company's existing businesses, results of operations for
prior periods are not necessarily comparable with or indicative of current or
future periods. Each of the acquisitions has been accounted for under the
purchase method of accounting. Accordingly, the acquired businesses have been
included in the Company's results of operations from the date of acquisition.

       A brief description of these acquisitions is as follows:

<TABLE>
<CAPTION>
       Acquired Company                  Date Acquired      Products
       ----------------                  -------------      --------

<S>                                      <C>                <C>
       Containment Solutions:
         Fluid Containment, Inc.         December 1994      Fiberglass USTs, oil/water separators,
                                                            manhole products
         Hoover Containment, Inc.        October 1995       Steel ASTs, lubricant storage tanks
         Plasti-fab Inc.                 November 1998      Fiberglass-reinforced flumes and metering
                                                            stations
         Belco Manufacturing Company,    February 1999      Engineered FRP tanks, vessels and piping
         Inc.                                               systems

       Specialty Solutions:
         Ershigs, Inc.                   February 1997      Engineered FRP products
         SEFCO, Inc.                     October 1997       Field erected aboveground steel tanks
         LaValley                        October 1997       Engineered FRP products
         CC&E                            May 1998           Field constructed FRP products
         Fibercast                       June 1998          FRP piping systems
</TABLE>

RESULTS OF OPERATIONS

Three months ended March 27, 1999 compared with three months ended March 28,
1998

         Net sales increased $14.7 million, or 68%, to $36.3 million in the
third quarter of fiscal 1999 from $21.6 million in the same quarter of fiscal
1998. A total of $4.4 million of the increase resulted from the inclusion of
Fibercast Company acquired in June 1998. The remaining $10.3 million increase
in sales resulted primarily from a 71% increase in sales at Containment
Solutions from $14.4 million in the fiscal 1998 period to $24.7 million in the
fiscal 1999 period due to strong demand for the Company's petroleum storage
tank products and $2.4 million related to the inclusion of Plasti-fab acquired
in November 1998 and Belco Manufacturing acquired in February 1999.



                                       9

<PAGE>   12

         Gross profit increased $4.4 million, or 102%, to $8.7 million in the
fiscal 1999 period from $4.3 million in the fiscal 1998 period. $1.0 million of
the increase was related to the addition of Fibercast with the remaining $3.4
million primarily derived from increased gross profit at Containment Solutions
including $761,000 related to the inclusion of Plasti-fab acquired in November
1998 and Belco Manufacturing acquired in February 1999. Gross margin for the
Company increased to 23.8% from 19.8% in the prior year quarter due in part to
an increase in the Containment Solutions gross margins to 24.5% in the current
fiscal period from 17.6% in the prior fiscal period. The margins at Containment
Solutions increased as a result of better raw material pricing, price increases
and manufacturing efficiencies primarily resulting from increased volumes at
its facilities. Also favorably impacting margins in the quarter was the
inclusion of the acquired companies with a combined gross margin of 26%.

         Selling, general and administrative expenses increased $3.1 million to
$7.1 million in the third quarter of fiscal 1999 from $4.0 million in the same
period last year. The increase is primarily attributable to additional expenses
associated with Fibercast, Plasti-fab and Belco Manufacturing and increased
sales and marketing expenses at Containment Solutions.

         The Company's provision for income taxes differs from the U.S.
statutory rate due to state income taxes and other permanent differences.

         The Company realized a gain of $384,000 in the 1998 fiscal quarter
from the prepayment of a supplier note. This transaction was recorded as an
extraordinary gain of $238,000 net of tax in the third quarter of fiscal 1998.
Also, in connection with the extinguishment of its old revolving and term
credit arrangements upon funding of the new senior credit facility in January
1999, the Company recorded an extraordinary charge of $454,000 ($281,000 net of
tax) related to unamortized debt origination costs in the third quarter of
fiscal 1999.

         Due to the above factors, net income attributable to common stock
decreased from $373,000, or $0.08 per diluted share, in the prior fiscal year
period to $195,000, or $0.04 per diluted share, in the current fiscal year
period. Earnings per share, excluding the extraordinary items, increased from
$0.03 in the fiscal 1998 period to $0.10 in the fiscal 1999 period on a diluted
basis.

Nine months ended March 27, 1999 compared with nine months ended March 28, 1998

         Net sales increased $41.7 million, or 61%, to $110.2 million in the
first nine months of fiscal 1999 from $68.5 million in the same period of
fiscal 1998. A total of $19.1 million of the increase resulted from the
inclusion of the LaValley and SEFCO companies acquired in October 1997 and
Fibercast acquired in June 1998. The remaining $22.6 million increase in sales
primarily resulted from a 43% increase in sales at Containment Solutions from
$51.1 million in the fiscal 1998 period to $73.2 million in the fiscal 1999
period due to strong demand for the Company's petroleum storage tank products
and $2.7 million related to the inclusion of Plasti-fab acquired in November
1998 and Belco Manufacturing acquired in February 1999.

         Gross profit increased $12.7 million, or 86%, to $27.6 million in the
fiscal 1999 period from $14.9 million in the fiscal 1998 period. $5.1 million
of the increase was related to the addition of Fibercast with the remaining
$7.6 million primarily derived from increased gross profit at Containment
Solutions including $865,000 related to the inclusion of Plasti-fab acquired in
November 1998 and Belco Manufacturing acquired in February 1999. Gross margin
for the Company increased to 25.0% from 21.7% in the prior year period due in
part to an increase in the Containment Solutions gross margins to 25.2% in the
current fiscal period from 20.2% in the prior fiscal period. The margins at
Containment Solutions increased as a result of better raw material pricing,
price increases and manufacturing efficiencies primarily resulting from
increased volumes at its facilities. Also favorably impacting margins in the
quarter was the inclusion of the acquired companies with combined gross margins
of 27%.


                                       10

<PAGE>   13

         Selling, general and administrative expenses increased $8.4 million to
$20.6 million for the first nine months of fiscal 1999 from $12.2 million in
the same period last year, excluding the $682,000 non-recurring compensation
charge taken in the second quarter of fiscal 1999 and the $2.3 million
compensation charge taken in the first quarter of fiscal 1998. The increase is
primarily attributable to additional expenses associated with the acquired
companies and increased sales and marketing expenses at Containment Solutions.

         The Company recognized a $682,000 non-recurring compensation charge in
the second quarter of fiscal 1999 related to a salary continuation agreement
and a $2.3 million non-recurring compensation charge in the first quarter of
fiscal 1998 due to the exchange of subsidiary stock options for Denali stock
options.

         The Company's fiscal 1998 provision for income taxes differs from the
U.S. statutory rate due to the non-recurring compensation charge, state income
taxes and other permanent differences. The Company's fiscal 1999 provision for
income taxes differs from the U.S. statutory rate due to state income taxes and
other permanent differences.

         As a result of the Company refinancing its credit facilities in
October 1997, the Company paid prepayment penalties of $323,000 and charged to
expense unamortized debt organization costs of $299,000. In addition, the
Company realized gains of $591,000 and $384,000 in November 1997 and March
1998, respectively, from the prepayment of a supplier note. As a result of
these transactions, the Company incurred a net extraordinary gain of $353,000
($219,000 net of tax) in the first nine months of fiscal 1998.

         In connection with the extinguishment of its old revolving and term
credit arrangements upon funding of the new senior credit facility in January
1999, the Company recorded an extraordinary charge of $454,000 ($281,000 net of
tax) related to unamortized debt origination costs in the fiscal 1999 period.

         Due to the above factors, net income attributable to common stock in
the first nine months of fiscal 1999 was $2,396,000, or $0.49 per diluted
share, compared with a net loss of $(1,061,000), or $(0.31) per diluted share,
in the prior year nine month period. Net income and earnings per diluted share
for the first nine months of fiscal 1999 before the compensation charge of
$682,000 ($423,000 net of tax) were $3,100,000 and $0.64, respectively, before
the extraordinary item. Net income and earnings per diluted share for the first
nine months of fiscal 1998 before the $2.3 million non-recurring compensation
charge were $1,062,000 and $0.30, respectively before the extraordinary item.

LIQUIDITY AND CAPITAL RESOURCES

         Working capital at March 27, 1999 was $18.0 million, as compared to
$14.1 million at June 27, 1998. Cash provided by operating activities for the
nine months ended March 27, 1999 was $1.9 million compared to $2.2 million for
the same period last year. The decrease in cash provided by operating
activities is primarily a result of improved earnings offset by an increase in
accounts receivable due to increased sales volume during the first nine months
of fiscal year 1999. Capital expenditures were $1.7 million for each of the
nine month periods reported.

         On January 12, 1999, the Company entered into a new senior credit
facility with a group of lenders to refinance its revolving and term credit
arrangements, to provide working capital, and provide an acquisition line of
credit. This new senior credit facility provides for a revolving line of credit
and a secured term loan of up to an aggregate of $75.0 million, including an up
to $35.0 million acquisition term loan. Borrowings under this credit facility
are secured by liens on substantially all of the Company's assets. See Note 4
of Notes to the Consolidated Financial Statements for certain information
regarding the credit facility. The new revolving credit facility and term loan
provide for borrowings, at the Company's option, at either the Bank's prime
rate plus a margin of 1.75% or varying rates of LIBOR plus 3.0%. The
acquisition term loan provides for borrowing, at the Company's option, at
either the Bank's prime rate plus a margin of 2.25% or at varying rates of
LIBOR plus 3.5%. The credit facility has a five-year term expiring in January
2004.


                                       11

<PAGE>   14

         As of March 27, 1999, the Company had outstanding indebtedness of
$20.0 million under the term loans, $12.0 million under the revolving lines of
credit, and $6.1 million under the acquisition term loan. Also, the unused
portion of the revolving line of credit and acquisition line of credit was $6.0
million and $28.9 million, respectively, at March 27, 1999.

         The Company's capital requirements primarily relate to acquisitions of
businesses in the critical fluids handling industry. The Company has made cash
payments net of cash acquired for acquisitions of approximately $53.8 million
in the aggregate since inception in December 1994. The source of this cash
primarily has been bank debt along with proceeds from the sale of idle assets
and use of cash provided by operations.

       On March 18, 1999, Denali Incorporated announced the signing of a letter
of intent under which Denali will acquire Welna N.V. for 37.00 Euros per share,
as well as assume approximately 11.5 million Euros in debt. The total
transaction is valued at approximately 53.5 million Euros, or U.S. $57.5
million including fees. The transaction is subject to approval by Welna N.V.
shareholders and other customary closing conditions. It is expected that the
transaction will be completed in early July 1999. The sources of the purchase
price for Welna are expected to include senior bank financing, privately placed
equity and subordinated notes.

         The Company intends to seek additional capital as necessary to fund
future acquisitions through one or more funding sources that may include
borrowings under the acquisition term loan of the new credit agreement, or
offerings of debt and/or equity securities of the Company. Cash provided by
operating activities may also be used to fund a portion of future acquisitions.
Although management believes that the Company will be able to obtain sufficient
capital to fund acquisitions, there can be no assurances that such capital will
be available to the Company at the time it is required or on terms acceptable
to the Company.

IMPACT OF  YEAR 2000 ISSUES

         Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.

         The Company has completed the assessment of its computer software,
hardware and other systems, including embedded technology, relative to year
2000 compliance for subsidiaries owned at the beginning of fiscal 1999. The
Company plans to complete the same assessment for operations acquired to date
by July 1999. The Company is currently updating some of its software and
hardware in order to improve the timeliness and quality of its business
information systems. A byproduct of these improvements includes year 2000
compliant software in certain operating subsidiaries that otherwise are not
year 2000 compliant today. The Company's fiscal year 2000 begins July 4, 1999.
Thus, our financial/accounting software may need to be year 2000 compliant by
that date. Software selection at these subsidiaries has been completed and
implementation has begun with anticipated completion ranging from March 1999 to
June 1999. With this schedule, the year 2000 issue is not expected to pose
significant operational problems for the Company's computer systems. Because
conversions for business reasons are leading to year 2000 compliance, the
Company does not expect significant incremental expense for year 2000
compliance.




                                       12

<PAGE>   15

         The Company plans to complete its assessment of key vendors, customers
and other third parties by the end of fiscal year 1999 in order to assess the
impact, if any, on the Company's business operations. This timing is planned
for both existing operations and acquisitions completed to date. The Company
does not anticipate that any interruptions in its customers' operations
resulting from year 2000 issues will have a material impact on the Company's
operations or financial results. With respect to suppliers, the Company relies
on several key suppliers for resin and fiberglass used in its operations, and
interruptions in these suppliers' operations resulting from year 2000 problems
could impact the Company's operations and financial results. However, there are
alternative suppliers for these materials, and the Company anticipates that it
would be able to obtain sufficient raw materials to continue to conduct its
business.

         Because the Company anticipates that it will complete its year 2000
remediation efforts in advance of December 31, 1999, it has not made any
contingency plans with respect to its operations and systems. However, if the
software changes and modifications of existing software are not made, or are
not completed timely, the year 2000 issue could have a material impact on the
operations of the Company. With respect to key suppliers, the Company has begun
to identify potential alternative suppliers of raw materials in the event that
its key suppliers suffer business interruptions as a result of year 2000
problems.

INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

         This Form 10-Q contains certain forward-looking statements as such
term is defined in the Private Securities Litigation Reform Act of 1995 and
information relating to the Company and its subsidiaries that are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words, "anticipate", "believe", "estimate", "expect" and "intend"
and words or phrases of similar import, as they relate to the Company or its
subsidiaries or Company management, are intended to identify forward-looking
statements. Such statements reflect the current risks, uncertainties and
assumptions related to certain factors including, without limitations,
competitive factors, general economic conditions, customer relations,
relationships with vendors, the interest rate environment, governmental
regulation and supervision, seasonality, distribution networks, product
introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein. Based upon
changing conditions, should any one or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended.



                                       13

<PAGE>   16

                           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

       On March 2, 1999, the Company appointed Richard W. Volk and Edward de
Boer to the board of directors of the company. Mr. Volk was also elected
chairman of the board of directors.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K.

         A.       Exhibits

                  10.40*   Credit Agreement (the "New Credit Agreement") among
                           Denali Incorporated, Canadian Imperial Bank of
                           Commerce, as administrative agent, and ING (U.S.)
                           Capital LLC, as documentation agent, dated as of
                           January 12, 1999

                  10.41    Stock Purchase Agreement dated February 3, 1999 by
                           and between Steve Jones, Belco Manufacturing Company,
                           Inc. and Containment Solutions, Inc. (incorporated by
                           reference to the Company's Form 8-K dated February 
                           18, 1999)

                  10.42    Asset Purchase Agreement dated February 3, 1999 by
                           and between Tiger Trucking LLC, S. Jones Limited
                           Partnership and Containment Solutions, Inc.
                           (incorporated by reference to the Company's Form 8-K
                           dated February 18, 1999)

                  10.43*   Term Note pursuant to the New Credit Agreement 
                           between Denali Incorporated and Bank of Oklahoma N.A.
                           dated January 12, 1999

                  10.44*   Form of Term Note pursuant to the New Credit
                           Agreement between Denali Incorporated and each of
                           Key Corporate Capital Inc., ING (U.S.) Capital LLC,
                           and CIBC Inc. dated January 12, 1999

                  10.45*   Acquisition Loan Note pursuant to the New Credit 
                           Agreement between Denali Incorporated  and Bank of 
                           Oklahoma N.A. dated January 12, 1999

                  10.46*   Form of Acquisition Loan Note pursuant to the New
                           Credit Agreement between Denali Incorporated and
                           each of Key Corporate Capital Inc., ING (U.S.)
                           Capital LLC, and CIBC Inc. dated January 12, 1999


                                       14

<PAGE>   17
                  10.47*   Revolving Credit Note pursuant to the New Credit
                           Agreement between Denali Incorporated and Bank of 
                           Oklahoma N.A. dated January 12, 1999

                  10.48*   Form of Revolving Credit Note pursuant to the New
                           Credit Agreement between Denali Incorporated and
                           each of Key Corporate Capital Inc., ING (U.S.)
                           Capital LLC, and CIBC Inc. dated January 12, 1999

                  10.49*   Pledge Agreement dated January 12, 1999 between
                           Denali Incorporated, Containment Solutions Services,
                           Inc., Instrumentation Solutions, Inc., Denali
                           Management Inc., Denali Holdings Management, L.L.C.,
                           Denali Operating Management, Ltd., Containment
                           Solutions, Inc., Specialty Solutions, Inc., Ershigs,
                           Inc., SEFCO, Inc., Fibercast Company, Plasti-fab
                           Inc. and Canadian Imperial Bank of Commerce, as
                           administrative agent and issuing lender

                  10.50*   Security Agreement dated January 12, 1999 between
                           Denali Incorporated, Containment Solutions Services,
                           Inc., Instrumentation Solutions, Inc., Denali
                           Management Inc., Denali Holdings Management, L.L.C.,
                           Denali Operating Management, Ltd., Containment
                           Solutions, Inc., Specialty Solutions, Inc., Ershigs,
                           Inc., SEFCO, Inc., Fibercast Company, Plasti-fab
                           Inc. and Canadian Imperial Bank of Commerce, as
                           administrative agent and issuing lender

                  10.51*   Guarantee dated January 12, 1999 between Containment
                           Solutions Services, Inc., Instrumentation Solutions,
                           Inc., Denali Management Inc., Denali Holdings
                           Management, L.L.C., Denali Operating Management,
                           Ltd., Containment Solutions, Inc., Specialty
                           Solutions, Inc., Ershigs, Inc., SEFCO, Inc.,
                           Fibercast Company, Plasti-fab Inc. and Canadian
                           Imperial Bank of Commerce, as administrative agent
                           and issuing lender

                  10.52*   Form of Assignment and Acceptance Agreement pursuant
                           to the New Credit Agreement between Denali
                           Incorporated and Canadian Imperial Bank of Commerce,
                           as administrative agent and each of Key Corporate
                           Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc.
                           dated March 15, 1999

                  10.53*   Term Note pursuant to the New Credit Agreement
                           between Denali Incorporated and Southwest Bank of
                           Texas, N.A. dated March 15, 1999

                  10.54*   Form of Term Note pursuant to the New Credit
                           Agreement between Denali Incorporated and each of
                           Key Corporate Capital Inc., ING (U.S.) Capital LLC,
                           and CIBC Inc. dated March 15, 1999

                  10.55*   Acquisition Note pursuant to the New Credit Agreement
                           between Denali Incorporated and Southwest Bank of
                           Texas, N.A. dated March 15, 1999

                  10.56*   Form of Acquisition Note pursuant to the New Credit
                           Agreement between Denali Incorporated and each of
                           Key Corporate Capital Inc., ING (U.S.) Capital LLC,
                           and CIBC Inc. dated March 15, 1999

                  10.57*   Revolving Credit Note pursuant to the New Credit 
                           Agreement between Denali Incorporated and Southwest
                           Bank of Texas, N.A. dated March 15, 1999

                  10.58*   Form of Revolving Credit Note pursuant to the New
                           Credit Agreement between Denali Incorporated and
                           each of Key Corporate Capital Inc., ING (U.S.)
                           Capital LLC, and CIBC Inc. dated March 15, 1999


                                       15
<PAGE>   18

                  27*      Financial Data Schedule

---------------
*  Filed herewith

         B.       Reports on Form 8-K

                  A Form 8-K was filed with the Commission on February 18, 1999
                  announcing the acquisition of Belco Manufacturing Company,
                  Inc.



                                       16

<PAGE>   19

                                   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.


                                            Denali Incorporated
                                            -------------------
                                                (Registrant)




Date: May 11, 1999                          /s/ R. Kevin Andrews
                                            -----------------------------------
                                            R. Kevin Andrews
                                            Chief Financial Officer
                                               (Principal Financial Officer and
                                                Principal Accounting Officer)



                                       17

<PAGE>   20

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number              Description of Exhibit
------              ----------------------

<S>                 <C>
10.40*              Credit Agreement (the "New Credit Agreement") among Denali
                    Incorporated, Canadian Imperial Bank of Commerce, as
                    administrative agent, and ING (U.S.) Capital LLC, as
                    documentation agent, dated as of January 12, 1999

10.41               Stock Purchase Agreement dated February 3, 1999 by and
                    between Steve Jones, Belco Manufacturing Company, Inc. and
                    Containment Solutions, Inc. (incorporated by reference to
                    the Company's Form 8-K dated February 18, 1999)

10.42               Asset Purchase Agreement dated February 3, 1999 by and
                    between Tiger Trucking LLC, S. Jones Limited Partnership
                    and Containment Solutions, Inc. (incorporated by reference
                    to the Company's Form 8-K dated February 18, 1999)

10.43*              Term Note pursuant to the New Credit Agreement between
                    Denali Incorporated and Bank of Oklahoma N.A. dated January
                    12, 1999

10.44*              Form of Term Note pursuant to the New Credit Agreement
                    between Denali Incorporated and each of Key Corporate
                    Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated
                    January 12, 1999

10.45*              Acquisition Loan Note pursuant to the New Credit Agreement
                    between Denali Incorporated and Bank of Oklahoma N.A. dated
                    January 12, 1999

10.46*              Form of Acquisition Loan Note pursuant to the New Credit
                    Agreement between Denali Incorporated and each of Key
                    Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC
                    Inc. dated January 12, 1999

10.47*              Revolving Credit Note pursuant to the New Credit Agreement
                    between Denali Incorporated and Bank of Oklahoma N.A. dated
                    January 12, 1999

10.48*              Form of Revolving Credit Note pursuant to the New Credit
                    Agreement between Denali Incorporated and each of Key
                    Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC
                    Inc. dated January 12, 1999

10.49*              Pledge Agreement dated January 12, 1999 between Denali
                    Incorporated, Containment Solutions Services, Inc.,
                    Instrumentation Solutions, Inc., Denali Management Inc.,
                    Denali Holdings Management, L.L.C., Denali Operating
                    Management, Ltd., Containment Solutions, Inc., Specialty
                    Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
                    Company, Plasti-fab Inc. and Canadian Imperial Bank of
                    Commerce, as administrative agent and issuing lender

10.50*              Security Agreement dated January 12, 1999 between Denali
                    Incorporated, Containment Solutions Services, Inc.,
                    Instrumentation Solutions, Inc., Denali Management Inc.,
                    Denali Holdings Management, L.L.C., Denali Operating
                    Management, Ltd., Containment Solutions, Inc., Specialty
                    Solutions, Inc., Ershigs, Inc., SEFCO, Inc., Fibercast
                    Company, Plasti-fab Inc. and Canadian Imperial Bank of
                    Commerce, as administrative agent and issuing lender
</TABLE>

                                       18

<PAGE>   21

<TABLE>
<S>                 <C>                     
10.51*              Guarantee dated January 12, 1999 between Containment
                    Solutions Services, Inc., Instrumentation Solutions, Inc.,
                    Denali Management Inc., Denali Holdings Management, L.L.C.,
                    Denali Operating Management, Ltd., Containment Solutions,
                    Inc., Specialty Solutions, Inc., Ershigs, Inc., SEFCO,
                    Inc., Fibercast Company, Plasti-fab Inc. and Canadian
                    Imperial Bank of Commerce, as administrative agent and
                    issuing lender

10.52*              Form of Assignment and Acceptance Agreement pursuant to the
                    New Credit Agreement between Denali Incorporated and
                    Canadian Imperial Bank of Commerce, as administrative agent
                    and each of Key Corporate Capital Inc., ING (U.S.) Capital
                    LLC, and CIBC Inc. dated March 15, 1999

10.53*              Term Note pursuant to the New Credit Agreement between
                    Denali Incorporated and Southwest Bank of Texas, N.A. dated
                    March 15, 1999

10.54*              Form of Term Note pursuant to the New Credit Agreement
                    between Denali Incorporated and each of Key Corporate
                    Capital Inc., ING (U.S.) Capital LLC, and CIBC Inc. dated
                    March 15, 1999

10.55*              Acquisition Note pursuant to the New Credit Agreement
                    between Denali Incorporated and Southwest Bank of Texas,
                    N.A. dated March 15, 1999

10.56*              Form of Acquisition Note pursuant to the New Credit
                    Agreement between Denali Incorporated and each of Key
                    Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC
                    Inc. dated March 15, 1999

10.57*              Revolving Credit Note pursuant to the New Credit Agreement
                    between Denali Incorporated and Southwest Bank of Texas,
                    N.A. dated March 15, 1999

10.58*              Form of Revolving Credit Note pursuant to the New Credit
                    Agreement between Denali Incorporated and each of Key
                    Corporate Capital Inc., ING (U.S.) Capital LLC, and CIBC
                    Inc. dated March 15, 1999

27*                 Financial Data Schedule
</TABLE>

--------------

*    Filed herewith



                                       19